20250305Comments_2.pdf

The following comment was submitted via PUCWeb:
Name: Doris Havner
Submission Time: Mar 5 2025 1:50PM
Email: [e-mail]
Telephone: [phone]
Address:205 N Farnsworth Drive
Idaho Falls, ID 83401
Name of Utility Company: Falls water
Case ID: FLS-W-24-02
Comment: "To whom it may concern-
I am against Falls Water trying to increase rates yet again.We recentlyjust got hit with a 55% rate
increase. It has been brought to my attention that hook up charges haven't been increased since
2008.Why not increase those rather than sticking it to existing customers.
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The following comments were submitted via PUCWeb:
Name: Romney Duffey
Submission Time: Mar 4 2025 10:38AM
Email: [e-mail]
Telephone: [phone]
Address:2352 East Greenbrier Drive
Idaho Falls, ID 83404
Name of Utility Company: Falls Water and Taylor Mountain
Case ID: FLS-W-24-02
Comment: "I have an extensive analysis and objection that I need to send to the PUC regarding this
Case .
It is contained in files in both a Word and PDF format.
The pdf file size is 168 KB and the Word file 198KB.
I have tried to submit it via this website but it will not take or receive such a large comment file or
text entry.
How can I submit this file and comments please?

Thankyou"
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FALLS WATER CO., INC. CASE No. FLS-W-24- 02
Romney B Duffey, PhD
1.Introduction: Basis of appeal to the PUC for denying rate increase request and
providing customer relief
We are appealing against the proposed excessive and unjustified rate increase for
Falls Water and Taylor Mountain customers and asking for a far smaller increase.
This objection is based on the actual testimony, Exhibits and proxy analyses
submitted in the Case which also show no such large increase is justified .
This Case is one of the major reasons PUCs exist — to regulate and control
monopoly suppliers of essential services and to protect their customers from
excessive rates and unjustified costs.
This is especially important in the present economic environment and critical for
customers on fixed incomes.
On p1 line 8 of testimony we find : Falls Water Co., Inc. (" Falls Water" or the
Company"), is a wholly- owned subsidiary of NW Natural Water Company, LLC (" NW
Natural Water"), which is a wholly- owned subsidiary of Northwest Natural Holding
Company who publically state elsewhere:
"Our corporate profile is strong and our financial backing is steady."
https://www.nwnaturalwater.com/nw-natural-holdings February, 2025
This comforting assurance is not given anywhere in the Case testimony.
Falls Water and NWN rate increase filing and request actually conflicts with their
other public statements under "Partner with Us":
"NW Natural Water takes system reliability and security seriously. Having operated
the water system since 1988, I'm more confident than ever that we have the capital,
technical and regulatory resources to support our rapidly expanding service
territory."
— Source: Tony Wise, Operations Manager, Falls Water Company, Idaho Falls,
Idaho
https://www.nwnaturalwater.com/our-systems, accessed February 2025
Since by their own public statement, the necessary money and adequate resources
are already available, several major questions arise:
— Examining the Case submission in detail, why is any proposed increase or
'requirement' (more than 25%) so large?
— Why is rapid expansion in Falls Water 'service territory' being sought and
why should existing customers pay for it?
— Surely new connections and supplies should be self-funded, paid for by any
new customers, or at least supported by the parent NWN. If not why not?
— Why are parent company NWN's and NW Holdings own financial information,
ROE and revenue not disclosed, submitted or available for review, and why
should Falls Water ROE be any higher than these holding companies?
— The proxy analysis presented by NWN in the submission by their own
admission actually contains no comparables to Falls Water or even made to

NWN itself: why has this inapplicable analysis not been rejected or
disallowed?
As a published expert and author on risk, safety and economics, I have re-examined
the details of the submissions and testimony. This was a significant and unexpected
task for a customer to have to undertake. I ask for the PUC to do the same as there
are significant inconsistencies, unresolved disclosure, financial and customer
issues.
In summary, the findings for the PUC to urgently consider and re-examine include:
a) The requested increases in ROE and hence in customer rates which are not
justified by this submission, higher than the parent company ROE, and should
be a maximum of 6% and any water rate increases limited to a very small
percentage (see Appendices).
b) Fuller examination is required of the business relationship with the parent
companies on any forward activities and commitments to determine the
required investment and support given that Falls Water is less than 1% of the
NWN and NW Holdings revenue and financial risk.
c) Certain Falls Water allocated or 'shared services' expenses are too large and
should be carefully reviewed, while some are even questionable and
potentially disallowable.
Detailed analyses are given in Appendices A and B of the ROE and proxy
comparisons based on the submission arguments, despite Falls Water admitting
they are not actually comparable. Falls Water Exhibit 4 and Appendix B below also
show the results to be inapplicable and the increased revenue 'requirement' is
unjustified.
In addition for Falls Water and Taylor Mountain, the commodity rates (in Rowell
testimony Exhibit 5) typically show a reduction in the minimum (median use) Tier
limit gallons of some 10% coupled with an increase of Tier 2 rates of some 50%. No
basis is given for these extraordinary changes beyond raising much more revenue.
These changes in usage amounts and costs should not be allowed.
As customers we simply ask the PUC to deny the Falls Water request and apply the
lower range based on actual statistical analysis of ROE data, as illustrated in
Appendix B to be 6% not 10.4%. Together with reducing the allocated 'shared
expenses' this must also significantly reduce the excessive requested revenue and
rate increase charges which are truly draconian given recent previous increases.
Therefore, the PUC should re-evaluate the ROE claim, rate increase and shared
expenses to assess and determine the minimum possible required revenue increase.
2. Excessive and disproportionate revenue and rate increase request based on
already assumed risks
2.1 Reduce 'shared service' expenses
P5 of 31 Rowell testimony
Line 16
Falls Water has a stated income/revenue of $ 3,442,080 (Scott Bruce testimony)

with expenses of $2,734,833. It is a wholly-owned subsidiary of NW Natural Water
(NWN ) and hence of North West Holdings, a 1.213 entity, who assisted Falls Water in
the preparation, submission and testimony on behalf of this rate increase.
North West Natural (NWN) based on first 3 months will have 2024 income of
approximately 219 x 4/3= $290M . Falls Water is therefore 2.7/290 = 1% or less of
the overall company profile so is already a miniscule portion of the revenue and of
any risk.
The major point is that NWN and NW Holdings are treating its small subsidiary Falls
Water as a stand-alone company, allocating sharing 6% or more of corporate
expenses while being also operators, managers and owners of a much larger group.
The 6. 1% allocated 'shared services' or corporate expenses of $260,921 (Rowell
Exhibit 2(H )) total 43% of Falls Water realized income of $608,531 (Rowell Exhibit
4 line 4), As a fraction of the Water only 'shared expenses', the Falls Water
allocation of expenses is in fact 9%.
Shared services with NWN are listed by Falls Water as an expense or charge of
$260,921 (Rowell line 27 2024 Income statement), which is 6% of Falls Water
realized income (see Rowell Exhibits 2(H) and 4). This charge is in fact 9.2% of
Shared Services considering only the corporate Water 'spending' by excluding the
inapplicable Gas 'spending'. This Falls Water 'allocated' shared cost/charge is
therefore an overpayment so should be proportionally reduced to 1% or less
simply because Falls Water is a 1% or less proportional part of the NWN $1.213 and
NWN $290M income streams.
This allocation strategy is clearly not appropriate in or for this Case and the Falls
Water 'shared services' allocation should be reduced to no more than 1% or
$43,486.
NW Water and NW Holdings being the parent corporation assumed all the risks and
the expenses of Falls Water and Taylor Mountain when they acquired it. They are
now apparently trying not to underwrite or pay for needed improvements and/or
necessary maintenance from corporate resources without a major 25 to 44% more
revenue and rate increases for captive Falls Water and Taylor Mountain customers.
Examples of this key linkage and resulting bias are everywhere in the testimony.
Line 18
"Overall corporate costs are increasing by 30%, but this is offset by the fact that
Falls Water represents a smaller portion of the whole as the company grows"
"Falls Water is seeking to recover more in shared services costs than it actually
incurred in 2024, with a 3% increase included over the 2024 charges."
This is essentially and actually already a large additional expense and drain on
Falls Water income over which it apparently has no control.
So this increase should actually be replaced by a large decrease.
2.2 Large versus small business arguments actually suggest rate reduction
Where are the savings from being part of NWN?

Nowhere are the financial situation and ROE of NWN and NW Holdings revealed or
discussed in this filing and Case but are very important just by their absence.
In testimony Falls Water claims to be both a small business (in Idaho) with more
risk and inadequate revenue while at the same time and simultaneously being an
integral part of a larger company (Northwest Natural Water (NWN ) and Northwest
Natural Holding both in Oregon) who have major profits and revenue growth
objectives.
There is inconsistency of small local business water supply with NW Natural and
NW Holdings business and acquisition strategy,
The overall NWN and NW Holdings business and revenue strategy is analyzed in
Appendix A showing where 'locally owned ' companies have been acquired as
subsidiaries while in fact becoming part of a much larger enterprise.
The same argument for filing for large and continuing rate increases locally is
being used elsewhere in different guises as in this Case.
2.3 Small utility customers: low risk
p14 line 14 Q PUC
"Are n' t water utilities typically considered to be low risk? How can a monopoly
service provider be thought of as a high- risk investment?"
This PUC question is absolutely correct, and the response is a lengthy exposition
and explanation of irrelevant general financial market risks even including a
generic discussion of Covid and its impacts !
A major issue for PUC ruling on this rate increase, and the reason for the PUC's
very existence, is to protect customers in small areas with limited numbers and a
monopoly supplier (like Falls Water and Taylor Mountain customers) against large
rates by having a large corporation's financial support, as stated and provided by
NWN itself. This is in fact why Falls Water joined and was sold to NWN and in doing
so NWN assumed the risks. By subdividing their Holdings into smaller 'stand alone'
parts or profit-and-loss centers the benefits of spreading costs and risks over a
larger customer base are lost.
In reality, Falls Water is a low risk monopoly supplier with a locally captive
customer base and represents only less than a 1% risk for NWN and/or NW Holdings.
The submission however claims:
P291ine 1
"There is no universally accepted method for determining an appropriate risk-
based adjustment. Therefore, I recommend that the Idaho PUC not authorize an
ROE in the lower end of the range of ROE estimates presented here."
As shown in section 3 below, correct analysis show this assertion and
recommendation is both clearly biased and unjustified .

A novel argument is also offered on Rowell p14: line 1 "proxy- based models can
understate the necessary ROE for a small water utility struggling with aging and
failing infrastructure. Thus, ROE estimates that are developed through the use of a
sample of publicly traded utilities (whether they are based on a Comparative
Earnings analysis, a DCF analysis, a CAPM analysis or some other method) need to
be augmented upwards to reflect the Falls Water's circumstances."
Again, NWN and NW Holdings acquired Falls Water and Taylor Mountain in full
knowledge of its infrastructure and assumed the risks or otherwise were imprudent
investors. Clearly being 'augmented upwards' is not justified.
2.4 Customer median and peak usage impact is hidden or not disclosed
Falls Water and Taylor Mountain customers are faced with a 27% median usage rate
increase, potentially rising to much more for peak usage.
Moreover, there is also a reduction in median usage In addition for Falls Water and
Taylor Mountain customers. The commodity rates (Rowell Exhibit 5) typically show
a reduction in the minimum (median use) Tier limit gallons of some 10% coupled
with a further increase of Tier 2 rates of some SO%. No basis is given for these
extraordinary changes beyond raising more revenue. These base usage changes and
Tier limit rate changes should not be allowed.
The increase for any usage above median or any such allocated base water use (i.e.
in summer months) is not stated or revealed. By implication assuming a 4" meter
rates as representing 4X median usage at summer peak, the effective overall
increase is potentially up to 44%.
This excessive impact for any above median usage needs to be disclosed and
explicitly factored into and discussed in the filing and reduced .
Given the Case cost increase arguments, all such questionable Falls Water requests
should be examined, disallowed or greatly reduced.
3. Comparable and proxy ROE comparisons used in the submission are
inapplicable: independent re-analysis shows the claims to be incorrect and biased
Falls Water P29 states and requests
"There is no universally accepted method for determining an appropriate risk-
based adjustment. Therefore, 1 recommend that the Idaho PUC not authorize an ROE
in the lower end of the range of ROE estimates presented here."
This statement and recommendation is based on the proxy analysis which is
actually not correct or applicable to Falls Water and Taylor Mountain.
In fact, there are no data given for the parent company NW Water or NW Holdings,
which comprise a $1.213 enterprise. This self-serving' recommendation, should be
rejected by the PUC and based on the actual lower end of the range.
The ROE for NW Holdings in 2023 is not revealed, but is actually reported
elsewhere to the SEC as 7.6%, which is far below the average of the selected
proxies and significantly less than what is being requested by Falls Water.

Since Falls Water has an income stream of —$3M which is less than 1% of NWN
Water and NW Holdings revenue or business income, comparing Falls Water books
and revenue to those for $70-500M company sizes is inapplicable. These numbers
were not included in the Falls Water submission so had to be derived directly using
the analysis and data given in full in Appendix B2.
The NWN chosen proxy companies' annual revenue average over $300 million,
which is almost 100 times larger than Falls Water. Even the smallest utility in the
proxy group is twenty times larger than Falls Water.
The DCF and CPM average is for only 6 proxy companies considered (without giving
the actual numbers). Based on such a small sample the statistical sampling one SD
and standard error is —2.45%, therefore at 95% confidence the actual ranges are
larger than submitted, and based on their own analysis should be c10% + or — 4 to
give 6-15% (see Appendix B1)
As shown here, the corrected ROE data ranges also do not support any claimed ROE
underestimate, and the analysis and data correcting the range in the submitted
Table are given in full in Appendix B2. The lower end of the statistically significant
range is 4% lower than the claimed increase, so clearly is not in the interest of
Falls Water/NWN to propose or recommend.
Since the lower end of the range is circa 6% they (Falls Water/NWN/NW Holdings)
are in effect asking for a 4% premium . Therefore 6% ROE is a reasonable given the
range of the proxy numbers especially given Falls Water admit these are not
actually comparables (see Exhibit 4). Using Exhibit 4 methodology with the more
defensible 6% ROE, the presumed income deficiency (line 5) is reduced to
$346,000.
Reducing the 'shared allocation" also reduces this bottom line income deficiency
becoming a minimum of:
$346,000 — $217,435= $128, 565
With the stated gross up factor of 1.365, and not rounding off the numbers, this
deficiency becomes $175,491.
4. Bottom line: estimating the minimum possible rate increase
Using the same calculation display as Rowell p4, the total revenue 'requirement'
(line 8) is then $3,768,644, or a minimum possible 'required revenue increase' of
only 5%.
While not claiming to be exact, this approximate estimate is a much lower revenue
'requirement' than the claimed 25% (line 13), and is then not consistent the 27%
to 44% rate increases requested for Falls Water and Taylor Mountain .
Further listed in Appendix C there are certain minor expenses claimed or recorded
that should be examined and audited in more detail which possibly total about
$21,914.

Therefore, the PUC should not accept Rowell's Exhibit 4 and should re-evaluate the
ROE claim, rate increase and shared expenses to assess and determine the
minimum possible required revenue increase.
The PUC should re-examine and reject the proposed rate increases for Falls Water
and Taylor Mountain customers. Any ROE and rate increases should certainly also
be limited to no more than circa 6%, and especially given the assurances stated
publically by the NWN parent that:
"Our corporate profile is strong and our financial backing is steady."
Appendix A
Analysis of NWN and NW Holdings revenue and subsidiary company filings
Based on available public data and accessed at
https://ir.nwnaturaIholdings.com/financials/quarterly-results/default.aspx and
https://s23.g4cdn.com/611156738/files/doc_financials/2024/g3/Final-Q3-2024-
Northwest Natural Water claims $1.2 B in revenues and $4.9 Bin assets and 2M
customers.
Earnings-Release.pdf
NW Growth rate target 4-6% per annum for 2022-2027 (now stated as 6-8% at
https://s23.g4cdn.com/611156738/files/doc_financials/2024/q4/Q4-2024-Earnings-
Release-Presentation_Final.pdf)
NW Cash flow for 9 months in 2024 of $219M .
NW Net Income/revenue $34M
NW Overall Earnings ratio is 15%.
NW Holdings Oregon ROE 10.4%
NWN and NW Holdings lists the following owned and/or Subsidiary water companies
(see https://www.nwnaturalwater.com/) with the latest rate filings also found at
the listed locations:
Cascadia Water- In February 2024, filed tariff revisions proposing an approximately
75% increase in annual revenue (https://www.utc.wa.gov/news/2024/)
Falls Water Company in February 2024 filed tariff revisions proposing an
approximately 25% increase in annual revenue
Gem State Water- no financial data found
Salmon Valley Water Company- no financial data found
Foothills Utilities- rate increase that went into effect on November 1, 2024 of a 6%
increase for water customers who use more than 3,490 gallons per month
Suncadia Water and Wastewater- general rate increase request that would have
generated $751,177 (40.5 percent) additional annual revenue in three phases over
one year. The company and staff have agreed to a revised revenue requirement of
$350,000 (20 percent), to be implemented in full on May 1,
2022(https://www.utc.wa.gov/documents-and-proceedings/dockets)
Sunriver Water and Environmental- filed tariff revision May 1, 2024, to increase
the Company's annual revenues by $521,443. The monthly bill of the average
residential customer served will increase by22%. ( https://Sunriverwater.com/wp-
content/uploads/2024/03/UW-199-Sunriver-Water-LLC-Advice-24-2-General-Rate-
Revision.pdf)
Blue Topaz Utilities, Texas -no financial data found

Avion Water- submitted a general rate filing on JUNE 28, 2024 to increase annual
revenues by 15%
(https://avionwater.com//files/NOTICES/2024_Rate_Case_Public_Notice.pdf)
This revenue pattern and NWN and NW Holdings corporate strategy is
understandable and clear of acquiring small companies and then claiming and
negotiating revenue and rate increases almost everywhere (of up to 75%) without
their providing additional financial support.
Appendix B Proxy Company ROE data: submitted testimony analysis is incomplete
and incorrect as real comparables and proxies show a lower rate of return is
appropriate
B1 Comparisons given based on DCF and CAPM are admitted to be misleading but
are still used as justification
P25 line 15
What are the results of your DCF analysis?
A. The DCF analysis discussed here produces an average ROE estimate of 10. 25%
with a range of 7. 7% to 13. 1%.
This DCF value and range is therefore not consistent with the 'proxy' ROE data (see
below) and the average stated on p29 of 10.55%.
P28 line 2
Please discuss the results of your CAPM analysis.
A. The CAPM model discussed here produces an average ROE estimate of 10. 83%
and a range of 9. 8% to 12. 29%.
The average is for only 6 proxy companies (without giving the actual numbers) so
the statistical sampling error one SD and one standard error is 2.45%. So at 95%
confidence with this small sample the range should be c10% + or — 4 to give the
range 6-14%.
The table in Rowell page 29 line 7 (labeled 'ROE Results') should be corrected and
completed as follows to include the actual data—derived Range as follows.
Model Range % Average % Actual
Range %
Comparable 8.2-13.8 10.57 6.4 — 14.67
earnings
DCF 7.7-13. 1 10.25 6. 15- 14.35
CAPM 9.8- 12.29 10.83 5.5 -15. 13
P28 line 9
The proxy companies' revenues are not actually given in the testimony but in fact
the proxy companies annual revenues average over $ 300 million (comparable to
NWN ), which is almost 100 times larger than Falls Water. Even the smallest utility
in the proxy group is twenty times larger than Falls Water (see Appendix 132).

Line 16
The risk profile of small firms is fundamentally different from that of
large firms.
The claim is simultaneously to be both part of a large company (NWN and NW
Holdings) and being a small company ( Falls Water) at the same time whichever best
suits the increase and ROE revenue justification.
B2 Proxy Company ROE data and submitted testimony analysis is incorrect:
chosen comparables are 100x larger and proxy analysis shows a lower rate of
return is appropriate
P29 line 1
"There is no universally accepted method for determining an appropriate risk-
based adjustment. Therefore, I recommend that the Idaho PUC not authorize an
ROE in the lower end of the range of ROE estimates presented here."
To examine this recommendation, an independent ROE analysis was based on data
publically available from the cited 'proxy' companies on February 28,2025. All the
proxy companies reports were examined with the results listed below and shown in
the Table as obtained from the website locations given. These data and financial
information was not included or released in the Falls Water/NWN submission
ROE =return on equity
American States income $595M ROE 14. 1 %
https://americanstateswatercompany.gcs-web.com/static-files/ebe686bl-ce72-
406f-8071-e78129f2d521
American Water Works income $502M ROE 9-10% 7-9% growth target
https://s26.g4cdn.com/750150140/files/doc_presentations/2025/Feb/19/2024-
Fourth-Quarter-and-Year-End-Earnings-Call-Presentation.pdf
Essential Utilities $213 (2023) income $498M ROE 8.4%
https://www.essential.co/static-files/a9444148-6fa4-469b-a10a-84bf3fe2fd6d
Artesian Resources (holding company) in Delaware income $$99M Cash flow $32M
No ROE % cited
https://www.artesianwater.com/wp-content/uploads/10K-2023-Draft-Final.pdf
California Water Group income $222M ROE 7.7% (5year)
https://www.calwatergroup.com/_assets/_562a450cf2b788e824be8bc349f92c46/cal
watergroup/db/2342/24262/pdf/3+-+CWT+4Q24+Earn ings+Deck+FINAL+r1.pdf
Middlesex Water Company income $166M ROE 7.7% (2023)
https://www.middlesexwater.com/news-room/
https://materials.proxyvote.com/Approved/596680/20240326/AR_566417/INDEX.HT
ML?page=14
York Water Company Income $71M (2023) ROE 10.7%
https://www.yorkwater.com/wp-content/uploads/YWC-2023-Annual-Report.pdf

Average ROE 9.45% with a 95% confidence or 2 standard error Range of 4.6 to
14.4 %.
The detail is shown in this Table Amended Proxy results (to compare to Rowell
p19)
Company Income ($M) ROE % Range %
American States 595 14.1
American Water 502 9 - 10
Essential Utilities 498 8.4
Artesian Resources 99 ?
California Water 222 7.7
Middlesex Water 166 7.7
York Water 71 10.7
NW Natural Water 290 10.4
NW Holdings 1200 7.6
Falls Water 3 10.2 claim 7.7 -13.8 claim
Average w/o NW Holdings 376 9.45 4.6 - 14.4 actual
In the actual Falls Water submission p29 line 8
"This analysis produces a wide range of ROE estimates from as low as 7. 7% to as
high as 13.8%. Given the risk profile of Falls Water, an ROE estimate of 10.2% is
appropriate. The overall average of the ROE estimates presented here is 10. 55%.
Falls Water' s risk profile could justify an ROE estimate above the average be used .
An ROE of 10.2% is well below the highest ROE estimates presented here and is
below the average ROE."
Given the actual data and Falls Water profile, this result and statement is not
correct as the stated range is such that the 'asking' 10.2% is actually above the
average of the proxy ROE values at 9.45%. Unstated in the submission, the ROE
request also actually exceeds the parent NW Holdings ROE of 7.6% in 2023 by 2.6%.
Actually the proxy average is not 10.55% but 9.45%, implying there is some error or
undisclosed data embedded in the calculations.
The statistically significant 95% confidence or standard error range is also
significantly under estimated in Rowell p19, with the low range beings 7.7 -4.6 =3%
less. It is necessary to use actual comparable proxy data or at least statistically
analyze the results, but this has not been done in this Falls Water revenue increase
request apparently because of these larger statistical variations.
Appendix C: Given the Case cost increase arguments and 'requirements',
questionable 'shared' allocated expenses should be disallowed or greatly reduced
From Rowell Exhibit 2(H ) these include but may not be limited to:
Planning and business development $ 10,515
Dues and memberships $2,614
Legal $8785
Travel and food $ 5121
Total $21,914.

This is 3.6% of Falls Water realized income so these allocated 'shared services'
expenses should be examined and are clearly an excessive allocation for such a
small company, particularly given the apparently known revenue shortfall.