20060616Wyatt supplemental direct re stipulation.pdf

McDevitt & Miller LLP
Lawyers
[phone]
[phone] (Fax)
420 W. Bannock Street
O. Box 2564-83701
Boise, Idaho 83702
. .
Chas. F. McDevitt
Dean 1. (Joe) Miller
June 16 2006
Via Hand Delivery
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington St.
Boise, Idaho 83720
Re:United Water Idaho Inc., General Rate Case Application
Case No. UWI-06-
Dear Ms. Jewell:
Enclosed please find the original and (9) copies of the supplemental testimony of
Gregory P. Wyatt, with one copy of each designated as "Reporter s Copy . A computer disc
containing the supplemental testimony is also enclosed.
An additional copy of the document and this letter is included for return to me with your
file stamp thereon.
Very Truly Yours
~CDrll!:LP
Miller
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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 MA TIER OF THE APPLICATION
OF UNITED WATER IDAHO INe. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE IN
THE STATE OF IDAHO
Case No. UWI- W -06-
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
SUPPLEMENTAL DIRECT TESTIMONY OF GREGORY P. WYATT
Q. Please state your name and business address.
A. Gregory P. Wyatt, 8248 W. Victory Rd, Boise Idaho.
Q. What is your occupation?
A. I am the General Manager of United Water Idaho Inc.
, ("
United Water" or the
Company
Q. Are you the same Gregory P. Wyatt who previously filed Direct Written
Testimony on February 10, 2006 in this matter?
A. Yes I am.
Q. What is the purpose of your Supplemental Testimony?
A. I want to express United Water s support for the Settlement Stipulation signed by
Commission Staff and United Water, dated and filed May 22 2006, and urge the
Commission to approve the Settlement Stipulation without material change or
condition.
Q. Could you briefly describe the key features ofthe Settlement Stipulation?
A. Yes. In the Settlement Stipulation the parties have agreed that:
The Company s allowed revenues should be increased by $3.633 million, which
is an approximate 10.98% increase over current rates;
The $3.633 million increase should be implemented by tariffs that increase the
rates and charges (except incidental service charges) to all customers by a uniform
percentage increase and that the increase apply equally to the Company
customer charge and volume charge;
Wyatt, SuppDi
United Water Idaho Inc.
Upon Commission approval of the Settlement Stipulation, United Water will
dismiss with prejudice its pending Supreme Court Appeal ofthe Commission
final orders in Case No. UWI-04-04;
The Commission s final Order should approve various accounting methods for
the Idaho Power Company PCA and certain deferral items;
Rates implementing the increase may go into effect by August 1 2006.
Q. To put the Settlement Stipulation in appropriate context, could you please
describe the Company s initial Application in this case?
A. Yes. On February 10, 2006 the Company filed its initial Application requesting a
revenue increase of approximately $5.922 million, or an overall increase of
17.91 %. I believe this case can be viewed, in many respects, as a continuation of
Case No. UWI-04-04. There, the Commission determined that United Water
should follow the 13-month average methodology for rate base calculation, rather
than the year-end methodology previously employed. This resulted in
approximately $13 million of investment being excluded from rate base. With the
passage of time that investment became eligible for rate base inclusion under the
13-month average methodology. A predictable consequence of the change in
methodology was that a follow-up case would be necessary to obtain recovery of
the investment excluded by the change in methodology.
Thus, following the Commission s directive, the Company filed this case
using the 13-month average methodology with a split test year consisting of 6-
month actual and 6-month projected data.
Wyatt, SuppDi
United Water Idaho Inc.
Q. Did the Commission s final orders in Case No.UWI-04-04 require other
changes in rate making methods that made this filing necessary?
A. Yes. In Case UWI-04-04 the Commission determined that the accrual method
of accounting for pension expense should not be used for rate making purposes.
In the intervening time, the Company has been required to make, and soon will
have to make, significant cash contributions to the United Water pension. In the
original Application, the Company sought recognition of this expense under the
Commission required cash method.
Q. Were there other features of the Company s initial application designed to
streamline processing of the case and eliminate contentious issues?
A. Yes. In Case No. UWI-04-04 the Company and Staff stipulated to the
appropriate return on equity and cost of debt. In its Application United Water
proposed to carry forward the results of that stipulation for use in this case, thus
eliminating the need for cost of capital witnesses. Staff agreed with that proposal.
Additionally, because the Company s operating expenses and revenues
were thoroughly reviewed in Case No. UWI-04-, the Application proposed
only a limited number of adjustments to operating expense, concentrating on
items that represented material adjustments since the last case.
Finally, the Application did not propose any adjustments to rate base for
post-test year known and measurable additions, a topic that was a source of
contention in Case No. UWI-04-04.
Q. Please describe activities in this case after the initial filing.
Wyatt, SuppDi
United Water Idaho Inc.
A. Staff conducted a thorough audit of the Application, assigning a team of 6
auditors and engineers to the audit project. Two of the auditors spent a week at
the corporate headquarters in New Jersey examining corporate documents. They
also reviewed internal processes and procedures regarding inter-company
transactions. The Company cooperated fully in the Staff investigation
responding to 107 informal written audit requests and 53 formal discovery
requests.
Q. As time passed, did the Company acquire actual financial data in place of the
projected 6-month data contained in the initial Application and did this lead to a
willingness to accept less than the rate request contained in the Application?
A. Yes. The projected test year ended April 30, 2006 and the projected data was
converted to actual early in May 2006. As a result ofthis and other adjustments
that became apparent during the Staff audit, the Company was prepared to make
adjustments to it's filing reducing the requested percentage to 14.91 % from
17.91 %, for a revised revenue increase of$4.93 million. The Company provided
to Staff the revised rate case exhibits Nos. 3 , and 11 showing the revised
request prior to settlement discussions.
Q. After the activity you have described, did the Company and Staff meet to discuss
possible settlement?
A. Yes, representatives of the Company and Staff met for most of the day on
May 15 , 2006. There are no other parties in the case. At that meeting an
agreement on the basic settlement terms was reached. Then, over the next few
Wyatt, SuppDi
United Water Idaho Inc.
days, the written Settlement Stipulation was finalized and ultimately filed on May
, 2006.
Q. Turning to the specific elements of the Settlement Stipulation, please discuss the
recommended revenue increase of$3.633 million.
A. This figure represents an amount both parties believe reasonable after each party
had an adequate opportunity to evaluate the merits of issues that were in dispute.
While the parties did not attempt to resolve each issue on an item by item basis
the overall increase reflects each party s informed judgment regarding the likely
outcome if the case were fully litigated.
Additionally, as discussed above, the majority of the increase is not
subject to dispute but, rather, is the inevitable consequence of implementing the
decisions made in Case No. UWI-04-04. As recited in the Stipulation
, "
most
ofthe additional revenue requirement results from including in rate base project
costs and expenses that were not included in rates in the Company s last rate case
Case No. UWI-04-, and their inclusion here is consistent with the
Commission s decision in that case." The Company estimates that more than
75% of the settlement amount can be attributed to compliance with orders from
Case No. UWI-04-, while the remaining amount can be attributed to
increases in investments and operating costs since the prior case.
The agreed increase of$3.633 million also represents a significant
concession from the Company s original request of$5.92 million and its revised
increase request of $4.93 million.
Wyatt, SuppDi
United Water Idaho Inc.
Q. Is not a 10.98% increase a somewhat significant increase for the company
customers?
A. On a percentage basis it may appear so, although, I would note that in dollar terms
it is about a $3.00 per month increase for an average residential customer.
Additionally, as noted above, the majority of the increase is the inevitable
result of changes in rate making practices required by final orders in Case No.
UWI-04-04. Most of the increase is due to the inclusion in rate base of
investments excluded in Case No. UWI-04-04 resulting from the change to the
13-month methodology from the year end methodology.
Q. Please discuss the proposal for a uniform percentage increase.
A. In Case No. UWI-04-, the issue of cost of service and rate design was
extensively debated. After an opportunity for full consideration, the Commission
settled upon a rate design it believed best served the public interest. Because rate
design and cost of service had so recently been reviewed at the time of filing this
case, the Company also filed a Motion allowing the Company to dispense with the
normal requirement that a cost of service study accompany the filing. The
Commission granted that Motion. (See Order No. 29988 , dated March 3, 2006).
A uniform percentage increase also preserves the rate relationships the
Commission found to be reasonable in Case No. UWI-04-04.
Q. Has the Commission in the past been reluctant to order increases to the customer
charge contained in the Company tariffs?
A. A review of Commission Orders from the last three United Water rate cases
(UWI-97-, UWI-OO-l , and UWI-04-4) shows that the Commission
Wyatt, SuppDi
United Water Idaho Inc.
approved "across the board" increases in two of the three. Only in Case No.
UWI - W -04-4 did the Commission apply the rate increase primarily to the
volumetric components of the tariff. However, given the unique nature of this
case, a uniform percentage increase applied to all rate elements will preserve the
relationship between the customer charge and volume charge the Commission
recently found to be reasonable. And, as the Company has argued in previous
cases a rate design that seeks to recover "too much" of the allowed revenue
requirement through volume charges serves to exacerbate the real risk of revenue
instability and under-recovery of the allowed return. The rate design proposal in
this case is a modest step in the direction of enabling revenue stability for the
Company, while still providing a significant conservation message via the 25%
higher summer rate.
Q. Is the rate design proposal a material term of the Settlement Stipulation from the
Company s point of view?
A. Yes. While the Company recognizes that each term of the Settlement Stipulation
is not precedental and approval of it does not commit the Commission to a course
of action in the future, an equal distribution to both the volume and customer
charge in this case was a material consideration in the Company s willingness to
enter into the Settlement Stipulation.
Q. Why, in conjunction with this case, is the Company willing to dismiss its Supreme
Court appeal from Case No. UWI-04-04?
A. While our legal counsel believes the appeal has legal merit, the Company
understands that the pendency of an appeal can be a source of friction between the
Wyatt, SuppDi
United Water Idaho Inc.
Company, the Commission and Commission Staff. And, ifthe Settlement
Stipulation is approved, the Company believes it's allowed revenues will be
sufficient to provide a reasonable opportunity to earn its allowed return on a
prospective basis. Dismissal of the appeal will also eliminate further litigation
costs for both the Company and the Commission.
Q. You mentioned that the Settlement Stipulation also contains agreements between
the Company and Staff on certain accounting items. Please explain.
A. In sub-clauses a--c of paragraph 6 of the Settlement Stipulation, agreements
regarding accounting methods for the Idaho Power PCA and certain deferrals are
set forth. None ofthese items affect the revenue increase award in this case.
Rather, they reflect agreement on how these accounting issues will be handled on
a prospective basis, and specific regulatory approval is necessary to support the
accounting entries that will be made. They thus eliminate the potential for
disagreements on accounting methods in subsequent cases. The Company
requests these methods be approved in the Commission s final order.
Q. A final term of the Settlement Stipulation is that rates would go into effect by
August 1 2006. Is this a material term ofthe Settlement Stipulation from the
Company s point of view?
A. Yes it is. I understand that under the statutory suspension period the Commission
would otherwise have until September 12, 2006 to make the rates effective.
Although it is possible the Company would have received an ultimate rate award
greater than the agreed settlement amount ifthe case was fully litigated, receiving
an amount certain earlier than legally required was a material factor in the
Wyatt, SuppDi
United WaterIdaho Inc.
Company s agreement to accept an increase of$3.633 million rather than pursue
through hearing the full amount of it's revised request.
Q. Do you believe the Settlement Stipulation represents a fair resolution of this case?
A. Yes. Settlement discussions were only undertaken after Staff conducted a
thorough audit of the Application. The Settlement Stipulation is the result of
arms-length negotiations between two sophisticated parties, each of whom had
access to all relevant facts. The end result is rates that are fair, just and reasonable
In my OpInIOn.
Q. Do you have any concluding remarks regarding the settlement process?
A. Yes. During the settlement process the Company experienced a willingness by
Staff to address issues in a straightforward, professional manner. The Company is
very appreciative of these efforts by Staff.
Q. Does that conclude your testimony?
A. Yes it does.
Wyatt, SuppDi
United Water Idaho Inc.