WPC! 2BVXZ#|P (TT)7PC2 B,XP\  P6QXP"5^2CRdd$CCdq2C28dddddddddd88qqqYzoCNzoozzC8C^dCYdYdYCdd88d8ddddCN8ddddY`(`l2CCCCPCddYYYYYYzYzYzYzYC8C8C8C8ddddddddddYdddddoddYYYYzYzYzYdddddPdCdCCCdNdoNNF2[dCYddddd7>d<d<CCYYdCCddCYCdYzzzzCCCCqodYYYYYYYYYYY8888dddddddndddddddCOMPAQ PAGEMARQ 15 MXCOPAG15.WRSXP\  P6Q, |FwXP2F*p Zp X-Ԋ#XP\  P6QB,XP##|P"5^2CRdd$CCdq2C28dddddddddd88qqqYzoCNzoozzC8C^dCYdYdYCdd88d8ddddCN8ddddY`(`l2CCCCPCddYYYYYYzYzYzYzYC8C8C8C8ddddddddddYdddddoddYYYYzYzYzYdddddPdCdCCCdNdoNNF2[dCYddddd7>d<d<CCYYdCCddCYCdYzzzzCCCCqodYYYYYYYYYYY8888dddddddndddddddCOMPAQ PAGEMARQ 15 MXCOPAG15.WRSXP\  P6Q, |FwXP24v0    X3 h ЊX` hp x (#%'0*,.8135@8:d<d<CCoodCCddCoCddzzzzzzzzzzCCCCozdddddddYYYYY8888dddddddndddddYd"5^2Nodd8CCdr2C28ddddddddddCCrrrdNdzzozzzC8CrdCddYdYCdo88d8odddNN8oYdYNF,Fr2CCCCPCdddddddYYYYYN8N8N8N8oddddoooozYddddzYdzddddYYYYYdddooPdNdNCNdddoNNF2ddNdddddd5PROCEDURAL HISTORY ă  J44In December1994, Packsaddle notified its customers that water rates were going to   be increased in February 1995 from $15 to $28 per month and again in May 1995 to $74 per   month. This notice was the catalyst that led to numerous calls to the Commission and a Petition   from customers in January1995, seeking an investigation into whether Packsaddle is subject to Commission regulation.  44Packsaddle provides water service to approximately 30 customers in the Packsaddle   Creek Estate Subdivision. Only 27 of the 89 lots in the subdivision have been developed and   jconnected to the water system at this time. Many of the improved lots are summer or parttime   second homes. In Order No.26077 issued June30, 1995, the Commission found that Packsaddle  X|'-  is a public utility pursuant to Idaho Code 61125 and 61129. Consequently, Packsaddle is   within the Commissions jurisdiction and the provisions of the public utilities law. Order No.X(,))3'JW3Hx7'!@o!6:X   26077 also established an evidentiary hearing to set rates. In Order No. 26095 issued July 21, 1995, the Water Users were granted intervenor status in this case.  44On September6, 1995, the Commission convened a hearing in Driggs, Idaho, for the   ypurpose of collecting evidence to set rates and charges for water services. During the hearing,   the attorneys for Packsaddle and the Water Users informed the Commission that the two parties   ywere on the verge of completing an agreement to transfer the water system to the Water Users.   The two parties had not executed a written agreement and indicated that they had some minor   Zissues to resolve before execution. Also at the hearing, Staffs testimony was put into the record   for the purpose of completing the record. The attorneys for Packsaddle and the Water Users   stipulated on the record to waive the right to crossexamine the Staff witnesses and to allow the   testimony to be used for rate setting purposes. No other party offered testimony at the hearing.   In Order No.26188, the Commission set a deadline of November3, 1995, for the Water Users and Packsaddle to inform the Commission that the transfer had been completed.  44The November3 deadline has passed and no signed agreement has been submitted to   Zthe Commission. Attorneys for both parties have indicated that communication has broken down   between Packsaddle and the Water Users and they are unable to execute a written agreement.   On November 16, 1995, the Water Users filed a Motion for Hearing seeking to have the   Commission rule on the reasonableness of the proposed agreement described at the evidentiary hearing in Driggs. Packsaddle filed a response opposing the Motion.  ~44On December14, 1995, Staff filed a Motion to establish and implement rates for   Packsaddle based upon the evidence it submitted at the hearing. The Company filed a response concurring to the Motion. No response was filed by the Water Users.  344This Order discusses three issues: (1) Water Users Motion for Hearing on the   -reasonableness of a proposed agreement; (2) the issuance of a Certificate of Public Convenience   and Necessity for Packsaddle to operate as a public utility; and (3) Staffs Motion to implement rates.  X$-S ISSUES  W,&< A. Water Users Motion ă  44We find that a hearing on the reasonableness of the proposed agreement described   .orally at the evidentiary hearing in Driggs is not necessary. There has been no signed written"(,))&JW"   agreement or settlement for the Commission to consider. The Commission understands that the   agreement proposed orally at the previous hearing is no longer intact. Should the parties reach   an agreement, the Commission will entertain a request for approval of the agreement. Absent   a signed agreement there is no purpose for a hearing and we therefore deny the Water Users motion.  X.< IB. The System  and Public Need  X - 1. The System  44The water system for the Packsaddle subdivision is composed of two wells with a total   production capacity of 100 gallons per minute; a concrete 80,000gallon storage tank; a steel   7,500gallon storage tank; a pressure pump; a 50gallon pressure tank; and approximately 20,000 feet of main line.  P44During 1992 and 1993, the Company was experiencing water supply problems due   primarily to the drought. The original well (Well No.1) is 385 feet in depth, was sloughing at   the bottom and getting dangerously close to drying up. The Company installed a separate water   zsupply system to provide water from a spring owned individually by the stockholders while   Lrepairs to the well were accomplished. In 1993 a new pump was installed at a cost of $2,395.44.   Well No.1, even with its new pump, has a pumping capacity of only 30 gallons per minute which is inadequate to serve the subdivision if and when it is completely developed.  44Packsaddle installed a second well (Well No. 2) in 1994 at a cost of $21,341.43. This   well was paid for through the issuance of a note payable to the Bank of Commerce in Driggs,   !in the amount of $20,475. The note carries an interest rate of 9% and is payable in three   installments of $8,084.42 due in August 1995, 1996 and 1997. Well No. 2 has a pumping   capacity of 70 gallons per minute, and when combined with Well No.1, brings the total pumping capacity to 100 gallons per minute.  `44Other major repairs to the system in recent years included the replacement of a   kpressure pump in 1993 (at a cost of $403.89) and replacement of a pressure tank in 1994 (at a   .cost of $482.79). With the replacement of the pump in Well No.1, replacement of the pressure   /pump and tank in 1993 and 1994, and the addition of Well No.2 in 1994, the systems water   supply is practically new and should serve for a number of years without major expenses. Staff   Ktestified that the system is more than adequate to serve the existing customers and has the ability"(,))&JW"   to meet the needs of the subdivision when the development is complete. We find the system is adequate to serve the customers.  X-  X-2. Public Need  44When the petition requesting this investigation was filed with the Commission,  X-  -Packsaddle had not been issued a Certificate of Public Convenience and Necessity. Idaho Code  X1-  L 61526 through 528 set out the guidelines for issuance of such a Certificate. Idaho Code    61526 specifies that there must be a public need for the service, that the territory for service by   the utility must not already be served by another utility, and that the utility has the financial   ability and good faith to construct and maintain the system. See also Rules 111113, IDAPA 31.01.01.111113.  @44 We find that the Packsaddles water system is an adequate system. Packsaddle has   irecently upgraded its system as discussed above. Staff has determined that the system can serve   =the needs of the customers. It is well engineered; it has good sources of water, and the ability   ito deliver water to the customers. There is no other water utility presently serving the Packsaddle   Estates Subdivision. Packsaddle has the ability to serve its customers and there is a public need   for water services in the Packsaddle subdivision. Therefore we issue Packsaddle a Certificate of Public Convenience and Necessity to operate as a public utility.  X< ! C. Operating Elements ă  XL- 1 . Rate Base  ?44When Packsaddle notified its customers that the water rates were going to be increased   Nin February 1995 from $15 to $28 per month and again in May 1995 to $74 per month, the   <Company stated that the increased rates were to recover all back debts incurred against the water   isystem. After investigation into the proposed rates, Staff determined that the rates were intended   [to recover the cost of: the new Well No.2; the pump in Well No.1; the new pressure tank; and   the new pressure pump. In addition, the Company indicated that the rate was designed to provide   [for $500 per month to pay maintenance labor costs, $174 per month for electricity, and provide funds for unforeseen emergencies.  44The Commissions policy regarding a developerinstalled water system is to assume   that the developer recovers all of the initial investment in the system through the sale of lots. "(,))&JW"   This policy is based on two premises: Either the water system was required by local officials   before the subdivision was allowed, which means the lots were unsalable absent the system, or   Lthe system was in place thereby increasing the value of the lots. Consequently, the developer   Lhas no initial investment in the system upon which to earn a return and rates are based upon a   reasonable operating costs including compensation for the time spent managing and maintaining   the system. When major replacements of facilities are required due to age and failure, the   replacement cost is treated as a new investment and a return is allowed. IDAPA 31.36.01.103 (Rules for Small Water Companies).  n44We find that the Packsaddle Estates original supply system and the transmission   Lmains represent the initial investment assumed to have been recovered through the sale of the   zlots. We further find that the rehabilitation of Well No.1 and the new pump in that well, the   replacement of the pressure tank and the replacement of the pressure pump, are replacement   zinvestments which constitute items included in the ratebase. The amount recommended for ratebase is $3,282.12 as described in Appendix 1, attached and incorporated by reference.  #44 The large investment in Well No.2 presents a different problem. This well is not   =a replacement, it is a new well and is necessary to complete the system for adequate service to   the entire subdivision. The subdivision is only about onethird developed. The existing   customers could be adequately served by the original well, assuming drought conditions did not   >threaten to dry up the well. Of course, this is exactly the condition experienced in 1992 and   1993 that led to the temporary connection of the private spring and the drilling of the new deeper   well in 1994. We find that the cost of Well No.2, although it improves system reliability, was   a necessary investment to complete the water system which has or will be recovered through the sale of lots. Consequently, the $21,341.43 cost of Well No.2 is not included in ratebase.  X - 2. Rate of Return  144After reviewing the evidence, Staff recommends a 12% return on rate base. Because   the Company has no debt, any debt associated with the water system is personal debt of the   Lstockholders. Therefore for ratemaking purposes it is assumed that the entire capital structure   Lof the Company is composed of stockholder equity. This is not unusual for a company of this   size. The return on equity allowed by the Commission has to recognize the return on the   Kinvestment that could be earned from other alternative investments and then add or subtract from"(,))&JW"   jthat return percentage point to recognize the relative risk of the utility system in comparison to   the risk of the alternative investment. This Commission recently granted Capitol Water   Corporation a return on equity of 12% in Order No. 26247, issued November 27, 1995. Warm   Springs Mesa, a water company serving in Boise, was also authorized a 12% return in Order No.   25445 dated March 25, 1994. Staff recommended the 12% rate of return based on the relative   risk of this system in comparison to the risk assumed by stockholders of similar water companies   like Capital Water and Warm Springs Mesa. We therefore find the 12% rate of return on rate base for Packsaddle to be fair, just and reasonable.  X -  XE -3. Expenses and Revenue Requirement  44Reasonable operating costs must be allowed in any revenue requirement approved by   the Commission. These operating costs include not only repair material and supplies but also   depreciation expense, water testing expense, taxes (including corporate income taxes), electricity   for pumping, reasonable compensation for labor costs to maintain the system, and administrative   functions. Because Packsaddle does not have a corporate vehicle, a reasonable mileage allowance   jfor the use of private vehicles to perform water system business should also be provided. The   =Company has no payroll and individuals are not being compensated for either labor or the use   of private vehicles. Staff recommends annual operating expenses totaling $12,258.13 as itemized   in the attached appendix. This amount is based on Staffs estimate of anticipated expenses and   does not represent actual expenses incurred by Packsaddle. The amount seems high to us   0considering the number of customers and quality of the system. It is however, the only   information available for our use in this record. We will adopt Staff's proposed operating costs   Las reflected in the appendix. However, in any future rate proceeding for this company we will   expect to see actual expenses, time and administrative concerns documented fully before expenses will be allowed.  44Staffs testimony proposes a total annual revenue requirement, including the return on   rate base, and operating costs of $12,761.78. We find the revenue requirement of $12,761.78 to be fair, just and reasonable.  X,&- ",&,))$JW" 44  X]- 4. Rate Design  @44 There are currently 27 customers connected to the water system with a potential of   M89 customers. Of the current customers, 10 are parttime or seasonal. Staff evaluated these   seasonal customers to be equivalent to 7.5 fulltime customers and used 24.5 equivalent fulltime   customers in its rate design calculations. The revenue requirement spread over 24.5 equivalent   .fulltime customers yields a rate of $516 ($43/month) per year per customer. Staff recommends   an annual rate but with the option for customers to make payment arrangements with the   Company to pay monthly or quarterly. Staff recommends this as a flat rate design. This is based   on the fact that there are no meters and currently is no compelling reason to install meters.   jAnother reason for choosing a flat rate design is that over 87% of the cost of the water system   exists just to make water available regardless of whether any water is used, therefore the flat rate  X\-  design is the most reasonable rate design. We find the recommended annual rate to be   [cumbersome for billing, bookkeeping and administrative matters. It is more fair and reasonable   for the customers to pay on a monthly basis. Therefore we find that $43/month should be adopted as the rate to be collected for service each month or any portion thereof.  44As the seasonal customers are likely to take service about 6 months of the year and   then close their accounts, Staff recommends a reconnect fee be set at $130 to allow a more   equitable sharing of costs by seasonal customers. Staff also recommends that customers   involuntarily disconnected in credit related situations which are resolved in less then 45 days   should be charged a nonrecurring fee of $25. Finally, Staff recommends a hookup fee of $430   for service hookup, meter box, and meter base. We find the above recommended fees to be fair, just and reasonable.  X[- 44  X - 5. Customer Relations Rules and Regulations  44Finally, the Commission's Rules and Regulations on Customer Relations apply to all   =public utilities in the state. These rules prescribe the terms and conditions for the customer to   yreceive service. The rules specify that the utility is required to adopt the policies and practices   .including deposits, disconnections and billings in accordance with Commission standards. A   zutility is also required to file its proposed rate schedules, line extension policies and general   service provisions with the Commission for its approval. An annual report containing the"(,))&JW"   financial statement of the utility must also be filed with the Commission. Packsaddle, a regulated utility, must comply with all Commission Rules and Regulations on Customer Relations.  X-1 ULTIMATE FINDINGS OF FACT AND CONCLUSIONS OF LAW ă  Xt- #44The Commission finds that Packsaddle is a public utility pursuant to Idaho Code   @61125 and 61129. We further find there is a public need for water services in the   Packsaddle subdivision, therefore we issue Packsaddle a Certificate of Public Convenience and Necessity to operate as a public utility.  X - ^44The Commission also grants Staffs Motion to establish and implement rates. Idaho  XK -  Code 61301 and 307 requires that the Commission establish just and reasonable rates for   each utility. We find the ratebase of $3,282.12, operating expense of $12,258.13, the rate of   return of 12% and the resulting revenue requirement of $12,761.78 to be fair, just and reasonable.   -We find the rates as set forth above are designed to recover the revenue requirement established and are fair, just, reasonable and nondiscriminatory.  X|-K O R D E R ă  44IT IS HEREBY ORDERED that the Water Users Motion for Hearing on the   reasonableness of the proposed oral agreement is denied. The Staffs Motion to establish rates for Packsaddle is granted.  44IT IS FURTHER ORDERED that Packsaddle be issued a Certificate of Public Convenience and Necessity No. 320 to operate as a public utility.  44IT IS FURTHER ORDERED that Packsaddle file tariffs of rates and charges in   compliance with the terms of this Order. These rates are effective one day after the service date of this Order.  44IT IS FURTHER ORDERED that Packsaddle file tariffs that incorporate the Commissions rules and regulations as required by law and in compliance with this Order.  J4%X4` hp x (#%'0*,.8135@8: