20070604final_order_no_30334.pdf

Office of the Secretary
Service Date
June 4, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF KOOTENAI HEIGHTS WATER
SYSTEM, INC. FOR A CERTIFICATE OF
PUBLIC CONVENIENCE AND NECESSITY ORDER NO. 30334
CASE NO. KHW-OS-
On August 22, 2005, Kootenai Heights Water System, Inc. (Kootenai Heights
Company) filed an Application for a Certificate of Public Convenience and Necessity with the
Idaho Public Utilities Commission (Commission). The Commission ordered that the Application
be processed by Modified Procedure. Order Nos. 29877 and 29960. Commission Staff was the
only party to file comments.
On September 1 , 2006, the Commission issued a final Order granting Kootenai
Heights a Certificate of Public Convenience and Necessity. Order No. 30122. The Commission
also issued, on September 1 , 2006, a Proposed Order regarding the rates, charges, rules, and
regulations of the Company. On October 3 , 2006, the Commission granted reconsideration of
Order No. 30122, granting the Company s Certificate, based on the Company s objection to
jurisdiction filed on September 22, 2006. After the submission of legal briefs by the parties, the
Commission affirmed Order No. 30122, granting Kootenai Heights a Certificate and finding the
Company to be a public utility subject to the Commission s jurisdiction. Order No. 30219. The
Commission also directed the parties to conduct an informal prehearing conference, where they
were to discuss the remaining issues relating to rates, charges, rules, and regulations, exploring
any possibilities for agreement. Id.
The parties met on February 20 2007, to conduct the informal prehearing conference
and settlement discussions. The parties reached agreement on the outstanding issues and
executed a Stipulation memorializing that agreement. The Stipulation was drafted so as to
propose changes/additions to the Commission s Proposed Order issued on September 1 2006.
With this Order the Commission accepts and approves the parties' Stipulation, as
changes and additions to its previously issued Proposed Order for this matter. The Commission
hereby changes and adopts the Proposed Order, establishing just and reasonable rates, charges
rules, and regulations for the Company as set forth below. Idaho Code ~~ 61-301 , 61-302, 61-
303 61-502 61-503 , and 61-623.
ORDER NO. 30334
THE COMPANY'S APPLICATION
The Company submitted various supplemental documents with its Application
including: a map of the proposed service area, a Water Service Agreement and Easement form
documents evidencing the incorporation of the Company, a copy of the contract with its Certified
Operator, a copy of a Clarification-Modification of the Plat for Kootenai Heights, and a letter
from the Department of Environmental Quality (DEQ) evidencing conditional approval of the as-
built plans.
At the time of the Application the water system was in service with six residential
customers connected to the system. Application at 2. The Company states that the system will
ultimately serve 11 residential customers. Id. The requested service area for the water system
consists of Lots 7-18 of Kootenai Heights, with the well located on Lot 10. Application at
The Company states that the cost to construct the system was $83 500 including the value of Lot
10. Application at 2. The average monthly consumption for the entire system was reported as
000 gallons, and the Company states that billing was to start on October 1 , 2005. Id. The
Application states that proposed rates and charges, rules and forms are all contained within the
Water Service Agreement submitted with the Application. Id.
The Water Service Agreement and Easement (WSA) states that the system was
developed to provide water "to certain Lots in Kootenai Heights and for further development of
additional land and lots in the sole discretion of the Water Provider." WSA at 1. The WSA
further provides that each lot owner shall pay a hookup fee of $5 000, and that rates will be $40
per month up to 10 000 gallons, and $4.00 per 1 000 gallons used over 10 000 gallons per month.
WSA at 2. Each customer will be metered, with the cost of the meter and its installation paid by
the Company. Id. The Agreement states that monthly rates will not be increased for the first five
years. WSA at 2-3. Additionally, the Agreement states that monthly bills will not be sent, and
the lot owner shall pay the monthly fee on the 1 st day of each month. WSA at 3. Billings will be
sent to customers twice a year, on or about May 1 and October 1 , for the purpose of computing
and billing any excess water usage over the allowed 10 000 gallons per month. WSA at 3-
ORDER NO. 30334
DISCUSSION/FINDINGS
I. Rate Base
Based upon our reVIew of the financial records and the historical relationship
between the developer and the water company, we find that the Company is not entitled to
recognize any rate base in the establishment of rates for two reasons. First, Commission Rule
103 for small water companies (Policies & Presumptions for Small Water Companies, IDAPA
31.36.01.103) establishes a presumption that capital invested in the water system by the
developer is considered contributed capital and is excluded from rate base. Rule 103 states:
In issuing certificates for a small water company or in setting rates for a small
water company, it will be presumed that the capital investment in plant
associated with the system is contributed capital, i., that this capital
investment will be excluded from rate base.
Second, the Company has received contributions in the nature of hookup charges in
the amount of $55,000. The Company has indicated in the documentation filed with the
Application that it incurred the following costs to develop the water system:
Well Installation
Distribution Lines
Well House
Pump, Pressure, Electrical
Engineering
Attorney Fees
Total
$ 11 370
$ 8 915
$ 6 000
$ 16 910
$ 1 800
$ 3.500
$ 48 495
Additionally, the Company is claiming the current fair market value of the well lot at $40 000.
We find that the $55 000 hookup fee contribution is an offset to the cost of the system. ($48 495
plus any allocation of original cost for the well lot.) The well lot is approximately 1/5 of an acre
(9,130 square feet), and it is very unlikely that the original cost of this parcel is more than the
difference between the contributed hookup fees and the cost of the water system ($55 000 less
$48 495 or $6 505). Regardless of the cost, we find that the well lot is considered contributed
capital under Rule 103.
We find that the hookup fees should be reflected as an offset to the plant-in-service
account. Until new plant is added subsequent to and independent of owner development, plant-
in-service and hookup fees will continue to offset each other such that there will be no rate base
or depreciation expense to increase rates. We caution the Company that it is important to
ORDER NO. 30334
correctly set these accounts up now so system capital costs can be properly reflected in future
rates. We direct Staff to assist the Company to set these accounts up properly, and to properly
book any future expansion if requested by the Company. To the extent the Company wants to
continue collecting a hookup fee, it should include this charge in its tariff.
Attachment A, Section A to Staff Comments reflects proposed plant-in-service
accounts, reasonable depreciable lives and the annual depreciation. These items are offset by the
hookup fees recorded as Contributions in Aid of Construction and the presumption that water
system capital is contributed by the owner/developer through the sale of lots. The amortization
of these contributions is shown in Section B. We hereby adopt Attachment A, Sections A and B
to Staff Comments.
Commission Findin1!s We find that the Company is not entitled to recognize any
rate base in the establishment of rates. The capital investment in plant associated with the water
system is contributed capital, and this capital investment will be excluded from rate base.
IDAPA 31.36.01.103. Additionally, we find that the $55 000 hookup fee contribution is an
offset to the cost of the system, and should be reflected as an offset to the plant-in-service
account.
II. Annual Expenses/Revenue Requirement
Because there is no rate base, we find that a just and reasonable rate should be based
upon the Company s annual operating expenses. There is no history in the record of actual
annual operating, maintenance, or administrative expenses, therefore we find it prudent and
reasonable to rely upon the estimates of the Company s certified operator regarding the annual
expenses for the operation and maintenance of the system.
Based on the certified operator s estimates, Staff prepared a pro forma schedule of
annual expenses that the Company could reasonably incur in the operation of the water company.
Those estimates are included in the Schedule of Annual Expenses and attached as Attachment B
to Staff Comments. We hereby adopt Attachment B to Staff Comments, attached as Appendix A
to this Order. Staff proposes to audit the Company s records for the two years ending December
, 2007, in order to update the estimated annual operating, maintenance, or administrative
expenses based on actual expenses, revenues, and any additional investments subject to recovery
through rates. Because there is no rate base, no annual depreciation expense is included in the
revenue requirement.
ORDER NO. 30334
Commission Findin1!s We find the calculation of the Company s annual expenses
and revenue requirement prepared by Commission Staff to be reasonable. We find it reasonable
to rely on estimates from the Company s certified operator for annual expenses. As discussed
earlier, all water system investment is recovered through the sale of lots and through hookup
fees. We find the total estimated annual expenses for operation, maintenance, and administrative
functions to total $3 820. We find taxes including property, federal, and state to be
approximately $1 310 per year. Therefore, we find that the total annual expense of $5 160
should be set as the Company s annual revenue requirement.
IlL Rates
The Company proposes in its Application a monthly rate of $40 per month plus $4.
per 1 000 gallons for usage over 10 000 gallons. Staff proposed a monthly rate of $25 per month
plus $1.90 per 1 000 gallons of usage over 6 000 gallons. In the parties' Stipulation they agreed
to rates of $38.50 per month plus $3.10 per 1 000 gallons of usage over 10 000 gallons per
month.
Commission Findin1!s We find that the rates set forth in the parties' Stipulation to
be just and reasonable, and provide the Company with an opportunity to recover its approved
annual revenue requirement. It is slightly less than the amount set forth in the Water Service
Agreement, which each customer executed with the Company upon purchase of their home/lot.
Iv. Customer Relationsnariff Issues
According to the Company s Application, purchasers of lots served by Kootenai
Heights Water System signed a contract entitled "Kootenai Heights Water Service Agreement
and Easement" (WSA) that includes a number of provisions regarding operation of the water
company that are covered by or are in conflict with the Commission s Utility Customer Relations
Rules and Utility Customer Information Rules. Provisions in the Company s tariff, which is
filed with the Commission, must comply with our rules, the WSA notwithstanding. The
Company and its customers cannot contract away the regulatory requirements of the
Commission.
The Company s tariff should specify water rates, recurrmg and non-recurring
charges, and the terms and conditions of providing service. The Commission s Utility Customer
Relations Rules (IDAPA 31.21.01.000 et seq.govern, among other things, the collection of
deposits, billing, disconnection of service, payment arrangements, and dispute resolution. Both
ORDER NO. 30334
the Utility Customer Relations Rules and the Utility Customer Information Rules (IDAP A
31.21.02.000 et seq.govern the provision of information to customers.
Commission Findin1!s We hereby approve the parties' Stipulation that the
Company will adopt and implement the Commission s Utility Customer Relations Rules
(IDAPA 31.21.01.000 et seq.
),
the Commission s Utility Customer Information Rules (IDAPA
31.21.02.000 et seq.
),
and an accounting system consistent with information required by the
Commission s annual report for small water companies (Idaho Code ~ 61-405). We also
approve the provisions of the parties' Stipulation that allow the Company to charge a $50
reconnection fee and a $10 late payment fee. We find that certain portions of the Company
Water Service Agreement that it has executed with its customers either conflict with or address
issues governed by the Commission s Utility Customer Relations Rules and Utility Customer
Information Rules. IDAP A 31.21.01.000 et seq.IDAP A 31.21.02.000 et seq. Pursuant to the
Stipulation the Commission s Rules will govern in those instances. It is reasonable to require the
Company to adopt and implement the Commission s Utility Customer Relations and Utility
Customer Information Rules, as well as an accounting system consistent with the information
required by the Commission s annual report for small water companies. A model tariff for small
water companies is available, and Staff is directed to provide examples of documents and
guidance to the Company upon request.
ULTIMATE FINDINGS OF FACT AND CONCLUSIONS OF LAW
Kootenai Heights Water System, Inc. is a water corporation providing water service
to the public within the State of Idaho Idaho Code ~~ 61-124, 61-125 , and is operating as a
public utility. Idaho Code ~ 61-129.
The Commission has jurisdiction over this matter as authorized by Title 61 of the
Idaho Code, and more particularly Idaho Code ~~ 61-501 61-502 61-503 61-520, and 61-523.
The Commission has the power and authority to establish initial rates, charges
classifications, practices, rules, and regulations that it finds to be just and reasonable. Idaho
Code ~ 61-623.
ORDER
IT IS HEREBY ORDERED that the Motion for Approval of Stipulation is granted.
The Stipulation of the parties, filed on May 24, 2007, is accepted and approved without change
or alteration.
ORDER NO. 30334
IT IS FURTHER ORDERED that the Proposed Order, issued on September 2006
is hereby adopted and modified as set forth by the parties' Stipulation , and reflected now in this
Order.
IT IS FURTHER ORDERED that Kootenai Heights Water System, Inc. is not
entitled to recognize any rate base in the establishment of rates. The capital investment in plant
associated with the water system is contributed capital, and this capital investment will be
excluded from rate base. IDAPA 31.36.01.103. The $55 000 hookup fee contribution is an
offset to the cost of the system, and shall be reflected as an offset to the plant-in-service account.
IT IS FURTHER ORDERED that the Company s total annual expense of $5 160 be
set as the Company s annual revenue requirement.
IT IS FURTHER ORDERED that the Company is directed to adopt and submit a
tariff containing the following rates and charges: a fixed monthly charge of$38.50 and a volume
charge of$3.10 for every 1 000 gallons over 10 000 gallons per month; a $50 reconnection fee; a
$10 late payment fee; and a $5 000 hookup fee. The Company will bill on a semi-annual basis
during April and October each year. Any water usage over 10 000 gallons per month will be
billed semi-annually. Monthly usage in excess of 10 000 gallons per month will be determined
by dividing the total usage by the months of usage in the billing. Similarly, payment for usage in
excess of 10 000 gallons per month will be divided equally over the six-month billing period.
IT IS FURTHER ORDERED that the Company is required to adopt and implement
the Commission s Utility Customer Relations Rules (IDAPA 31.21.01.000 et seq.
),
the
Commission s Utility Customer Information Rules (IDAPA 31.21.02.000 et seq.
),
and an
accounting system consistent with the information required by the Commission s annual report
for small water companies. Idaho Code ~ 61-405.
IT IS FURTHER ORDERED that the Company shall submit tariffs conforming to
this Order, as well as a sample bill and sample disconnection notice, no later than 30 days after
the service date of this Order.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) may petition for reconsideration within twenty-one (21) days of the
service date of this Order with regard to any matter decided in this Order. Within seven (7) days
after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
ORDER NO. 30334
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this LjJ--v
day of June 2007.
~ITH
ATTEST:
ill (if'~D. Jewell
Cdinmission Secretary
O:KHW-O5-01 dw9 Final
ORDER NO. 30334