20200930Njuguna Direct.pdf

i{.*,::IiYnn
tir:.ii:il) 3il PH tr: 5?
Michae! C. Creamer (lSB No. 4030)
Preston N. Carter (lSB No. 8462)
Givens Pursley LLP
601 W. Bannock St.
Boise, lD 83702
Telephone: [phone]
Facsimile: (208) 388-1 300
mcc@q ivenspu rslev.com
prestonca [e-mail]
Aftorneys for SUEZ Water ldaho lnc.
BEFORE THE IDAHO PUBLIC UT!LITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF SUEZ WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE
IN THE STATE OF IDAHO
Case No. SUZ-W-20-02
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
DIRECT TESTIMONY OF DAVID NJUGUNA
SEPTEMBER 2O2O
1Q.
2A.
3
44.
5A.
6
74.
8A.
I
10
11 0.
12 A.
13
14
15
16
17
18
19
20
Please state your name and business address.
My name is David Njuguna, and my business address is 461 From Rd, Suite
400, Paramus, New Jersey 07652.
By whom are you employed and in what capacity?
I am employed by SUEZ Water Management & Services ("SWM&S") as
Manager - Regulatory Business.
Please summarize your educational background and qualifications.
I graduated from Kenyatta University, Nairobi, Kenya, with a Bachelor of
Commerce Degree in Accounting in 2000 and earned a Masters Degree in
Business Administration from Rutgers Business School in 2012.
What experience did you have prior to ioining SWM&S?
From August 2001 to July 2006, I was employed by the Union Fenosa
Group, an integrated energy company headquartered in Madrid, Spain,
where ! gained a broad outlook of utility accounting. During my tenure at
Union Fenosa, I held various positions and my responsibilities varied
depending on the title I held. As a management accountant, my
responsibilities included preparing, reviewing and analyzing monthly
divisional and consolidated financial statements and reports. As a financial
accountant, my responsibilities included financial analysis and preparation
of consolidated company budgets and financial reports.
Njuguna, Di 1
SUEZ Water ldaho lnc.
1Q.
24.
3
4
50.
64.
7
I
I
10
11 0.
12
13 A.
14
15
16
17 0.
18 A.
19
20 0.
21 A.
22
23
When did you join SWM&S and in what capacity?
I joined SWM&S in May 2007 as a Rate Analyst. In August 2010, I was
promoted to the position of Senior Rate Analyst and later promoted to the
position of Manager Regulatory Business in January 2016.
What other roles have you held while employed by SWM&S?
From December 2012through December 2015, I worked in the Accounting
Department of SWM&S as an Accounting Managerfocusing on Regulatory
Accounting and Fixed Assets Accounting. My duties included, but were not
limited to, ensuring the proper accounting of defened regulatory assets and
fixed assets of the Company.
Before what regulatory agencies have you previously presented
testimony?
! have previously filed testimony in rate case filings before the New York
State Public Service Commission, the New Jersey Board of Public Utilities,
the Pennsylvania Public Utility Commission, the Delaware Public Service
Commission and the Arkansas Public Service Commission.
What is the purpose of your testimony in this proceeding?
The purpose of my testimony is to describe and present the calculation of
the revenue deficiency and the resulting request for rate relief.
What Exhibits are you sponsoring?
I am sponsoring the following Exhibits:
1. Exhibit No. 6
2. Exhibit No. 9
Njuguna, Di 2
SUEZ Water ldaho lnc.
1
24.
3A.
4
5
6
70.
8A.
I
10 a.
11
12 A.
13
14
15
16 0.
17
18
19 A.
20
21
22
23
3. Exhibit No. 10, Schedule 4
What leve! of increase is the Gompany seeking in this proceeding?
SUEZ Water Idaho is seeking a revenue increase of $10,160,211 or
22.3o/oo/o over current rates for the pro forma period ending March 31 ,2021.
Company Witness Thompson will provide more detiail about the drivers of
this increase.
What rate of return on rate base is this rate increase based upon?
The increase is based on an overall rate of return ol7.460/o with a return on
equity of 10.2Oo/o.
Have you prepared an Exhibit that shows the calculation of the
Company's proposed overall Rate of Return of 7.460/o?
Yes. Exhibit No. 6, page 1 shows the capital structure of SUEZ Water
Resources along with the cost of debt and the retum on equity of 10.20o/o.
The weighted average of these components is the 7.460/o overall requested
rate of return.
Has the Gommission previously approved the Company's use of SUEZ
Water Resources capital structure and cost of debt in its rate case
filings?
!n Commission Order No. 28505 in Case No. UWI-W-00-1, the Commission
found the use of United Waterworks' capital structure and cost of debt to be
reasonable for ratemaking purposes. United Waterworks has since been
incorporated into SUEZ Water Resources and thus the Company is using
the capital structure of SUEZ Water Resources.
Njuguna, Di 3
SUEZ Water ldaho lnc.
1
2
3
4
5
6
7
8
I
10
11
12
13
14
15
16
17
18
19
20
21
22
23
o.
A.
Have you prepared an exhibit that indicates the pro forma operating
income for the Company at existing and proposed rates?
Yes. I have prepared Exhibit No. 9, titled "Statement of Operating lncome
Per Books and Pro Forma under Present and Proposed Rates For The
Twelve Months Ending March 31,2021".
Column 1 references the Exhibit Numbers (5, 6, 10 and 1't) that detail the
adjustments to the Test Year results indicated on Exhibit No. 9. Column 2
indicates the elements of operating income: operations and maintenane€
expense, depreciation and amortization expense, taxes other than income
and income taxes. The amounts therein are per books, as shown on Exhibit
No. 10. Column 3 of Exhibit No. 9 shows a summary of Test Year
adjustments made to revenues and expenses. The adjustment to operating
revenue shown on line 1 is detailed on Exhibit 5 and will be explained by
Company Witness Michaelson. The adjustments to operation and
maintenance expenses, summarized on line 2, are detailed on Exhibit No.
10, Schedule 1 and the adjustments to depreciation expense and
amortization of utility plant acquisition adjustments summarized on lines 3
and 4 are detiailed in Exhibit No. 10, Schedule 2, further explained by
Company Witness Cary. The adjustments to operating taxes summarized
on lines 6 and 7 are detailed in Exhibit No. 10, Schedule 3, and will be
explained by Company Witness Cary. Column 4 of Exhibit No. 9 shows the
adjusted operating income at existing rates for the Test Period. Column 4
also indicates that based on the Test Year adjustments made, the Company
Njuguna, Di 4
SUEZ Water ldaho lnc.
1
2
3
4
5
6
7
8
I
10
11
12 0.
13
14 A.
15
16
17
18
19
20
21
22
23
will earn a 4.09 % overal! rate of return on its rate base investment as of
March 31, 2021 with known and measurable adjustments taken into
consideration. Column 5 of Exhibit No. 9 indicates the adjustments to
operating revenue, operation and maintenance expenses, and income
taxes under the increased rates proposed by the Company herein. The
adjustment to operating revenues of $10,160,211 was computed using a
7 .460/o rate of return on rate base. Column 6 of Exhibit No. 9 illustrates the
adjusted operating income necessary to produce the requested rate of
return, 7.460/o. The income taxes shown on lines 11 and 12were computed
as indicated on Exhibit No. 10, Schedule 4, and will be explained later in my
testimony.
Please explain the adjustments to operating expenses as shown on
Exhibit No.9.
Operation and maintenance expenses have been increased by $4,509,817
(Exhibit 9, line 2). Depreciation and amortization expense have been
increased by $1 ,132,351 (Exhibit 9, line 5). Property Taxes have been
increased $320,606 (Exhibit 9, line 6). Payroll taxes have been increased
$122,644 (Exhibit 9, line 7). Federal income taxes have been decreased by
$2,164,935 and State income taxes have been decreased by $370,518
(Exhibit No. 9, lines 't1 & 12).
The detailed support for the operating expense adjustments are
shown on the four Schedules following the Exhibit 10 Summary. Schedule
1, pages 1 to 33, provides detail for adjustments made to operation and
Njuguna, Di 5
SUEZ Water ldaho lnc.
1
2
3
4
5
6
7
8
I
maintenance expenses that are explained by Company Witness Cary.
Schedule 2, page 1, provides detail for adjustments to depreciation and
amortization expense and Schedule 3, pages 1 to 4, provides detail for
adjustments to property and payroll taxes both of which are further
discussed by Company Witness Cary. Exhibit 10 Schedule 4, page 1
provides detail for adjustment of State and Federal income tax expense.
Exhibit No. 10, Schedule 4 page 2 shows the method I employed to
compute the "Net to Gross Multiplie/' utilized in this case to gross up the
Net Operating lncome deficiency.
O. Please explain Exhibit No. 10, Schedule 4.
A. Exhibit No. 10. Schedule 4. Paqe 1 of 2 shows the calculation of State and
Federal income taxes at both existing and proposed rates. The amounts
shown on line 1 of columns 1 and 2 are the same as the amounts shown on
line 10 of columns 4 and 6 on Exhibit No. 9. These figures represent
operating income before income taxes. From these figures, the applicable
statutory deductions were deducted when computing the State and Federal
income taxes.
The first deduction is interest expense and it is deductible in the
computation of both State and Federal taxable income. The calculation for
the interest deduction is shown in Note A on lines 11 through 15. The
deduction of interest expense is included in the total tax deductions amount
on Line 4.
Njuguna, Di 6
SUEZ Water ldaho lnc.
10
12
11
13
14
15
16
17
18
19
20
21
22
1
2
3
4
5
6
7
I
I
The second deduction is the excess of pro forma tax depreciation over pro
forma book depreciation. The excess tax depreciation is deducted from
State taxable income only since State income taxes are calculated on the
basis of flow-through accounting while Federal income tiaxes are calculated
on the basis of normalization accounting. Lines 23,24 and 25 indicate the
amounts used in determining excess tax depreciation.
Please explain the adjustment shown on line 2, Golumn 5 of Exhibit
No.9.
The adjustment shown on Iine 2, Column 5 of Exhibit No. 9 represents
additiona! uncollectible expense and IPUC assessment as a result of the
pro forma adjustment to operating revenue shown on line 1, Column 5 of
Exhibit No. 9 as further detailed out on Exhibit No. 10, Schedule 4.
Does this conclude your direct testimony?
Yes.
Njuguna, Di 7
SUEZ Water ldaho lnc.
10
o
A
11
12
13 0.
14 A.
Michael C. Creamer (!SB No.4030)
Preston N. Carter (lSB No. 8462)
Givens Pursley LLP
601 W. Bannock St.
Boise, lD 83702
Telephone: [phone]
Facsimile: (208) 388-1 300
[e-mail]
[e-mail]
Attorneys for SUEZ Water ldaho lnc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF SUEZ WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE
IN THE STATE OF IDAHO
Case No. SUZ-W-2O-02
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
EXHIBITS 6, 9, 10 (Schedule 4) TO ACCOMPANY THE
DIRECT TESTIMONY OF DAV]D NJUGUNA
Ios
?$-9 <t sE, E 3:
EE;1 t(! X- (!OIIJOo.
s(oaF
soqoo
o,G'.
rod00-t-N
0
g
='=t!-)9oEoor.uF
N(f'
sstfNotq
-lO
ss(oeNNtc;
ss(o1\o)ou, tttlo
oat00
-N oFOoto6i+trt-c?
68
o
oo(,
9E<3
Eos
.glo
=
b8
o=ooQO
oEto
troo
oo-
tr
o
E
o
9ts
63
rEE.!i oo.OGo
ctzotr5
oooL)o(EOl=oCL tr.IEL(ro!5
etqB
t PE€-oloE >J.E
SEiEN.9z IlJloox
-> l,(,6E8E
5E
-Js6 )(Jlr J(EO(,
IET'4.t!o
N?ocIiN-oo ci oIo- = o2:E 6-o3.aoOEr-Ct6)(.:6orrJ oo.
c,,lo(o
cie
#. E B;P E E e3 b:4 E* e E t Ae $ ; E y E_ E E.--E f E E.g &. gsi.E*;Esg
:PE:=ERF
(D
coa?
rt
Eood
cizEx
UJ
(7'(q-lolo(a-t\o
(!)<,O),t@q
@
o
s(oar-
oE')(E(L
o.ozExltl
s@ai-
so)qt
c)@.
@loc)
@
st@
(r)q6!oc6
Ne
EooJ
c;z
xul
(?,(oo,+@c!(o
6
av,ctatloci-6
(\tc,q
o)Noto6
c)*qoo
i6
(ot-6lo
c.j
a
t
$o)l-
6oxdogo
E$EEE9Eq
EE EEES9gEg EE@tL|-FNcO
+(ll
*tEEoooodd
ct cizzCExxIJJ UI
oo6{
oo-
Nott--N(n(o
tl'-{-oo(t
o
ll)-oN(q
No)o)"6F(o
t\t\a?
@
ao
C-'l
NNq
(v)oqo
!toIc)(\tao
@o)c+c.l\(o
ooc!t-!t
1-
6ox(!Fo
EooE
Eo(,oo
Eoog
EDc
E(,o.oo
o,(o6lNO)cra,c,
o,(9ol(oro
o(v)cll)(Dc!
rJ)(v)
otl()aoq(o
ol
o)!t
oi$l
fieiil .6OF,rg
EDoEO
6-bso.=9E(EC)
Efi
O)
t-
t-
6lN
c) (oEEoo@utoo
cidzz
EExxlIJ lU
!IoEtrox3E;;6(EEEFF
ooE.Eo _ E9oExvaI se xEfi=tr>iEE3!O<o_F(Ol\6
t$t1r,rri(r)
ni
rt(\,Ilo-
|()(o
^i
@o(o-oNc)
@
O)-
tl
o_
(",t-@+
o
c;
(v,t-ett
co
lf,a?
N(",i
(\(\u?(\l
@q
o)
co
6NoEoo9-. E
ocS fiH FE3 6r= = CJA* EE 6Eil. Eo EEEP ooE E'EhE 'F O.I! nG 6 di-o[ s s'EE(\l (ttto
@-FN+do)Nt--o
N\oN
N\o6t
(\.I NEa,o(,ou)od
ci <izzEExxIIJ lIJ
(o
t(DF.o
lo(o-
$l(o-
o
6-
@@-
O)
rt(9qloN\
N
o(i)ol(olo
|f,o)o-o(olo-
6t
F
@-
o)olo-!t
ot\o-
o)lf)o-t-
c,ooo
ciz
x
IJJ
rJ)\t(o
@
o-L,u)r4
-s-(96!. aioat(o
o
o
t(Dt-orat@-loto
EE 8
!$ s
$l
Fio,$t-(otte
=oo{oztxlrJ
o8E;eEgEO_ooocCu,o-Er9otsEEE9
E
Eg-oTP
oSi
EEEot
troo.J
=EEE
L- 6'tE
tr
"9AEa,ooo
(o
ro
t
(D
N
trE
=Fo(,
o.sJ
E
o(,
c
E
6o
E
E
6o
t
EIo(,
E
E
5(,
H
MI
=p
=fo=
Hfir/toiZF<z
e83
38=Efi=uJo_FIxiNXE5=Pooozl,J
33t!oc u.roo
FIir.
E?(ri,fr
3'r
o
=
SUEZ WATER IDAHO
Case SUZ-W-20-{12
Computation of State and Federal lncome Taxes
At Present and Proposed Rates
Line PRESENT
RATES
(1)
PROPOSED
RATES
t2l&
1.
2
3
4
5
6
7
I
I
10
OPERATING INCOME BEFORE INCOME TAXES
lnterest Expense (A)
Excess Tax Over Book Depreciation (C)
TOTAL TAX DEDUCTIONS
Taxable lncome-State
State lncome Tax at 6.925%
Federal Taxable lncome (L.1-L.2-L.6)
Federal lncome Tax at 21%
Less: Amortization of ITC
NET FEDERAL INCOME TAX EXPENSE
(A) CALCULATTON OF TNTEREST EXPENSE DEDUCTTON:
Pro Forma Rate Base
Debt Percentage of Capitalization
Debt Portion of Rate Base
Debt Rate
INTEREST EXPENSE
(B) CALCULATTON OF ADJUSTMENT TO INTEREST EXPENSE:
lnterest Expense for the 12 months ended June 30,2020
Allocation of Amortization of addltional debt costs
lnterest expense net of the amortization of additional debt costs
Direcl Amortization of additional debt costs
Adjusted per books interest expense
Pro-forma interest expense based upon rate base and capital structure
Adjustment to lnterest Expense
(c) ExcESS TAX OVER BOOK DEPRECTATTON:
Pro Forma Tax Depreciation
Pro Forma Book Depreciation
EXCESS TAX OVER BOOK DEPRECIATION (C)
$ 10,423JU
4,242,068
1,726,il0
5,968,608
4,454,496
$ 308,474
$ s.872.562
$ 1,233,238
$ (48,240)
s-L10L99!
$ 20,426,377
4,242,068
1,726,540
5,968,608
14,457,768
$ 1,001,200
$_1L1SX10E
$ 3,188,453
$ (48,240)
l-3J40.er3
218,358,831
45.930%
1fJr] 291 233
4.23%
s 4.242.068
$4,050,6't2
115,052
3,935,560
11
12
13
14
15
$
16
17
18
19
20
21
22
23
24
25
26
24.2581
4,059,818
$4242.068
L192.?50
10,284,899
8,558,360
LlJ20l40
Case No. SUZ-W-20{2
Exhibit No. 10
Schedule 4
D.Njuguna
Page 1 of 2
$
$
SUEZ WATER IDAHO
Case No. SUZ-W-20-02
Galculation of Revenue Requirement & Net to Gross Multiplier
Rate Base
Required Rate of Return
Required Net Operating lncome
Adjusted Net Operating lncome Realized
Net Operating lncome Deficiency
Net To Gross Multiplier
Gross Revenue lncrease
$ 218,358,831
7.460/o
16,284,963
8,929,632
7,355,331
$
1.3813
10J60,211
Net Operating lncome Requirement 1.0000000 $ 10,160,211
Less: IPUC Assessment Rate
Less: Uncollectible Accounts Expense
Rate Applicable to O&M Expense & IPUC Assessment
0.0025930
0.0128535
0.0154465 $156,939
State Tax Rate
Effective Net State Tax Rate
0.0692500
0.0681803 $692,727
Federal lncome Tax Residual
lncremental Federal lncome Tax Rate
Effective Federal Tax Rate
0.0836268
0.2100000
01924384 $1,955,215
Composite:IPUC Fees, Uncollectibles & lncome Taxes
Composite Residual
0.276065 $
0.723935 $
2,804,880
7,355,331
Net to Gross Multiplier 1.3813 $ 10,160,211
Case No. SUZ-W-20-02
Exhibit No. l0
Schedule 4
D.Njuguna
Page2ot 2