20220930Cagle Direct with Exhibits.pdf

Preston N. Carter (ISB No. 8462)
Morgan D. Goodin (ISB No. 11184)
Givens Pursley LLP 601 W. Bannock St. Boise, ID 83702 Telephone: [phone]
Facsimile: [phone]
[e-mail] [e-mail]
Attorneys for Veolia Water Idaho, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
OF VEOLIA WATER IDAHO, INC. FOR AUTHORITY TO INCREASE ITS RATES AND CHARGES FOR WATER SERVICE IN THE STATE OF IDAHO

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DIRECT TESTIMONY OF JAMES CAGLE FOR VEOLIA WATER IDAHO, INC SEPTEMBER 2022

CAGLE, Di 2 Veolia Water Idaho, Inc.
Q. Please state your name and business address. 1
A. I am James C. Cagle. My business address is 461 From Road, Paramus, NJ 07652. 2
Q. By whom and in what capacity are you employed? 3
A. I am the Vice President, Rates and Regulatory Affairs for Veolia Water M&S 4
(Paramus), Inc. (“VWM&S” and formerly SUEZ Water Management & Services Inc.). 5
Q. What are your job responsibilities? 6
A. I am primarily responsible for the management and direction of rate case filings for the 7
regulated affiliates of VWM&S. I am also responsible for oversight of certain rate 8
related compliance and reporting requirements as prescribed by the various regulatory 9
commissions having jurisdiction over the Veolia utilities. 10
Q. Please outline your educational and professional qualifications. 11
A. I received a Bachelor of Accountancy degree from the University of Oklahoma in 1987 12
and am a Certified Public Accountant licensed in the State of Texas. I was initially 13
employed by United Water Management & Services Inc., the predecessor of SUEZ 14
Water Management & Services Inc. as Director, Regulatory Business in October of 15
2007 and have held my current position since March 2010. Previous to that, I was 16
employed by Atmos Energy Corporation, a natural gas utility operating in twelve states, 17
as Manager, Rates and Revenue Requirements. 18
Q. Have you previously testified before the Idaho Public Utilities Commission? 19
A. Yes. I provided in the Company’s last rate case filing (Case No. SUZ-W-20-02). I have 20
also provided testimony in rate case and other filings before several other state 21
commissions on various regulatory issues. 22

CAGLE, Di 3 Veolia Water Idaho, Inc.
Q. What is the purpose of your testimony in this proceeding? 1
A. The purpose of my testimony is to support the request of Veolia Water Idaho, Inc. 2
(“VWID” or “Company”) for an increase in its base rates for water service. 3
Specifically, I am supporting the Company’s request to establish a Distribution System 4
Improvement Charge (“DSIC”) related to the replacement and/or rehabilitation of 5
distribution system transmission and distribution (“T&D”) mains, services, hydrants, 6
valves, meters, and other infrastructure. 7
Q. Are you sponsoring any exhibits which support the Company’s request? 8
A. Yes. I am sponsoring: 1) Exhibit 13-1 which summarizes DSIC programs for water 9
infrastructure around the country; 2) Exhibit 13-2 which includes two National 10
Association of Regulatory Utility Commissioners (“NARUC”) resolutions; and 3) 11
Exhibit 13-3 which is a sample DSIC calculation. 12
Q. In addition to the proposed DSIC, are there other changes to the Company’s tariff 13
included in this filing? 14
A. Yes. Tariff changes include the Company’s proposed change to the Brian Water 15
Surcharge currently under review by the Commission in Case No. VEO-W-22-03 and 16
reflect the Company’s name change to VWID (Case No. VEO-22-01). Additionally, 17
certain other changes are proposed to certain pages as described in the testimony of 18
Company witness Thompson. 19

CAGLE, Di 2 Veolia Water Idaho, Inc.
Q. What is a DSIC? 1
A. A DSIC is a surcharge mechanism which allows for rate increases between general rate 2
case proceedings which specifically relate to non-revenue producing investments to 3
replace aging utility infrastructure. 4
Q. Please explain why the Company is requesting a DSIC. 5
A. It is widely known that water infrastructure in the United States is aging and in need of 6
repair. The United States Environmental Protection Agency estimates that the 20-year 7
national water infrastructure need is approximately $472.6 billion, and of that, $312.6 8
billion is needed for distribution and transmission projects. Traditionally, companies 9
would invest in these types of improvements as their budgets would allow, absent 10
emergencies, and would be required to wait for cost recovery till their next base rate 11
case. 12
Some VWID mains date from the early 1900’s. The Company’s records 13
indicate approximately 4.2 miles of main over 100 years old, 6.7 miles between 90 and 14
100 years old, and another 9.7 miles between 80 and 100 years old. Based upon 15
standard replacement, i.e. rate cases and available funds, it could take 150 to 200 years 16
or more to replace the whole system. The replacement cycle of aging mains of the 17
system should be closer to 100 years which is more consistent with the expected life of 18
mains. 19
Q. Can you give an example of SWID’s replacement timetable? 20
A. Yes. At the end of 2021, VWID had 1,454 miles of mains. Over the past few years, 21
the Company has averaged approximately a 0.4% replacement rate. Based solely on 22
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CAGLE, Di 3 Veolia Water Idaho, Inc.
these two years of activity it would take approximately 250 years to replace the entire 1
system. In 2020 and 2021 the average replacement cost was $140 per foot or $739,000 2
per mile for various vintages of mains. The Company anticipates a cost going forward 3
of around $200 per foot ($1,056,000 per mile) which reflects the impacts of inflation 4
as well the availability of contractors. Establishing a DSIC would allow the Company 5
to pursue a more aggressive infrastructure replacement program. 6
Q. When was a DSIC first implemented? 7
A. The first DSIC program was implemented in Pennsylvania in 1997. Since that time, 8
18 other states have implemented DSICs for water companies. Exhibit 13-1 9
summarizes the 18 states that have implemented a DSIC or some type of mechanism 10
that functions like a DSIC. While different states may call the program something other 11
than DSIC, when examining the details, the general philosophy and most of the 12
components are the same. 13
Q. Has NARUC formed an opinion on this type of program? 14
A. Yes. NARUC has by Resolution twice endorsed the mechanism: first in its 1999 15
“Resolution Endorsing and Co-Sponsoring the Distribution System Improvement 16
Charge”, and again in 2005 in its “Resolution Supporting Consideration of Regulatory 17
Policies Deemed as Best Practices”. These resolutions are provided in Exhibit 13-2. 18
Q. Why have NARUC and so many regulatory agencies endorsed this regulatory 19
mechanism? 20
A. The benefits of this type of mechanism are well recognized. At page 8 of the 1996 21
Order of the Pennsylvania Public Utility Commission (Docket No. P-00961036), the 22

CAGLE, Di 4 Veolia Water Idaho, Inc.
Commission noted the significant capital requirements facing the water industry and 1
stated: "We agree with the Company that the establishment of a DSIC would enable 2
the Company to address, in an orderly and comprehensive manner, the problems 3
presented by its aging water distribution system, and would have a direct and positive 4
impact on water quality, water pressure and service reliability. For these reasons, we 5
endorse the concept of using an automatic adjustment clause to address this regulatory 6
problem for the water industry in Pennsylvania..." Similarly at page 41 of the 2006 7
Order of the New York Public Service Commission (Case No. 06-W-0131), the 8
Commission noted that such capital surcharge mechanisms "...provide for reasonably 9
prompt recovery of capital costs and depreciation expense associated with actual 10
reasonable incremental investment, help avoid abrupt bill changes of the kind that upset 11
some customers in these cases, provide for an expedited process for the review of actual 12
investments prior to the initiation or update of any surcharge, ... and are subject to 13
reconciliation so there will ultimately be no over-or under-collection." 14
Overall, the major benefits of these types of capital surcharges can be 15
summarized as follows: 16
• enhanced service quality, 17
• accelerated pace of system improvements, 18
• high level of customer acceptance, 19
• smoothing of revenue increases to customers, 20
• reduction of water lost in the distribution system through leaks, 21
• long term viability of the water system, and 22

CAGLE, Di 5 Veolia Water Idaho, Inc.
• support of economic development through increased investment and 1
employment activity. 2
Q. How do customers benefit from such a mechanism? 3
A. The customer benefits in several ways. First, the Company has a greater incentive to 4
invest more in its infrastructure which results in faster replacement of aging 5
infrastructure, decreasing the potential for main breaks and outages as well as 6
maintaining or increasing fire flows and pressure which all benefit the customer in the 7
form of quality of service. Additionally, accelerating such investments would 8
ultimately have a positive impact on lost water which, in turn, will ultimately reduce 9
costs of labor, repairs and the cost of water. The use of such a mechanism benefits the 10
Customer by the implementation of smaller increases over time rather than a single 11
larger increase at one time reducing “rate shock.” When all is considered, the states that 12
have enacted DSIC type mechanisms seem to find infrastructure surcharge programs 13
working well to maintain water quality and reliability for the customer, contribute to 14
the difficult infrastructure financing solution and to efficiently assure the review and 15
control of rates within those states. 16
Q. Are there customer protections? 17
A. Yes. Commissions have the ability to review the projects to ensure they are appropriate 18
and there is, in most instances, a cap on the amount of increase that can happen between 19
rate cases. DSICs in other states also require that an earnings analysis be performed to 20
determine if a company is over earning; if a company is “over earning,” then the 21
surcharge would stop until such time as the company is in an “under earning” position. 22

CAGLE, Di 6 Veolia Water Idaho, Inc.
Some states also perform an annual audit of the program to review the actual projects 1
implemented by the Company. 2
Q. How do you propose to structure this DSIC mechanism? 3
A. As the DSIC mechanism established in Pennsylvania has been in place and proved both 4
fair and effective for well over 20 years, I am proposing to use it as a general guide 5
which provides a simple, easily administered and audited mechanism. In summary, the 6
types of eligible plant are established and a specific formula for calculating the DSIC 7
amount is utilized. This is achieved by referencing the eligible plant to the plant 8
accounts used for accounting purposes as reflected by the eligibility criteria. Provisions 9
for audit and review are outlined and an earnings test calculation method is established. 10
Since the proposed DSIC mechanism only includes investments made by the 11
Company and placed into service after its last base rate case, it is mathematically 12
impossible for the DSIC, in and of itself, to be the cause of any temporary or permanent 13
over earnings. However, it is appropriate to include a periodic earnings test calculation 14
to show that the Company will not be overearning on a regulatory basis before any 15
DISC amounts are included for the period in which the surcharge will be in effect. 16
Additionally, because retirements are included in the calculation, no depreciation 17
expense can inadvertently be included on retired assets. 18
Q. What types of infrastructure investments would be included? 19
A. The Company is proposing the following activities be included in the DSIC: 20
• Replace or renew water mains, valves (including short mains and valves), services, 21
meters, and hydrants serving existing customers that have reached their useful 22

CAGLE, Di 7 Veolia Water Idaho, Inc.
service life, are worn out, are in deteriorated condition, or which negatively impact 1
the quality and reliability of service to the customer if not replaced or renewed. 2
• Extend mains to eliminate dead ends which negatively impact the quality and 3
reliability of service to the customer. 4
• Relocate or replace existing facilities as a result of governmental actions that are 5
not reimbursed, including but not limited to relocations of mains located in highway 6
rights of way as required by the Ada County Highway District or other agencies. 7
• The replacement of infrastructure that is needed to maintain or improve water 8
quality and system pressures and new or additional water treatment facilities, plant 9
or equipment required to meet changes in state or federal water quality standards, 10
rules or regulations. 11
• The replacement or improvement of infrastructure required to maintain adequate 12
fire flows. 13
Q. Please describe the proposed DSIC formula. 14
A. The proposed DSIC formula is as follows: 15
DSIC Recovery Amount = ((NRB x Pre-Tax ROR) + D) x RCF) +E 16
The abbreviations included in the formula are defined as follows: 17
NRB or “Net Rate Base as applicable to the DSIC projects” is the cost of the 18
eligible plant in service, net of associated retirements, associated accumulated deferred 19
income taxes and accumulated depreciation specifically applicable to the costs of 20
eligible plant included. In the event the replacement is the result of a relocation, the 21

CAGLE, Di 8 Veolia Water Idaho, Inc.
associated contribution in aid of construction (CIAC) impacts are also includible such 1
that any net unreimbursed amounts are accounted for. 2
Pre-tax ROR is the overall rate of return as authorized by the Commission for 3
application in the DSIC mechanism and includes the impact of income taxes. 4
D is the annualized depreciation on the plant additions included in NRB as 5
calculated by asset class utilizing the depreciation rates last approved by the 6
Commission. 7
RCF is the gross-up factor which includes an allowance to account for the Idaho 8
Public Utility Commission (IPUC) Assessment Rate (0.0019950 in this filing) and 9
Uncollectible Accounts Expense (0.0058986 in this filing). Based upon the above 10
factors, the calculation results in the following: 1/(1-0.0019950-0.0058986) = 11
1.0079560. 12
E is residual amount calculated (+/-) under the semi-annual reconciliation or 13
required by Commission audit. 14
The plant in service and other components of the surcharge will be included in 15
the Company’s next base rate case filing and, at the implementation of rates from that 16
case, the DSIC surcharge would be zeroed out and the surcharge mechanism restarted. 17
Q. Are there any DSIC recovery projects or amounts reflected in the current rate 18
proceeding? 19
A. No. This would be a new program starting at the conclusion of this proceeding. None 20
of the projects included in the rate base as proposed by the Company through March 21
31, 2023, would be included in any future DSIC filing. However, there should not be 22

CAGLE, Di 9 Veolia Water Idaho, Inc.
any “Gap Period” as a result of base rate case. The Gap Period represents the time 1
period between when qualified additions are reflected in base rates and the Company’s 2
subsequent DSIC filing. For example, if increased rates become effective in April and 3
that increase only includes qualified DSIC additions through the prior January, the next 4
DSIC surcharge after the rate increase would include qualified additions from January 5
through September (i.e., six months after the April effective date). 6
Q. How would the Company recover the DSIC Recovery Amount? 7
A. A surcharge would be applied to all metered customer’s bills where the DSIC recovery 8
amount is divided by the Company’s number of bills reflected as equivalent 5/8 inch 9
meters and surcharge amounts developed and charged based upon the customers meter 10
size utilizing the meter capacity ratios approved in the most recent base rate case filing. 11
The surcharge will be applied on a bills rendered basis. 12
On the next semi-annual submittal, a reconciliation on the over (under) recovery 13
of DSIC surcharge would be included. An earnings test, as previously discussed, will 14
be provided with the first DSIC filing and annually thereafter. 15
Q. Do you recommend a cap on the DISC surcharge? 16
A. Yes. As proposed, the DSIC Rate applied between base rate filings would be limited to 17
7.5% of the total revenue requirement established in the last base rate case, with a 18
provision to reset to zero as of the effective date of new base rates that provide for the 19
prospective recovery of the annual costs previously recovered under the DSIC 20
surcharge. Additionally, the mechanism establishes a provision for the DSIC to not be 21
increased or reset to zero if, in any semi-annual filing, the earnings test previously 22

CAGLE, Di 10 Veolia Water Idaho, Inc.
discussed indicates the Company will earn a rate of return that exceeds the rate of return 1
established in the last general rate filing. 2
The DSIC percentage would be updated on a semi-annual basis after the initial 3
implementation. Eligible plant additions placed in service during the six month period 4
would be utilized in the calculation and, allowing for a period for calculation and 5
review and approval period of 45 days. Any request for a change in the DSIC rate would 6
be filed, together with full supporting data. 7
Q. Have you prepared an example of the DSIC calculation? 8
A. Yes. Please see page 5 of the Exhibit 13-3. The amounts included therein are for 9
illustration purposes only and do not reflect any actual amounts. 10
Q. Does this conclude your testimony at this time? 11
A. Yes. 12

Preston N. Carter (ISB No. 8462)
Morgan D. Goodin (ISB No. 11184)
Givens Pursley LLP
601 W. Bannock St.
Boise, ID 83702
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]

Attorneys for Veolia Water Idaho, Inc.

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF
VEOLIA WATER IDAHO, INC. FOR
AUTHORITY TO INCREASE ITS RATES AND
CHARGES FOR WATER SERVICE IN THE
STATE OF IDAHO

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Case No. VEO-W-22-02

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

EXHIBIT 13 TO ACCOMPANY THE

DIRECT TESTIMONY OF JIM CAGLE

Veolia Water Idaho, Inc.
Distribution System Improvement Charge
Summary of Adopting State's Mechanisms [1]
State Adopted Items Included [2]
Surcharge
Maximum
Filing
Frequency Reference
Arizona 2013 Transmission and Distribution Mains, Fire mains, Services, including Service
Connections, Valves and Valve Structures, Meters and Meter Installations, Hydrants
5%Annual Docket No. W-01445A-11-0310
Connecticut 2007 Mains, Valves, Services, Meters and Hydrants, Main cleaning and relining, Relocation of
facilities as a result of government actions, Purchase of leak detection equipment,
Installation of production meters, Pressure reducing valves, Energy efficient equipment for
operations, Capital improvements necessary to comply with river & stream flow
regulations, Reasonable and necessary system improvements required for a water system
acquisition approved by the authorities.
10%Semi-annual Section 16-262v and w of CGS
Delaware 2001 Mains; Valves; Services; Meter & hydrants serving existing customers; Extending mains
to eliminate dead ends which negatively impact the quality and reliability of service to
customers; Relocate existing facilities as a result of governmental actions that are not
reimbursed; Place in service water supply sources identified as "A list projects" in the
Governor's Task Force Report (Dec 2, 1999), or added to the list by DE Water Supply
Coordinating Council (by Dec. 31, 2002); Place in service new or additional water
treatment facilities, plant or equipment required to meet changes in state or federal water
quality standards, rules or regulations
7.50%Semi-annual
(Maximum in
1 year 5%)
Delaware Code Title 26, Section 314
Illinois 2001 Amended
2016
Collecting & impounding reservoirs; Lake, river and other intakes; Wells and Springs;
Infiltration Galleries and Tunnels; Supply Mains; Power Generation equipment; Pumping
Equipment; Water treatment equipment; Distribution Reservoirs & standpipes;
Transmission & distribution mains; Services; Meters and Meter installations; Hydrants;
Backflow prevention devices;Water main lining & related rehabilitation projects to
eliminate water loss from water main breaks, as well as main extensions for water utilities
that are constructed to eliminate dead ends and the unreimbursed costs recorded in the
appropriate accounts that are associated with relocations of mains, services, hydrants and
sewers occasioned by street or highway construction.
Average
annual
increase of
2.5%
Annual
(Maximum in
1 year 3.5%
Section 9-220.2 IL Statutes/ Title 83, Ch
I, e, part 656, Sect. 656.10)
Indiana
2000 Amended
2014, 2015, and 2016
Distribution mains; Valves; Hydrants; Service lines; Meters; Meter installation; Other
appurtenances necessary to transport treated water from the point it exits the treatment
facility to the point at which it is delivered to the customer (170 IAC 6-1.1-1 Sec. 1.(a))
10%Annual Indiana Code 8-1-31 and Indiana
Administrative Code 170 IAC 6-1.1-1
Maine 2013 Stationary physical plant assets needed to operate a water system. This definition includes,
but is not limited to, water mains, storage tanks, and pumping facilities.
Small Utility
[3]
7.50%Semi-annual 65-407 Chapter 675
Medium
Systems
15%
VEO-W-22-02
Exhibit 13-1
J. Cagle
Page 1 of 4
Veolia Water Idaho, Inc.
Distribution System Improvement Charge
Summary of Adopting State's Mechanisms [1]
State Adopted Items Included [2]
Surcharge
Maximum
Filing
Frequency Reference
Large System 10%
Missouri 2003 Eligible infrastructure system replacements, water utility plant projects that: (a) Replace or
extend the useful life of existing infrastructure; (b) Are in service and used and useful; (c)
Do not increase revenues by directly connecting the infrastructure replacement to new
customers; and (d) Were not included in the water corporation's rate base in its most recent
general rate case 18 Water utility plant projects" may consist only of the following: (a)
Mains, and associated valves and hydrants, installed as replacements for existing facilities
that have worn out or are in deteriorated condition; (b) Main cleaning and relining
projects; and (c) Facilities relocations required due to construction or improvement of a
highway, road, street, public way, or other public work by or on behalf of the United
States, this state, a political subdivision of this state, or another entity having the power of
eminent domain provided that the costs related to such projects have not been reimbursed
to the water corporation
10%Semi-annual Mo. Rev. Stat. 393.1000
Nevada 2014 Distribution Systems: Distribution mains Valves Hydrants Service lines Meters Meter
installations Any other appurtenances which are necessary to transport treated water
Production System: Wells Water treatment facilities Chemical feed systems Associated
piping, Any other appurtenances which are necessary for production Transmission System:
Transmission mains Storage facilities Booster stations Valves Any other appurtenances
which are necessary for transmission.
n/a n/a NRS 704.661, NAC 704.6336, 704.6339-
63435
New Hampshire 2009
Amended 2013
Service over and above an annual $50,000 threshold (account 333) and hydrants (account
335) installed as in-kind (i.e., same size) replacements for customers; Mains and valves
(account 331) installed as replacements for existing facilities that have either reached the
end of their useful life. are worn out or are in deteriorated condition; Main cleaning and re-
lining projects and relocations that are non-reimbursable (account 331); Replacement of
production meters (account 304); Replacement of pressure reducing valves (accounts 309,
331)
7.50%Annual
(Maximum in
1 year 5%)
New Jersey 2011 Water main replacement and rehabilitation Water main cleaning and lining Valve and
hydrant replacement Service line replacement (from main to curb or meter pit); and/or Un-
reimbursed utility relocation costs associated with relocations required by government
entities
5%Semi-annual 44 NJR 1-723(a)/ N.J.A.C. 14:9-10.1
(2017)
New York 2001/2013 Large capital projects with long construction periods with in-service dates in rate years two
and beyond.Mains, services, valves, meters are reflected in future rate years of base rate
case
As approved Annual
VEO-W-22-02
Exhibit 13-1
J. Cagle
Page 2 of 4
Veolia Water Idaho, Inc.
Distribution System Improvement Charge
Summary of Adopting State's Mechanisms [1]
State Adopted Items Included [2]
Surcharge
Maximum
Filing
Frequency Reference
North Carolina 2013 Distribution system mains, Valves; Utility service lines (including meter boxes and
appurtenances); Meters and hydrants installed as in-kind replacements; Main extensions
installed to eliminate dead ends and to implement solutions to regional water supply in
order to comply with primary, and upon specific Commission approval, secondary
drinking water standards; Equipment and infrastructure installed to comply with primary
drinking water standards; Equipment and infrastructure installed at the direction of the
Commission to comply with secondary drinking water standards; Unreimbursed costs of
relocating facilities due to highway projects
5%Semi-annual NC GS 62-133.12 Commission Rules
and Regulations R7-39 and R10-26
Ohio 2003 Chemical feed systems, filters, pumps, motors, plant generators, main extensions that
resolved documented problems, mMain cleaning or relining, meters, service lines,
hydrants, mains, valves, unreimbursed capital expenditures made by companies for facility
relocation required by a governmental entity due to a street or highway project, minimum
land or land rights acquired by the company as necessary for any service line, equipment,
or facility described in the above sections.
4.25%Annual Ohio Rev. Code § 4909.172
Pennsylvania 1997
Amended 2012
Services, Meters and Hydrants installed as in-kind replacements for customers, Mains and
valves installed as replacements, Main extensions installed to eliminate dead ends and to
implement solutions to regional water supply problems that present a significant health and
safety concerns for customers, Main cleaning and relining projects, Unreimbursed costs
related to highway relocation projects where a water utility must relocate its facilities, and
Other related capitalized costs
7.50%Quarterly Sect. 1307(g) PUC
Rhode Island 2018
Mains, main cleaning and lining, services, hydrants, valves, short mains and valves,
meters, dead-end looping, and re-location due to government requirements.7.50%
Semi-annual
(Maximum in
1 year 2.5%)
DOCKET NO. 4800
Tennessee 2014 Renewing and replacing pipes, meeting EPA requirements, supporting local economic
projects including, but not limited to: a. Infrastructure and equipment associated with
alternative motor vehicle transportation fuel; b. Infrastructure and equipment associated
with combined heat and power installations in industrial or commercial sites; and c.
Infrastructure that will provide opportunities for economic development benefits in the
area to be directly served by the infrastructure.
None Annual Tenn Ann 65-5-103, TCA Section 65-5-
103
Virginia 2017 T&D mains, valves, services, meter boxes, hydrants, dead-end elimination, solutions to
regional water supply in order to comply with primary and secondary water standards
7.50%Annual Order No. 16-0550-P-DSIC
VEO-W-22-02
Exhibit 13-1
J. Cagle
Page 3 of 4
Veolia Water Idaho, Inc.
Distribution System Improvement Charge
Summary of Adopting State's Mechanisms [1]
State Adopted Items Included [2]
Surcharge
Maximum
Filing
Frequency Reference
West Virginia 2017 The Parties now agree and recommend that at this time, the Commission should not
establish distinct categories of utility investment eligible for DSIC rate recovery (or by
omission, not eligible for it). In future DSIC cases, the Parties may take whatever positions
they choose on whether a proposed investment should be eligible for DSIC rate recovery or
whether one or more distinct categories of utility investment eligible for DSIC rate
recovery should be established" (Case No. 16-0550-W-DSIC, Attachment A, pg. 6).
7.50%Annual
(Maximum in
1 year 3.75%)
Order No. 16-0550-W-DSIC
[2] Limited to include applicable water infrastructure.
[3]Definition of Small utility is annual revenue of less than $250,00, Medium system between $250,000 and $750,000, Large System at least $750,000.
[1] Source:Water Distribution System Improvement Charges: A Review of Practices by Kathryn Kline, Report No. 18-01, National Regulatory Research Institute https://pubs.naruc.org/pub/FA86A4CE-0F06-7899-27F8-
D923A23EEAE4
VEO-W-22-02
Exhibit 13-1
J. Cagle
Page 4 of 4
Resolution Endorsing and Co-Sponsoring "The Distribution System Improvement Charge"
WHEREAS, The Pennsylvania Public Utility Commission and the Pennsylvania Legislature
have adopted a promising and unique regulatory approach that encourages the acceleration of the
needed remediation of aging water utility infrastructures; and
WHEREAS, The Distribution System Improvement Charge is an automatic adjustment charge
that enables recovery of infrastructure improvement costs on a quarterly basis in between rate
cases for projects that are non-revenue producing and non-expense reducing such as main
cleaning and relining, fire hydrant replacement and main extensions to eliminate dead ends; and
WHEREAS, A videotape which explains this unique approach is being prepared by the National
Association of Water Companies to help educate and inform other regulatory agencies and
legislatures about the benefits of this unique approach; and
WHEREAS, The U.S. EPA within its Drinking Water Infrastructure Needs Survey has
identified a magnitude of national infrastructure needs of $77.2 billion in pending expenditures;
and
WHEREAS, As the magnitude of need may be too great to be accomplished under traditional
ratemaking methodologies; and
WHEREAS, The Distribution System Improvement Charge provides benefits to ratepayers such
as improved water quality, increased pressure, fewer main breaks, fewer service interruptions,
lower levels of unaccounted for water, and more time between rate cases which leads to greater
rate stability; and
WHEREAS, Ratepayer protections are incorporated in the Pennsylvania approach: the
surcharge is limited to a maximum of 5% of the water bill, annual reconciliation audits are
conducted where overcollections will be refunded with interest and undercollections will be
billed into future rates without interest recovery, the surcharge is reset to zero at the time of the
next rate case, the charge is reset to zero if the company is over-earning, customer notice is
provided, and all charges reflect used and useful plant; now, therefore, be it
RESOLVED, That the Board of Directors of the National Association of Regulatory Utility
Commissioners (NARUC), convened at its 1999 Winter Meetings in Washington, D.C, agrees to
endorse the mechanism as an example of an innovative regulatory tool that other Public Utility
Commissions may consider to solve infrastructure remediation challenges in their States; now be
it further
RESOLVED, That NARUC agrees to co-sponsor with the National Association of Water
Companies the videotape of the Distribution System Improvement Charge as an educational
tool to inform other regulatory agencies and legislatures about this promising new
mechanism.
________________________________________
Sponsored by the Committee on Water
Adopted February 24, 1999
VEO-W-22-02
Exhibit 13-2
J. Cagle
Page 1 of 3
Resolution Supporting Consideration of Regulatory Policies Deemed as “Best Practices”
WHEREAS, A number of innovative regulatory policies and mechanisms have been implemented
by public utility commissions throughout the United States which have contributed to the ability of
the water industry to effectively meet water quality and infrastructure challenges; and
WHEREAS, The capacity of such policies and mechanism to facilitate resolution of these
challenges in appropriate circumstances supports identification of such policies and mechanisms as
“best practices”; and
WHEREAS, During a recent educational dialogue, the “2005 NAWC Water Policy Forum,” held
among representatives from the water industry, State economic regulators, and State and federal
drinking water program administrators, participants discussed (consensus was not sought nor
determined) and identified over 30 innovative policies and mechanisms that have been summarized
in a report of the Forum to be available on the website of the Committee on Water at
www.naruc.org; and
WHEREAS, As public utility commissions continue to grapple with finding solutions to meet the
myriad water and wastewater industry challenges, the Committee on Water hereby acknowledges
the Forum’s Summary Report as a starting point in a commission’s review of available and proven
regulatory mechanisms whenever additional regulatory policies and mechanisms are being
considered; and
WHEREAS, To meet the challenges of the water and wastewater industry which may face a
combined capital investment requirement nearing one trillion dollars over a 20-year period, the
following policies and mechanisms were identified to help ensure sustainable practices in
promoting needed capital investment and cost-effective rates: a) the use of prospectively relevant
test years; b) the distribution system improvement charge; c) construction work in progress; d) pass-
through adjustments; e) staff-assisted rate cases; f) consolidation to achieve economies of scale; g)
acquisition adjustment policies to promote consolidation and elimination of non-viable systems; h)
a streamlined rate case process; i) mediation and settlement procedures; j) defined timeframes for
rate cases; k) integrated water resource management; l) a fair return on capital investment; and m)
improved communications with ratepayers and stakeholders; and
WHEREAS, Due to the massive capital investment required to meet current and future water
quality and infrastructure requirements, adequately adjusting allowed equity returns to recognize
industry risk in order to provide a fair return on invested capital was recognized as crucial; and
WHEREAS, In light of the possibility that rate increases necessary to remediate aging
infrastructure to comply with increasing water quality standards could aversely affect the
affordability of water service to some customers, the following were identified as best practices to
address these concerns: a) rate case phase-ins; b) innovative payment arrangements; c) allowing the
consolidation of rates (“Single Tariff Pricing”) of a multi-divisional water utility to spread capital
costs over a larger base of customers; and d) targeted customer assistance programs; and
WHEREAS, Small water company viability issues continue to be a challenge for regulators,
drinking water program administrators and the water industry; best practices identified by Forum
participants include: a) stakeholder collaboration; b) a memoranda of understanding among relevant
VEO-W-22-02
Exhibit 13-2
J. Cagle
Page 2 of 3
State agencies and health departments; c) condemnation and receivership authority; and d) capacity
development planning; and
WHEREAS, The U.S. Environmental Protection Agency’s “Four-Pillar Approach” was discussed
as yet another best practice essential for water and wastewater systems to sustain a robust and
sustainable infrastructure to comprehensively ensure safe drinking water and clean wastewater,
including: a) better management at the local or facility level; b) full-cost pricing; c) water efficiency
or water conservation; and d) adopting the watershed approach, all of which economic regulators
can help promote; and
WHEREAS, State drinking water program administrators emphasized the following mechanisms
which Forum participants identified as best practices: a) active and effective security programs; b)
interagency coordination to assist with new water quality regulation development and
implementation, such as a memorandum of understanding; c) expanded technical assistance for
small water systems; d) data system modernization to improve data reliability; e) effective
administration and oversight of the Drinking Water State Revolving Fund to maximize
infrastructure remediation, along with permitting investor owned water companies access in all
States; f) the move from source water assessment to actual protection; and g) providing State
drinking water programs with adequate resources to carry out their mandates; now therefore be it
RESOLVED, That the National Association of Regulatory Utility Commissioners (NARUC),
convened in its July 2005 Summer Meetings in Austin, Texas, conceptually supports review and
consideration of the innovative regulatory policies and practices identified herein as “best
practices;” and be it further
RESOLVED, That NARUC recommends that economic regulators consider and adopt as many as
appropriate of the regulatory mechanisms identified herein as best practices; and be it further
RESOLVED, That the Committee on Water stands ready to assist economic regulators with
implementation of any of the best practices set forth within this Resolution.
_______________________________________________
Sponsored by the Committee on Water
Adopted by the NARUC Board of Directors July 27, 2005
VEO-W-22-02
Exhibit 13-2
J. Cagle
Page 3 of 3
1/1/xx to
6/30/xx
Eligible Investment (page 2)$3,890,000
Less: Accumulated Depreciation (page 2)68,325
Less: Deferred Tax (page 2)(9,104)
Eligible Net Investment 3,949,221
Pre-Tax Rate of Return (page 3)9.85%
Pre-Tax Return on Investment 388,998
Add: Depreciation Expense (page 2)83,350
Revenue Recovery 472,348
Revenue Factor (page 3)1.007956
DSIC Recovery Amount 476,106
E (Residual amount +/- semi-annual reconciliation)0
Total DSIC Recovery Amount $476,106
Note: This schedule is for explanatory purposes.
Veolia Water Idaho, Inc.
Proposed Sample DSIC Calculation
January 1, xxxx to June 30, xxxx
To be Effective October 1, xxxx
VEO-W-22-02
Exhibit 13-3
J. Cagle
Page 1 of 5
1/1/xx to Plant to be Depreciation Depreciation
6/30/xx Retirements Depreciated Rates Expense
Mains $3,100,000 $75,000 $3,025,000 1.82%$55,055
Services 600,000 30,000 570,000 2.19%12,483
Meters 300,000 5,000 295,000 5.36%15,812
Eligible Investment $4,000,000 $110,000 $3,890,000 $83,350
Accumulated Depreciation
Half Year Convention ($41,675)
Retirements [1]110,000
Total Accumulated Depreciation $68,325
Note: This schedule is for explanatory purposes.
[1] In the retirement of utility plant, Plant in service is credited and acumulated depreciation is debited in the same amounts.
Veolia Water Idaho, Inc.
Proposed Sample DSIC Calculation
January 1, xxxx to June 30, xxxx
VEO-W-22-02
Exhibit 13-3
J. Cagle
Page 2 of 5
Accumulated Deferred Income Taxes
Eligible Investment $4,000,000
MACRS Rate for First Year Water Plant 4.00%
Tax Depreciation First Year 40,000
Book Depreciation 83,350
Tax Depreciation Greater Than Book (43,350)
Deferred Taxes at 25.74% (composite rate)($9,104)
Note: This schedule is for explanatory purposes.
Veolia Water Idaho, Inc.
Proposed Sample DSIC Calculation
January 1, xxxx to June 30, xxxx
Accumulated Deferred Income Taxes
VEO-W-22-02
Exhibit 13-3
J. Cagle
Page 3 of 5
Approved Capital Structure and Cost Rates
Capital Structure Cost Weighted Cost Pre-Tax
Ratio Rate of Capital Rate of Return
Long Term Debt 44.43%3.99%1.77%1.77%
Common Equity 55.57%10.80%6.00%8.08%
Total 100.00%7.77%9.85%
1) capital structure and ROE per current authorized return Docket No. ___________
Revenue Factor
Dollar of Revenue 1.0000000
Uncollectibles Expense 0.0058986
IPUC Assessment 0.0019950

Income Before Federal Taxes 0.9921064
Revenue Factor 1.0079560
Rates per Final Order in Docket No. _____________
Note: This schedule is for explanatory purposes.
For purposes of this example, the as-filed capital structure and cost rates were utilized.
Veolia Water Idaho, Inc.
Proposed Sample DSIC Calculation
January 1, xxxx to June 30, xxxx
Pre-tax Rate of Return and Revenue Factor
VEO-W-22-02
Exhibit 13-3
J. Cagle
Page 4 of 5
AWWA Monthly 5/8th Monthly Bi-monthly
Meter Size Meter Ratios Equivalent Bills Weighting DSIC Charge [1]DSIC Charge
5/8"1 311,672 311,672 $0.22 $0.44
3/4"1.5 712,298 1,068,446 0.33 0.66
1"2.5 141,950 354,876 0.54 1.08
1-1/2"5 29,453 147,264 1.08 2.16
2"8 31,109 248,871 1.74 3.48
3"15 3,132 46,987 3.25 6.50
4"25 538 13,440 5.42 10.84
6"50 73 3,649 10.84 21.68
Total
Billed VWID Eagle Eagle New Monthly
Meter Size Bi-monthly Monthly Monthly Equivalents
5/8 146,526 18,164 456 311,672
3/4 344,696 22,346 559 712,298
1 70,396 1,142 18 141,950
1 1/2 13,744 1,924 41 29,453
2 14,739 1,596 34 31,109
3 1,559 15 3,132
4 241 56 538
6 34 5 73
[1] Total DSIC Revenue Requirement Recovery Amount / Total monthly 5/8th equivalent Bills X AWWA Meter Ratio
Veolia Water Idaho, Inc.
Proposed Sample DSIC Calculation
January 1, xxxx to June 30, xxxx
Calculation of DSIC Surcharge
VEO-W-22-02
Exhibit 13-3
J. Cagle
Page 5 of 5