HomeMy WebLinkAbout20041201Gradilone Direct.pdfDean J. Miller
McDEVITT & MILLER LLP
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Idaho Public UtHitles Commission
Office of the SecretaryRECEIVED
Nay 3 0 200~
Boise, Idaho
Attorneys for Applicant
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
- IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE IN
THE STATE OF IDAHO
Case No. UWI-O4-
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
DIRECT TESTIMONY OF FRANK GRADILONE III
Please state your name and business address.
Frank Gradilone III, United Water Resources (UWR), 200 Old Hook
Road, Harrington Park, New Jersey 07640.
Please state your educational and professional background.
I hold Master Degrees in Business Administration and in City and
Regional Planning from Rutgers, the State University of New Jersey.
an undergraduate, I majored in environmental studies and political
science, and received a BA from the State University of New York at
Stony Brook.
While a graduate student in the City and Regional Planning program
at Rutgers University, I was a Research Associate at the Center for Urban
Policy Research where I was involved in a number of research projects for
local government agencies and organizations, and for the U.
Department of Housing and Urban Development. My responsibilities
included survey research, computer based quantitative analyses, and fiscal
impact analysis. I am a contributing author to the 1980, Center for Urban
Policy Research publication entitled, The Adaptive Reuse Handbook.
I have been a Licensed Professional Planner in the State of New
Jersey since June of 1981. I was a member of the Vernon Township (NJ)
Environmental Commission, and served as chairperson of that body from
1993 through 1995.
I have authored and presented a number of technical papers at
national and regional conferences in the field. These papers and
presentations include: "A Perspective on Outdoor Water Conservation
Gradilone, Oi
United Water Idaho Inc.
Programs at United Water , jointly with R. Henning, UNITED Water
New Jersey and M. Cahoon, United Water Idaho, at Conserv '99, "
Water Conservation Program for the Spring V alleyW ater Company
Proceedings of Conser v ', Las Vegas, NY, 1993; "Seasonal Rates-the
Pros and Cons: A Case Study , a paper presented at the American Society
of Civil Engineers, Water Resources and Planning & Management '
Conference, in Seattle, Washington, May 1993; Automatic Meter
Reading for the Water Industry, co-authored with Donald L. Schlenger
American Water Works Association Research Foundation, Denver
Colorado, 1992; "Some Questions on Cost and Benefits of Rate
Regulation " co-authored with Drs. Michael Crew and Donald L.
Schlenger, published in NA WC Water, Summer 1986; "Water
Conservation: A Case Study," a paper presented at the Water for the
21st Century conference in Dallas, Texas, 1984; "Impact of
SummerlWinter Differential Rate Structure " a paper presented at the
ASCE, Urban Water 1984 Conference in Baltimore, Maryland; and the
A WW A Survey of Remote Metering Practices " a paper presented jointly
with Donald L. Schlenger at the 1984 A WW A Annual Conference in
Dallas, Texas.
Please describe your employment experience with UWR.
I have been employed by UWR, and its predecessor companies, since
August 1979. From 1979 to 1983, I was a Special Projects Researcher in
the Research and Development Division of the Hackensack Water
Gradilone, OJ
United Water Idaho Inc.
Company (now known as United Water New Jersey). My responsibilities
included research design and quantitative analysis, system operation
analysis, and survey research for the Company and its subsidiary, Spring
Valley Water Company (now known as United Water New York).
From 1983 through 1987, I was Manager of Demand Forecasting.
My responsibilities included demographic and economic forecasting,
capital projects planning, liaison with government agencies and regulatory
bodies, and management of research personnel. I also provided testimony
before the New York State Department of Environmental Conservation on
the need and timing for a proposed reservoir and water filtration plant
project for the United Water New York system, known as the Ambrey
Project.
In 1988 I transferred to United Water Resources as Manager-
Resources Planning in the Regulatory Department for United Water
Management & Services Company (UWM&S). In this capacity, I was
responsible for water demand, demographic and economic forecasts for
United Water s operating units.
With respect to my involvement in water demand forecasting, to date
I have conducted basic research to determine the appropriate forecasting
methods. I have created forecasting databases, and I continued to provide
long-range forecasts for both United Water New York and United Water
New Jersey. I produced short-run water consumption and revenue
forecasts for United Water Idaho in its last two rate cases (UWI-97-
and UWI-00-1). I have also provided short-run water consumption
Gradilone, Oi
United Water Idaho Inc.
and revenue forecasts for a number of other United Water operations
including: United Water New York in its last two rate cases (NYS PSC
Case 92-0645 and Case 94-0486); United Water New Jersey (NJ
BPU Case WR-90080792J); United Water Toms River (NJ BPU Case
WR-95050219); United Water New Rochelle (NYSPSC. Case 96-
1168 and Case 99-0948), United Water Florida (FPSC Case 960451-
WS), United Water Delaware (DPSC. Case 96-164), United Water
Pennsylvania (PPUC. Docket No. R-00973947), and United Water
Arkansas (APSC Case 960451-WS).
In 2001 I took over the management of United Water s LeakGuard
program. LeakGuard, which has been offered in the United Water Idaho
service area, provides coverage for the repair or replacement of the
customer owned portion of the water service line connecting that
customer s home to the water system. In addition to my responsibilities
here, I have continued to provide the short run revenue forecasts for
United Water New Jersey and have had a continuing liaison with the
UWM&S Rate Department on the revenue side of rate cases; this case
included.
Could you describe your responsibilities in connection with this rate
filing?
The purpose of my testimony is to present an assessment of pro forma
revenues for metered water revenues, private fire protection service
revenues, and other revenues for a test year covering the twelve month
Gradilone, Oi
United Water Idaho Inc.
period ended July 31 , 2004 for United Water Idaho ("United" or
Company
) .
How did you prepare these projections?
Separate assessments of metered water consumption and revenues were
made for each customer sector in the system; residential, commercial, and
public authority. Revenues for private fire protection services and other
revenues were also analyzed. This analysis, and supporting tables and
figures detailing this assessment, is contained in Exhibit 6, Schedules
through 4.
What was the level of metered water sales for the test year in this case
based on the Company s financial records?
Test year metered water sales revenue for the twelve-month period ended
July 31 , 2004 under existing tariff schedules totaled $30 270 932. Private
fire protection services for the test year were $490 058. Other revenue
sources, including miscellaneous revenues from customer fees and
charges, rents, and unbilled revenues totaled $239 232 for the test year.
Overall as shown in Exhibit 6, Schedule 1 , Page 1 of2, Column 1 , total
revenue per the income statement for the Company for the test year was
$31 000 222.
Was it necessary to adjust the test year revenues as shown on the income
statement of United Water Idaho?
Yes. Unbilled revenues of $95 542 were deducted from the revenue
stream since once total billed consumption for the test year is assessed, all
water used is priced and assumed to be billed, and collected, during the
Gradilone, OJ
United Water Idaho Inc.
pro forma test period. In addition the test year revenue from the Carriage
Hills system was removed in anticipation of its pending sale to the City of
Nampa, IPUC Order NO. 29625. The customers in this system generated
605 in revenues in the test year. These revenues were deducted from
book revenue since these revenues will not be realized moving forward.
Did you obtain a bill analysis for the test year period?
Yes. Overall, the level of revenue in the bill analysis for billed services to
the residential, commercial and public sectors in the test year was $18 575
less than the books, or in percentage terms only 0.060/0, as shown in
Exhibit 6, Schedule 1 , Page 1 of 2, Column 4.
Did you have to make any adjustments to revenues as per the bill analysis
to normalize revenues for the test period?
Yes. These adjustments fell into three areas. First was an adjustment to
revenues for the customers in the South County area to account for the
final phase-in of rates during the test year. Second was a weather
normalization, to correct for the impact of deviations in weather
conditions from normal that affected consumption in the test year. Third
and fourth, were adjustments to annualize for growth in the system during
the test year, and to account for expected growth in the system through
May 2005 to ensure that pro forma revenues are in synch with the capital
additions that the Company desires to have included for consideration in
this rate proceeding.
Could you explain the adjustment you made to revenues for the customer
in the South County service area?
Gradilone, Oi
United Water Idaho Inc.
The South County system was added to United's system in January 1999.
The existing 3 885 customers in the South County system were billed
under the final step of a phase-in tariff for part of the test year. Pricing
these bill determinants at prevailing rates results in an upward adjustment
of test year revenue of$88 397 as shown in Exhibit 6, Schedule 1 , Page 2
of 2, Column 2.
How did you proceed with the weather normalization and the change in
usage patterns due to the additions of new system areas and the change in
irrigation water regulations?
To assess the impact of theses factors on demand during the test year a
detailed analysis of the usage trends in the residential, commercial and
public sectors in the system was conducted. These analyses, which
involved the use of multiple regression modeling of historical
consumption patterns versus weather data, are detailed in Exhibit 6
Schedule 2 accompanying my testimony. As developed in this analysis a
normalizing adjustment of ($246 462) was indicated for the test year.
Could you discuss the annualization adjustments that were made in your
analysis?
Yes. First, there were annualization adjustments for growth in the United
system during the test year. During the test year an additional 1 ,841
residential customers were added to United's system. Using the half-year
convention, on an annualized basis these customers represent an
additional 5 523 bills rendered and 119 804 KG in consumption. Priced at
current rates this yields an additional $264 198 in revenues in the test
Gradilone, OJ
United Water Idaho Inc.
year.F or the commercial sector 130 customers were added.
U sing the same methodology as used for the residential sector this growth
results in the addition of390 bills rendered, and 41 351 KG of billed use.
Based on existing rates this represents $72 522 in additional revenues.
Could you discuss the adjustments made to account for expected customer
growth through May 2005?
Yes. These adjustments were treated in the same fashion as the
annualization adjustment. Growth for the 12 month period following the
test year was proj ected to be about the same as experienced during the test
year; i., 1 800 for the residential sector and 130 for the commercial
sector. The number of customers through May 2005 was calculated on a
pro rata basis (that is, 10/12ths of the projected growth through July
2005.), and since these customers will fully affect demand at the end of
the period, these customers were priced for a full year of service and use.
These calculations result in a revenue adjustment of$356 120 for the
residential sector and of $94 613 for the commercial sector. (No growth
in the number of customers in the public authority sector is anticipated, so
no adjustment was made here.
What is your assessment of the proper level of consumption for Micron
Industries for the test year?
During the 1990s, Micron Technologies was United's largest customer
representing nearly $250 000 in revenues. Since then Micron has
embarked on a major efficiency and water reuse program, and has
downsized its water consumption from United to the extent that Micron
Gradilone, OJ
United Water Idaho Inc.
no longer needs to be considered as a separate case. However since.
Micron was treated separately in the prior rate cases, it was decided to
continue to look at Micron separately to make comparisons from prior
case easier. From a high of 451 025 KG in the 1995-96 period, Micron
dropped to 68 593 KG during the test period. In the absence of any
definitive evidence that Micron will use either more or less water in the
near term it was assumed that the metered consumption sales for Micron
during the test year is the best measure of what Micron will consume in
the rate effective period.
Could you please discuss your assessment of private fire service revenues
for the test year?
United provides private fire protection services to about 1 300 customers
through separate service lines and hydrants. Test year revenues for these
services based on data in the bill analysis were $495 741. Due to growth
in the number of private fire services during the year and anticipated
through May 2005 an additional $22 920 in revenues were added to the
total to derive normalized private fire revenues of$518 661 the test year
(Exhibit 6, Schedule 1 , Page 2 of 2, Column 6).
Could you please discuss your assessment of the proper level of other
revenues that should be considered on a pro forma basis for the test year?
Looking ahead the Company can be reasonably expected to receive
revenues from three additional sources-bulk water sales through
hydrants, rents of water meters to construction sites, and miscellaneous
customer service charge revenues (reconnection charges, bad check fees
Gradilone, Oi
United Water Idaho Inc.
etc.). The Company received $88 344 from bulk water sales and $12 220
in revenues from construction meter rents; this level is not expected to
change. Customer service charges amounted $44 656 in the test year.
Based on the average rate of miscellaneous revenue per customer that this
level of revenues represents and the growth in the customer count of 1 841
customers, another $1 329 in customer service revenues was added to the
test year total. No change was assumed in bulk water and construction
meter revenues for the pro forma test year.
Based on your analysis what conclusions do you draw for total pro forma
revenues for the test year?
Pro forma metered water sales, fire service and other revenues under the
existing tariff schedule for the twelve month test period ended May 31
2004 total $31 389 812 (as shown in Exhibit 6, Schedule 1 , Page 2 of2
Column 6).
Have you prepared any other schedules for this Application for Rate
Increase?
Yes. I also prepared Exhibit 7, which shows the existing tariffs and
proposed tariffs for this case.
How does the Company propose to change its tariffs to reflect the change
in rates proposed in this rate case?
Based on the results of the cost of service study conducted in conjunction
with this case, the Company proposes to increase rates to meet its revenue
requirements as follows. Fixed service charges would be increased
about 36.4%: The cost of service study found that fixed charges should be
Gradilone , Oi
United Water Idaho Inc.
increased by 51.10/0. It was decided that making such a large change in
this component of the rate structure at one time would be too disruptive.
Hence, it was decided to increase these charges by an amount that was the
average of the 51.1 % increase as called for in the cost of service study,
and the overall increase required, or by 36.40/0. Fire protection charges
would increase by about 21.50/0. The cost of service study found that fire
protection charges could be decreased. However, it was decided to not
move rates in this direction at this time, but simply to increase the fire
protection sector the same amount as the overall increase requested.
Water use charges would be increased by about 16.9%: Based on the
decision to increase fixed service charges by 36.4%, and fire protection
charges by 21.50/0, water use charges would need to be increase by 16.90/0
to meet the revenue requirement. In terms of rate design, it was also
decided to maintain the summer/winter rate structure and keep the
differential at 25%.
Are there any other tariff changes being proposed by the Company?
Yes. Upon review of the United Water Idaho s tariff, it was decided to
take the opportunity presented by this proceeding to update the tariff to
conform to current IPUC standards, and to remove a number of tariff
pages associated with phase in rate schedules for a number of acquired
system that are no longer in use. Most of the changes are cosmetic in
nature and/or involve correcting grammatical or unclear language. The
only change made to the tariff that is of substance is in Section 71 of
the Rules and Regulations. The words "and/or Commercial" was
Gradilone, Oi
United Water Idaho Inc.
inserted after "Industrial" on the fourth line of the section in reference
to situations where developers of subdivisions pay for services when
the size and location of the service cannot be initially determined. We
believe the rule should also include the commercial sector because that
is the most common type of developments after residential; we do not
typically see any purely industrial developments. In the past we were
not collecting service line cost CIAC on Commercial developments
where the service size and location could not be determined up front
and thus we were paying to install them later. This change in the tariff
will insure that developers of both industrial and commercial projects
pay this cost. The other changes made in the tariff are detailed in Exhibit
, Schedule 2 accompanying this testimony.
Have you developed a rate proof to show that the proposed tariffs will
generate the revenues needed to meet the revenue requirement?
Yes. The analysis for metered sales in the residential, commercial and
public sectors is shown in Exhibit 6, Schedule 3 Page 24 of 25. The rate
proof for private fire protection services is shown in Exhibit 6, Schedule 3
Page 25 of25. The overall rate increase requested is $6 787 870, or
21.46%, representing a revenue requirement of $38 302 702 (Exhibit 6
Schedule 1 Page 2 of2, Column 7). The rate proof generates $38 302 699
in revenues; a difference of$3.00 with respect to the revenue requirement.
Does this conclude your testimony?
Yes it does.
Gradilone, Oi
Unjted Water Idaho Inc.