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HomeMy WebLinkAbout20041201Gradilone Direct.pdfDean J. Miller McDEVITT & MILLER LLP 420 West Bannock Street O. Box 2564-83701 Boise, ID 83702 Tel: 208.343.7500 Fax: 208.336.6912 ioe~mcdevitt - miller .com 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.