20060210Rhead direct.pdf

Dean J. Miller (ISB #1968)
McDEVITT & MILLER LLP
420 West Bannock Street
O. Box 2564-83701
Boise, ID 83702
Tel: [phone]
Fax: [phone]
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Attorneys for Applicant
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE IN
THE STATE OF IDAHO
Case No. UWI-O6-
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
DIRECT TESTIMONY OF SCOTT RHEAD
Please state your name.
Scott Rhead.
By whom are you employed and in what capacity?
United Water Idaho ("United Water" or "Company ) as Managing Engineer.
What are your duties and responsibilities in your capacity as Managing
Engineer?
I manage all activities of the Engineering group. These responsibilities
include strategic planning, capital budgeting, engineering design
information technology, water quality, and construction management for
capital improvements.
Please describe your professional training and experience.
I received a Bachelor of Science Degree in Civil Engineering from Idaho
State University in 1972. I was employed by Forsgren Consulting
Engineering from 1975 to 1990 designing and managing a variety of water
and waste water municipal improvement projects. I joined United in 1990.
Since then I have had diversified responsibilities in both Engineering and
Production departments. I am a registered professional engineer in Idaho
Oregon, Washington, Utah and New Mexico. I am also a certified Idaho
Water Treatment Operator Level I.
What is the purpose of your testimony?
I will discuss these topics:
The increase in plant in service excluded from rate base in Case No. UWI-
04-04 and plant additions since that case.
Rhead, Di
United Water Idaho Inc.
Support and background explanation for the re-statement of the plant in
servIce.
Justification for including the early incentive bonus ($287 000) paid to the
contractor as a part of the project costs for the recently completed Columbia
Water Treatment Plant (CWTP) which payment was disallowed in Case No.
UWI-04-04.
Pro forma adjustments in the test year rate base to recognize investments in
plant in service during the six-month projected period November 1 2005 -
April 30, 2006.
Explanation of the purchased water expense adjustment as it relates to
market and weather conditions.
Since the last proceeding has the Company continued to invest in utility
plant in service?
Yes. The Company continues to provide new and replacement plant in all
areas of the business including:
Source of Supply
Water Treatment
Pumping
Transmission and Distribution Mains
Distribution Storage
Customer Service Lines
Customer Meters
Information Technology
Rhead, Di
United Water Idaho Inc.
General Plant
Plant Additions
Please discuss the overall investment increase in gross plant in service since
Case No. UWI-04-04 in which the 13-month average rate base
methodology was used.
The 13-month average gross plant in service amount is expected to increase
from the approximately $243.8 million used to determine rate base in the last
case (UWI-0404) to approximately $268.6 million projected through April
, 2006 in this instant case, an increase of about $24.8 million.Much
of this investment was already in service to customers at the time of the last
case but was not recognized for ratemaking purposes due to the 13-month
averaging methodology. Approximately $7 million relates to capital projects
that were placed in service during the test year period of August 2003 to July
2004 but were excluded from rate base due to the 13-month averaging
method. Another approximately $7 million relates to the same averaging
affect on post-test year plant additions itemized on Company s Exhibit 8 in
Case UWI-04-, excluding the Columbia Water Treatment Plant and
associated projects. The remaining amount relates to capital projects in
service to customers since the last case, and those capital additions reflected
in the six-month forecast portion of the test year in this instant case.
Rhead, Di
United Water Idaho Inc.
Restatement of Plant in Service Dates
In order to accurately reflect plant in service for the 13-month averaging
method, did United Water have to restate or "backcast" the booked plant in
service for this case filing?
Yes. As discussed by Witness Healy, the automated process of moving capital
additions from construction work in process (CWIP) to plant in service on
the books did not initially function correctly. The backcast of capital
additions referred to by Witness Healy was required in order to correctly
align the various plant in service projects and associated dollars with the
periods of time they were first physically placed in service to customers.
On what did you rely to verify the actual in service timing of various capital
additions?
I relied upon various sources of information, which were and are available
to verify the accurate time line for construction completion, placing in
service and cost accumulation. For each project, the construction work in
progress (CWIP) ledger was evaluated to determine physical in service
circumstances and timing. Company inspector "as-built" drawings and
records provided evidence that distribution system projects were complete
and physically in service. Pumping meter records were used to verify project
start-up for source, pumping and treatment facilities addition. Purchase
order history within the procurement system was also used to verify project
completion and payment timing. In addition, project closeout notifications
Rhead, Di
United Water Idaho Inc.
that were em ailed by Engineering to Corporate Accounting requesting that
projects be placed in service, were also relied upon to verify project timing.
Did you provide these supporting elements to Witness Healy in order to
enable the backcast and appropriate re-statement of the plant in service for
ratemaking purposes?
Yes, under my direction, these adjustments to plant in service were provided
to Witness Healy to accurately reflect the backcast as detailed in his Exhibit
, Schedule 2, page 1 of 1 and Schedule 3 , pages 1 through 6.
Early Completion Incentive
In case UWI-04-, with respect to the Columbia Water Treatment Plant
how did the Commission treat the early completion incentive paid to the
contractor, CDM?
The Commission disallowed the bonus, believing that there was not an
adequate demonstration that the incentive actually reduced the overall
construction cost of the project. The Commission, however, provided that
the Company could present these costs in its next rate case for Commission
review. (Order No. 29838 , pg. 9).
Has the early completion incentive been paid to CDM?
Yes. It was fully approved and the payment request forwarded to accounting,
May 12, 2005. CDM received payment June 6, 2005.
Have you been able to verify that the bonus reduced the overall project cost?
Yes. Included in the CDM contract was an allowance for project
management costs computed on a per diem basis. These costs are shown on
Rhead, Di
United Water Idaho Inc.
Exhibit 8, page 1 of 1 and total $5 191 per day. These costs are charged to
the project each day up to the date of substantial completion, so long as the
guaranteed maximum price is not exceeded.
Did the early completion incentive reduce these costs?
Yes, the incentive of$3 500 per day reduced the project management costs by
691 per day for each day by which the actual completion date was in
advance ofthe contract completion date ($5 191 - $3 500).
Have you calculated the overall savings to the project achieved by the early
completion incentive?
Yes. The actual completion date was 82 days prior to the contract
completion date so the savings are 82 x $1 691 , or the sum of$138 662.
Do you believe there is now adequate verification that the early completion
incentive reduced project costs, as required by Order No. 29838?
Yes, I do. The early completion incentive resulted in financial savings to our
customers in the amount of$138 662.
In addition to financial savings, was there a reliability of service benefit to
having the project substantially completed prior to the contractually required
completion date of June 1 , 2005?
Yes. Customers certainly benefited by having the project completed before
peak water demands that occur in the late spring and early summer. With
the project being substantially complete and placed in service in March
there was sufficient time to test and operate the pump station and new
technologies associated with the plant equipment. We were thus able to
Rhead, Di
United Water Idaho Inc.
confirm plant reliability prior to peak water demand season. This was all
able to occur during the March to June 2005 time frame so as to ensure
reliable and uninterrupted service to customers during higher summer
demands.
Pro Forma Additions
Can you now discuss, in general terms, the capital additions planned to be
placed in service between November 1 2005 and April 30, 2006, the six-
month forecasted portion of the test year?
Yes. The plant additions for this time period, which represent a normal level
of capital additions during this timeframe, are detailed by month in Exhibit 9
page 1 through 4. Examples of these capital additions include customer
services, meters, pumping equipment, a booster station along Warm Springs
avenue, new and replacement mains, auxiliary power at two facilities to
comply with Idaho Department of Environmental Quality requirements, and
security upgrades.
Purchased Water Expense
Please discuss the basis for United Water s purchased water expense, as
detailed in Schedule 1 , page 6 of Witness Healy s testimony.
The annual cost to purchase or lease surface water is related to several
factors. For several years the Company has had rental leases and storage
contracts to augment the early natural flow releases from the Boise river
drainage. Due to several years of low snow pack and questionable water
allocations, willing parties, relationships and competition have been in
Rhead, Di
United Water Idaho Inc.
tremendous flux over the past two irrigation seasons, and United Water
incurred higher costs than usual during 2005 as a result. As predicted in
Case UWI-04-, the supply and demand factors on the Boise River have
now returned to a reasonably stable state. The primary factors are early
snow pack or moisture conditions and the execution of storage repayment
contracts between the Bureau of Reclamation and space holders in Lucky
Peak Reservoir. The Snake and Boise River runoff forecast is expected to be
sufficient to allow the exchange of surface water between the river basins as
established by the Company s Initial Butte and Wilson Farm Water Right
purchases. Also, the space holders in Lucky Peak can now reasonably
predict their refill potential and are motivated to lease water to the Company
through the Basin 63 rental pool. This is evident by their January rental
pool commitments. A more detailed breakdown ofthe Company s requested
purchased water cost of $205 770 is shown on Exhibit 10 page 1 of 1.
Does this conclude your testimony?
Yes.
Rhead, Di
United Water Idaho Inc.
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Projected Capital In-Service per Month
January 1, 2006 through April 30, 2006 1 n n" 1'). I') !,U i-, i t.-'
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- Ccl,3S\C:J
Jan-O6 . c- 'Feb-:'O6 Mar-06 Apr-
Account
CEA No, Number Description Totals
C02BO02
C03BO03
C04BO02
C04BO07
C04B504
Blanket Projects
New Short Mains & Valves
33140 T &D Mains 42.3 1.0 1.0 1.0 45,
Repl Short Mains & Valves
33140 T &D Mains 20,
New Domestic Services
33340 Services 139,116,116,116,490,
33340 Services - A&C (144,(121.9)(121.9)(121.9)(510,
New Fire Services
33340 Services 29,17,17.17,80,
New Domestic Services Co Funded
33340 Services 70,30,30,30,160,
Repl Domestic Services
33340 Services 57.25,50.50.182,
New Customer Meters
33440 Meter and Meter Installations 66.81.5
Repl Customer Meters
33440 Meter and Meter Installations 263,287,
Other Capital Projects
Columbia Water Treatment Plant
30430 Structures & Improvements
31120 Pumping Equipment
32030 Water Treatment Equipment
32030K Filter Elements
33140 T&D Mains
Maple Hill Well Treatment
30430 Structures & Improvements
31120 Pumping Equipment
Raw Water Pump Station
30430 Structures & Improvements 49,49,
Marden WTP Chlorine Generator
32030 Water Treatment Equipment
Production General Plant-Marden
Exhibit 9
S, Rhead
Page 1 of 4
Projected Capital In-Service per Month
January 1,2006 through April 30, 2006
Account
CEANo. Number Description Jan-Feb-Mar-Apr-Totals
32030 Water Treatment Equipment
C04CO02 Auxiliary Power ~ Pleasant Valley Well
30420 Structures & Improvements
31020 Power Generation Equipment 1.9 1.9
C04COOS VFD Installations-Efficiency
31120 Pumping Equipment
C04DO03 Operational Control Equipment
33140 T&D Mains 13,13,
34650 Communication Equipment
C04JSOI Repl Production Field Laptops
3405A Computer Software & Hardware
C04KI06 Security Upgrades
30420 Structures & Improvements
30430 Structures & Improvements
C04K304 UWID Master Plan
34850 Other Intangible Plant
COSAOOI Upgrade Cap at Floating Feather Well
31120 Pumping Equipment 175.4 17S,
33140 T&D Mains 34.34,
COSAO02 Upgrade Cap at Fisk Well
31120 Pumping Equipment 109.109.5
COSAO03 Cole Well ASR
31120 Pumping Equipment 129,15,144,
COSAI02 Water Rights
3032W Water Rights 48.48,
COSBSOI Marden Valves
32030 Water Treatment Equipment
COSCO03 Warm Springs Booster Station
30440 Structures & Improvements 101.8 49,IS0.
31120 Pumping Equipment 113,20.4 136,
33140 T&D Mains 64.4 64,
34650 Communication Equipment 20.20,
COSCI00 Pumping Equip-Source of Supply
30340 Land and Land Rights
31120 Pumping Equipment 22,22,
COSCOOS Landscaping Well Sites
30420 Structures & Improvements 52,S2,
COSC301 Aux Power Belmont & Coventry
31020 Power Generation Equipment 67.4 67.4
COSCO06 Reconstruct Pumping Facilities
30420 Structures & Improvements 15,IS,
30440 Structures & Improvements
31120 Pumping Equipment
COSCSOI SCADA Upgrade
Exhibit 9
S, Rhead
Page 2 of 4
Projected Capital In-Service per Month
January 1, 2006 through April 30, 2006
Account
CEA No, Number Description Jan-Feb-Mar-Apr-Totals
34650 Communication Equipment
C05C502 Replace Control Equipment
31120 Pumping Equipment
C05C505 Crestline Booster Upgrade
31120 Pumping EqUIpment 30,30,
C05C506 VFD Installations PioneerlMarden
31120 Pumping Equipment 41.0 41.0
C05DI0l Cribben & Bowmont
33140 T&D Mains 11.0 11,
C05DI02 Central Park PRY
33140 T&D Mains 102,102,
C05DI03 Hill Rd
33140 T&D Mains 107,107,
CxxD300 Developer Projects
33140 T&D Mains 315.438,438,438,632.4
CxxD300 33140 Developer Projects A&C (315,(438.(438,(438,(1,632,
C05D622 Kootenia & Johnson
33140 T&D Mains 130,130,
C05D623 Berkley St
33140 T&D Mains 28,28.
C05D706 Maple Grove Extension
33140 T&D Mains 48.48.
C05D707 16th St & State
33140 T&D Mains 211.7 211,
C05JOOI Managed Desktop Server
3405A Computer Software & Hardware
C05JO05 New IT Equipment
3405A Computer Software & Hardware 12.4 12,
C05J503 RepllT Equipment
34050 Office Furniture & Equipment
34650 Communication Equipment
C05KI06 General Plant
34350 Tools, Shop & Garage Equipment 8.5
C05KI07 Security Upgrades Ph 2
30420 Structures & Improvements 5.4 5.4 10.
30450 Structures & Improvements 11.2 22.4 33,
33040 Distr Reservoirs & Standpipes 18.4 18.4
34050 Office Furniture & Equipment 23.3 23,
3405A Computer Software & Hardware 13,13,
C05K501 Repl General Plant Ph 2
34150
34350 17,17,
C05K502 Replace Office Chairs
34050 Office Furniture & Equipment
Exhibit 9
S. Rhead
Page 3 of 4
Projected Capital In-Service per Month
January 1, 2006 through April 30, 2006
Account
CEA No, Number Description Jan-Feb-Mar-Apr-Totals
C06BOOI Metering at Mesa #3-Arsenic
33140 T&D Mains 35,35,
C06BO02 Metering at Cent Pk-Arsenic
33140 T&D Mains 20,20,
C06B501 Repl Chlorination Equip
32030 Water Treatment Equipment 20,20,
C06B503 Repl Chlorine Residual Analyzers
32030 Water Treatment Equipment
C06COOI Pump Station Cooling
30420 Structures & Improvements 55,55,
C06D701 Highland St
33140 T&D Mains 50,50,
C06Kxxx Wash Rack Building
30450 Structures & Improvements
Net Totals 962.309,621.9 171.4 065,
A&C Totals (460,(560,(560,(560,(2,143,
Gross Totals 422,870,182,732,208,
Exhibit 9
S, Rhead
Page 4 of 4
SEE CASE FILE FOR
RHEAD EXHIBIT 10,
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