20050523Settlement overall weighted cost capital.pdf

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WELDON B. STUTZMAN
DONOVAN E. WALKER
DEPUTY ATTORNEYS GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone] AND [phone]
IDAHO BAR NO. 3283 AND 5921
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UTILI! IL~S CDt'ii"'IISSIOt,
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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 SETTLEMENT OF THE
OVERALL WEIGHTED COST
0 F CAPITAL
CASE NO. UWI-O4-
At issue in the rate case filed by United Water Idaho is detennination of the cost of
capital for the Company, including detennination of its capital structure, cost of debt and a
recommendation of an appropriate return on equity. Testimony was prefiled in the case by
United Water and by Staff that addresses the capital structure and cost issues. No other party
filed testimony on the issues relating to the capital structure of United Water.
The testimony prefiled by Staff and the Company reflect differences in the
Company s cost of debt and in the recommended return on equity. To resolve these issues
between the parties, United Water and Staff agree as follows:
1. The prefiled testimony of Staff indicates the proper calculation for detennination
of the Company s cost of debt results in a cost of debt that is 6.45%. The testimony prefiled by
the Company indicates the proper calculation for determination of the Company s cost of debt
results in a cost of debt that is 6.9%. Recognizing that the method used to calculate the cost of
debt by each party differs due to the treatment of issue expenses, discounts and premiums, solely
SETTLEMENT OF THE OVERALL
WEIGHTED COST OF CAPITAL
to resolve this issue that remains in dispute, the parties agree that a cost of debt for United Water
as a component of its capital structure may be 6.675%.
2. The testimony prefiled by the Staff indicates an appropriate return on equity for
United Water falls within the range of9.25% to 10.25%. Staff recommended a return on equity
of 10%. The testimony prefiled by United Water indicates an appropriate return on equity falls
within the range of 10.8% to 11.20/0. United Water recommended a return on equity of 11.10/0.
The parties agree that a return on equity of 10.3% is acceptable for United Water and agree to
recommend that return on equity to the Commission in this case.
Applying the cost of debt and return on equity numbers agreed upon, the capital
structure and cost of capital results for United Water are as follows:
Capital Ratio Cost Rate Weighted Cost
L T Debt 53.41 %675%565%
Minority Interest 0.13%000%007%
Equity 46.46%10.300%785%
100.00%8.357%
3. The prefiled testimony of Staff witness Carolee Hall and Terri Carlock and
United Water witness Pauline Ahern may be spread upon the record to support the cost of capital
numbers and the terms of this settlement.
4. The parties agree that this Settlement represents a compromise of the positions of
the parties in this case. The parties agree that this Settlement is in the public interest and that all
of its tenns and conditions are fair, just and reasonable. Nothing in this Settlement, including the
actual cost of capital numbers accepted by the parties, may be used as a precedent in future cases
whether involving United Water or any other utility.
5. Execution of this Settlement shall not be deemed to constitute an acknowledgment
by any Party of the validity or invalidity of any particular method, theory or principle of
regulation or cost recovery, and no Party shall be deemed to have agreed that any method, theory
or principle of regulation or cost recovery employed in arriving at this Settlement is appropriate
for resolving any issues in any other proceeding in the future.
This Settlement will be entered into the record as evidence in this proceeding. The
parties shall support adoption of this Settlement and acceptance of this Settlement as a
SETTLEMENT OF THE OVERALL
WEIGHTED COST OF CAPITAL
reasonable resolution of the issues identified previously. If the Commission adopts this
Settlement without material change, no party shall attempt to further litigate or appeal the issues
resolved by this Settlement. If the Commission rejects any or all of this Settlement, the party
disadvantaged by such decision shall have the right to include any term rejected by the
Commission in an appeal, if any.
Dated at Boise, Idaho this
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day of May 2005.
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Weldon B. Stutzman
Deputy Attorney General
Attorney for Commission Staff Attorney for United Water Idaho Inc
bls!N:UWIWO404 ws settlement
SETTLEMENT OF THE OVERALL
WEIGHTED COST OF CAPITAL
CERTIFICA TE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 23RD DAY OF MAY 2005
SERVED THE FOREGOING SETTLEMENT OF OVERALL WEIGHTED COST OF
CAPITAL, IN CASE NO. UWI-04-, BY FAXING A COpy THEREOF
POSTAGE PREPAID, TO THE FOLLOWING:
MARK GENNARI
UNITED WATER
200 OLD HOOK RD
H~INGTON PARK NJ 07640
(()DI.J 15D- 51~&'
DOUGLAS K STRICKLING
BOISE CITY ATTORNEY'S OFFICE
150 N CAPITOL BLVD.
PO BOX 500
BOISE ID 83701
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WILLIAM M. EDDIE
ADVOCATES FOR THE WEST
PO BOX 1612
BOISE ID 83701
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BRAD M. PURDY
ATTORNEY AT LAW
2019 N 17TH STREET
BOISE ID 83702
3gtf-- 8511
SCOTT L. CAMPBELL
101 S CAPITOL BLVD., 10TH FLOOR
PO BOX 829
BOISE ID 83701
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DEAN J MILLER ESQ
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
CHUCK MICKELSON
CITY OF BOISE
150 N CAPITOL BLVD.
PO BOX 500
BOISE ID 83701
38 If-- Lf-454
BILL SEDIVY
ID AH a RIVERS UNITED
PO BOX 633
BOISE ID 83701
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SHARON ULLMAN
9627 W. DESERT AVE
BOISE ID 83709
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SECRETARY
CERTIFICA TE OF SERVICE