20080822Report, Recommendations.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
POBOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 1895
');.. 1.. ()-." l..
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
ISLAND PARK WATER COMPANY, INC. FOR )
AUTHORITY TO INCREASE ITS RATES AND )
CHARGES FOR WATER SERVICE )
)
)
)
CASE NO. ISL-W-08-1
REPORT AND
RECOMMENDATIONS OF
THE COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Scheduling and Notice of Public Hearing issued on July 18,2008 in Case No. ISL-W-08-1,
submits the following report and recommendations.
BACKGROUND
On March 26,2008, Island Park Water Company, Inc. (Island Park; Company) fied an
Application with the Idaho Public Utilities Commission (Commission) requesting a 124%
increase in rates, from $125 per year to $280 per year. Island Park is a regulated water utilty
operating under Certificate of Public Convenience and Necessity No. 317.
STAFF REPORT AND
RECOMMENDATIONS 1 AUGUST 22, 2008
Island Park contends that an increase in rates is necessar to meet increased operating
expenses, including the higher cost of electricity, lab fees for testing water, labor and materials for
repairs and maintenance to the pumps and water lines. The Company's existing rates were
established in July 1992.
The service area of Island Park is comprised of seven separate water systems with twelve
wells located within five subdivisions in Fremont County, Idaho, just west of Yellowstone
National Park. These subdivisions were developed in the 1970's and Island Park Water Company
was formed in 1975. No water system layouts and as-built construction plans are available; only
the plats for various subdivisions were provided by the Company.
The water systems in all five subdivisions were originally designed for summer/seasonal
use. However, year round occupancy has been increasing recently and year-round recreational
weekend use has also been increasing substatially. The subdivisions - Shotgun North, Shotgun
South, Aspen Ridge, Goosebay and Valley View - are a mix of developed lots with temporar or
permanent structures, lots with primitive facilities which may only include water service, and raw
land with no services or improvements. Each subdivision has the potential for new customers to
be added as the unimproved lots are developed.
Staff toured the water facilties on June 10, 2008, with Dave Benton, former manager of
the Company, Mike Bischoff, newly-appointed General Manager and Director, and Bil Warer,
certified operator and newly appointed director of the reorganized Company with general
maintenance duties. In addition to the system tour, Commission Staffhas conducted financial
audits at the Company offce in Idaho Falls.
Staff analysis and recommendations in this case are based on the recent audits and the tour
of the facilties conducted by the Staff during investigation of this rate case and Commission
Staff s audit of the Company in 2006, which included a financial audit, on-site visit to all system
locations, a customer surey sent to all customers listed on the Company's biling records, and
interviews with management. The 2006 audit was conducted to determine the financial and
operational condition of the Company and the need for future investment and improvements to
ensure continued operation of the Company. Staffs investigation in 2006 was prompted in par
by customer complaints and by the expressed desire on the par of the owners to sell the
Company. The results of the 2006 audit were reviewed by Staff as par of this rate case to assist
the Company in developing a strategy for continued viabilty and for improving relations between
STAFF REPORT AND
RECOMMENDATIONS 2 AUGUST 22, 2008
the Company and its customers. The 2006 customer surey questions asked whether the
customer's property was occupied year-round, summer or winter only, weekends or vacations
thoughout the year, or never. Surey responses indicate that usage on the par of the customers is
increasing in lengt and frequency. In some subdivisions, the increased usage in terms of the
number of visits, the length of stay, and frequency of visits has put strains on system capacity.
SYSTEM DESCRIPTION
All the Company's wells are cased with 6-inch diameter steel pipe with the exception of
Aspen Ridge wells, which are cased with 8-inch diameter pipe. Most wells are drilled at an
average depth of 90 feet. All the wells are equipped with submersible pumps with motors mostly
rated at 3 or 5-hp. Only three of the 13 wells are equipped with a flow meter. Each of the wells
has either or both bladder tye pressure tans and/or steel storage and pressure tas. The actul
storage capacities are unown, but relatively small, ranging from a few hundred gallons to no
more than 2,000 gallons. The pump controls, pressure gauges, pressure tans and related
appurenances are located in underground concrete cisterns with steel covers. The electric control
panels are generally mounted on electric poles about 15 feet away from the concrete pits. The
main and distribution lines vary in size from 6 inches to 1 ~ inches. The systems appear to be
poorly-maintained. There are no meters, no isolation valves, no shut-off valves leading to
customer service lines and no flushing hydrants in the mains or at dead ends of the branch lines.
It is not possible to work on any par of a system without shutting down the entire system.
According to the 2006 audit, some of the systems' main and branch lines were installed using
thin-wall irrigation pipes and some mainline pipes were installed at a shallow depth of 18 inches.
A sumar of each systems water supply is presented in Attachment A.
Shotgun North
This subdivision consists of 156 lots, and curent Fremont County records show that 68
lots have structures and 86 lots have no improvements. In 2006, eighty-four (84) sureys were
mailed to customers within the subdivision and forty-five (45) were completed and retured to the
Commission. Of those responding, eleven (11) customers indicated they resided there year
around, twelve (12) customers indicated they were seasonal residents and twenty (20) customers
indicated that they were weekend residents. The main piping in the system is located in the road
STAFF REPORT AND
RECOMMENDATIONS 3 AUGUST 22, 2008
and is less than 18 inches deep in some places. The increased use of the area in winter and the
subsequent removal of snow from the roadbed creates a situation where the pipes may freeze due
to lack of insulation. The system piping is undersized for the growing demand although adequate
for its original purose as a summer use system. There are three wells located within the
subdivision of which one has been abandoned. Neither of the operating wells have flow meters.
Shotgun South
This subdivision consists of approximately 225 lots. County records show that 115 lots
have improvements and 110 lots have no improvements. In 2006, one hundred-fourteen (114)
sureys were mailed to customers within the subdivision and seventy-two (72) sureys were
completed and retured to the Commission. Of those responding eleven (11) customers indicated
that they resided there year around, twenty one (21) customers indicated they were seasonal
residents and thirty-seven (37) customers indicated they were weekend residents.
The Shotgun South water system consists of two separate pars, although the subdivision
is contiguous. Sections of this water distribution system are also shallow (18-24 inches) and
located under the roads. The larger section (170 lots) is served by two wells with bladder tans to
help maintain pressure and have attached chlorination systems. There is an additional
(Chickasaw) well #1 that is not yet in service. The site includes a well head cistern and a small
shed for chlorination equipment. The smaller section (55 lots) is served by two wells. Only one
of the wells has a flow meter, and none of the services have meters or shut-off valves.
Aspen Ridge
Aspen Ridge consists of 250 lots. County records show that 98 have improvements and
152 lots are without improvements. In 2006, forty-six (46) surveys were mailed to customers
within the subdivision and twenty-six (26) surveys were completed and returned to the
Commission. Of those responding, five (5) customers indicated they resided there year around,
nine (9) customers indicated they were seasonal residents and eleven (11) customers indicated
they were weekend residents. This subdivision shows the largest discrepancy between customer
count and the number of improved lots.
The water system has two wells of similar construction. One has a buried steel pressure
ta; the other has two 100 gallon bladder type pressure tas. The system appears to be
STAFF REPORT AND
RECOMMENDATIONS 4 AUGUST 22, 2008
fuctioning properly and the subdivision has not been a source of customer complaints. One of
the two wells is metered, and none of the services have meters or shut-off valves.
Goosebay
The Goosebay subdivision is located on a peninsula in Henr's Lake and consists of 146
lots. County records show that 44 lots have strctures with 102 unmproved lots. In 2006, fifty
(50) sureys were mailed to customers within the subdivision and twenty-five (25) sureys were
completed and retued to the Commission. Of those responding, none of the customers indicated
they resided there year around, thirteen (13) customers indicated they were seasonal residents and
nine (9) customers indicated they were weekend residents.
There are 3 well lots in Goosebay; only 2 of the lots have a well driled on them. Well
No.1, (Goosebay) has a bladder ta for pressure maintenance. Well NO.2 (Goosebay East) has
a buried steel pressure tan. The water table in the area is high due to the lake's proximity. Each
well is capable of providing 80 to 100 gpm at an acceptable pressure. Given that the subdivision
is nowhere near built-out, the capacity is likely to be suffcient most of the time if both wells are
operable. The system appears to be functioning well and the subdivision has not been a major
source of customer complaints. Neither of the two wells are metered and none of the services
have meters or shut-off valves.
Valley View
Valley View Subdivision is near Henr's Lake offHwy 20, and has 56 lots. County
records show 18 have improvements and 38 lots have no improvements. In 2006, nine (9)
sureys were mailed to customers within the subdivision and five (5) sureys were completed and
returned to the Commission. Of those responding, one (1) customer stated that they resided there
year around and.four (4) customers indicated they were weekend residents.
There are two separate wells and due to the higher elevation of some lots, the system also
has a 2-hp booster pump to increase operating pressure. One of the two wells is metered and none
ofthe services have meters or shut-off valves. This system was the subject of a recent customer
complaint regarding a service outage and delayed response from the Company.
STAFF REPORT AND
RECOMMENDATIONS 5 AUGUST 22, 2008
NUMBER OF CUSTOMERS
Data from the Fremont County Assessor's Office indicates that there are 833 lots located
within the five subdivisions. The Company indicated when filing its Application that there were
310 customers. In 2006, the Commission mailed 303 sureys based on the Company-supplied
customer mailng list at that time. In response to Staffs Production Request Nos. 6 and 7, the
Company indicates there are 324 service connections, with 228 customers' lots having homes and
96 customers' lots without homes. Some lots without structures have frost-free above-ground
hydrants. The total number of customers biled in 2007 was 324. However, it appears that the
number of customers may not include all those who are actually taing water service. Some
customers have complained to the Commission that not all of the new people who hooked up to
the systems are being charged. In an attempt to verify the number of customers, Staff obtained
the number of improved lots in all of the subdivisions as recorded at the Assessor's Offce in
Fremont County. There are 343.
As indicated in Attachment B, there are more lots that have some type of permanent
improvements than there are customers, which may indicate some of the propert owners might
be getting water supply from the system without being biled by the Company. Furhermore, it is
possible that lot owners without any type of improvements made on the propert may have
connected to the water system without the knowledge or authorization of the Company. Staff
believes that the total number of customers actually connected to and getting water from the
system is greater than the number of customers being biled by the Company.
In the absence of a more accurate count of the actual number of customers taing water
from the systems, Staff is using a customer count of 334 in calculating the total revenue from the
Staff proposed tariffs. If a significant difference from this number of customers is confirmed, an
adjustment of rates might be necessar. This number (334) is ten more than the Company's latest
biling but less than the total number of lots with improvements (343).
Staff notes that the Company recently has initiated an effort to identify customers who are
actually connected to the systems by obtaining an aerial map of Fremont County. The Company
plans to correlate lot improvements shown on the map with a ground surey. Staff recommends
that the Company complete this effort for each subdivision to determine the actual number of
customers with water connections to their dwellngs or above ground frost-free hydrants.
STAFF REPORT AND
RECOMMENDATIONS 6 AUGUST 22, 2008
REVENUE REQUIREMENT ANALYSIS
Audit
Staff examined the books and records of the Company for the fiscal year ending
December 31, 2007, and months through June of2008. The expenses incured by the Company
during 2007 were used as the basis for determining the operating expenses used to determine
rates. Staff examined the 2007 expenses and is recommending adjustments to the 2007 level of
expenditues.
Rate Base
The Company did not have any recorded rate base on its books. Staff reviewed the
Company's financial records for the years 2005, 2006, 2007 and 2008 for any expenditue
incured by the Company that should be classified as rate base. The only expenditures Staff
found that should be classified as rate base occured in 2008 for well improvements.
Improvements were made to the Shotgun North East well, the Valley View #1 well and electrical
upgrades to the Chickasaw well #2 in the Shotgun South subdivision. The total of these rate base
expenditues is as follows:
Shotgun North East well
Valley View #1 well
Chickasaw well #2
Sub-total
Metering of wells
Total
$ 7,799
$ 7,759
$ 1,625
$17,183
$10,000
$27,183
Utilities are entitled to ear a retur on rate base investments. The Commission has
consistently allowed small water utilities to ear a rate of retu of 12%. Case No. DIA-W-07-1,
Order No. 30455; Case No. MNV-W-06-1, Order No. 30420. Additionally, depreciation expense
is allowed on the rate base. The improvements included in rate base are for new pumps and
motors and the electronics associated with the new motors. A proforma adjustment for the
metering of all the wells has been made. The average useful life for a well motor and pump is ten
(10) years, thus a composite depreciation rate on rate base in this case is 10%. The anual
depreciation expense is $2,718.
The retur on rate base is computed on the total rate base less accumulated depreciation.
A 12% retur will provide the Company the opportunity to ear a retu amount of $2,936. See
STAFF REPORT AND
RECOMMENDATIONS 7 AUGUST 22, 2008
Attachment C. This amount must be grossed up for the payment of taes resulting in the $3,738
as shown on Attchment D. Therefore, Staff recommends the grossed-up retur on rate base of
$3,738 be included in the revenue requirement.
Expenses
The Company incured expenses of $70,226 in 2007. Staff reviewed all of the Company's
expenditures and determined that these expenses were all related to the operation of the water
company with one exception. The Company expended the amount of $975 for a non-recuring
expense with its accountant.
Attachment E sets forth a detailed comparson of the Company's 2007 expenses of
$70,226 in Column a and Staffs recommendations for the level of expenditures to be included in
the anual revenue requirement in Colum d. Staff accepted some 2007 expense levels as
appropriate for determining the anual revenue requirement. Those expense categories are
accounting, water testing, real estate taxes, other taxes, PUC fees, and DEQ fees.
Staff is recommending adjustments to the other expense categories and wil explain each
of those recommendations below: See Attchment E, Colum c.
1. Labor: The Company has in the past been managed by Ed Strobel and David Benton.
Mr. Strobel has ceased being involved and has indicated to the Commission that he is no
longer an active member of the management. David Benton has been the active manager
of the water company and his wife was the bookkeeper and main contact person. Staff in
previous contacts with the Company has encouraged Mr. Benton to accept a plan to
change the management, and he has agreed that a change would be beneficial for the
customers and the Company. Labor costs in the past was a monthly retainer paid to Mr.
Benton in the amount of $800; a monthly retainer paid to Mrs. Benton in the amount of
$500; and an hourly wage of$15.00 per hour paid to Bil Warer for his services as the
system operator.
The total amount paid to these individuals in 2007 was $20,222. On August 1,
2008, a new management team accepted the control and management of the Company.
The management team consists of Mike Bischoff as a director and general manager, Bil
Warer as a director and system operator; and Roger Buchanan as a director. Mr. Warer
will continue operating the water system but wil be spending more time doing so. Mr.
STAFF REPORT AND
RECOMMENDATIONS 8 AUGUST 22, 2008
Bischoff is an engineer who worked with Mr. Benton and has leared how to manage the
system from Mr. Benton. Mr. Buchanan is an owner of Andrews Drillng, one of the
primary service and repair providers for the Company.
The compensation each wil receive is detailed in Attachment F entitled Labor
Work Sheet. Each wil receive a directors' fee in the amount of $1 00 per directors'
meeting for four (4) director meetings per year for a total of$I,200 anually in director
fees. Mr. Bischoff and Mr. Warer wil each receive a monthly base salar of $500. This
monthly base for Mr. Bischoff will be payment for the first 17 hours of the month with
additional hours beyond the base hours compensated at the rate of$35.00 per hour. The
monthly base payment for Mr. Warer covers the first 25 hours of the month with
additional hours beyond the base hours compensated at the rate of $20.00 per hour. Mr.
Buchanan wil not receive any compensation except for his services as a director.
The Company estimates that during eight (8) months of the year (slow period) Mr.
Bischoff and Mr. Warer will not work more hours than the base hours; and that during
the other four (4) months of the year (busy period) Mr. Bischoff will work an average of
40 hours per month and Mr. Warer wil work an average of 80 hours per month. Based
upon these assumptions, the total compensation, not including director's fees, paid to Mr.
Bischoff included in the revenue requirement wil be $9,220 and paid to Mr. Warer wil
be $10,400. Therefore, the total compensation paid to the new management team will be
$1,200 in director fees and $19,620 in compensation. See Attchment F.
2. Bookkeeping: Mrs. Benton has in the past provided the bookkeeping services for the
Company. She was also the primar person to receive phone calls. She was paid $500 per
month for that service. The Company has now contracted with Bobby Warner (wife of
Mr. Warer) to do all of the bookkeeping for $300 per month. This is a reasonable
amount for the bookkeeping service as compared to what the Company would be required
to pay to an unrelated third party for the same service. Total bookkeeping costs Staffhas
included in the revenue requirement is $3,600.
3. Legal: The Company has not recorded any legal fees in 2007. The Company will
incur legal fees in the future for the director meetings. An hourly rate of $175 per hour for
STAFF REPORT AND
RECOMMENDATIONS 9 AUGUST 22, 2008
the four meetings is a reasonable expense to include in the revenue requirement. Total
legal costs in the revenue requirement is $875.
4. Engineering: The Company has a need for engineering services to help determine
what the most pressing needs are for the wells and system in general. The amount
recommended by Staff is for 16 hours of engineering services at the rate of $125 per hour
for an anual amount of $2,000. These services would help the Company determine what
improvement projects the Company should do and in what order those projects should be
done.
5. Professional Fees: The Company expended $975 for accounting services that were not
related to the continuing operation of the Company. Therefore, Staff has not included any
amount in the anual expenses for this expenditure.
6. Rent for Office Space: The Company has been housed at the building owned by
Benton Engineering and will continue to use that building as its registered address. It has
not in the past compensated Benton Engineering for any rent. The building is a good
location for the Company's business operation and is not an extravagant facilty. The
building is approximately 3,000 square feet and houses two other businesses: an
engineering company and a sewer company. The Company wil use one office space of
about 125 square feet and have full access to use the common areas. Rents in the area for
commercial property are in the range of $.85 to $1.25 per square foot per month. A
reasonable rent for the Company on a monthly basis is $1.00 per square foot for the office
area and an additional $150 per month for the common areas and services, including
utilties. Total rent is $275 per month, or $3,300 per anum.
7. Power Costs: Power costs are estimated to be constat at the 2007 leveL. The
Company receives its power from Fall River Co-op. There is no indication that power
rates for the co-op wil increase. The Company does not expect any significant growth in
customers; and finally, the Company anticipates being able to offset any potential power
increase by managing future power costs with better maintenance on the wells and the
STAFF REPORT AND
RECOMMENDATIONS 10 AUGUST 22, 2008
delivery system. Therefore, the total cost for power is left constant at the 2007 amount of
$15,441.
8. Telephone: One of the most persistent complaints received from the customers was
the inability to contact the Company. The Company has not had a dedicated telephone
line solely for the water company. Staff, therefore is recommending that the Company be
allowed to recover the cost of a dedicated phone line and an answering service with 24-
hour service. All calls would be immediately forwarded to either Mr. Bischoff or Mr.
Warer. The total cost for a dedicated line and the answering service is estimated to be
$1,620.
9. Insurance: The Company hasn't had liabilty insurance for its well site lots. The
Company has obtained insurance to protect itself against the risks it is exposed to by
ownership of the well site lots. The anual premium for this coverage is $600. The new
individuals on the management team have asked the Company to provide board of director
liabilty insurance. This protects the individual directors from personal liabilty for acts
that they may be liable for in their capacity as directors of the Corporation. The anual
premium for this policy is $900.
10. Offce Supplies: The Company expended $205 in 2007 for office supplies. The
Company did not have any recorded expenditure for paper, stamps, or computer supplies.
The anual expense for office supplies should include the reasonable cost for these
supplies. Staff estimated that the reasonable amount necessar for offce supplies to bil
and service more than 300 customers is $750.
11. Maintenance on Wells: The condition of the wells and pumping structues is in need
of attention and additional maintenance. In 2007, the Company expended $22,917. This
amount was necessary to maintain the wells but additional expenditures will be required
for futue maintenance on the wells. Staff is recommending $25,000 be included in the
revenue requirement as a reasonable amount to maintain the wells.
12. General Repairs and Maintenance: The expenditures in this category are for repairs to
the delivery system. The transmission and distribution system is old, not buried deep
STAFF REPORT AND
RECOMMENDATIONS 11 AUGUST 22, 2008
enough and in general disrepair. The Company spent $5,432 in 2007 to fix leaks and
broken pipes. Staff recommends that this amount be increased by $568 to $6,000 for
future repairs.
13. Metering Wells: Staff is recommending that a number of system improvements be
made. The first of these improvements is metering of all the wells. The Company has
estimated that the cost to complete the metering will be $10,400. Staff is recommending a
proforma adjustment to rate base of $10,000 for this metering.
14. Depreciation Expense: With Staffs recommendation that the Company recognize rate
base as described above, depreciation expense on rate base has been calculated. This
expense is included in the anual expenses. Staff recommends that the composite
depreciation rate be 10%. Therefore, Staff has included anual depreciation expense of
$2,718.
Revenue Requirement
Staff s calculation of the proposed revenue requirement for the Company is shown on
Attchment C. The Company's net rate base of $24,465 produces a retu of $2,936 at the
recommended rate of retur of 12%. This return must be grossed-up to account for federal and
state taxes on this revenue. The net to gross multiplier is 127.3%. When the gross-up factor is
applied to the retur of $2,936, the revenue requirement for the retu is $3,738. When this
amount is added to the annual expenses of $88,665 (Attchment D), Staff calculates the
Company's total revenue requirement at $92,403. See Attchment D.
RATE DESIGN
The Company fied an Application with the Commission on March 26, 2008 to increase its
rates from $125.00 per year to $280.00 per year because the curent tarff does not cover the
expenses of operating the water systems. The Company proposes to maintain a flat rate for all
types of customers, whether they are full-time, or par-time customers. None ofthe customers are
metered.
Several customers commented on rate design issues. One of the expressed concerns is
perceived inequities in charges between par-time and full-time customers. Some par-time
STAFF REPORT AND
RECOMMENDATIONS 12 AUGUST 22, 2008
residents suggested that they should be paying less compared to the customers who are full-time
residents. Other customers outside the Shotgun subdivisions indicated that they do not have many
water system problems. These customers felt that they should only be paying for the water
systems expenses associated with their own subdivision.
The Company is faced with many challenges when allocating the total revenue
requirement equitably among its customers. Traditional ratemaking procedures and policies
assume that an individual (household) should not pay for a commodity they do not receive. When
a customer uses more water, that customer should be paying more for that water compared to the
other customers who use less. However, it is impossible to apply this policy to small water
systems like Island Park that are unetered and where the mix of par-time and full-time
customers is ever changing and is diffcult to determine.
In Staff s review of rate design, the concerns of the par-time customers and the concern of
customers outside the Shotgun subdivisions were considered. Staff reviewed the concept of
designing a flat rate for par-time or full-time customers. This issue was addressed for the
Ponderosa Estate Water System in Commission Order No 29086. In that Order, the Commission
approved a rate structure that charged part-time and full-time customers the same amount:
Although some customers testified or commented that par-time customers use
less water and therefore should pay less than full-time customers, we find it
reasonable to charge both groups the same rate because Ponderosa would
otherwse have difficulty ascertaining which customers were in residence so
as to differentiate between full-time and par-time status.
Order No. 29086, page 10
Staff continues to recommend that the Company use 334 as the total number of customers
connected to the water systems and that it make no distinction between par-time and full-time
customers in rate design. On that basis, two rate design options were analyzed by Staff:
. Option 1 - Flat rate option, single taiff for the entire system (all systems and
subdivisions)
. Option 2 - Flat Rate option, multiple tarffs (one for each system and subdivision)
STAFF REPORT AND
RECOMMENDATIONS 13 AUGUST 22, 2008
Option 1 - Flat rate option, Single Tariff
With this option, the entire revenue requirement is allocated to all 334 customers in the
various water systems serving five subdivisions. As discussed previously, there was no
differentiation among customers whether they are par-time or full-time users or whether there
were improvements on the lot or not. The total revenue requirement of $92,403 was used in the
design. This methodology results in a uniform rate of$280/year for all systems. This is Staffs
recommended rate option.
Option 2 - Flat Rate Option, Multiple Tariffs
With this option, individual tariffs were designed for each individual water system serving
a specific subdivision, including Shotgun South, Shotgun North, Aspen Ridge, Goosebay and
Valley View. Operation costs, such as management and biling, that are not attributable directly
to a specific system were prorated to all the water systems base on the number of customers.
Using this approach, Staff developed the revenue requirements for each system as follows:
Water System
Shotgun South
Shotgun North
Aspen Ridge
Goosebay
Valley View
Total
No. of Customers
135
80
52
54
-D
334
Revenue Requirements
$34,425
$17,600
$16,588
$14,850
$ 8,957
$92,420
Annual Flat Rate
$255
$220
$319
$275
$689
Under this option, the system receiving the largest increase is Valley View water system.
This is mainly a result of economy of scale. Fewer customers shouldering the cost of operating a
very small system that serves customers at various higher elevations. The power usage alone in
2007 for Valley View was 16,994 kwh with 13 customers compared to Shotgun North power
usage of 17,383 kwh serving 78 customers. As shown here, allocation of costs to the individual
systems results in considerable differences between the systems. Future improvements and
expenses that are made would result in volatilty in the rates over time.
On the other hand, the melded rate under Option 1 provides greater stabilty in the rates.
Option 1 is also seen as equitable. The smaller systems are in better shape but lack the economy
of scale. In time, every system wil require some major expense and the melded rate enables both
the Company and the customers to better deal with these costs. Lastly, Option 1 avoids the
STAFF REPORT AND
RECOMMENDATIONS 14 AUGUST 22, 2008
difficulty of trying to separately track all the costs. For these reasons, Staff is recommending
Option 1, a uniform rate of $280/year for all customers in all of the systems.
A comparison of the curent rate, the Company's proposed rates and Staffs proposed rates
for Options 1 and 2 are presented in the Rate Analysis table in Attchment G. As presented in the
table, the additional amount customers would pay for Option 1 (Single Tariff) is approximately
$155 per customer per year or 124% increase. For Option 2, the increase would have varied from
approximately $95 (76%) to $564 (451 %).
OTHER OPERATIONAL AND MAINTENANCE ISSUES
As noted earlier, there are 13 wells operated by the Company supplying water to the
varous Subdivisions. Two of these wells were observed by Staff to have flow meters. Staff
requested that the Company provide monthly water production records on these two wells. The
Company only provided one initial reading on July 5, 2008 and another reading on July 14,2008.
Staff is concerned about the limited reading made on these two flow meters and the absence of
flow meters on other operating wells. Staff stresses the importnce of collecting well production
data and the installation of flow meters in all the remaining wells. This will provide a good base
of well water production data, which could be used in managing the system especially since
individual customer meters are not installed. For example, water production in one month that is
significantly higher than the same month in a previous year could indicate system leakage subject
to repair by the Company. It could also mean the presence of ilegal hook-ups, if the Company is
not aware of any additional customers connected to the system. After discussing this issue with
the Company personnel, a cost estimate and proposal to install these meters was submitted to
Staff.
It was found during the course of Staff investigation that the Aspen Ridge water system
has an expired water permit application for two wells. A similar problem was discovered with the
Chickasaw well which was recently driled to provide additional water source for Shotgun South
Subdivision. Apparently, the new well was driled without any filed water right permit
application. Staff notified the Company of this deficiency and the Company immediately filed
the necessary water permit applications.
Several customers have indicated that the water they receive is of poor quality. Staff
contacted the IDEQ-Idaho Falls to verify the water quality issues in Island Park water system.
STAFF REPORT AND
RECOMMENDATIONS 15 AUGUST 22, 2008
Staff was informed that the public water systems operated by Island Park including Shotgun
Nort, Shotgun South, Aspen Ridge and Goosebay Subdivisions are currently meeting Idaho's
water quality standards for public water systems.
Several customers have submitted comments to the Commission indicating that some lines
freeze up durng winter and consequently water service is interrpted. The Company dealt with
this issue in the past by advising customers to keep some amount of water ruing throughout the
winter to prevent freeze-up problem. Staff notes that the water system was originally designed
for sumer use and that most of the distribution lines were not built to engineering standards to
withstand winter weather operations. In order to bring the system to acceptable engineering
standards and be able to supply water to customers all year-round, extensive engineering study
and infusion of large capital for reconstruction of the various systems would be required. These
i
costs would be shouldered by the ratepayers resulting in large rate increases. Staff recomrfends
that the Company deal with the frozen line issues on a case by case basis. This means thatl the
Company must identify problem areas where the freeze up problems occur and make the I
necessary repairs when weather permits. :
!
In an effort to improve water quality, the Company plans to install 2-inch hydrants Ion the
i
end of the distribution lines. Staff agrees with the Company that installng larger diameterl
I
hydrants will increase the flow rate during flushing, thereby ultimately improving the quaily of
!
water delivered to customers. Staff recommends that the Company implement a plan to regularly
flush all main and distribution lines.
SERVICE INTERRUPTIONS
Durng an area visit by Staff and Company personnel, the Company responded to ~ service
outage call from a customer in the Goosebay subdivision. While responding, it found a crlw
making a new service connection without prior notification to the Company or other custo~ers in
!
the area. A visit to several of the different systems' well locations showed evidence offotced
entry to the well head cisterns, with missing or broken padlocks or the nuts securing the stfel
i
covers to the underground cement cisterns had been removed and were missing. These ¡
unauthorized system shut-offs not only disrupt service to customers but create a potential ~ealth
Irisk if the system loses too much pressure. The Company has installed an alar system inl some
wells, which consists of a red flashig light and a siren. The Company is also in the PlOcets of
STAFF REPORT AND !RECOMMENDATIONS 16 AUGUST2l2008
constrcting a sign close to the alar system which provides a phone number of the Company to
call. The intent is that if the alar is triggered by an unauthorized shutting off the pump, nearby
customers can call the Company to take care of the problem. Staff believes that this is a way to
improve services and respond more effciently and expeditiously to the problem of shut-off of
pumps by unauthorized persons. Ths system wil stil depend on customers callng the Company
to let it know the alar has sounded and respond to the problem. Staff recommends that the
Company complete the installation of the alar systems and signage in all its operating well
pumps.
NON-RECURRNG CHARGES
Customer comments and the 2006 audit indicate that the Company had biled customers
for non-recurring charges that have not been previously authorized by the Commission. While
many of these charges have been approved by the Commission for use by other small water
companies they have not been requested by Island Park or authorized by the Commission. Staff
recommends that the Company be authorized to establish the non-recuring charges described
below to allow it to recover costs and ensure the safety and integrity of the system.
CUSTOMER CONNECTIONS
When the Company fied its Application for rate increase, it did not submit a proposal for
hook-up fees for new customers or a charge for customers who have connected to the system
without Company approvaL. In its response to Staffs Production Request No. 12, the Company
indicates that it wants customers to continue to install their own connections and line extensions.
Although water companies typically require customers to install their own service lines, it is
unusual to expect customers to connect to the utilty's system or construct an extension of the
Company's lines. The Company's policy increases the possibility of potential contamination of
the system if connections are not completed properly. It has also contributed to the problem of
connections being made without the Company's knowledge or authorization, since there was no
requirement that customers notify the Company and/or request connection. The installation of
line extensions and connections by a customer or a customer's contractor does not relieve the
Company of its responsibilty to ensure the integrity of the system and the safety of its customers.
STAFF REPORT AND
RECOMMENDATIONS 17 AUGUST 22, 2008
Staff recommends that the Company devise and implement a process requiring customers to
notify the Company of the need to make a new connection or extend a main line.
Staff recommends that the Company develop and implement a procedure to respond to
calls for new service and the need for temporary system shut-offs. Staff also recommends that the
Company work with new and existing customers and area contractors to install or replace shut-off
valves on customer connections whenever possible. Staff recommends that the Company post
signs at all well head locations with contact information and that it send a letter to all area
contractors with contact information to discourage unauthorized persons from terminating or
interrpting service.
HOOK-UP FEE
Staff believes that it is fair and reasonable for the Company to require a new customer
requesting service to pay the Company for a hook-up service fee. It is also important to require a
meter box and shut-off valve on all new connections. The service fee for new hook-ups would
entail cost to the Company for locating mainline/distribution lines, shutting off and turing on
pumps, notifying customers of pump shutdowns due to connections, inspection of proper
connections to the main, and inspection of the installation of a customer meter boxes and shut-off
valves. Including travel time and expense, this would require approximately six hours of
Company time. Assuming the rate of $25 an hour plus travel expense, the cost to the Company of
the hook-up service is about $200. Staff recommends that a hook-up service fee of $200 per
connection be charged and included in the Company's tariffs. It would stil be the responsibilty
of the customer to pay the costs for the contractor to tap the Company's distribution line, install
the service line and install a customer shut-off valve in a meter box near the customer's property
line.
The Company should also be allowed to collect charges when a customer hooks up a
service line to the Company's system without notification or authorization. Staff believes that it
is appropriate for the Company to collect a reasonable charge for the cost of verifying and
inspecting the interconnection after the fact to assure it meets the specifications and stadards of
the Company. This cost to the Company could entail locating the service line and area of
connection, hiring a contractor to dig up the area of connection, inspecting the connection,
replacing the connection if not installed according to specifications, installng a customer shut-off
STAFF REPORT AND
RECOMMENDATIONS 18 AUGUST 22, 2008
valve if the customer has not installed one, and backfilling trenches. Going forward, Staff
proposes this hook-up fee be assessed for unauthorized connections and for customers who have
no shut-off valve and who were more than 15 months past due in their service bil. Staff
recommends that a cost of $1,100 per connection be charged and included in the tarff to incent
new customers to notify the Company prior to interconnection and to enable the Company to
collect on water bils that are grossly overdue.
RECONNECTION CHARGE
The revised tarff submitted by the Company includes a reconnection charge based on
time and material and the amount of the past due balance. However, in response to Staffs
Production Request No. 14, the Company specified a $1,500 reconnection fee to include the cost
of installation of a meter and shut-off valve for those customers who may be disconnected for
non-payment.
Staff recognizes the need for shut-off valves to enforce collection of overdue bils.
However, for bils that are a few months overdue the process of having to dig up a supply line and
customer cutout to install a shut-off valve in order to disconnect for non-payment is time-
consuming and is not a cost-effective method for the Company to use for collection of past due
accounts. Such actiön would only make sense when a bil is grossly overdue. Therefore, Staff
recommends that the Company be allowed to recover the cost of installng a shut-off valve
($1,100) where a customer is more than 15 months past due, has no shut-off valve, has been
properly noticed and has refused to make payment arangements. However, where there is a shut-
offvalve, Staff believes the reconnect fee should be based on recovering the cost of sending
personnel into the field to reconnect service when water service has been terminated or
discontinued and water physically tued off. This charge is stadard for many small water
utilties and Staff suggests $20.00 for reconnection during normal business hours and $40.00 for
reconnection before or after normal business hours due to the remoteness of the service areas.
Staff also recommends the installation of shut -off valves on existing connections at the Company
expense as the opportunity arises to minimize the time and expense of disconnection and
reconnection in the futue.
STAFF REPORT AND
RECOMMENDATIONS 19 AUGUST 22, 2008
LATE PAYMENT CHARGE
Late payment charges encourage a more timely payment and allow the Company an
opportnity to recoup the costs of collection of unpaid bils. Since the Company sends its bils
out in May of each year, the prompt payment of bils maximizes cash flow durng the time of year
when maintenance and repairs are mostly likely to be completed. While the Company did not ask
for a late payment charge Staff recommends a late payment charge of 12 percent per anum or
1 % monthly on the unpaid balance. Staff also recommends that the Company initiate a system of
sending reminder notices on unpaid accounts on a monthly basis in an attempt to collect an
unpaid balance and war customers of the possibilty of disconnection due to non-payment.
CUSTOMER RELATIONS
A review of the 2006 audit by Staff figures prominently in the findings and
recommendations of this rate case. Comments gathered from customers during the public
workshops and complaints received indicate that many of the issues and concerns from 2006 have
not been resolved and continue to this day. The 2006 audit and customer complaints and
comments indicate that the biggest concern is the lack of an appropriate and timely response on
the par of the Company to customer calls. Customers also expressed the need for accurate
Company contact information, citing disconnected numbers and inabilty to locate Company
contact information. An informal complaint in July 2008, in which the customer stated that he
had been out of water two weeks with no response from the Company prior to contacting the
Commission, is fuher evidence of the ongoing problem. After being contacted by Staff, it took
the Company another week to investigate the problem and complete repairs. The customer in this
complaint had been having repairs done to his residence and the customer and the work crew
were without water for drinkng or restroom facilties. Another customer in the same area called
the Commission to report the same outage after discovering no service when they came up for a
visit.
The Company has agreed to set up a phone line to the offices of Benton Engineering in
Idaho Falls and calls may also be forwarded to both Mike Bischoff and Bil Warer. The
dedicated number will have capabilty of recording and retrieving customer messages received at
that number after normal business hours. This will improve the abilty of the Company to
dispatch personnel to investigate customer's problems and perform maintenance in a timely
STAFF REPORT AND
RECOMMENDATIONS 20 AUGUST 22, 2008
maner. Staff recommends that the Company directly answer calls received during normal
business hours, Monday through Friday between 8:00 am and 5:00 pm and that calls received
after normal business hours up to 10:00 pm either be answered by Company personnel or
monitored and a callback made if requested by customers paricularly in the case of an
emergency. Calls placed to the Company after 10:00 pm need to be responded to the following
workday. Since many of the customers utilze their properties on weekends, Staff recommends
that Company personnel be available to respond on weekends in case of emergencies.
The closest employees geographically to the systems are Bil & Bobby Warner, who are
curently located in Ashton, which is a minimum of 45 minutes from the nearest system
(Shotgun) and close to an hour away from the furthest system (Goosebay). The commuting time
and distance from the systems and weather conditions could create delays and prevent a quick
respönse in case of emergencies. Staff is concerned that there will not be an on-site Company
employee or representative and recommends that the Company devise a method to respond to
emergencies in a more timely maner.
CUSTOMER NOTIFICATION
In order to reduce the effects of service interrptions for the purose of maintenance or
installation of new connections, Staff recommends that the Company give written advance notice
to all affected customers regarding any scheduled events where the customer's service must be
interrpted. Staff recommends that in situations where unscheduled repairs canot be completed
quickly due to the availability of pars and/or equipment that the Company provide written or
verbal notification of the status of repairs to the affected customer( s) if possible and maintain an
updated message on its telephone answering machine, voice mailbox, and/or answering service to
keep customers advised of the status of repairs
NOTICE OF RATE INCREASE
The Company provided notice of the proposed rate increase in a letter dated March 25,
2008 that accompanied its 2008 biling. These documents meet the requirements of the Utilty
Customer Information Rules (UCIR), IDAP A 31.21.02000 et seq. A press release was not filed
with the original application as required by the UCIR, although the Company later sent copies of
aricles published in the Island Park News on April 18th, April 25th, May 2nd, and May 23rd.
STAFF REPORT AND
RECOMMENDATIONS 21 AUGUST 22, 2008
Public notification for the workshop was also done by the Commission through a Press Release.
About sixty (60) people attended the workshop. In addition, the Commission has received over
forty (40) wrtten comments to date.
GENERAL RULES AND REGULATIONS
The Commission's suggested model General Rules and Regulations for Small Water
Utilties was used by the Company when it submitted its original application as par of its Tariff.
Staff is willing to assist the Company in updating its Tarff and Rules and Regulations to bring it
into compliance. Staff can provide a sample Tariff, including the General Rules and Regulations
for Small Water Utilties in electronic format for ease of editing.
RULES SUMMARY
The Utilty Customer Relations Rules (UCRR), IDAPA 31.21.01000 et seq. requires that
the Company send out a copy of its rules summar on an anual basis to all its customers. The
Company has not done this in the recent past. Staff is wiling to provide a sample copy of the
rules sumary in electronic format and recommends that the Company send to customers a copy
with its updated biling statements and on an annual basis thereafter to comply with the
Commission's rules.
BILLING DOCUMENTATION
The Company bils on an anual basis for the period from June 1 st through May 31 st of the
following year and sent out its 2008 biling in March based on curent rates. Following issuance
of an order in this case, it wil bil the customers prorated the difference between the old rate and
the new rate. The Company's curent biling statements meet the requirements of the UCRR.
However, Staff recommends that the Company update all documentation sent to customers to
include the contact information for the Company as required under the rules.
COMPLAINT RECORDS
The Company is required to maintain a record of all customers callng to complain or
request a conference under the guidelines of the UCRR. Because of the lack of response on the
par of the Company to customer complaints and in order to allow verification of a timely
STAFF REPORT AND
RECOMMENDATIONS 22 AUGUST 22, 2008
response to customer calls, Staff recommends that the Company establish and maintan a Call Log
in addition to the required Complaint Record and make these documents available to Staff for
review. The Call Log should contain at a minimum the Customer name and contact number, date
and time of call, reason for call, date and time that the Company responded to a message left on
the line, and the action taken in response to calL.
RECOMMENDATIONS
Staff recommends:
The Company's rate base be set at $27,183.
The Company be authorized to ear 12% as a reasonable rate of return on rate base.
The Company's anual operation and maintenance expenses be set at $88,665.
The total revenue requirement for the Company be established at $92,403.
That an anual rate of $280 be approved by the Commission for all customers.
The Company install meters on all wells.
The Company require shut-off valves on all new services.
The Company verify the number of customers.
The Commission acknowledges the change in organizational structue and staffing as a
means to improve the operations of the Company and as well as customer relations.
The Company follow through on the installation of a dedicated phone line and implement
an effective system for timely response to customer requests for service, reports of outages and
leaks, and other customer contacts. The phone line should be answered during normal business
hours Monday through Friday except Holidays. Provisions should also be made for responding to
emergencies outside of normal business hours.
The Company develop and implement a process requiring customers to notify the
Company of the need to make a new connection or extend a main line.
The Company revise its tarffs, including its General Rules and Regulations, to comply
with Commission requirements.
The Company update all customer bils, notices and required documents to include contact
information and to post contact information at all Company wells and systems locations.
The Company update its Rules Sumar with contact information and its approved rates
and charges and send to all customers now and anually as required by the UCRR.
STAFF REPORT AND
RECOMMENDATIONS 23 AUGUST 22, 2008
The Company maintain a record of complaints and requests for conference as required by
the UCRR. Staff also recommends that the Company maintain a call log and for the purpose of
verification of Company responses make it available for Staff review.
Approval of the following non-recurring charges: · a reconnection charge of $20 for
normal business hours and $40 for other than normal business hours, · a late payment charge of
12% per anum (1 % per month), · a hook-up fee of $200 to cover the Company expense for
inspection of a new connection, and · hook-up fee of $1,100 to recover costs of connections and
shut-off valves following an unauthorized connection of service or grossly overdue bils.
~
Respectfully submitted this Ò d. day of August 2008.
Technical Staff: Joe Leckie
Gerr D. Galinato
Chris Hecht
i:umisc:commentslislw08.lswjlggcwh
STAFF REPORT AND
RECOMMENDATIONS 24 AUGUST 22, 2008
Water Systems Data
Island Park Water Co.
ISL-W-08-01
Water Well Name Well Well Well Design Prod.Alarm
System or or Depth Pump Pump Press. at Flow Installed
Sub-Designation (ft)Cap.Size Pump Meter
division (~pm)(hp)(psi)(Yes/No)(Yes/No)
Shotgun Stevens 80 25 1.5 60 No No
South
Shotgun Kickapoo ?65 5 60 No No
South
Shotgun Cherokee 90 65 5 60 No Yes
South
Shotgun Chocktow 90 65 5 60 No Yes
South
Shotgun Chickasaw 147 65 5 60 Yes No
South
Shotgun East Well 90 65 5 60 No Yes
North
Shotgun West Well 90 40 3 60 No Yes
North
Aspen East Well 116 60 5 60 No No
Ride:e
Aspen West Well 340 60 5 60 Yes No
Rid~e
Goosebay East Well 289 50 5 60 No Yes
Goosebay West Well 270 30 3 60 No Yes
Valley Well # 2 470 20 1.5 60 No No
View
Valley Well #1 290 30 3 a/60 Yes No
View
!/ Has a 1.5 - hp booster pump.
Attachment A
Case No. ISL-W-08-1
Staff Comments
08/22/08
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ISLAND PARK WATER COMPANY
Case No. ISL-W-08-01
Rate Case
Schedule of Rate Base and Contribution to Revenue Requirement,:," .A"'._
Rate Base
Improvements to Wells in 2008 $17,183
Pro forma Rate Base Additions *$10,000
Total Rate Base $27,183
Less Accumulated Depreciation $(2,718)
Total Net Rate Base $24,465
Rate of Return Allowed 12.000%
Revenue Requirement from Rate Base $2,936
* Depreciation is determined on composite
rate of 1 0%. This depreciates the rate base
over a useful life of 1 0 years
-
Attachment C
Case No. ISL-W-08-1
Staff Comments
08/22/08
ISLAND PARK WATER COMPANY
Case No. ISL-W-08-01
Rate Case
Revenue Requirement Calculation
Return on rate base $2,936 Attachment C
Net to Gross Multiplier 127.3237%See below
Return grossed up for taxes $3,738
Annual Expenses $88,665 Attachment E
Annual Revenue Requirement $92,403
Gross Up Multiplier:
Beginning 100.0000%
State Tax ~ 7.6%7.6000%
Federal Taxable 92.4000%
Federal Tax ~ 15%13.8600%
Net After Tax 78.5400%
Net to Gross MultiDlier 127.3237%100% /78.54%
Attachment D
Case No. ISL-W-08-1
Staff Comments
08/22/08
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Attachment E
Case No. ISL- W -08- 1
Staff Comments
08/22/08
i
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Rate Analysis
Island Park Water Company
ISL-W-08-01
Revenue Reqt. (Option 1):$92,403
Revenue Reqt. (Option 2):
Shotgun South:$34,439
Shotgun North:$17,597
Aspen Ridge:$16,596
Goosebay:$14,819
Valley View: $8,952
Total:$92,403
Annual Revenue Average
Flat Total Over or Total Percent
Rate No. of Rate Revenue Under Increase Increase
Design Customers ($/yr)($/yr)($/yr)($/yr/cust)(%/yr)
Current Tariff 334 $125.00 $41,750
Company Proposal 334 $280.00 $93,520 $1,117 $155.00 124%
Staff Proposal:
Option 1 (Single Tariff)334 $276.75 $92,435 $32 $151.75 121%
Option 2 (Multiple Tariffs)
Shotgun South 135 $255.00 $34,425 $(14)$130.00 104%
Shotgun North 80 $220.00 $17,600 $3 $95.00 76%
Aspen Ridge 52 $319.00 $16,588 $(8)$194.00 155%
Goosebay 54 $275.00 $14,850 $31 $150.00 120%
Valley View 13 $689.00 $8,957 $5 $564.00 451%
Total 334 $92,420
Attachment G
Case No. ISL-W-08-1
Staff Comments
08/22/08
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 22ND DAY OF AUGUST 2008,
SERVED THE FOREGOING REPORT AND RECOMMENDATIONS OF THE
COMMISSION STAFF, IN CASE NO. ISL-W-08-01, BY MAILING A COPY
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
DAVID E BENTON
MANAGER
ISLAND PARK WATER COMPANY INC
PO BOX 2521
IDAHO FALLS ID 83403
SECRETÀR~ ~~
CERTIFICATE OF SERVICE