20241126Supplemental Response to Staff Comments.pdf

STONERIDGE
StoneRidge Water Company
P.O. Box 298
Blanchard, ID 83804
Ph(208) 437-3148 Extn. 4
RECEIVED
November 26, 2024 Tuesday, November 26, 2024
IDAHO PUBLIC
UTILITIES COMMISSION
Monica Barrios-Sanchez
Commission Secretary
Idaho Public Utilities Commission
P.O. Box 83720
Boise, ID 83720-0074
RE: SWS-W-24-01 General Rate Case Utility Appraisal not sent with response to Staff
Comments.
Ms. Barrios-Sanchez, please find attached a copy of the Appraisal done for CDS
StoneRidge Utilities—water company by Mark Southard in July 2020 on behalf of the
Idaho State Department of Taxation. We had intended to include this for Staff and
Commissioner review this month when we sent in our response to Staff Comments. We
just realized Monday that we had not sent it in.
If possible, we would like the appraisal to be added to the case for review by the
commissioners.
You will note that the three valuations all came in between $443,981 Cost, $2,062,785
Income, $2,151 ,188 Market, and $1 ,978,198 Correlated Value vs the $264,252 Rate
Base Valuation Staff developed--using the Historical Cost less Accumulated
Depreciation Valuation Model—this huge differential clearly shows the severe
disadvantage to the Company of using a historical cost rate base vs a market valuation
rate base! $20,000 to $200,000 in annual income is certainly not a rounding error,
rather it is the difference between being able to run a safe stable water system with
adequate revenues and funding vs the complete opposite.
This appraisal further supports our concerns about the use of the Historical Costs in
determining the Rate Base for a Regulated Water Company. As in our case, an older
provider which has already depreciated our infrastructure investment over the prior 35+
year we face an impossible task of trying to earn enough profit each year to accumulate
retained earnings to be used to replace the system as it wears out. With an estimated
$2,000,000 in upgrades and replacements envisioned in the coming 5-10 years we do

not see how we are going to be able to qualify for financing of the work we are
anticipating.
Ple s let4uslw if you have additional requests.
SinC n r
Managing Member

I DHO
State Tax Commission
2020
APPRAISAL REPORT
FOR
THE OPERATING PROPERTY OF
CDS STO N E RI DG E UTILITIES LLC
04022721
Prepared
June 8, 2020
By
Mark J. Southard
Senior Appraiser
tax.idaho.gov

CDS STO N E R I DG E UTILITIES LLC
TABLE OF CONTENTS
2020
Page
Certification 1
Narrative 2
Property Identification &Conclusion of Value 4
Cost Approach 5
Income Approach 6
Market Approach 7
System Correlation 8
Leased Equipment 9

CDS STONERIDGE UTILITIES LLC
APPRAISAL CERTIFICATION
2020
1 certify to the best of my knowledge:
• The statements of fact contained in this report are true and correct.
• This appraisal report is intended only for property tax assessment purposes within the state of Idaho's
exception (Idaho Code 54-4105.1);this report and its development do not, nor is it required to, comply with
USPAP.
• The reported analyses, opinions, and conclusions are limited by the extraordinary assumption that the
Operator Statement and other evidences relied upon are true and accurate.
• The conclusions in this report were derived in a manner consistent with Idaho State Tax Commission and
WSATA methodologies.
I am an Idaho Certified Property Tax Appraiser and certified to appraise the subject for Idaho property tax
assessment purposes only. I have held this designation continuously since early 2009. 1 am not a Certified
General Appraiser in the State of Idaho, a designation that is intended for fee appraisers to appraise
properties for other purposes.This report is intended to be used for property tax purposes only.
• The reported analyses, opinions and conclusions are derived from an unbiased position and viewpoint.
• I have no present or prospective interest in the property that is the subject of this report,and I have no
personal interest or bias with respect to the parties involved.
• My compensation is not contingent upon any value conclusions contained in this report.
• No person provided significant professional assistance to the person signing this report.
I
Page 1

CDS STONERIDGE UTILITIES LLC
APPRAISAL NARRATIVE
2020
Industry Overview
"The Water Utility Industry is made up of domestic companies responsible for the safe and timely
distribution of water and other related services,such as wastewater treatment. Since water is an
essential resource, it would be easy to assume that the stocks of these companies would be high
fliers. Demand from the industrial, agricultural and residential markets is expanding and the supply
of potable water is shrinking. Big earnings and share-price gains have not been the case, here,
however.The industry is subject to regulation,which can raise service costs, while limiting rates
and return on investment."
Source:Valuel-ine Investment Survey, Industry Overview, 2019
The Unit Method
In unitary appraisal,the subject property is appraised as a single economic unit.The assets function
collectively;they operate under one ownership and one management, are interdependent, and
would be expected to trade in the marketplace as a unit.The unit includes all property used or
useful to the operation of the system, property owned, used or leased by the business. The
assumptions here are that this unit will continue operations into the future, is functioning as an
assemblage of assets in an income-producing environment, and is at its highest and best use.
The cost, income,and market approaches to value were considered during the performance of the
appraisal. The three approaches are reconciled into a single estimate of market value. The market
value of the unit is referred to as the system value.
The Cost Approach
The cost approach used in this appraisal is historic book cost less accumulated book depreciation
(HCLD). We utilize the WSATA Manual with cost approach methodology'.This approach is an
important indicator of value for regulated public utilities because the PUC establishes the cost of
service at a revenue level that will provide an opportunity for a fair rate of return on investment.
The PUC is required by law to allow utilities the ability to recover prudent costs and earn a fair
return on prudently invested funds.The PUC is similarly required to protect ratepayers from excess
earnings.
Construction work in progress as well as material and supplies have been added to the depreciated
plant to arrive at the cost indicator value.
'WSATA Appraisal Handbook, Sec. ll, pgs. 1-24
Page 2

The Income Approach
The income approach is based on the premise that value can be represented by the present worth
of future benefits derived from the ownership, use, or operation of the unit.
The forecasted income was capitalized to determine the income indicator of value. The
capitalization rate used here was previously detemined in a specific industry study.The income that
was capitalized is assumed to be a level annuity into the future with asset replacement equaling the
asset loss due to depreciation.
The Market Approach
The stock and debt approach (market approach) was not calculated due to the assumptions
required to determine the stock component of value.
Correlation
The analysis of the various approaches to value is called correlation. This process involves
examining and resolving differences among the valuation indicators. This is also a process that
involves consideration of the strengths and weakness of the approaches as well as the quality of the
data available.
The cost and income approaches were given equal weight in the correlation process. The quality of
the data from the companies balance sheet and income statement was considered to be
equivalent. Considerable historic data from previous operator's statements was also available.
The income approach is an important consideration of potential buyers and investors.The income
approach considers the present value of future income streams. The subjective nature of forcasting
future income streams somewhat diminishes this approaches reliability. However, we have used a
one-step no-growth yield captialization model to simplify the subjective nature of this approach as
much as possible.
The assumptions of the cost approach are that the investments are being made by capable and
prudent management and a return on and of the investment in utility plant will be realized.
Components of the cost approach are taken from booked assets in determining an HCLD indication
of value. Because of this, no adjustment for additional obsolescence was made to the cost
approachz.
2WSATA Appraisal Handbook,Sec. II, pg 12
Page 3

CDS STONERIDGE UTILITIES LLC
INCOME INDICATOR
2020
GDP Percent
Year Deflator' GDP Index NOI Change Adjusted NOI
2014 103.632 1.084047 $65,382 ---- $ 70,877
2015 104.716 1.072826 $54,832 (16.14%) $58,825
2016 105.798 1.061854 $ 78,624 43.39% $83,487
2017 107.789 1.042240 $70,398 (10.46%) $73,372
2018 110.415 1.017452 $ 137,827 95.78% $ 140,232
2019 112.342 1.000000 unknown --- N/A
Projected NOI
Income Estimate-Adjusted NOI (previous known year) $ 140,232
Income Estimate-Adjusted Average NOI (2 year) $ 106,802
Income Estimate-OLS Linear Regression (5 year) $146,664
Yield Capitalization
Projected Net Operating Income (NOI)-from above $ 146,664
Idaho Yield Rate 7.11%
Income Indicator of Value(Income divided by rate) $2,062,785
Yield Capitalization (Annual Lease Paymemt(no growth)
Projected Net Operating Income (NOI)-from no growth lease $ 152,734.35
Idaho Yield Rate 7.11%
Income Indicator of Value(Income divided by rate) $2,148,162
'Gross Domestic Product
Data Source: Company's 2018 Operator Statement& PUC Annual Report
Page 6

CDS STONERIDGE UTILITIES LLC
MARKET INDICATOR
2020
The market approach indicator of value relies on adjusting sales of comparable property to the
subject property. In the appraisal of regulated utilities,there are very few, if any, sales which
could be utilized as comparable sales. The Stock and Debt Approach is used to overcome
this obstacle by using an alternative to comparable sales.
The Stock and Debt Approach to value was considered for this company, but was not used due
to the assumptions and estimations that would have had to be made. The stock of this
company is not traded on a common exchange.
In 2018, CDS Stoneridge was purchased by Espirit Enterprises, LLC and JD Resort for a reported
$3,088,000. Of this amount, $2,1S1,188 of the purchase price was attributed internally to the
water system asset group.
Market Indicator of Value: $2,151,188
Page 7

CDS STONERIDGE UTILITIES LLC
SYSTEM CORRELATION
2020
(100%)
Indicators of Value Wei hg ted Amount
Cost 10% $443,981
Income 75% $ 2,148,162
Market 15% $ 2,151,188
System Correlation $ 1,978,198
Idaho Allocation Factor 100%
Idaho Allocated Value $1,978,198
Add: Leased Equipment (Page 9) $
Deduct: Licensed Vehicles $
Estimated Idaho Valuation: $ 1,978,198
2020 Taxable Value: $1,978,198
Data Source:Company's 2018 Operator Statement&Annual PUC Report
Page 8

CDS STO N E R I DG E UTILITIES LLC
SCHEDULE OF LEASED EQUIPMENT
2020
County& Year Original Depreciated
Tax Code Leasing Company Type of Equpiment Built Cost' Valuez
*NONE REPORTED*
Total $0
Licensed Vehicles Value
Total $0
Data Sources:
1 Company's 2018 Operator Statement
2 20201daho Property Valuation Schedules, Page 19
Page 9