Case No. FLS-W-12-01. Order No. 32663

Case No. CCH-W-12-01, Order No. 32662

October 16, 2010

Contact: Gene Fadness (208) 334-0339, 890-2712

Commission OKs increases for two Idaho Falls area water companies

The Idaho Public Utilities Commission has granted rate increases for customers of two Idaho Falls area water companies.

Falls Water Company

Rates for the approximate 3,900 customers of Falls Water will increase from about $20.76 per month to $23 effective Oct. 16. The commission granted the company an additional $144,547 in annual revenue, about a 10.8 percent increase. When Falls Water filed its application in January, it asked for $295,059 in new revenue, about a 26.5 percent increase. The total annual revenue requirement is now $1.257 million. The company sought $1.4 million. Falls Water serves an area north of Ammon and northeast of Idaho Falls.

For the vast majority of customers who use a ¾-inch or smaller meter, the new monthly minimum charge is $17.75, up from $16.10 per month, for the first 12,000 gallons. A commodity charge of 69 cents for every 1,000 gallons used above the 12,000 gallons is added. The commodity charge was 61 cents for every 1,000 gallons above 12,000 gallons.

Much of the increase to annual revenue requirement – about $675,000 – is due to an automated meter reading project that allows the company to read meters year round. Currently, meters are read only in April through October, but not during the winter when meters are difficult to access.

Falls Water received commission approval following its last rate case in 2009 to replace 600 manually read meters with “touch-read” meters. The expense for that project was about $126,300. Falls Water also installed MXU (meter transceiver unit) radio transmitters on about 3,300 other meters at an expense of about $675,000. The MXUs allow the company to read the meters on a hand-held device or from a vehicle without having to access the property. Falls Water did not receive prior approval from the commission to make that investment.

At public workshops and hearings, customers said Falls Water should have gradually updated its infrastructure and should not have spent so much on meters without receiving prior input from customers and the commission. Commission staff, which operates separately from the commission, recommended that the $675,000 investment in radio transmitters be denied. Staff claimed the meter conversion is not economically justifiable, noting that the $8,315 per year estimated savings from reduced fuel and labor expense would take the company almost 86 years to recover.

The commission approved most of the radio transmitter investment because disapproval of such a large investment for a small water company “could jeopardize the company’s financial integrity and ability to provide safe and reliable service to customers,” the commission said.

“We are deeply troubled that the company abruptly invested so much money in MXU transmitters without obtaining prior input from customers, staff or the commission,” the commission said. Had it done so, the company likely would have received direction to invest in other needed improvements such as replacing old water lines and making improvements to trunk lines, storage and booster tank stations. “While a regulated public utility must spend enough on its system to ensure that its customers receive safe and reliable service, it may not engage in gold-plating at ratepayer expense,” the commission said. “We would wholly disallow the company’s MXU investment if the company were a larger utility.”

However, the commission did disallow about $40,000 in MXU-related financing charges and temporary office labor. And it directed the company set aside its projected annual savings as a result of MXU installation – about $8,300 per year – in a plant reserve fund that may be used only to finance infrastructure projects and repairs. The company must maintain the plant reserve fund in a separate account that may be audited by commission staff.

Falls Water argued that year-round meter reading will enable it to detect leaks sooner and conserve water. The company also noted that customers would be able to pay for excess water used during the winter as overages incur instead of waiting to be billed in the spring. Customers who experience excess water use during the winter due to leaks are not pleased with their corresponding April water bills, the company claimed.

The commission also denied about $12,000 of $54,000 in building rental expense and about $11,500 of $31,400 in equipment rental expense because the company rents its office building, backhoe and dump truck from the company owner.

In Falls Water’s 2009 rate case, the commission advised the company that it must prove that a related-party transaction such as renting from the company owner is reasonable and a product of arms-length bargaining. “The company has not, for example, demonstrated what a comparable empty building would rent for in this poor economic climate,” the commission said, and it did not obtain a third-party analysis of the equipment rental expense.

Country Club Hills Water

Average monthly bills for customers for Country Club Hills Water increased from about $28.10 per month to $35.46 effective Oct. 12. The company serves about 150 households southeast of Idaho Falls. The increase is about 21.7 percent. The company requested 32 percent to offset yearly operating losses and to pay for system deficiencies and water service problems.

The monthly minimum charge is $17, which does not change. However the commodity charge increases to 71 cents for every 1,000 gallons above 15,000 gallons. The company previously charged 60 cents for every gallon above 30,000 gallons per month. Country Club Hills proposed to increase the monthly minimum from $17 to $25 and charge 60 cents for every 1,000 gallons above 15,000 gallons and 70 cents for every 1,000 gallons above 25,000 gallons.

The company also wanted to create a capital replacement fund, which it said is required by the state Department of Environmental Quality. The fund would be used for emergency expenses. The commission declined to allow the company to create the fund saying an additional increase above the allowed 21.7 percent would be “unduly burdensome for the company’s small customer base.” Further, the commission said, state DEQ rules specifically exclude regulated water utilities in cases where DEQ requirements are in conflict with IPUC rules.

“Additionally, the commission finds that Country Club Hills Utilities has failed to demonstrate an adequate level of expertise and sophistication in its accounting and recordkeeping methods. As evidence of this, the commission notes that the company’s application was woefully incomplete and failed to provide even the most basic calculations regarding the company’s current financial structure and position,” the commission said. “When the company demonstrates that is has rectified its accounting and recordkeeping deficiencies, the commission will entertain an application by the company for the establishment of a fund to reimburse the company for emergency repairs to its water system.”

Petitions for reconsideration

The commission’s orders, along with other documents related to this case, are available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Water Cases” and scroll down to the above case numbers.

Interested parties may petition the commission for reconsideration by no later than Nov. 2. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.

Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.

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