20200930Watson Direct.pdf

Michael 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@qivenspu rsley.com
prestonca rter@q iven spu rslev.com
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Attorneys for SUEZ Water ldaho lnc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
]N THE MATTER OF THE APPLICATION
OF SUEZ WATER IDAHO INC. FOR
AUTHORITY TO INCREASE lTS RATES
AND CHARGES FOR WATER SERVICE
IN THE STATE OF IDAHO
Case No. SUZ-W-2O-O2
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
DIRECT TESTIMONY OF DANE WATSON
SEPTEMBER 2O2O
DIRECT TESTIMONY
OF
DANE A. WATSON, PE CDP
ON BEHALF OF
SUEZ WATER IDAHO INC.
TABLE OF CONTENTS
EXECUTIVE SUMMARY OF DANE A. WATSON .....ES.1
t. lNTRODUCTION............
!I. PURPOSE OF DIRECT TESTIMONY
............. I
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...........10III. SUEZ WATER IDAHO DEPRECIATION STUDY
IV. CONCLUSlON..........26
EXHIBIT No. 13
Schedule 1
EXHIBIT No.
l3,Schedule 2
LIST OF EXHIBITS
Dane Watson, List of Testimony
SUEZ Water ldaho Depreciation Rate Study
(December 31, 2019)
1 EXECUTIVE SUMMARY OF DIRECT TESTIMONY OF DANE A. WATSON
2 SUEZ Water ldaho Inc. ("SUEZ Water ldaho" or "Company") engaged
3 Alliance Consulting Group to conduct a depreciation study of the Company's
4 depreciable assets for its statewide water operations as of December 31,2019.
5 This is the Company's first comprehensive depreciation study. The existing
6 depreciation rates currently used by the Company for many accounts have been
7 in place since 1980, and were based on a National Utility Commissioner's report
I regarding smallwater companies. The Company's existing depreciation rates do
g not reflect net salvage value, as best as can be determined. This depreciation
1O study follows the ldaho Public Utilities Commission ("lPUC') precedent for straight
11 line, depreciation, average life broad group, remaining life technique.
12 ln my opinion, the accrual rates re@mmended in the study and summarized
13 in this testimony are reasonable and should be adopted by the Commission.
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I. INTRODUCTION
Please state your name, position and business address.
My name is Dane A. watson. I am a partner in Alliance consutting Group
("Alliance"). Alliance provides consulting and expert services to the utility
industry. My business address is 101 E. park Blvd, suite 22o,plano. Texas
75074.
What is your educational background?
I hold a Bachelor of Science degree in Electrical Engineering from the
University of Arkansas at Fayetteville and a Master's Degree in Business
Administration from Amberton University.
Do you hold any special certification as a depreciation expert?
Yes. The society of Depreciation professionals ("society,,) has established
national standards for depreciation professionals. The Society administers
an examination and has certain required qualifications to become certified
in this field. I have met all requirements and am a Certified Depreciation
Professional ("CDP").
Please outline your experience in the fierd of depreciation.
since graduating from college in 198s, lhave worked in the area of
depreciation and valuation. I founded Altiance in 2OO4 and am responsible
for conducting depreciation, valuation, and certain accounting-related
studies for utilities in various industries. My duties related to depreciation
studies include the assembly and analysis of historical and simulated data,
conducting field reviews, determining service life and net salvage estimates,
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calculating annual depreciation, presenting recommended depreciation
rates to utility management for its consideration, and supporting such rates
before regulatory bodies.
Previously, I was employed from 1985 to 2004 with Texas Utilities
("TXU'), a large electric and gas utility that served approximately 3.7 million
customers in Texas. During those years, TXU moved from being a vertically
integrated utility to a regulated electric transmission and distribution
company with other separate companies. The electric transmission and
distribution assets that were part of TXU are now known as Oncor Electric
Delivery is the largest electric utility in Texas. During my tenure with TXU, I
was responsible for, among other things, conducting valuation and
depreciation studies for the domestic TXU companies. During that time, I
also served as Manager of Property Accounting Services and Records
Management in addition to my depreciation responsibilities.
I have twice been Chair of the Edison Electric lnstitute ('EEl')
property Accounting and Valuation Committee and have been Chairman of
EEI's Depreciation and Economic lssues subcommittee. I am a Registered
professional Engineer in the State of Texas and a Certified Depreciation
professional. I am a Senior Member of the lnstitute of Electrical and
Electronics Engineers ('IEEE") and served for several years as an officer of
the Executive Board of the Dallas Section of IEEE as well as national and
worldwide offices. I have served as President of the SDP twice.
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a. Have you previously testified before any regulatory bodies?
A' Yes. ln my 35-year career, I have conducted depreciation studies, filed
written testimony and/or testified in more than 250 cases before more than
thirty-five different state and regulatory agencies across the United States.
I also appeared in Federal Energy Regulatory Commission Docket No. 02-
7-00 as an industry panelist on asset retirement obligations. This is my first
appearance before this Commission. A list of the cases in which I filed
testimony over the course of my career is shown in Exhibit No. 13, Schedule
II. PURPOSE OF DIRECT TESTIMONY
a. what is the purpose of your direct testimony in this proceeding?
A. !n this testimony, I sponsor and support the depreciation study performed
for SUEZ Water ldaho for water assets (.'SUEZ Water ldaho Depreciation
study," "Depreciation study," or "study"). I also describe the methods and
conclusions of the Study. The Study, which is as Exhibit 13, Schedule 2,
provides the basis for the depreciation rates used to determine the
depreciation expense for SUEZ Water ldaho's assets included in this
docket.
o. Did you prepare any exhibits in connection with your testimony?
A. Yes. I prepared or supervised the preparation of the two exhibits listed in
the table of contents.
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O. What is the definition of depreciation used by public utilities?
A. The most widely recognized utility accounting definition of depreciation is
that of the American lnstitute of Certified Public Accountants, which states:
Depreciation accounting is a system of
accounting which aims to distribute the cost or
other basic value of tangible capital assets, less
salvage (if any), over the estimated useful life of
the unit (which may be a group of assets) in a
systematic and rational manner. lt is a process
of allocation, not of valuation.l
Depreciation expense is systematically allocated to accounting periods over
the life of the properties. The amount allocated to any one accounting
period does not necessarily represent the loss or decrease in value that will
occur during a particular period. Thus, depreciation is considered an
expense or cost to provide for the loss in service value, rather than a loss
or decrease in market value. The utility accrues depreciation based on the
original cost of all property included in each depreciable plant account.
Public utilities maintain a depreciation reserve (also known as accumulated
depreciation) on a group basis, meaning that groups are created at a plant
account or subaccount level. Depreciation expense is charged on a
monthly basis to each group's depreciation reserve using the depreciation
accrual rates approved by the regulatory body. When an asset retires
(before, after, or right at the average service life), the full cost of the
retirement is subtracted from the depreciation reserye. Because the
depreciation rate is based on an average life, the individual asset is
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1 Accounting Research Bulletin No. 43, Chapter 9, Paragraph 5 (June 1953).
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assumed to be fully depreciated at retirement. Any gross salvage for an
asset is added to the accumulated depreciation whereas any cost of
removal is deducted from the depreciation reserye. This methodology has
been approved by the ldaho Public Utilities Commission ("IPUC" or
"Commission") for SUEZ Water as well as other regulated entities under its
jurisdiction. Thus, in accounting for regulated entities, the full cost of
depreciable property on retirement, less the net salvage amount, if any, is
charged to the depreciation reserye.
O. ls there a standard approach to conducting a depreciation study?
A. Yes. Generally there are four phases in performing a depreciation study:
data collection, analysis, evaluation, and calculation. Data collection entails
the gathering of historical investment and retirement activity including
salvage and cost of removal experience. Analysis involves the
determination of mortality characteristics using the data gathered in the first
phase. Evaluation requires an understanding of history, accounting
practices and gives consideration to the Utility's plans and expectations.
The calculation phase utilizes the information and determinations made in
the first three phases and results in the development of recommended
depreciation rates.
O. What are mortality characteristics?
A. Mortality characteristics are the basic parameters that determine
depreciation rates. For this discussion, mortality characteristics include
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average service life, lowa-type retirement dispersion curves,2 and net
salvage allowance.
What is a retirement dispersion curve?
Retirement dispersion recognizes that individual assets within groups have
different lives, i.e., assets within the group will retire at a differing age. A
retirement dispersion curve models how retirements occur by age around
the average service life for each group of assets. Standard dispersion
patterns, such as retirement dispersion curyes, are useful because they
make it possible to calculate the remaining life of existing property and allow
comparison of life characteristics. ln this study, I used the lowa curve
retirement dispersion, which is used both at this Commission and other
regulated bodies across the utility industry.
What is an observed survivor curve?
An observed survivor curve is a plot, or graph, of the recorded retirement
and survivor history of an organization's assets on a group basis as a
function of age. The groups are defined by the Company's plant accounts.
Using Company specific history for each plant account, the observed curve
is essentially a graphical representation of history.
How is the observed survivor curve useful?
The observed survivor curye is useful because the area undemeath the
survivor curve is, by definition, equal to average service life. So, if an analyst
2 As described in more detail later in this testimony, Iowa-type curyes are observed survivor curves created
by the Engineering Research Institute to provide definitions of retirement dispersion.
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can determine a survivor curve that matches a particutar utility asset
experience and expectations, such as the lowa-type curves discussed later
in this testimony, the analyst can estimate the average service life of the
asset.
O. How are observed survivor curves used in depreciation studies?
A. Observed survivor curyes are commonly used in depreciation studies. The
observed survivor curves derived from a particular utility's history are
matched to generalized known curyes, such as the lowa-type curves, to
provide an estimate of average service life, assuming there is sufficient
history to analyze
O. What are lowa-type curves?
A. The lowa-type curves were devised empirically by the Engineering
Research lnstitute at what is now lowa State University to provide a set of
standard definitions of retirement dispersion. Through common usage,
revalidation and regulatory acceptance, these curves have become a widely
accepted descriptive standard for the life characteristics of industrial
property. The Engineering Research lnstitute collected dated retirement
information on many types of industrial and utility property and devised
empirica! curves that matched the range of patterns found. A total of 18
curyes were defined. There were six left-skewed, seven symmetrical and
five right-skewed curves, varying from wide to narrow dispersion patterns.
The lowa-curve naming convention allows the analyst to relate easily to the
patterns. The left-skewed curves are known as the "L series", the
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Symmetrical as the "S Series" and the right-skewed as the "R Series." A
number identifies the range of dispersion. A low number represents a wide
pattern and a high number a narrow pattern. The combination of one letter
and one number defines a unique dispersion pattern. The lowa curves have
been used across the utility industry in North America for approximately 90
years.
O. Are there standard methods of analysis in a depreciation study?
A. yes. There are several standard methods of analysis that can be used in a
depreciation study. The method that applies to a particular study depends
on the type of property being analyzed and the level of detail maintained by
the utility in its continuing property records3.
O. Gan you explain what you mean by type of property and level of detail
maintained bY a utilitY?
A. Certainly. Different methods of analysis are used for different types of
property. The methods of analysis depend on whether or not the Company
has aged data where the age of retired assets is known. lf the age of
retirements is known, the property can be analyzed via actuarialanalysis in
the same way human mortality is studied. Actuarial analysis evaluates
historical asset retirement experience where vintage data is available and
sufficient retirement activity was present. lf the age of retirements is
unknown, then the Simulated Plant Record ('SPR,') method is used to
evaluate the historical records of a particular plant account. ln the case of
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3 See Exhibit 13, Schedule 2,pages8-12.
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SUEZ ldaho, both approaches were used, because aged records were only
available from 2011-2019, with no prior history available.
ls there a standard system of calculating depreciation rates for a
utility?
Yes. A depreciation system is comprised of a method, procedure, and
technique. The predominant method utilized in the utility industry is the
straight-line method. There are two general procedures, average life (or
broad) group ("ALG') and equal life group. And there are two techniques,
whole-life and remaining life. The procedure and technique to use in a
depreciation study are typically selected by a particular utility based on
Commission precedent and accounting records available The depreciation
rates determined by a study must then be approved by the appropriate
regulatory agencies. The IPUC has approved depreciation studies using
the straight line, average life, broad group, remaining life depreciation
system.in several cases that I have researched.a The ALG procedure and
remaining-life technique are most commonly used and approved.s, and
were therefore used in the SUEZ Water ldaho Study. In this system, the
annual depreciation expense for each group of assets is computed by
dividing the original cost of the asset, less allocated depreciation reserve,
less estimated net salvage by the asset's respective average Iife group
A.
a See cases PAC-E-18-08, PAC-E-I3-02,INT-G-02-04,INT-G-14-02, AVU-E-I8-03, AVLI-G-I8-02, AVU-
E-07-ll, AVU-G-07-03, IPC-E-03-07, and IPC-E-16-23. . While this is not an exhaustive list of cases, the
depreciation system used in the proceedings mentioned were consistent over nearly a 20 year period.
5 Id.
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remaining life. The resulting annual accrual amounts of all depreciable
property within an asset group are accumulated, and then the total accrual
amount is divided by the original cost of all the depreciable property in that
asset group to determine the depreciation rate. The calculated remaining
lives and annual depreciation accrual rates are based on attained ages of
plant in service, the estimated service life, and the net salvage
characteristics of each depreciable group.
O. Please summarize conclusions.
A. The SUEZ ldaho Water depreciation study incorporates the straight line,
average life broad group, remaining life depreciation system approved in
many other ldaho proceedings. Based on SUEZ ldaho's specific
characteristics, history, and future expectations, this depreciation study
models Company specific expectations to develop the proposed
depreciation rates.
III. SUEZ WATER IDAHO DEPRECIATION STUDY
O. Did you prepare the SUEZ Water ldaho Depreciation Study?
A. Yes. The Study, attached as Exhibit No. 13, Schedule 2, analyzes the life
for the property groups associated with all SUEZ Water ldaho assets, as of
December 31, 2019. Net salvage was incorporated into the Study, based
on common industry practices and precedent from this Commissiono.
O. What groups of property is included in the depreciation study?
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There are six general classes, or functional groups: structures, source of
supply Plant, Pumping Plant, water Treatment prant, Transmission and
Distribution Plant, and General Plant used to treat and deliver water.
what definition of "depreciation" have you used for the purposes of
conducting a depreciation study and preparing your testimony?
ln the study and this testimony, I use the term "depreciation" in the
accounting sense; that is, a system of accounting that distributes the cost
of assets, less net salvage (if any), over the estimated useful life of the
assets in a systematic and rational manner. Depreciation is a process of
allocation, not valuation. Depreciation expense is systematically allocated
to accounting periods over the life of the properties. The amount allocated
to any one accounting period does not necessarily represent the loss or
decrease in value that will occur during that particular period. Thus,
depreciation is considered an expense or cost, rather than a loss or
decrease in value. ln the context of utilities, the utility accrues depreciation
expense by applying approved depreciation rates to the original cost of all
property included in each depreciable plant account. Upon retirement, the
full cost of depreciable property, less the net sarvage amount, if any, is
charged to the depreciation reserve. This definition and concept of
"depreciation" is consistent with the definition discussed earlier in this
testimony and industry practices.T
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7 See Exhibit No. 13, Schedule 2, page 5
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Please describe the approach taken in the depreciation study
undertaken for this case.
I conducted the Depreciation Study in four phases, as described in the
Detailed Discussion portion of the Study. Exhibit Np. 13, Schedule 2 at 15-
17. The four phases are: Data Collection, Analysis, Evaluation, and
Calculation. During the initial phase of the study, I collected historical data
to be used in the analysis. After the data was assembled, I performed
analyses to determine the life and net salvage percentage for the different
property groups being studied. As part of this process, I conferred with field
personnel, engineers, and managers responsible for the installation,
operation, and removal of the assets to gain their input into the operation,
maintenance, and salvage of the assets. The information obtained from
field personnel, engineers, and managerial personnel, combined with the
study results, were then evaluated to determine how the results of the
historical asset activity analysis, in conjunction with the Utility's expected
future plans, should be applied. Using all of these resources, I then
calculated the depreciation rate for each account.
What depreciation system did you use to calculate the proposed
depreciation rates for SUEZ Water ldaho?
I used the straight-line depreciation method, average life group (ALG)
procedure, and remaining life technique to calculate the proposed
depreciation and amortization accrual amounts and rates for SUEZ Water
ldaho.
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ln the depreciation study, how did you determine depreciation rates
using the alg procedure?
I used the typical ALG proe,edure in the Depreciation study. After an
average service life and dispersion were selected for each account, those
parameters were used to estimate what portion of the surviving investment
of each vintage was expected to retire. The depreciation of the group
continues untilall investment in the vintage group is retired. ALG groups are
defined by their respective account dispersion, life, and salvage estimates.
A straight-line rate for each ALG group is calculated by computing a
composite remaining life for each group across all vintages within the group,
dividing the remaining investment to be recovered by the remaining life to
find the annual depreciation expense and dividing the
annual depreciation expense by the surviving investment. The resulting rate
for each ALG group is designed to recover all retirements less net salvage
when the last unit retires. The ALG procedure recovers net book cost over
the life of each account by averaging many components.s The computations
of the annual depreciation and amortization accrual and rates are shown in
Appendix A and Appendix A-1 respectively in my Exhibit No. 13, schedule
2.
what time period did you use to develop the recommended
depreciation rates?
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A. The account level depreciation rates were developed based on the
depreciable plant on the books of SUEZ Water ldaho as of December 31,
2019.
a. Please summarize the results of the depreciation study.
A. The Study results in a total increase of approximately $13,000 in annual
depreciation compared to the depreciation rates cunently in effect. Table 1
below summarizes the increase in annual accrual by utility function. This is
a change of 0.10 percent from the Company's existing depreciation rates.
SUEZ Water ldaho
Annual Accrual Comparison - Table I
Descri on
Existing
Accrual
Proposed
Accrual Difference
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Please summarize the depreciation study results with respect to
depreciation rates.
Table 2 shows the depreciation rates recommended in the study for each
account.
SUEZ Water ldaho
Rates - Table 2
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136,467604,400 740,867Structures and lm rovements
(115,943)203,918319,862PlantSource of (120,644\1,406,4001,527,045PumPlant
(864,711)749,6181,614,329Water Treatment Plant
942,5458,294,6607,352,115Transmission and Distribution Plant
(5,401)10,65316,053General Plant
(50,586)1,357,5011,408,087General Plant Amortized
90,98390,9830General Plant True-U
1 2 709,12,841,891 12,854,600Grand Total
Proposed
RateDAccount
Structures and lm ents
Account Description
Proposed
Rate
304.2 Pu 2.620/o
304.3 Treatment 2.38o/o
304.4 Transmission and Distribution 2.89o/o
304.5 Offices 2.73o/o
Source of Supplv
305.2
Collecting and lmpounding
Reservoirs 1.670/o
306.2 Lake River and Other lntakes 1.680/o
307.2 Wells and 1.74o/o
309.2 Supply Mains 1.30o/o
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310.2 Power Production Equipment 4.25o/o
311.2 Pumping Equipment 4.650/o
31 1.3 Treatment Equi pment 4.650/o
311.4
Transmission and Distribution
Equipment 4.650/o
Treatment Plant
320.3 Water Treatment Equipment 2.62%
320.3
Treatment Membranes New
Additions O 12.5Oo/o
Transmission and Distribution Plant
330.4
Distribution Reservoirs and
Standpipes 2.13o/o
331.4
Transmission and Distribution
Mains 2.02o/o
333.4 Services 2.960/o
334.4 Meters and Meter lnstallatio ns 5.360/o
335.4 Hydrants 2.47%
General Plant D
341.5 Transportation Equipment 9.490/o
345.5 Power Operated Equipment 8.78o/o
General Plant Amortized
340.5 Software-ouse 10.00%
340.5 Com Hardware 20.000/o
340.5 Computer Software 20.0Oo/o
340.5 Office Furniture and Fixtures 6.670h
342.5 Stores ment 4.760/o
343.5
Tools, Shop and Garage
Equipment 5.88%
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Account Description
Proposed
Rate
344.5 Laboratory EquiPm ent 10.00%
346.5 Communication Equipment 5.53o/o
347.5 Miscellaneous EquiPment 6.670/o
348.5 Master Plan 10.00%
348.5 Other Tansible Plant 2.00o/o
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The primary factors that influence the depreciation rate for an account are
1) the remaining investment to be recovered in the account, 2) the
depreciable life of the account, and 3) the net salvage for the account'
can you explain why the depreciation rates proposed in the
depreciation study differ from the depreciation rates currently used by
SUEZ?
The rates currently used by suEz ldaho are not based on a comprehensive
depreciation study. The existing rates originate from a 1980s NARUC study
on the lives used for small water companies. No Company specific review
using life and net salvage analysis has occuned to my knowledge. This is
the first formal depreciation study for SUEZ ldaho to review depreciation
parameters and rates for the company. current rates do not incorporate
the factors: 1) the remaining investment to be recovered in the account, 2)
the depreciable life of the account, and 3) the net salvage for the account
discussed above.
What factors influenced the proposed depreciation rates for SUEZ
water in your dePreciation studY?
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1A.The remaining unrecovered investment in the account, the life of the
account, and net salvage estimated for the account all impact the proposed
depreciation rates for sUEZ water. The proposed depreciation rates,
supported by the Depreciation study, differ from those currenfly used by
suEz, but the overall change in depreciation expense is small as seen in
Table 1 above..
several factors caused this change. The existing rates were based
on a whole life model, and the proposed rates use the remaining life
depreciation system. ln general, the remaining lives of the assets studied
in the Depreciation Study were longer than previously used. of the 32
accounts analyzed, twelve (12) accounts had longer lives, 6 accounts had
shorter lives, and 14 accounts remained unchanged. of the 7 accounts that
had longer lives the largest increases were: Account 309.2 supply Mains,
Account 331.4 Transmission and Distribution Mains, and Account 333.4
services, all with an increase of 20 years. Accounts with the greatest
decreases in lives were:Account 924.4 Meters with a decrease of 21 years,
and Account 304.4 Transmission and Distribution Structures which had a
decrease of 11 years.
!n addition, negative net salvage was incorporated in accrual rates
for the first time. when the current rates were adopted, no net salvage
(positive or negative) was included in the computation of the rate.
Watson, Di 17
SUEZ Water ldaho lnc.
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A.
What method did you use to analyze historical data to determine life
characteristics?
ln much the same manner as human mortality is analyzed by actuaries,
depreciation analysts use models of property mortality characteristics that
have been validated in research and empirical applications. For those
accounts where aged retirements were available in sufficient quantities,
actuarial analysis was used; for accounts with limited historical retirements,
I relied on the simulated plant record balances method. For all life
selections, I incorporated professional judgment and information provided
by Company subject matter experts. Further discussion on the selection of
lives for each account is found in the life analysis section of Exhibit No' 13,
Schedule 2. See Exhibit No, 13, Schedule 2 at pages 8-12. The remaining
life, by account, is shown in Appendices A and A-1 of my Exhibit No. 13,
Schedule 2. Graphs and tables supporting the actuarialanalysis along with
the chosen lowa Curves used to determine the average service lives for
analyzed accounts are found in the Life Analysis section of Exhibit No. 13,
Schedule 2. A summary of the average service life and chosen lowa curve
for each account is shown in Table 3.
SUEZ Water ldaho
Depreciable Lives - Table 3
Account Description Life Curve
Structures and
304.2 Pumpinq 43 R1
304.3 Treatment 48 R2
304.4 Transmission and Distribution 39 R3
304.5 Offices 42 R2
Watson, Di 18
SUEZ Water ldaho lnc.
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Account Descri Life Curve
Source of Su
305.2
Collecting and lmpounding
Reservoirs 50 R2
306.2 Lake River and Other lntakes 50 R2
307.2 Wells and Sprinss 50 R1
309.2 Supply Mains 70 R2.5
Pumping Equipment
310.2 Power Production Equipment 19 R3
311.2 Pumping Equipment 20 R1
31 1.3 Treatment Equipment 20 R1
311.4
Transmission and Distribution
Equipment 20 R1
Treatment Plant
320.3 Water Treatment Equipment 25 R2
320.3 Treatment Membranes I S6
Transmission and Distribution Plant
330.4
Distribution Reservoirs and
Standpipes 50 R2
331.4
Transmission and Distribution
Mains 65 R2.5
333.4 Services 60 R2.5
334.4 Meters and Meter !nstallations 19 R1
335.4 Hydrants 40 R4
General Plant Depreciated
341.5 Transportation Equipment 15 L2
345.5 Power Operated Equipment 18 L5
General Plant Amortized
340.5 Software- Liqhthouse 10 SQ
340.5 Computer Hardware 5 SQ
340.5 Computer Sofhrvare 5 SQ
340.5 Office Furniture and Fixtures 15 SQ
342.5 Stores Equipment 21 SQ
343.5
Tools, Shop and Garage
Equipment 17 SQ
344.5 Laboratory Equipment 10 SO
346.5 Communication Equipment 19 SQ
347.5 Miscellaneous Equipment 15 SQ
348.5 Master Plan 10 SQ
348.5 Other Tangible Plant 50 SQ
Watson, Di 19
SUEZ Water ldaho lnc.
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A.
Please describe the vintage group accounting method that was used
when analyzing general plant assets in accounts 340.5 '348.5.,
excluding 341.5 and 345.5.
For amortized general plant assets in accounts 340.5 - 348.5, excluding
341,5 and 345.5, SUEZ is requesting to implement a vintage year
accounting method approved by the FERC in Accounting Release Number
15 ('AR-1 5"), Vintage Year Accounting For General Plant Accounts, dated
January 1, 1997. AR-15 allowed utilities to use a simplified method of
accounting for general plant assets, excluding Structures and improvements
(referred to aS "general plant"). The AR-15 release allowed high-volume,
low-cost assets to be amortized over the associated useful !ife, eliminated
the need to track individual assets, and allows a retirement to be booked at
the end of the depreciable life. This method is often referred to as
"amortization of general plant."
Adopting the method of accounting allowed in AR-15 changes the
level of detail maintained in the asset records and performs the depreciation
calculation at a vintage level rather than at a total account level. The plant
asset balances will be maintained by vintage installed with the retirement
being recorded when book depreciation has been completed. The empirical
retirement data for actuarial or semi-actuarial analysis will no longer be
reliable; however, the determination of useful Iife can be made appropriately
with the use of market forces, manufacturer expected life, technological
Watson, Di 20
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8A.
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obsolescence, business planning, known causes of retirement, and
changes in expected future utilization.
The depreciation calculation uses a useful life applied to a vintage
versus the entire account. The depreciation recovery is complete when the
vintage accumulated depreciation is equal to the vintage plant adjusted for
estimated salvage and removal costs.
Has vintage group amortization been adopted by other utilities?
Yes. Since allowed by FERC in 1997, most utilities I work with have
adopted general plant amortization in electric, gas, water and wastewater
industries. The Company will no longer have no maintain detailed
inventories of this equipment, and assets will be retired upon reaching an
age equal to the average service life of each plant account.
The adoption of Vintage Group Amortization is discussed in more
detail in the Life Analysis section of my Exhibit No. 13, Schedule 2 and
detailed computations for amortization expense and recovery of the
difference in book reserve versus theoretical reserve are shown in Appendix
A-1.
What is net salvage?
As discussed more fully in the study itself, net salvage is the difference
between the gross salvage (what the asset was sold for) and the removal
cost (cost to remove and dispose of the asset). Salvage and removal cost
percentages are calculated by dividing the current cost of salvage or
removal by the original installed cost of the asset.
Watson, Di 21
SUEZ Water ldaho lnc.
1Q.
24.
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40.
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6A.
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What are your net salvage recommendations in this proceeding?
I recommend using the traditional method of accruing for net salvage that is
commonly throughout the utility industry.
How did you determine the net salvage percentages that you used in
your study for SUEZWater ldaho's property?
I examined the data realized by the Company by observing the average net
salvage percentages for various bands (or combinations) of years. Using
averages (such as the S-year average band) allows the smoothing of timing
differences between when retirements, removal cost, and salvage are
booked and smooth's the natural variations between years. By looking at
successive average bands, or "rolling bands," an analyst can see trends in
the data that would signal the future net salvage in the account. This
examination, in combination with the feedback from Company personnel
related to any changes in operations or maintenance that would affect the
future net salvage of Company, allowed for the selection of the best
estimate of future net salvage percentages for each account.
Is this a reasonable method for determining net salvage percentages?
Yes. This methodology is commonly employed throughout the industry and
is the method recommended in authoritative texts.e Detailed historical net
salvage data aswellas the computation of thefive yearaverage net salvage
accrual amount are shown in Appendix D of my Exhibit No. 13, Schedule 2.
e Introduction to Depreciationfor Public Wilities and Other Industries, EEI AGA, 2013; Public
Utility Depreciation Practicas, NARUC, 1996; Depreciation Systems, by Drs. F. K. Wolf and W. C. Fitch,
Iowa State Press, 1994.
Watson, Di 22
SUEZ Water ldaho lnc.
1
2
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4
A summary of the average service life and chosen lowa curve for each
account is shown in Table 4.
SUEZ Water ldaho
Net Perce - Table 4
Watson, Di 23
SUEZ Water ldaho lnc.
Account Description
Proposed
Net Salvage
o/o
Structures and lmprovements
304.2 Pumpinq '10o/o
304.3 Treatment -10o/o
304.4 Transmission and Distribution '10o/o
304.5 Offices '10o/o
Source of Supply
305.2
Collecting and lmpounding
Reservoirs 0o/o
306.2 Lake River and Other lntakes 0o/o
307.2 Wells and Springs -1Oo/o
309.2 Supply Mains 0o/o
Pumpinq Equipment
310.2 Power Production Equipment 00h
311.2 Pumping Equipment -15o/o
311.3 Treatment Equipment -15o/o
311.4
Transmission and Distribution
Equipment '15o/o
Treatment Plant
320.3 Water Treatment Equipment -10%
320.3 Treatment Membranes Oo/o
Transmission and Distribution Plant
330.4
Distribution Reservoirs and
Standpipes -5o/o
331.4
Transmission and Distribution
Mains -3Oo/o
333.4 Services -75o/o
334.4 Meters and Meter lnstallations 0o/o
335.4 Hydrants 0o/o
General Plant Depreciated
341.5 Transportation Equioment 5o/o
345.5 Power Ooerated Eouioment 5o/o
General Plant Amortized
1
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Account Description
Proposed
Net Salvage
Yo
340.5 Software- Liqhthouse Oo/o
340.5 Computer Hardware 0o/o
340.5 Computer Software 0o/o
340.5 Office Furniture and Fixtures 0o/o
342.5 Stores Equipment Oo/o
343.5
Tools, Shop and Garage
Eouioment ooh
344.5 Laboratory Equipment 0o/o
346.5 Communication Equipment -5o/o
347.5 Miscellaneous Equipment Oo/o
348.5 Master Plan 0o/o
348.5 Other Tanqible Plant 0o/o
As part of your depreciation analysis, have you taken any action to
properly align the company's depreciation reserve with the life
characteristics and net salvage characteristics of each of the
company's plant functional groups?
Yes. ln the process of analyzing the Company's depreciation reserve, I
observed that the depreciation reserve positions of the various accounts
needed to be re-balanced based on my recommended service lives and net
salvage ratios. To allow the relative reserye positions of each account
within a function to mirror the life and net salvage characteristics of the
underlying assets, I reallocated the depreciation reserves for al! accounts
within each function. ln performing the reallocation within the general
functions, the Company requested that I exclude the accumulated
depreciation of the Lighthouse software from the reallocation process. The
Lighthouse software assets are currently 8.5 years old, and no future
Watson, Di 24
SUEZ Water ldaho lnc.
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14A
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additions are planned to that account. The Lighthouse software has a 10
year average service life, and the Company requested the depreciation
accrual of that group continue at current rates until the assets are fully
accrued, sometime in 2021.
Does the reallocation of the depreciation reserve change the total
reserve?
No. The depreciation reserve represents the amounts that customers have
contributed to the retum of the investment. The reallocation process does
not change the tota! reserve for each function; it simply reallocates the
reserve between accounts within each function. Schedule No. 13,
Schedule 2, Appendix F shows a comparison between the book
depreciation reserves and the reallocated reseryes.
ls depreciation reserue reallocation a sound depreciation practice?
Yes. The practice of depreciation reserve allocation is widely recognized
and commonly practiced as part of a comprehensive depreciation study for
the purposes of setting regulated rates where changes in services lives
result in an imbalance between the theoretical and book reserve.l0 with
respect to SUEZ water, my depreciation study demonstrates that there
have been significant changes in the life of the property since the existing
depreciation rates were established. These changes have created
imbalances between the theoretical and the book reserve for various
10
20
t0 Public Utility Depreciation Practices, NARUC (1968), p. 48; Public Utility Depreciation
Practices,NARUC (1996), p. 188.
Watson, Di 25
SUEZ Water ldaho Inc.
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accounts within each function making the reallocation of the depreciation
reserve appropriate in this instiance.
How does the company propose to implement the reallocation of its
depreciation reserve if its proposed rates are approved?
When the proposed depreciation rates are approved, the Company
proposes to reallocate the reserves on its books to match the allocation
performed in this study.
Iv. CONCLUSION
What account depreciation rates are you proposing, and how do they
compare with the current rates?
The proposed depreciation rates for each account are listed previously in
my testimony in Table 2. The current and proposed depreciation rates, and
my underlying calculations used to support my recommendations, are
included in Appendix B of Exhibit No. 13, Schedule 2.
Do you have any concluding remarks?
Yes. The Depreciation Study and analysis performed under my supervision
fully supports setting depreciation rates at the level i have indicated in my
testimony and underlying Depreciation study. The company should
continue to periodically review the annual depreciation rates for its property.
ln this way, all customers will be charged for their appropriate share of the
capital expended for their benefit. The Depreciation Study describes the
extensive analysis performed and the resulting rates that are now
appropriate for Company propefi. ln my opinion, the Company's
Watson, Di 26
SUEZ Water Idaho lnc.
,l
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3
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5
depreciation rates should be set consistent with my recommendations in
order to allow recovery of the Company's total investment in property over
the estimated remaining life of the assets.
O. Does this conclude your direct testimony?
A. Yes.
Watson, Di 27
SUEZ Water ldaho lnc.
Michael C. Creamer (lSB No. 4030)
Preston N. Carter (lSB No. e462)
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 UT!LITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF SUEZ WATER IDAHO !NC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE
!N THE STATE OF IDAHO
Case No. SUZ-W-20-02
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
EXHIBIT 13 TO ACCOMPANY THE
DIRECT TESTIMONY OF DANE WATSON
Asset Location Commission Docket (If
Annlicable Company Year Description
Texas, New
Mexico
Federal Energy
Regulatory
Commission
ER20-277-000 Southwestern Public
Service Company 2019
Electric
Production and
General Plant
Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-19-086 Alaska Electric Light
and Power 2019
Electric
Depreciation
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Delaware
Delaware Public
Service
Commission
l9-0615 Suez Water Delaware 2019
Water
Depreciation
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Texas
Public Utility
Commission of
Texas
4983r Southwestern Public
Service Company 2019
Electric
Depreciation
Study
New Mexico
New Mexico
Public Regulation
Commission
19-00170-uT Southwestern Public
Service Company 2019
Electric
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Studv
Georgia
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Service
Commission
425t6 Georgia Power
Company 2019
Electric
Depreciation
Study
Georgia
Georgia Public
Service
Commission
42315 Atlanta Gas Light 2019 Gas Depreciation
Study
Arizona
Arizona
Corporation
Commission
G-01551A-19-
0055
Southwest Gas
Corporation 2019 Gas Removal Cost
Study
New Hampshire
New Hampshire
Public Service
Commission
DE t9-064 Liberty Utilities 2019
Elechic
Distribution and
General
New Jersey New Jersey Board
of Public Utilities cR19040486 Elizabethtown Natural
Gas 20t9 Gas Depreciation
Study
Texas
Public Utility
Commission of
Texas
49421 CenterPoint Houston
Electric LLC 2019
Elechic
Depreciation
Study
North Carolina
North Carolina
utilities
Commission
Docket No. G-9,
Sub 743 Piedmont Natural Gas 2019 Gas Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-18-l2l
Municipal Power and
Light City of
Anchoraqe
20r8
Elechic
Depreciation
Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 1 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Various FERC RPl9-3s2-000 Sea Robin 201 8 Gas Depreciation
Study
Texas New
Mexico
Federal Energy
Regulatory
Commission
ERl9-404-000 Southwestern Public
Service Company 2018
Electric
Transmission
Depreciation
Study
California
Federal Energy
Regulatory
Commission
ERl9-221-000 San Diego Gas and
Electric 2018
Electric
Transmission
Depreciation
Study
Kentucky
Kentucky Public
Service
Commission
201 8-00281 Atmos Kentucky 201 8 Gas Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-18-0s4 Matanuska Electric Coop 2018 Electric Generation
Depreciation Study
California
California Public
Utilities
Commission
Al7-10-007 San Diego Gas and
Electric 201 I
Electric and Gas
Depreciation
Studv
Texas
Public Utility
Commission of
Texas
48401 Texas New Mexico
Power 2018
Electric
Depreciation
Studv
Nevada
Public Utility
Commission of
Nevada
1 8-0503 I Southwest Gas 2018 Gas Depreciation
Study
Texas
Public Utility
Commission of
Texas
48231 Oncor Electric
Delivery 2018 Depreciation Rates
Texas
Public Utility
Commission of
Texas
48371 Entergy Texas 201 8
Electric
Depreciation
Studv
Kansas
Kansas
Corporation
Commission
l8-KCPE-480-
RTS
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Light 20r8
Elechic
Depreciation
Study
Arkansas
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Service
Commission
t8-027-U Liberty Pine Bluff
Water 2018
Water
Depreciation
Study
Kentucky
Kentucky Public
Service
Commission
2017-00349 Atmos KY 201 8
Gas Depreciation
Rates
Case No. SUZ-W-20-02
Exhibit No. '13
Schedule 1
D. Watson
Page 2 of 15
Asset Location Commission Docket (If
Annlicable Company Year Description
Tennessee Tennessee Public
Utility Commission I 8-0001 7 Chattanooga Gas 20t8 Gas Depreciation
Studv
Texas
Railroad
Commission of
Texas
10679 Si Energy 2018 Gas Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-17-104 Anchorage Water and
Wastewater 20t7
Water and Waste
Water
Depreciation
Study
Michigan
Michigan Public
Service
Commission
u-18488 Michigan Gas Utilities
Corporation 2017 Gas Depreciation
Study
Texas
Railroad
Commission of
Texas
10669 CenterPoint South
Texas 2017 Gas Depreciation
Study
Arkansas
Arkansas Public
Service
Commission
17-061-U Empire District
Electric Company 2017
Depreciation Rates
forNew Wind
Generation
Kansas
Kansas
Corporation
Commission
l8-EPDE-184-
PRE
Empire District
Electric Company 2017
Depreciation Rates
forNew Wind
Generation
Oklahoma
Oklahoma
Corporation
Commission
PUD20t70047t Empire District
Electric Company 2017
Depreciation Rates
forNew Wind
Generation
Missouri
Missouri Public
Service
Commission
EO-2018-0092 Empire District
Electric Company 2017
Depreciation Rates
forNew Wind
Generation
Michigan Michigan Public
Service Commission u-t8457 Upper Peninsula
Power Company 20t7
Electric
Depreciation
Studv
Florida
Florida Public
Service
Commission
20170r79-GU Florida City Gas 2017 Gas Depreciation
Study
Michigan FERC ER18-56-000 Consumers Energy 2017
Elechic
Depreciation
Study
Missouri
Missouri Public
Service
Commission
GR-2018-0013 Liberty Utilities 2017 Gas Depreciation
Study
Michigan Michigan Public
Service Commission u-18452 SEMCO 20t7 Gas Depreciation
Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 3 of 15
Asset Location Commission Docket (If
Annlicable Company Year Description
Texas
Public Utility
Commission of
Texas
47527 Southwestern Public
Service Company 2017
Electric
Production
Depreciation
Studv
MultiState FERC ERl7-1664
American
Transmission
Company
2017
Electric
Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-17-008
Municipal Power and
Light City of
Anchorage
2017
Generating Unit
Depreciation
Studv
Mississippi Mississippi Public
Service Commission 2017-uN-041 Atmos Enerry 2017 Gas Depreciation
Study
Texas
Public Utility
Commission of
Texas
46957 Oncor Electric
Delivery 20r7
Electric
Depreciation
Studv
Oklahoma
Oklahoma
Corporation
Commission
PUD 201700078 CenterPoint Oklahoma 2017 Gas Depreciation
Study
New York FERC ERlT-1010-000 New York Power
Authority 20t7
Electric
Depreciation
Studv
Texas
Railroad
Commission of
Texas
GUD 10580 Atmos Pipeline Texas 2017 Gas Depreciation
Study
Texas
Railroad
Commission of
Texas
GUD 10567 CenterPoint Texas 2016 Gas Depreciation
Study
MultiState FERC ERlT-191-000
American
Transmission
Company
20t6
Electric
Depreciation
Study
New Jersey New Jersey Board
of Public Utilities GRl6090826 Elizabethtown Natural
Gas 2016 Gas Depreciation
Study
North Carolina
North Carolina
Utilities
Commission
Docket G-9 Sub
77H Piedmont Natural Gas 2016 Gas Depreciation
Study
Michigan Michigan Public
Service Commission u-18195 Consumers Enerry/DTE
Electric 2016
Ludington Pumped
Storage
Depreciation Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 4 of '15
Asset Location Commission Docket (If
Annlicable Company Year Description
Alabama FERC ER16-2313-000 SEGCO 2016
Electric
Depreciation
Sfudv
Alabama FERC ERl6-2312-000 Alabama Power
Company 2016
Electric
Depreciation
Studv
Michigan
Michigan Public
Service
Commission
u-18127 Consumers Energy 20t6
Natural Gas
Depreciation
Studv
Mississippi
Mississippi Public
Service
Commission
2016 uN 267 Willmut Natural Gas 20t6
Natural Gas
Depreciation
Studv
Iowa Iowa Utilities
Board RPU-2016-0003 Liberty-Iowa 20t6
Natural Gas
Depreciation
Sfudv
Illinois Illinois Commerce
Commission GRM #16-208 Liberty-Illinois 2016
Natural Gas
Depreciation
Studv
Kentucky FERC RPl6-097-000 KOT 20t6
Natural Gas
Depreciation
Studv
Alaska
Regulatory
Commission of
Alaska
u-16-067 Alaska Electric Light
and Power 2016
Generating Unit
Depreciation
Study
Florida
Florida Public
Service
Commission
160170-EI Gulf Power 2016
Electric
Depreciation
Studv
California Califomia Public
Utilities Commission A t6-07-002 California American
Water 2016
Water and Waste
Water
Depreciation
Studv
Arizona
Arizona
Corporation
Commission
G-015514-16-
0107 Southwest Gas 20t6 Gas Depreciation
Study
Texas
Public Utility
Commission of
Texas
454t4 Sharyland 2016
Electric
Depreciation
Studv
Colorado Colorado Public
Utilities Commission t6A-02318 Public Service
Company of Colorado 20t6
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Depreciation
SfudY
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 5 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Multi-State NE US FERC l6-453-000
Northeast
Transmission
Development,LLC
2015
Electric
Depreciation
Study
Arkansas
Arkansas Public
Service
Commission
ls-098-u CenterPoint Arkansas 20r5
Gas Depreciation
Study and Cost of
Removal Study
New Mexico
New Mexico
Public Regulation
Commission
ls-00296-ur Southwestern Public
Service Company 2015
Electric
Depreciation
Studv
Atmos Energy
Corporation
Tennessee
Regulatory
Authoritv
t4-00146 Atmos Tennessee 2015
Natural Gas
Depreciation
Studv
New Mexico
New Mexico
Public Regulation
Commission
ls-00261-ur
Public Service
Company of New
Mexico
2015
Electric
Depreciation
Studv
Hawaii NA NA Hawaii American
Water 2015
WaterAMastewater
Depreciation
Studv
Kansas
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Corporation
Commission
16-ATMG-079-
RTS Atmos Kansas 2015 Gas Depreciation
Study
Texas
Public Utility
Commission of
Texas
44704 Entergy Texas 20t5
Elechic
Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-ls-089 Fairbanks Water and
Wastewater 20t5
Water and Waste
Water
Depreciation
Studv
Arkansas Arkansas Public
Service Commission 15-03 l-U Source Gas Arkansas 20ts
Undergrorurd
Storage Gas
Depreciation Study
New Mexico
New Mexico
Public Regulation
Commission
l5-00139-UT Southwestern Public
Service Company 20ts
Electric
Depreciation
Studv
Texas
Public Utility
Commission of
Texas
44746 Wind Energy
Transmission Texas 2015
Electric
Depreciation
Study
Colorado Colorado Public
Utilities Commission t5-AL-0299G Atmos Colorado 201s Gas Depreciation
Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 6 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Arkansas Arkansas Public
Service Commission l5-01l-u Source Gas Arkansas 2015 Gas Depreciation
Study
Texas
Railroad
Commission of
Texas
GUD 10432 CenterPoint- Texas
Coast Division 20r5 Gas Depreciation
Study
Kansas
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Corporation
Commission
1s-KCPE-116-
RTS
Kansas City Power and
Light 20ts
Electric
Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-14-t20 Alaska Electric Light
and Power
2014-
2015
Electric
Depreciation
Studv
Texas
Public Utility
Commission of
Texas
43950 Cross Texas
Transmission 2014
Electric
Depreciation
Studv
New Mexico
New Mexico
Public Regulation
Commission
t4-00332-UT Public Service ofNew
Mexico 2014
Electric
Depreciation
Studv
Texas
Public Utility
Commission of
Texas
4369s Xcel Energy 20t4
Electric
Depreciation
Study
Multi State - SE
US FERC RPl5-t0l Florida Gas
Transmission 2014
Gas Transmission
Depreciation
Sfudv
California Califomia Public
Utilities Commission A.14-07-006 Golden State Water 2014
Water and Waste
Water
Depreciation
Studv
Michigan
Michigan Public
Service
Commission
u-17653 Consumers Energy
Company 2014
Electric and
Common
Depreciation
Studv
Colorado
Public Utilities
Commission of
Colorado
l4AL-0660E Public Service of
Colorado 2014 Electric
Depreciation Study
Wisconsin Wisconsin 05-DU-102 WE Energies 2014
Electric, Gas, Steam
and Common
Depreciation Studies
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 7 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Texas
Public Utility
Commission of
Texas
42469 Lone Star
Transmission 2014
Electric
Depreciation
Sfudv
Nebraska
Nebraska Public
Service
Commission
NG-0079 Source Gas Nebraska 2014 Gas Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-14-055 TDX North Slope
Generating 2014 Electric
Depreciation Study
Alaska
Regulatory
Commission of
Alaska
u-14-0s4 Sand Point Generating
LLC 2014 Electric
Depreciation Study
Alaska
Regulatory
Commission of
Alaska
u-14-045 Matanuska Electric Coop 2014 Electric Generation
Depreciation Study
Texas, New
Mexico
Public Utility
Commission of
Texas
42004 Southwestern Public
Service Company
2013-
2014
Electric
Production,
Transmission,
Distribution and
General Plant
Depreciation
Study
New Jersey New Jersey Board
of Public Utilities GR13l tll37 South Jersey Gas 2013 Gas Depreciation
Study
Various FERC RPt4-247-000 Sea Robin 2013 Gas Depreciation
Studv
Arkansas Arkansas Public
Service Commission l3-078-U Arkansas Oklahoma Gas 2013 Gas Depreciation
Study
Arkansas Arkansas Public
Service Commission l3-079-U Source Gas Arkansas 2013 Gas Depreciation
Study
California Califomia Public
Utilities Commission
hoceedingNo.:
A.l3-l l-003
Southern California
Edison 2013 Electric
Depreciation Study
North
Carolina/South
Carolina
FERC ERr3-1313 Progress Energy
Carolina 2013 Electric
Depreciation Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 8 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Wisconsin
Public Service
Commission of
Wisconsin
4220-DU-t08 Northern States Power
Company - Wisconsin 2013
Electric, Gas and
Common
Transmission,
Distribution and
General
Texas
Public Utility
Commission of
Texas
4t474 Sharyland 2013
Electric
Depreciation
Sfudv
Kentucky
Kentucky Public
Service
Commission
2013-00148 Atmos Energy
Corporation 2013 Gas Depreciation
Study
Minnesota Minnesota Public
Utilities Commission t3-2s2 Allete Minnesota Power 2013 Electric
Depreciation Study
New Hampshire
New Hampshire
Public Service
Commission
DE 13-063 Liberty Utilities 2013
Electric
Distribution and
General
Texas
Railroad
Commission of
Texas
10235 West Texas Gas 2013 Gas Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-12-154 Alaska Telephone
Company 2012 Telecommunication
s Utility
New Mexico
New Mexico Public
Regulation
Commission
l2-00350-uT Southwestem Public
Service Company 2012 Electric
Depreciation Study
Colorado Colorado Public
Utilities Commission l2AL-l2695T Public Service Company
of Colorado 2012 Gas and Steam
Depreciation Study
Colorado Colorado Public
Utilities Commission t2AL-1268c Public Service Company
of Colorado 2012 Gas and Steam
Depreciation Study
Alaska
Regulatory
Commission of
Alaska
u-12-r49 Municipal Power and
Lieht City of Anchorage 2012 Electric
Depreciation Study
Texas Texas Public
Utility Commission 40824 Xcel Energy 2012 Electric
Depreciation Study
South Carolina
Public Service
Commission of
South Carolina
Docket 2012-384-
E
Progress Energy
Carolina 20t2 Electric
Depreciation Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Walson
Page I of 15
Asset Location Commission Docket (If
Apnlicable Company Year Description
Alaska
Regulatory
Commission of
Alaska
u-12-141 Interior Telephone
Company 2012 Telecommunication
s utiliry
Michigan Michigan Public
Service Commission u-17104 Michigan Gas Utilities
Corporation 2012 Gas Depreciation
Study
North Carolina
North Carolina
Utilities
Commission
E-2 Sub 1025 Progress Energy
Carolina 2012 Electric
Depreciation Study
Texas Texas Public
Utility Commission 40606 Wind Energy
Transmission Texas 2012 Electric
Depreciation Study
Texas Texas Public
Utility Commission 40604 Cross Texas
Transmission 2012 Electric
Depreciation Study
Minnesota
Minnesota Public
Utilities
Commission
l2-858 Northern States Power
Company - Minnesota 2012
Electric, Gas and
Common
Transmission,
Distribution and
General
Texas
Railroad
Commission of
Texas
10170 Atmos Mid-Tex 2012 Gas Depreciation
Study
Texas
Railroad
Commission of
Texas
10174 Atmos West Texas 2012 Gas Depreciation
Study
Texas
Railroad
Commission of
Texas
10182 CenterPoint BeaumonU
East Texas 2012 Gas Depreciation
Study
Kansas
Kansas
Corporation
Commission
I2-KCPE-764-
RTS
Kansas City Power and
Light 2012 Electric
Depreciation Study
Nevada
Public Utility
Commission of
Nevada
t2-0400s Southwest Gas 2012 Gas Depreciation
Study
Texas
Railroad
Commission of
Texas
10147,10170 Atmos Mid-Tex 2012 Gas Depreciation
Study
Kansas
Kansas
Corporation
Commission
l2-ATMG-564-
RTS Atmos Kansas 2012 Gas Depreciation
Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 10 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Texas Texas Public Utility
Commission 40020 Lone Star Transmission 2012 Electric
Depreciation Study
Michigan Michigan Public
Service Commission u-16938 Consumers Energy
Company 2011 Gas Depreciation
Study
Colorado
Public Utilities
Commission of
Colorado
ttAL-947E Public Service of
Colorado 20tt Electric
Depreciation Study
Texas Texas Public Utility
Commission 39896 Entergy Texas 2011 Electric
Depreciation Study
MultiState FERC ERt2-212 American Transmission
Company 2011 Electric
Depreciation Study
Califomia California Public
Utilities Commission Al0l l0l5 Southern Califomia
Edison 20tt Electric
Depreciation Study
Mississippi Mississippi Public
Service Commission 201l-uN-I84 Atmos Energy 20n Gas Depreciation
Study
Michigan Michigan Public
Service Commission u-16536 Consumers Enerry
Company 2011 Wind Depreciation
Rate Study
Texas
Public Utility
Commission of
Texas
38929 Oncor 2011 Electric
Depreciation Study
Texas
Railroad
Commission of
Texas
10038 CenterPoint South TX 2010 Gas Depreciation
Study
Alaska
Regulatory
Commission of
Alaska
u-10-070 lnside Passage Electric
Cooperative 2010 Electric
Depreciation Study
Texas
Public Utility
Commission of
Texas
36633 City Public Service of
San Antonio 2010 Electric
Depreciation Study
Texas Texas Railroad
Commission r0000 Atmos Pipeline Texas 2010 Gas Depreciation
Study
Multi State - SE US FERC RPl0-2t-000 Florida Gas
Transmission 2010 Gas Depreciation
Study
Maine/New
Hampshire FERC 10-896 Granite State Gas
Transmission 20t0 Gas Depreciation
Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page '11 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Texas
Public Utility
Commission of
Texas
38480 Texas New Mexico
Power
2010 Electric
Depreciation StudY
Texas
Public Utility
Commission of
Texas
38339 CenterPoint Electric 2010 Electric
Depreciation Study
Texas Texas Railroad
Commission
10041 Atmos Amarillo 2010 Gas Depreciation
Study
Georgia Georgia Public
Service Commission
31647 Atlanta Gas Light 2010 Gas Depreciation
Study
Texas
Public Utility
Commission of
Texas
38147 Southwestern Public
Service 2010 Electric Technical
Update
Alaska
Regulatory
Commission of
Alaska
u-09-015 Alaska Electric Light and
Power
2009-
2010
Electric
Depreciation Study
Alaska
Regulatory
Commission of
Alaska
u-10-043 Utility Services of
Alaska
2009-
2010
Water Depreciation
Study
Michigan Michigan Public
Service Commission u-160s5 Consumers EnergY/DTE
Enerry
2009-
2010
Ludington Pumped
Storage
Depreciation StudY
Michigan Michigan Public
Service Commission
u-16054 Consumers Enerry 2009-
2010
Electric
Depreciation Study
Michigan Michigan Public
Service Commission u-1s963 Michigan Gas Utilities
Corporation 2009 Gas Depreciation
Study
Michigan Michigan Public
Service Commission u-15989 Upper Peninsula Power
Company 2009 Electric
Depreciation Study
Texas
Railroad
Commission of
Texas
9869 Atmos Energy 2009 Shared Services
Depreciation Study
Mississippi Mississippi Public
Service Commission 09-uN-334 CenterPoint EnergY
Mississippi
2009 Gas Depreciation
Study
Texas
Railroad
Commission of
Texas
9902 CenterPoint Enerry
Houston 2009 Gas Depreciation
Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 12 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Colorado Colorado Public
Utilities Commission 09AL-2998 Public Service Company
of Colorado 2009 Electric
Depreciation Study
Louisiana Louisiana Public
Service Commission u-30689 Cleco 2008 Electric
Depreciation Study
Texas
Public Utility
Commission of
Texas
35763 Southwestem Public
Service Company 2008
Electric Production,
Transmission,
Distribution and
General Plant
Depreciation Study
Wisconsin Wisconsin 05-DU-l0l WE Energies 2008
Electric, Gas, Steam
and Common
Depreciation Studies
North Dakota North Dakota Public
Service Commission PU-07-776 Northem States Power
Company - Minnesota 2008 Net Salvage
New Mexico
New Mexico Public
Regulation
Commission
07-00319-ur Southwestem Public
Service Company 2008 Testimony -
Depreciation
Multiple States
Railroad
Commission of
Texas
9762 Atmos Energy 2007-
2008
Shared Services
Depreciation Study
Minnesota Minnesota Public
Utilities Commission Eot5lD-08422 Minnesota Power 2007-
2008
Electric
Depreciation Study
Texas
Public Utility
Commission of
Texas
35717 Oncor 2008 Electic
Depreciation Study
Texas
Public Utility
Commission of
Texas
34040 Oncor 2007 Electric
Depreciation Study
Michigan Michigan Public
Service Commission u-1s629 Consumers Energy 2006-
2009
Gas Depreciation
Study
Colorado Colorado Public
Utilities Commission 06-234-Ec Public Service Company
of Colorado 2006 Elechic
Depreciation Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 13 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Arkansas Arkansas Public
Service Commission 06-161-U CenterPoint Energy -
Arkla Gas 2006
Gas Distribution
Depreciation Study
and Removal Cost
Study
Texas, New Mexico
Public Utility
Commission of
Texas
32766 Southwestem Public
Service Company
2005-
2006
Electric Production,
Transmission,
Distribution and
General Plant
Depreciation Study
Texas
Railroad
Commission of
Texas
967019676 Atmos Enerry Corp 2005-
2006
Gas Distribution
Depreciation Study
Texas
Railroad
Commission of
Texas
9400 TXU Gas 2003-
2004
Gas Distribution
Depreciation Study
Texas
Railroad
Commission of
Texas
9313 TXU Gas 2002 Gas Distribution
Depreciation Study
Texas
Railroad
Commission of
Texas
9225 TXU Gas 2002 Gas Distribution
Depreciation Study
Texas
Public Utility
Commission of
Texas
24060 TXU 2001 Line Losses
Texas
Public Utility
Commission of
Texas
23640 TXU 2001 Line Losses
Texas
Railroad
Commission of
Texas
9145-9148 TXU Gas 2000-
2001
Gas Distribution
Depreciation Study
Texas
Public Utility
Commission of
Texas
22350 TXU 2000-
2001
Electric
Depreciation Study,
Unbundling
Texas
Railroad
Commission of
Texas
89',76 TXU Pipeline t999 Pipeline
Depreciation Study
Texas
Public Utility
Commission of
Texas
2028s TXU 1999 Fuel Company
Depreciation Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 14 of 15
Asset Location Commission Docket (If
Applicable Company Year Description
Texas
Public Utility
Commission of
Texas
r 8490 TXU 1998 Transition to
Competition
Texas
Public Utility
Commission of
Texas
16650 TXU 1997 Customer Complaint
Texas
Public Utility
Commission of
Texas
l5l9s TXU 1996 Mining Company
Depreciation Study
Texas
Public Utility
Commission of
Texas
t2160 TXU 1993 Fuel Company
Depreciation Study
Texas
Public Utility
Commission of
Texas
11735 TXU 1993 Electric
Depreciation Study
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 1
D. Watson
Page 15 of 15
SUEZWATER IDAHO
WATER UTILITY
DEPRECIATION RATE STUDY
AT DECEMBER 31, 2019
SUEA
http:/Iwww,utilityalliance.com
Case No. SUZ-W2G02
Exhibit No. 13
Schedule 2
D. Watson
Page 1 of 106
SUEZ WATER IDAHO
DEPRECIATION RATE STUDY
EXECUTIVE SUMMARY
Suez Water ldaho ("Suez" or "Company" or'Utility") engaged Alliance Consulting
Group to conduct a depreciation study of the Company's depreciable assets as of
December 31,2019. This study recommends an increase of approximately g13 thousand
in annual depreciation compared to the depreciation rates currently in effect. There are two
offsetting primary drivers of the slight increase: first, the longer average service life
recommendation for the Company's largest accounts, Account 331.4 and Account 333.4,
which comprise approximately 63% of the Company's plant in service at December 31,
2019; and second, the incorporation of negative net salvage in the accrual rates.
For Suez, the life indications for the majority of the asset accounts stayed the same.
Of the 32 accounts analyzed,12 accounts had longer lives, 6 accounts had shorter lives,
and 14 accounts remained unchanged. Of the 7 accounts that had longer lives the largest
increases were Account 309.2 Supply Mains and Account 333.4 Services, both of which
had an increase of 20 years. Account 331.4 Transmission and Distribution Mains had an
increase of 15 years in life. Accounts with the greatest decreases in tives were Account
334.4 Meters, with a decrease of 21 years, and Account 304.4 Transmission and
Distribution Structures, with a decrease of 11 years.
Appendix A provides the calculation of the recommended depreciation rates.
Appendix A-1 provides the calculation of the recommended amortization rates for the
amortized general plant accounts and the general plant reserve true-up. Appendix B
provides the comparison in depreciation expense for from existing annua! accrual to
proposed annual accrual. Appendix C provides the mortality characteristics (life, curve,
salvage, and net salvage) for the accounts analyzed. Appendix D provides the net salvage
history for all accounts. Appendix E shows compares the Company's book accumulated
depreciation to the reallocated depreciation reserves.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 2 of 106
SUEZ WATER IDAHO
DEPRECIATION RATE STUDY
AT DECEMBER 31 ,2019
Table of Contents
PURPOSE 4
5
6
6
6
6I
STUDY RESULTS
GENERAL DISCUSSION...........
Definition..
Basis of Depreciation Estimates..
Survivor Curves
Actuarial Analysis
Judgment 12
13
14
15
15
Average Life Group Depreciation .
Theoretical Depreciation Reserve
DETAILED DISCUSSION
Depreciation Study Process ........
.18Depreciation Rate Calculation
20
21
21
Remaining Life Calculation
Life Analysis ............
Salvage Analysis
Appendix A: Computation of Annual Depreciation Accrual and Rates
Appendix A-1: Computation of Annual Amortization Accrua! and Rates
Appendix B: Comparison of Existing versus Proposed Accrual and Rates
Appendix C: Comparison of Life and Net Salvage Parameters
Appendix D: Net Salvage
Appendix E: Comparison of Book and Reallocated Depreciation Reserve
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 3 of 106
PURPOSE
The purpose of this study is to develop depreciation rates for the specified water
depreciable property as recorded on Suez's books at December 31, 2019. The account-
based depreciation rates were designed to recover the total remaining undepreciated
investment for the analyzed accounts, adjusted for net salvage, over the remaining life of
the property on a straight-line basis.
Suez serves approximately 240,000 people in the City of Boise and adjacent areas.
Suez owns and operates the water system infrastructure including 2 surface water
treatment plants, 5 groundwater treatment systems, 80 wells, 45 booster pump stations, 36
storage tanks, and over 1,400 miles of transmission and distribution mains.
Suez owns source of supply plant, pumping plant, watertreatment ptant, transmission
and distribution plant, and various other general plant assets. The public's investment in
these water assets is nearly $474 million. This is the first formal depreciation study for
Suez.
4
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 4 of 106
STUDY RESULTS
Overall depreciation rates for the specific depreciable property analyzed and included
in this study are shown in Appendix A and A-1. For Suez assets, these rates translate into
an annualdepreciation expense of $12.9 million based on Suez's depreciable investmentat
December 31 ,2019. The annual equivalent depreciation expense calculated by the same
method using the approved rates was $12.8 million. The proposed increase is $13
thousand, a change of 0.10 percent from current deprecation rates. Appendix A and A-1
demonstrate the development of the annual depreciation and amortization rates and annual
accruals by account. Appendix B presents a comparison of approved rates and accrual
amounts versus proposed rates and accrual amounts by account. Appendix C presents a
summary of life and net salvage estimates by account. Appendix D shows the net salvage
history for all accounts. A summary of results is shown in the table below. Appendix E
shows a comparison of the reallocated depreciation reserve compared to the book reserve'
SUEZ WATER IDAHO
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 5 of 106
5
Function Current Accrual
Amount $
Proposed
Accrual
Amount $
Difference Accrual $
Structures
Source of Supply
Pumping
Treatment
Transmission and Distribution
General Depreciated
General Amortized
General Amortized Reserve True
Up
Total 1
604,400
319,862
1,527,045
1,614,329
7,352,115
16,053
1,408,087
0
12 1 891
136,467
(115,943)
(120,644)
(864,711)
942,545
(5,401)
(50,586)
90
12 709
740,867
203,918
1,406,400
749,618
8,294,660
10,653
1,357,501
90
GENERAL DISCUSSION
Definition
The term "depreciation" as used in this study is considered in the accounting sense,
that is, a system of accounting that distributes the cost of assets, Iess net salvage (if any),
over the estimated useful life of the assets in a systematic and rational manner. lt is a
process of allocation, not valuation. This expense is systematically allocated to accounting
periods over the life of the properties. The amount allocated to any one accounting period
does not necessarily represent the loss or decrease in value that wil! occur during that
particular period. The Company accrues depreciation on the basis of the original cost of all
depreciable property included in each functional property group. On retirement the full cost
of depreciable property, less the net salvage value, is charged to the depreciation reserve.
Basis of Depreciation Estimates
The straight-line, broad (average) life group, remaining-life depreciation system was
employed to calculate annual and accrued depreciation in this study. ln this system, the
annual depreciation expense for each group is computed by dividing the original cost of the
asset Iess allocated depreciation reserve less estimated net salvage by its respective
average life group remaining life. The resulting annual accrual amounts of all depreciable
property within a function were accumulated, and the totalwas divided by the original cost
of all functional depreciable property to determine the depreciation rate. The calculated
remaining lives and annualdepreciation accrual rateswere based on attained ages of plant
in service and the estimated service life and salvage characteristics of each depreciable
group. The computations of the annua! functional depreciation rates and remaining lives
are shown in Appendix A and A-1.
Actuarial analysis was used with each account within a function where sufficient data
were available, and judgment was used to some degree on al! accounts.
Survivor Curves
To fully understand depreciation projections in a regulated utility setting, there must
be a basic understanding of survivor curyes. lndividual property units within a group do not
6
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 6 of 106
normally have identical lives or investment amounts. The average life of a group can be
determined by first constructing a survivor curve which is plotted as a percentage of the
units surviving at each age. A survivor curve represents the percentage of property
remaining in service at various age intervals. The Iowa Curves are the result of an
extensive investigation of life characteristics of physica! property made at lowa State
College Engineering Experiment Station in the first half of the prior century. Through
common usage, revalidation and regulatory acceptance, these curves have become a
descriptive standard for the life characteristics of industrial property. An example of an
lowa Curve is shown below.
There are fourfamilies in the lowa Curves that are distinguished by the relation of the
age at the retirement mode (largest annual retirementfrequency) and the average life. For
distributions with the mode age greaterthan the average life, an "R" designation (i.e., Right
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 7 of 106
7
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moda!) is used. The family of uR" moded curves is shown below.
Similarly, an "S" designation (i.e., Symmetric modal) is used for the family whose
mode age is symmetric about the average life. An "L" designation (i.e., Left modal) is used
for the family whose mode age is less than the average life. A special case of left modal
dispersion is the "O" or origin modal curve family. Within each curve family, numerical
designations are used to describe the relative magnitude of the retirement frequencies at
the mode. A u6' indicates that the retirements are not greatly dispersed from the mode
(i.e., high mode frequency) while a "1" indicates a large dispersion about the mode (i.e., low
mode frequency). For example, a curve with an average life of 30 years and an "L3"
dispersion is a moderately dispersed, left modal curve that can be designated as a 30 L3
Curve. An SQ, or square, survivor curve occurs where no dispersion is present (i.e., units
of common age retire simultaneously).
Most property groups can be closely fitted to one lowa Curve with a unique average
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 8 of 106
8
service life. The blending of judgment concerning current conditions and future trends
along with the matching of historical data permits the depreciation analyst to make an
informed selection of an account's average life and retirement dispersion pattern.
Actuarial Analvsis
Actuarial analysis (retirement rate method) was used in evaluating historical asset
retirement experience where vintage data were available and sufficient retirement activity
was present. ln actuarial analysis, interval exposures (total property subject to retirement
at the beginning of the age interval, regardless of vintage) and age interval retirements are
calculated. The complement of the ratio of interval retirements to interval exposures
establishes a survivor ratio. The survivor ratio is the fraction of property surviving to the
end of the selected age interval, given that it has survived to the beginning of that age
interval. Survivor ratios for all of the available age intervals were chained by successive
multiplications to establish a series of survivor factors, collectively known as an observed
life table. The observed life table shows the experienced mortality characteristic of the
account and may be compared to standard mortality curves such as the lowa Curves.
Where data were available, accounts were analyzed using this method. Placement bands
were used to illustrate the composite history over a specific era, and experience bands
were used to focus on retirement history for all vintages during a set period. The results
from these analyses for those accounts which had data sufficient to be analyzed using this
method are shown in the Life Analysis section of this report. Actuarial transactions were
available from 201 1-2019, which may be insufficient for longer lived accounts. ln such
cases, another life analysis method may be used.
Simulated Plant Record Procedure
The SPR - Balances approach is one of the commonly accepted approaches to
analyze mortality characteristics of utility property. SPR was applied to several accounts
within the Distribution function due to the unavailability of sufficient vintaged transactional
data. ln this method, an lowa Curve and average service life are selected as a starting
point of the analysis and its survivorfactors applied to the actual annual additions to give a
I
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 9 of 106
sequence of annual balance totals. These simulated balances are compared with the
actual balances by using both graphical and statistica! analysis. Through multiple
comparisons, the mortality characteristics (as defined by an average life and lowa Curve)
that are the best match to the property in the account can be found.
The Conformance lndex (Cl) is one measure used to evaluate various SPR analyses.
Cls are also used to evaluate the "goodness of fit" between the actual data and the lowa
Curve being referenced. The sum of squares difference (SSD) is a summation of the
difference between the calculated balances and the actual balances for the band or study
year being analyzed. This difference is squared and then summed to arrive at the SSD.
SSD : >i (Calculated fiqlanss, - Observed Balance, )2
Where n is the number of years in the test band.
This calculation can then be used to develop other calculations, which the analyst feels
might give a better indication for the "goodness of fit" for the representative curve under
consideration. The residual measure (RM) is the square root of the average squared
differences as developed above. The residual measure is calculated as follows:
KM:,1(Wl
n
The Cl is developed from the residual measure and the average observed plant balances
for the band or study year being analyzed. The calculation of conformance index is shown
below:
CI:Zi Balances, / n
RM
The retirement experience index (REl) gives an indication of the maturity of the account
and is the percent of the property retired from the oldest vintage in the band at the end of
the study year. Retirement indices range from zero percent to 100 percent and an REI of
100 percent indicates that a complete curve was used. A retirement index less than 100
percent indicates that the survivor curve was truncated at that point. The originator of the
SPR method, Alex Bauhan, suggests ranges of value for the Cl and REl. The relationship
10
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 10 of 106
for Cl proposed by Bauhan is shown belowl
ct Value
Over 75 Excellent
50 to 75 Good
25 to 50 Fair
Under 25 Poor
The relationship for REI proposed by Bauhan2 is shown below:
REI Value
Over 75 Excellent
50 to 75 Good
33 to 50 Fair
17 to 33 Poor
Under 17 Valueless
Despite the fact there has not been empirical research to validate Bauhan's conclusions,
depreciation analysts have used these measures in analyzing SPR results for nearly 60
years, since the SPR method was developed.
Each of these statistics provides the analyst with a different perspective of the
comparison between a band of simulated or calculated balances and the observed or
actual balances in the account being studied. Although one statistic is not necessarily
superior over the others, the conformance index is the one many analysts use in
depreciation studies. The depreciation analyst should carefullyweigh the data from REls to
ensure that a mature curve is being used to estimate life.
Statistics are useful in analyzing mortality characteristics of accounts as well as
determining a range of service lives to be analyzed using the detailed graphical method.
However, these statistics boil all the information down to one, or at most, a few numbers for
comparison. Visualmatching through comparison between actualand calculated balances
expands the analysis by permitting the analyst to view many points of data at a time. The
goodness of fit should be visually compared to plots of other lowa Curve dispersions and
I Puslrc UTtLtry DepRecrRrroN PRAcrcEs, p. 96, National Association of Regulatory Utility Commissioners
(1ee6).2 Puerrc Ullrry DEpREctATtoN PRAclcEs, p. 97, National Association of Regulatory Utility Commissioners
(1 ee6).
11
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page11of106
average lives for the selection of the appropriate curve and !ife. Detailed information for
each account is shown later in this study and in workpapers.
Judqment
Any depreciation study requires informed judgment by the analyst conducting the
study. Knowledge of the property being studied, utilities'policies and procedures, general
trends in technology and industry practice, and a sound basis of understanding
depreciation theory are needed to apply this informed judgment. Judgment was used in
areas such as survivor curve modeling and selection, depreciation method selection,
simulated plant record method analysis, and actuarial analysis.
Judgment is not defined as being used in cases where there are specific, significant
pieces of information that influence the choice of a life or curye. Those cases would simply
be a reflection of specific facts into the analysis. Where there are multiple factors,
activities, actions, property characteristics, statistical inconsistencies, implications of
applying certain curyes, property mix in accounts, or a multitude of other considerations
that impact the analysis (potentially in various directions), judgment is used to take all of
these factors and synthesize them into a general direction or understanding of the
characteristics of the property. lndividually, no one factor in these cases may have a
substantial impact on the analysis, but, overa!!, may shed light on the utilization and
characteristics of assets. Judgment may also be defined as deduction, inference, wisdom,
common sense, orthe ability to make sensible decisions. There is no single correct result
from statistical analysis; hence, there is no answer absent judgment. At the very Ieast, for
example, any analysis requires choosing upon which bands to place more emphasis.
The establishment of appropriate average service lives and retirement dispersions for
the Structures, Source of Supply, Pumping, Water Treatment, Transmission and
Distribution, General, and Other accounts requires judgment to incorporate the
understanding of the operation of the system with the available accounting information
analyzed using the Retirement Rate actuarial methods. The appropriateness of lives and
curves depends not only on statistical analyses, but also on how well future retirement
patterns will match past retirements.
12
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 12 of 106
Current applications and trends in use of the equipment also need to be factored into
life and survivor curve choices in order for appropriate mortality characteristics to be
chosen.
Averaqe Life Group Depreciation
The source of Suez's existing depreciation accruals does not specify a deprecation
procedure. ln all its other jurisdictions, Suez uses the average life group ('ALG")
depreciation procedure. ALG has been adopted at the Idaho Public Utilities Commission for
other regulated utilities. At the request of Suez, this study uses the ALG depreciation
procedure to group the assets within each account. After an average service life and
dispersion were selected for each account, those parameters were used to estimate what
portion of the surviving investment of each vintage was expected to retire. The
depreciation of the group continues untilall investment in the vintage group is retired. ALG
groups are defined by their respective account dispersion, life, and salvage estimates. A
straight-line rate for each ALG group is calculated by computing a composite remaining life
for each group across all vintages within the group, dividing the remaining investment to be
recovered by the remaining life to find the annual depreciation expense and dividing the
annual depreciation expense by the surviving investment. The resulting rate for each ALG
group is designed to recover all retirements less net salvage when the last unit retires. The
ALG procedure recovers net book cost over the life of each account by averaging many
components.
13
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 13 of 106
Theoretical Depreciation Reserve
The book depreciation reserve was derived from Suez records where the provision for
depreciation is maintained on a region and plant account level. As a point of comparison, a
theoretical depreciation reserve model was computed for each analyzed account. This
study used a reserve model that relied on a prospective concept relating future retirement
and accrual patterns for property, given current life and salvage estimates. The theoretical
reserye of a group is developed from the estimated remaining life, total life of the property
group, and estimated net salvage. The theoretical reserve represents the portion of the
group cost that would have been accrued if current forecasts were used throughout the life
of the group for future depreciation accruals. The computation involves multiplying the
vintage balances within the group by the theoretical reserve ratio for each vintage. The
average life group method requires an estimate of dispersion and service life to establish
how much of each vintage is expected to be retired in each year until all property within the
group is retired. Estimated average service lives and dispersion determine the amount
within each average life group. The straight-line remaining-life theoretical reserye ratio at
any given age ("RR") is calculated as:
ItR:.I-(Av e r a ge Re maining Life)
(Average Service Life)
* (l - Net Salvage Ratio)
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 14 of 106
14
DETAILED DISCUSSION
Depreciation Studv Process
This depreciation study encompassed four distinct phases. The first phase involved
data collection and field interviews. The second phase was where the initial data analysis
occurred. The third phase was where the information and analysis was evaluated. Once
the first three stages were complete, the fourth phase began. This phase involved the
calculation of deprecation rates and the documenting the conesponding recommendations'
During the Phase 1 data collection process, historical data was compiled from
continuing property records and general ledger systems. Data was validated for accuracy
by extracting and comparing to multiple financial system sources. Audit of this data was
validated against historical data from prior periods, historical general ledger sources, and
field personnel discussions. This data was reviewed extensively to put in the proper format
for a depreciation study. Further discussion on data review and adjustment is found in the
Salvage Considerations Section of this study. Also as part of the Phase I data collection
process, numerous discussions were conducted with engineers and field operations
personnel to obtain information that would assist in formulating life and salvage
recommendations in this study. One of the most important elements of performing a proper
depreciation study is to understand how the utility utilizes assets and the environment of
those assets. lnterviews with engineering and operations personnel are important methods
that allow the analyst to obtain information that is beneficial when evaluating the output
from the life and net salvage programs in relation to the utility's actualasset utilization and
environment. lnformation that was gleaned in these discussions is found both in the
Detailed Discussion of this study in the life analysis and salvage analysis sections and also
in workpapers.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 15 of 106
15
Phase 2 is where the actuarial analysis is performed. Phase 2 and 3 overlap to a
significant degree. The detailed property records information is used in Phase 2 to develop
observed life tables for life analysis. These tables are visually compared to industry
standard tables to determine historical life characteristics. lt is possible that the analyst
would cycle back to this phase based on the evaluation process performed in Phase 3. Net
salvage analysis consists of compiling historical salvage and removal data by functional
group to determine values and trends in gross salvage and removalcost. This information
was then carried fonryard into Phase 3 for the evaluation process.
Phase 3 is the evaluation process which synthesizes analysis, interviews, and
operational characteristics into a final selection of asset lives and net salvage parameters.
The historical analysis from Phase 2 is further enhanced by the incorporation of recent or
future changes in the characteristics or operations of assets that were revealed in Phase 1 .
Phases 2 and 3 allow the depreciation analyst to validate the asset characteristics as seen
in the accounting transactions with actual Utility operational experience.
Finally, Phase 4 involved the calculation of accrual rates, making re@mmendations
and documenting the conclusions in a final report. The calculation of accrual rates is found
in Appendix A and A-1. Recommendations for the various accounts are contained within
the Detailed Discussion of this report. The depreciation study flow diagram shown as
Figure 13 documents the steps used in conducting this study. Depreciation Svstemsa, page
289, documents the same basic processes in performing a depreciation study which are:
statisticalanalysis, evaluation of statisticalanalysis, discussionswith management, forecast
assumptions, write logic supporting forecasts and estimation, and write final report.
3lNtnoouctroN To DEpREcrATtoN FoR PuBLrc UTrLrrEs & Ornen INDUSTR|ES, AGA EEI (2013).4 W. C. Fitch and F.K.Wolf, DepnectRrtoru Svsreus, lowa State Press, at page 289 (1bg4).
16
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 16 of 106
Bo* Dqrcciation Stody Flon,Diapam
hhCdhdkn Aulysif Etnhdis Crhhtim
SrtaboiobrDlFl(lirh
D*Ufb rd0khnsiqfcA
lE,pB.
'Alrlil?ccii*r*(&dad$nr!.$nirhddiFhootustB{lra+,Dh&ltTBStu
t& d&odarx|irrfii}
Figure 1
SUEZWATER IDAHO
DEPRECIATION STU DY PROCESS
Case No. SUZ-W-2G02
Exhibit No. 13
Schedule 2
D. Watson
Page 17 of 106
lflffi
It c*
rordna
ffrt*r,rtnd
l$ncnho
Dr*rlrfr[ttrl
flStira
krfrdritil*drtrJr.8I&u6
Xrt*.lrIdtrn pr
Cnti, rafr.,tr.d
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n tm0ilhafldd.n,nr*lh
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EI
17
Depreciation Rate Calculation Process
Annual depreciation expense amounts for Suez's depreciable property were
calculated by the straight line, average life group, remaining life procedure.
ln a whole Iife representation, the annual accrual rate is computed by the following
equation,
AnnualAccrualRate =
fiO0o/o - Net Salvaoe Percentl
Average Seruice Life
Use of the remaining life depreciation system adds a self-correcting mechanism,
which accounts for any differences between theoretical and book depreciation reserve over
the remaining life of the group. With the straight line, remaining life, average life group
system using lowa Curves, composite remaining lives were calculated according to
standard broad group expectancy techniques, noted in the formula below:
Composite Remaining Life =
(sOrioinal Cost - Theoretical Reseruel
lWhole Life Annual Accrual
For each plant account, the difference between the surviving investment, adjusted for
estimated future net salvage, and the allocated book depreciation reserye, was divided by
the composite remaining life to yield the annual depreciation expense as noted in this
equation.
Annual Depreciation Expense =
Oriqinal Cost - Book Reserue - (Orioinal Cost * Net Salvaqe o/ol
Com posite Re m a i n i ng Life
Within a group, the sum of the group annual depreciation expense amounts, as a
percentage of the depreciable origina! cost investment summed, gives the annua!
depreciation rate as shown below:
Annual Depreciation Rate =f Annual Depreciation Expense
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 18 of 106
18
lOriginalCost
These calculations are shown in Appendix A. The calculations of the theoretical
depreciation reserve values and the corresponding remaining !ife calculations are shown in
the workpapers for this study. Book depreciation reseryes are maintained on a plant
account level basis. Theoretical reserve computations were used to reallocate depreciation
reserves by account and to compute remaining life for each account. Annual depreciation
expense amounts for the depreciable accounts of Suez were calculated by the straight line
method, ALG procedure, and the remaining life technique. For each account, the
difference between the surviving investment, adjusted for estimated net salvage, and the
book depreciation reserye, was divided by the average remaining life to yield the annual
depreciation expense. These calculations are shown in Appendix A.
Vintaqe Group Amortization
Suez proposes to implement vintage group amortization for assets in Accounts
340.5 through 348.5, excluding Account 341.5 Transportation Equipment and Account
346.5 Power Operated Equipment. Under vintage group amortization, assets in the
amortized accounts are retired when they reach the projected service life of the group.
This study has reviewed the Iife and net salvage parameters for all accounts in this group.
ln the life analysis and salvage analysis sections, recommended changes to each account
describe the depreciation parameters requested for those accounts. The depreciation
accrual for General amortized property plant will change to reflect the reserve position of
the various accounts and small changes in life parameters and net salvage percentages.
This allows the Company to continue to track small dollar General Property plant items in a
cost efficient manner.
The changes in General Property plant for Vintage Group Amortization assets
resulted in a reserve difference that has to be addressed to provide full recovery of the cost
for these assets. The remaining lives of the amortized accounts range from 1 .38 years to
12.38 years. For ease of tracking the difference, this study proposes a 10 year recovery
period for this difference. These computations are shown in Appendix A-1.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 19 of 106
19
Remaininq Life Calculation
The establishment of appropriate average service lives and retirement dispersions
for each account within a functional group was based on engineering judgment that
incorporated available accounting information anallzed using the Retirement Rate actuarial
methods. After estiablishment of appropriate average service Iives and retirement
dispersion, remaining life was computed for each account. Theoretical depreciation
reserve with zero net salvage was calculated using theoretical reserve ratios as defined in
the theoretical reserve portion of the General Discussion section. The difference between
account balance and theoretical reserve was then spread over the ALG depreciation
accruals. Remaining life computations are found for each account in the workpapers.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 20 of 106
20
Life Analvsis
Two types of life analysis were performed for this study. The retirement rate actuarial
analysis method was applied to all of the specified accounts for Suez. For each account,
an actuarial retirement rate analysis was made with placement and experience bands of
varying width. The historical observed life table was plotted and compared with various
lowa Curves to obtain the most appropriate match. A selected curve for each account is
shown in the Life Analysis Section of this report. The observed Iife tables for all analyzed
placement and experience bands are provided in workpapers.
Using data provided by Suez accounting personnel, an SPR data base was
developed for each plant account. The bands of various widths were analyzed for each
account. When there was not sufficient historical transactions from the years of actuarial
data available to obtain meaningful actuarial results, the SPR method was used. The life
analysis method used for each account is discussed in the detailed life analysis section
which fo!!ows.
The depreciation accrual rates for most of the Company's plant accounts were
based on a report from the National Association of Regulatory Commissioners ('NARUC")
study on the lives of small water companies (those having only $1 ,OOO,OO0 of investment .5
Since existing accrual rate is available for those accounts, this study assumes that the life
is the reciprocal of the annual accrual rate with a zero percent net salvage value. The
existing life stated in the detailed account description is based on the reciprocal
computation mentioned above.
5 ldaho, Docket U-1025-4, Order 17853 , 17797 , pages 3-4.
21
Case No. SUZ-W-2G02
Exhibit No. 13
Schedule 2
D. Watson
Page 2'l of 106
Life Analysis - Suez Assets
Structures
Account 304.2 Structures and Improvements- Pumping Plant (43 Rl)
This account consists of structures and various improvements associated with
pumping facilities. The account balance is $6.8 million for this account, and the cunent life
of this account is 50 years. The items in this account are components of structures such
as: bulkhead, fences, HVAC systems, safety equipment, site work, roofs, security systems,
valves, and vaults. Actuarial analysis has limited data for curye matching. Hence, the SPR
balances method was used to analyze this account. ln bands in which the width is
approximately the width of average service life or longer (e.g ., 1970-2019, 1960-2019, etc.),
the highest ranked curve with an RE! over 90 was the 43 R1. The Cls are in the 24 to 30
range for the widest bands. Company subject matter experts ("SMEs") report that the
smaller components will be replaced before the structures themselves. Wood buildings are
being targeted for replacement and wil! be replaced with block construction. Based on
judgment and the assets in this account, this study recommends moving to a 43 year life
with an Rl dispersion curve for this account. A graph of the actual balances compared to
the simulated balances from the proposed curve for this account is shown below.
SUEZ lYater ldaho 3042
Actual vs Simulded Balance Rl r|il
8,000,000
6,000,000 ,-.{*X
*J
4,000,000
1 9S0 1 99s 2000 2005
Traneactlon Ycar
20't 0 201 5
-+Actual --**Smulated
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page22 oI 1Oo
*
Efo
E((
oa,E-r,El 2,000,000
0
22
Account 304.3 Structures and lmprovements Treatment (48 R2)
This account consists of structures and various improvements associated with
treatment equipment. The account balance is $15.7 million for this account. The current
Iife of this account is 50 years. The items in this account are components of structures
such as: building shell, site work, roofs, fences, HVAC systems, safety equipment, and
security systems. Actuarialanalysis has limited data forcurye matching. Hence, the SPR
balances method was used to analyze this account. ln bands in which the width is
approximately the width of average service life or longer (e.g .,1970-2019, 1960-2019, etc),
the highest ranked curve with an REI over 90 was the 48 R2. The Cls are in the 30 or 45
range for the widest bands. Company SMEs report that the assets in this account are
concrete basins, which would have a longer life than the components in other types of
structures. Based on judgment and the assets in this account, this study recommends
moving to a 48 year life with an R2 dispersion curve for this account. A graph of the actual
balances compared to the simulated balances from the proposed curve for this account is
shown below.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 23 of 106
ffi
IN
+Actual --x*-Smulated
20,000,000
0t,oE
oi,tr
-gao
15,000,000
'10,000,000
5.000.000
20151 995 201 01 S90
0
SUEZ Wder ldaho 3114.3
Actual vs Simulated Balance R2 48
2000 2005
Transrc{lon Yalr
23
Account 304.4 Structures and lmprovements-Transmission and Distribution (39 R3)
This account consists of structures and various improvements associated with the
transmission and distribution plant. The account balance is $3.0 million for this account.
The cunent life of this account is 50 years. Actuarial analysis has limited data for curve
matching. Hence, the SPR balances method was examined forthis this account. !n bands
in which the width is approximately the width of average service life or longer (e.9., 1970-
2019,1960-2019, etc.), the highest ranked curve had an REI of 100, but the lives were
between 25 and 30 years, much shorter than the existing life. Company SMEs state that
the assets in this account are booster pump buildings and sampling stations. Most of the
buildings are made of wood. Company SMEs report that more work and replacements
occur on booster pump buildings and vaults than in other structures plant accounts. Many
of the components are replaced over the life of building. Company SMEs expect a life in the
40 year range for booster pump buildings, making the life slightly shorter life for booster
pump buildings than for other structure accounts. Based on judgment and the assets in
this account, this study recommends moving to a 39 year life with an R3 dispersion curve
for this account. A graph of the actual balances compared to the simulated balances from
the proposed curve for this account is shown below.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 24 of 106
24
/
+Actual ---r-Smulated
4,000,000
Ot:toE
ol,E-dtr
3,000,000
2,000,000
1,000,000
20't0 201 51 9S0 1 S95
0
SUEZ Water ldaho 3044
Actud Ys Simulded Balance R3 30
2000 2005
Tranractlon Ycar
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 25 of 106
25
Account 304.5 General Offices (42RJ21
This account consists of structures and various improvements associated with
general offices not tied to a specific functional group. The account balance is $3.8 million
this account, and the current life is 40 years. The items in this account are components of
structures such as: the building shell, roadways, paving, HVAC systems, safety equipment,
and flooring. Actuarial analysis has limited data for curve matching. Hence, the SPR
balances method was used to analyze this account. ln bands in which the width is
approximately the width of average service life or longer (e.9., 1980-2019, 1970-2019,
1960-2019, etc.), the highest ranked curve with an REI over 90 was the 42 R2. The Cls
are in the 24 to 30 range for the widest bands. Company SMEs state that assets in this
group are office buildings and other building components. Based on judgment and the
assets in this account, this study recommends moving to a 42 year life with an R2
dispersion curve for this account. A graph of the actual balances compared to the
simulated balances from the proposed curve for this account is shown below.
26
Case No. SUZ-W-2G,02
Exhibit No. 13
Schedule 2
D. Watson
Page 26 of 106
ff*l
J
-.- Actual --rF* Smulated
4.000,000
*
E5oE
ol,Eaao
3,000,000
2,000,000
1 .000,000
1 9951 990 24fi 201 5
0
SUEZ lYater ldaho 31145
Actual vs Simulated Balance R2 42
2000 2005
Trtnlrc{lon Ycrr
Source of Supplv Plant
Account 305.2 Collecting & lmpounding Reservoirs (50 R2)
This account has an account balance of $8.2 thousand as of December 31,2019.
The current life of this account is 50 years. This account contains structures and various
improvements used for impounding, collecting, and storing water in the source of supply
system. The only asset in this account is a retaining wall at a motor sports facility made of
concrete, which was installed in 2018. Based on judgment and the type of construction,
this study recommends retaining the 50 year life and using an R2 dispersion curve forthis
account. A graph showing the retirement paftern for this account is shown below.
Suez ldaho Account 305.2
50 R2 lowa Curve
1m
80
H60t
E
=tile 40
20
0
010203040506070 80 90 1m
Age
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 27 of 106
27
Account 306.2 Lake, River, and Other lntakes (50 R2)
This account consists of lake, river, or other intakes and includes items such as
buildings, bulkheads, filter plant, screens, piping, and related assets. This account has an
account balance of $1.5 million as of December 31,2019. The current life of this account is
50 years. Actuarial analysis has limited data for curve matching. The SPR balances
method produced lives under 20 years, which are not reflective of the life expectations for
this account. lnformation gleaned from Company SMEs was used to establish a life
estimate for this account. Company SMEs provided several important pieces of
information. First, they strated that a primary component of this account is the Columbia
building used for water treatment and was built in 2004-2005. The life expectation for this
major component would be in the range of other robust structures. Second, the SMEs also
see some replacement of smaller assets within this account over time. They estimate that
intake screens will last 10-15 years and the operating life of a retaining wall is 20 years.
Based on judgment and the assets in this account, this study recommends retaining a 50
year life with an R2 dispersion curve for this account. A graph of the actual balances
compared to the simulated balances from the proposed curve for this account is shown
below.
28
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 28 of 106
a,ar
I
II
+Actual *r-Smulated
1,600,000
*
c,o
E
0tEddd
1,200,000
800,000
400,000
1 9S0 1 9S5 2010 201 5
0
SUEZ Water ldaho 300.2
Actual vs Simulated Balance R2 50
2000 2005
Tran8acllon Ymr
Account 307.2 Wells and Springs (50 Rl)
This account consists of the cost of wells and springs used as a source of supply.
Such assets might be collecting basins, pipes, springs and appurtenances, and wells and
casings. The cunent life of this account is 35 years, and the account balance is $8.0
mi!!ion. Actuarial analysis had insufficient activity on which to make a recommendation.
The SPR balances method in bands in which the width is approximately the width of
average service life or longer (e.9., 1970-2019,1960-2019, etc.) produced the top-ranked
curve of 40 years with an S0 dispersion. Company SMEs report that there has been a
great deal of capital expenditure in this account in recent years. The Company has
replaced well heads and added new casings/liners. Almost 20o/o of the existing wells are 50
years old and almost 50% of the wells are at Ieast 35 years old. Based on judgment and
data from Company SMEs, this study recommends moving to a 50 year life with an R1
dispersion curve for this account. A graph of the actual balances compared to the
simulated balances from the proposed curve for this account is shown below.
29
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 29 of 106
r
+Actual -.*-*Simulated
10,000,000
*
c:to
E
.}(,c6ao
7,500,000
5,000,000
2,500,000
20151 SS0 1 S95 2410
0
SUEZ lUater ldaho 307.2
Actud vs Simulated Balance Rl 50
2000 2005
Tranractlon Ycar
Account 309.2 Supply Mains (70 R2.5)
This account consists of raw water lines and intertie vaults, and other supply mains,
pipes, aqueducts, canals, and their appurtenances. The current life of this account is 50
years, and the account balance is $3.0 million. Both actuarial analysis and SPR analysis
had insufficient activity on which to make a recommendation. Company SMEs believe that
this accountwill have a life similarto Account 331.4, Transmission and Distribution Mains.
Professionaljudgment based on the characteristics of the assets in the account and input
from utility personnel was used to set the current recommendation to the same life as
Transmission and Distribution Mains. Based on judgment and the assets in this account,
this study recommends moving to a 70 year life with an R2.5 dispersion curve for this
account. A graph of the actual balances compared to the simulated balances from the
proposed curve for this account is shown.
30
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 30 of 106
I
+Actual *-+.-Smulated
4,000,000
*
E3o
E
oa,Ed-o
3,000,000
2,000,000
1,000,000
1 S90 1 995 201 0 2415
0
SUEE lYater ldaho 309.2
Actual vs Simulded Balance R2.5 70
2000 2005
Trunrac{lon Ycar
Pumpinq Plant
Account 310.2 Other Power Production Equipment (19 R3)
This account consists of other production equipment not powered by electric or
diesel. The account balance is $3.5 million. The current life of this account is 20 years.
The assets in this account are larger generators and pump stations. Company SMEs
report that more replacements will stiart occurring since many assets date from around
2000 and are at the end of their useful life. This account has sufficient retirement data for
actuarial analysis. After examining various curve combinations, the 19 R3 is the best
match. Based on judgment and the assets in this account, this study recommends moving
to a 19 year life with of an R3 dispersion curve for this account. A graph of the actual data
versus the proposed curve for this account is shown.
31
Case No. SUZ-W-2G02
Exhibit No. 13
Scfpdule 2
D. Wat8on
Page 31 of 106
Account: 310.2 Pwr Prod EquitrSoS/Pmpg
Scenario: Suez ldaho @ 2019
r Actual Data I R3 19.00
10
E'C't
E
=UIgEo,L'Llll
TL
0
0 E 12 18 21 30
Age (Years)
Vintages: 1SS7-2tl1g
ActMty Years: 201 1 -201 I
-tli lr Il^^^a
I r
lll
I
I
llr
r
Account 311.2,3{1.3, 311.4 Pumping Equipment (20 R1)
This account consists of electric pumps, piping, circulating, and other related
equipment used in the pumping plant. The account balance is $27 million forthis account.
The current life of this account is 20 years. The data in this account has been combined for
historical purposes, so the proposed life is for all three accounts. Company SMEs state
that pumping equipment wi!! last 20 years at the most. Some pumps have gone longer in
this past, but this does not match recent experience as contemporary assets are not lasting
that long. The Company is replacing more pumps proactively, and more capital is being
allocated for that purpose. Company SMEs report that vibration studies and heat
replacement are used to target replacements. When rehabbing we!!s, the pump is being
replaced when the pump is pulled. Company personnel report that many water treatment
pumps are located atthe Columbia//Martin treatment plants. Company SMEs estimate that
the chemical pumps will have a 5-10 year life and that the VFD pumps will have a 20-25
year life. More control equipment is found in account 31 1 .3, which requires replacement of
control equipment at15-25 years due to technology change. Account 311.4 includes piping
at pump station. Company SMEs opine that a pump wil! last 20-25 years, control
equipment approximately 15 years, and piping slightly longer due to chemicals and
exposure to air. The long-term historical data suggests a life longerthan company experts
believe is reasonable in today's environment. Based on component Iives of various assets
in this account, this study recommends retaining a 20 year composite for this account.
Based on judgment and the assets in this account, this study recommends the 20 year life
with an R1 dispersion curve for this account. A graph of the actual balances compared to
the simulated balances from the proposed curve for this account is shown.
32
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watsoh
Page 32 of 106
-*
e#
-+Actual -*-simulated
32,000.000
*
C:oE
ltcr!-tr
24,000,000
16,000,000
I,000,000
1 990 1 995 2A10 201 5
0
SUEZ Water ldaho 3'l'1.2, 3l'1.3, 31t.4
Ac{ud Ys Simulated Bdance Rl 20
2000 2005
Tnnrrctlon YGrr
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 33 of 106
33
Water Treatment Plant
Account 320.3 Water Treatment Equipment (25 R2)
This account consists of tanks, tank controls, media for water treatment equipment,
including filtration systems, and other equipment used in the water treatment plant. The
account balance is $28.4 million for this account. The current life of this account is 20
years. There are many diverse assets in this account: filter plant, disinfectant equipment,
pumps, and a chlorine generator. Filter plant is largest group. Company personnel report
there are many small items that will have a short life. Pumps would be shorter lived as well
as other small items such eyewash stations. Control upgrades would last 15 years, similar
to assets in Accounts 31 1 .2,311.3, and 311.4. Historical analysis suggests a longer life
that is reasonable given the current mix of assets in the account. Based on input from
Company experts, this study recommends moving the life out slightly to 25 years. Based
on judgment, input of utility personnel and future plans, and the mix of assets in the
account, this study recommend a25 year life with an R2 dispersion curve for this account.
A graph of the actual balances compared to the simulated balances from the proposed
curve for this account is shown.
34
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 34 of 106
__/
+Actual --r-Smulated
32,000,000
*
tr
=oE
otcdIo
24,000,000
16,000,000
8,000,000
't990 '1995 2010 2015
0
SUEZ Water ldaho 320.3
Actual us Simulded Balance R2 25
2000 2005
Trunsactlon Ycar
Account 320.3 Water Treatment Equipment Membranes (8 SG)
This account consists of membranes used in water treatment equipment plant. The
account balance is $1.3 million for this account. The cunent life of this account is 7 years,
which was established in order 29838 from the 2004 case UWI-W-04-4. Company SMEs
report that membranes are budgeted for 7 years and reviewed as that end of life
approaches. Occasionally the life may be extended slightly. Since the assets in this
account have a short life, actuarial analysis was used for this account. With experience
from 201 1-2019 there was sufficient data for analysis. After reviewing actuarial matches,
the best fit was an I year with an 56 dispersion. Based on judgment and the assets in this
account, this study recommends moving to an 8 year life with an 56 dispersion curve for
this account. A graph of the observed life table compared to the proposed curve for this
account is shown below.
Case No. SUZ-W-2G02
Exhibit No. 13
Schedule 2
D. Watson
Page 35 of 106
Account. 320.3 Water Treat Membranses
Scenario: Suez ldaho @ 2019
e ActualData I SE 8.00
1
El)E.F
Efm
E
OJL'Lo}
TL
4
0
0 4 I 12 18 20
Age (Years)
vintages: 200+201S
Actlvity Years: 201 1 -201 g
I
35
Transmission and Distribution Plant
Account 330.4 Distribution Reservoirs and Standpipes (50 R2)
This account consists of reservoirs, tanks, standpipes, and appurtenances used in
storing water for transmission and distribution plant. The account balance is $13.4 million
for this account. The current life of this account is 50 years. Company SMEs state that
there are around 42 tanks on system, with gravity and pressurized feeds. Tanks are not
elevated. Most tanks are made of welded steel or concrete, with the split being around
50/50 between the two. There are 4 bolted tanks. Concrete will last longer, and the life of
bolted tanks will be much shorter. There is data in this account from the 1990s. The
current tanks were built in 1992 and mid-1990s. Hillcrest is at the end of its life. Company
personnel report that the there have been some new tanks in recent years, and the
Company replaces rusted out pieces and parts, which is capital. Based on judgment and
the assets in this account, this study recommends retaining a 50 year life with of an R2
dispersion curve for this account. A graph of the actual balances compared to the
simulated balances from the proposed curye for this account is shown.
Case No. SUZ-W-20-02
E)dibit No. 13
Schedule 2
D. Watson
Page 36 of 106
,
I
I
J
-+-Actual ---*-Smulated
16,000,000
*
EfoE
oItrd
do
12.000,000
8,000,000
4,000,000
1 S90 1 995 201 0 201 5
0
SUEZ Wder ldaho 330.4
Ac'tual vs Simulded Balance R2 50
2000 20a5
Transastlon Ycar
36
Account 331.4 Transmission and Distribution Mains (65 R2.5)
This account consists of transmission and distribution mains of varying types. The
account balance is $210.3 million for this account. Of that amount, approximately $4.6
million of the assets are valves and $2.8 million are various types of clamps. The current
life of this account is 50 years. SPR analysis reflects a life of 60 years, which is in the
range of lives expected by Company SMEs. Company personnel report that the system is
fairly new, with most of the mains being constructed in the last in the last 40 years.
Company SMEs report that while AC main from the 1960s are in good shape, 16 inch PVC
mains have some operational issues. GIS data on instiallation dates are available. Given
the assets' age and condition, moving to 60 or even 65 years would be rational. Based on
judgment and the assets in this account, this study recommends moving to a 65 year Iife
with an R2.5 dispersion curve for this account. A graph of the actual balances compared to
the simulated balances from the proposed curve for this account is shown.
+Actual -{-Smulated
280,000,000
*
CloE
oItrde6
210,000,000
140,000,000
70,000,000
201 0 201 51 9S0 1 995
0
SUEZ Water ldaho 331.4
Actual vs Simulated Balance R2.5 65
2000 2005
Trrnslc'tlon Ycrr
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 37 of 106
37
Account 333.4 Services (60 R2.5)
This account consists of service pipes and accessories leading from the main to the
customers' premises. The account balance is $88.2 million for this account. The current
life of this account is 40 years. There are many forces of retirement acting upon this
account: dig-ins, replacements that occur with main replacement in relocations or road
projects, and some replacements of service to accommodate customer change (demand or
change in commercial use). Plastic pipe is the primary material used in replaced services.
A large expansion occurred in 1974. Company personnel believe that services should have
a shorter life than mains. Many services are installed later than the mains and are
generally replaced when the mains are replaced. Operationally, 60 years is thought to be
reasonable by Company SMEs. The 60 year analysis is also indicated in SPR results for
this account. Based on judgment, analysis and the assets in this account, this study
recommends moving to a 60 year life with of an R2.5 dispersion curve for this account. A
graph of the actual balances compared to the simulated balances from the proposed curve
for this account is shown.
SUEZ lYder ldaho 333.4
Actual vs Simulated Balance R2.5 60
1 20,000,000
C
EfoE
ouCa-dt
90,000,000
60,000,000
30,000,000
0
't ss0 1 995 2000 2005
Tranraction Ycrr
201 0 2015
+futual --x-Smulated
38
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 38 of 106
Account 334.4 Meters (19 Ri)
This account consists of meters, devices, and other appurtenances used for
measuring the quantity of water delivered to users, whether actually in service or held in
reserve. The account balance is $16.8 million forthis account. The current life of this
account is 40 years. The Company is converting to AMI meters. Overall, approximately
30% of the conversion has occurred. The Company is targeting replacing 6,000 meters per
year out of 100,000 customers and expects to complete that effort in 10-15 years. Meters
are being replaced using a strategy based on what meters are most easy to convert to AMl.
The Company is using Sensus meters. When the battery fails, they replace the battery
and meter gets retired. A maximum of a 20 year life would generally be expected for the
battery life. Even before AMl, meters were replaced at 20-25 years for accuracy.
Company personnel believe that 25 years is too long, even for old-style meters. Actuarial
analysis reflects a 19 year Iife. Based on judgment and the assets in this account, this
study recommends moving to a 19 year life with an Rl dispersion curve for this account. A
graph of the actual data compared to the proposed curve for this account is shown.
39
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 39 of 106
Account: 3U.4 Mtr/Mtr lnst-T&D Mair/Plt
Scenario. Suez Water ldaho @ 2019
^ Actual Data r Rl 19.00
,l
E}E'F
E
=auE0toL0)tL
0
0 6 12 1B 24 30
Age (Years)
Vintages: 1 SS5-201 I
Activit, Years: 201 1 -201 I
!!:.--rrttt
--rl rt I rl
-^I a I
l A I
ll
I
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 40 of 106
40
Account 335.4 Hydrants (40 R4)
This account consists of hydrants in service owned by the utility. The account
balance is $10.0 million forthis account. The current life of this account is 40 years. There
is insufficient data for actuarial or SPR analysis. Most of Suez's service area is in Boise.
Until 2015, the city of Boise owned the hydrants. Now when the service is replaced, the
Company owns the hydrants. On a cyclic basis, the Company plans to replace al! the
Boise hydrants. At 20 years old, the hydrant is reviewed. Most of the investment comes
from years 2001 and newer. Company personnel state that a Iife of 40 years is rational
from an operationa! standpoint. Based on judgment and the assets in this account, this
study recommends moving to a 40 year life with an R4 dispersion curve for this account. A
generic graph below shows the proposed curve shape.
Suez Water ldaho
Account 335.4 40 R4
1m
80
H60i
E
=tAtR 40
20
0
0 10 20 30
Age
40 50 60
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page41 of106
41
General Plant - Depreciated
Account 341.5 Transportation Equipment (15 L2)
This account consists of transportation equipment that is licensed on local roadways.
The account balance is $37 thousand for this account. The approved life is 8.7 years.
Company personnel state that most vehicles are leased. Assets in this account include a
mini excavatorand trailers. From an operations perspective, Company SMEs believe that
the trailers will last about 15 years. Based on judgment and information provided by
Company's SMEs, this study recommends a 15 L2 dispersion curve for this account. A
generic graph below shows the proposed curve shape.
Suez Water ldaho
Account 341.5 15 L2
1m
80
860EE
all40
20
0
o 10 20 30
Age
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 42 of 106
42
Account 345.5 Power Operated Equipment (18 L5)
This account can consist of power operated equipment such as bulldozers,
trenchers, hydro excavators, and backhoes. The account balance is $82 thousand for this
account. The approved life is 6.9 years. Two of the large items in this account are
excavators and backhoes. Company personnel report that Suez usually keeps that type of
equipment approximately 15 years. Based on judgment, the analysis and input from
Company personnel, this depreciation study recommends moving to an 18 year life and
using an L5 dispersion curve for this account. A graph comparing the Company's data to
the proposed survivor curve is shown below.
Account: 345.5 Hrur Op EquipGen Plant
Scenario: Suez Water ldaho @ 2019
r Actual Data I L5 18.00
1
o!c5
E
=(A
!=L(l,
L}Lo)o-
I
0
0 6 12 I 2{30
Age (Years)
Vlntages: 1 SS7-201 S
ActMty Years: 2tl1 1 -201 S
aall
I
!lr
I
I
r
tllll
I
lr---
I
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page,f3 of 106
43
General Plant - Amortized (Accounts 340.5. 342.5.344.5. 346.5-348.5)
Adoption of Vintaoe Group Amortization
This study recommends the adoption of vintage group amortization for certain General
plant accounts. FERC adopted Accounting Release 15 ('AR15") in 1997 using the
following criteria:
1. The individual classes of assets for which vintage year accounting is
followed are high volume, low value items;
2. There is no change in existing retirement unit designations, for purposes of
determining when expenditures are capitial or expense;
3. The cost of the vintage groups is amortized to depreciation expense over
their useful lives and there is no change in depreciation rates resulting from the
adoption of the vintage year accounting;
4. lnterim retirements are not recognized;
5. Salvage and removal cost relative to items in the vintage categories are
included in the accumulated depreciation account and assigned to the oldest
vintage first; and
6. Properties are retired from the affected accounts that, at the date of the
adoption of vintage year accounting, meet or exceed the average service life of
properties in that account.
A vintage year method of accounting for the general plant accounts that meets
all of the foregoing requirements may be implemented without obtaining
specific authorization from the Commission to do so.
With the adoption of vintage group amortization, it is no longer necessary to keep track of
the location and retirement of specific assets. Annually, assets are retired after reaching
the average service life for that account. The retirement amounts for fully accrued assets
are shown for each account in Appendix A-1 . After those assets are retired, the remaining
plant in service for each account will be amortized using the amortization rates shown in
Appendix A-1. An additiona! accrual is necessary for each plant account to make up the
44
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 44 of 106
difference between the book depreciation reserve and the theoretica! depreciation reserye.
For Suez, there is a small difference between the book and theoretical reserve that needs
to be amortized over the remaining life of each plant account. This amount is shown for
each account in Appendix A-1. Slight changes in life for the amortized plant accounts are
discussed below.
Case No. SUZ-W-2G,02
Exhibit No. 13
Schedule 2
D. Watson
Page 45 of 106
45
Account 340.5 Office Furniture and Equipment (15 SO)
This account consists of office furniture and equipment such as desks, chairs,
projectors, or other similar equipment. The account balance is $1.4 million for this account.
After the retirement of fully accrued assets, there will be $1.3 million in plant. The
approved life is 15 years. After reviewing actuarial analysis, the best fit is 15 years with an
L4 dispersion. After adoption of general plant amortization, this study recommends
retaining the approved 15 year life and using an SQ dispersion curve for this account. A
graph of the actuarial analysis is shown below.
Case No. SUZ-W-2G02
Exhibit No. 13
Schedule 2
D. Watgon
Page 46 of 106
Account: 340.5 Office Fumiture & Fitures
Scenario: Suez Water ldaho @ 2019
r Actual Data I L4 15.00
1
EDE5
E
=UI
co)eo,IL
0
0 I 12 18 21 30
Age (Years)
Vintages: 1 S97-201 S
Actlvlt, Years: 201 1 -201 I
I ITI Il I
ll
A.
l^rrr!taa-
46
Account 340.5 Gomputer Hardware (5 SO)
This account consists of various types of computer hardware, such as servers and
network equipment. The account balance is $1.1 million for this account, and after the
retirement of fully accrued assets, there will be $98 thousand in plant. The approved Iife is
5 years. The Company's goal is to refresh its computer equipment every 4 years. Some
assets (such as network equipment) may last longer. Based on judgment and Company
practices, this study recommends retaining the approved 5 year life and using an SQ
dispersion curve for this account. A representative graph of the proposed life is shown
below.
Suez Water ldaho
Account 340.5 Computer Hardware 5 SQ
1m
80
EO
Bo
EIUI
to
20
0
0 1 2 3 4 5 5Age
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 47 of 106
47
Account 340.5 Computer Software (5 SO)
This account consists of miscellaneous computer software. The account balance is
$3.6 million for this account. After the retirement of fully accrued assets, there will be $1.3
million in plant. The approved life is 5 years. The Company refreshes software every 4 to
5 years. Based on judgment and Company practice, this study recommends retaining the
approved 5 year life and using an SQ dispersion curye for this account. A representative
graph of the proposed life is shown below.
Suez Water ldaho
Account 340.5 Computer Software 5 SQ
1m
80
EO
5o
E
tA
to
20
0
0 1 2 3Age 4 5 6
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 48 of 106
48
Account 340.5 Computer Software Lighthouse (10 SQ)
This account consists of the Company's lighthouse computer software. The account
balance is $5.2 million for this account. The current 10 year life was established in Case
UW!-W-11-02 dated 2012. The assets in this account were installed in 2011, and there
have been no additions or retirements since this asset went in service. Company SMEs
recommend retention of the current life of 10 years, with a 1.5 year remaining life as of
December 31,2019. Based on judgmentand the recommendation of Company personnel,
this study recommends retaining the approved 10 year life and using an SQ dispersion
curve for this account. A representative graph of the proposed life is shown below.
Suez Water ldaho
Account 340.5 Lighthouse 10 SQ
1m
80
o0
&oE
=ui
to
20
0
0 2 4 6Ag€I 10 t2
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 49 of 106
49
Account 342.5 Stores Equipment (21 SA)
This account consists of stores equipment such as furniture and tools. The account
balance is $19 thousand for this account, and after the retirement of fully accrued assets
there will be $4 thousand in plant. The approved life characteristic is 15 years. The
actuarial analysis for this account shows a similar life. After reviewing actuarial analysis,
the best fit for curye and life is 21 years with an 56 dispersion. After adoption of general
plant amortization, this study recommends moving to a 21 year life and using an SQ
dispersion curve for this account. A graph of the actuarial analysis is shown below.
CaBe No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Wet8on
Page 50 of 106
AccounL M25 Stores EquipGen Plant
Scenario: Suez Water ldaho @ 2019
r tutual Data r SE 21.00
1
E)EEe3a
E[)L'L0Io-
0
0 6 12 18 21 30
Age (Years)
Vlntages: 1 gS7-201 S
AcffiyYears: 1397-2019
I
ll l]rall
I
50
Account 343.5 Tools, Shop, and Garage Equipment (17 SQ)
This account consists of tools, shop, and garage equipment, such as miscellaneous
tools, electric equipment, or pumps. The account balance is $1.3 millionsforthis account.
Afterthe retirement of fully accrued assets, there will be $1 million in plant. The approved
life characteristic is 15 years. After reviewing actuaria! analysis, the best fit for curve and
life is 17 years with an R1.5 dispersion. After adoption of general plant amortization, this
study recommends moving 17 year life and using an SQ dispersion curye for this account.
A graph of the actuarial analysis is shown below.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 51 of 106
Account: 343.5 Tool#Shop/Garage EqpGen Plt
Scenario: Suez Water ldaho @ 2019
r Actual Data r R1.5 17.00
1
o)E.F
E
=(rluE0,L'LE}(L
2
0
0 E '12 1 21 30
Age (Years)
Vlntages: 1 SS5-201 S
Actlvltt Years: 201 1 -201 S
_r!aa,
!!rr_
I
r.
lr lll.al
I
'aa
51
Account 3U.5 Laboratory Equipment (10 SQ)
This account consists of Iaboratory equipment such as testing instruments. The
account balance is $314 thousand for this account. After the retirement of fully accrued
assets, there will be $86 thousand in plant. The approved life characteristic is 15 years.
Actuarial analysis shows a life in the same range as is currently approved. After reviewing
actuarial analysis, the best fit for curye and life is 10 years with an L3 dispersion. After
adoption of general plant amortization, this study reeommends moving to a 10 year life and
using an SQ dispersion curve for this account. A graph of the actuarial analysis is shown
below.
Case No. SUZ-W-2G02
Exhibit No. 13
Schedule 2
D. Watson
Page 52 of 106
Account: 344.5 Lab Equip-Gen Plant
Scenario: Suez Water ldaho @2019I Actual Data r L3 10.t10
1
I
El)E'5
E
=@
E(uL'Lor(L
6
0
0 6 12 1g 24 30
Ags (Yeers)
Vlntages: 1 997-201 I
ActMt, Years: 201 1 -201 S
---rl
ef i^^.lltl^rl'll.l-a.r
ar
52
Account 346.5 Communication Equipment (19 SO)
This account consists of communication equipment such as control equipment,
radios, telephone systems, and similarassets. The account balance is $4.6 million forthis
account, and after the retirement of fully accrued assets there will be $3.9 million in plant.
The approved Iife characteristic is 15 years. Actuarial analysis shows slightly longer life
than is currently approved for this account. Some budget constraints in the past deferred
replacements. SCADA control equipment and all instrument controls are being targeted for
a 15 year life cycle now. Some other equipment would have a longer life expectation. After
reviewing actuarial analysis, the best fit for curye and Iife is 19 years with an R2.5
dispersion. After adoption of general plant amortization, this study recommends moving to
a 19 year life and using an SQ dispersion curve for this account. A graph of the actuarial
analysis is shown below.
Case No. SUZ-W-2G,02
Exhibit No. 13
Schedule 2
D. Watson
Page 53 of 106
Account: 346.5 Comm Equip-Gen Plant
Scenario. Suez Water ldaho @ 2019
r Actual Data r R2.5 19.00
1
E'EET
=ayE0)L'
0)(L
6
0
0 6 12 1B 24
AgB (Years)
Vintages: 1gg$201S
Activity Years: 201'l -201 S
!l:!rr t1
___r!
I I a
-rlrrr
I
T
t
53
Account 347.5 Miscellaneous Equipment (15 SA)
This account consists of miscellaneous equipment signs, miscellaneous tools,
sampling stations, or other equipment that may not fit in any other general plant account.
The account balance is $122 thousand for this account. After the retirement of fully
accrued assets, there will be $119 thousand in plant. The approved life is 15 years. After
reviewing actuarial analysis, given the limited data in the analysis, the best fit for curve and
life is 15 years with an R2 dispersion. After adoption of general plant amortization, this
study recommends moving to an approved 15 year life and using an SQ dispersion curve
for this account. A graph of the actuarial analysis is shown below.
Case No. SUZ-W-2G02
Exhibit No. 13
Schedule 2
D. Watson
Page t{ of 106
Account: YT.5 Misc EquipGen Plnt
Scenario: Suez Water ldaho @ 2019
r Actual Data I R2 15.00
1
I
EDcET
=u,gEo)L'Lo]IL
6
0
0 4 E '12 16 20
Age (Years)
Vintages: 2001-201 S
Activity Years: 2001-201 I
II r
I
I
I
il alllt lllt lllll
54
Account 348.5 Master Plan (10 SQ)
This account consists of miscellaneous special studies that are used in planning.
The account balance is $2.5 million for this account, and after the retirement of fully
accrued assets there wil! be $1.8 million in plant. The approved life characteristic is 10
years, which was established in Order 27617, Case UW!-W-97-6. Given the nature of this
account, a 10 year life is reasonable. After adoption of genera! plant amortization, this
study recommends moving to a 10 year life and using an SQ dispersion curve for this
account. A generic graph below shows the proposed curve shape.
Suez Water ldaho
Account 348.5 Master Plan t0 SQ
100
80
EO
&o
15Iut
to
20
0
0 2 4 6 8 10 L2
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 55 of 106
55
Account 348.5 Other Tangible Plant (50 SO)
This account consists of other tangible plant not used in any other account specified
previously. The account balance is $0 forthis account, and the approved life characteristic
is 50 years. There is no retirement experience for this account to examine. Based on
judgment, this study recommends retention of the 50 year life combined with a SQ
dispersion. A graph of the proposed life pattern is shown below.
Suez Water ldaho
Account 348.5 Other llangible Property 50 SQ
100
80
EO
So
E
=.^
to
20
0
0 10 20 40 50 60
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 56 of 106
56
Salvaqe Analvsis
When a capitalasset is retired, physically removed from service, and finallydisposed
of, terminal retirement is said to have occurred. The residualvalue of a terminal retirement
is called gross salvage. Net salvage is the difference between the gross salvage (what the
asset was sold for) and the removal cost (cost to remove and dispose of the asset).
Gross salvage and cost of removal related to retirements are recorded to the general
ledger in the accumulated provision for depreciation at the time retirements occur within the
system.
Net salvage data by plant account and entity for all depreciable property is shown in
Appendix D. Removal cost percentages are calculated by dividing the current cost of
removal by the orioinal installed cost of the asset. Some plant assets can experience
significant negative removalcost percentages due to the timing of the addition versus the
retirement. For example, a Transmission and Distribution asset in Account 331 Mains with
a current installed cost of $500 (2019) would have had an installed cost of $31 .806 in 1954.
A removal cost of $50 for the asset calculated (incorrectly) on cunent installed cost would
only have a negative 10 percent removal cost ($50/$500). However, a conect removal cost
calculation would show a negative 157 percent removal cost for that asset ($50/$31 .80).
Inflation from the time of installation of the asset until the time of its removal must be taken
into account in the calculation of the removal cost percentage because the depreciation
rate, which includes the removal cost percentage, will be applied to the orioinal installed
cost of assets.
Salvaqe Analvsis - Suez Assets
For each account, data for retirements, gross salvage, and cost of removal were
derived from 2004-2019. Moving averages, which remove timing differences between
retirement and salvage and removal cost, were analyzed over periods varying from one to
16 years, and are generally evaluated in making the net salvage recommendations for the
study.
6 Using the Handy-Whitman Bulletin No. 191, W-5,line 28, $31.80 = $500 x471739
57
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 57 of 106
Account 304.2 Structures and lmprovements- Pumping Plant (-10%)
Account 304.3 Structures and lmprovements Treatment (-10%)
Account 304.4 Structures and lmprovements -Transmission and Distribution (-10%)
Account 304.5 General Offices (-10%)
This account consists of cost of gross salvage and cost of removal associated with
structures and various improvements in various functional groups. Historical information
did not distinguish between each of the functions associated with structures. There is no
existing net salvage in Suez's accrual rates. When examining historical activity, the S-year
and 10-year moving averages are -23.94 percent and -24.53 percent respectively. Based
on historic activity and judgment, this study recommends negative 10 percent for this
account.
Account 305.2 Collecting & lmpounding Reservoirs (0%)
This account consists of cost of gross salvage and cost of removal associated with
structures and various improvements used for impounding, collecting, and storing water in
the source of supply system. There is no existing net salvage in Suez's accrual rates. The
only asset in this account is a small amount installed in 2018, and there is insufficient
history on which to base a net salvage estimate. Based on judgment, this study
recommends 0 percent for this account.
Account 306.2 Lake River and Other lntakes (0%)
This account consists of cost of gross salvage and cost of removal associated with
lake, river, or other intakes and includes items such as buildings, bulkheads, filter plant,
screens, piping, and related assets. There is no existing net salvage in Suez's accrual
rates. There is insufficient history on which to base a net salvage estimate. Based on
judgment, this study recommends 0 percent for this account.
Account 307.2 Wells and Springs (-10%)
This account consists of cost of gross salvage and cost of removal associated with
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 58 of 106
58
cost of wells and springs used as a source of supply. Such assets might be collecting
basins, pipes, springs and appurtenances, and wells and casings. There is no existing net
salvage in Suez's accrualrates. When examining historicalactivity, the S-yearand 10-year
moving averages are -12.31 percent and -11.55 percent respectively. Based on historic
activity and judgment, this study recommends negative 10 percent for this account.
Account 309.2 Supply Mains (0%)
This account consists of cost of gross salvage and cost of removal associated with
raw water Iines and intertie vaults, and other supply mains, pipes, aqueducts, canals, and
their appurtenances. There is no existing net salvage in Suez's accrual rates. The net
salvage history in this account is limited. Based on judgment, this study recommends 0
percent for this account.
Account 310.2 Other Power Production Equipment (0%)
This account consists of cost of gross salvage and cost of removal associated with
other production equipment not powered by electric or diesel. There is no existing net
salvage in Suez's accrualrates. When examining historicalactivity, the S-yearand 10-year
moving averages are 11.89 percent and 2.68 percent respectively. The positive net
salvage is driven by a singular outlier of gross salvage in 2017 from the sale of the
generator in the Please Valley Well project. Generally, no material gross salvage would be
expected for this account. Based on judgment, this study recommends 0 percent for this
account.
Account 311.2,311.3, 311.4 Pumping Equipment (-15%)
This account consists of cost of gross salvage and cost of removal associated with
electric pumps, piping, circulating, and other related equipment used in the pumping plant.
There is no existing net salvage in Suez's accrual rates. When examining historical activity,
the S-year and 1O-year moving averages are -21.58 percent and -21.21 percent
respectively. Based on historic activity and judgment, this study recommends negative 15
percent for this account.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 59 of 106
59
Account 320.3 Water Treatment Equipment (-10%)
This account consists of cost of gross salvage and cost of remova! associated with
tanks, tank controls, steam heat exchangers, media for water treatment equipment,
including filtration systems, and other equipment used in the water treatment plant. There
is no existing net salvage in Suez's accrua! rates. When examining historical activity, the 5-
year and 10-year moving averages are -16.31 percent and -8.59 percent respectively.
Based on historic activity and judgment, this study recommends negative 10 percent for
this account.
Account 320.3 Water Treatment Equipment Membranes (0%)
This account consists of cost of gross salvage and cost of removal associated with
membranes used in water treatment equipment plant. There is no existing net salvage in
Suez's accrual rates. lt is not possible to segregate the net salvage history between this
account and the other 320.3 account, Water Treatment Equipment. Company SMEs do not
include any net salvage in budgeting for this account. Based on the type of asset in this
group and judgment, this study recommends 0 percent for this account.
Account 330.4 Distribution Reservoirs and Standpipes (-5%)
This account consists of cost of gross salvage and cost of removal associated with
reservoirs, tanks, standpipes, and appurtenances used in storing water for transmission
and distribution plant. There is no existing net salvage in Suez's accrual rates. When
examining historica! activity, the S-year and 1O-year moving averages are 0 percent and -
12.57 percent respectively. Based on historic activity and judgment, this study
recommends negative 5 percent for this account.
Account 331.4 Transmission and Distribution Mains (-30%)
This account consists of cost of gross salvage and cost of remova! associated with
transmission and distribution mains of varying types. There is no existing net salvage in
Suez's accrual rates. When examining historica! activity, the S-year and 1O-year moving
Case No. SUZ-W-20-02
Exhibit No. '13
Schedule 2
D. Watson
Page 60 of 106
60
averages arc -42.12 percent and -34.89 percent respectively. Based on historic activity
and judgment, this study recommends negative 30 percent for this account.
Account 333.4 Services (-75%ol
This account consists of cost of gross salvage and cost of removal associated with
service pipes and accessories leading from the main to the customers' premises. There is
no existing net salvage in Suez's accrual rates. When examining historical activity, the 5-
year and 10-year moving averages are -404.67 percent and -120.67 percent respectively.
Based on historic activity and judgment, this study recommends negative 75 percent for
this account.
Account 334.4 Meters (0%)
This account consists of cost of gross salvage and cost of remova! associated with
meters, devices, and other appurtenances used for measuring the quantity of water
delivered to users, whether actually in service or held in reserve. There is no existing net
salvage in Suez's accrualrates. When examining historicalactivity, the S-yearand 10-year
moving averages are -5.8 percent and 1 .15 percent respectively. Based on historic activity
and judgment, this study recommends 0 percent for this account.
Account 335.4 Hydrants (0%)
This account consists of cost of gross salvage and cost of removal associated with
hydrants in service owned by the utility. There is no existing net salvage in Suez's accrual
rates. When examining historical activity, the S-year and 10-year moving averages are
both 0 percent. Based on historic activity and judgment, this study recommends 0 percent
for this account.
Account 341.5 Transportation Equipment (5%)
This account consists of cost of gross salvage and cost of removal associated with
transportation equipment that is licensed on local roadways. There is no existing net
salvage in Suez's accrual rates. When examining historicalactivity, the S-yearand 10-year
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 61 of 106
61
moving averages are 0 percent and 123.3 percent respectively. Based on historic activity
and judgment, this study recommends 5 percent for this account.
Account 345.5 Power Operated Equipment (5%)
This account consists of cost of gross salvage and cost of removal associated with
power operated equipment such as bulldozers, trenchers, hydro excavators, or backhoes.
There is no existing net salvage in Suez's accrua! rates. When examining historical activity,
the S-year and 1O-year moving averages are -0.55 percent and 5.64 percent respectively.
Based on historic activity and judgment, this study recommends 5 percent for this account.
Account 340.5 Office Furniture and Equipment (0%)
This account consists of cost of gross salvage and cost of removal associated with
office furniture and equipment such as desks, chairs, projectors, or other similar equipment.
There is no existing net salvage in Suez's accrual rates. lt is not possible to separate the
history among the 340.5 accounts. When examining historical activity for the combined
account, the S-year and 10-year moving averages are -0.47 percent and -0.13 percent
respectively. Based on historic activity and judgment, this study recommends 0 percentfor
this account.
Account 340.5 Gomputer Hardware (0%)
This account consists of cost of gross salvage and cost of removal associated with
various types of computer hardware, such as servers. There is no existing net salvage in
Suez's accrual rates. Typically, these assets produce no net salvage. lt is not possible to
separate the history among the 340.5 accounts. When examining historical activity for the
combined account, the S-year and 1O-year moving averages are -0.47 percent and -0.13
percent respectively. Based on historic activity, the type of asset, and judgment, this study
recommends 0 percent for this account.
Account 340.5 Computer Software (0%)
This account consists of cost of gross salvage and cost of removal associated with
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 62 of 106
62
miscellaneous computer software. There is no existing net salvage in Suez's accrual rates.
Typically, these assets produce no net salvage. !t is not possible to separate the history
among the 340.5 accounts. When examining historical activity for the combined account,
the S-year and 1O-year moving averages are -0.47 percent and -0.13 percent respectively.
Based on historic activity, the type of asset, and judgment, this study recommends 0
percent for this account.
Account 340.5 Computer Software Lighthouse (0%)
This account consists of cost of gross salvage and cost of removal associated with
the Company's Lighthouse computer software, which was installed in 2011. There is no
existing net salvage in Suez's accrual rates. lt is not possible to distinguish among the
340.5 subaccounts in examining history. Typically, these assets produce no net salvage.
When examining historical activity for the combined account, the S-year and 10-year
moving averages are -0.47 percent and -0.13 percent respectively. Based on historic
activity, the type of asset, and judgment, this study recommends 0 percentforthis account.
Account 342.5 Stores Equipment (0%)
This account consists of cost of gross salvage and cost of remova! associated with
stores equipment such as furniture and tools. There is no existing net salvage in Suez's
accrual rates. When examining historical activity, the 5-year and 10-year moving averages
are 0 percent for both periods. Based on historic activity and judgment, this study
recommends 0 percent for this account.
Account 343.5 Tools, Shop, and Garage Equipment (0%)
This account consists of cost of gross salvage and cost of removal associated with
tools, shop, and garage equipment, such as miscellaneous tools, electric equipment, or
pumps. There is no existing net salvage in Suez's accrual rates. When examining
historical activity, the 5-year and 10-year moving averages are 0.90 percent and 5.62
percent respectively. Based on historic activity and judgment, this study recommends 0
percent for this account.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 63 of 106
63
Account 344.5 Laboratory Equipment (0%)
This account consists of cost of gross salvage and cost of removal associated with
laboratory equipment such as testing instruments. There is no existing net salvage in
Suez's accrual rates. When examining historical activity, the S-year and 1O-year moving
averages are -5.96 percent and -4.74 percent respectively. Based on historic activity and
judgment, this study recommends 0 percent for this account.
Account 346.5 Communication Equipment (-5%)
This account consists of cost of gross salvage and cost of removal associated with
communication equipment such as control equipment, radios, telephone systems, and
similar assets. There is no existing net salvage in Suez's accrual rates. When examining
historical activity, the S-year and 1O-year moving averages are -13.64 percent and -8.39
percent respectively. Based on historic activity and judgment, this study recommends
negative 5 percent for this account.
Account 347.5 Miscellaneous Equipment (0%)
This account consists of cost of gross salvage and cost of removal associated with
miscellaneous equipment signs, miscellaneous tools, sampling stiations, or other equipment
that may not fit in any other genera! plant account. There is no existing net salvage in
Suez's accrual rates. When examining historical activity, the S-year and 1O-year moving
averages are 0 for both periods. Based on historic activity and judgment, this study
recommends 0 percent for this account.
Account 348.5 Master Plan (0%)
This account consists of cost of gross salvage and cost of removal associated
special studies that are used in planning. There is no existing net salvage in Suez's accrual
rates. There are two 348.5 accounts, but all the retirement activity has been related to this
account. When examining historica! activity, the S-year and 10-year moving averages are 0
percentfor both periods. Based on historic activity and judgment, this study recommends 0
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 64 of 106
64
percent for this account.
Account 348.5 Other Tangible Plant (0%)
This account consists of gross salvage and cost of removal associated with other
tangible plant not used in any other account specified. There is no history for net salvage
on this account alone. Based on judgment, this study recommends 0 percent for this
account.
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 65 of 106
65
APPENDIX A
Gomputation of Annua! Depreciation Accrual and Rates
Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Walson
Page 66 of 106
66
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Computation of AnnualAmortlzation Accrual and Rates
Case No. SUZ-W-2G02
E)filbitNo. 13
Schedule 2
D. Wateon
Page 68 of 106
68
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APPENDIX B
Gomparison of Existing and Proposed Accrual and Rates
Case No. SUZ-W-2&02
E)<hibit No. 13
Schedub 2
D. Watson
Page 70 of 106
69
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Case No. SUZ-W-20-02
Exhibit No. 13
Schedule 2
D. Watson
Page 73 of 106
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Net Salvage
Case No. SUZ-W-2G,02
Exhibit No. 13
Schedule 2
D. Watson
Page 77 of 106
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APPENDIX E
Gomparison of Book and Reallocated Depreciation Reserve
Case No. SUZ-W-20-02
Exhibit No. 13
Scfiedule 2
D. Watson
Page 1(X of 106
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