20050406English direct.pdf

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BEFORE THE '1 f\O r-. f,hMt '3 L
LUi.!ci Art( - . f!J "1: .
IDAHO PUBLIC UTiliTIES COMMISSION UTtL i ItS
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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-04-
DIRECT TESTIMONY OF DONN ENGLISH
IDAHO PUBLIC UTiliTIES COMMISSION
APRil 6, 2005
Please state your name and business address for
the record.
My name is Donn English.My business address
472 W. Washingtonl Boisel Idaho 83702.
By whom are you employed and in what capaci ty?
I am employed by the Idaho Public Utilities
Commission (Commission) as an auditor in the accounting
section.
What is your educational and experience
background?
I graduated from Boise State University in 1998
wi th a BBA degree in Account ing Following my graduation
accepted a position as a Trust Accountant with a penslon
administrationl actuarial and consul ting firm in Boise.
a Trust Accountant my primary duties were to audit the day-
to-day financial transactions of numerous qualified
retirement plans.In 1999 I was promoted to Pension
Administrator.As a Pension Administrator
responsibilities included calculating pension and profit
sharing contributions performing required non-
discrimination testing and filing the annual returns (Form
5500 and attachments) In May of 2001 I became a
designated member of the American Society of Pension
Actuaries (ASPA)I was the first person in Idaho to
receive the Qualified 401 (k) Administrator certification and
CASE NO. UWI -W- 04-04/06/05 ENGLI SH
STAFF
(Di)
I am one of approximately ten people in Idaho with the
Qualified Pension Administrator certification.In 2001
was promoted to a Pens ion Consul tant a pos i t ion I held
until 2003 when I joined the Commission Staff.
Wi th the American Society of Pension Actuaries
I served on the Education and Examination Committee for two
years.On this committee I was responsible for writing and
reviewing exam questions and study materials for the PA-
and PA-2 exams (Introduction to Pension Administration
Courses) I DC-II DC-2 and DC-3 exams (Administrative Issues
of Defined Contribution Plans - Basic Concepts Compliance
Concepts and Advanced Concepts) and the DB exam
(Administrative Issues of Defined Benefit Plans) I have
also regularly attended conferences and training seminars
throughout the country on numerous pension issues.
Have you previously testified before this
Commission?
Yes most recently in cases AVU-E- 04 -1 and AVU-
04-I have also provided testimony in Idaho Power
Company s most recent rate case IPC-E- 03 -13 .
What is the purpose of your testimony in this
proceeding?
The purpose of my testimony is to present
Staff s findings and recommendations regarding United Water
Idaho l s (United Water; Company) operating expenses.
CASE NO. UWI -W- 04-04/06/05 ENGLI SH
STAFF
(Di)
Are you sponsorlng any exhibits with your
testimony?
Yesl I am sponsorlng Exhibit No. 108 consisting
of 34 schedules and one summary pagel and Exhibit No. 109
consisting of three schedules.
Would you please explain Exhibi t No.1 0 8?
Exhibit No. 108 details all of the adjustments
made by Staff to the Company s operating and maintenance
expense and compares those adjustments to what United Water
filed in their Application.The first page of Exhibit No.
108 is a summary of the adjustments to operating expenses
that United Water included in its original filing.The
summary lists the pro forma amounts calculated by the
Company to be included in rates and compares them to the
amounts that Staff believes to be appropriate.The last
column (Column 8) is the difference between the Company
proposed expense adj ustments and Staff s proposed expense
adj ustments.The summation of Column ($1/948/159) is the
total amount that Staff has removed from operating expenses
excluding payroll taxes and depreciation expense included
in the Company s filing.
Each schedule of Exhibi t No.1 0 8 coincides wi
the page numbers of Exhibit No.Schedule 1 sponsored by
Company witness Healy.In these schedules I have started
with the amount that the Company proposes to include in
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ENGLI SH
STAFF
(Di)
rates and then illustrate the calculation used to determine
Staff S adj ustment
Please explain Schedule No.1 of Exhibi t No.
108 .
Schedule No.1 reflects the adj ustment for
payroll costs chargeable to operation and maintenance
expenses.It starts with the calculation of the amount that
the Company requested for recovery in rates which is
similar to Exhibi t No.Schedule page 1 of 34 of Mr.
Healy s direct testimony.After the illustration of the
Company s request Staff s adj ustments are factored in
determine the amount that should ultimately be allowed for
recovery by the Company.
Please briefly explain how the Company
calculated its adj ustment
As indicated on page 7 of Mr. Healy s direct
testimony Uni ted Water has proposed an adj ustment to test
year payroll to account for known and measurable increases
to employee wages.The Company employs Bargaining Uni
(Union) employees and the union contract calls for wage
increases to take effect on April 2005.For non-
Bargaining Unit employees the Company estimated a 3.
increase in salary.
The Company also proposes to recover wages paid
for three new full-time positions.Two of the new positions
CASE NO. UWI -W- 04-04/06/05
ENGLISH
STAFF
(Di)
are operations positions related to the Company s increased
source of supply pumping and treatment facili ties (Healy
D i
pg
7) .The third position is a Public Relations
Manager which the Company states is ~required to enable the
Company to effectively participate in the business and
political community on a wide range of issues that are vital
to the business (Healy Di
pg
8) .
As of the filing of this testimony it is
Staffl s understanding that only the two operations positions
have been filled.The Company is currently seeking to fill
the posi tion of Publ ic Relations Manager.
Please explain Staff s adj ustments to the
Company s pro forma payroll.
The first adjustment reflected on line 17
removes $133 462 from the Company s pro forma payroll for
the Short Term Incentive Plan" (STIP)
Please describe the Company s Short Term
Incent i ve Plan.
Information provided to Staff as a part of the
Company s response to Audit Request No. 21 explains the
purpose of the incentive plan.Following is an excerpt from
that response:
The Short Term Incentive Plan (STIP) is an
annual compensation plan that supports
United Water l s business objectives by:
Providing an annual incentive strategy
that drives performance towards
CASE NO. UWI -W- 04-
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STAFF
(Di)
obj ecti ves cri tical to creatingshareholder value.
Offering competitive cash compensation
opportunities to all eligible employees.
Awarding outstanding achievement among
employees who can directly impact United
Water s results.
Providing cash awards for both qualitative
and quantitative results.
Providing cash compensation opportunities
for making sound business decisions that
impact the Company s financial
performance and the overall success of
Suez.
Why does Staff obj ect to the inclusion of
incentive payments in customer rates?
Staff obj ects to the inclusion of the Short Term
Incentive Plan in customer rates for the following five
reasons:
1 .United Water Idaho sufficiently compensates
its employees with a generous base salary and additional
benefits such as pension plan benefits matching
contributions on 401 (k) contributions medical dental
vision and life insurance paid vacation time and holidays.
2 .Short Term Incentive Plan payments
fluctuate from year to year and may not be paid at all if
the obj ecti ves are not met.It is impossible to predict
that the Company will meet its financial goals and employees
will meet their individual obj ecti ves in the future
therefore the incentive payments are neither known nor
measurable.
CASE NO. UWI-04-
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ENGLISHI D.
STAFF
(Di)
3 .The objectives of the STIP are financial
obj ect i ves for creating shareholder value and the overall
success of Suez Lyonaise Uni ted Water Resources parent
Company.By aligning the incentive payments to the
financial performance of a parent Company there is no
benefit to United Water Idaho customers when those
obj ecti ves are met and payments are made.
4 .The STIP rewards employees for merely doing
a job that they are already being compensated for. Further
information provided as a part of the Company s response to
Staffl s Audit Request No. 21 indicates that employees may
recelve an incentive payment if only 80.1% of the financial
obj ecti ves are achieved.Staff believes that an incentive
payment that kicks in as soon as 80% of financial objectives
are achieved is extremely lenient and the costs of such
payments should not be passed on to customers.
5 .Incentive plans are self funding.The
incentive plan only makes sense if the savings achieved are
greater than the amount of incentive payments made.Any
addi t ional savings would sel f - fund the incent i ve plan.
Why do you believe United Water employees are
paid a generous base salary?
According to the Department of Labor s Bureau of
Labor Statistics Wage and Compensation Survey released in
August of 2004 the average wage for working Americans
CASE NO. UWI-04-04/06/05 ENGLI SH
STAFF
(Di)
$17.75 per hour.The average wage received by workers in
the Mountain Census Division is $16.63 per hour.Uni ted
Water Idaho employees received an average base wage of
$23.25 per hour in 2003 before any benefits were included.
Furthermore the statistics indicate that the average hourly
wage for meter readers in this country is $15.58 per hour.
The average wage of the four meter readers employed by
United Water is $16.68 per hour.
Has the Commission excluded incentive payment
plans in the past?
Yes most recently in Order No. 29505 regarding
Idaho Power Company s Application to increase rates in Case
No. IPC-03-13.In addition to the five arguments listed
above the Commission expressed concern about public
perception with a utility company offering bonuses to
employees at ratepayer expense during a time of increasing
rates.
Please continue with your explanation of
Schedule No.
Line 18 of Schedule 1 removes from the pro forma
payroll $6/000 in Above and Beyond the Call of Duty (ABCD)
Awards.The Company uses ABCD Awards to reward employees
for accomplishments or ideas that improve the Company
overall productivity or efficiency.While Staff appreciates
the Company s willingness to reward employees for going
CASE NO. UWI -W- 04-04/06/05
ENGLI SH
STAFF
(Di)
above and beyond the call of duty we have removed the
$6 000 from pro forma payroll for three main reasons.
First the Company has not been using the ABCD
Awards program recently and did not reward any employees
during 2004.In fact the Company only rewarded employees a
total of $500 in each of the two years prior to 2004.The
$6/000 included in pro forma payroll is only an estimated
budgeted amount and payment of any ABCD Award is not known
to occur nor can it be measured in advance.
Secondly as discussed previously employees of
the Company are well paid.One of the responsibilities of
being a well-paid employee is commitment and loyalty to your
employer.Along with that loyalty comes the responsibility
to perform your best at all times and to look for ways to
improve efficiency and productivity.Employees who display
those characteristics will eventually be rewarded with
annual meri t -based raises in salary.ABCD Awards allow for
the possibility for employees to be rewarded for simply
doing what they are expected to do on a regular basis.
And finally if employees actions or
suggestions actually improve the productivity or efficiency
of the Company then the reward program would be self-
funding.The savings achieved by the Company from
implementation of the employee s suggestion should outweigh
the cost of the reward; otherwise the reward would not be
CASE NO. UWI -W- 04-
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STAFF
(Di)
prudent.
Are there any other adjustments to the Company
payroll?
Yes, line 19 of Schedule No.1 removes amounts
in excess of the 3.3% wage increase that was granted to non-
union employees.At the time of filing its Application to
lncrease rates the Company had used an estimated wage
increase of 3.6% for non-union employees. United Water Idaho
just recently learned that its parent Company has approved a
3 .3% lncrease for its non-union employees.Staff has
removed from pro forma payroll $10 525 to reflect this
decision to approve a lower payroll increase.
However, when calculating the proposed wage
lncreasel the Company included several vacant positions that
had not been filled.Staff believes it is not appropriate
to let the Company recover in rates the wage increases that
would be allocated to unfilled positions or new employees
who have not yet completed a probationary period.
Therefore, the $10 525 that Staff has removed from pro forma
payroll includes removal of salary increases for new
employees and vacant posi tions.
Line 20 removes from pro forma payroll the
dollar amounts for budgeted overtime pay in excess of 2004
actual overtime pay.The Company estimates overtime pay
$103 374.The Company s response to Staff's production
CASE NO. UWI -W- 04-04/06/05 ENGLISH I D.
STAFF
(Di)
Request No. 182 indicates that 2004 actual overtime pay was
only $99,136.Staff obj ects to the use of estimated
overtime pay because it is not known and measurable.
Therefore, $4 238 has been removed from the Company s pro
forma payroll to reflect overtime pay at actual 2004 levels.
Line 21 removes from pro forma payroll the
amount of proj ected wages included in the Company s filing
for the Chief Operator position above the actual wage
currently being paid.At the time of filing its
Application , the Company proj ected the wage for the new
position of Chief Operator to be $23.28 per hour or $48/422
per year based on 080 working hours.The Company
response to Staff's Production Request No. 164 indicates
that the position has since been filled, and as of December
31, 2004 the current wage being paid for that position was
$21.86 per hour or $45,468 per year.Line 21 reflects the
removal of the additional $2 954 included in the Company
request.
Line 22 removes from the Company s pro forma
payroll the $56 000 proj ected salary for the new, proposed
posi tion of Public Relations Manager.As of the time
filing of this testimony, the position of Public Relations
Manager is still vacant.Staff believes it is neither known
with certainty that this position is going to be filled, nor
the exact salary that will be paid to the indi vidual
CASE NO. UWI -W- 04-
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ENGLI SH
STAFF
(Di)
anYI that is hired to fill this position.Furthermore,
Staff believes the duties of this position would include
that associated wi th corporate image and lobbying.
Company witness Healy states on page 8 of his
direct testimony:
The Public Relations Manager is required
to enable the Company to effectively
participate in the business and political
community on a wide range of issues that
are vi tal to the business. Some of these
include quality of servicel customer
communication , communi ty involvement legislative issues, media relations andothers.
The job postings in the Idaho Statesman and Idaho Press
Tribune indicate that the Company is seeking an applicant
that has a ~keen understanding of local governmental
affairs; and be skilled in political networking.The
successful candidate must also have a bachelor s degree in
Communications, Public Relations Marketing or Advertising.
This Commission has a long-standing precedent of
excluding lobbying expenses from customers ' rates.The
duties described in the job postings and in Mr. Healy
testimony indicate that a major portion of this position
responsibili ty will be lobbying.Though this position may
have additional responsibilities, those responsibilities
would not pertain to the production , transmission and
distribution of water and thus the salary of this position
should not be included in customer rates.
CASE NO. UWI -W- 04-
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(Di)ENGLI SH, D.
STAFF
Does that conclude Staffl s adjustments to the
Company s pro forma payroll chargeable to operations and
maintenance?
Yes, al though it is important to note that a
portion of all incentive payments is capitalized.In order
to remove all the effects of the incentive payment planl an
adjustment of $135,630 to rate base, as well as an
adjustment of $4 361 to annual depreciation expense are
required to completely remove the costs associated with the
Short Term Incentive Plan.These amounts have been provided
to Staff wi tness Harms to incorporate into her testimony
regarding depreciation and rate base.
Would you please explain Schedule No.2 of
Exhibit No. 108?
Schedule No.2 reflects Staff's adj ustment to
the Company s proposal to increase the amount of 401 (k)
matching contributions above the test year level.The
Company proposes an adjustment to test year expenses for
401 (k) matching contributions by using a weighted average
contribution percentage for all employees (2.1892%) and then
multiplying that percentage by pro forma eligible payroll
($4 178,650.83) .
Why does Staff obj ect to the Company
adj ustment?
Staff objects to this adjustment simply because
CASE NO. UWI -W- 04-04/06/05
(Di)ENGLISH , D.
STAFF
the amount of 401 (k) matching contributions is neither known
nor measurable.The Company simply took an estimated amount
(contribution percentage) and multiplied it by another
estimated amount (pro forma payroll) and claims the result
is known and measurable.
The United Water Resources, Inc. 401 (k) Plan
(401 (k) Plan) allows employees to cease their salary
deferrals at any time, thus ending the responsibility of the
Company to contribute a matching contribution.Furthermore,
the 401 (k) Plan allows all eligible employees who are not
currently contributing to commence payroll deductions for
the 401 (k) at any time.Wi th the numerous vacant pos it ions
and employee turnover, it is not possible to determine a
precise amount for the Company s 401 (k) Matching
Contribution expense.Therefore , Staff rej ects the
Company s adjustment and removes the $1,321 from the
Company s f i ing
Please explain Schedule No.3 of Exhibi t No.
108?
Schedule No.3 illustrates the calculation of
the Company s adj ustment to Employee Heal th Care Expense,
Long Term Disability and Group Term Life Insurance Expense.
The adjustment filed in the Company s Application was
calculated based on the July 2004 authorized level of
employees (Healy Di
, pg
9) .However, Mr. Healy indicates
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH , D.
STAFF
later in his testimony that the open enrollment period in
the late fall of 2004 would affect the Company s cost of
providing these benefits and the adjustment may need to be
revi sed.Staff has reviewed the Company s revised Employee
Insurance estimates as of December 31, 2004 and finds them
to be reasonable.Staff's acceptance of the Company
revised numbers increases the pro forma Employee Insurance
Costs filed in the Company s Application by $21,923.
Please explain Schedule No.4 of Exhibi
No. 108?
Schedule No.4 illustrates Staff s adjustment to
penslon expense.
Please describe the pension plan and the
Company s treatment of pension expense.
Uni ted Water Resources, Inc. sponsors two
traditional pension plans in which participants will receive
a set monthly income upon retirement that is based on their
years of service and their final average earnings.One plan
is for the Bargaining Unit employees and the other is for
non-Bargaining Uni t employees.These plans are fully funded
by United Water Resources Inc. and its affiliates.Assets
in the plans are secured in a trust and guaranteed by the
Pension Benefits Guarantee Corporation.
Uni ted Water Resources Inc. obtains the
services of an actuary to calculate penslon expense.The
CASE NO. UWI -W- 04-
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ENGLI SH , D.
STAFF
(Di)
actuary calculated penSlon expense on a business uni t basis,
so United Water Idaho s pension expense is separately
calculated and not allocated from the corporate level.
United Water Idaho is proposing to use the
expense calculated under the methodology provided by
Statement of Financial Account Standards No. 87 (FAS 87) for
both the pension plans.
Please describe FAS expense.
FAS expense also referred to as Net
Periodic Pension Cost (NPPC), is a reference to the
statement issued by the Financial Accounting Standards Board
(FASB) .The statement was issued to alleviate long-standing
controversy regarding how to report for pension liability.
It mandates the use of Net Periodic Pension Cost for
reporting pension expense on a Company s financial
statements.The NPPC is an accrual of pension expense for a
glven year , but it is not the actual amount of cash that a
Company is required to contribute to a pension plan to meet
its minimum funding liability and avoid interest and
penal ties.It is also important to note that FAS 87 makes
no mention of regulatory accounting.
Have there been any perceived problems wi
FAS 87?
There has been a growlng concern amongYes.
accounting professionals regarding the use of FAS 87 and the
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH , D.
STAFF
potential for manipulation of financial statements.
2003/ the FASB agreed to put further review of FAS 87 on its
formal agenda.Though the Board has not made any changes to
the Statement, the concern is still present.
What was the actual amount of cash contributed
to the pension plans (United Water Resources) during 2004?
The Employee Retirement Income Securi ty Act
(ERISA) and Section 412 of the Internal Revenue Code mandate
the required minimum contribution necessary for a plan
sponsor to meet its funding obligations.A completely
different calculation is used to determine the minimum cost
for a given plan year.The ERISA funding requirements for
Uni ted Water Resources, Inc. are determined on a plan basis
and not on a specific business unit basis.In years where
the minimum required contribution is greater than zero, the
minimum is then allocated over the participating companies
in the plan.In years where the minimum contribution
zero and no contribution is made , there is no allocation
needed or performed.
For the non-Bargaining Unit plan / no
contributions were required or made to the plan for the five
years covering 2000 through 2004.Staff initially tried to
obtain further historical information to determine ten-year
trends, but agreed to accept five years ' worth of
information after the Company indicated the reports were too
CASE NO. UWI -W- 04-
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(Di)ENGLI SH / D.
STAFF
voluminous and would be burdensome to photocopy.
For the Bargaining Unit plan , there were no
contributions made in 2000-2002.The actuarial calculations
of the actual cash contributions were not provided to Staff
however the information was available on the Form 5500, the
Annual Return/Report of Employee Benefit Plans that
required to be filed annually pursuant to Sections 104 and
4065 of ERISA and Section 6047 (e), 6057 (b), and 6058 (a) of
the Internal Revenue Code.The 2003 Form 5500 for the
Bargaining Uni t plan indicated that the total cash
contribution required and made to the plan for 2003 was
$706,187.This amount represents the total contribution of
all business uni ts to the Uni ted Waterworks, Inc. Employees
Retirement Plan - Bargaining Uni Staff estimates that
Idaho s portion of the 2003 contribution was approximately
$162,454 .This amount was calculated by taking Idaho
actuarially calculated FAS 87 expense and dividing it by the
overall total of actuarially calculated FAS 87 expenses for
all business units with positive FAS 87 expenses.The
resulting percentage was then multiplied by the cash
contribution to estimate Idaho s share.All business units
with negative FAS 87 expenses were excluded from this
allocation process because it would be impossible for a
Company to make a negative cash contribution to the plan.
Staff admits that our calculation of Idaho s portion of the
CASE NO. UWI -W- 04-
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(Di)ENGLISH , D.
STAFF
cash contribution may not be exact, but it does obtain a
just and reasonable result that should be very similar to
the allocation that may have been calculated by United Water
Resources, Inc.
The 2004 cash contribution to the Bargaining
Unit plan was not provided to Staff and the 2004 Form 5500
is not required to be completed and filed until October 15
2005.Therefore, Staff could not ascertain the exact amount
of cash contributions due to the plan for 2004.
Please briefly describe ERISA.
ERISA was enacted by Congress in 1974 to ensure
some level of security in employee benefit plans. Since its
enactment, penSlon plans are subj ect to intense federal
regulation bec~use of the long-term nature of the benefit
obligation and the resulting potential for changed
circumstances.One of many ERISA requirements is the
systematic advanced funding requirements to protect
employees against employer defaul t ERISA mandates the
mlnlmum amount that must be funded each year to a pension
plan to avoid a funding deficiency.
How is this amount calculated?
The first step of the calculation is to
determine the Normal Cost for the year.The Normal Cost
the annual cost of the plan using the plan s actuarial cost
method as established in the plan document.The Normal Cost
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STAFF
lS a calculation that takes into consideration the present
value of future benefits, the actuarial value of the Plan ' s
assets, any unfunded liabilities and the present value of
the Company s future payroll.This information is used to
calculate an accrual rate that is then mul tiplied by the
Company s current payroll to produce the Normal Cost.
adding or subtracting any charges or credi ts to the Normal
Cost one can obtain the Annual Cost.The Minimum Required
Contribution is the lesser of the Annual Cost or the
difference between the Full Funding Limi tation and any
credi t balance.This minimum contribution is the amount
that a Company must fun~ in order to avoid a funding
deficiency in the Funding Standards Account.
Are you suggesting that this Commission adopt a
policy that only the ERISA required minimum contribution be
accepted for rate recovery?
I am not necessarily recommending a strict
policy of only accepting the ERISA required minimum amount
for rate recovery purposes, but I do believe that the ERISA
minimum contribution is the best starting point in
determining the amount to allow for recovery.When deal ing
wi th the different pensio~ calculations, it is important to
remember that these ~costs " we are referring to are
artificial numbers that have no connection to real-world
values.These costs do not accurately estimate the value of
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STAFF
the plan s liability to pay benefits, the Company Iegal
liability should the plan be terminated, or the value of
benefits accumulated under the plan.These calculations are
simply a means by which the federal Tax Code and the ERISA
regulations dictate the level of funding in a plan for
purposes of tax deductions and minimum funding rules.The
calculation methodologies consist of using inaccurate data
and speculative assumptions and running them through an
overly precise formula to produce a cost calculation.
Therefore there is no accurate contribution value , and we
are forced to rely on a number that is produced by the
calculations.Given the speculative nature of penslon
contribution calculation l I believe it is wise for the
Commission to reserve some discretion in determining amounts
to be recovered through rates based on the individual facts
and circumstances of each case.Given the large requested
rate increase in this case, funding at the ERISA mlnlmum
level is appropriate.
Are there any other differences between FAS
expense and the calculations performed under ERISA that you
would like to address with the Commission.
The cash contribution (ERISA) and the penslon
expense (FAS 87) calculations both reflect the cost of a
penslon plan - one as cash and the other as a reduction in
Company earnlngs.Both are calculated using similar
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STAFF
principles I but the rules for calculation are very
different.Some specific differences that have not already
been previously mentioned are:
1 .FAS 87 allows the proj ection of benefit
limits under IRC 4151 compensation limits
under IRC 401 (a) (17) and other items that
are not used in the ERISA calculations.
2 .FAS 87 explicitly counts assets based on the
actual time separated from the employer
control , while ERISA calculations have
provisions for receivables.
3 .Asset smoothing is not used in FAS
calculations as it is in ERISA calculations.
4 .FAS 87 has a specific funding method (pro-
rata unit credit), and a unique amortization
of past service liabilities that do match
the funding rules under ERI SA.
There are many other differences between FAS 87 expense and
the ERISA contributions , but those are a few of the maj or
points.
What amount are you recommending the Company be
allowed to recover in rates for pension expense?
I bel ieve the Company should recover the actual
amounts of cash contributions it would have been required to
contribute to the plan for 2004.For the non-Bargaining
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ENGLI SH, D.
STAFF
(Di)
Unit plan, this amount is $0.00.The Bargaining Uni
contribution for 2004 was not provided to Staff I and Staff
had to rely on the 2003 report and calculations as mentioned
earlier.Therefore, Staff accepts the amount of $162 454
which is approximately Idaho l s portion of the overall
contribution.
Would Staff allow United Water Idaho to recover
their portion of the overall Bargaining Unit pension
contribution for 2004 if the Company provided those
calculations?
I have reviewed the actuarial assumptionsYes.
used in determination of the contributions and expense and
believe them to be reasonable and in line with what the
Commission has approved for other utilities in recent cases.
Provided that the actuarial assumptions did not change from
2003 to 2004 , I believe the acceptance of Idaho s portion of
the ERISA minimum required cash contribution is appropriate.
Has anything led you to believe that these
amounts will increase dramatically in the near future?
The most compelling driver of pension cost
market performance.Though future market performance
uncertain, the Company s hired actuaries state in its report
their prospective view of the pension plans:
Going forward, we see evidence of recovery
with actual yields well in excess of
expected yields. This, however , includes
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STAFF
the moderate to flat performance during
2004 prior to the presidential election.
The measurement date of 9/30/04 reflectsassets prior to the election resul ts.
a measure of conservatism, we recommendcontinuing wi th an 8.5% per annum asplanned. We will revisit the rate for apotential increase, if experience continues
to support a higher long-term yield.
Given the Company s actuary s comments and the potential for
an lncrease in the expected long-term yield on assets
assumption , I don I t believe the contributions to the plan
will increase dramatically in the near future.Though it is
important to note that pension contributions do fluctuate
and can vary widely from year to year.
Please explain Schedule No.5 of Exhibi t No.
108?
Schedule No.5 is similar to Mr. Healy s Exhibit
No.3 I Schedule 1 , page 5 of 34.The Company reduces the
test year Post Retirement Costs by $145,345 to reflect the
2005 Post Retirement Costs calculated by the Company I s
actuary in accordance with Statement of Financial Accounting
Standards No. 106 (FAS 106) Staff has reviewed the
calculations and the provisions of FAS 106 and accepts the
Company s adj ustment.
Please explain Schedule No.6 of Exhibi t No.
108?
Schedule No.6 illustrates the adjustments to
payroll overheads charged to construction and other non O&M
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH , D.
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accounts.This schedule uses the same calculation method
that the Company uses In Mr. Healy s Exhibi t No., Schedule
1 page 6 of 34, however many of the amounts listed on
Schedule 6 tie to amounts listed on other schedules and
adjustments.Staff wi tness Stockton has reviewed the
calculation method and has deemed it to be reasonable.This
schedule simply updates the Company s figures to incorporate
Staffl s adjustments to payroll and benefits, including
payroll taxes.The effect of Staff I s adj ustment increases
the payroll overhead chargeable to construction and other
non O&M accounts proposed by the Company by $12 478.
Would you please explain Schedule No.7 of
Exhibi t No. 108?
Schedule No.7 illustrates the calculation of
Staff's adjustment to the amortization of deferred costs
associated with the early retirement program.
Why does Staff obj ect to the deferral of the
early retirement program costs?
Staff obj ects to the recovery of the costs
associated with the early retirement program for two main
reasons.First I the Company has not proven that the
benefits exceed the costs at the Idaho level.Secondly, the
Company did not follow established regulatory procedures
nor did it follow its own internal procedures when deferring
these costs.
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH , D.
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Staff inquired of the Company to provide the
cost/benefit analysis of the early retirement program and
enhanced severance packages in Production Request No. 180.
The Company I s response indicated that the cost/benefits
analysis was prepared by its actuary and were ~performed on
a total pension plan basis and are not specific to any
individual Company.The study clearly indicates that on a
corporate-wide level , United Waterworks achieved significant
savings from the early retirement plan.However , at the
United Water Idaho level, the savings were not so clear.
Idaho water users and ratepayers do not benefit when the
Company s parent achieves savings I and therefore should not
be required to pay costs associated with the increased
earnings of the parent company.The study did not
illustrate any cost savings associated with the enhanced
severance packages.
How did Staff substantiate the savlngs, if any,
experienced by United Water Idaho from the early retirement
plan?
A review of Mr. Healy l s workpapers in this
current proceeding indicates that in 2000 I only six
employees took advantage of the early retirement
opportuni ty.Those six individuals had a combined salary
$252 527.The Company is seeking to recover $1 2881 669
worth of expenses amortized over 60 months, or $257,734 per
CASE NO. UWI -W- 04-
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year , which is more than the combined salaries of those SlX
employees.Furthermore I the salary savings alone in the
almost 5 years since those employees retired would have
funded the Company s allocated expense of the early
retirement plan , and by allowing the Company to collect
those expenses from customers, the Company would in essence
be recovering these costs at least twice.
You mentioned the Company did not follow
procedures when deferring these costs.Would you please
elaborate?
Yes, the Commission has ruled in the past that
the deferral of significant expenses must be approved before
those expenses can be recovered in rates.Specifically, in
Order No. 25880 I page 9, relating to Idaho Power Company I s
request to recover nearly $7 million in environmental costs
associated wi th the Pacif ic Hide clean-up, the Commission
stated:
The al terna t i ve the Company proposed to
recover the $7 million costs of the clean-
up I recouping the amount through rates over
the next five years I would violate the
principle that rates must be prospective
and may not be used to recoup past losses.
The proscription against retroactive
ratemaking means the Pacific Hide amounts
spent by IPCo in the past are not
recoverable through future rates unless
they were preserved for that purpose by
deferral or other regulatory action. When
it became aware the clean-up costs would besubstantial I the Company had the opportunity
to request rate relief or deferral of these
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH1 D.
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costs for future recovery. It did nei ther.
Had the Company requested deferral of these
costs and the Commission had approved it
we could now amortize this expenditure.
However , that is not the case and we are
wi thout a means to provide recovery of this
expense retroactively. (emphasis added)
The Commission affirmed its position in Order
No. 28097, page 11 1 regarding Avista Corporation s request
to recover in rates a portion of the damages incurred from
the 1996 ice storm.The Commission in that order stated:
In this regard we find the transcript
reference to our treatment of Idaho Power 1 s
Pacific Hide hazardous waste clean-up c~ststo be on point. Tr.682-683; reference
Idaho Power Order No. 25880. Avista ' s
proposal to recover uninsured costs of
1996 ice storm damages through rates would
violate the principle that rates must beprospecti ve and may not be used to recouppast losses. The proscription against
retroactive ratemaking means ice storm costs
expended by the Company in the past are not
recoverable through future rates unless they
are preserved for that purpose by deferral
or other regulatory action. When it became
aware that the uninsured ice storm costs
would be substantial, the Company had the
opportunity to request rate relief or
deferral of these costs for future recovery.
It did nei ther.
Though the circumstances surrounding the events in these two
cases are different from that of Uni ted Water, the concept
of, recovery of past expenses is relevant.The substantial
costs of the early retirement plan were incurred in 2000 and
the Company did not request nor receive approval from this
Commission to defer those costs.The Company did however
CASE NO. UWI -W- 04-04/06/05
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send a letter in December 2001 to the Commission notifying
those costs and stating their intent recover those
costs future rate Howeve r the Company did notIn a case.
seek nor did the Commlssion grant I approval the deferral
of the early retirement costs, a procedure clearly
established by precedent.
Furthermore I the Company I s internal policies
regarding deferral of expenses states that ~in instances
involving large dollar amounts or out of the ordinary
circumstances, Regulatory Business will seek an accounting
order from the Commission to ensure acknowledgement and
thereby reduce the risk of not recoverlng the expense.
Certainly I the amount deferred involved a large dollar
amount and was out of the ordinary circumstances, but the
Company still did not follow its own procedures and request
approval from this Commission.Therefore, Staff has removed
the $1,250,617 from deferred balances and adjusts the
Company s amortization expense by $257,734.
What is Staff I s posi tion regarding the
amortization of the 1999 early retirement plan that was
approved in the Company s last general rate case?
Staf f does not take a pos it ion regarding the
deferral of the 1999 early retirement costs.However, the
remalnlng unamortized balance of those 1999 expenses is
$381 052.The Company was allowed to recover in rates
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(Di)
$152,208 per year from the 1999 ERP, and it will clearly
have recovered all costs associated with the 1999 ERP by the
time new rates go into effect.Therefore, Staff also has
removed the remaining unamortized balance of the 1999 ERP
from the Company s Application to ensure that the Company
does not over recover those expenses in customer rates.
Do Staff's arguments related to removing the ERP
amortization apply to the Deferred Enhanced Severance
Package (ESP) Expense shown on Schedule No.8 of Exhibit No.
108?
The Enhanced Severance Plan should haveYes.
al so been sel f - funding or it would not have been prudent for
the Company to incur these expenses.Al so, the same
arguments regarding precedent for utilities to defer
expenses and recover them later through rates applies.The
Company has not received authori ty from this Commission to
defer these expenses and thus, Staff had to remove from the
Company I s request $49,751 of ESP amortization expense.
Please explain Schedule No.9 of Exhibi t No.
108?
Schedule No.9 illustrates Staff I s removal
$77 479 from the Company I s pro forma purchased water costs.
These adj ustments were made to reduce the amount of
purchased water to a level that appropriately aligns with
water usage in a typical year.Staff wi tness Sterling will
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH, D.
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address this adjustment in further detail.
Would you please explain Schedule No. 10 of
Exhibi t No. 108?
Schedule No. 10 illustrates Staff I s adjustment
to deferred tank painting expenses.Staff does not take
exception to the inclusion of the amortized costs of
deferred tank painting.The issue here is the length of
time that the expenses should be amort i zed.The Company
proposes to recover tank painting expenses over a ten-year
amortization period.Staff was not completely satisfied
that a ten-year amortization period is appropriate and
inquired of the Company in Production Request No. 168 to
provide a list of all tanks painted within the last twenty
years.The Company I s response indicated that only one tank,
the North Mountain tank on 24 th Street in Boise I was painted
twice during the last twenty years, once In 1984 and again
in 1999.Since tanks are not being painted every ten years,
Staff believes that a ten-year amortization period is not
appropriate.
When determining an amortization period, it
important to take into consideration the estimated life of
the service or asset that is being amortized or depreciated.
The concept is to match the benefit received by the Company
to the life of the asset or service.In this case l it is
not appropriate for customers to pay through rates the
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH, D.
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expenses of painting tanks every ten years when they clearly
do not need painting that frequently.Therefore Staff
proposes the use of a twenty-year amortization period and
adjusts the Company s amortization expense by $3,046 to
reflect this.
Would you please explain Schedule Nos. 11-13 of
Exhibi t No. 108?
Schedule No. 11 illustrates Staff's removal of
$260 042 of purchased power costs from the Company I s
Application.Schedule No. 12 illustrates Staff's adjustment
to the amortization of deferred power costs related to Idaho
Power Company I s PCA mechanism above the level of power
expense established in Case No. UWI-00-1, Order No. 28505.
This adj ustment effectively ends the date of the Company
deferral at April 30, 2003 and amortizes the deferred
balance over four years I resul ting in a decrease to the
Company s pro forma amortization expense of $258 1 142 .
should also be noted that because the Company was awarded a
carrying charge on the deferred balance I Staff has removed
the deferred balance from rate base.The Company should not
be allowed to earn a rate of return on the deferred balance
in addition to the carrying charge.
Schedule No. 13 illustrates Staff's adj ustment
to chemical expense I removing $15,000 from the Company
Application for the normalization of phosphate usage.Staf f
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLI SH I D.
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witness Sterling will discuss these three adjustments in
further detail in his testimony.
Would you please explain Schedule No. 14 of
Exhibi t No. 108?
Schedule No. 14 illustrates Staff's adjustment
to Outside Laboratory expense.Staff reviewed the expense
levels of water quality testing for years 1999-2004 and the
estimated expense levels through 2011.Staff also examined
the frequency of each test to determine if the tests
included in the Company s filing are reflective of a typical
year.Staff accepts the Company s adjustment to test year
expenses for the following tests on Schedule No. 14.
Line No.
3a.
3b.
3c.
3d.
3g.
3h.
3 i .
3 j .
Test
Inorganic Chemicals
Volatile Organic Chemicals
Synthetic Organic Chemicals
Ni tratesArsenic
Radionucl ides
Disinfection By-ProductsColiform
Why does. Staff disagree with the Company
proposed expenses for the other tests?
According to the Company I s response to Staff
Production Request No. 98, testing for nitrites is only done
once every nlne years.Rather than letting the Company
recover the costs of this test from customers each year,
Staff believes it is appropriate for the Company to only
recover 1/9 of the expense of this test each year.
CASE NO. UWI-04-04/06/05 (Di)ENGLI SH, D.
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The same response indicated that the testing for
Fe/Mn is not regulated and for aesthetic purposes only.
Though Staff agrees this test is necessary, the amount
proposed by the Company exceeds the amounts actually
incurred by the Company in any of the previous six years.
Staff accepts the 2004 level of expense for this test of
$7381 which lS In line with the five-year average of $742.
The LT2ESWTR test I which tests for
Cryptosporidium 1 E. Coli , and turbidity is required bi-
monthly for only two years.Staff believes it would be
inappropriate for the Company to recover these expenses from
customers every year when after two years the tests are no
longer required.Staff believes allowing the Company to
recover 1/5 of the $12 1 000 annual expense of this test each
year I or $2 400 , is reasonable.
Also included in the Company I s pro forma
expenses is $3,500 for miscellaneous testing which
represents repeat or response samples.The Company did not
provide the historical costs of miscellaneous testing
expenses wi th its response to Production Request No. 169,
which asked for a 10-year history of all testing expenses
incl uded in thi s case.Though Staff understands the
occasional need for a repeat test or response sample, we
were unable to determine wi th any certainty the amount of
miscellaneous testing expense that will be incurred in the
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLISH 1 D.
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future.Based on the Commission s precedent that future
expenses be known and measurable I Staff has removed the
$3,500 miscellaneous expense for these tests.The total
amount removed from the Company s pro forma water quality
testing expense is $141 340.
Please explain Schedules No. 15 and 16 of
Exhibit No. 108?
Schedule Nos. 15 and 16 duplicate Mr. Healy l s
Exhibi t No.3, Schedule 1 1 pages 15 and 16 , where the
Company proposes adj ustments for increased operating
expenses related to the new Columbia Water Treatment Plant
and decreased power and chemical expenses at other sites
because of the operation of the new treatment plant.Staff
witness Sterling examined these expenses and Staff accepts
the Company I s adjustments.
Please explain Staffl s adjustment to
transportation expense shown on Schedule No.1 7 of Exhibi
No. 108.
The Company s adjustment to test year
transportation expense includes mechanic payroll and
benefits.Those amounts have already been accounted for in
Adjustment No.(Payroll) I Adjustment No.(Employee
Health and Other Insurance), and Adjustment No.(Pension
Expense) The inclusion of mechanic payroll and benefits in
Transportation expense would allow the Company to recover
CASE NO. UWI -W- 04-04/06/05
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(Di)
from customers twice the expense it would actually incur.
Thus Staff has removed the mechanic payroll and benefits
from Transportation expense.The Company is aware of this
adjustment and provided an updated amount as part of the
response to Staff Production Request No. 198.
Staff also takes exception with the calculation
of lease disposal proceeds in the Company s filing.The
Company estimated the total net value of the vehicles with
leases expiring in 2005 to be $31 442.However I the Kelley
Blue Book wholesale value of those vehicles is $53,300.
Kelley Blue Book is an independent I objective vehicle
valuation service.Staff believes that the Kelley Blue Book
value is more indicative of the net value of the vehicles
than United Water Idaho s estimate for 2005 and should
therefore be used in determining the proceeds from the lease
di sposal s The total amount removed by Staff from the
Company s Application for transportation expense is $18 661.
Please explain Schedule No. 18 of Exhibit
No. 108.
Schedule No. 18 illustrates the Company
adj ustment to test year expenses for customer postage.The
Company uses an estimated customer count as of May 31 , 2005
to determine the annual postage expense to be recovered in
rates.Though this amount is only an estimate and not known
wi th any certainty I Staff accepts this adj ustment The
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLI SH I D.
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inclusion of the Columbia Water Treatment Plant and the
associated revenue producing adj ustments as discussed by
Staff witness Lobb supports the rationale for accepting this
adj ustment
Please continue with the explanation of your
adjustments and schedules.
Schedule No. 19 reflects the Company
adjustment to test year expenses for customer information
system (billing) expenses and incorporates Staff'
adj ustments.Again 1 the Company uses a pro forma customer
level at May 31 , 2005 as the basis for its computation of
bi II ing expense.Staff accepts the May 31 , 2005 customer
count per Staff witness Lobb's testimony I however Staff
disagrees wi th the number of past due notices the Company
uses in its calculation.The Company uses an estimated
number of 7 386 past due notices per month or 88,635 per
annum.The average number of past due notices mailed per
month during the test year was 7 153 or 85,839 per annum.
Since it would be impossible to determine the exact amount
of past due notices that will be mailed in any gl ven year
Staff replaces the Company I s estimate with the actual test
year number.The effect of this change reduces the
Company s pro forma adjustment by $1,678.
Schedule No. 20 illustrates Staff's adjustment
to the Company s pro forma customer outside collection
CASE NO. UWI -W- 04-04/06/05
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expense.The Company uses a test-year level of lockbox
transactions and multiplies that by the pro forma number of
bills produced based on May 31 , 2005 customer counts.The
prlce per uni t of lockbox transactions was also based on the
test year level of 23.44 cents per transaction.Howeve r I
the Company indicated in its response to Staff's Production
Request No.1 72 that the actual cost per unit of lockbox
transactions as of December 31 , 2004 is 14.77 cents.Staff
accepts the Company s calculation wi th the provision that
the December 31 , 2004 lockbox price is used.The resul t
an adjustment to the Company s filing of $30 015.
Schedule No. 21 is similar to Mr. Healy
Exhibit No.3, Schedule 1 , page 21 of 34 and illustrates the
Company I s adjustment to test year expenses for customer
records and collection expense and miscellaneous customer
account ing expenses.Staff has reviewed these calculations
and accepts the Company s adjustment as filed.
Schedule No. 22 is duplicative of Mr. Healy
Exhibi t No.3, Schedule 1 , page 22 of 34 and reflects the
Company I s adjustment to Uncollectible Accounts expense.The
Company indicates that the uncollectible debt percentage
during the test year was abnormally high , so it used a four-
year average to attempt to normalize the expense.Staff is
concerned wi th the arbi trary use of the four-year average
because the Company seems to purposefully exclude years
CASE NO. UWI -W- 04-04/06/05
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prlor to 2001 where the percentage of bad debt
significantly lower.By using a five-year average, the
uncollectible debt rate is .3978% as opposed to .41565% as
filed in the case.A six-year average reduces the bad debt
rate to .3917%, and a ten-year average reduces the bad debt
rate to .366% percent.Staff's calculation uses the fi ve-
year average of .3978%, which reduces the Company s filing
by $ 5 , 52 9 .
Schedule No. 23 reflects Staff I s response to the
Company I s adj ustment to increase test year expenses for the
IPUC annual assessment.The Company uses the 2004
assessment rate of .240500% and multiplies that rate by pro
forma revenue.Staff believes that this resul t only
produces an estimate, and not a known and measurable amount
and obj ects to the Company s adj ustment.Staff lS aware
that the annual assessment to be paid by United Water Idaho
is likely going to increase over the 2004 levels but cannot
determine wi th certainty the exact amount.Howeve r , by the
time the Company files its rebuttal I the actual assessment
amount will be known.Staff is willing to accept and
incorporate the actual assessment amount into its revenue
requirement if the Company files that amount on rebuttal.
Please explain Staff's adjustment to the
amortization of rate case expenses as shown on Schedule No.
2 4 0 f Exh i bit No.1 0 8 .
CASE NO. UWI-04-04/06/05 (Di)ENGLISH, D.
STAFF
The Company estimated the expenses that it will
lncur with regard to this current rate case at $245,000 and
requested a three-year amortization period to recover those
costs.Staff reviewed the invoices of all expenses incurred
through March 21, 2005 , which totaled $183,074.The Company
estimates remaining expenditures to be $62 1 500 I which would
bring the total rate case expenses to $245 574.
Included in the Company I s $245,000 estimate was
$25,000 to Steele & Associates - Boise (S&A-B) for a public
information campaign and website enhancement.Staff
understands the need for the Company to inform customers
the pending rate case I but also believes that much of the
public relations performed by S&A-B also enhances the
Company s image and goodwill.Therefore, Staff believes a
split of the expenditures is appropriate, and the Company
should only recover 1/2 of the expense from customers.
removing 1/2 of the S&A-B estimated expenditures I the
remaining balance to be recovered and amortized is $232 500.
Secondly, as with any requested amortization
Staff reviewed the amortization period.Staff notes that
Idaho Power Company incurred similar outside consul ting
expenses in its last general rate case I Case No. IPC-E- 03-
131 and the Commission accepted in Order No. 29505 a five-
year amortization period.Staff believes that an
amortization period of five years in this current proceeding
CASE NO. UWI -W- 04-04/06/05
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is not only reasonable, but also consistent with the
Commission s recent decision.
The two adjustments noted above will reduce the
Company s pro forma amortization expense by $35,167.
Would you please explain Staffl s adjustments
on Schedule No. 25 of Exhibit No. 108?
In 20031 the Company paid $130,093 in Employee
Reimbursement expenses for one employee to move to Boise to
work for Uni ted Water Idaho as a Senior Technical Analyst.
This amount is clearly excessive for an employee who was
paid a salary of approximately $81,500.Furthermore, Staff
believes that the employment pool in Boise is large enough
that the Company could have filled this position locally, or
promoted from within and thus mitigated the need for such
large expense.
What kind of expenses did the Company incur for
the relocation of this employee?
The Company paid $14,146 for two months of
lodging between April 23, 2003 and June 27, 2003.The
Company also paid $36,817 for all costs associated with the
sale of the employee s house I $8 I 452 for storage of the
employee s vehicles and personal items, and $7 992 in a lump
sum per diem that the employee could spend in any manner he
chose.After all the relocation expenses were tallied1 the
Company then grossed up the expenses for taxes so the
CASE NO. UWI -W- 04-04/06/05 ENGLISH, D.
STAFF
(Di)
employee would not be hit with an additional tax burden. The
Company paid the employee an extra $40 1 671 to help cover the
additional tax liability caused by the relocation expense.
Did Staff review the Company I s Relocation
Policy I and would you briefly describe that policy for the
Commission?
The Relocation Policy is extremelyYes.
generous and indicates that the Company will pay for the
following costs associated with the sale of the relocating
employee s current home:
Real estate commission up to a maXlmum of
Pre-payment penal ties
Ti tIe examination
Ti tIe insurance
At torney and escrow fees
Transfer and recording fees
Survey fees
Required inspections
If the relocating employee is currently leasing a home, and
cannot cancel the lease without penalty, the Company will
reimburse the employee up to an equivalent of one month'
rent for canceling the lease.
The Company will also pay for the relocating
employee and his/her spouse/partner to make two trips to
Boise of up to four nights each for the purpose of finding a
new home.The Company covers the lodging, plane tickets,
and rental car.
CASE NO. UWI -W- 04-04/06/05 (Di)ENGLI SH, D.
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The Company also assists the relocating employee
to purchase a new house for up to six months after the date
of transfer.The Company pays the following costs
associated wi th the new home purchase:
Loan origination fee not to
Ti tIe insurance or fees for
as required by lender
Appraisal of new home
Escrow and closing fees
Attorney fees
Recording fees
Assumption or transfer fee
Credi t report charges
Inspection fees
exceed 1 %
examination of title
The Company also pays for temporary living expense for up to
60 days, if the new employee is unable to move into the new
residence immediately.
The Company will also pay all the expenses of
moving the employee and his/her family to their new
location , along with the costs of storing any personal
items.Relocating employees also recelve a Miscellaneous
Expense Allowance ~to aid in the defraying" of miscellaneous
costs associated with the move.These costs include:
Driver s license and automobile tags
Miscellaneous personal expenses during temporary
living, such as dry cleaning I parking and tolls entertainment I etc.Pet shipping/ care/boarding
Cable TV and telephone removal and installation
Utility disconnection and connections
Carpet and drapery installation and cleaning
CASE NO. UWI -W- 04-04/06/05 ENGLI SH , D.
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(Di)
residence
the tax gross-up program
Cleaning of old and new
Taxes not covered under
Tips to movers
Childcare during house-hunting trips
Meals and phone calls home while in temporary
housing
Laundry while in temporary housing
All miscellaneous expenses associated withhouse-hunting trips, temporary living, final
move and moving of household goods
After all the relocation expenses have been calculated or
incurred, the Company then provides the employee wi th an
allowance to help offset the additional tax burden incurred
by rece i ving the bene fit.
What is Staff's position with regard to this
policy?
Obviously I this policy is very generous.Staff
believes the policy to be extremely excessive and not
appropriate for a public utility that passes on costs to
customers.The policy does not provide a maXlmum dollar
limit that an individual may receive, nor does it provide
for any repayments from the employee if the employee
terminates soon after relocating.
Is this employee still currently employed by the
Company?
No l it is Staff I s understanding that this
employee passed away approximately one year after moving to
Boise.
CASE NO. UWI -W- 04-
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Has the Company replaced this employee?
The Company eliminated the position and replaced
it with an employee earning $33,200 per year.
Would you briefly summarize Staffl s position
the relocation expense?
Yes, Staff believes that the Company l s
relocation policy is excessive and it would be inappropriate
to pass on those excessive costs to customers.Staff also
believes that pertaining to this specific individual
position , the Company could have hired locally or promoted
from wi thin.Furthermore I a year after incurring these
expenses for the posi tion of Senior Technical Analyst, the
Company deemed the position obsolete and replaced it with a
much lower-paid position.Therefore, Staff's recommendation
is to disallow all expenses associated with this employee
relocation expense.It should also be noted that with this
adj ustment I Staff has decreased the deferred balance of the
employee relocation expense from rate base so the Company
will not recelve a rate of return on the unamortized portion
of the expense.
Is the Company including any relocation expense
amortization left over from a prior case in this current
case?
Yes, the Company indicates that the remaining
unamortized balance of employee relocation expense left over
CASE NO. UWI -W- 04-
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from the UWI-00-1 case is $5,732.In that case, the
Commission granted an annual amortization expense of
$25,688.Staff removes the remaining balance of amortized
expense from the Company s filing because shortly after the
time the new rates go into effect I the Company will have
fully recovered its employee relocation expense from the
prlor case.
Will you please explain the Company s treatment
of Business Insurance expense and Staff's adjustment shown
on Schedule No. 26 of Exhibit No. 108?
The Company includes the costs of casualty
lnsurance, worker s compensation coverage I property
lnsurance, and small property damage claims in its
adj ustment to Business Insurance expense.The amounts
included are derived from the Operating Plan of United Water
Resources, Inc. and then allocated to Uni ted Water Idaho,
with the exception of small property damage claims.The
Operating Plan Insurance expense is simply an estimate
lnsurance expense that it anticipates will increase during
2005.It is likely that some policy premiums will increase
while others decrease, and Staff contends that the Company-
proposed increases to test year expenses for addi tional
insurance costs are speculative and not based on known and
measurable charges.
However, Staff understands that test -year
CASE NO. UWI -W- 04-
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ENGLI SH , D.
STAFF
(Di)
expenses for property insurance coverage are ~abnormally low
due to a large , non-recurring property insurance credit of
$109,271"(Healy, Di I page 21) .Staff does not wish to
penalize the Company because of this one-time credit and
will accept an adjustment to increase test year business
expense by $109,271.
compensate the Company
it expects the Company
Staff believes its proposal will
for business insurance expense that
will incur during a typical year.
The impact of Staffl s adjustment is a reduction to the
Company s pro forma Business Insurance expense of $184 264.
Will you please explain Staff's adj ustments on
Schedule No. 27 of Exhibi t No. 108?
Pursuant to Commission precedent, the Company
removed from test year expenses $14 005 for charitable
contributions I country club dues, and the lobbying portion
of industry association dues.Staff recognizes the
Company I s attempt to comply with previous Commission Orders,
however a review of the Company s expenses indicates that
the Company did not remove all of these costs.
Specifically, the Company spent $3,800 on scholarships and
sponsorships and $11,833 on Company sponsored events such
golf tournaments, Christmas parties, and Fourth of July
parties during the test year. Staff appreciates the
Company s willingness to fund scholarships and sponsor
Communi ty events I however these expenses serve to enhance
CASE NO. UWI -W- 04-04/06/05
ENGLISH , D.
STAFF
(Di)
the Company I s lmage rather than improve the production
transmission , and distribution of water, and should not be
passed on to customers.
Staff also understands the importance of
Christmas parties and Fourth of July parties to celebrate
special occasions and increase employee morale, however
is not appropriate to recover these expenses from
ratepayers.
Staff also believes the Company understated the
lobbying portion of the dues paid to the National
Association of Water Companies (NAWC)The 2004 NAWC Dues
Schedule , provided as a part of Mr. Healy s workpapers,
indicates that 27% of the dues paid are for lobbying
expenses.The Company has removed only 18% of the dues from
the test year.Staff's adjustment also accounts for the
additional 9% of the dues that is allocated to the lobbying
expenses of the NAWC.Staff's adjustment along with the
Company s adjustment removes $31 438 from test year
expenses.
Please explain Staff's adj ustments to Corporate
and Local Information Technology (IT) Maintenance and
Support as shown on Schedule No. 28 of Exhibit No 108.
The Company proposed a nearly 50% increase in IT
maintenance and support.Staff was concerned wi th this
large increase and asked the Company in Production Request
CASE NO. UWI -W- 04-04/06/05
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STAFF
(Di)
No. 175 to ~provide a detailed narrative justifying the near
50% increase requested for corporate and local IT support.
The request also specifically requested the Company to
include in its response ~all components of the increase and
include all contracts or agreements.The Company did not
file a response until after Staff had begun writing
testimony, and Staff was not able to fully review all the
components of the request.Also, the response did not
include any contracts or agreements for the costs of this
support.However , the response did indicate that the main
driver of the increase was the conversion of the financial
system software to PeopleSoft 8.The conversion of a
financial system is a major task that is not a typical
occurrence that one can expect to duplicate each year.
Therefore I Staff cannot accept the Company s adj ustment
because of Commission precedent that excludes extraordinary
and non-recurring expenses from recovery in rates.Staff
would be willing to continue to work wi th the Company to
review the IT Maintenance and Support expense, and could
possibly accept an amortization of the increased costs if
one is truly warranted.
Please explain Schedule No.2 9 of Exhibi t No.
108.
Schedule No. 29 is duplicative of Mr. Healy
Exhibi t No.3, Schedule 1 , page 29 of 34.The Company
CASE NO. UWI -W- 04-
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(Di)ENGLISH, D.
STAFF
discovered a test year miscoding on their books and removed
$2,995 from test year expense.Staf f has reviewed the
entries and concurs with the Company s adjustment.
Please explain Staff I s adj ustments on Schedule
No.3 0 0 f Exh i bit No.1 0 8 .
The Company made an adjustment to test year
expenses to reflect additional variable expenses related to
customer growth.Staff witness Lobb testifies as to the
rationale behind these expenses and Staff accepts an
adj ustment to reflect customer growth.Staff has updated
the amounts on Mr. Healy s Exhibi t No.3, Schedule 1, page
30 of 34 to account for updates made to Transportation
expense I Purchased Power expense, Chemical expense, and
Customer Growth revenue.The latter three expenses were
provided to me by Staff witness Sterling.The overall
effect of this adj ustment is an increase in test year
expenses of $56,542 1 which is $16 480 less than the
Company s request.
Would you please explain Staff's adj ustment to
expenses related to weather normalization as shown on
Schedule No. 31 of Exhibi t No.1 0 8?
Staff witness Sterling will testify regarding
these expenses.The effect of the adjustment decreases the
variable cost power and chemicals filed in the Company
Application by an additional $1,888.
CASE NO. UWI -W- 04-
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ENGLISH1 D.
STAFF
(Di)
Please explain the adj ustments to outside legal
expenses as indicated on Schedule No. 32 of Exhibit No. 108.
The Company removed from test year legal
expenses $28,851 to recognize the cessation of an
amortization allowance granted in the Company s prior rate
case regarding property tax valuations.The Company has
fully recovered those expenses and removed the amortization
expense from test year legal expenses.Staf f agrees wi th
the Company that this amount should be removed from rates so
as to not over recover the initial expense.During the
review of the Company s finances, Staf f al so di scovered
other legal expenses that should be removed from test year
legal expenses.During the test year, the Company incurred
legal expenses of $2,818 related to the disposition of the
Company I s non-contiguous Carriage Hill system , $248 related
to the Cartwright Tank removal, and $7 980 related to Idaho
Power Company s operation of the Danskin Power Plant.
Clearly, the disposition of Carriage Hill, the removal of
the Cartwright tank and Idaho Power Company s building of
the Danskin power plant are extraordinary I non-recurring
incidents and the Company should not be allowed to recover
the legal expenses associated with these items as if they
would occur each year in the future.
Also during the test year I the Company incurred
$8,374 in outside legal expenses as an intervener in Idaho
CASE NO. UWI -W- 04-04/06/05 ENGLI SH I D.
STAFF
(Di)
Power Company s general rate case IPC-03-13.As a
regulated utility that consumes large amounts of
electrici ty, Uni ted Water cannot curtail its consumption of
electricity when power rates increase.Staff appreciates
United Water s efforts to serve in the best interests of its
customers by intervening in that case, however, it would not
be appropriate to pass those legal expenses on to customers
In their entirety each year because rate cases of that
magnitude do not occur on an annual basis.Staff proposes
the Company be allowed to recover one-fifth of the expenses
related to the Idaho Power case, in essence granting them a
five-year amortization of those expenses.This five-year
period is consistent with Staff's arguments regarding United
Water Idaho l s amortization of the current rate case expenses
and is also consistent with Idaho Power s recovery of
expenses In that same case.
The total amount of the Staff's adj ustment to
the Company I s Application is $17 745.After Staff I s
adjustment I approximately $50,000 of outside legal fees
remains in the test year.
Would you please explain the adj ustment to the
amortization of deferred legal expenses illustrated on
Schedule No. 33 of Exhibit No. 108?
The Company has requested in this case to defer
and recover $4 1 707 in legal expenses it has incurred related
CASE NO. UWI -W- 04-
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(Di)ENGLISH, D.
STAFF
to its efforts to assist the Commission with the challenges
posed by the Terra Grande Water Company (Healy I Di I pg 23)
Staff appreciates the Company s efforts and assistance and
agrees that the Company should be able to recover these
expenses over time.Consistent with previous arguments made
in my testimony, Staff believes a five-year amortization
period is appropriate.
The Company s response to Staff Production
Request No. 137 states that ~Mr. Healy l s testimony failed to
recognize that $829.35 of the total deferred amount
actually attributable to Company labor and benefits overhead
actually expended on efforts related to due diligence
including wells and facilities inspection and line locating
at Terra Grande during the Summer of 2004." Since labor and
benefits overhead have already been accounted for in other
adj ustments, it would not be appropriate for the Company to
include this amount in its deferral.Staff supports the
recovery of the $3,877 deferral over a five-year
amortization period.The result of Staff's adjustment
reduces the amortization expense by $794.Staff has also
reduced the deferred balance included in rate base to $3 877
so the Company will not receive a rate of return on the
expended labor and benefits overhead.
Would you please explain Staff's adjustments
calculated on Schedule No. 34 of Exhibit No. 108?
CASE NO. UWI -W- 04-
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ENGLISH, D.
STAFF
(Di)
The Company reduced test year operating expenses
by $986 to account for the reduced power costs due to
cessation of its operation of the Carriage Hill system
(Healy, Di1 pg 23) .On page 24 of his direct testimony I Mr.
Healy states that the accounting expense is negligible, and
therefore the Company did not make an adjustment to reflect
the reduced account ing expense.Mr. Healy s workpapers
indicate that the test year accounting expense related to
the Carriage Hill system was $645.Because the Company
includes an adjustment for the disposition of the Carriage
Hill system and substantiated the total dollar amounts
involved, it is only appropriate to make an adjustment that
reduces all of the test year expenses related to the
operation of the Carriage Hill system.Therefore, Staff'
adjustment reduces the test year expense by an additional
$645 to account for the decreased accounting expense that
will no longer be incurred due to the sale of this system.
Will you please explain Exhibit No. 109?
Exhibit No. 109 consists of three schedules that
illustrate the calculation of payroll taxes.The se
schedules and calculations are similar to Exhibit No.
Schedule 2 , pages 2 -4 sponsored by Mr. Healy.Staff has
updated these schedules to reflect the adjustments made to
payroll chargeable to Operations & Maintenance.The effect
of Staff's adjustment reduces the Company s proposed
CASE NO. UWI-04-04/06/05
ENGLI SH , D.
STAFF
(Di)
Employer FICA and Medicare Tax Liability by $161 3081 the
proposed State Unemployment Insurance Tax Liability by $59,
and the proposed Federal Unemployment Insurance Tax
Liability by $56.
Does this conclude your direct testimony in this
proceeding?
Yes l it does.
CASE NO. UWI -W- 04-04/06/05 ENGLI SH, D.
STAFF
(Di)