20050823Petition for reconsideration.pdf

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DeanJ. Miller
McDEVITT & MILLER LLP
420 West Bannock Street
O. Box 2564-83701
Boise, ill 83702
Tel: [phone]
Fax: [phone]
ioe~mcdevitt-miller.com
2005 pJJG 23 pr;1 i: L.
lie PUUL iC
UTILITIES COt1f'1ISS10N
Attorneys for Applicant
ORIGINAL
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-
UNITED WATER IDAHO'
PETITION FOR
RECONSIDERATION
COMES NOW United Water Idaho Inc.
, ("
United " the "Company,) and pursuant to
IPUCRP 331 and Idaho Code 61-626 respectfully Petitions for Reconsideration of certain aspects
of Commission Order No. 29838, service dated August 3, 2005 ("the Order ) as more fully set
forth below. The Company requests reconsideration of Order No 29838 because those parts of
the Order set forth below are unreasonable, unlawful, erroneous, unduly discriminatory and not
in conformance with the facts of record and/or applicable law, resulting in a revenue requirement
and rates which are confiscatory. More specifically, Company requests that the Commission
reconsider its decision on the following issues:
Thirteen Month Average Rate Base;
II.Water Right Lease Revenue;
III.AFUDC on Initial Butte Water Right;
IV.Calculation of Pension Expense;
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 1
Early Retirement and Enhanced Severance Costs;
VI.Deferred Power Costs;
VII.Water Quality Testing;
VIII. Rate Case Expense;
IX.Business Insurance;
With regard to issues II (water rights) and VIII (rate case expense), the Company requests
that the Commission accept into the record critical evidence that was unavailable at the time of
the hearing, and on the basis of that evidence, reconsider its decision on those issues. The
Company requests that the other issues be reconsidered based on briefs.
This Petition is based on the following reasons and upon the following grounds:
CALCULATION OF THE COMPANY'S RATE BASE WITH A THIRTEEN MONTH
AVERAGE RATE BASE IS UNREASONABLE, UNLAWFUL, ERRONEOUS, UNDULY
DISCRIMINTORY AND NOT IN CONFORMANCE WITH THE FACTS OF RECORD
AND/OR APPLICABLE LAW.
United calculated its proposed rate base using the "year end" methodology, as it has done
in its prior cases since 1993 , resulting in a proposed rate base of$140 148 049. Staff proposed
use of a "thirteen month average" methodology resulting in a proposed rate base of
$125 652 848. (Order
, pg.
5).
With slight modification, the Commission accepted Staff s proposal, resulting in a final
rate base of$126 824 685, after other adjustments. (Order, pg. 2, Attachment 1). In
consequence, Company is denied a return on rate base investment that is admittedly used and
useful totaling $13 323 364. ($140 148 049 - $125 652 848).
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 2
Lee:al Error.
As acknowledged in the Order, United Water has used, and the Commission has
approved, a year end test year with pro-formaadjustments and additions in each of its four rate
cases since 1993 (Order, pg. 5). The Order observes that in those cases the year end method was
not contested and then concludes
, "
That history, along with United Water s review of the
Commission s final orders in the recent Idaho Power and Avista Cases, provided the Company
with adequate notice of the Commission s preference for the average rate base methodology.
(Order, pg. 6).
By focusing solely on what the Company should have been able to discern or intuit from
prior orders regarding the Commission s general preferences, the Order falls into error because it
fails to take into account the deficiencies of the thirteen month average rate base method as
applied to the specific facts of this case. As the Company demonstrated, both in rebuttal
testimony and its post-hearing brief, the thirteen month average rate base method should not be
applied in this case for at least three reasons:
First, the rates produced by the thirteen month average rate base methodology will, as a
matter of mathematical certainty, be insufficient to allow the Company an opportunity to earn its
allowed return. The Commission s rate base calculation treats all post test year additions in
service as of December 31 2004 as though they were placed in service in July, the end of the
historical year. The effect is to allow recovery of only one-thirteenth of those projects, all of
which were providing service to customers over seven months before the Commission s Order
establishing the new rates. More importantly, by averaging a test year that is already historical
only one-thirteenth of projects in service in July 2004, over one year before the Order, will be
recovered under the new rates. Even projects placed in service in October 2003, almost two
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 3
years before the new rates became effective, are not fully recovered under the Commission
averaging methodology. By allowing only a fraction of the total costs of construction projects
actually in service at the end of the historical year, and by excluding post test year investment
the revenue produced by allowed rates will produce a return at least 80 basis points below the
allowed return. (Tr., pg. 1038-1040. Ex. 17, Post Hearing Brief, pg. 7-9). Rates that will not
produce the rate of return found to be reasonable are illegal. See Idaho Power v. Idaho Public
Utilities Commission 99 Idaho 374, 582 P.2d 720 (1978).
Second, use of the thirteen month average rate base methodology violates United Water
legal entitlement to have included in rate base investments that are known and measurable. The
Idaho Supreme Court has made clear that the utility is entitled to a return on post test year
investments that are known and measurable. In Utah Power Idaho Public Utilities Commission,
102 Idaho 282 , 629 P .2d 678 (1981) the court said: "The Commission should include in the rate
base all items which are proven with reasonable certainty to be justifiably used by the utility in
providing services to its customers.
" (
See Also, Post Hearing Brief, pg. 5-6).
Third, the cost characteristics of United Water justify use of a year-end test year. United
Water is highly capital intensive and its growth in rate base per customer is at a rate much greater
than customer and usage growth. Unlike electric utilities, for which incremental rate base
investment per customer is less than system average rate base, United Water must make higher
than average cost additions to rate base to meet its growing load. (Tr., pg. 1034-1037, Post
Hearing Brief, pg. 4-5).
For these reasons, the Order is erroneous. And, by failing to consider and discuss these
objections to the thirteen month average rate base method, the Order, contrary to established law
fails to adequately explain the reasons for departing from the year end method. ", however, the
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 4
IPUC decides a case in a manner contrary to prior IPUC rulings the Court will consider whether
the IPUC has adequately explained the departure from prior rulings so that a reviewing court can
determine that the decisions are not arbitrary and capricious Rosebud Enterprises v." Idaho
Public Utilities Commission 128 Idaho 609, 618 917 P.2d 766 (1996). Further, the United
States Supreme Court has cautioned that an un-explained switching back and forth between rate
methodologies has constitutional implications. "Consequently, a State s decision to arbitrarily
switch back and forth between methodologies in a way which required investors to bear the risk
of bad investments at some times while denying them the benefit of good investments at other
would raise serious constitutional questions.Duquesne Light Co. v. Barasch 488 U.S. 299
(1989).
Revenue Mismatch.
In conjunction with its proposal to use a year end test year, the Company proposed to
increase test year revenues annualized at existing rates from July 31 , 2004 through May 31
2005. (Tr., pg. 18). Staff accepted this revenue projection, but grafted it onto its 13-month
average rate base methodology.
The Order incorrectly concludes
, "
.. . and so the evidence on the adjustments as a means
to correct the mismatch is uncontroverted." (Order, pg. 6). In fact, United Water argued
strongly that while using projected revenue was appropriate for the year end methodology, it was
inappropriate when using the 13-month method. Dr. Pesseau testified:
Has, in fact, Staff failed to properly match its proposed thirteen-month
expense and rate base estimates with corresponding revenues?A. Yes. This can be demonstrated by determining that Staff used essentially
the same level of annualized revenues, those for the period ending May 31 , 2005
that are contained in the Company s filing. In following its suggestion to use the
thirteen-month average rate base, Staff should also have reduced the May 31
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 5
2005 annualized revenues in the Company s filing back to the actual test year
revenues centered at January, 2004. But Staff did not. The test year revenues
used by Staff are actually the very same test year revenues developed by the
Company for its end of period method, with one very small exception. On
Company Exhibit 8, Page 2 of 2, proposed test year revenues are $31 534 832.
To verify that Staffs case calculates annualized revenues identically to the end of
period May 31 2005 calculated by the Company, I refer to Staff Exhibit 126.
this exhibit (column (6), line (12)) appears the same annualized revenue levels of
$31 543 832.2 In other words, Staff mismatches rate base and expenses on a
thirteen-month average basis, with a higher level of revenues calculated on a
forward annualized period May 31 , 2005. Thus there is a gross mismatch.
Contrastingly, the Company s filing is consistent, in that it matches the higher
level of end of period May 31 , 2005 revenues with its end of period expenses and
rate base. Staff, on the other hand, mismatches these components by using the
smaller than actual rate base, its thirteen month average, with the higher level of
end of period revenues. This is a mismatch that eventually guarantees an under
recovery of revenues sufficient to earn the allowed rate of return. (Tr., pg. 1030-
1032).
And, in its post hearing brief United Water argued:
In contrast, Staffs case fails to properly match its proposed thirteen-month and
rate base estimates with corresponding revenues. As demonstrated by Staff
Exhibit 126, Staff used the same level of annualized revenues, those for the period
ending May 31 2005 , that are contained in the Company s filing. To be
consistent with its suggestion to use the thirteen-month average rate base, Staff
should also have reduced the May 31 , 2005 annualized revenues in the
Company s filing back to the actual test year revenues centered at January 2004.
(Peseau Reb. Tr., pg. 1031). Thus, Staff mismatches rate base on a thirteen-
1 These May 31 , 2005 annualized revenues are derived by adjusting twelve-month ending July 31 , 2004 revenues for
South county, weather normalization and growth through May 31 2005.2 This figure is adjusted by $5 628 for Carriage Hill on Staff Exhibit 111 , Page 2 of2.
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 6
month average basis, with a higher level of revenues calculated on a forward
annualized period ending May 31 , 2005.
F or the foregoing reasons the Commission should grant reconsideration on this issue.
II.
IMPUTING REVENUE FROM A WATER RIGHT LEASE AND ASSOCIATED
ADJUSTMENT OF PURCHARED WATER EXPENSE IS UNREASONABLE
UNLAWFUL, ERRONEOUS, UNDULY DISCRIMINTORY AND NOT IN
CONFORMANCE WITH THE FACTS OF RECORD AND/OR APPLICABLE LAW.
The Order imputes to the Company s annual revenue an amount of$152 584
representing revenue from a lease of water under the Initial Butte water right. (Order, pg. 10).
The Order further reduces the Company s normalized purchase water expense from $185 484 to
$160 366, without explanation for the amount of the reduction. (Order, pg. 20). The net effect of
these adjustments is to reduce the annual net allowance for purchased water to $7 782. This
despite undisputed testimony that the Company s estimated purchased water expense during
2005 will be $274 982. (Tr., pg. 150). Reconsideration should be granted with respect to this
portion of the Order to (a) correct an error in logic and (b) take into account new facts that have
developed since the time of hearing.
Error in Loe:ic.
As noted, the Order imputes $152 584 to the Company s annual revenue as if that lease
revenue will recur in each year of the rate period. In fact, the evidence established that 2005 is a
unique year from a water supply perspective and future leases are unlikely to recur. (Tr.
, pg.
169-171 , 213-214). The Order then, mistakenly, justifies the annual imputation on the
assumption that
, "
When lease revenues are not received and the Snake River rights are
exchanged for Boise River rights, purchased water transactions should be reduced." (Order
, pg.
10-11). This, in fact, is not the case. The normalized cost of the 13 454 acre feet of water
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 7
necessary to operate the Columbia and Marden treatment plants is $185,484. Lease revenues do
not somehow go to the Company s bottom line as net income; they are used to offset only a
portion of the additional cost of the other water necessary to meet the Columbia and Marden
requirements, which are not met by the Initial Butte right.
The Company respectfully suggests that the more appropriate accounting treatment
would be to book the extraordinary lease revenue as a deferred credit and amortize the credit
over a reasonable period of time of three to five years. This treatment would recognize that the
lease is an event not likely to recur, consistent with the Company s intention to use the Initial
Butte right for its own supply needs whenever possible.
New Facts.
At the time of hearing the final lease document contemplated with respect to the Initial
Butte right had not been signed, and any proceeds from the lease was a projected amount. The
Company herewith introduces evidence to show that since the time of hearing the lease
negotiations have been concluded and the amount of lease revenue has been fixed at the sum of
$48 114, not the $152 584 imputed by the Order. As established by the Affidavit of Scott Rhead
filed herewith, the reduction in lease proceeds has occurred because the lease agreement was
conditional upon Idaho Department of Water Resources (IDWR) review of eligibility criteria set
forth in the Snake River Basin Water Right Acquisition Program set forth in the Invitation for
Offers to Sell dated December 7, 2004. At the time of the hearing the proposed amount was
992 acre feet. IDWR only approved 3 240 acre feet as eligible for payment on July 29, 2005.
For the foregoing reasons the Commission should grant reconsideration with respect to
this issue.
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 8
III.
DISALLOWANCE OF AFUDC WITH RESPECT TO ACQUISITION OF THE INITIAL
BUTTE WATER RIGHT IS UNREASONABLE, UNLAWFUL, ERRONEOUS, UNDULY
DISCRIMINTORY AND NOT IN CONFORMANCE WITH THE FACTS OF RECORD
AND/OR APPLICABLE LAW.
The Order accepts Staff s recommendation not to permit accrual of an allowance for
funds used during construction (AFUDC) with respect to water rights, resulting in a reduction to
rate base in the amount of$393 348. (Order, pg. 12).
The Company does not object to the disallowance of $3 331 of AFUDC pertaining to
minor water right activity. The Company does object to the disallowance of AFUDC with
respect to The Initial Butte Water Right acquisition in the amount of$390 017.
The Staff, without citing any authority or reasoning other than its own opinion, contends
that water rights are not construction work in progress because no physical construction is
actually taking place. "Water rights are not Construction Work in Progress. No physical
construction is actually taking place." (Tr., pg 533) (Emphasis added).
A focus on the presence or absence of "physical construction" improperly limits the
application of AFUDC. Like, land, water rights are interests in real property. Idaho Code 55-
101 provides:
Real Property dermed.Real property or real estate consists of:
1. Lands, possessory rights to land and water rights and mining claims
both lode and placer. (Emphasis added).
Costs associated with the acquisition of the tangible asset of land are indisputably subject to
AFUDC accrual. Simply because water rights are less tangible, less "physical", than land does
not change their nature as real property, and the AFUDC treatment should be no different than
See Also 1996 Uniform System of Accounts for Class A Water Companies, National Association of Regulatory
Utility Commissioners, accounting instruction No. 24, which includes water rights as land rights.
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 9
for the tangible asset of land. And, the ownership of adequate water rights is just as essential to
the operation of the Company s surface water treatment plants as is the land upon which they are
constructed.
The implications of limiting AFUDC to physical assets are potentially far reaching. Utility plant
such as land, computer software, plant components delivered to the job site and simply integrated
into a project, among other examples, may not qualify for AFUDC under Staffs approach. The
Company asserts that a far better test of the appropriateness of applying AFUDC to any project is
the nature and purpose of the concept of AFUDC. AFUDC should provide an allowance in
recognition of temporarily unproductive capital used in the development of a facility based on an
approximation of the return that would have been available had the funds been included as a
component of rate base. Whether the component of the facility is tangible bricks and mortar or
the less tangible legal interest of water rights should be immaterial.
Staff also asserts that while water rights are being pursued, amounts expended can be
charged to Preliminary Survey and Investigation Charges. Once the water rights have been
secured, they should be booked to the sub account Land and Land Rights in the Plant in Service
Records. (Tr., pg. 533). The acquisition of Initial Butte water rights does not fit this model. The
Company expended $1 123 571 in June of2002 plus an additional $124 841 in October of 2002
to acquire the water rights themselves, as diverted on the Snake River. Although the Company
owned the water rights, they were not yet used and useful, nor were they plant held for future
use. The Company then immediately filed a request with the Idaho Department of Water
Resources to transfer the water right diversion point from the Snake to the Boise River, as was
done with the prior acquisition of the Wilson water right, at which time, if successful, the water
right would become a used and useful asset to the Company. However, due to unforeseen
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 10
obstacles including protests to the Company s proposed transfer of the diversion point, it took
the Idaho Department of Water Resources nearly two years, until May 11 , 2004 to approve the
exchange. At that point, the Company put the water right in Plant in Service and was able to use
the water right to provide raw water for the Marden Water Treatment Plant. The initial costs of
the water right, plus the costs of legal resources utilized in the process of seeking IDWR
approval represented funds that were unproductive for nearly two years and thus appropriate for
the application of AFUDC.
For the foregoing reasons the Commission should grant reconsideration with respect to
this issue.
IV.
USE OF THE ERISA MINIMUM CONTRIBUITON LEVEL FOR CALCULATION OF
PENSION EXPSENSE IS UNREASONABLE, UNLAWFUL, ERRONEOUS, UNDULY
DISCRIMINTORY AND NOT IN CONFORMANCE WITH THE FACTS OF RECORD
AND/OR APPLICABLE LAW.
As approved by the Commission in United Water s past several rate cases, the Company
proposed to calculate its allowed pension expense in accordance with the methodology provided
by Statement of Financial Accounting Standards No. 87 (F AS 87). The amount of expense
calculated under this method is $637 046. The Order adopts Staffs proposal, made for the first
time in this case, to allow only an amount represented by the ERISA minimum contribution level
of funding of $162 454, as opposed to the Company s expense claim of $637 046 based on F AS
87. (Order, pg. 18). The Order is inconsistent with this Commission s prior decisions on this
issue in all of the Company s rate cases since 1993. Additionally, this decision is inconsistent
with the Commission s decision to permit, for this case and prior United Water cases, the use of
the same methodology for United Water s calculation of its Other Post Employment Benefits
(OPEB) under F AS Statement No.06. (Brief, pg. 12)
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION -
The Order (pg. 18) states that a danger exists in allowing recovery of the F AS 87 amount
with no contribution by the Company, "resulting in an unjustified windfall for the Company.
. .
This is the method that has been in place and approved by this Commission for many prior years
without the Company realizing any windfall. In fact, due to the strict rules contained in F AS 87
the Company sees no additional profits from this method of accounting. The Company
Actuary must calculate the difference between the funded status of the pension plan and the fair
value of the plan assets. If the plan is not funded to the level of the plan assets, the Company is
required to record an additional minimum liability. When a cash contribution is made it is
treated as a retirement of the pension liability. This liability is a real expense owed by the
Company to its employees that must ultimately be reduced. There is no windfall; on the contrary,
if the recorded expense is not recovered, the Company will be unable to earn its allowed rate of
return. (Brief, pg. 12)
Staffs recommendation rests on the premise that since no cash is paid, the Company has
no obligation. This simply is not true. Furthermore, another safeguard exists in the F AS 87 rules
that prevent the windfall discussed in this Order. The safeguard is that when or if the intangible
pension asset that was created from the minimum liability exceeds that liability, a negative entry
must be made to the shareholder s equity. Therefore, the shareholder cannot profit from this
method of accounting. No issue is taken with the allowance of depreciation expense, which is
also not a cash expense. However, funds must be available to replace plant when needed.
windfall profit results since depreciation expense is recorded and recovered, with no impact on
profits. In the same way, funds must be available to the Company to meet future pension
liabilities. No windfall results since under FAS 87, the expense is recorded and if not recovered
will result in an immediate erosion of the rate of return.
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 12
Currently, United Water Idaho has a minimum liability recorded on its financial
statement in the amount of$I.8 million that represents the level of under funding of the pension
assets necessary to pay future benefits to its employees. The amount of expense calculated under
the F AS 87 method is $637 046, which can be used to reduce the liability when required.
Staffs ERISA method only calculates the required cash needed now, without recognition of the
liability that must be funded at some future point. The F AS 87 amount, which must be recorded
on the Company s books, correctly reflects both the cash required and the future liability.
For the foregoing reasons the Commission should grant reconsideration with respect to
this issue.
DISALLOWANCE OF DEFERRED EARLY RETIREMENT AND ENHANCED
SEVERANCE COSTS IS UNREASONABLE, UNLAWFUL, ERRONEOUS, UNDULY
DISCRIMINTORY AND NOT IN CONFORMANCE WITH THE FACTS OF RECORD
AND/OR APPLICABLE LAW.
Consistent with Commission accepted practice in the Company s last rate case, (Case No.
UWI-OO-, Order No. 28505 , issued September 6 2000) the Company proposed a 60-month
amortization of deferred ERP expenses resulting in annual expenses of $257 734 (ERP) and
$49 751 (ESP). In the UWI-OO-l case the Commission accepted deferral and amortization of
ERP and ESP costs even though the Company had not previously applied for an accounting
order. Notwithstanding prior Commission acceptance of this approach, the current Order
disallows both expenses because the Company did not previously make formal application for
approval of the deferral. (Order, pg. 19).
As discussed in section I, above, a change in regulatory policy, unaccompanied by any
reasoned explanation is arbitrary. See Rosebud Industries v. Idaho Public Utilities Commission
supra. Here, the Order does not explain how these costs were, in 1999, not enough of a
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 13
significant nature so as to require application for deferral but suddenly in 2000 they were so
significant as to require application for deferral.
The Order s reliance on Order Nos. 25880 and 28097 is perplexing. Those Orders
issued in 1995 and 1999, respectively, were, obviously, in existence prior to the Commission
decision in the UWI - W -00-1 case. Those Orders were not understood at that time by the
Commission to require prior application for deferral ofERP/ESP costs. It is not clear why those
Orders should mean something different today.
If the Commission were to provide prospective guidance as to the meaning of
significant" for purpose of determine when a formal deferral application is required, the
Company would certainly comply. However, a shifting definition of "significant"-wherein
costs incurred in one year are not significant, but identical costs incurred in a subsequent year are
significant-is arbitrary and susceptible to opportunistic application.
For the foregoing reasons the Commission should grant reconsideration on this issue.
VI.
DISALLOWANCE OF DEFERED POWER COSTS IN RATE BASE IS
UNREASONABLE, UNLAWFUL, ERRONEOUS, UNDULY DISCRIMINTORY AND
NOT IN CONFORMANCE WITH THE FACTS OF RECORD AND/OR APPLICABLE
LAW.
The Order accepts the Company s proposal for a three year amortization of$I 469 292 of
deferred power costs but disallows rate base treatment of the unamortized deferred amounts and
further, does not provide for the computation of a reasonable carrying charge in the revenue
requirement. (Order, pg. 21-22). The Commission finds the amount on the Company s books of
469 292 to be appropriate for recovery. However, this amount excludes any carrying cost and
therefore is not included in the revenue requirement. Further, the Order states that the Company
and Staff agree that a 1 % carrying charge would be appropriate. (Order, pg. 21)
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 14
The Company has requested rate base treatment of this deferral along with rate of return
recognition on monies paid as with any other deferral. The Company and Staff are not in
agreement that a 1 % carrying charge is appropriate and the Company s position was clearly
stated in its rebuttal testimony (Tr., pg. 883-886). The Order authorizes an amortization of the
deferred amount that excludes any carrying charge in setting the revenue requirement and then
states that a 1 % carrying charge is appropriate without including it in the revenue requirement.
Therefore, the Company will not be able to recover anything but its currently recorded costs.
Even if the Commission were to authorize a mechanism to record the carrying costs, the
Company has no means to recover them since the interest is not considered in the Company
revenues. This deferral should be afforded traditional rate base treatment and not be subject to
any carrying charge. It is not equal to a power cost adjustment that varies from year to year in
small amounts and is subject to changes in interest rates over each year. This was a sizeable
expense incurred over time with no recovery of the cost or interest on any of the expended funds.
For the foregoing reasons the Commission should grant reconsideration with respect to
this issue.
VII.
ALLOWANCE OF ONLY $12 000 IN ANNUAL EXPENSE FOR WATER QUALITY
TESTING IS UNREASONABLE, UNLAWFUL, ERRONEOUS, UNDULY
DISCRIMINTORY AND NOT IN CONFORMANCE WITH THE FACTS OF RECORD
AND/OR APPLICABLE LAW.
The Order allows a recovery of$12 000 annual expense for the Long Term 2 Enhanced
Surface Water Treatment Rule (L T2ESWTR) water quality testing expense amortized over a
five-year period, or $2 400 in the annual revenue requirement. (Order, pg. 22). The Order states
this test is required to be administered every two months for two years, 2005 and 2006, at an
annual expense of $12 000". The Company requested the full $12 000 annual cost of
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 15
T2ESWTR be included in its annual revenue requirement. Staff objected, stating the
Company s accounting treatment would allow the Company to recover this increased amount
from customers after 2006 when the test is no longer required, hence Staff recommended the
five-year amortization treatment of$12 000. Both Staff and the Commission acknowledge the
total cost of the mandatory testing requirement imposed by the LT2ESWTR is $12 000 in each
year: $12 000 incurred in 2005 and an additional $12 000 in 2006 for a total of $24 000. The
correct amount to be include in annual expense is thus $24 000 amortized over a five year period
or $4 800, twice the amount the Order provides in the annual revenue requirement.
For the foregoing reasons the Commission should grant reconsideration with respect to
this issue.
VIII.
ALLOWANCE OF ONLY $236,467 FOR RATE CASE EXPENSE IS UNREASONABLE
UNLAWFUL, ERRONEOUS, UNDULY DISCRIMINTORY AND NOT IN
CONFORMANCE WITH THE FACTS OF RECORD AND/OR APPLICABLE LAW.
The Order allows rate case expense of $236 467, representing the Company s originally
requested amount of $245 000, less $8 533 for a split of public information campaign expenses.
(Order, pg. 24). Company Exhibit 15 Schedule 3 documented $224 116 of rate case expense
through April, 2005 and projected another $80 833 to allow for additional expense through the
hearing and post hearing procedures.
Filed herewith is the Affidavit of Jeremiah Healy which attaches a copy of the
Company s July 2005 Balance Sheet indicating deferred rate case expense incurred through July
2005 of $358 392.07 and an update of deferred rate case expense in the same format as the
4 Exhibit 15 Schedule 3 makes an allowance for intervenor funding to be amortized with other rate case expense.
For unknown reasons, the Order includes the intervenor funding allowance in the Company s revenue requirement
as if it were a recurring annual expense. (Order pg. 29).
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 16
aforementioned Exhibit 15 Schedule 3 , shows that the actual incurred expense since April 2005
is significantly in excess of the estimated $80 833 and is actually the sum of $134 225
In addition, the Company has already processed for payment three additional invoices in
August 2005 (intervenor funding awarded to CAP AI and Idaho Rivers United per the Order
totaling $11 942~09 as well as an AON Consulting invoice for $22 500, totaling $34 442.09. (See
Affidavit of Jeremiah Healy). The August billings bring the actual cost to date to a grand total of
$392 834.16.
The increased expense since April, 2005 is not surprising given the "numerous complex
and technical issues" presented by this case. See Order No. 29810.
It is unreasonable to exclude recognition of costs incurred to prepare the Company
rebuttal, participation in hearings, post-hearing briefs and post-order implementation that
included significant additional unanticipated expenses incurred to employ the services of two
expert witnesses to provide arguments against Staffs approach to the 13 month average rate base
and pension expense treatment.
It is further unreasonable for the Commission to expect the Company s estimate of rate
case expense, $245 000, provided in direct testimony to be accurate in a case that contained
numerous technical issues. Indeed, the Company incurred 91 % of this amount as of the end of
April, prior to filing its rebuttal testimony, prior to the hearings and post-hearing briefing.
For the foregoing reasons the Commission should grant reconsideration with respect to
this issue.
IX.
THE ORDER'S ALLOWANCE FOR BUSINESS INSURANCE EXPENSE IS
UNREASONABLE, UNLAWFUL, ERRONEOUS, UNDULY DISCRIMINTORY AND
NOT IN CONFORMANCE WITH THE FACTS OF RECORD AND/OR APPLICABLE
LAW.
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION -
The Order reduces the Company s projected $1 083 000 allowance for business insurance
to $899 036, finding that projected additions over test year amounts are not known and
measurable and that the record demonstrates amounts paid by the parent company but does not
clearly indicate those values on a United Water Idaho level. (Order, pg. 25). The Company
presented evidence in its rebuttal demonstrating that the Company supplied both the United
Water Resources level insurance amounts and the United Water Idaho level actually billed to the
Company. (See Exhibit 15, Schedule 12). The Order s reliance on only the parent level expense
without consideration of the United Water Idaho level evidence is erroneous. These charges
were known and measurable and billed to the Company and therefore should have been included
in the Company s revenue requirement.
F or the foregoing reasons, reconsideration should be granted with respect to this issue.
CONCLUSION
Based on the reasons and authorities cited herein, the Company respectfully requests that
this Petition for Reconsideration be granted as more fully set forth above.
Dated thisL1 day of August, 2005.
McDEVITT & MILLER LLP
UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION -
CERTIFICATE OF SERVICE
I hereby certify that on the t~!iday of August, 2005, I caused to be served, via the
methodes) indicated below, true and correct copies of the foregoing document, upon:
Brad M. Purdy
Attorney for the Community Action Partnership
Association of Idaho
2019 North 17th Street
Boise, Idaho 83702
Fax: [phone]
bmpurdv~hotmai~
William M. Eddie
Advocates for the West
O. Box 1612-83701
1320 West Franklin Street
Boise, Idaho 83702
Fax: [phone]
~diecmrmci.net
Bill Sedivy
Idaho Rivers United
O. Box 633
Boise, Idaho 83701
Fax: [phone]
iru~idahorivers.org
Sharon Ullman
9627 West Desert Avenue
Boise, Idaho 83709
Fax: [phone]
sharonu~cableone.net
Chuck Mickelson
Boise City Public Works
O. Box 500-83701
150 North Capitol Boulevard
Boise, Idaho 83702
Fax: [phone]
cmickelson~ci tvo fboise. org
Douglas K. Strickling
Boise City Attorney s Office
O. Box 500-83701
150 North Capitol Boulevard
Boise, Idaho 83702
Fax: [phone]
dstrickling ~c i tvo fboise. org
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UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 19
Scott L. Campbell
Moffatt Thomas
101 South Capitol Blvd., 10th Floor
O. Box 829-83701-0829
Boise, Idaho 83702
Fax: [phone]
slc~moffatt.com
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UNITED WATER IDAHO'S PETITION FOR RECONSIDERATION - 20