20111209Wyatt Supplemental Di.pdf

McDevitt & Miller LLP
Lawyers
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[phone]
[phone] (Fax)
420 W. Bannock Street
P.O. Box 2564-837(liOI! DEC -9 PH l: 50
Boise, Idaho 83702
Chas. F. McDevitt
Dean J. (Joe) Miler
December 9,2011
Via Hand Delivery
Jean Jewell Secreta
Idaho Public Utities Commssion
472 W. Washigton St.
Boise, Idaho 83720
Re: Case No UWI-W-ll-02/General Rate Case Filng
Dear Ms. Jewell:
Enclosed for fig are an origial and nie (9) copies of the Supplementa Direct Testiony of
Gregory P. Wyatt. A copy of the Supplementa Direct Testiony has been desigated as the
"Reporter's Copy." In addition, a disk contag MS Word version of the Supplementa Direct
Testiony is enclosed for the Reporter.
If you have any questions, please do not hesitate to contact me.
Kidly retu a staped copy.
Very Truy Yours,
\\~: ~ Mier il~DJM/hh
ORIGINAL
E.:\/
13U DEC -9 PM \= SO
Dean J. Miller (lSB 1968)
McDEVITT & MILER LLP
420 West Banock Street
P.O. Box 2564-83701
Boise, ID 83702
Tel: [phone]
Fax: [phone]
joe(ßmcdevitt-miler.com
Attorneys for Applicant
BEFORE THE IDAHO PUBLIC UTILITIES COMMSSION
IN TH MATTER OF TH APPLICATION Case No. UW-W-11-02
OF UNED WATER IDAHO INC. FOR
AUTORI TO INCREASE ITS RATES
AN CHAGES FOR WATER SERVICE IN
TH STATE OF IDAHO
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
SUPPLEMENTAL DIRCT TESTIMONY OF GREGORY P. WYATT
1 Q. Please state your name and business address.
2 A. Gregory P. Wyatt, 8248 W. Victory Rd, Boise Idaho.
3 Q. What is your occupation?
4 A. I am the General Manager of United Water Idaho Inc., ("United Water" or the
5 "Company").
6 Q. Are you the same Gregory P. Wyatt who previously fied Direct Written
7 Testimony on August 3, 2011 in this matter?
8 A. Yes I am.
9 Q. What is the purpose of your Supplemental Testimony?
10 A. I want to express United Water's support for the Settlement Stipulation signed by
11 Commission Staff Community Action Parership Association of Idaho
12 (CAPAI), and United Water on December 7, 2011, and fied December 8, 2011,
13 and to urge the Commission to approve the Settlement Stipulation without
14 material change or condition.
15 Q. Could you briefly describe the key features ofthe Settlement Stipulation?
16 A. Yes. In the Settlement Stipulation the parties have agreed that:
17 --The Company's allowed revenues should be increased by $4,000,000 in two
18 phases as follows: $3,050,000 effective February 1,2012, which is an
19 approximate 7.96% increase over current rates, and an additional $950,000
20 effective Februar 1,2013, which is an approximate 2.48% increase over curent
21 rates;
22 --Both phases of the $4,000,000 increase should be implemented by tariffs that
23 increase the rates and charges (except incidental service charges) to all customers
Wyatt, SuppDi 1
United Water Idao Inc.
1 in accordance with the Cost of Service Study submitted by United Water in its
2 initial filing, modified only by the overall amount of the increase;
3 --United Water accepts a rate case moratorium and wil not fie a general revenue
4 requirement rate case that results in an effective date for new rates prior to
5 Januar 1,2014;
6 --The Commission's final Order should approve varous accounting methods and
7 certain deferral items as set out in the Settlement Stipulation and listed below;
8 . Idaho Power Company PCA
9 . Deferred Rate Case Expenses
10 . Deferred Tank Painting Expense
11 . Deferred Redundant Power Expense
12 . Deferred Employee Relocation Expense
13 . Depreciation rate for new customer information system (CC&B)
14 --The Commission's final Order should approve an exemption from fiing future
15 cost of service studies as agreed in the Settlement Stipulation;
16 --The Commission's final Order should approve the deferral on the Company's
17 books of all actual cash Pension funding contributions in any subsequent plan
18 year in excess of or below $1,300,769 as agreed in the Settlement Stipulation,
19 until a new pension funding amount is established in a subsequent general rate
20 case;
21 --United Water and Commission Staff agree to convene an informal workshop,
22 within a reasonable time after the entry of the Final Order in this matter, to
23 discuss potential mechanisms for handling the problem of declining per capita
Wyatt, SuppDi 2
United Water Idao Inc.
1 consumption and certain volatile expenses the Company experiences, including
2 property ta.
3 Q. To put the Settlement Stipulation in appropriate context, could you please
4 describe the Company's initial Application in this case?
5 A. Yes. On August 3,2011 the Company fied its initial Application requesting a
6 revenue increase of approximately $7.616 milion, or an overall increase of
7 19.89%. The increase was requested in order to enable the Company to earn a
8 return on additional capital investments it had made in its water system since rates
9 were last set in Februar 2010, and to recover certain increases in operating costs
10 including health care costs, pension funding, and propert taxes.
11 Q. What was included in the Company's initial application relating to rate design?
12 A. Company Witness Paul Herbert performed and fied a cost of service study that
13 proposed increases in the metered customer charges of approximately 28.2% over
14 current rates, and increases of approximately 30% on the Private Fire Protection
15 flat rate charges. The existing consumption rates were proposed to increase
16 16.2%, while maintaining the 25% differential between the winter and summer
17 consumption rate per CCF (hundred cubic feet) of water.
18 Q. Did the Company provide Witness Herbert with any guidance regarding rate
19 design?
20 A. Yes it did. The guidance included increasing customer charges to be more in line
21 with customer costs, develop private fire rates to recover the cost of providing
22 private fire services, and increase rates by customer classification in a maner that
Wyatt, SuppDi 3
United Water Idao Inc.
1 moves revenue recovered from each classification toward the indicated cost of
2 service.
3 Q. Please describe activities in this case after the initial filing.
4 A. Staff conducted a thorough audit ofthe Application, assigning a team of auditors,
5 engineers, and consumer specialists to the investigation. They reviewed internal
6 processes and procedures regarding asset capitalization, operating expenses, and
7 several other areas. The Staff extensively reviewed the Company's investment in
8 its new Customer Care and Biling (CC&B) system implemented in October
9 2011. The Company cooperated fully in the Staff investigation, responding to
10 numerous Audit Requests and Production Requests in a timely fashion.
11 Q. After the activity you have described did the Company, CAPAI and Staff meet to
12 discuss possible settlement?
13 A. Yes, representatives of the Company, Staff, and CAPAI met on November 16, 17,
14 and 18, 2011. There are no other paries in the case. At the meetings an
15 agreement on the basic settlement terms was reached. Afterwards the written
16 Settlement Stipulation was finalized and ultimately fied on December 8, 2011.
17 Q. Turning to the specific elements of the Settlement Stipulation, please discuss the
18 recommended revenue increase of $4.0 milion.
19 A. This figure represents an amount all paries believe reasonable after each part
20 had an adequate opportnity to evaluate the merits of issues that were in dispute.
21 While the paries did not attempt to resolve each issue on an item by item basis,
22 the overall increase reflects each pary's informed judgment regarding the likely
23 outcome if the case were fully litigated. The agreed increase of$4.0 millon also
Wyatt, SuppDi 4
United Water Idao Inc.
1 represents a significant concession from the Company's original request of$7.616
2 milion.
3 Q. Please discuss the proposal for the percentage increase.
4 A. As stated previously, The Company filed a Cost of Service Study that proposed
5 increases to the customer charges and Private Fire Protection rates that would
6 move them toward the calculated cost of service for each classification. The
7 proposed rates resulting from the Settlement Stipulation follow the Cost of
8 Service taiff proposal made by the Company, but are modified by the overall
9 amount of the increase.
10 Q. Is the rate design proposal a material term of the Settlement Stipulation from the
11 Company's point of view?
12 A. Yes. The Company recognizes that each term of the Settlement Stipulation is not
13 precedential and approval of it does not commit the Commission to a course of
14 action in the future, however the Company believes it is a critical component of
15 the Settlement Stipulation because customer costs are fixed costs that do not vary
16 with customer usage. If these costs are not recovered in customer charges, then
17 the only place for recovery is in the consumption charges. With the Company
18 facing continuing declining use as demonstrated in my Direct Testimony and that
19 of Witness Herbert, the Company wil continue to under-recover fixed costs and
20 erode its allowed rate of retu.
21 For more than a decade the Company's rate changes, as authorized by this
22 Commission, have been applied strctly on an "across-the-board" basis to both
23 customer and consumption charges, even though the Company filed previous cost
Wyatt, SuppDi 5
United Water Idao Inc.
1 of service testimony suggesting otherwise. The Company appreciates the
2 accommodation that Staff and CAP AI have made in this Settlement Stipulation
3 for the rate increase to be applied in a fashion that results in movement toward the
4 cost of service for each customer classification.
5 The rate increase distrbution to both the volume and customer charges in
6 accordance with the Company's proposed Cost of Service study in this case was a
7 material consideration in the Company's wilingness to enter into the Settlement
8 Stipulation.
9 Q. How much higher wil the fixed charge be for a residential customer under the
10 cost of service proposal rather than under an across-the-board increase approach?
11 A. For a customer with a standard 5/8"-3/4" meter, the difference wil amount to
12 $4.92 more per year. I would like to point out here that beginning October 1,
13 2011, the Company voluntarily increased the amount of financial assistance a
14 qualified customer can receive under its UW Cares program by 30% from $50 to
15 $65, and the anual assistance cap of $20,000 was also removed.
16 Q . You mentioned that the Settlement Stipulation also contains agreements between
17 the paries on certain accounting items. Please explain.
18 A. In paragraph 11, sub-clause a) of the Settlement Stipulation, agreements regarding
19 accounting methods for the Idaho Power PCA are set forth. They propose that the
20 Company may amortize both its unamortized balance authorized by Order No.
21 31029, Case No UWI - W -09-01, and the curent PCA deferral at Januar 31, 2012
22 over thee years commencing Februar 1,2012, and continue to defer for later
23 amortization all amounts biled by Idaho Power under its PCA. The Settlement
Wyatt, SuppDi 6
United Water Idaho Inc.
1 Stipulation also proposes that the Company may use the Commission approved
2 interest rate on customer deposits to calculate a carng cost on the un-amortized
3 balances.
4 In sub-clauses b, c, e, f, and g of paragraph 11 of the Settlement
5 Stipulation, agreements regarding certin other deferrals are set forth. None of
6 these items affect the revenue increase award in this case. Rather, they reflect
7 agreement on how these accounting issues wil be handled on a prospective basis,
8 and specific regulatory approval is necessar to support the accounting entries
9 that wil be made. They thus eliminate the potential for disagreements on
10 accounting methods in subsequent cases. The Company requests these methods
11 be approved in the Commission's final order.
12 Q. Another term of the Settlement Stipulation is that the first phase ofthe rates
13 would go into effect on February 1, 2012. Is this a material term ofthe Settlement
14 Stipulation from the Company's point of view?
15 A. Yes it is. I understand that under the statutory suspension period the Commission
16 would otherwise have until March 3,2012 to make the rates effective. Although
17 it is possible the Company would have received an ultimate rate award greater
18 than the agreed settlement amount if the case was fully litigated, receiving an
19 amount certain earlier than legally required was a material factor in the
20 Company's agreement to accept an overall increase of$4.0 millon rather than
21 pursue through hearing the full amount of its revised request.
Wyatt, SuppDi 7
United Water Idaho Inc.
1 Q. Earlier you mentioned that the Settlement Stipulation provides for a two-phase
2 revenue increase and also includes a rate case moratorium. Please explain why
3 the Company agreed to these provisions.
4 A. The Company was wiling to accept the proposed $4.0 milion increase over two
5 phases because it wishes to remain sensitive to the effect the full increase amount
6 may have on customers. Although the Company believes the full $4.0 millon in
7 increased revenue is justified now based on the Company's investments, costs and
8 its filing, this phased-in recovery of the total increase wil mitigate somewhat the
9 rate impact on customers that would otherwise occur in one year. It also spreads
10 the increase during the moratorium period the Company has agreed to, which
11 prohibits the Company from receiving an increase in rates resulting from a
12 general rate case Application prior to January 1,2014.
13 Q. Please explain the purose behind the proposed informal meeting with Staff
14 mentioned in the Settlement Stipulation.
15 A. In this present case the Company proposed annual rate adjustments to take into
16 consideration fluctuations in three very volatile expense categories over which the
17 Company has little or no control; purchased power, property tax, and the
18 Company's cash contributions to fund its pension plan. This Settlement
19 Stipulation does not adopt the Company's proposal, although it does include a
20 provision for deferral and eventual recovery of excess pension contrbutions.
21 Durng settlement discussions the Company emphasized its continuing concern
22 regarding the detrimental effects these volatile expenses have on eaings
23 between general rate adjustments, and requested that the Paries continue to
Wyatt, SuppDi 8
United Water Idao Inc.
1 discuss these issues and potential solutions after this present case is finished. The
2 discussions would also extend to the related problem of revenue instabilty
3 resulting from decreased per capita consumption.
4 Q. Do you believe the Settlement Stipulation represents a fair resolution of this case?
5 A. Yes. Settlement discussions were only underten after Staff conducted a
6 thorough audit of the Application. The Settlement Stipulation is the result of
7 ars-length negotiations between the paries, all of whom had access to all
8 relevant facts. The end result is rates that are fair, just and reasonable in my
9 opinion.
10 Q. Do you have any concluding remarks regarding the settlement process?
11 A. Yes. Durng the settlement process the Company experienced a wilingness by
12 Staff and CAPAI to address issues in a straightforward, professional maner. The
13 Company is very appreciative of these efforts by the paries.
14 Q. Does that conclude your testimony?
15 A. Yes it does.
Wyatt, SuppDi 9
United Water Idao Inc.