20151106Carlock Direct.pdf

BEFORE THE RECTIVEO
201$ilOV-6 Pl{ l: l7
IDAHO PUBLIC UTILITIES COMMISSIOUFIJilLi;- UTILITIE$-CCi,4MISSION
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
GASE NO. UW|-W-15-01
DIRECT TESTIMONY OF TERRI CARLOCK
!N SUPPORT OF THE STIPULATION
AND SETTLEMENT
IDAHO PUBLIC UTILITIES COMMISSION
NOVEMBER 6, 2015
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O. Please state your name and address for the
record.
A. My name is Terri Carlock. My business address
j-s 472 West Washington Street, Boise, fdaho.
O. By whom are you employed and in what capacity?
A. I am the Deputy Administrator of the Utilities
Division at the Idaho Public Utilities Commission. I am
responsible for supervising the Accounting/Audit Section
and coordinating Staff's policy positions with Staff
Administrator Randy Lobb.
O. Please outline your educatj-ona1 background and
experience.
A. I graduat.ed from Boise State Universj-ty in
l-980, with B.B.A. Degrees j-n Accounting and Finance. I
have attended various regulatory, accounting, rate of
reEurn, economJ-cs, finance, and ratings programs. I
Chair the Task Force on International Financial Reporting
Standards with the National Association of Regulatory
Utility Commissioners (NARUC) Staff Subcommittee on
Accounting and Finance. I previously chaired the NARUC
Staff Subcommj-ttee Accounting and Finance for 3 years,
chaired the Subcommittee on Economics and Finance for
more than 3 years, and chaired the Ad Hoc Commj-ttee on
Diversification. I have been a presenter for the
Institute of Public Utilities at Michigan State
CASE NO. UI^II-W-15-01
t1-/ 06 / Ls
CARLOCK, T (Di)
STAFF
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University and for many other conferences. Since joining
the Commission Staff in May l-980, T have participated in
audits, performed financial analysl-s on various
companies, and have presented testimony before this
Commissi-on on numerous occasi-ons.
O. What is the purpose of your testimony in this
proceeding?
A. The purpose of my testimony is to descrj-be the
process leading to and the terms of the filed Settlement
Stlpulation (proposed Settlement) signed by all three
parties in this case and to explain the rationale for
Staff's support.
O. Please summarize your testimony.
A. Staff conducted a review of United Water
Idaho's (United Water; Company) rate case filing, a
comprehensive audit of Company books and test year
results of operations, and identified rate case issues.
Based on this extensive review SLaff believes that the
proposed Sett,lement, agreed to by Staff, the Community
Actj-on Partnership Association of Idaho (CAPAf) and the
Company (co1lectiveIy t,he Parties) is in the public
interest and should be approved by the Commission. The
Company filed on May 21, 2Ol5 seeking an annual revenue
increase of $5,881,308 for an overall increase of L3.2Z.
The proposed Settlement specifies a two-step increase in
cAsE NO. UWr-W-15-01
1,1/ 06 / ts CARLOCK, T (D1)
STAFF
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annual revenue requj-rement of $2.73 million or 5Z to
become effective on December 22, 20L5 and an additional
increase effective December 22, 201-6 of $e20,000 or
l-.39?. The Settlement Stipulation also includes a stay-
out provisj-on prohibiting rate filings that result in
rate changes effective before December 22, 20l-7. The
primary consideration of the Commission Staff in
negotiating the Settlement was to obtain the best
possible result for United Water Idaho customers
associated with this case.
O. How did Staff evaluate the benefit to customers
of the Settlement compared to continuing with a litigated
case?
A. Staff revi-ewed each of the identified revenue
requirement adjustments to assess the strength of each
argument and the likelihood it would be accepted by the
Commission. Most of the Staff adjustments would clearly
be opposed by the Company in a litigated case. Staff
believes several of the adjustments had a high
probability of being accepted by the Commj-ssion based on
past. Commission orders. However the adjusLmenLs removing
projected costs and including only actual costs would
have been updated if the case was litigated since
additional months of actual costs would be known at the
time of hearing. If actual costs mirrored or were
CASE NO. UWI-W-]-5-01
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CARLOCK, T (Di)
STAFF
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greater than budgeted costs, the revenue requj-rement
would increase above the initial proposal by Staff in the
settl-ement discussions on September 15, 20L5.
Based on the strong assessment guidelj-nes utilized
by Staff, flo agreement was initially made until
addit.ional telephone and email communicatlons solidified
the provisions for a two-year increase and a stay-out
period. Staff believes that the comprehensive multi-year
approach to resolving the revenue requirement in this
case represents a significantly better deal for customers
than could be achieved through either a one-year
settlement or litigation of the current rate case. The
comprehensive Settlement provides a compromise to arrj-ve
at a mutually acceptable revenue requirement. It doesn't
set a precedent on an issue that might be addressed in
the future. In addit,ion to the benefit from a
significant reduction in the revenue requirement, 57* of
the Company request, implementing a stay-out provisi-on
provides rate stabil-ity for customers.
O. Please describe the process Staff used to
review the Company's filing.
A. The Staff rate case team assigned to this case
included audj-tors, analysts, engineers and compliance
investigators. Each team member conducted an independent
review of the filing, asked and evaluated numerous
CASE NO. UWI-W-].5-01Lt/ 06 / ts CARLOCK, T (Di) 4
STAFF
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production requests and identified potential issues. The
revenue requirement determination also included an
account by account trend analysis over multiple years,
audit of the Company books and records, analysis of
allocations, review of operations and testing of internal
controls. The audit and internal analyses verified
investment and expenditures, evaluated proforma
adjustments for reasonableness and assessed corporate and
local- decisions for prudency.
O. Please explain the adjustments identified by
Staff that reduced t,he revenue requirement in preparatj-on
for the Settlement discusslons.
A. The Settlement Stipulation is a comprehensive
agreement of all revenue requirement issues in the case
but actual adjustments and dolIar amounts were not
specifically agreed upon between the Staff and the
Company. Therefore I will identify the areas Staff
identified as potential adjustments. The areas adjusted
by Staff to determine reasonableness of the Settlement
include:
1) Return on Equj-ty (ROE) and Capital Structure.
The Company requested a l-0.4? ROE with an equity ratio of
55.3?. Staff considered both of these to be too high so
evaluated options. An ROE of 9.22 with the proposed
capital structure or an ROE of 9.5+ with a 50? equity
cAsE NO. UWr-W-15-01
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CARLOCK, T (Di) 5
STAFF
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ratio produce similar results and this lower overall rate
of return was used for Staff's revenue requirement
analysls.
2) Rate Base and associat.ed expenses. The Company
used project.ions through November 30, 20L5. Staff
analyzed actual raLe base expendit.ures in place of the
projections. This would decrease rate base, depreciation
and related operating costs such as taxes, power costs
and chemicals. St,af f also evaluated land that it
identified as not being used and useful, headquarter
relocat j-on costs , automated meter (AMI ) expenditures ,
information technology upgrades and other affiliate costs
not yet. fu11y supported. The t.iming of project
completion and ability to determine known and measurable
costs were consj-dered for adjustments.
3) Allocations. Staff evaluated the
reasonableness of increases and the total amount of
corporate allocations to Idaho. Allocated costs included
administrative, engj-neering, 1ega1, operatj-ons,
accounting, finance, human resources, purchasing,
J-nsurance, data processing, customer service, bi11ing,
public relations, planning, and ratemaking servj-ces.
Since these allocat.ions are affil-iate transactions they
must be verifiable, least cost and fully documented.
St.aff believes an adjustment reducing the allocated
CASE NO. UWI-W-15-01Lt/ 06 / ts
CARLOCK, T (Di)
STAFF
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affiliate costs is justifiable.
4) Employee compensation, incentives, and pension
costs. Staff proposed adjustments to reduce the total
al1owab1e Ievel of employee compensation. Executive
incentives were removed from the revenue requirement by
Staff and placed below the l-ine as a shareholder
responsJ-bi1ity.
Pension costs are established for United Water fdaho
by including a basel-ine in rates with variat,ions from the
baseline deferred and amortized in future rate cases. A
new pension baseline of $1,521,508 is established in t.he
Settlement. The current deferred balance will be
amortized over three years.
5) Other Expenses and deferral amortizations.
Staff analyzed ot,her expense categories and proposed
adjustments to the amount or amortization period for
transportatj-on expenses, personal use of company
vehicl-es, postage, conservatlon interpretive trail
expenditures, rate case expense, purchased water, power
cost and amortization of deferred power costs.
6) Weather normalization and declining customer
usage adjustment. Weather normalization is a standard
ratemaking adjustment to adjust consumption to a leve1
expected in an average weather year. Staff applied
standard multiple regression techniques to data for all
CASE NO. UWI-W-15-01
1,1-/06/L5
CARLOCK, T (Di)
STAFF
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years provided by the Company (2000 through 201-4). This
differs from the Company met.hodology.
The declining cust,omer usage adjustment is proposed
by the Company to al1ow it to collect fixed and variable
costs considering changes in customer consumption
behavj-or. Staff believes the Companyrs water usage
projections are speculative and neither known nor
measurable.
The Staff and the Company disagreed on the
appropriate adjustments. Without agreeing to the
methodology used to produce the numbers, the Settlement
utilizes the normalized consumption values proposed by
Staff to establish rates. Staff and the Company also
agreed to meet and confer on t.he consumption issues.
O. Please identify the deferrals and amortization
periods.
A. The deferral and amortization periods going
forward as a result of the settlement are as follows:
a. Deferred Power. 3-year amortization offfice begi-nning December 2015.b.Rate Case Expense. 3-year amortization offfieginning December 201-5.c. Tank Paintings . 2o-year amortizaLion of
new Gowen Tank painting cost of $208,040beginning December 2015.d. Pension. 3-year amortj-zation of deferred
SIta-nce beginning December 201-5. The
embedded pension expense is proposed to
be $1,521,508 in order to establish a newdeferral threshold amounL.e. The AFUDC equit.y gross up amount will be
amortized over a 35-year period.
CASE NO. UWI-W-15-O]-
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f . ReI@. S-year amortization
@ng oe-ember 2ol-5.g. Conservation Expense. 3-yearamort,ization of $35, 000 beginning
December 2015.
O. Pl-ease identify the rate spread and rate
designed ut.ilized in the Settlement.
A. In the Settlement the Parties agreed to a
uniform percentage increase to all rate elements.
Exhibit A to the Settlement Stipulation reflects the
t.arif f rates for each schedule.
O. Please discuss the miscellaneous changes to the
Company's Rules and Regulations.
A. The parties met and ultimately agreed to
modifications as shown in Amendment 1 to Exhibit 2A
attached to the Settlement Stipulation. These
modificatj-ons address tariff changes regarding fire
protection servj-ce connections, cross connection control
and backflow prevention, and reconnection charges.
O. Please discuss the low income issues in the
Set.t.lement.
A. The Company agreed to modify the United Wat.er
Cares program. The cap on per customer contributj-on will
be increased to $75 effective ,January 7, 20L6 from $65,
an increase of approximately 15?. Thereafter, the per-
customer cap amount would be increased by t.he same
percentage (rounded up to the nearest dolIar) as the
cAsE NO. UWr-W-1s-01-
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STAFF
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percentage increase in revenue awarded by the Commission
to United Water in subsequent general rate proceedings.
The percentage j-ncrease mechanism does not apply to the
agreed upon increase on December 22, 20!6. This program
historically has been funded by United hlater shareholders
and abandoned developer deposits.
O. Does this conclude your direct testimony in
this proceeding?
A. Yes, lt does.
CASE NO. UWI-W-15-01tt/06/ts CARLOCK, T (Di) l-0
STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 6TH DAY OF NOVEMBER 2015,
SERVED THE FOREGOING DIRECT TESTIMONY OF TERRI CARLOCK IN
suppoRT oF THE STIPULATION SETLEMENT, [N CASE NO. UWI-W-15-01, BY
MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
DEAN J MILLER
McDEVITT & MILLER LLP
420 W BANNOCK
BOISE ID 83702
E-MAIL: ioe@.mcdevitt-miller.com
BRAD M PURDY
ATTORNEY AT LAW
2019 N 17TH STREET
BOISE rD 837092
E-MAIL: [e-mail]
E-MAIL ONLY: [e-mail]
gre e. wyatt@unitedwater. com
i erry. healy@unitedwater. com
gluy.prettyman@unitedwater. com
[e-mail]
de bra.visco nti (@ u nitedwater.com
[e-mail]
KEVIN H DOHERTY
UNITED WATER MANAGEMENT
AND SERVICES CO
2OO OLD HOOK ROAD
HARRINGTON PARK NJ 07640
E-MAIL: [e-mail]
heather@mcdevitt-mi I ler. com
CERTIFICATE OF SERVICE