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HomeMy WebLinkAbout20250703Staff Comments.pdf ADAM TRIPLETT DEPUTY ATTORNEY GENERAL IDAHO PUBLIC UTILITIES COMMISSION PO BOX 83720 BOISE, IDAHO 83720-0074 (208) 334-0318 IDAHO BAR NO. 10221 Street Address for Express Mail: 11331 W CHINDEN BLVD, BLDG 8, SUITE 201-A BOISE, ID 83714 Attorney for the Commission Staff BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF FALLS WATER CO., ) INC.'S APPLICATION FOR AN ORDER ) CASE NO. FLS-W-24-02 AUTHORIZING INCREASES IN THE ) COMPANY'S RATES AND CHARGES FOR ) WATER SERVICE IN THE STATE OF ) COMMENTS OF THE IDAHO ) COMMISSION STAFF COMMISSION STAFF ("STAFF") OF the Idaho Public Utilities Commission ("Commission"), by and through its Attorney of record, Adam Triplett, Deputy Attorney General, submits the following comments. BACKGROUND On January 30, 2025, Falls Water Company, Inc. ("Company") applied to increase its rates and charges for water service in Idaho ("Application")by$899,493 or 25.02%. The Company requested a March 1, 2025, effective date for new rates. On February 18, 2025, the Commission issued a Notice of Application and a Notice of Intervention Deadline, setting a deadline for interested parties to intervene. Order No. 36468. No parties petitioned to intervene. The Commission also suspended the Company's proposed effective date for five months and 30 days, consistent with Idaho Code § 61-622(4). STAFF COMMENTS 1 JULY 3, 2025 STAFF ANALYSIS Staff reviewed the Company's Application, testimony, exhibits, workpapers, and responses to production requests. Staff also conducted an on-site audit to review the Company's financial records,processes, and internal controls. Based on its review, Staff recommends that the Commission establish a revenue requirement increase of$284,333, or 7.93%, which provides an annual revenue requirement of$3,587,713, as shown in Attachment A, Page 1. System Description The Falls Water Company operates three separate water systems: Falls Water("FW"), Taylor Mountain("TM"), and Morning View ("MV"). With all three systems combined, the Company serves approximately 6,700 residential and commercial customers. The FW system provides service to customers east of the City of Idaho Falls and north of the City of Ammon in Bonneville County, Idaho. The FW system consists of nine production wells, five wellhouses equipped with backup generators, and a two-million gallons storage reservoir. The MV system serves customers southeast of the City of Rigby in Jefferson County, Idaho. The MV system consists of one active well equipped with a backup generator. The TM system provides services to an area south of the City of Idaho Falls in Bonneville County, Idaho. The TM system has two production wells and one backup generator. Both the MV and TM systems currently do not have any storage reservoirs or booster pumps. The distribution system includes pipes ranging from 2 to 12-inches, made from various materials such as cement, ductile iron, and polyvinyl chloride. Water is delivered to customers using service meters ranging from 5/8-inch to 4-inch. Approximately 98% of all customers have a 3/4-inch or 1-inch service meters. Out of the three systems, only the water produced by the FW system gets chlorinated. The Company uses a combination of solid and liquid chlorine to treat its water. System Reliability According to Staff's review, all three of the Company's water systems are capable of providing reliable and safe water service to its customers. Staff reviewed the Company's latest Idaho Department of Environmental Quality("IDEQ") sanitary surveys for all systems and STAFF COMMENTS 2 JULY 3, 2025 believes there are no outstanding sanitary issues or significant deficiencies that impedes system reliability. Staff found no customer complaints in 2023 or 2024 suggesting system reliability issues. Current Capacity and Demands Staff reviewed facility plans for all three systems and believes each of the Company's systems has sufficient total pumping capacity to satisfy its current maximum daily demands ("MDD"). However, Staff believes the MV and TM systems may not have enough firm capacityl to meet the current MDD. IDEQ may investigate these potential deficiencies during the next sanitary surveys for the MV and TM water systems. According to Idaho Rules for Public Drinking Water System IDAPA 58.01.08 Section Nos. 501.17 and 541.02, the Company needs to meet minimum requirements for MDD when the largest source goes out of service. However, according to Staff's analysis,both MV and TM systems do not meet the minimum requirements. Currently, with only one active production well, the MV system has an available firm capacity of 0 (zero) gallons per minute ("GPM") and its MDD is 277 GPM. Company's Response to Production Request No. 16—Attachment 3 at 16. With the largest well out of service, the TM system's capacity is 215 GPM, compared to its MDD of 309 GPM. Company's Response to Production Request No. 16—Attachment 4 at 24. Additionally, the TM system may not have enough pumping capacity to sustain the combined MDD and fire flow ("FF") requirements. The Bonneville County fire authorities currently require at least 1,500 GPM of additional fire suppression flow out of a hydrant. The MV system does not have any fire hydrants in its system, so Staff did not include FF requirements in its analysis. Staff's assessment of the Company's total available pumping capacity and the MDD are summarized below in Table No. 1. 'Firm capacity is the available system capacity when the largest source is out of service. STAFF COMMENTS 3 JULY 3, 2025 Table No. 1: Comparison between Total Pumping Capacity and Maximum Daily Demands Current Pumping Capacity (GPM) System Total System Largest Source Firm Current MDD MDD+FF Capacity Capacity Capacity (GPM) (GPM) FW 13,000 2,700 10,300 7,196 8,696 MV 600 600 0 277 - TM 480 265 215 309 1,809 Projected Future Growth and Demands The Company has been experiencing approximately 4.7% average annual growth from 2020 through 2024, and it expects a similar growth rate in the future. Response to Production Request No. 54. Staff incorporated this anticipated growth rate and the Company's facility plan to estimate the number of equivalent residential units ("ERU"s) and corresponding average daily demands ("ADD"), MDD, and peak hourly demands ("PHD")up to 2040 for the FW system. According to Staff's analysis, the FW system currently has enough firm capacity(10,300 GPM) to satisfy its projected 2025 MDD (9,479 GPM), but it may fall short to meet Staff's projected MDD of 11,926 GPM by year 2030. Staff's analysis of FW's projected future demands, and its currently available capacity is provided in Table No. 2. Table No. 2: Staff s Estimation on the Projected Growth of FW System Growth Rate ADD/ERU MDD/ERU PHD/ERU (GPM)2 (GPM)2 (GPM)2 4.7% 0.48 1.34 1.97 Staff Projections Year 20183 Current 2025 2030 2035 2040 ERUs 5,370 6,695 7,074 8,900 11,198 14,088 ADD (GPM) 2,578 3,214 3,395 4,272 5,375 6,762 2 Company's Response to Production Request No. 16—Attachment 2 at 4. 3 The FW facility plan used 2018 as the base year for determining all demand metrics. Company's Response to Production Request No. 16—Attachment 1 at 21. STAFF COMMENTS 4 JULY 3, 2025 Staff also analyzed both the MV and TM system's facilities plans and compared the future demands with current capacities in Table No. 3. Staff discovered the MV system does not expect any future growth, and the TM system has a potential of 500 total ERUs at its full buildout. Response to Production Request No. 16—Attachment Nos. 3 and 4. As indicated in the previous section, both MV and TM system fall short in meeting current MDDs of 277 and 309 GPM, respectively, and TM system may not have enough capacity to satisfy the projected MDD of 762 GPM at the full buildout. Table No. 3 System MV TM Current Future Current Projected Full Buildout ERUs 138 No growth expected 186 500 ADD (GPM) 86 95 237 MDD (GPM) 277 309 762 PHD (GPM) 344 525 1,412 Total Capacity(GPM) 600 480 Firm Capacity (GPM) 0 215 Unaccounted Water Loss According to Staff's evaluation, out of the three systems, the MV system experienced the most significant amount of average annual water loss (approximately 42%) in 2024, which is a 5.5% increase compared to the 2022 estimation in its previous general rate case No. FLS-W-23- 01. Compared to 2022, TM system's water loss amount decreased by 38.8%, where FW's loss amount was marginally reduced by 5.5%. Although both FW and TM system demonstrated reduction of water loss following the Company's submitted plan for water causes and mitigation options,4 Staff believes the MV system's water loss amount is still critically high. Thus, Staff recommends the Company: 4 On May 31,2024,the Company submitted the following plans in response to Commission Order No.36027: (1) water loss causes and mitigation options;and(2)meter accuracy testing plan. STAFF COMMENTS 5 JULY 3, 2025 • Continue identifying root causes of water loss (including but not limited to detecting leaks, recognizing unmetered connections, preventing unauthorized usage from fire hydrants or similar) and maintaining the existing meter replacement program; and • Demonstrate further reduction of water losses system-wide when it files the next general rate case. Staff's assessment of unaccounted water loss across the Company's system is shown in Table No. 4 below. Table No. 4 2020 2021 2022 2023 2024 % Change 2022 to 2024 FW 12.0% 12.1% 13.5% 12.9% 12.7% (5.5%) MV 0.0% 38.9% 39.4% 42.2% 41.6% 5.5% TM 18.7% 14.8% 14.0% 14.7% 8.5% (38.8%) Meter Accuracy Testing,Program According to the Company, the meter replacement program'was not as successful as anticipated. The Company replaced approximately 250 meters in 2024, out of which, only 12 meters were tested for accuracy. The Company's plan was to test 5 different models of meters; however, the test results indicate only one type of meters was tested. Company's response to Production Request No. 57—Attachment 1. The Company also planned to test each meter in three categories (low, medium, and high flow); however, the test results only indicate one type of testing being performed, and the type of testing is not specified. The Company asserts the testing station for low, medium, and high flow is still under construction. Company's Response to Production Request No. 57. The test results also indicate that out of 12 test meters, only one meter's performance falls within the manufacturer's accuracy standard(acceptable error range: ±1.5%). However, Staff believes the test results is not statistically significant to draw a specific conclusion because the number of test samples was too small. Still, the Company plans to continue its existing meter replacement program until 2030. Company's Response to Production Request No. 57— Attachment 3. STAFF COMMENTS 6 JULY 3, 2025 Staff recommends the Company provide detailed test results when it files the next general rate case, including but not limited to the following information: • Date of test; • Make and model of meter; • Meter ID no.; • Manufacture date of meter register; • Test results of low, medium, and high flow tests; • Calculation of weighted average of tests; and • Results of meter accuracy, etc. Revenue Requirement The Company requested an increase in annual revenues of$899,493, or 25.02%. Staff recommends an overall increase to revenue requirement of$284,333 based on 30 recommended adjustments, as shown in Attachment B. Rate of Return The Company requested an overall Rate of Return ("ROR") of 7.96%. The requested ROR was based on a hypothetical capital structure of 45% debt at a cost of 5.22% and 55% equity at a cost of 10.2%. Staff recommends the Commission accept the Company's proposed capital structure but adjust cost of debt to 4.7% and return on equity ("ROE")to 9.7%, resulting in an overall ROR of 7.45%, as shown in Attachment A, Page 3. Cost of Debt The Company requested a cost of debt of 5.22%based upon the weighted-average cost of long-term debt of Northwest Natural Holding Co. ("NWN") Water credit agreements and NWN Water term loans recorded on its 2023 10-K report. Staff reviewed the latest filed 10-K for NWN for 20245 and recommends updating the cost of debt data to 2024, and include only NWN Water term loans, as reported in the latest 10-K report. Staff recommends cost of debt of 4.7% resulting in a decrease to revenue requirement of$50,872, as shown in Attachment B. 5 Inline Viewer:NORTHWEST NATURAL HOLDING COMPANY 10-K 2024-12-31,page 109 STAFF COMMENTS 7 JULY 3, 2025 Return on Equity The Company requested an ROE of 10.2%. The requested ROE was calculated using a proxy group of seven comparable companies calculating three different methods to determine ROE: Comparable Earnings, Discounted Cash Flow("DCF"), and Capital Asset Pricing Model ("CAPM"). Staff's analysis included using relevant market data as of May 29, 2025, as shown in Attachment C, Page 1, to calculate DCF and CAPM ranges, using a proxy group of eight comparable companies. Additionally, Staff considered Company specific factors and prior Commission Orders. Staff selected a proxy group of eight publicly traded companies to do an analysis comparing similar companies to its parent company,NWN. Staff used the same selection of companies as the Company but added H2O America to its group due to it being similar to others selected within the proxy group. The proxy group Staff selected is shown in Table No. 5 below. Table No. 5 Proxy Group Line No. Company Name Ticker 1 American States Water Co AWR 2 California Water Services Group CWT 3 Middlesex Water Co MSEX 4 H2O America HTO 5 Artesian Resources ARTNA 6 York Water Company YORW 7 American Water Works AWK 8 Essential Utilities Inc WTRG Discounted Cash Flow The DCF method is grounded in the principle that the value of a utility company's ROE is equal to the present value of the future dividends investors expect to receive. The DCF rate is calculated by adding the dividend yield percentage to the projected growth rate. As shown in Attachment C, Page 4, using the DCF method, Staff calculated an ROE range within the selected proxy group between 8.05% and 11.38%, with an average of 9.08%. STAFF COMMENTS 8 JULY 3, 2025 Capital Asset Pricing Model The CAPM rate is calculated by adding the risk-free rate, Attachment C, Page 2, to the market risk premium. The risk-free rate is an investment without risk that has a guaranteed return on investment, such as a U.S. Treasury bond. Market risk premium is calculated by multiplying the beta by the expected market return, Attachment C, Page 3. The beta of a stock is a measurement of how the stock price moves in comparison with the overall market. As shown in Attachment C, Page 4,using the CAPM method, Staff calculated an ROE range within the selected proxy group between 7.55% and 11.83%, with an average of 10.27%. Company Factors and Prior Commission Order The Commission authorized a balancing account in Order No. 36027 for ground water mitigation costs. Expenses levied on the Company for overproduction of water are unpredictable and can be significant when incurred. The balancing account reduces the overall risk of financial losses to the Company. Staff believes the balancing account is a reason for not elevating ROE levels due to reduced risk for the Company. Summary of ROE Staff s recommended ROE was calculated combining DCF and CAPM methodology ranges to calculate a range of 7.55 and 11.83%, with an overall average ROE of 9.68%, as shown in Attachment C, Page 4. Based upon Staffs analysis of peer companies using DCF and CAPM modeling to calculate a ROE range and the presence of a balancing account protecting the Company from financial losses, Staff recommends an overall ROE of 9.7%, resulting in a decrease to the revenue requirement of$59,223, as shown in Attachment B. Net-to-Gross Multiplier The Company proposed a net-to-gross multiplier of 136.52%. The net-to-gross multiplier is used to gross up the revenue requirement to account for bad debt, regulatory assessment fees, and state and federal income taxes, ensuring the company collects sufficient revenues to cover these obligations and maintain its requested revenue requirement. Staff s net-to-gross multiplier includes removal of bank service fees, an updated regulatory assessment fee rate, and the new STAFF COMMENTS 9 JULY 3, 2025 Idaho state corporate tax rate for 2025. Staff recommends a revenue requirement multiplier of 134.674%, as shown in Attachment A, Page 4. Bank Service Fees The Company proposed to include bank service fees in the net-to-gross multiplier at a percentage of 0.009%. Bank service fees are not a known percentage of revenue each year and therefore should not be expressed as a known percentage in the multiplier. Furthermore, in Order Nos. 34925 and 36027, the Company was ordered to remove bank service fees from the multiplier. Staff recommends that bank service fees be removed from revenue requirement, resulting in a decrease to the revenue requirement of$7,173, as shown in Attachment B. Regulatory Assessment Fees The Company proposed to include regulatory fees in the net-to-gross multiplier at a percentage of.2529%. In Order No. 36545, the Commission updated its regulatory assessment fee percentage to .2223%. Staff recommends using a regulatory assessment of.2223%, resulting in a decrease to the revenue requirement of$246, as shown in Attachment B. State Income Tax Rate The Company proposed to include state income taxes in the net-to-gross multiplier at a percentage of 5.695%. In 2025, the State of Idaho changed income tax rate to 5.3% as a result of House Bill 40. Staff recommends using the updated state income tax rate of 5.3%, resulting in a decrease to the revenue requirement of$3,291, as shown in Attachment B. Rate Base The Company proposed a rate base of$15,924,094. Rate base is the summation of plant- in-service ("PIS") amount and cash working capital, offset by accumulated depreciation and any contributions in aid of construction("CIAC"), or contributed capital. Staff reviewed all components of rate base, including PIS additions since the most recent general rate case, accumulated depreciation, CIAC, accumulated CIAC amortizations, deferred tax assets, and cash working capital. Staff recommends reducing rate base by $906,948 resulting in a rate base of $15,017,145, as shown in Attachment A, Page 5. STAFF COMMENTS 10 JULY 3, 2025 Plant-In-Service Staff reviewed capital additions included for recovery in this case as noted on page 2 through 7 in Company Witness Bruce's Testimony. Staff's review included four criteria including: (1) whether the assets will likely be used and useful by the rate effective date; (2) whether the project cost included for recovery are known and measurable; (3) whether the project has a justifiable need; and(4)whether the project expenses are reasonable and least cost among competing alternatives. Staff recommends a PIS balance of$19,796,791, based upon seven adjustments to PIS totaling a decrease of$399,295, as shown in Attachment A, Page 5. Company Updated Plant-In-Service The Company's Exhibit No. 1 reports a PIS balance of$18,516,936 including proforma adjustments through May 31, 2025. In response to Staff's Production Request No. 6, the Company reported a balance of$18,488,213, through May 31, 2025. The difference is attributed to Account 334—Meters. Staff recommends adjusting the Company's Application Account 334 —Meters to the ending balance in Company's response. Staff recommends a reduction to PIS of $28,723 which results in a decrease to the revenue requirement of$2,882, as shown in Attachment B. Water Rights The Company included a proforma PIS increase of$354,750 associated with the purchase of additional water rights. In the Company's response to Production Request No. 48, the Company included invoices totaling $356,059. Staff recommends an increase to PIS of $1,309 to adjust to the actual spend documented by the Company, which results in an increase to the revenue requirement of$131, as shown in Attachment B. Replacement Well No.4 for Morningview Well Nos. I & 2 The Company included a proforma PIS increase of$305,000 for the replacement of well Nos. 1 and 2 with well No. 4. In its supplemental response to Production Request No. 81, the Company provided the actual cost of$212,422. Staff recommends a reduction to PIS of $137,578, which results in a decrease to the revenue requirement of$20,939, as shown in Attachment B. STAFF COMMENTS 11 JULY 3, 2025 Falls Water System Meter Replacements The Company included a proforma PIS increase of$221,700 for meter replacements within the FW system. The Company provided invoices for the cost of the meters but was only able to provide a known and measurable amount of labor cost for the installation, if the meters are all installed at standard depth. The total cost of meters and for labor at standard meter depth is $173,679. Additional labor costs to install several of these meters at larger depths will not be known and measurable until sometime after the meters have all been installed and the contractor can account for the additional cost. Any excess meter installation costs will be recorded to PIS and recovery will occur in a future general rate case. Staff recommends a reduction to PIS of $48,021 to adjust to the known and measurable amount to install the meters, which results in a revenue requirement decrease of$7,309, as shown in Attachment B. Backhoe Replacement& Skid Steer The Company included a pro forma increase of$230,000 for the replacement of a backhoe and a skid steer. The actual cost the equipment was $220,904 based on invoices provided by the Company. Staff recommends a reduction to PIS of$9,096 to adjust to the actual cost of the backhoe and skid steer, which results in a decrease to the revenue requirement of $2,092, as shown in Attachment B. Service Line Replacements The Company included a pro forma increase of$52,000 for the replacement of service lines. Through April 2025, the actual cost for replacing service lines was $29,814. Company's supplemental response to Production Request No. 84. No additional costs for the project were reported by the Company. Staff recommends a reduction to PIS of$22,186 to adjust to the actual cost through April 2025, which results in a decrease to the revenue requirement of$2,801, as shown in Attachment B. Backup Generators for Well No. 5 & Office Building The Company included a proforma PIS increase of$155,00 for backup generators for Well No. 5 and the office building. The delivery date for these generators is delayed and estimated to be delivered in August 2025. Staff believes it is unlikely that the generators will be STAFF COMMENTS 12 JULY 3, 2025 installed and used and useful until after the rate effective date of September 1, 2025. Furthermore, Staff believes additional costs will be incurred based upon the labor of installing the generators, meaning the final costs are not known and measurable. Staff recommends a reduction to PIS of$155,000, which results in a decrease to revenue requirement of$23,590, as shown in in Attachment B. Accumulated Depreciation Staff reviewed the Company's accumulated depreciation calculations. Staff recommends an accumulated depreciation balance of$3,396,942 based upon seven adjustments to accumulated depreciation totaling $559,573, as shown on Attachment A, Page 5. Company Updated Accumulated Depreciation The Company's Exhibit No. 1 calculates an accumulated depreciation balance of $2,805,335 as of September 30, 2024. The Company's response to Production Request No.6, Attachment No. 1 calculates an accumulated depreciation balance of$2,807,424 as of September 30, 2024. Staff recommends an increase to accumulated depreciation of$2,089, which results in a decrease to the revenue requirement of$210, as shown in Attachment B. Accumulated Depreciation Updated to 8131125 The Company provided accumulated depreciation calculations through September 30, 2024. Because the Company is including recovery of proforma PIS, Staff recommends updating the accumulated depreciation balance through the Company's rate effective date, September 1, 2025 (11 months). Staff recommends an increase to accumulated depreciation of$564,973, which results in a reduction to the revenue requirement of$56,685, as shown in Attachment B. Project-Specific Accumulated Depreciation The Company included a half-year of accumulated depreciation for all pro forma PIS additions. Staff agrees that a half-year method for including accumulated depreciation is acceptable and eliminates the need to adjust all pro forma project accumulated depreciation balances based upon each actual in-service date of each project. Furthermore,because the pro forma accumulated depreciation included by the Company is not a significant amount, STAFF COMMENTS 13 JULY 3, 2025 adjustments to actual accumulated depreciation based upon actual in-service dates would be minimal. Based upon the previously mentioned Staff recommended PIS adjustments: Replacement Well No. 4 for Morningview Well Nos I & 2, Falls Water Meter Replacements, Backhoe Replacement& Skid Steer, Service Line Replacements, and Backup Generators for Well No. 5 & Office Building. Staff recommends a decrease to accumulated depreciation of$7,489, using the half-year method. Contributions In Aid of Construction Company Updated CIAC The Company's Exhibit No. 1 calculates CIAC to be $2,806,099 as of September 30, 2024. The Company's response to Production Request No. 6 calculates CIAC to be $2,786,624 as of September 30,2024. Staff recommends a reduction to CIAC of$19,475, which results in an increase to revenue requirement of$1,954, as shown in Attachment B. Accumulated Amortizations of CIAC Company Updated Amortizations of CIAC The Company's Exhibit No. 1 calculates an accumulated amortization of CIAC of $1,009,922 as of September 30, 2024. The Company's Production Request No. 6 calculates accumulated amortization of CIAC of$997,192 as of September 30, 2024. Staff recommends a decrease to amortization of CIAC of$12,730, which results in a decrease to the revenue requirement of$1,277, as shown in Attachment B. Amortization of CIAC Updated to 813112025 The Company provided accumulated amortization of CIAC calculations through September 30, 2024. Staff recommends updating accumulated amortization of CIAC through the Company's rate effective date, September 1, 2025 (11 months). Staff recommends an increase to accumulated amortization of CIAC of$82,164, which results in an increase to the revenue requirement of$8,244, as shown in Attachment B. STAFF COMMENTS 14 JULY 3, 2025 Working,Capital The Company proposed a cash working capital balance of$287,563 using the one-eighth method. The one-eighth method is a common practice for regulated utilities and is intended to compensate for the timing differences between when expenses are incurred and when revenues are collected, allowing companies to cover short-term obligations related to operations. Staff recommends a working capital balance of$250,574 using the one-eighth method base on Staff's proposed operating expenses, which reduces working capital by $36,898, and results in a decrease to the revenue requirement of$3,711, as shown in Attachment B. Revenue Other Water Sales The Company included$11,772 of Other Water Sales in its sales revenue. Other Water Sales is various revenues that are unpredictable from year to year, such as hookup fees and late fees on overdue customer payments. Staff recommends removal of Other Water Sales from the revenue requirement calculation. Staff recommends an increase to the revenue requirement of $15,853, as shown in Attachment B. Expenses Employee Wage Increases The Company requested an increase in the recovery of employee wages of 10%. The Company states that employee wages need to be increased due to employee retention and hiring of future candidates. To supports its proposed wage increase, the Company provided data that compared the national average and/or median wages to U.S. Bureau of Labor("BLS") data in response to Production Request No. 58. Additionally, the Company provided analysis comparing the City of Falls Water employee wages to the Company's proposed employees' wages in response to Production Request No. 4. The past five years of Company employee data does not indicate retention issues at the more experienced positions, but indicates a higher turnover occurs with its entry level positions. The Company provided analysis comparing national average BLS data to the proposed wage increases. Staff believes that using national average BLS wage data is misleading, as Idaho Falls STAFF COMMENTS 15 JULY 3, 2025 specific average wages are below the national average6, mostly attributed to cost of living differences. Staff conducted a comparable analysis using the latest Idaho statewide specific BLS (May 2024), as shown in Attachment D, Page 1, for the job titles in question. Staff examined Idaho specific wage data factors that include, cost of living in cities such as Boise, as well as smaller cities that are similar to Idaho Falls. Additionally, Staff analyzed BLS data for the Idaho median salary within the following ranges, 1 Oth percentile, 25th percentile, 75th percentile, and 90th percentile wage earners. In Attachment D, Page 2, Staff compared each employee's hourly wage and where it falls compared to the rest of Idaho employees with the same job title if the employee(s) were given: (1)no increase, (2) a 3% increase, and(3) a 10% increase, as requested by the Company. The result of the comparisons is summarized in Attachment D, Page 3. A wage increase of 3% would put a majority of employees within 25%to 75% compared to Idaho average wages. A 3% increase would mean 60% of employees would be above median Idaho income, with 50% of employees being within the 25% and 75% ranges. Staff believes this is adequate to retain employees and to be competitive with peers for employee compensation. Furthermore, Consumer Price Index data for urban wage earners and clerical workers in the West Mountain Region indicates that the region in which the Company operates, consumers have experienced a 1.7% increase in the cost of goods and services between May 2024 and May 20257, further indicating that a 3% increase is adequate given the current economic environment within the region. The Company also used wage data from the City of Idaho Falls. This data includes a list of employee job titles, and a correlating pay scale with step increases for each pay grade. The intention of a pay scale is to track employee longevity and performance and to match these metrics to an adequate compensation level as employees progress. The City of Idaho Falls pay step increases range from step 1 to 19 on its pay scale. Currently, the Company does not have a pay scale of its own. However, the Company selected a step on the pay scale based solely on longevity for each employee to compare its requested wage increases to the City of Idaho Falls employee pay. Staff believes that analyzing the pay scale of another organization without 6 Occupational Employment and Wages in Idaho Falls—May 2024:Westem Information Office:U.S.Bureau of Labor Statistics 7 Western Consumer Price Index Card:Western Information Office:U.S.Bureau of Labor Statistics STAFF COMMENTS 16 JULY 3, 2025 knowing the metrics which constitute wage step increases for that organization is not an adequate way to compare wages. After analyzing the Company provided data and conducting comparative analysis using Idaho and Mountain region specific data, Staff does not recommend using the Company's proposed wage increase of 10%. Furthermore, Staff identified that the Company double-counted bonus expense by including the expense in both the bonus expense account and admin labor account. Staff removed the double-counting error from the admin labor account in its overall labor calculation. Staff recommends a 3% labor increase and the removal of the bonus expense from the admin labor account, which results in a decrease to the revenue requirement of$76,139, as shown in Attachment B. Seasonal Labor The Company included an adjustment to account for seasonal employee wages in its requested increase. Staff did not adjust seasonal labor in any other proposed adjustments but instead calculated the adjustment separately in this adjustment to avoid double counting errors. The Company included a 10% increase to current seasonal labor hourly wage and then multiplied this increase by 1,040 hours of seasonal labor. The Company provided actual seasonal labor hours worked from 2020 through 2024 in response to Production Request No. 60, which only included seasonal labor in 2023 and 2024. Staff calculated the average of the two years to be 706 hours. Staff recommends a 3%wage increase and applying it to the two-year average of 706 hours. Staff recommends a seasonal employee wage decrease to the revenue requirement of $9,549, as shown in Attachment B. Capitalized Labor The Company included an offset to its labor expense by including a capitalized labor contra-expense. This is done in order to remove capitalized labor from labor expense accrued in the test year. This ensures that capitalized labor is included in PIS additions when Company employees are working on capital projects. Removing capital labor from labor expense avoids double recovery for the Company. In the Company's proforma adjustment, it multiplied the proforma field labor by 8%to calculate a capital labor amount. Staff calculated an actual capital labor percentage of 9.7%, by dividing the capital labor expense in the test year by the field labor STAFF COMMENTS 17 JULY 3, 2025 expense in the test year. The 9.7% is then multiplied against Staff s recommended field labor expense, which calculates an updated capital labor proforma expense amount. Staff recommends using 9.7%capital labor percentage to calculate a capital labor expense, which results in a decrease to the revenue requirement of$8,327, as shown in Attachment B. Bonus Expense The Company requested a bonus expense in its Application that is based on financial metrics and customer growth metrics. During discussions with the Company, 55% of the bonuses were determined to be based upon financial metrics; 40%being net income targets; and 15%being customer growth metrics, which results in increased Company revenue and ultimately increases Company net income. The other 45% of bonuses were based upon customer service and reliability metrics, such as the number of outages and response to customer service calls. Staff recommends removal of the financial metrics which do not provide a benefit to customers. Staffs recommendation results in a decrease to the revenue requirement of$7,454, as shown in Attachment B. Payroll Taxes The Company included an adjustment to payroll taxes which is based upon tax liability in the test year and compared to tax liability that will occur, including the increased employee labor expense. The Company multiplied its total calculated labor expense by the employer Federal Insurance Contributions Act tax rate of 7.65%, which is the share of employer taxes for both Social Security tax and Medicare tax, to calculate a payroll tax liability. Consistent with Staffs labor adjustment, Staff multiplied its calculated labor expense total by the same 7.65% in order to calculate an updated payroll tax liability. Staff recommends a decrease to the revenue requirement of$6,555, as shown in Attachment B. Power Expenses The Company requested an expense of$393,495 to be included for recovery due to electricity expenses. Staff determined the total annualized electricity expense of$338,444 to be included in the revenue requirement. Staff calculated the $/gallon electricity costs and multiplying it with the normalized water production amount over the period of five years from STAFF COMMENTS 18 JULY 3, 2025 2020—2024. In its calculation of annualized electricity expense, Staff also took into consideration the latest approved rate increase of the Company's electric service provider, PacifiCorp. In its analysis, Staff first calculated the normalized annual production by analyzing the trend of typical production amounts for all three systems during the past five calendar years (January 2020—December 2024). Staff then calculated the $/gallon electricity cost for each system by dividing the 2024 electricity expense by the respective production for 2024. The Company received power bills according to PacifiCorp's Schedule Nos. 6 and 23, where Schedule No. 6 includes approximately 83.5% of total power charges and Schedule No. 23 takes the remaining portion. According to the Commission Order Nos. 36452 and 36500, Schedule Nos. 6 and 23 rates were authorized for an overall 17.9% and 16.3% increase, respectively, effective on February 1, 2025. Staff calculated the adjusted annual electricity expense of $338,444 after applying proposed tariff changes corresponding to the above-mentioned schedules. Staff calculated a total annualized electricity expense of$338,444 as shown in Attachment E. Staff recommends a decrease to the revenue requirement of$74,139 as shown in Attachment B. Chemical Expenses The Company requested an expense of$9,942 to be included for recovery due to chemical expenses. The Company currently uses a combination of solid and liquid chlorine to treat a portion of the total water produced by the FW system. The solid chlorine was purchased in 50-lbs buckets, and they need to be mixed with water to get chlorine solution following a specific dosage amount of 0.2 parts per million at the customer's end. Liquid chlorine is purchased in 15-gallon drums, and it can be directly injected into the system based on the same dosage. Response to Production Request Nos. 7 and 92. Therefore, Staff followed the steps below to establish equivalent usage of liquid chlorine in gallons and then estimated the annual chemical expense: 1. Staff calculated the average amount of chlorinated water per day using the past 5 years of water production data(2020—2024). 2. Staff then calculated the solid amount of chlorine needed per day (in lbs.) and converted it to equivalent amount of liquid chlorine needed per day(in gallons). STAFF COMMENTS 19 JULY 3, 2025 3. Next, Staff computed the average $/gallon cost of equivalent liquid chlorine from total combined purchase cost of solid and liquid chlorine during the past 5 years (2020—2024)using the equivalent liquid chlorine amount. 4. Finally, Staff utilized the daily gallons of liquid chlorine needed and $/gallon cost of chlorine to estimate the annual chlorine expense. Staff calculated the annualized chemical expense to be $7,890, as shown in Attachment F. Staff recommends a decrease to the revenue requirement of$2,764 as shown in Attachment B. Water Mitigation Amortization The Company included an annual deferral amortization expense of$119,691. In Order No. 36027, the Company was authorized a balancing account to track and collect assessment fees levied by the Bonneville-Jefferson County Ground Water District due to water production exceeding the Company's water rights. The Company was to amortize the established balance of $148,136 starting in December 2023 over a two-year period, which amounts to a monthly amortization of$6,172. Furthermore, Order No. 36027 established an annual revenue baseline for water mitigation costs of$182,920, which amounts to $15,243 in monthly revenue. The monthly total of the amortization expense using the initial balance and the monthly baseline expense totals $21,416 per month. When new rates go into effect on September 1, 2025, as anticipated, the time between the last case and then will be 21-months. The Company will have collected$449,729,bringing the overall balance to negative $301,593. In response to Production Request No. 45, the Company indicated it incurred assessment fees of$41,736 and $256,188 in 2024 and 2025, which totals $297,923. Adding the assessment fees to the overall balance brings the total deferral account to negative $3,670. Staff recommends to amortize the balance over two years, which is an annual amortization expense of negative $1,835. Staff recommends an adjustment of$121,526, calculated in Attachment G, which results in a decrease to the revenue requirement of$163,664 as shown in Attachment B. The Company has been working to secure additional water rights to serve customers in its service territory. However, Staff believes that there is a high probability the Company will incur assessment fees due to overproduction of water in the near future. If further assessments were to occur without a balancing account, the Company would likely incur significant financial losses. STAFF COMMENTS 20 JULY 3, 2025 Staff recommends maintaining the balancing account and keeping the existing baseline of $182,920 in order to protect the Company and its customers. Shared Services The Company included an adjustment to its portion of shared services of all NWN subsidiaries based on a budgeted expense for 2025 and compared it to the test year actual shared service expense. To calculate shared service expense, the Company multiplies the overall service expense provided by NWN to all subsidiaries using the"Massachusetts Method" percentage of 6.17%. The Massachusetts Method is an allocation method of weighted average of Falls Water's net plant, revenues, and employee count in relation to all subsidiaries owned by NWN. Staff does not find issue with the allocation method used by the Company. However, Staff does not believe that budgeted amounts are known and measurable, thus Staff recommends using the actual test year expense for the calculation. Staff recommends a decrease to the revenue requirement of$35,903, as shown in Attachment B. Bad Debt The Company included two adjustments to bad debt due to the Company's proforma revenue adjustment. The first adjustment was calculated by multiplying the bad debt percentage in the test year by the increased revenue in the Company's revenue adjustment due to updated customer counts. The second bad debt adjustment was calculated by multiplying the requested revenue requirement increase percentage by the first bad debt adjustment then add in the first bad debt percentage. Staff recommends using the Company's first calculated bad debt expense adjustment, but removing the second, which results in a decrease to the revenue requirement of $5,274, as shown in Attachment B. Rate Case Expense Amortization The Company included an adjustment to recover rate case expenses and requested an amortization period of three years. Staff supports agrees with using a three-year amortization to recover the expense, as this aligns with the expected window of the next filed rate case. The Company projected a rate case expense of$30,000 and as of June 15, 2025. The Company has received invoices totaling $12,735. Staff recommends an amortization of the actual rate case STAFF COMMENTS 21 JULY 3, 2025 expense incurred over three years, which decreases the revenue requirement of$7,751, as shown in Attachment B. Rate Design The Company's current rates for metered water service contain a different rate structure for MV customers when compared to FW and TM customers. In its analysis, Staff reviewed the Company's proposal to consolidate rates into one schedule, as well as, proposed changes to its monthly minimum charges, water volumes included in each usage block, commodity rates, and bill impacts. Discussion of each component of the Company's rate design is provided in further detail below. Rate Consolidation In its filing, the Company cited Commission Order No. 36027 from its last rate case to support consolidating rates into one schedule. We support the move towards increased consolidation of rates for the Falls Water, Morning View, and Taylor Mountain water systems. This is a move towards ensuring customers are treated more equitably in rates and that customers are receiving appropriate price signals. We encourage the Company to continue working towards consolidation of the three water systems. Staff recommends consolidation of all rates into one schedule. Currently, MV customers pay a monthly minimum charge based on lot size, which in most cases is double the comparable rate paid by FW and TM customers. The Company's proposal to bill all customers based on meter size would result in 20%-56% decreases to the minimum charge for MV customers. MV customers are 2% of the total system's customers, and the proposed reduction in minimum charge revenue from MV would not cause a significant bill increase to other customers.$ Monthly Minimum Charge Although Staff recommends aligning minimum charges for all customers based on meter size, Staff disagrees with the Company's proposed increase to this charge. The Company proposed increasing revenue from monthly minimum charges by 25%, in line with its overall 8 In Company workpaper"Falls Water 9_30_24 Rate Case FINAL NO LINKS"in the"Summary"tab,the Company calculated a$0.36 monthly increase to other customers'bills. STAFF COMMENTS 22 JULY 3, 2025 request for a 25.02% increase in total revenues. Staff recommends that, outside of minor changes due to rounding, the monthly minimum charge be held at the current FW rates. This shifts revenue recovery to commodity charges and sends a stronger price signal to customers to conserve water. Staff notes that the Company has paid fees in recent years for overproduction of water and is purchasing additional water rights to meet growth in water usage.9 These expenditures result in rate increases for all customers. Even with Staff's recommendation to hold monthly minimum charges constant, revenue from these charges would still recover 55.5% of Staff's total recommended revenue requirement. Staff believes this is a reasonable percentage for a company the size of Falls Water. Block Volumes The current rate schedule includes inclining block rates with three blocks based on customer water usage. This means that as a customer's usage increases, so does the rate the customer pays. The Company proposed to reduce the volume of gallons that are included in each block.10 For example, the current first block volume for 3/4-inch customers is 8,000 gallons, with the Company proposing a lower amount of 5,000 gallons. The Company reasons that gradually eliminating the first block would incentivize customers to conserve water, since every gallon used would be subject to commodity rates. With one exception, Staff agrees with the Company's proposal for block volumes, adding that lowering allowances gives customers more control over their bills. Staff recommends that the first block volume for 5/8-inch and 3/4-inch customers be 6,000 gallons. This mitigates bill impacts to these customers and represents a 2,000 gallon reduction that is consistent with the Company's proposed volume reductions for customers with other meter sizes. Commodity Rates The last component of rate design that Staff analyzed was the price ratio between the second block commodity rate and third block commodity rate. With the first usage block included in the monthly minimum charge, the first block rate is effectively $0.00. Currently the commodity rate for usage in the third block is 2.25 times the rate for usage in the second block. 9 See Company Responses to Staff s Production Requests Nos.45-46. 10 See Staff Attachment H for current and proposed block volumes. STAFF COMMENTS 23 JULY 3, 2025 The Company proposed to reduce the ratio so that the third block rate would be 1.5 times the second block rate, citing a disproportionate amount of commodity revenue presently coming from third block usage." Staff recognizes the Company's proposal to shift commodity revenue from third block usage to second block usage, as it can provide more revenue stability for the Company. However, Staff recommends the rate for third block usage be set near 2.0 times the rate for second block usage. Compared to the Company's proposal, a ratio of 2.0 sends a stronger signal to customers to conserve water and creates more equitable billing impacts between low-usage customers and high-usage customers. Bill Impacts Taking the above rate components into consideration, Staff analyzed bill impacts under the Company's and Staff's proposals12. Under the Company's proposal, the highest usage customers would receive the lowest percentage increases, mostly driven by flattening the difference between Block 2 and Block 3 rates. Staff's proposal results in more even percentage increases among the various customers and keeps a stronger price signal to conserve on a system facing large expenses for overproduction of water. Under Staff's proposal, holding the monthly minimum charge near current rates means that most customers may face little to no increase in their bills during months when water consumption is low. Collecting the increase in revenue requirement through higher commodity rates means that customers may face larger percentage increases in their bills during summer months than the overall system increase. Consolidating rates into one schedule results in a decrease to Morning View customers' bills under most usage scenarios. Under its recommended rate design, Staff calculated that spreading the reduced revenue from legacy Morning View customers to all other customers would result in a $0.53 monthly increase to bill amounts. Staff believes this amount does not adversely impact existing Falls Water and Taylor Mountain customers. More importantly, rate consolidation results in all users with the same meter size paying the same amounts for their water. "See Company Response to Staff Production Request No.53. 12 For a thorough view of bill impacts,see Staff Attachment I&Attachment J. STAFF COMMENTS 24 JULY 3, 2025 Hookup Charges In its Application, the Company proposed updated hookup charges for new customers to physically connect to the Company's water system. Staff believes that a part of the Company's proposal is not reasonable. Based on Staff's review of the Company's Application and the Company's responses to its production requests, Staff recommends Section No. 3 —Hookup Charges of Schedule No. 2: Non-Recurring Charges of the Company's Tariff be updated according to Staff's recommended connection fees schedule as provided in Table No. 5 below. Staff scrutinized the historical number of hookups for the past 3 years (2022—2024), cost of materials, hourly labor rate, and number of man hours needed for each hookup for different meter sizes. Company's Response to Production Request No. 55 —Attachment 1 and Confidential Attachment 2. Staff used this information to estimate the cost of materials for each meter size. According to Staff s assessment, the materials costs for 3/4, 1.5, and 2-inch meters increased in recent times. Staff also learned the Company uses in-house labor for all new installations and every hookup requires one hour of manual labor. In its estimation, Staff used an average labor rate of$27.84 per hour for meter installations. Attachment K shows calculations of Staff estimated new hookup fees. A comparison between the Company's proposed fees and Staff s estimation is provided in Table No. 5 below. Table No. 3: Comparison between the Company and Staff Proposed Hookup Charges Meter Size Current Charge Company Proposal Staff Estimation 3/4-inch $500 $525 $525 1-inch $600 $600 $600 1.5-inch $930 $1,425 $1,150 2-inch $1,205 $1,675 $1,450 >2-inch Cost of materials and installation labor Customer Notification and Press Release The Company submitted both a press release and a customer notice as part of its Application on January 30, 2025. The customer notice was distributed as a billing insert in February 2025. The number of public comments received—via email to the Commission STAFF COMMENTS 25 JULY 3, 2025 Secretary and through the Commission's online Case Comment Form—indicates that customers were adequately informed and able to stay engaged with the case proceedings. Public Customer Workshop A virtual public workshop was held on Wednesday, May 28, 2025, at 6:00 p.m. One customer and one representative from the Company attended. The customer left midway through the Staff's presentation and no questions were asked of Staff. Customer Comments As of June 16, 2025, the Commission has received a total of 113 customer comments related to the Application. Of these, 102 comments expressed opposition to the proposed rate increases. Customers voiced concerns regarding both the magnitude of the proposed increases in monthly charges and the proposed reduction in the volume of water included with the basic monthly charge. Several comments highlighted the broader economic context, noting the challenges posed by high inflation and the disproportionate impact on customers with fixed or limited incomes. Many customers also questioned the timing of the request,pointing out that the Company has recently implemented a rate increase and emphasized a need for more detailed justification. Additional concerns focused on the Company's status as a publicly traded entity, with customers expressing the perception that shareholder returns were being prioritized at the expense of ratepayers. Comments also referred to service-related issues, including reports of low water pressure, boil water advisories, and the need for critical infrastructure improvements. Further Staff Recommendations Future Rate Case Filings Based upon Company revenues soon to exceed$4,000,000, Staff recommends that the Company transition to regulatory treatment associated with a large water company going forward. This entails additional requirements be met in order to continue providing safe and reliable services to customers at reasonable prices. Staff recommends the Commission order the Company to meet with Staff to discuss and agree upon practices regarding rate cases going forward. STAFF COMMENTS 26 JULY 3, 2025 Tariff Lange The Company's tariff Schedule No.I provides a table showing the commodity charge for water usage in each block. Although the Company bills for water use in price per 1,000 gallons, the table displays the rate in price per gallon. Staff recommends that the Commission order the Company to correct the tariff to display price per 1,000 gallons to minimize confusion and provide clearer communication to customers. Schedule No. 3 of the Company tariff provides for secondary irrigation service at a fixed monthly charge. Water for this service is taken from surface irrigation canals. In its analysis, Staff discovered that no customers currently take service on this schedule,but the Company expects customers to take service in the summer of 2025.'3 Staff recommends that the Commission order the Company to add language that defines secondary irrigation and the months when this monthly charge is applied. Cost of Service Staff recommends that the Company provide an analysis of costs to serve secondary irrigation customers in its next rate case to ensure that monthly charge revenue adequately recovers costs of providing the irrigation service. STAFF RECOMMENDATIONS Staff Recommends that the Commission Order the Company to: • Establish a revenue requirement of$3,867,713, which is an increase of$284,333, or 7.93%, calculated using an ROE of 9.7% and cost of debt of 4.7%; • Continue identifying root causes of water loss and maintaining the existing meter replacement program; • Demonstrate further reduction of water losses system-wide when it files the next general rate case; • Provide detailed meter accuracy test results when it files the next general rate case; 13 See Company Response to Staff Production Request No.49. STAFF COMMENTS 27 JULY 3, 2025 • Update the Section No. 3 —Hookup Charges of Schedule No. 2: Non-Recurring Charges of the Company's Tariff be following Staff's recommended connection fees schedule; • Meet with Staff regarding rate case procedures and requirements going forward; • Update language its tariff to reflect per 1,000 gallon prices for each customer schedule; • Update language in tis tariff to define secondary irrigation and display months in which monthly charges are applied; and • Conduct a cost-of-service study for secondary irrigation customers. Respectfully submitted this 3rd day of July 2025. Aclam Triplett Deputy Attorney General Technical Staff. James Chandler Shubhra Deb Paul Seungjae Lee Michael Ott Leena Gilman Jon Kruck Chirs Hecht I:\Utility\UMISC\COMMENTS\FLS-W-24-02 Comments.docx STAFF COMMENTS 28 JULY 3, 2025 CERTIFICATE OF SERVICE I HEREBY CERTIFY THAT I HAVE ON THIS 3rd DAY OF JULY 2025, SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO. FLS-W-24-02, BY E-MAILING A COPY THEREOF, TO THE FOLLOWING: PRESTON N CARTER MATT ROWELL GIVENS PURSLEY LLP MANAGER OF WATER RATES AND 601 W BANNOCK ST REGULATORY BOISE ID 83702 NW NATURAL E-MAIL: prestoncarter(a�,�givenspursley.com 250 SW TAYLOR ST. stgphaniew@ ig venspursley.com PORTLAND, OR 97204 E-MAIL: matt.rowell(&nwnatural.com K. SCOTT BRUCE FALLS WATER CO., INC. 2180 NORTH DEBORAH DRIVE IDAHO FALLS, ID 83401 E-MAIL: scottlaa,fallswater.com PATRICIA JORDAN CERTIFICATE OF SERVICE