20241122Direct Ian MacDougall_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]
18557860.1 [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
DIRECT TESTIMONY OF IAN MACDOUGALL
FOR VEOLIA WATER IDAHO,INC.
NOVEMBER 22,2024

I INTRODUCTION
2 Q. Please state your name and business address.
3 A. My name is Ian M. MacDougall. I am employed by MCR Performance Solutions
4 ("MCR"), and my business address is 155 Pfingsten Road, Suite 155 Deerfield, Illinois
5 60015.
6 Q. What is your position with MCR Performance Solutions?
7 A. I am currently employed as a consultant in the Regulatory Services Practice at MCR.
8 Q. Describe your educational background and professional experience.
9 A. I received a Bachelor of Science in Finance from the University of Maryland, College
10 Park. I have been employed by MCR since October 2020. Prior to MCR, I held various
11 positions in the regulatory departments at Baltimore Gas and Electric and Tampa Electric.
12 My responsibilities in these positions were in rate design, cost of service studies, revenue
13 allocation, revenue decoupling, testimony development, and interrogatory response
14 development.
15 Q. Have you previously testified before regulatory agencies on utility-related matters?
16 A. I have not. However, I have drafted and developed testimony for other witnesses and
17 supported them for over a dozen years and have worked on rate cases, including analysis
18 for settlements for my entire career.
19 Q. On whose behalf are you testifying in this proceeding?
20 A. I am testifying on behalf of Veolia Water Idaho, Inc. ("Veolia Water Idaho" or"the
21 Company").
PAGE I OF 6
1.MACDOUGALL,DI
VEOLIA WATER IDAHO,INC.

I Q. What is the purpose of your testimony in this proceeding?
2 A. The purpose of my testimony is to discuss the methodology employed in the development
3 of Veolia Water Idaho's lead-lag study, which is used to support the cash working capital
4 requirement that the Company has included in its revenue requirement.
5 CASH WORKING CAPITAL
6 Q. What is cash working capital?
7 A. Cash working capital is the amount of money provided by shareholders and investors that
8 must be included in rate base for the utility to pay their operating expenses between the
9 time when the expenses of rendering utility service are paid and the time that revenues for
10 providing utility service are collected.
11 Q. What is the purpose of including cash working capital in rate base?
12 A. It is standard practice for regulators to approve the total costs incurred in providing utility
13 service during a test year and use those costs as a basis to determine the revenue
14 requirement. One of, if not the largest component, of these costs is the cost of financing
15 capital required to build the utility's facilities and maintain operations of the utility's
16 infrastructure. Most of these capital costs are found in the financial statements of the
17 Company. Cash working capital is not. However, it is still necessary to determine in order
18 to measure the correct amount of investor capital funding required to operate the business.
19 The expenses in a lead-lag study are real expenses that the utility is obligated to pay
20 for on a timely basis. In order to pay these expenses, the utility must have the cash on hand
21 to pay them as they receive the invoices. Due to the nature of periodic billing, a utility that
22 does not include cash working capital in rate base may not have the cash on hand from
23 customers to pay these invoices as they are received. In those instances, since a utility
PAGE 2 OF 6
L MACDOUGALL,DI
VEOLIA WATER IDAHO,INC.

I cannot default on its expenses without risking reliability of service, the money to pay these
2 invoices must come from the shareholders until the customer revenue is received.
3 Q. What methodologies are generally used to determine cash working capital?
4 A. The two most common methods to determine cash working capital are the 1/8t'formula
5 method and a lead-lag study. The 1/8t'formula method generates a simple and often fairly
6 accurate measure of the utility's cash working capital requirements calculated by
7 multiplying the total test year operation and maintenance expenses by 1/8. The more
8 detailed methodology, and the one employed in this case, is the development of a lead-lag
9 study.
10 Q. What methodology has Veolia Water Idaho previously used to calculate its cash
11 working capital?
12 A. The Company has previously employed the 1/8t'formula method to calculate its cash
13 working capital requirement. However, in its last rate case (Case No. VEO-W-22-02), the
14 Commission Staff contended that a utility the size of Veolia Water Idaho should no longer
15 use the 1/81h method.I Therefore, a lead/lag study was done in this current case.
16 LEAD-LAG STUDY
17 Q. What is a lead/lag study?
18 A. A lead-lag study is generally recognized as the most accurate methodology for determining
19 cash working capital. It involves a detailed examination of the amount of time it takes for a
20 utility to receive revenue for services rendered (the "lag"time) along with a detailed
21 examination of the amount of time it takes for a utility to pay for its cash operating and
22 maintenance expenses (the"lead" time). The resulting lag time netted for lead time is
1 Order No.35762,page 23.
PAGE 3 OF 6
L MACDOUGALL,DI
VEOLIA WATER IDAHO,INC.

I multiplied by the daily operating expenses to produce the cash working capital
2 requirement.
3 Q. What is lag time?
4 A. Lag, or more specifically revenue lag, represents the amount of time between when service
5 is rendered to Veolia Water Idaho's customers and when the Company receives revenue
6 from the customers for those services.
7 Q. What is lead time?
8 A. Lead, or more specifically expense lead, represents the amount of time between the receipt
9 of services and materials by Veolia Water Idaho and when Veolia Water Idaho makes
10 payment on those receipts.
11 Q. Would you describe your approach in preparation of this lead-lag study?
12 A. The revenue lag was developed from the customer billing data and dates of receipt of the
13 corresponding billed revenue. Similarly, the expense lead for each category of system
14 expenses was developed by examining all the invoices for each category and measuring the
15 period of time from when the services or materials were received and when invoices for
16 the expenses paid.
17 Q. Did you perform a study to estimate the cash working capital for the adjusted test
18 year?
19 A. Yes. A lead-lag study was calculated for revenue received and expenses incurred over the
20 adjusted test year, which is the 12-month period ending December 31, 2024. Lead and Lag
21 days were calculated using invoices and billings for the 12-month period ending March 31,
22 2024.
23 Q. How was the revenue lag developed?
PAGE 4 OF 6
L MACDOUGALL,DI
VEOLIA WATER IDAHO,INC.

I A. There are three components of revenue lag that are first measured: service lag,billing lag,
2 and collection lag. The service lag is the number of days from when service is rendered to
3 when the meter is read. As service is rendered continuously to customers, the service lag
4 calculation uses the midpoint of the period during which service is rendered. For customers
5 that are billed monthly, this results in a service lag of 15.21 days (365 days/ 12 service
6 periods/2). For customers that are billed bi-monthly, this results in a service lag of 30.42
7 days (365 days/6 service periods /2). Veolia Water Idaho bills approximately 96% of its
8 customers on a bi-monthly basis (with the rest billed on a monthly basis). Weighted by
9 number of customers, this results in a service lag of 29.79 days. Billing lag is the average
10 amount of time needed to render a bill to a customer once the meter has been read. Veolia
11 Water Idaho has a billing lag of 4.51 days. Collection lag is the amount of time that it takes
12 to receive revenues from customers once bills have been rendered. Veolia Water Idaho's
13 collection lag was determined on a monthly basis and then averaged for a collection lag for
14 the test period of 17.83 days. These three components are summed for a total revenue lag
15 of 52.13 days, which is detailed in Exhibit No. 14, page 2.
16 Q. How was the expense lead determined?
17 A. For each cash operating and maintenance expense category line on Veolia Water Idaho's
18 revenue requirement calculation, the test period invoices were analyzed to determine the
19 time period between when the invoices were received by the Company and when the
20 Company paid the invoices. For income taxes, the statutory federal payment schedules
21 have been used.
22 Once a lead time has been calculated for each category of expenses, the result is
23 multiplied by the category's expense amount for the test year to calculate weighted lead
PAGE 5 OF 6
L MACDOUGALL,DI
VEOLIA WATER IDAHO,INC.

I dollars. The weighted average lead times for these categories are shown on Exhibit No.
2 14, page 1. The sum total of these weighted lead dollars is then divided by the actual
3 expenses for the test year to determine the weighted lead time of 10.76 days.
4 Q. Were there any adjustments made in the calculation of the expense lead time?
5 A. Yes. Several of Veolia Water Idaho's expenses are paid for by Veolia Water Idaho's parent
6 company as part of corporate shared services. For these expenses, the expense lead time is
7 considered to be zero days. I also discovered several invoices in the category of Uniform
8 and Safety Equipment which had not been paid for over a year due to an issue in account
9 payables. As this is not meant to be a recurring issue and is not reflective of the average
10 time it takes to pay the Company's received invoices, I have removed those specific
11 invoices from my calculation.
12 Q. What are the results of the lead-lag study that you completed for Veolia Water
13 Idaho?
14 A. The lead-lag study completed for this rate case determined that Veolia Water Idaho's cash
15 working capital requirement is $4,581,200, as detailed in Exhibit No. 14, page 1.
16 Q. How is the cash working capital revenue requirement calculated?
17 A. The net lag days (lag days of 52.13 netted of lead days of 10.76) is 41.37 days. This is
18 multiplied by the daily expenses for the year of$110,740 to produce the cash working
19 capital requirement of$4,581,200 (41.37 days times $110,740), as detailed in Exhibit No.
20 14,page 1.
21 Q. Does this conclude your testimony?
22 A. Yes.
PAGE 6 OF 6
L MACDOUGALL,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 IAN MACDOUGALL

Veolia Water Idaho
Cash Working Capital Requirements Water Utility
Adjusted Test Year Ending December 31,2024
Water Services Lead Lag Summary
(Lead)
Line Annual Lag Weighted
No Revenue&Expense Days Amount
1 Total Revenue Lag Water Utility $56,235,286 52.13 $2,931,507,358
2
3 Operation&Maintenance Expense
4 Labor $7,941,553 14.00 $111,181,736
5 Payroll Overheads(Fringe Benefit Allocation) -$1,439,454 14.00 -$20,152,354
6 Pension Payments $680,609 0.00 $0
7 OPEB Payments -$486,928 0.00 $0
8 Group Health and Life Insurance $1,962,090 3.03 $5,937,907
9 401K Payments $536,868 0.00 $0
10 OtherAwards $57,634 91.47 $5,271,973
11 Purchased Water $433,064 15.21 $6,588,083
12 Purchased Power and Other Utilities $3,186,702 12.88 $41,039,936
13 Chemicals $740,718 28.83 $21,355,121
14 Materials and Supplies $276,106 29.99 $8,279,288
15 Corporate Shared Services $4,805,258 0.00 $0
16 Outside Services $1,112,675 37.43 $41,652,319
17 Print&Postage $340,635 32.04 $10,913,641
18 Rentals $12,486 34.81 $434,564
19 Transportation $987,710 59.38 $58,650,826
20 Transportation Insurance -$128,037 0.00 $0
21 Transportation Labor $54,873 14.00 $768,219
22 Liability Insurance $254,076 0.00 $0
23 Workers'Compensation $117,827 25.00 $2,945,677
24 Advertising $136,008 24.95 $3,393,235
25 Bad Debt $332,472 2.17 $721,958
26 Sludge Disposal $17,069 70.32 $1,200,363
27 Office Expenses $769,532 30.53 $23,491,092
28 Miscellaneous Expenses $247,922 40.22 $9,970,397
29 Uniform and Safety Equipment $212,503 51.99 $11,048,770
30 Bank Charges $3,658 12.90 $47,178
31 Severance Plan $5,000 0.00 $0
32 Other G&A Expenses $60,060 1.67 $100,101
33 Total Operation&Maintenance Exp Excluding 904 $23,230,691 14.84 $344,840,028
34
35 Other Taxes
36 Other Miscellaneous Taxes $0 0.00 $0
37 Employer Payroll Taxes $1,000,920 14.00 $14,012,874
38 Property Taxes Water $1,729,252 2.95 $5,105,989
39 Total Other Taxes $2,730,171 7.00 $19,118,863
40
41 Depreciation&Amortization $11,556,211 0.00 $0
42
43 Regulatory Fees 119,654 11.66 $1,395,478
44
45 Income Taxes
46 Federal Income Taxes $2,274,766 25.00 $56,869,161
47 ID State Income Taxes $508,761 25.00 $12,719,021
48
49 Total Requirements for Working Capital Expenses $40,420,255 10.76 $434,942,550
50
51 Pro Forma Daily Operating Expenses $110,740
52
53 Cash Working Capital Revenue Requirement $110,740 41.37 $4,581,200
Case No.VEO-W-24-01
Exhibit No.14
Page 1 of 2

Veolia Water Idaho
Cash Working Capital Requirements Water Utility
Adjusted Test Year Ending December 31,2024
Water Services Revenue Lag Summary
(Lead)
Line Revenue Lag Wtg Delivery
No Water Revenue Lag Billed Days Notes Dollar Days
1 Service Lag 29.79 1
2
3 Billing Lag 4.51
4
5 Collection Lag 17.83
6
7 Total Revenue Lag Water Rate Schedule $56,235,286 52.13 $2,931,507,358
8
9
10
11
12 Notes:
13 1. Approximately 103,000 of Veolia Idaho's 107,500 customers are billed on a bi-monthly basis.
Case No.VEO-W-24-01
Exhibit No.14
Page 2 of 2