20230215Eldred Direct with Exhibits.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMlŠSIOlÝ
IN THE MATTER OF THE APPLICATION )OF VEOLIA WATER IDAHO,INC.FOR A )CASE NO.VEO-W-22-02
GENERAL RATE CASE )
DIRECT TESTIMONY OF MICHAEL ELDRED
IDAHO PUBLIC UTILITIES COMMISSION
FEBRUARY 15,2023
1 Q.Please state your name and business address for
2 the record.
3 A.My name is Michael Eldred.My business address
4
is 11331 W.Chinden Blvd.,Building 8,Suite 201-A,Boise,
5
Idaho 83720.
6
7 Q.By whom are you employed and in what capacity?
8 A.I am employed by the Idaho Public Utilities
9 Commission ("Commission")as a Utilities Analyst in the
10 Utilities Division.
11 Q.Please describe your work experience and
12 educational background?
13
A.Please see Exhibit No.122 that provides a14
15 summary of my work experience and education background.
16 Q.What is the purpose of your testimony in this
17 proceeding?
18 A.The purpose of my testimony is to address the
19 Company's Test Year Revenue at Present Rates and normalized
20 consumption adjustments used to determine (1)the baseline
21
for determining the increase (or decrease)in revenue the
22
Company will earn as result of this case,and (2)the23
24 Company's Cost of Service Study ("COSS")used to inform the
25 spread of the Revenue Requirement across the different
CASE NO.VEO-W-22-02 ELDRED,M.(Di)102/15/23 STAFF
1 classes.
2 I also provide an assessment of the Load Study
3 conducted in response to Commission Order No.35030 that
4
was intended to validate whether the Company's customer
5
classes are appropriate to ensure customers are being
6
charged based on the costs that they cause based on their
demand and usage patterns.
9 For purposes of my testimony,the terms "usage"
10 and "consumption"can be used interchangeably and refer to
11 the amount of water purchased by customers from the
12 Company's system.
13
Test Year Revenue and Weather Normalized Consumption14
15 Q.Please summarize your findings as a result of
16 your review of the Company's Test Year Revenue at Present
17 Rates and Weather Normalized Test Year Consumption.
18 A.I generally support the Company's methods for
19 determining the Test Year Revenue at Present Rates filed in
20 the Company's Application;however,Staff is proposing to
21
use a 2022 Test Year,January 1,2022,through December 31,
22
2022,without pro forma adjustments,instead of the23
24 Company's proposed Test Year of July 1,2021,through June
25 30,2022,with pro forma adjustments through March 31,
CASE NO.VEO-W-22-02 ELDRED,M.(Di)202/15/23 STAFF
1 2023.The rationale for the Test Year change is described
2 in Staff witness English's testimony.
3 The change in the Test Year has the following
4
effects related to my testimony:
5
1.Test Year Revenue at Present Rates should be6
7 increased $698,264 from $51,717,859 to
$52,416,123,which is reflected as adjustment No.
9 4 in Exhibit No.130 of Staff witness
10 Culbertson's testimony;
11 2.Total water consumption for the Test Year should
12 be reduced from 857,424 one hundred cubic feet
13
("CCF")as proposed by the Company to 823,09814
CCF;and15
16 3.A downward adjustment of $8,905 should be applied
17 to power and chemical expense as a result of the
18 reduction in Test Year consumption compared to
19 the Company's Application as reflected as
20 adjustment No.28 in Exhibit No.130 of Staff
21 witness Culbertson's testimony.
22
Q.Is the Test Year Revenue at Present Rates23
24 included in your testimony your final recommendation?
25 A.It depends on how close the Company's test year
CASE NO.VEO-W-22-02 ELDRED,M.(Di)302/15/23 STAFF
1 revenue results,included in their full response to Staff's
2 Production Request No.163,part 5,are to my estimates.
3 Staff has received the Company's interim response to the
4 discovery request with enough actual data from the Company
5
to provide an estimated Revenue at Present Rates.However,
6
7 if my estimates differ significantly from the amount of
8 Revenue that the Company determines when it submits its
9 full response,I may file an amendment or a supplement to
10 my testimony with sufficient time for the Company to review
11 it and submit its rebuttal due on March 8,2023.
12 Q.Please describe how the Company developed its
13
final Test Year Revenue under Present Rates as contained in
14
15 the Application.
16 A.The Company's proposed Total Test Year Revenue at
17 Present Rates is summarized in Company Exhibit 5,Schedule
18 2,in the Company's Application,which I have included as
19 Exhibit No.123 of my testimony.It reflects a total
20 revenue of $51,717,859 (Column 11),which is comprised of
21 $50,866,102 of Adjusted Historic Test Year Book Revenue
22
(column 4),and five adjustments increasing the Test Year23
24 revenue by a total of $851,757 (Columns 6-10).To
25 determine the adjustments,the Company was required to
CASE NO.VEO-W-22-02 ELDRED,M.(Di)402/15/23 STAFF
1 perform a Bill Analysis of the Test Year revenue,which
2 breaks down the amount of revenue earned through each rate
3 component on customer bills for each customer class.The
4
total of this breakdown (Column 5)is shown to reconcile
5
with the Adjusted Historic Test Year Book Revenue (Column
6
4),validating the Bill Analysis.The adjustments to the
Bill Analysis Revenues Historic Test Year Rates (Column 5)
9 broken out in Columns 6 through 10 include the following:
10 1.Adjustment R1 -Annualization of Historic Test
11 Year Growth for $246,816 (Column 6);
12 2.Adjustment R2 -Customer Growth from 7/1/21-
13
3/31/22 for $273,782 (Column 7);i
14
15 3.Adjustment R3 -Weather Usage Adjustment for
16 $(2,691,767)(Column 8);
17 4.Adjustment R4 Eagle Historic Test Year for
18 $661,051 (Column 9);and
19 5.Normalization of Phase I Rates for $2,343,875
20 (Column 10).
21 Q.Can you provide an overview of Staff's proposed
22
changes to the Company's Test Year Revenue at Present23
24
1 Staff verified the dates on this column are mis-labeled as
25 7/1/20 -3/31/21 and should have contained date range
7/1/21 -3/31/22.
CASE NO.VEO-W-22-02 ELDRED,M.(Di)502/15/23 STAFF
1 Rates?
2 A.I have included a summary of Staff's estimated
3 Test Year Revenue at Present Rates,as shown in Exhibit No.
4 124,using the same format used by the Company.In this
5
Exhibit,I have also included the difference between Staff
6
and the Company's proposed total values for each column.
As mentioned earlier in my testimony,Staffs proposal to
9 the Test Year Revenue under Present Rates is driven by
10 changing to a 2022 Test Year.
11 Q.Can you describe how the Book Values (Columns 2-
12 4)have changed based on Staff's proposal as shown in
13
Exhibit No.124?
14
15 A.The Booked Values in columns 2 through 4 show
16 actual booked values with removal of unbilled/surcharge
17 amounts for Staff's 2022 Test Year.These were obtained
18 through the Company's Interim Response to Staff Production
19 Request No.163 and included as Exhibit No.125 of my
20 testimony.
21
Q.Does the Bill Analysis Revenues in Column 5
22
reconcile with the Adjusted Historic Test Year Book Revenue23
24 shown in Column 4?
25 A.As discussed earlier in my testimony,although
CASE NO.VEO-W-22-02 ELDRED,M.(Di)602/15/23 STAFF
1 the Company was able to provide the actual booked amounts
2 (Columns 2 -4)and other actual data in its Interim
3 Response to Staff's Production Request No.163,Staff did
4
not receive the full Bill Analysis and resulting
5
adjustments (Columns 5 -10)in time to review them before
6
submitting my pre-filed testimony.As a result,I was not
8 able to ensure that the Bill Analysis and the booked
9 amounts reconciled,nor was I able to verify the Company's
10 revenue adjustments for the 2022 Test Year without the full
11 Bill Analysis.Instead,I first assumed that the 2022 Test
12 Year Adjusted Historic Test Year Book Revenue (Column 4)
13
will reconcile with the results of the Bill Analysis
14
15 Revenues (Column 5)when I receive and can verify them.I
16 then estimated the revenue adjustments using Column 4 as a
17 baseline.
18 Q.Please describe how you estimated Adjustment R1 -
19 Annualization of Historic Test Year Growth (Column 6).
20 A.The Company's R1 adjustment adjusts for growth of
21 the number of customers during the Test Year.To determine
22
the growth in customers and the change in consumption23
24 during Staff's Test Year,I used the same method the
25 Company used to determine their R1 adjustment in their
CASE NO.VEO-W-22-02 ELDRED,M.(Di)702/15/23 STAFF
1 Application,but updated the customer counts and average
2 usage per bill to match Staff's Test Year.To estimate the
3 revenue impact of the R1 consumption adjustment,I used the
4 allocation factors for consumption that occurred in
5
different seasons and rate blocks for the Company's Test
6
Year for each customer class since Staff did not receive
the Bill Analysis in time to review them for accuracy
9 before submitting my pre-filed testimony.I have included
10 my billing determinant calculations based on Staff's 2022
11 Test Year for the R1 adjustment in Exhibit No.126.The
12 Exhibit follows the same format as Company Exhibit 5,
13
Schedule 4 VWID,and Schedule 4 Eagle Worksheets.
14
15 Q.Please describe how you estimated the Adjustment
16 R2 -Customer Growth from 7/1/22-3/31/23 (Column 7).
17 A.The Company's R2 adjustment adjusts customer
18 growth for its pro forma period from July 1,2022,through
19 March 31,2023.However,under Staff's proposal,the R2
20 adjustment is not required.Since Staff is using a 2022
21 Test Year without a pro forma period,an adjustment for pro
22
forma period customer growth is not needed.The amount of23
24 customer growth that occurred from July 1,2022,through
25 December 31,2022,the end of Staff's Test Year,is
CASE NO.VEO-W-22-02 ELDRED,M.(Di)802/15/23 STAFF
1 incorporated in Staff's R1 adjustment,as described above.
2 Q.Please describe how you estimated the Adjustment
3 R3 -Weather Usage Adjustment (Column 8).
4
A.The R3 adjustment determines how much the 2022
5
Test Year Revenue needs to be adjusted so that the Revenue6
at Present Rates represents the amount of Revenue the
8 Company would have earned if the Test Year experienced a
9 normal weather year.To accomplish this,I ran statistical
10 regression analyses using 31 years of available historical
11 consumption and weather data provided by the Company to
12 determine the normalized Use per Customer ("UPC")for
13
Residential and Commercial customers for the 2022 Test14
Year.The difference between the normalized UPCs for the15
16 2022 Test Year and actual UPCs for the 2022 Test Year were
17 then multiplied by the number of actual Residential and
18 Commercial customers at the end of the 2022 Test Year to
19 determine the total usage adjustment for the two classes.
20 Exhibit No.126.Using my recommended normalized UPC
21 adjustment of -7.51 CCF for Residential customers and
22
-21.57 CCF for Commercial customers,I estimated the total23
24 R3 Weather Usage Adjustment to be $(1,500,273)using the
25 allocation factors from the Company's Bill Analysis in the
CASE NO.VEO-W-22-02 ELDRED,M.(Di)902/15/23 STAFF
1 Application as a proxy,which are reflected in Exhibit No.
2 124.
3 Q.Are the normalized UPC adjustments for
4 Residential and Commercial customers for the 2022 Test Year
5
your final recommendation?
6
A.Yes.The data supplied by the Company through
8 the Company's Interim Response to Staff Production Request
9 No.163 provided all the data I needed to perform my
10 regression analysis.However,the final R3 revenue
11 adjustment was estimated using allocation factors from the
12 Company's proposed test year and may need to be
13
recalculated for the 2022 Test Year and submitted as an14
15 amendment to my testimony after I receive the complete
16 response to Staff Production Request No.163.
17 Q.Please explain how you developed the recommended
18 normalized UPCs for the 2022 Test Year.
19 A.To determine the normalized UPCs for the 2022
20 Test Year,I first compared the Company's normalization
21 regression method to my own regression methods for both
22
Residential and Commercial customers.I used historical23
24 actual consumption data included in the Company's
25 Application as well as data provided through the Company's
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1002/15/23 STAFF
1 Interim Response to Staff Production Request No.163 so
2 that I had actual data throughout the 2022 Test Year.My
3 method summed the results of 12 monthly models to determine
4
the normalized annual UPCs instead of using a single annual
5
model used by the Company.I determined that the Company's
6
regression modeling method using the 2022 Test Year
resulted in normalized UPC amounts that were within the
9 standard error of the normalized UPCs that I determined
10 through my own models.Based on these finding,I utilized
11 the Company's modeling method with a couple of exceptions.
12 Q.Please explain your exceptions.
13
A.There were two things I did differently.First,
14
15 I used 31 years of data,from 1992 through 2022,instead of
16 30 years used by the Company,since it was available.The
17 additional data provided an additional degree of freedom
18 which generally reduces the amount of error in regression
19 estimates.
20 Second,the Company's regression model in its
21 Application only included actual data through 2021.
22
Because the Company's test year went from July 1,2021,23
24 through June 30,2022,the Company was effectively making
25 predictions 6 months past its actual data set.The Company
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1102/15/23 STAFF
1 should have included actual consumption data in 2022 to
2 prevent extrapolating beyond its data set.However,I
3 included actual data from 1992 through the 2022 Test Year,
4 eliminating this source of error.
5
Q.What inputs and historic data did you and the
6
Company use in the regression models?
8 A.Both the Company and I performed our regression
9 analysis utilizing actual customer usage,calendar year,
10 and the Palmer Z index as inputs.Michaelson Direct at 6.
11 The Palmer-Z index from the National Oceanographic and
12 Atmospheric Administration ("NOAA")reflects weather
13
conditions that affect water consumption due to irrigation.
14
15 The index estimates the moisture content of soil during a
16 specified time period and geographic locale relative to the
17 long-term average for that same period and locale.It
18 incorporates the cumulative effects of temperature,
19 humidity,precipitation,evapotranspiration,and soil
20 conditions into a single number,serving as a weather
21 variable that drives water consumption.Positive values
22
indicate wetter-than-normal conditions;negative values23
24 indicate drier-than-normal conditions.The Company uses a
25 7-month Palmer Z index,which is a single composite value
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1202/15/23 STAFF
1 for those months when the Company determined that customer
2 irrigation is most likely,from April through October.
3 Q.Are there any improvements that you believe
4
should be incorporated in the Company's models in its next
5
general rate case?
6
7 A.There are two improvements.First,I advocate
either creating 12 monthly models similar to the models I
9 developed and used to compare against the Company's annual
10 model,or include monthly data and variables in a single
11 regression model.I believe the added resolution of
12 monthly data and variables is better to determine the
13
effects of weather to the amount of water consumption
14
15 because it more accurately matches the weather conditions
16 in each month to the amount of water consumed in each month
17 over the dataset timeframe.This is especially important
18 because weather conditions can vary widely during the
19 course of any given year.
20 Second,I suggest normalizing for economic
21 conditions such as wages,employment rate,and some measure
22
of buying power due to inflation.In any regression model,23
24 it is important to identify the statistically significant
25 causal factors that contribute to customer water
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1302/15/23 STAFF
1 consumption as the independent variable.Doing so better
2 isolates the effects of weather from other causal factors
3 and improves the overall accuracy of the model.
4
I recommend that the Company and Staff meet prior
5
to the next general rate case to discuss the importance and
6
7 methods of making these changes in the Company's regression
8 methodology.
9 Q.Please describe how you estimated Adjustment R4 -
10 Eagle Historic Test Year (Column 9).
11 A.The Company's R4 adjustment makes an adjustment
12 to include revenue for Eagle Water legacy customers as if
13
the Company was providing service from July 1,2021,
14
15 through December 31,2021,even though the Company did not
16 provide service to Eagle Water customers until January 1,
17 2022.This adjustment is required using the Company's July
18 1,2021,through June 30,2022,test year to ensure the
19 correct revenue baseline.However,due to Eagle Water
20 customers being included in the Company's system for all of
21
Staff's 2022 Test Year,no R4 adjustment is required.
22
Q.Did you propose an adjustment to the Company's23
24 proposed revenue requirement to reflect the reduced
25 consumption predicted by your consumption adjustments?
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1402/15/23 STAFF
1 A.Yes,I proposed an adjustment to the Company's
2 power and chemicals expenses since these expenses vary in
3 proportion to water consumption.Because total consumption
4 changed using a 2022 Test Year as compared to consumption
5
in the Company's Application,Staff has included an
6
7 adjustment of $(8,905)in power and chemical expense as
8 reflected in Staff's adjustment No.28 in Exhibit 130 of
9 Staff witness Culbertson's testimony.I used the same
10 calculation method the Company used to make their own
11 adjustment after normalizing consumption for their proposed
12 Test Year as detailed in Company witness Cary's Adjustment
13
No.29.
14
15 Q.Please describe how you estimated Normalization
16 of Phase 1 Rates (Column 10).
17 A.The purpose of the Normalization of Phase I Rates
18 adjusts the Test Year revenue to account for two things:
19 (1)a rate change for Company and non-legacy Eagle Water
20 customers that occurred during the Test Year;and (2)to
21 adjust Test Year revenue for Eagle Water legacy customer
22
rates that went into effect on January 1,2023.This23
24 adjustment is still needed for Staff's 2022 Test Year.To
25 determine this adjustment for a 2022 Test Year,I prorated
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1502/15/23 STAFF
1 the rate components used in the Company's Bill Analysis to
2 match the time period of Staff's Test Year.For example,
3 the Company's Bill Analysis included ten months of customer
4 bills for the Phase 1 rates while Staff's Test Year only
5
included four months.To estimate the number of bills,I
6
7 prorated the Company's number of bills by 4/10th or 40%to
8 come up with an estimated number of bills for Staff's Test
9 Year.I utilized this method of estimation for all other
10 rate components contained in the adjustment to estimate it
11 for the 2022 Test Year.
12 Q.Please summarize your recommendations related to
13
the Test Year Revenue at Present Rates and Weather
14
15 Normalized Test Year consumption.
16 A.First,I recommend the Commission approve my
17 proposed Test Year Revenue at Present Rates and
18 corresponding adjustments as shown in Exhibit No.124.
19 Second,I recommend an adjustment of $(8,905)to power and
20 chemical expense as a result of the change in Test Year
21 consumption compared to the Company's Application.
22
Finally,I recommend that the Company and Staff meet to23
24 discuss and agree on improvements to the weather
25 normalization regression methodology before the next
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1602/15/23 STAFF
1 general rate case.
2 THE COMPANY'S COST-OF-SERVICE STUDY AND LOAD STUDY
3 Q.What is the purpose of a COSS?
4
A.A COSS allocates the Company's revenue
5
requirement to the Company's rate classes in accordance
6
7 with the principle of cost causation.The cost causation
principle states that costs should be borne by the class
9 that causes them to be incurred.Costs incurred in the
10 service of a single class,or its individual members,
11 should be directly assigned to that class;however,because
12 many of the Company's costs are incurred serving multiple
13
classes,a COSS is necessary to allocate costs that are not14
15 directly assigned.
16 Q.Is the formation of customer classes based on
17 principles of cost causation widely used in utility
18 regulation?
19 A.Yes.It is a bedrock principle of utility cost-
20 of-service rate making.One example is described in the
21
Public Utility Regulatory Policy Act of 1978 under Title I,
22
Subtitle B,section 111 (d)(1):23
24 COST OP SERVICE.-In undertaking the consideration
25 and making the determination under section 111
with respect to the standard concerning cost of
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1702/15/23 STAFF
1 service established by section 111(d)(1),the
costs of providing electric service to each class
2 of electric consumers shall,to the maximum
3 extent practicable,be determined on the basis of
methods prescribed by the State regulatory
4 authority (in the case of a State regulated
electric utility)or by the electric utility (in
5 the case of a nonregulated electric utility).
Such methods shall to the maximum extent
6 practicable-
(1)permit identification of differences in cost-incurrence,for each such class of electric
8 consumers,attributable to daily and seasonal time of
use of service and
9 (2)permit identification of differences in cost-
incurrence attributable to differences in customer10demand,and energy components of cost.In prescribing
such methods,such State regulatory authority or11nonregulatedelectricutilityshalltakeintoaccount
12 the extent to which total costs to an electricutilityarelikelytochangeif-
13 (A)additional capacity is added to meet peak
demand relative to base demand;and14(B)additional kilowatt-hours of electric energy
are delivered to electric consumers.15
16 Q.Do the classes used in the Company's COSS
17 correspond to existing rate schedules?
18 A.No.The Company's COSS allocated costs to four
19 hypothetical rate classes:Residential,Commercial,Public
20 Authority,and Private Fire.None of these classes
21 corresponds to an existing rate schedule.
22
Customers in the study's Residential,Commercial,23
24 and Public Authority classifications all take service under
25 Schedule 1,General Metered Service.The study's Private
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1802/15/23 STAFF
1 Fire classification corresponds to two different Schedules:
2 (1)Schedule 3,Private Fire Sprinkling Service,and (2)
3 Schedule 4,Private Fire Hydrant service,neither of which
4
are subject to a volumetric charge.
5
Q.What is a load study,and why is it a necessary
6
7 component of a COSS.
8 A.Because Company infrastructure and equipment must
9 be sized to meet the'peak load that will be placed on it,
10 peak load is an important cost driver.A load study should
11 identify appropriate classes based on differences of how
12 each class uses the system during peaking events.This
13
information is then used to develop allocators of cost used14
in the COSS.15
16 Q.Did the load study performed by the Company
17 verify the hypothetical rate classes as the appropriate
18 classes based on cost causation principles?
19 A.No,the load study assumed the hypothetical rate
20 classes are the appropriate classes.The load study did
21
not perform a robust analysis to verify that the
22 hypothetical classes or any other potential classes are the23
24 appropriate classes.The load study needed to identify
25 potential customer classes based on cost causation
CASE NO.VEO-W-22-02 ELDRED,M.(Di)1902/15/23 STAFF
1 principles before collecting data on these potential
2 classes to make meaningful comparisons between the classes.
3 Q.Was the Company aware of these needs prior to the
4 load study being conducted?
5
A.Yes.The purpose of determining appropriate
6
7 classes was identified in the Stipulation authorized in
8 Case No.SUZ-W-20-02 through Commission Order No.35030.
9 As a result of the Order,Staff and other parties met with
10 the Company about the load study prior to it being
11 conducted.2 During the meetings,Staff and other parties
12 emphasized the need to identify potential classes and how
13
to design a sampling plan so that the data could be14
15 collected to identify what could be appropriate classes
16 based on the costs they cause on the Company's system.
17 Q.What is your position on the Company's load study
18 and its usefulness in the COSS?
19 A.I do not believe the load study was performed in
20 a manner that makes it used and useful to inform the COSS.
21 To make it useful,the load study should have identified
22
the appropriate classes based on data collected during the23
24 load study.Because the load study did not identify
25
2 Meetings with the Company occurred on 5/16/22 and 6/6/22.
CASE NO.VEO-W-22-02 ELDRED,M.(Di)2002/15/23 STAFF
1 potential classes prior to data collection,differences in
2 demand and consumption patterns of potential customer
3 classes could not be determined.As a result,the values
4
used from the load study and the results of the COSS are
5
not useful.
6
7 Q.What factors should be considered when
determining the data that needs to be collected for the
9 load study?
10 A.Ordinarily,load studies are structured around
11 existing classes;however,as discussed earlier,the
12 Company's current rate schedules do not represent the
13 hypothetical customer classes used in the COSS.It was14
15 therefore necessary to design the load study so that it can
16 be used to inform the formation and/or validation of
17 classes.
18 The Company's current division of its consumptive
19 customers into Residential,Public Authority,and
20 Commercial classifications assumes that the customers in
21
each of these divisions have similar consumptive patterns.
22
However,this is unlikely true.For example,Residential23
24 customers who live in single family dwellings with yards
25 and lawns will consume much more water in the summer than
CASE NO.VEO-W-22-02 ELDRED,M.(Di)2102/15/23 STAFF
1 apartment dwellers.
2 Rather than using the Company's Residential,
3 Public Authority,and Commercial classifications as the
4
basis for the load study,the study should have been
5
conducted using groupings based on meter size,whether
6
customers irrigate their property with Company water during
8 the summer months,single family and several different
9 versions of multi-family housing,lot sizes,types of
10 processes and equipment used by commercial and industrial
11 customers,etc.Many of these causal factors that can
12 influence different usage patterns are listed in the
13
Seventh Edition of "Principles of Water Rates,Fees,and14
15 Charges,"published by the American Water Works Association
16 included as Exhibit No.127.
17 If the load study collected the data based on
18 groupings determined by causal factors common within the
19 Company's service territory,differences in demand and
20 usage patterns between groups could be determined,
21 indicating the need for different customer classes.
22
The Company's AMI meters allow the collection of23
24 useful data to help in the determination of customer
25 classes;however,the implementation of AMI meters across
CASE NO.VEO-W-22-02 ELDRED,M.(Di)2202/15/23 STAFF
1 the Company's service territory was incomplete.To ensure
2 sufficient sample size of each potential class that is
3 representative of the population of customers in the
4 Company's service territory,the Company's rollout of AMI
5
meters across their service territory could have been6
altered to collect the necessary data.However,this would
8 have required the identification of potential customer
9 classes needing the additional meters to get a
10 representative sample.
11 Q.Briefly summarize the method used to determine
12 the allocation factors used in the Company's COSS.
13
A.The Company used a similar method and allocation14
15 factors that were used in prior rate cases (UWI-W-11-02 and
16 SUZ-W-20-02).
17 Q.Do you have other concerns with the Company's
18 COSS?
19 A.Yes,I have two concerns.First,rather than
20 directly assigning costs to customer classes,the Company
21
allocated nearly all costs using factors derived in the22
2011 rate case,Case No.UWI-W-11-02.23
24 The purpose of a COSS is to allocate the
25 Company's revenue requirement in accordance with the
CASE NO.VEO-W-22-02 ELDRED,M.(Di)2302/15/23 STAFF
1 principles of cost causation:that is,the class that
2 caused a cost to be incurred should pay for the cost.When
3 the customer groups who cause a cost can be clearly
4 identified,then those costs should be directly assigned to
5
that customer's class.For example,instead of directly6
7 assigning the costs of meters and meter installations,the
Company allocated these costs based on 5/8"meter
9 equivalents.
10 The second concern relates to the Company's
11 change in fire demand in the COSS.In the COSS,the
12 Company changed an assumption for total fire demand from a
13 single long duration fire to three shorter duration fires14
15 without providing the proper justification for the change.
16 The result of this change shows fire protection customers
17 should receive a decrease in rates based of the COSS.In
18 the Application,the Company proposed private fire receive
19 no increase and all other customers receive a uniform
20 .increase.
21
Staff requested justification for the fire demand
22
change in Staff Production Request No.157.Exhibit No.23
24 128.The Company's response was not based on any credible
25 evidence to support the time and demand of the three-fire
CASE NO.VEO-W-22-02 ELDRED,M.(Di)2402/15/23 STAFF
1 assumption.Due to lack of justification for the
2 assumption change in fire demand and the other issues with
3 the COSS,I do not agree with the Company's proposal of no
4 increase for the private fire rates.I believe the private
5
fire class should receive a uniform increase like all other6
classes.
8 Q.What are your recommendations to the Commission
9 regarding cost-of-service?
10 A.I have four recommendations based on my review.
11 First,I recommend that the Company use a uniform
12 percentage increase across all rate components and customer
13
classes.Without the establishment of consumptive classes14
15 and a valid COSS study,it is impossible to fairly allocate
16 the increase based on traditional cost causation
17 principles.
18 Second,I recommend that the Commission disallow
19 the COSS and load study expense included in the rate case
20 because the load study and COSS was not performed in a
21
manner that makes it useful for the purpose of determining22
rates in the rate case.This is a negative adjustment of23
24 $40,817 to the Company's revenue requirement reflected as
25 adjustment No.24,Column 4,in Exhibit No.130 of Staff
CASE NO.VEO-W-22-02 ELDRED,M.(Di)2502/15/23 STAFF
1 witness Culbertson's testimony.
2 Third,I recommend the Commission order the
3 Company to conduct a new load study and COSS by the next
4
rate case.The load study and the COSS should be conducted
5
to determine the need for appropriate customer classes that
6
7 are based on traditional regulatory principles of cost
causation as outlined in my testimony.Specific to the
9 load study,it should be designed to collect demand and
10 usage pattern data that is representative of potential
11 consumptive customer classes.
12 Finally,I recommend that the Commission order
13
the Company to conduct a workshop with Staff and interested14
15 parties to determine how the study should be conducted with
16 the objective that the study meet principles of cost
17 causation as outlined in my testimony prior to the load
18 study being conducted.
19 Q.Does this conclude your testimony in this
20 proceeding?
21
A.Yes,it does.
22
23
24
25
CASE NO.VEO-W-22-02 ELDRED,M.(Di)2602/15/23 STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15TH DAY OF FEBRUARY 2023,SERVED THE FOREGOINGDIRECT TESTIMONY OF MICHAEL ELDRED,INCASENO.VEO-W-22-02,BY E-MAILING A COPY THEREOF,TO THEFOLLOWING:
PRESTON N CARTER DAVID NJUGUNAMORGANGOODINMGR-REGULATORYBUSINESSGIVENSPURSLEYLLPVEOLIAWATERM&S INC
PO BOX 2720 461 FROM ROAD STE 400BOISEID83701-2720 PARAMUA NJ 07052
E-MAIL:[e-mail] E-MAIL:[e-mail]
[e-mail]
stephaniew eivenspurslev.com
LORNA K.JORGENSEN SHARON M.ULLMAN,PRO SEMEGWADDEL5991E.BLACK GOLD STREETADACOUNTYPROSECUTINGBOISE,ID 83716ATTORNEY'S E-MAIL:sharonu20l3 email.coniOFFICE/CIVIL DIVISION
200 W.FRONT STREET,ROOM 3191
BOISE,ID 83702
E-MAIL:[e-mail]
JIM SWIER AUSTIN RUESCHHOFFMICRONTECHNOLOGY,INC.THORVALD A.NELSON
8000 SOUTH FEDERAL WAY AUSTIN W.JENSENBOISE,ID 83707 HOLLAND &HART,LLPE-MAIL:iswier micron.co 555 17TH STREET SUITE 3200
DENVER,CO 80202
E-MAIL:[e-mail] [e-mail][e-mail]'S OFFICE [e-mail]
105 N.CAPITOL [e-mail]500
BOISE,ID 83701-0500
E-MAIL:[e-mail]
boisecitvattornevi citvofboise.ore
CERTIFICATEOF SERVICE
Professional Qualifications
Of
Michael Eldred
Utilities Analyst II -Engineering
Idaho Public Utilities Commission
EDUCATION
Mr.Eldred graduated with honors from Boise State
University with a bachelor's degree in Mechanical Engineering in
2014 and a master's degree in Business Administration in 2016.
In addition to his formal education,he has attended the
Institute of Public Utilities Annual Regulatory Studies Program
at Michigan State University,attended Michigan State
University's NARUC Utility Rate School,and EUCI Cost of Service
and Rate Design Courses.
BUSINESS EXPERIENCE
Mr.Eldred has worked with the Commission as a Utilities
Analyst since 2017.He has reviewed and provided
recommendations to the Commission in a wide variety of cases due
to his extensive knowledge,skills,and abilities.Some
examples of cases he has processed include:(1)reviewing and
providing recommendations on cost of service studies,
consumption normalization,and rate design proposals in general
rate cases;(2)conducting analyses and providing
Exhibit No.122
Case No.VEO-W-22-02M.Eldred,Staff
02/15/23 Pagelof2
recommendations on electricity and natural gas prices in general
rate cases;(3)conducting prudence reviews and providing
recommendations on capital investments in general rate cases and
Certificate for Public Convenience and Necessity cases;(4)
providing technical advice on integrated resource plans for
various utilities;and (5)reviewing and providing
recommendations on utilities cost recovery mechanisms.
Exhibit No.122
Case No.VEO-W-22-02
M.Eldred,Staff
02/15/23 Page 2 of 2
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VEOLIA WATER IDAHO,INC.
CASE VEO-W-22-02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness:Cary/Michaelson
REQUEST NO.163:
Please explain the customer meter mis-read errors that occurred during calendar year
2022.In addition,please provide:
1.The causes of the issue and the Company's corrective actions.
2.The timeframe and specific months that actual consumption data was impacted.
3.Any corrections that need to be made or have already been made to actual consumption
data for each month from January 1,2022,through December 31,2022.
4.A detailed explanationhow the Company determined the amount of the corrections for
each month.
5.The Company's final actual customer counts and customer consumption from January
1,2022,through December 31,2022,by updating the Company's workpaperfile "VEO-
W-22-02 Revenue Exhibits -Workpapers to IPUC STAFF,"provided in electronic
format with all formula enabled.
RESPONSE NO.163:
5.Interim response to the request:
Staff clarified its request via email and requested certain interim information be provided
which are components of the requested analyses.This clarification was:"We would like
the full update to the workpapers using a 2022 test year (1/1/2022 through 12/31/2022)
with no customer growth adjustment beyond December 31,2022 and the customer
growth adjustment from January 1,2023 through March 31,2023,broken out
separately.We understanding that to provide a full update may require the full 3-weeks,
although we would like to get it as soon as possible".
Given the understanding that some of the information can be provided earlier because it is
currently available,please provide the followingas early as possible:
Exhibit No.125CaseNo.VEO-W-22-02M.Eldred,Staff
02/15/23 Page 1 of 2
l.Columns B,C,and D for a 2022 Test Year (1/1/2022 through 12/31/2022)as
shown in Worksheet:"Exhibit 5 Schedule 2,"
2.Actual Data by customer class for the following:
a.Billed Volumes for months July 2022 through December 2022 in
Worksheet:"Billed Volumes"
b.Customer Counts by Cycle for months July 2022 through December 2022
in Worksheet:"Customer Count by Cycle"
c.Total Customer Counts for months July 2022 through December 2022 in
Worksheet:"Total Customer Count"
d.Number of customers on 1/1/22 and 12/31/22 for Eagle Water by customer
class in Worksheet:"Exhibit 5 Sched 4 Eagle"
INTERIM RESPONSE
1.Please,see attachment l
2.Please see attachment 2
Exhibit No.125
Case No.VEO-W-22-02M.Eldred,Staff
02/15/23 Page 2 of 2
VEOLIA WATER IDAHO,INC.
SUMMARYOF BILLING DETERMINANTS FOR REVENUEADJUSTMENTS-VWIDSYSTEM
ADJUSTMENT R1:ANNUALIZATIONOF HISTORIC TESTYEAR GROWTH
Historic TY
Average Usage Annualization
Number of Customers 1/2 of Number of Bi-per Bill Adjustment
12/31/2022 12/31/2022 Gain/Loss Growth Monthly Bills CCF CCF
Residential 88,250 89,153 903 452 2,709 22.98 62,251
Commercial 9,543 9,666 123 62 369 113.45 41,863
Public Authority 55 56 1 1 3 88.83 266
Private Fire 2,314 2,355 41 21 123 0.00
ADJUSTMENT R2:WEIGHTED CUSTOMER GROWTH THROUGH 3/31/2023
Average Usage Test Year Growth
Number of Customers Number of Bi-per Bill Adjustment
6/30/2022 3/31/2023 Gain/Loss Monthly Bills CCF CCF
Adjustment Not included in Staff's Proposal
Residential 0 0 0 -0.00
Commercial 0 0 0 -0.00
Public Authority 0 0 0 -0.00
Private Fire 0 0 0 0
ADJUSTMENT R3:WEATHER USAGE ADJUSTMENT
Test Year
No.Adjustment per Test Year Weather
Customers Customer Adjustment
12/31/2022 CCF CCF
Residential 89,153 -7.51 (669,466)
Commercial 9,666 -21.57 (208,522)
TOTAL OF PRO-FORMA ADJUSTMENTS (R1+R2 +R3)
Pro-Forma
No.Total Pro-Forma
Customers Adjustment
12/31/2022 CCF
Residential 89,153 (607,215)
Commercial 9,666 (166,659)
Public Authority 56 266
Fire 2,355
(773,608)
Exhibit No.126
Case No.VEO-W-22-02
M.Eldred,Staff
02/15/23 Page l of 2
VEOLIA WATER IDAHO,INC.
SUMMARY OF BILLING DETERMINANTS FOR REVENUE ADJUSTMENTS-EAGLE
ADJUSTMENTR1:ANNUALIZATION OF HISTORICTESTYEAR GROWTH
Growth Historic TY
(use Average Usage Annualization
Number of Customers Gain/Loss Number of per Bill Adjustment
1/31/2022 12/31/2022 Gain/Loss Amount)Monthly Bills CCF CCF
Res -New 3,574 3,647 73 37 438 11.49 5,032
Comm -New 502 458 -44 -22 (264)56.72 (14,975)
PA -Existing 11 6 -5 -3 (30)44.41 (1,332)
Pr Fire -New 98 104 6 3 36 0.00
ADJUSTMENTR2:WEIGHTEDCUSTOMER GROWTH THROUGH3/31/2023
Test Year
Average Usage Growth
Number of Customers Number of per Bill Adjustment
7/31/2022 3/31/2023 Gain/Loss Monthly Bills CCF CCF
Adjustment Not included in Staff's Proposal
Res-New 0 0 0 -0.00
Comm -New 0 0 0 -0.00
Public Authority 0 0 0 -0.00
Pr Fire -New 0 0 0 -0
ADJUSTMENTR3:WEATHER USAGE ADJUSTMENT
Test Year
Test Year No.Adjustment Weather
Customers per Customer Adjustment
12/31/2022 CCF CCF
Res -Existing 3,574 -7.51 (26,838)
Res -New 73 -7.51 (548)
Comm-Existing 502 -21.57 (10,829)
Comm-New 0 -21.57
ADJUSTMENTR4:ANNUALIZATION OF HISTORIC TESTYEAR EXISTING CUSTOMERS
Test Year
Number of Number of Average Usage Annualization
Customers Monthly Bills per Bill Adjustment
1/31/2022 (1/2 Year)CCF CCF
Adjustment Not Included in Staff's Proposal
Res -Existing
Comm-Existing
PA -Existing
Priv Fire -Existing
TOTAL OF TESTYEAR ADJUSTMENTS (R1+R2 +R3 +R4)
Test Year No.Total Test Year
Customers Adjustment
12/31/2022 CCF
Residential 0 (22,354)
Commercial O (25,805)
Public Authority 0 (1,332)
Private Fire 0
(49,491)Exhibit No.126
Case No.VEO-W-22-02M.Eldred,Staff
02/15/23 Page 2 of2
EMERGING TRENDS IN WATER RATE-MAKING 95
Customer Classification
The emerging aspect to be addressed in this section is prompted in large part by thegreaterabilitytodisaggregatetraditionalcustomerclasseswithbettertechnologythatyieldsgreaterdataresolutiontorecognizediversitiesintraditionalclassifications.On thewastewaterside,this may also involve recognition of the resource recovery value of con-tributed water streams.
Utilities of the future are not limited to reliance on customer classes of the past.Though traditional customer classes have enabled defensible and equitable cost alloca-tions,it may be possible to create more precise groupings of customers for rate-makingpurposesasnewinformationandbillingsystemcapabilitiesevolve.The dramatic increaseinconsumptionandothercustomerdata(madeavailable,for example,by AMI systems)will empower some utilities to explore a variety of customer class refinements:
Variability in demand patterns within the residential customer class is oftennotrecognizedincustomerbillingsystems.It may be desirable to distinguishbetweensingle-family and several different versions of multifamilyhousing,andperhapsbetweendifferentsingle-family housing units to reflect different peakandaveragedemandcharacteristicsorotherwaterusagedeterminants(e.g.,lotsizes,plumbingfixture units).
Commercial,industrial,wholesale,and contract customers exhibit significantdiversityinconsumptionpatterns.Water uses reflect needs ranging from that oftheproverbialdressshoptoawaterthemepark.Irrigation is a key differentiator,as it is in residential classes,and equally relevant to cost allocations.The ability tobettertrackindividualcustomers'usage characteristics may reveal obvious clus-tering that suggests new customer classifications or confirms similarities within autility's existing classes.
Nontraditional customer classification could be structured to address other cus-tomer characteristics beyond those related to metered consumption.In some
cases,customer classes could reflect potential demand,or even desired levels ofdemand,as refinements or extensionsto more common demand concepts.In casesofextremeconservationobjectives,some utilities might consider differentiationtoreflecttheusestowhichwaterisapplied,or usage levels determined to be"excessive"given local supply and cost considerations.Equity and cost allocationissuesremain,but improvements in the breadth,quality,and ability to analyzeinformationarestimulatingnewconversationsandexaminations.
Utilities could have the potential to identify certain selected affordability criteriaandcreateanexplicitaffordability-related class.Challenges and risks associatedwithaffordabilityprogramsareidentifiedinchapterV.4,but for purposes of thissection,if rates are to be a part of a utility'saffordability strategy,customer classi-fications informed by better information on household demographic characteris-tics could be leveraged.
RATE DESIGN
The "art"of rate-making tends to be seen through the development of structures of ratesandchargesthatprovideforadequaterevenuerecoveryandbestmeetcompetingpric-ing objectives.The technological innovations and changing perspectivespreviouslynotedbothaffectthebalancingofobjectivesandaffordnewopportunitiestosendmoreeffectivepricesignalstocustomers.
Exhibit No.127
Case No.VEO-W-22-02
M.Eldred,StaffAWWAManualM1
02/15/23
VEOLIA WATER IDAHO,INC.CASE VEO-W-22-02
FIFTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness:Bui
REQUEST NO.157:
In Bui's Direct Testimony,page 9,Bui states:"The COSS based total fire demand
on 1 4-hour,4,500 gallonsper minute (gpm)fire,1 4-hour,4,000 gpm fire,and 1 2-hour
1,500 gpm fire.This is a change from a total system demand for a 10-hour,10,000 gpm
fire."Please respond to the following:
a.Please explain why this change was made and provide justification for the
change.
b.Please explain why private fire protection customers were not included in the
Load Study.
RESPONSE NO.157:
a.Based on the updated cost of service analysis,it was deemed that fire demands should
reflect the actual fire demands that can occur throughoutthe service area.The service
area has designated fire flow requirements based on the type of customers served.Based
on these requirements,three (3)fires occurring simultaneously were selected as the
appropriate fire flow demand for fire protection.The three fires consist of one 4-hour,
4,500 gpm fire,one 4-hour,4,000 gpm fire,and one 2-hour 1,500 gpm fire.Prior filings
used a 10-hour,10,000 gpm fire,which when applied in the cost-of-service analysis
means a single fire that lasts 10 hours and required 10,000 gpm of fire flow.It was Black
&Veatch's opinion that in reality,the system would not see such an occurrence,but
could experience 3 simultaneous fires.
b.Private fire customers were not included in the Load Study as these customers do not
consume water in a similar manner as other customers.Private fire consumption only
occurs during fire events;therefore,consumption data is inconsistent to determine
peaking factors.
Exhibit No.128
Case No.VEO-W-22-02
M.Eldred,Staff
02/15/23