HomeMy WebLinkAbout20041201Wyatt Direct.pdfIdaho Pu~lic Utilities CommissionOffice of tIle SecretaryRECEiVEDDean J. MillerMcDEVITT & MILLER LLP420 West Bannock StreetO. Box 2564-83701Boise, ID 83702Tel: 208.343.7500Fax: 208.336.6912joe~ mcdevitt -m iller .com NO~" 3 0 2004Boise, IdahoAttorneys for ApplicantBEF.ORE THE IDAHO PUBLIC UTiliTIES COMMISSIONIN THE MATTER OF THE APPLICATIONOF UNITED WATER IDAHO INC. FORAUTHORITY TO INCREASE ITS RATESAND CHARGES FOR WATER SERVICEIN THE STATE OF IDAHO Case No. UWI-O4-BEFORE THE IDAHO PUBLIC UTiliTIES COMMISSION
DIRECT TESTIMONY OF GREGORY P. WYATT
..,
Please state your name and business address.Gregory P. Wyatt. United Water Idaho 8248 West Victory Road , BoiseIdaho.What is your occupation?I am the General Manager of United Water Idaho ("United" orCompanyPlease describe your educational background and other qualifications.am a graduate of Bloomsburg University with a Bachelor of Artsdegree in Business Administration Management.I have previouslyprovided testimony before the Indiana Utility Regulatory Commissionthe Pennsylvania Public Utility Commission, and the Idaho PublicUtilities Commission.Please describe your work experience.
I have been employed at United Waterworks properties , formerly
General Waterworks , since December 1974. Prior to assuming my
CUITent duties as General Manager of United Water Idaho in late 1999
I worked in various capacities in several states including General
Manager for United Water Pennsylvania , Area Manager for the United
Water Indiana properties, Assistant Manager of United Water Idaho
and various accounting positions in New Jersey and Pennsylvania.
Please describe your duties as General Manager.
Wyatt , Oi
United Water Idaho Inc.
My duties are to oversee the daily operation of providing potable waterto the customers of United Water Idaho.I supervise the variousdepartments of Engineering, Production, Transmission & DistributionCustomer Service , Billing, Infonnation Technology, Planning andAccounting in meeting their responsibilities for the delivery of potablewater and the related services in dealing with customers.These functions include planning for raw water sourceconstruction, maintenance and operation of the treatment and pumpingfacilities, construction , maintenance , and operation of the distributionsystem including mains, services , and storage tanks responding tocustomer needs regarding initial service or discontinuing service byreading customer meters processing and delivering bills, andresponding to customer needs through the Customer Service
Representatives.
My duties also include supervision of the Company s colnpliance
with all regulations in regard to safety, complying with the Safe
Drinking Water Act , and meeting other similar requirements.
What is the purpose of your testimony?
I will testify regarding the major reasons for the rate increase requested
in this present case , the operations of the Company, the Company
efforts to coll1ply with the Commission s recent directive regarding
revenue and expense effects of major new investments , the Company
conservation and customer service efforts , a new Company proposal
Wyatt , Di
United Water Idaho Inc.
regarding assistance for low-income customers , and the Commissionrecent Order No.29625 regarding "risk premium" proceeds to UnitedWater Idaho from the sale of Carriage Hills to the City ofNampa. I willalso be available to answer questions of a general nature.Please identify the other witnesses who will testify on behalf of theCompany and the topics on which they will testify.Mr. Jerelniah Healy, Coordinator, Planning and Rates , will testify regarding rate base and expense adjustments.Mr. Scott Rhead, Managing Engineer, will testify regarding capitaladditions including the Columbia Water Treatment Plant (CWTP).Professor A. T. Wallace, a consulting el1gineer from the Universityof Idaho, will testify regarding the Colulnbia Water Treatment Plant.
Mr. Frank Gradilone , Manager Business Development with United
Water New Jersey, will testify regarding revenue adjustments.
Ms. Pauline Ahern , consulting expert with A US consultants , will
testify regarding cost of capital.
Dr. Dennis Peseau , consulting expert with Utility Resources , Inc.
will testify regarding cost of service and rate design.
Rate Increase Drivers
Wauld you briefly explain why the Company is seeking a rate increase
at this time?
Wyatt , Di
United Water Idaho Inc.
The increase is necessary for the Company to continue to providequality service to our customers , to improve service by replacing aginginfrastructure and to replace infrastructure that is in conflict with otherinfrastructure renewal (such as highway and street rebuilds). For thesereasons, United continues to ll1ake capital investments in utility plant.A major example of this is the investments required for the ColumbiaWater Treatlnent Plant. As a result of this and other infrastructureinvestments, the Company s rate base of $98 862 937 as allowed in ourlast rate proceeding, has increased to $140 062 546 in this proceedingor an increase of $41 199 609. In addition , our operating costs haveincreased from $17 059 284 to $21 766 679 or an increase of707395.An increase in rates is necessary in order to providesufficient capital dollars to maintain and improve quality service to our
customers , to provide adequate operating and maintenance coverage
and to maintain a sound financial position.
What are the major capital investments the Company has made since
the last rate case that account for the significant increase in rate base?
The Columbia Water Treatn1ent Plant itself comprises an investment of
over $18 million dollars. Facilities associated with the CWTP , such as
land, piping, clearwell and pump station and equipment amount to
approximately $11 million dollars.Additionally, the Coll1pany
investing over $2 million dollars in wellhead treatment at two locations
elsewhere in the system , (Bali Hai and Maple Hills). The investments
Wyatt , Oi
United Water Idaho Inc.
at Bali Hai and Maple Hills wells have enabled the Company toimprove water quality to customers while also utilizing more of thesource well water from those sites. Water storage facilities have beenconstructed at a cost of about $3.5 million dollars that provide fireprotection and sustainable pressure to customers in the system, mostnotably in the South County area , which was acquired from the SouthCounty Water Company in 1999. The Company has made investmentstotaling about $11 million dollars in replacing aging infrastructure.Since the last case the company has replaced about 16 miles of watermainline, 2 900 water services, and 22 000 meters. The Company hasimproved safety for employees and the community by investing over$1 million dollars in non-hazardous disinfection systems in order toreplace all liquid cblorine gas operations throughout the water system.
All these and otber capital additions are discussed more fully
Witness Rhead' s testimony and exhibits.
What are the major areas of cost increase that the Company has
experienced since the last rate case?
A significant portion of the expense increase in this case comes from
depreciation related to the CWTP and other capital investments the
Company has made. The depreciation expense has increased by more
than $1.9 million dollars. Additionally, costs have increased by almost
$1.2 million dollars related to purchased power and the amortization of
defeITed power, as referred to in Witness Healy s testimony. Employee
Wyatt, Oi
United Water Idaho Inc.
benefits , including medical , dental and pension costs have increasedover $700 000. General insurance has also increased over $700 000.Payroll and property taxes have increased over $300 000 and purchasedwater and chemicals have increased over $200 000. All of these andother expense changes are discussed more fully in Witness Healytestimony and exhibits.What is the current average annual residential water bill as detenninedin the test year?CulTently, the average alIDual residential bill is $323., exclusive ofIDEQ fees and franchise tax.What would be the average annual residential bill under the proposedrates in this filing, and what is the overall increase request?
The average al1l1ual residential bill under proposed rates would be
$395., or an illcrease of 22.350/0. The overall increase request in this
present filing is 21.460/0
Company Operations
Please describe the operations of the company.
As of July 31 , 2004 United Water Idaho provided domestic water
service and fire protection to approximately 75 400 residential
coll1mercial , industrial , private fire protection and public authority
customers within the City of Boise and the in1mediate surrounding area.
Over ninety-nine percent (990/0) of the customers are located in what
Wyatt , OJ
United Water Idaho Inc.
we call the core area system, which is a totally interconnected system.Additionally, there are five (5) satellite systems that are notinterconnected with each other or to the core area system.Thesesatellite systems are identified as Mesa area, Coventry PlaceDanskinJSaddle Ridge , Belmont, and M&M. For the purposes of thisfiling the Carriage Hills systelTI has been removed in anticipation of itspending sale to the City ofNampa. CuITently our source of supply forthe core area is one (1) surface water treatment plant and eighty (80)deep wells , which are located throughout a service area ofapproximately 140 square miles. The projected delivery capacity in theyear 2004 of the surface water treatment plant and the eighty (80) wellsto the customers in the core service area is 95.09 million gallons perday (mgd). The Mesa area is served by three (3) wells with a combined
rated capacity of 1.7 mgd; Coventry Place is served by one (1) well
with a rated capacity of 0.4 mgd; the Danskin/Saddle Ridge area is
served by two (2) wells with a combined rated capacity of 2.0 mgd; the
Belmont system is served by two (2) wells with a rated capacity of 1.
mgd; and the M&M system is served by one (1) well with a rated
capacity of 0.14 mgd. The wells in the satellite areas are all currently
capable of meeting the maximum day demands in those areas.
At this time , water treatment essentially consists of the addition of
chlorine for disinfection and system residuals and polyphosphate for
sequestration of iron and manganese. In addition, green sand filtration
Wyatt OJ
United Water Idaho Inc.
systems treat water at two well stations in the system, (Bali Hai andMaple Hills). At the surface water treatment plant , the treatment rangesfrom direct filtration to full coagulation settling and filtrationdepending on the quality of the raw water.During the test year, the maximum day production from all sourceswas 86.million gallons; the minimum day production was 18.million gallons; while average day production was approximately 43.million gallons.The distribution system consists of approximately 1 043 miles ofwater main, varying in size from 2 inches to 30 inches in diameter. Thedistribution system also is supported by 34.8 million gallons of storagecapacity contained in 31 ground-level reservoirs.Due to differences in elevation within the coverage of the service
area, United Water Idaho has 10 different pressure zones in the core
area. Each satellite area also can be considered as a separate pressure
zone. These zones are necessary to maintain a reasonable range of
pressure at our customers ' points of use. Connections from adjacent
pressure zones allow us to transport water between some pressure
zones; however, it is impossible to transport water from each pressure
zone to all 9 of the other pressure zones. Since we have 81 sources
(points from which water originates) in the core area, the customers
within the area of influence of a particular source normally will receive
water from that source. As the customers near the source begin to use
Wyatt , OJ
United Water Idaho Inc.
up the water and as distance from the source increases , more water willbe consumed until the supply from a particular source is exhausted andadjacent customers then receive water from a different source.You note that the combined delivery capacity in the core area isapproximately 95.111gd while the maximum day production during thetest year was 86.8 million gallons. Does this mean that you can serveadditional customers without adding any additional source?, it does not. That would require a perfectly balanced distributionsystem and every well would have to produce 1000/0 .of capacity at thesame time. This perfect balance would have to be between the Inainsizes, main locations , source locations , pumping capacity, storage sizeand storage locations. As discussed in Witness Rhead' s testimony,history from 2001 2002 and 2003 shows maximum. day demand of
93.673 million gallons, 94.553 million gallons and 94.061 million
gallons respectively, all of which are quite close to the system
delivery capacity of approximately 95.1 mgd.
Revenue and Expense Effects of Major Capital Additions
Have you reviewed the Commission s recent decisions in the Idaho
Power Company (IPCo) and Avista Corporation rate cases regarding
revenue and expense effects of major new investment?
Yes , I have reviewed the pertinent areas of Commission Orders Nos.
29505 (IPCo) and 29602 (A vista) that address this issue.
What is your understanding of the guidance provided by those orders?
Wyatt, Di
United Water Idaho Inc.
As I understand those orders , the Commission is concerned that whensignificant plant improvements are completed during the test periodproper, or post-test period, there should be an effort made by theCompany to identify expense reductions and/or revenue additionsassociated with the plant improvements. This is in addition to the directeffects of the plant improvement itself such as incremental operatingand maintenance expense depreciation expense and return oninvestment.Do the Orders in question have relevance to United's instant case?Yes , I believe they do. The Company is including in rate base severalmajor plant adjustments , collectively referred to as the Columbia WaterTreatment Plant. The new facility is expected to begin providingservice to United's customers in March 2005.
Has the Company attempted to comply with the Commission guidance
provided in recent Orders?
Yes , although the guidance provided in the aforementioned cases does
not provide a clear means or a defined methodology by which a utility
is to determine how or to what extent colnpliance is accomplished.
Nonetheless , United has used its best efforts in proposing adjustments
that both increase revenues and decrease expenses as a result of the
addition of the CWTP. While the Colnmission ' s direction in the IPCo
and A vista cases have been more at a conceptual level , the revenue and
expense effects are difficult to quantify accurately in actual practice.
Wyatt, OJ
United Water Idaho Inc.
Because the amount of investment associated with a facility such as theCWTP is known and measurable , the return and depreciation expenseare easily calculated. Operations and maintenance expense can also beestimated with a high degree of accuracy. However, the revenueproducing or expense mitigating effects of the CWTP are much moredifficult to identify because they are not yet known and measurable.Over time United reasonably assumes that the CWTP will providereliable service to an increasing customer base. United also expectsCWTP to immediately provide a margin of capacity safety to customersin the event of the failure of less reliable source(s). CompanyManagement, Engilleers and consultants have , over time, all combinedto do a prudent job of adding incremental source , at a reasonable costand best utilizing the natural resources available to the Company.
What revenue increasing adjustment has United made that
attributable to the CWTP?
Pro forma revenue has been increased by $462 480 to account for
additional custoll1ers , annualized at existing rates , from July 31 , 2004
the end of the test year through May 31 2005. This adjustment is
further discussed in the testilTIOny and exhibits of Witness Gradilone.
In what way is this revenue adjustment appropriate in responding to the
Commission concern regarding revenue enhancements from
additional plant?
Wyatt , Di
United Water Idaho Inc.
First , let me say that in United's prior rate proceedings , it had beenCommission practice to accept Company adjustments to annualizerevenue only for test year customer growth. Never before has Unitedoffered or has the Commission calculated revenue from future growthcustomers in determining base revenues upon which future rates maybe calculated.Second , I suggest that increases in revenue to theColllpany typically arise from one of three situations: adding newcustolllers, increased consumption from existing customers , or from anincrease in rates. Increased revenue to the Company does not simplyhappen" because the Company makes an investment in new replacement plant.N either does a new source of supply plantautomatically add new customers or increase existing customerconsumption. As described in Witness Rbead's testimony, the CWTP
is designed to provide a margin of capacity safety to customers in the
event of the failure of less reliable source( s), and to provide for service
to new customers added over time.
With these thoughts in mind , United has attempted to comply with
the direction and guidance from the IPCo and A vista cases by adding
annualized customer growth revenue at Clio-ent rates to the Company
base revenues for all customers anticipated to be added to the entire
system from the test year through May 31 , 2005.
What expense reducing adjustment has United made that is attributable
to the CWTP?
Wyatt OJ
United Water Idaho Inc.
An expense reduction adjustment for power and chemical expense of$139 580 has been made to reflect changes in system operation causedby use of the CWTP. This adjustment is included in Witness Healyexhibits and testimony.Witness Rhead testifies that as many as nine (9) existing wells thatcurrently supply water in the vicinity of the CWTP may be idled orhave their production level reduced as a result of using the CWTP. Theexpense reduction of $139 580 is related to the costs for power andchemicals foregone at these sources.Water ConservationWould you please provide an overview of the Company s waterconservation and demand side management efforts and programs?For over 10 years the Company has developed and implemented
various customer information , education and awareness programs and
outreach efforts that promote wise water use and water conservation
and that assist customers in lnanaging their water demand and
consumption. Although SOlne of these efforts have sought to inform
customers about water use in the home , the majority of them have
targeted customer water use outside on lawns , gardens and landscape
areas.This focus is designed to enable customers who use water
provided by the Company for irrigation purposes to benefit the most
from the Company s efforts , since irrigation demand is the driver of
overall water system demand in the sumlner.
Wyatt , Di
United Water Idaho Inc.
Below is a brief sull1mary of the company s efforts in these areas:Water Efficient Landscaping Classes:In February of each year, United and others conduct seven , two-hourclass sessions focused on the fundamentals of water efficientlandscaping. In 2004 747 adult individuals attended the classes.Water Awareness WeekIn May of each year, United participates in Water Awareness Weekwhich promotes water education and conservation information forschool students in Region 3 , which includes the Boise area.Indoor Water Conservation Kit give-a-wayCustomers seeking ways to reduce their water consumption are offeredfree water conservation kit that includes a low flow showerhead
faucet aerators and toilet dams.
Summer water conservation bill insert
As customer bills go out throughout the spring and summer, the bill
includes an insert that provides infonna6on on how customers can
reduce their outside water demand during the summer.
Water use Inanagement messaging through the media
The overall media effort is designed to increase customer awareness
about their water use and to provide them with concrete reminders and
ways to manage their water consumption.This consists of
Wyatt OJ
United Water Idaho Inc.
coordinated use of newspaper, radio and television to communicatewise water use and management throughout the summer. It includesweekly newspaper ads in the spring and early summer targeting wayscustomers can use water more wisely outdoors around their homes;daily radio spots during drive time that feature water conservationmessages and tips; and weeknight television partnership with Channel 6KIVI highlighting United's daily production compared to normal and tohistory, along with conservation tips , trivia , and interviews.Educational and Community outreachUnited has developed various water awareness and conservationpresentations that it makes available and delivers to schools andcommunity organizations in the area.These include PowerPointpresentations, topical lectures school skits and plays puppet shows
and a video library.
Customer Service
Please comment on the Company s customer service efforts.
United uses various measures and metrics to ensure that it maintains a
high level of service and responsiveness to its customers. For example
the Company tracks customer complaints it receives relating to water
uali ty .Over the past four years Water quality complaints that
required a field visit to resolve have averaged only .870/0 of total
customers.Complaints relating to high bills and disconnection have
Wyatt OJ
United Water Idaho Inc.
averaged only .36% and .38% respectively as a percentage of billsrendered.Are there other measures used by the Company to track customerservice performance?Yes. Our Customer Service group maintains various data relating tocustomer cal1s , response time , length of call and number of droppedcalls. For the CUITent year to date through September, the CustomerService office has answered 66 887 calls with an average answer speedof 36 seconds.The average length of calls is 2 minutes and theabandoned or dropped call rate is 5.20/0 of all calls. Almost 400/0 of thedropped calls occur during the first 30 seconds of hold time and thiswould include those customers who may have reached our office ineITor (i.e. wrong number) and hung up. Assuming a caller is willing to
hold more than 30 seconds , the dropped call rate falls to 3.10/0. In
addition, due to the fact that virtually all customer meters are located in
, 16 outside pits or vaults, we are able to render bills based on actual meter
readings 99.90/0 of the time.
Low-Income Customer Assistance
Does the Company currently have any kind of low-income customer
assistance program in place?
Wyatt , OJ
United Water Idaho Inc.
, but the Company recognizes that its requested increase ofapproximately 220/0 in this proceeding increases the need forconsideration and discussion of such a program.What does the Company propose with regard to low-incomeassistance?The Company proposes that between the time of this filing and beforehearings in this proceeding, the Colnpany, along with CommissionStaff and other interested parties convene a workshop(s) to evaluatethe need for, scope and design of such an assistance program forUnited's low-income water customers.The Company believes acollaborative effort between the parties is the most effective way todevelop a program that truly meets customer s needs and guardsagainst excessive costs to either the shareholder or the general customer
base. Assuming a program agreeable to all parties can be developed
the Con1pany would seek implementation in conjunction with new rates
and effective with an Order in this case.
Commission Order No. 29625
What does Comlnission Order No. 29625 state regarding the "risk
premium" portion of the proceeds to be paid to United Water Idaho in
conjunction with the sale of the Carriage Hill water system to the City
of Nampa?
Order No 29625 states:
Wyatt , OJ
United Water Idaho Inc.
We further find it reasonable and direct United Water to book the$28 138 amount originally proposed as a risk premium distribution toUnited Waterworks as regulated revenue to be passed through tocustomers in the Company s upcoming general rate case.What is United's position with regard to this portion of Order No.296257The Company has no objection to booking whatever remains of therisk premium" as regulated revenue on its books , however the actualamount of that revenue will not be fully known until the transaction inthat proceeding closes sometime in December. All transaction costsmust be netted against the amount before a final accounting of theremainder can be recorded as regulated revenue.In addition, United believes the proper way to treat the revenue forrate making purposes is to amortize it over a three-year period, which
would coincide with other amortizations the Company
recommending in this case such as rate case expense , based on the
anticipated rate filing frequency.Receipt of revenue from the risk
premium is a one time , non-recuaing event and it is not appropriate to
include the total amount in annualized revenue for ratemaking
purposes.
When the actual revenue amount is known United intends to submit
that information to the Commission Staff for inclusion in this rate case.
Wyatt , Oi
United Water Idaho Inc.
Does this conclude your testimony?Yes.
Wyatt , OJ
United Water Idaho Inc.