20241122Direct David Njuguna_Exhibits.pdf

RECEIVED
Friday, November 22, 2024
IDAHO PUBLIC
UTILITIES COMMISSION
Preston N. Carter, ISB No. 8462
Morgan D. Goodin, ISB No. 11184
Megann E. Meier, ISB No. 11948
GIVENS PURSLEY LLP
601 West Bannock Street
P.O. Box 2720
Boise, Idaho 83701-2720
Office: [phone]
Fax: [phone]
[e-mail]
[e-mail]
[e-mail]
18557816.1 [30.2641
Attorneys for TVeolia Water Idaho, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION Case No. VEO-W-24-01
OF VEOLIA WATER IDAHO, INC. FOR A
GENERAL RATE CASE
DIRECT TESTIMONY OF DAVID NJUGUNA
FOR VEOLIA WATER IDAHO,INC.
NOVEMBER 22,2024

I INTRODUCTION
2 Q. Please state your name and business address.
3 A. My name is David Njuguna, and my business address is 461 From Rd, Suite 400, Paramus,
4 New Jersey 07652.
5 Q. By whom are you employed and in what capacity?
6 A. I am employed by Veolia Water M&S (Paramus), Inc. ("VWM&S") as Director—
7 Regulatory Business.
8 Q. Please summarize your educational background and qualifications.
9 A. I graduated from Kenyatta University,Nairobi, Kenya, with a Bachelor of Commerce
10 Degree in Accounting in 2000 and earned a Masters Degree in Business Administration
I I from Rutgers Business School in 2012.
12 Q. What experience did you have prior to joining VWM&S?
13 A. From August 2001 to July 2006, 1 was employed by the Union Fenosa Group, an
14 integrated energy company headquartered in Madrid, Spain, where I gained a broad
15 outlook of utility accounting. During my tenure at Union Fenosa, I held various positions
16 and my responsibilities varied depending on the title I held. As a management accountant,
17 my responsibilities included preparing, reviewing and analyzing monthly divisional and
18 consolidated financial statements and reports. As a financial accountant, my
19 responsibilities included financial analysis and preparation of consolidated company
20 budgets and financial reports.
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I Q. When did you join VWM&S and in what capacity?
2 A. I joined VWM&S in May 2007 as a Rate Analyst. Since then, I have been progressively
3 promoted to a Senior Rate Analyst, Manager Regulatory Business and to my current
4 position as a Director, Regulatory Business.
5 Q. What other roles have you held while employed by VWM&S?
6 A. From December 2012 through December 2015, 1 worked in the Accounting Department of
7 VWM&S as an Accounting Manager focusing on Regulatory Accounting and Fixed Assets
8 Accounting. My duties included,but were not limited to, ensuring the proper accounting
9 of deferred regulatory assets and fixed assets of the Company.
10 Q. Before what regulatory agencies have you previously presented testimony?
11 A. I have previously filed testimony in rate case filings before the Idaho Public Utility
12 Commission, the New York State Public Service Commission, the New Jersey Board of
13 Public Utilities, the Pennsylvania Public Utility Commission, the Delaware Public Service
14 Commission and the Arkansas Public Service Commission.
15 Q. What is the purpose of your testimony in this proceeding?
16 A. The purpose of my testimony is to describe and present the calculation of the revenue
17 deficiency and the resulting request for rate relief for Veolia Water Idaho, Inc. ("Veolia
18 Water Idaho", "VWID" or the "Company").
19 Q. What Exhibits are you sponsoring?
20 A. I am sponsoring the following Exhibits:
21 1. Exhibit No. 6-Capital Structure and Cost of Debt
22 2. Exhibit No. 9-Statement of Operating Income
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VEOLIA WATER IDAHO,INC.

1 3. Exhibit No. 10, Schedule 4-Computation of Revenue Requirement, State and Federal
2 Income Taxes.
3 Q. What level of increase is the Company seeking in this proceeding?
4 A. Veolia Water Idaho is seeking a revenue increase of$11,158,946 or 19.84% over current
5 rates for the Test Year period ending December 31, 2024 ("Test Year"). The Test Year
6 consists of a 12-month historic period ending on August 31, 2024 ("Historic Test Year")
7 and a four-month adjustment period ending on December 31, 2024. Company Witness
8 Johns provides more detail about the drivers of this increase in his testimony and Witness
9 Michaelson discusses the phase-in of the increase.
10 Q. What rate of return on rate base is this rate increase based upon?
11 A. The increase is based on an overall rate of return of 7.47%with a return on equity of
12 10.20%requested in this proceeding, which is supported in the Direct Testimony of Veolia
13 Water Idaho witness Harold Walker, III.
14 Q. Have you prepared an Exhibit No. 6 that shows the calculation of the Company's
15 proposed overall Rate of Return of 7.47%?
16 A. Yes. Exhibit No. 6, page 1, shows the capital structure of Veolia Water Resources
17 ("VWR"), the parent company of VWID, along with the cost of debt and the return on
18 equity. VWR's capitalization percentages for debt and equity are 47.22% and 52.78%,
19 respectively. The exhibit utilizes a 10.20%rate of return on common equity and a 4.43%
20 cost of debt. The weighted average of these components is the 7.47% overall requested rate
21 of return.
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I Q. Has the Commission previously approved the Company's use of Veolia Water
2 Resources capital structure and cost of debt in its rate case filings?
3 A. In Commission Order No. 28505, in Case No. UWI-W-00-1, the Commission found the
4 use of the capital structure and cost of debt for VWID's then parent company United
5 Waterworks Inc. to be reasonable for ratemaking purposes. United Waterworks Inc. has
6 since been incorporated into SUEZ Water Resources Inc. which has been rebranded to
7 Veolia Utility Resources, Inc. The Company is utilizing the capital structure of Veolia
8 Utility Resources, Inc.
9 Q. Have you prepared an exhibit that indicates the Test Year operating income for the
10 Company at existing and proposed rates?
11 A. Yes. I have prepared Exhibit No. 9, titled"Statement of Operating Income Per Books and
12 Pro Forma under Present and Proposed Rates For The Twelve Months Ending December
13 31, 2024".
14 Column 1 references the Exhibit Numbers (5, 6, 10 and 11) that detail the
15 adjustments to the Historic Test Year results indicated on Exhibit No. 9. Column 2
16 indicates the elements of operating income: operations and maintenance expense,
17 depreciation and amortization expense, taxes other than income and income taxes. The
18 amounts therein are per books, as shown on Exhibit No. 10, Schedules No. 1, 2 and 3
19 respectively. Column 3 of Exhibit No. 9 shows a summary of Test Year adjustments made
20 to revenues and expenses. The adjustment to operating revenue shown on line 1 is detailed
21 on Exhibit No. 5, Schedule No. 2 and will be explained by Company witness Michaelson.
22 The adjustments to operation and maintenance expenses, summarized on line 2, are
23 detailed on Exhibit No. 10, Schedule 1 and are supported in the testimony of Company
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I Witnesses Bucci, Wilson and Jacob. The adjustments to depreciation expense and
2 amortization of utility plant acquisition adjustments, summarized on lines 3 and 4, are
3 detailed in Exhibit No. 10, Schedule 2 and are further explained in the testimony of
4 Company witness Arp and the testimony of Company witness Jacob. The adjustments to
5 operating taxes summarized on lines 6 and 7 are detailed in Exhibit No. 10, Schedule 3,
6 and are explained by Company witness Wilson. Column 4 of Exhibit No. 9 shows the
7 adjusted operating income at existing rates for the Test Year. Column 4 also indicates that
8 based on the Test Year adjustments made, the Company will earn a 4.78% overall rate of
9 return on its rate base investment as of December 31, 2024. Column 5 of Exhibit No. 9
10 shows the adjustments to operating revenue, operation and maintenance expenses, and
11 income taxes under the increased rates proposed by the Company herein. The adjustment
12 to operating revenues of$11,158,946 was computed using a 7.47%rate of return on rate
13 base as described above. Column 6 of Exhibit No. 9 calculates the adjusted operating
14 income necessary to produce the requested rate of return, 7.47%. The income taxes shown
15 on lines I I and 12 were computed as indicated on Exhibit No. 10, Schedule 4, and will be
16 explained later in my testimony.
17 Q. Please explain the adjustments to operating expenses as shown on Exhibit No. 9.
18 A. Operation and maintenance expenses have increased by $1,057,132 (Exhibit No. 9, line 2).
19 These costs are supported by the testimony of Company witnesses Bucci, Wilson and
20 Jacob. Depreciation and amortization expenses have increased by $988,168 (Exhibit No.
21 9, line 5). Property Taxes have increased by $314,875 (Exhibit No. 9, line 6). Payroll taxes
22 have increased by $23,310 (Exhibit No. 9, line 7). Federal and State income taxes are
23 calculated based upon the revenue requirement. Federal income taxes have decreased by
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VEOLIA WATER IDAHO,INC.

1 $964,217 and State income taxes have increased by $334,203 (Exhibit No. 9, lines 11 &
2 12).
3 The detailed support for adjustments to the operating expenses is shown on Exhibit
4 No. 10, Schedule 1 through 4. Schedule 1 provides details for adjustments made to
5 operation and maintenance expenses that are explained by Company Witnesses Bucci,
6 Wilson and Jacob. Schedule 2 provides details for adjustments to depreciation and
7 amortization expense and Schedule 3 provides details for adjustments to property and
8 payroll taxes, which are further discussed by Company Witness Wilson. Exhibit No. 10,
9 Schedule 4, provides details for adjustments to State and Federal income tax expenses.
10 Exhibit No. 10, Schedule 4, shows the method I employed to compute the "Net to Gross
11 Multiplier"utilized in this case to gross up the Net Operating Income deficiency to reflect
12 the needed revenue increase.
13 Q. Please explain Exhibit No. 10, Schedule 4.
14 A. Exhibit No. 10, Schedule 4, Page 1 of 2, shows the calculation of State and Federal income
15 taxes at both existing and proposed rates. The amounts shown on line 1 of columns 1 and
16 2 are the same as the amounts shown on line 10 of columns 4 and 6 on Exhibit No. 9.
17 These figures represent operating income before income taxes. From these figures, the
18 applicable statutory deductions were included when computing the State and Federal
19 income taxes.
20 The first deduction is interest expense and it is deductible in the computation of
21 both State and Federal taxable income. The calculation for the interest deduction is shown
22 in Note A on lines 12 through 16. The deduction of interest expense is included in the total
23 tax deductions amount on Line 4.
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I The second deduction is the excess of pro forma tax depreciation over pro forma
2 book depreciation. The excess tax depreciation is deducted from State taxable income only
3 since State income taxes are calculated on the basis of flow-through accounting, while
4 Federal income taxes are calculated on the basis of normalization accounting. Lines 18, 19
5 and 20 indicate the amounts used in determining excess tax depreciation.
6 The Company is also making an adjustment to income taxes related to AFUDC
7 Equity Gross Up further explained in the testimony of witness Cagle and included in the
8 calculation of the net federal Income Tax Expense. Line 9 indicates the amount included in
9 the calculation.
10 Q. Please explain the adjustment shown on line 2, Column 5 of Exhibit No. 9.
11 A. The adjustment shown on line 2, Column 5 of Exhibit No. 9 represents additional
12 uncollectible expense and IPUC assessment as a result of the pro forma adjustment to
13 operating revenue shown on line 1, Column 5 of Exhibit No. 9 as further detailed out on
14 Exhibit No. 10, Schedule 4.
15 Q. Does this conclude your direct testimony?
16 A. Yes.
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D.NxGUNA,DI
VEOLIA WATER IDAHO,INC.

Preston N. Carter, ISB No. 8462
Morgan D. Goodin, ISB No. 11184
Megann E. Meier, ISB No. 11948
GIVENS PURSLEY LLP
601 West Bannock Street
P.O. Box 2720
Boise, Idaho 83701-2720
Office: [phone]
Fax: [phone]
[e-mail]
[e-mail]
[e-mail]
18557695.1 [30-264]
Attorneys for Veolia Water Idaho, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION Case No. VEO-W-24-01
OF VEOLIA WATER IDAHO, INC. FOR A
GENERAL RATE CASE
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
EXHIBIT TO ACCOMPANY THE
DIRECT TESTIMONY OF DAVID NJUGUNA

VEOLIA WATER IDAHO
Calculation of Weighted Average Cost of Capital
Case No. VEO-W-24-01
Capital Structure and Cost of Debt of Veolia Utility Resources
Capital Structure Cost of Weighted Avg. Cost of
Line No. Component Amount Percentage Source Capital
1 Debt $ 1,587,000,000 47.22% 4.43% 2.09%
2 Equity $ 1,773,624,659 52.78% 10.20% 5.38%
3 Total $ 3,360,624,659 100.00% 7.47%
Case No. VEO-W-24-01
Exhibit No. 6
D.Njuguna
Page 1 of 1

VEOLIA WATER IDAHO
STATEMENT OF OPERATING INCOME PER BOOKS AND PROFORMA UNDER
PRESENT AND PROPOSED RATES FOR THE TEST YEAR ENDING DECEMBER 31, 2024
Column Column Column Column Column Column
Line (1) (2) (3) (4) (5) (6)
No.
Per Under Proposed Rates
Adjustment Books Test Year Adjusted
Description Reference 08/31/24 Adjustment Test Year Adjustments Proforma
1 Operating Revenues Exh No.5, Sch 1 $59,317,269 ($3,081,983) $56,235,286 $11,158,946 $67,394,231
19.84%
Operating Expenses
2 Operation & Maintenance Exh No.10, Sch 1 22,479,138 1,057,132 23,536,270 89,684 23,625,955
3 Depreciation Exh No.10, Sch 2 11,273,623 988,168 12,261,791 - 12,261,791
4 Amortization Of UPAA Exh No.10, Sch 2 282,588 (0) 282,588 - 282,588
5 Total Depreciation and Amortization 11,556,211 988,168 12,544,379 - 12,544,379
Taxes Other Than Income
6 Ad Valorem Exh No.10, Sch 3 1,414,377 314,875 1,729,252 - 1,729,252
7 Payroll Taxes Exh No.10, Sch 3 977,609 23,310 1,000,920 - 1,000,920
8 Total Taxes Other Than Income 2,391,986 338,185 2,730,171 - 2,730,171
Total Operating Expenses
9 Excluding Income Taxes 36,427,336 2,383,485 38,810,820 89,684 38,900,505
10 Operating Income Before Income Taxes 22,889,933 (5,465,468) 17,424,465 11,069,261 28,493,727
Income Taxes
11 State Income Taxes Exh No.10, Sch 4 174,336 334,203 508,539 630,394 1,138,933
12 Federal Income Taxes Exh No.10, Sch 4 3,238,211 (964,217) 2,273,994 2,192,162 4,466,156
13 Total Income Taxes 3,412,547 (630,014) 2,782,533 2,822,556 5,605,089
14 Utility Operating Income $19,477,387 ($4,835,454) $14,641,933 $8,246,705 $22,888,637
15 Adjusted Rate Base Exh No.11, Sch 1 $306,407,462 $306,407,462
16 Rate of Return on Rate Base 4.78% 7.47%
17 Required Rate of Return Exh No.6, Page 1 7.47%
18 Required Net Operating Income $22,888,637
19 Operating Income Deficiency $8,246,705
20 Gross Revenue Conversion Factor Exh No.10, Sch 4 1.3531
Case No. VEO-W-24-01
21 Revenue Deficiency $11,158,946 Exhibit No. 9
D.Njuguna
Page 1 of 1

VEOLIA WATER IDAHO
Case VEO-W-24-01
Computation of State and Federal Income Taxes
At Present and Proposed Rates
Line PRESENT PROPOSED
No. RATES RATES
(1) (2)
1. OPERATING INCOME BEFORE INCOME TAXES $ 17,424,465 $ 28,493,727
2 Interest Expense (A) 6,412,150 6,412,150
3 Excess Tax Over Book Depreciation (B) 2,082,750 2,082,750
4 TOTAL TAX DEDUCTIONS 8,494,901 8,494,901
5 Taxable Income-State 8,929,565 19,998,826
6 State Income Tax at 5.695% $ 508,539 $ 1,138,933
7 Federal Taxable Income (L.1-L.2-L.6) 10,503.776 20.942.643
8 Federal Income Tax at 21% $ 2,205,793 $ 4,397,955
9 Add: Income Taxes Related to AFUDC Equity Gross Up $ 116,441 $ 116,441
10 Less: Amortization of ITC $ (48,240) $ (48,240)
11 NET FEDERAL INCOME TAX EXPENSE 2.273.994 4,466,156
(A) CALCULATION OF INTEREST EXPENSE DEDUCTION:
12 Pro Forma Rate Base $ 306,407,462
13 Debt Percentage of Capitalization 47.223%
14 Debt Portion of Rate Base 144,695.910
15 Debt Rate 4.43%
16 INTEREST EXPENSE 6.412.150
17 (B) EXCESS TAX OVER BOOK DEPRECIATION:
18 Pro Forma Tax Depreciation $ 6,116,293
19 Pro Forma Book Depreciation $ 4,033,543
20 EXCESS TAX OVER BOOK DEPRECIATION (C) 2.082.750
Case No.VEO-W-24-01
Exhibit No. 10
Schedule 4
D.Njuguna
Page 1 of 2
State Income Tax Rate 5.695%
Federal Income Tax Rate 21.000%

VEOLIA WATER IDAHO
Case No. VEO-W-24-01
Calculation of Revenue Requirement& Net to Gross Multiplier
Line No. Rate Base $ 306,407,462
1 Required Rate of Return 7.47%
2 Required Net Operating Income 22,888,637
3 Adjusted Net Operating Income Realized 14,641,933
4 Net Operating Income Deficiency 8,246,705
5 Net To Gross Multiplier 1.3531
6 Gross Revenue Increase $ 11,158,946
7 Net Operating Income Requirement 1.0000000 $ 11,158,946
8 IPUC Assessment Rate 0.0021270
9 Uncollectible Accounts Expense 0.0059100
10 Rate Applicable to O&M Expense & IPUC Assessment 0.0080370 $ 89,684
11 State Tax Rate 0.0569500
12 Effective Net State Tax Rate 0.0564923 $ 630,394
13 Federal Income Tax Residual 0.0645293
14 Incremental Federal Income Tax Rate 0.2100000
15 Effective Federal Tax Rate 0.1964488 $ 2,192,162
16 Composite:IPUC Fees, Uncollectibles & Income Taxes 0.260978 $ 2,912,241
17 Composite Residual 0.739022 $ 8,246,705
18 Net to Gross Multiplier 1.3531 $ 11,158,946
Case No.VEO-W-24-01
Exhibit No. 10
Schedule 4
D.Njuguna
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