20120104Comments.pdf

Jean Jewell
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Sent:
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mcneilkp(§yahoo.com
Wednesday, January 04, 2012 3:44 AM
Jean Jewell; Beverly Barker; Gene Fadness
PUC Comment Form
A Comment from Kevin McNeill follows:
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Case Number: UWI-W-11-Ø2
Name: Kevin McNeill
Address:
City: Boise
State: Idaho
Zip:
Daytime Telephone:
Contact E-Mail: mcneillkp~yahoo.com
Name of Utility Company : United Water
Acknowledge: acknowledge
Please describe your comment briefly:
At this time I would like to expand on my submission of August, 2Ø11. As a professional
consulting engineer I have designed water systems for Local Authorities and understand the
extent, nature, and flexibility of water utility's assets. In addition, I worked for many
years as an oil company engineer and witnessed first-hand the range of possible industry
responses to rapid fluctuations in the price of an industry's product. An oil company's
assets resemble those of a water utility to a high degree (wells, pipelines, product storage
tanks, treatment plants, etc.).
Capital Expenditures:
As part of the j usti fication for a 2Ø% rate hike, United Water specified it has recently
invested $2Ø million in the Boise water system. The utility is demanding a return on equity
of at least 8% in order to maintain a high credit rating, and to be able to attract Wall
Street investment dollars.
This raises several concerns:
· State Revolving Fund (SRF) Loan: An entity with a very good AA bond rating would pay
21% more in total interest on a 5.Ø%, 2Ø-year marketplace loan as it would on a 3.Ø% (6Ø% of
market rate), 2Ø-year SRF loan! For a one million dollar loan, that is an extra $256,4ØØ in
interest that would have to be paid to the bondholders to get marketplace financing! It would
have been most prudent for United Water to have requested SRF financing for large capital
improvements. The SRF Loan Program currently finances new and replacement water projects
everywhere in Idaho, including water treatment plants, water tanks, water mains, new water
supply including wells etc.
As far could be determined, United Water has never applied for an Idaho SRF Loan for a
capital proj ect .
· Maintenance Items Included as Capital Expenditures: As justification for the rate hike,
United Water includes the following as capital expenditures C replaced water mains, service
lines, and meters.'
These common maintenance items are normally part of a capital repair/replacement plan,
financed from a utility's maintenance fund (from past rates) and are not considered capital
projects (in fact service lines from a residence to the utility's service lateral are owned
by the homeowner and are not maintained by the utility).
· $5.5 Million New Customer Information System: United Water should elaborate on this
item.
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Is it necessary - or prudent - to incur significant expense for a non-essential item like
this when both the demand - and revenue - for your product is rapidly declining??
. Rate Hike to Increase Annual Revenue by $7.6 Million: The reduction in revenue that
United Water has experienced represents only 38% of the $7.6 million/year increase that the
Company requested.
Since revenue from customer rates is used for all utility financing why is United Water
requesting $4.71 million/year more from its customers than is required? At this rate the
Utility would recover its recent investment of $15 million (less the $5 million Customer Info
Sys) in less than 4 years. It appears the majority of the requested increase is to enhance
the Company's apparent profitability - is that justified in our current financial climate?
. Sinking Fund: To a great degree, United Water's sinking fund should assist in
attenuating capital maintenance and replacement costs.
Does the Company have a sinking fund to assist in financing future capital requirements? Is
the fund properly financed to meet future obligations? Does the Company have a capital
repair/replacement plan?
Operation & Maintenance
Part of a water utilitiy's major on-going operation and maintenance costs involve labor,
power, chemicals, residuals management, and repair/replacement of assets.
Accordingly, reduced water production results in a proportionate decline in:
Labor: reduced production results in less man-hours required for maintenance of
filters, pumps, appurtenances etc.
Power: less pumping is required to obtain, treat, move, and store the reduced quantity.
Chemicals: proportionately less treatment/disinfection chemicals are required for
reduced water production, regardless of the type of treatment employed e.g. standard
filtration, membrane.
Residuals Management: lower water production results in an associated reduced
production of residuals to be collected, dewatered, and disposed of.
Repair/replacement: reduced use results in a reduction in parts replacement in rotating
equipment, water treatment membranes, water filtration media, etc.
Mothball redundant facilities: water treatment plants are designed with multiple
redundant treatment trains, used to maintain production while off-line units are on schedule
maintenance; this facilitates isolating and mothballing separate unit processes thus
conserving valuable assets until needed again.
Vehicle fleet: reduced maintenance demands results in less use of the Company's
vehicles, resulting in less fuel and maintenance costs.
Has United Water quantified any of these - or other - cost savings items to offset the
reduced revenue from reduced demand for their product?
Austeri ty Program
One j usti fication currently touted for extraordinary water utility rate hikes is that water
utility companies are simply not like other industries in that they are very capital-
intensive enterprises, requiring more capital expenditure per dollar of revenue than any
other utility business, with fixed costs representing a significant percentage of total
utility costs, and, as such are not subject to austerity programs. This is erroneous and
misleading. Experience suggests the Company should present an austerity program detailing
the applicability of at least the following cost - saving items:
Mothballing redundant facilities: redundant treatment trains, pumps, and storage
facilities should be taken off-line; this will result in reduced maintenance and delay
capital replacement costs.
Training: delay expenditure targeted for development of new training programs; delay/
stagger existing training to optimize training dollars; nonessential training can be
postponed; target training for specific applicable personnel only.
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Customer information systems: non-essential systems should be cancelled and expenditure
recovered for essential services.
Overtime: all absolutely non-essential overtime should be cancelled.
Travel: nonessential travel should be cancelled; investigate alternative means of
effective communication e. g. video and teleconferencing etc.
Customer Service: delay or cancel programs and production of public relations materials
etc.
Capital projects : identify and postpone non-essential capital projects.
Maintenance: maintenance schedules can be adj usted to fit new conditions by staggering
the timing of some work and delaying less critical items (e.g. cleaning & painting water
tanks) .
What are the potential savings United Water has identified from their austerity program?
Thank you for the opportunity to comment once again on United Water Company's request to the
Commission for a 2Ø% hike in water rates for Boise customers. Hopefully this information
assists the Commission's deliberations considering the merits of the proposed request.
The form submitted on http://www . puc. idaho. gov /forms/ ipuc1/ ipuc . html
IP address is 24.119.76.187
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