20230308Cagle Rebuttal Testimony.PDF

Preston N. Carter, ISB No. 8462
Blake W. Ringer, ISB No. 11223
Givens Pursley LLP
601 W. Bannock St.
Boise, Idaho 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

REBUTTAL TESTIMONY OF JAMES CAGLE FOR
VEOLIA WATER IDAHO, INC.
MARCH 8, 2023

RECEIVED
2023 March, 8 4:42PM
IDAHO PUBLIC
UTILITIES COMMISSION
CAGLE, Di-Reb
Page 1 of 20
Veolia Water Idaho, Inc.
Q. Please state your name, occupation and business address. 1
A. I am James C. Cagle, Vice President, Rates and Regulatory Affairs for Veolia Water MS 2
(Paramus), Inc. (“VWM&S”). My business address is 461 From Road, Paramus, NJ 3
07652. 4
Q. Are you the same James Cagle that filed direct testimony in this proceeding? 5
A. Yes. 6
Q. What is the purpose of your rebuttal testimony? 7
A. The purpose of my rebuttal testimony is to discuss: 8
Staff’s proposed ratebase calculation as it relates to average vs. end of period 9
Staff’s and micron’s comments regarding the Company’s proposed DSIC mechanism. 10
Removal of deferred debits appropriately included in rate base. 11
Staff’s proposal regarding working capital 12
Staff’s proposed adjustments to VWM&S costs 13
Q. Please describe Staff’s proposed rate base treatment. 14
A. As described in Mr. English’s testimony on page 8, lines 19, Staff calculated rate base 15
using the Average of Monthly Averages. 16
Q. What is the difference between Staff’s proposed rate base and the test year end rate 17
base as of December 31, 2022? 18
A. Per Staff’s work paper included as Exhibit 102 attached to Mr. English’s testimony, 19
Staff’s proposed rate base is $261,118,238. Per that same work paper, the rate base as of 20
December 31, 2022 would be $275,069,384. So Staff’s proposed rate base, using the 21
Average of Monthly Averages approach, is $13,951,146 less than rate base ending 22
December 31, 2022. 23
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
The rate base proposed by the Company, projected to March 31, 2023 and 1
updated through the rebuttal testimony of Mr. Njuguna, is $280,685,480. Staff’s use of 2
the Average of Monthly Averages approach results in a proposed rate base that is 3
substantially lower than the Company’s proposal. If Staff were to use rate base as of 4
December 31, 2022, it would still be lower than the Company’s proposal, but the 5
difference is much less. . 6
Q. When are rates anticipated to become effective in this case? 7
A. Currently the Company would anticipate the Commission would render a decision in 8
mid-April for rates effective around May 1, 2023. 9
Q. If the Commission were to adopt Staff’s average rate base methodology, would the 10
costs associated with that rate base match the period of recovery? 11
A. No. Utilizing the amounts provided in Staff’s rate base referenced above, no recovery 12
would be allowed approximately $14 Million of rate base in service as of December 31, 13
2022, creating significant regulatory lag. 14
Stated another way, if the Commission adopts Staff’s rate-base methodology, the 15
Company will be unable to recover approximately $1.4 Million in revenue requirement 16
during this rate case. This creates a lag in recovery that, in turn, can result in under-17
recovery and more frequent rate cases. 18
Q. How quickly is the company’s ratebase increasing? 19
A. The Company’s last rate case was settled and no rate base amount was stated in the 20
Order. However, comparing the projected rate base as of March 31, 2021 as filed in the 21
Company’s last rate case filing of approximately $229.6 Million to the projected rate base 22
as of March 31, 2023 of approximately $280.7 Million, rate base has increased 23
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
approximately $51M or approximately 11% per year. If adjusting for the Eagle water 1
acquisition adjustment and reduction in the TCJA regulatory liability, rate base is 2
increasing approximately 8.5% per year. 3
Q. What is the current inflation rate? 4
A. The inflation rate, measured by the percent change in the consumer price index, over the 5
past two years has averaged 6.35%. (4.7% in 2021, and 8.0 in 2022). The latest 6
information for 2023 indicates a 6.4% rate of inflation. While this is not as great as the 7
double-digit inflation seen in the late 1970s and early 1980s, the inflation rate is 8
substantially higher than in most years since then. 9
Q. Does utilizing an average rate base allow the company an adequate opportunity to 10
earn a reasonable rate of return? 11
A. Considering the increases in rate base, and inflation, no. If the Company’s recovery is 12
based on backward-looking averages of ratebase in prior months, in an environment of 13
high inflation and large increases in rate base, the Company’s recovery will always be 14
substantially lower than current ratebase would allow. When the four-month lag between 15
investment and recovery is added to this, the Company’s rate of return can be 16
substantially below what it is entitled to.” 17
Q. Staff references previous commission Orders that discuss revenue increases and cost 18
savings resulting from capital expenditures. Please discuss. 19
A. As related to revenues, the Company’s revenue normalization includes annualized 20
customer growth both to the end of December (in its response to Production Request No. 21
163) as well as additional customer growth through March 2023 in order to match 22
revenues to the test year end. As related to cost savings, there might be some small 23
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
savings in maintenance costs. However, these small savings would pale in comparison to 1
the inflation and additional capital expenditures that will occur during the period between 2
the midpoint of Staff’s average test year and the date on which rates will go in effect. 3
Stated another way, the period of time between the midpoint of Staff’s proposed 4
average test year and the date on which new rates will go into effect is approximately 10 5
months. In this environment of inflation and large investments, the Company’s rate base 6
will increase substantially during that 10 months, and any small savings can be expected 7
to be immaterial. Staff’s approach would decrease or deny the opportunity to recover on 8
the value of investments made during this period. 9
Q. What is your recommendation? 10
A. It is difficult to adopt recommendations that address such issues when the result is the 11
matching of rates to recover the costs in which rates will go into effect increase rates to 12
customers. However, our recommendation is that the Commission reconsider the old 13
Orders relied on by Staff and consider the regulatory lag created, the mismatch in 14
revenues to rate base, ratebase growth, inflation, from a holistic standpoint and utilize a 15
test year end rate base in this case. 16
Working Capital 17
Q. Is Staff’s elimination of the Company’s proposed Working capital allowance 18
appropriate? 19
A. No. As Staff states, utilizing a 1/8th method is one of the generally accepted methods of 20
calculating working capital. 21
Q. Is the Company’s proposed working capital allowance calculated as Staff stated? 22
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
A. Not exactly. While generally correct, the Company’s calculation utilized O&M expense 1
and removed amortization expense amounts which could be considered non-cash. The 2
Company then applied the 1/8th method to the remaining amount to arrive at the Cash 3
Working Capital Allowance. The balance of materials and supplies and prepayments 4
were then added to arrive at the total Cash Working Capital Allowance. 5
Q. What is your recommendation? 6
A. As an acceptable methodology, I believe the proposed Working Capital Allowance is 7
appropriate ($3,997,317 at December 31, 2022 or $4,282,288 as projected at March 31, 8
2023) as adjusted for the O&M expense per this rebuttal. However, if the Commission 9
agrees with Staff regarding Cash Working Capital, the balance of Materials and Supplies 10
and Prepayments $1,583,204 at December 31, 2023 or $1,555,760 as projected at March 11
31, 2023) should be included in rate base. Were the Company to have performed a 12
lead/lag study to calculate working capital, these items would have been included as 13
separate line items in rate base. 14
Distribution System Improvement Charge (“DSIC”) 15
Q. Does Staff support implementation of a DSIC? 16
A. No. While supporting the company’s work to replace or upgrade aging infrastructure, 17
staff’s position is that recovery through traditional ratemaking is appropriate as described 18
in Mr. Culbertson’s testimony (page 18 beginning on line 7). Staff also points out that 19
other Idaho utilities have been denied such mechanisms. 20
Q. Have States that have DSIC or similar infrastructure mechanisms also allowed 21
similar mechanisms for electric and gas utilities? 22
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
A. No. While other interim cost recovery mechanisms for electric and gas utilities may exist, 1
many states have allowed DSIC or DSIC like mechanisms only for water companies 2
recognizing the need for such mechanisms to provide for the replacement of aging 3
infrastructure. Per the National Association of Water Companies, of the 24 States 4
allowing DSIC, only two (Pennsylvania and West Virginia) allow DSIC for other utility 5
sectors. 6
Q. Would Staff have an opportunity to review the projects included in the DSIC? 7
A. Yes, this is a component of the DSIC mechanism as described in my previous testimony. 8
Q. Would the implementation of a DSIC mechanism address a portion of the 9
regulatory lag issues when utilizing an average historic test year? 10
A. Yes, in part. Because recovery of DSIC infrastructure would begin between full rate case 11
filings, it would partially assist in reducing regulatory lag. However, it would not address 12
the regulatory lag created at the time of implementation of rates in a rate case. 13
Q. How are DSIC mechanism viewed by rating agencies? 14
A. DSIC mechanisms are viewed favorably by rating agencies. S&P Global in its research 15
update dated September 5, 2019, (Included as Exhibit No. 18) describes this view. 16
“Our assessment of SWR's1 and SWNJ's2 business risk profiles are based on both entities' 17
lower-risk and rate-regulated water and wastewater utility businesses. SWR serves about 18
2.1 million customers across New Jersey, New York, Delaware, Rhode Island, 19
Pennsylvania, and Idaho, whereas SWNJ serves about 1.2 million customers in New 20
Jersey and New York. We view both companies' management of regulatory risk as above 21

1 Now Veolia Utility Resources LLC.
2 Now Veolia Water New Jersey, Inc.
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
average, partially reflecting the extensive use of constructive regulatory mechanisms, 1
including distribution system improvement charge (DSIC) riders, a revenue decoupling 2
mechanism, and multiyear rate plans in certain jurisdictions. Under our base-case 3
scenario, we expect that the companies will continue to effectively manage regulatory 4
risk, in part due to the frequency of rate case filings, and will continue to use riders that 5
we collectively view as favorable for both companies' credit quality.” 6
Q. Does Staff discuss the benefits Idaho customers receive from the S&P Global 7
rating? 8
A. Staff witness Terry discusses the benefits customers receive by being a subsidiary of 9
VNA being lower debt rates as well as benefit from gaining economies of scale with 10
purchasing inventory. Idaho ratepayers are certainly benefiting from constructive 11
mechanisms in the other five Veolia utility states that have revenue decoupling, partially 12
and fully forecasted test years, as well as DSIC mechanisms. 13
Q. Did Micron’s witness York make any suggestions regarding the DSIC Mechanism? 14
A. Yes. Ms. York suggested including a reduction for the depreciation expense associated 15
with the value of the retired assets. The DSIC mechanism approved for Veolia Water 16
Delaware, Inc. includes such a provision which could easily be included in a DSIC 17
mechanism for Veolia Water Idaho. Ms. York expresses a concern that appears to result 18
from something regarding synchronization, though the entirety of the concern is not clear 19
to me. If the concern is regarding a base spending3 amount similar to the DSIC provisions 20
for Veolia Water New Jersey, Inc., such a provision could be added. Including a base 21

3 “Base spending” means the level of investment equal to the water utility’s depreciation expense for utility plant
accounts: 343 (Transmission & Distribution Mains), 345 (Services), and 348 (Hydrants), as reported in the water
utility’s most recent annual report.”
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
spending amount would mean that the DSIC surcharge calculation would include a 1
reduction in the overall level of capital expenditures to be recovered through the 2
mechanism be reduced for depreciation expense related to the historic level of 3
depreciation expense in the related NARUC plant accounts addressing both issues. 4
Shared Assets 5
Q. Please address Staff’s adjustments to the costs related to shared assets. 6
A. As stated in the testimony of Ms. Jacobs, the M&S Company makes capital expenditures, 7
generally related to investments in information technology hardware and software, as 8
well as other assets to benefit VWID and its affiliates. In the absence of the M&S 9
company investments in these assets, VWID would have needed to make these 10
investments on a standalone basis in order to support its operations and the delivery of 11
reliable service to its customers. 12
The calculation of the costs attributed to Idaho, based upon the Modified 13
Massachusetts Allocation Methodology (“MAM”), was included in the Company’s filing. 14
Staff had a few concerns regarding the allocation: 15
 The allocations being at cost, 16
 Adding a return for Shared Assets including a return for the parent company 17
 Concerns around depreciation expense 18
 The wage adjustment factor 19
 The insurance premium adjustment. 20
Q. What costs related to shared assets are allocated from VWM&S? 21
A. As described in the Company’s cost allocation manual, only the book cost, i.e. the 22
departmental costs and depreciation expense of the shared assets, is recorded. No return 23
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
is included in the booked costs. For ratemaking purposes, the Company is requesting that 1
a return be allowed on the overall investment made to serve its utilities customers 2
including Idaho. This component compensates the Company as a whole for the 3
investment in shared assets but is retained by VWID on its books and records and does 4
not enrich its affiliate VWM&S. 5
Previous to the adoption of the cost allocation manual in 2015, capital 6
expenditures generally related to investments in Information Technology hardware and 7
software, as well as other assets related to the corporate office, would have been allocated 8
on a one-time basis to each operating company and reflected as assets on the operating 9
company’s balance sheet. As such, the allocated cost of the assets increased the operating 10
company’s rate base and was recovered in rates through depreciation expense and return. 11
However, it was determined that the recording of partial assets on the books of subsidiary 12
companies was incorrect as the ownership responsibility for those assets lies with 13
VWM&S. Additionally, if the allocation of such assets needed to be changed due to 14
changes in the level of services (for example additional utility customers needing to share 15
in those costs through an acquisition), the reallocation of such “baby assets” would be 16
required at least annually. In order to come to the appropriate result, the current 17
methodology was adopted. 18
With the current methodology, capital expenditures, generally related to 19
information technology such as the PeopleSoft accounting software upgrade and 20
Powerplan asset accounting software etc., are now recorded on the VWM&S balance 21
sheet and the depreciation expense on these assets is allocated to the operating companies 22
based upon the three-factor formula as a part of VWM&S charges. The carrying costs 23
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
associated with assets are calculated and recovered from the utility customers who 1
receive the benefit of the assets as a part of rate case filings. The carrying costs are 2
calculated utilizing the capital structure, debt and equity rates included in the rate case 3
filing. 4
The intention is that the revenue requirement be the same for these assets under 5
either the updated method or the previous method. 6
Q. What are shared assets important to VWID and its customers? 7
A. Utilizing shared assets for general ledger accounting, customer billing, budgeting, and 8
other common application provides VWID with systems for which it is only paying an 9
allocated portion. As stated in the adopted testimony of Ms. Jacobs, “the M&S company 10
makes capital expenditures, generally related to investments in information technology 11
hardware and software, as well as other assets to benefit VWID and its affiliates. In the 12
absence of the M&S company investments in these assets, VWID would have needed to 13
make these investments on a standalone basis in order to support its operations and the 14
delivery of reliable service to its customers.” Allowing carrying costs at the allowed rate 15
of return provides a reasonable incentive for VWID to avoid paying for standalone 16
systems to meet its and its customer’s needs. 17
Q. Is there are recent Commission decision from which analogies can be drawn? 18
A. Yes. In the Matter of Idaho Power Company’s Application for an Accounting Order for 19
Costs Associated with Cloud Computing Arrangements (IPC-E-20-11), Idaho Power 20
stated that the current accounting treatment provides a financial disincentive for it to 21
invest in certain cloud computing arrangements. Idaho Power proposed to capitalize all 22
costs associated with cost-effective cloud computing because the cloud computing 23
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
investments are “equivalent to that of a traditional on-premise [information technology] 1
solution.” 2
While not exactly the same, I believe the proposal and subsequent Order, 3
addressed such disincentives. 4
Q. Please comment on Staff’s concern about the proposed return. 5
A. The intention is that the return be consistent with that ultimately allowed by the 6
Commission in this proceeding. If the Commission allows a return different than that 7
proposed by the Company, an adjustment should be made to the return amount consistent 8
with that decision. 9
Q. How are the depreciation or amortization rates determined for shared assets? 10
A. As mentioned above, shared assets are generally comprised of Information Technology 11
hardware and software, as well as other assets related to the corporate office. 12
Approximately 20% of the overall asset value is the implementation costs of cloud 13
computing arrangements, which are amortized over the lives of the arrangements. 14
Otherwise, IT assets are depreciated over their expected lives or, if leased, over the term 15
of the lease as is appropriate for GAAP purposes. The benefits provided by shared 16
assets, as described above, apply to all entities which utilize those shared assets. As a 17
result, the Company does its best to match the depreciable rates of the assets with the 18
actual expected lives of the assets. As the these depreciation costs are governed by 19
GAAP, they are depreciated on an individual basis rather than a group basis like most 20
utility assets. Additionally, the amount allocated to Idaho is a relatively small portion 21
(approximately 8.5%) of the total VWM&S depreciation expense. 22
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
Q. What is your recommendation? 1
A. I recommend that the commission reject Staff’s adjustment reducing depreciation 2
expense, and include the carrying cost component adjusted to reflect the decision of the 3
commission in this case. 4
VWM&S Department Costs 5
Q. Please address Staff’s adjustments to VWM&S departments. 6
A. Staff has suggested that certain legal and HR department costs be removed from the 7
revenue requirement as well as the cost related to the Chief Operating Officer. 8
Q. What are the responsibilities of the VWM&S Legal department? 9
A. Per the Company’s cost allocation manual, the responsibilities of the VWM&S Legal 10
department are as follows: 11
Handle all matters related to general litigation involving the corporation; 12
 Perform legal services for securities and corporate financial transactions, 13
financial reporting and disclosures, business organizations, mergers, acquisitions 14
and business development, corporate governance, internal controls and risk 15
management, insurance, executive compensation; 16
 Manage legal services for commercial and contract law matters for the 17
corporation, including real estate matters and land use permits; 18
 Serve as board secretary and support corporate governance functions, board of 19
directors meetings, legal opinion letters, assists audit and compliance functions, 20
performs and attests internal controls, and ensures compliance with corporate 21
registration and regulation; 22
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Veolia Water Idaho, Inc.
 Retain and manage external counsel to provide legal representation in 1
specialized areas of law and to manage variable legal work; 2
 Legal work supporting the negotiation of water purchase agreements and other 3
procurement contracts as well as legal work related to franchise renewals, water 4
rights; 5
 Provide legal advice and representation with regard to intellectual property 6
matters; 7
 Perform legal services for matters involving environmental law for the 8
corporation including environmental permitting activities, due diligence, defense 9
in enforcement actions, compliance advice, representation in environmental 10
cleanup and environmental litigation costs; 11
 Provide legal advice, representation and counseling in matters arising under 12
federal and state water regulatory laws, regulations and policies as they relate to 13
the Company’s utility related assets for water and waste water; 14
 Provide risk management services including management of the insurance and 15
surety bond programs; and, 16
 Manage and administers corporate legal and regulatory compliance programs, 17
other than Ethics Compliance. 18
Q. Is it reasonable to assume such services can be provided by outside counsel? 19
A. No. Such services are not reasonably assignable to outside counsel. Neither would it be 20
reasonable to assume such services could be acquired for the amount allocated from 21
VWM&S for such services of approximately $160k. Outside counsel is retained to handle 22
specialized issues related to Idaho law, and are not a substitute for in-house legal counsel. 23
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
Q. How many employees are in the VWM&S legal department providing services to 1
VWID? 2
A. There are 10 VWM&S employees in the legal department that provide services that 3
benefit Idaho. Three provide services to the utilities while 7 provide services to the 4
utilities as well as other Veolia business units. 5
Q. How are the costs of the legal department allocated? 6
A. As described in the Cost Allocation Manual, the costs of VWM&S employees are 7
allocated based upon a Modified Massachusetts Allocation Methodology. Employees 8
providing services to utilities are allocated only to the utilities. Employees also providing 9
services to other SWM&S business units are based upon a the same methodology 10
however the allocation factors utilized includes allocations to the other Veolia business 11
units which are receiving services from a given department. Consequently, approximately 12
9.5% of the costs of the “utility only” employees are allocated to Idaho while 13
approximately 7.7% of the employee costs that provide services to all business units to 14
which VWM&S provides services, including the utilities, are allocated to Idaho. The 15
costs of employees which do not provide services to the regulated utilities, including 16
Idaho, are not allocated to the regulated utilities, including Idaho. 17
Q. Why is this reasonable? 18
A. Sharing the costs of the legal department provides a significant breadth of expertise for 19
the legal services needed for Idaho is appropriate. Costs for corporate governance, 20
intellectual property, internal controls, privacy, environmental law, litigation, to name a 21
few of the functions are best provided from a corporate perspective rather than an 22
CAGLE, Di-Reb
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Veolia Water Idaho, Inc.
individual operating division perspective and only a portion of such costs are allocated to 1
Idaho. 2
Q. Is there a specific example of this you can provide? 3
A. Yes. As previously mentioned, Staff witness Terry discusses the benefits customers 4
receive by being a subsidiary of VNA being lower debt rates as well as benefit from 5
gaining economies of scale with purchasing inventory. Debt funding is raised at VWID’s 6
immediate parent (VUR) and a portion of the costs of achieving such borrowings is one 7
part of the Legal department costs, through its responsibilities surrounding corporate 8
financial transactions, benefiting Idaho directly as well as other utility business units. 9
Similarly, achieving the benefits from gaining economies of scale is also a part of legal 10
costs through contract negotiation and review, which benefits not only Idaho but the other 11
businesses as well. In both instances, only a portion of the overall cost is allocated to 12
Idaho. 13
Q. What are the responsibilities of the VWM&S Human Resources (“HR”) 14
department? 15
A. Per the Company’s cost allocation manual, the responsibilities of the VWM&S HR 16
department are as follows: 17
 The recruitment, screening, and selection of internal and external candidates; 18
 Establishing relocation programs and management of employee relocations, including 19
all administration and execution costs of the relocation program; 20
 Design and administer compensation processes including job evaluations, annual salary 21
planning, incentive programs, executive compensation, deferred compensation, long 22
term incentive programs; 23
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Veolia Water Idaho, Inc.
 Design, management and implementation of health, prescription, life insurance, pension 1
and retirement, reimbursement accounts, employee assistance programs, and other 2
benefits for all employees; 3
 Manage strategy, negotiations, and contract interpretation. This includes arbitration 4
resolution, mutual gains bargaining, local management support on grievances, 5
discipline, adherence to the contract and training; 6
 Identification, development, and delivery of training programs to enhance the skills and 7
capabilities of the workforce; 8
 Provide support on Human Resources technology and processes, technology strategy 9
and solutions, portfolio management, corporate and ad hoc reporting, data analysis, data 10
integrity and oversight, and system testing; and, process and release management; 11
 Succession planning, performance management, career development, mentoring, 12
executive coaching, career planning & development, and employee/organizational 13
assessments; 14
 Management and administration of all short and long term disability programs and 15
FMLA, whether done internally or by a third party; disability insurance premiums, if 16
any, and the cost of claims for self- insured programs and insured programs with a 17
deductible; medical services required by the Company for disability cases, such as 18
second opinions, consultations, etc.; disability case management and return to work 19
programs; investigations of short term disability claims; legal services, whether internal 20
or external, related to disability cases; 21
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Veolia Water Idaho, Inc.
 Provide safety training requirements and communication tools, needs assessments and 1
training program development, and compliance reporting, including investigation 2
leadership and support; and, 3
 Labor Relations including contract negotiations and grievance management. 4
Q. How many employees in the VWM&S HR department provide services to VWID? 5
A. There are 12 VWM&S employees in the legal department that provide services 6
benefitting VWID. Two provide services to the utilities while 10 provide services to the 7
utilities as well as other VWM&S business units. 8
Q. How are the costs of the HR department allocated? 9
A. The process is the same as described above for Legal department costs. Where, 10
approximately 9.5% of the costs of the “utility only” employs are allocated to Idaho 11
while approximately 7.7% of the employees costs that provide services to all business 12
units to which VWM&S provides services, including the utilities are allocated to Idaho. 13
Again, the costs of employees which do not provide services to the regulated utilities 14
including Idaho are not allocated to the regulated utilities including Idaho. 15
Q. Why is this reasonable? 16
A. Like legal department, the shared costs of the HR department provides a significant 17
breadth of expertise for the H.R. services needed for Idaho. As an example, one of HR’s 18
responsibilities is the design, management and implementation of health, prescription, 19
life insurance, pension and retirement, reimbursement accounts, employee assistance 20
programs, and other benefits for all employees. HR administers these plans for all 21
eligible employees and the costs of such administration is allocated to each company 22
(whether regulated or unregulated) to which the plans apply. 23
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Veolia Water Idaho, Inc.
Q. What has Staff recommended regarding costs associated with the VWM&S Legal 1
department and HR department costs? 2
A. Staff has recommended a reduction in Legal and HR costs allocated from VWM&S of 3
$33,890 and $35,356 respectively with the belief that there are costs being allocated to 4
Idaho that are not related to Idaho. 5
Q. What is your recommendation? 6
A. As described above, the allocation is designed so that the costs of employees which do 7
not provide services to the regulated utilities, including Idaho, are not allocated to the 8
regulated utilities including Idaho. The cost of employees that provide no service to the 9
regulated utilities are not allocated to the regulated utilities. 10
Therefore, I recommend that the Commission deny Staff’s adjustments to VWM&S costs 11
for Legal department and HR department costs. 12
Q. Staff states that the main responsibility of corporate executives is to increase profits 13
for shareholders. Is that the case? 14
A. No. The main responsibilities of an executive at a utilities company is to ensure that the 15
utilities operates efficiently and effectively, meets its strategic objectives, and provides 16
high-quality services to its customers while complying with applicable regulations. This 17
includes managing and overseeing operations, employees, resources and assets, ensuring 18
the utility operates efficiently and effectively. Executives are also responsible for 19
ensuring compliance with regulations and managing the company’s financial resources, 20
including budgeting, forecasting and financial reporting. A part of managing the 21
company’s financial resources are to request changes in prices through the rate case 22
process in order to ensure the financial viability of the utilities. 23
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Veolia Water Idaho, Inc.
Q. What is the function of the Office of the Chief Operating Officer (“COO”)? 1
A. The COO is responsible overseeing all business activities of the Veolia utilities including 2
management of the general managers, approval of capital commitments and capital 3
projects, setting and defining priorities etc., as well as supporting the operations before 4
the Board of Directors. The COO role manages the leadership team including all 5
operational matters such as water quality, EH&S, technical services, capital planning and 6
delivery, people and leadership management etc. Counter to Staff’s claim, the COO 7
clearly benefits Idaho ratepayers as well as the customers of Veolia’s other regulated 8
utilities. 9
Q. What has Staff recommended regarding costs associated with the COO? 10
A. Staff has recommended excluding related allocated costs of $61,237 on the basis that it 11
does not benefit Idaho ratepayers but supports the board of directors and helps the parent 12
company earn a profit for shareholders. 13
Q. What is your recommendation? 14
A. As Staff’s contention is incorrect, I recommend that the Commission deny Staff’s 15
adjustments to VWM&S costs for the COO of $61,237 as well as the adjustment to 16
remove the allocation portion of training and travel for corporate executives of $1,286. 17
Q. What is the actual 2023 merit increase percentage? 18
A. The actual weighted average merit increase granted is 3.62% and will be effective April 19
1, 2023. 20
CAGLE, Di-Reb
Page 20 of 20
Veolia Water Idaho, Inc.
Q. What is your recommendation? 1
A. We recommend that the Commission include the proposed salary increase percentage 2
with the expectation that it desire is to better match the costs to be incurred to the period 3
in which rates will be in effect. 4
Q. Does this conclude your rebuttal testimony? 5
A. Yes. 6