20050606Vol I Tech Hearing.pdf

ORIGINAL
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SEVICE IN
THE STATE OF IDAHO.
) CASE NO; UWI-O4-
) TECHNICAL
HEARING BEFORE
COMMISSIONER PAUL KJELLANDER (PRESIDING)
COMMISSIONER MARSHA H. SMITH
COMMISSIONER DENNIS S. HANSEN
PLACE:Commission Hearing Room
472 West Washington Street
Boise 1 Idaho
DATE:Ma y 2 4 1 2 0 0 5
VOLUME I - Pages 1 - 1 72
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HEARING
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POST OFFICE BOX 578
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For the Staff:
For United Water:
For City of Boise:
For Idaho Rivers Uni ted:
For Community ActionPartnership:
For Scott L. Campbell:
WELDON STUTZMAN 1 Esq.
DONOVAN WALKER , Esq.
Deputy At torneys General
472 West Washington
Boise 1 Idaho 83702
McDEVITT & MILLER LLP
by DEAN J. MILLER, Esq.
420 West Bannock Street
Boise 1 Idaho 83702
DOUGLAS K. STRI CKLING 1 Esq.
Boise City Attorney s Office
150 North Capitol Boulevard
Bo i s e 1 Idaho 8 3 7 02
WILLIAM M. EDDIE, Esq.
Advocates for the West
Post Office Box 1612
Boise 1 Idaho 83701
BRAD M. PURDY 1 Esq.
Attorney at Law
2019 North Seventeenth Street
Boise 1 Idaho 83702
SCOTT L. CAMPBELL 1 Esq.
Attorney at Law
101 South Capitol Boulevard,
Tenth Floor
Boise 1 Idaho 83702
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
AP PEARANCE S
83701
I N D E X
WITNESS EXAMINATION BY PAGE
Gregory P. Wyatt
(United Water)
Mr. Miller (Direct)
Prefiled Direct
Mr. Walker (Cross)
Mr. Strickling (Cross)
Mr. Campbell (Cross)
Commissioner Hansen
Commissioner Kj ellander
Mr. Miller (Redirect)
Jeremiah Healy
(United Water)
Mr. Miller (Direct)
Prefiled Direct
Mr. Strickling (Cross)
Scot t Rhead
(United Water)
Mr. Miller (Direct)
Prefiled Direct
Prefiled Rebuttal
Mr. Walker (Cross)
NUMBER PAGE
For United Water:
1 .Rate Base Summary Premarked
Admi t ted
Statement of Operating Income Premarked
Admi t ted
2 .
3 .Analysis of IPUC Staff Case Premar ked
Admi t t ed
7/31/04 Balance Sheet Per
Books
Premarked
Admitted
4 .
5 .Statement of Operating Income Premarked
Admitted
101
105
134
152
HEDRICK COURT REPORTING
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INDEX
EXHIBITS
8 .Plant Addi tion and Premar ked
Retirements Admi t t ed 152
Columbia-Gowen-Federal Premarked
Storage Admitted 152
10.Oregon Trail PSI Premarked
Admi tted 152
11.MF/UF Facility Capi tal Cost Premar ked
Comparison Admi t ted 152
11A.Convent ional Facili ty Capi tal Premar ked
Cost Comparison Admi t ted 152
16 .CDM Document s premarked
Admi t t ed 152
For the Staff:
132 .Operating Expense Adjustments Premarked
Admi t ted
133 .Yard Piping Plan Marked
134 .Process Area Plan Marked
135.Yard Piping Plan Marked
136.Process Area Plan Marked 152
152
152
152
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID
EXHIBITS
83701
BOISE, IDAHO 1 TUESDAY 1 MAY 24,2005,9:30 A.
COMMISSIONER KJELLANDER:Well , good mornlng.
This is the time and place for a technical hearing in the
matter of the Application of United Water Idaho, Inc., for
authori ty to increase its rates and charges for water service
in the State of Idaho.It's Case No. UWI-04-
m Paul Kjellander; I'll be the Chairman of this
proceeding.To my right is Commissioner Dennis Hansen, and to
my left is Commissioner Marsha Smi th.
As we move forward, we'll begin with the
appearances of the parties, and let I s begin wi th Uni ted Water.
MR. MILLER:Thank you, Mr. Cha i rman .
Dean J. Miller of the firm McDevitt and Miller on behalf of the
Applicant.I'd also like to introduce Mr. Greg Wyatt, general
manager of Uni ted Water Idaho 1 and Mr. Mark Gennari , the
director of regulatory business for United Water Management and
Service Company.The other wi tnesses on behal f of the Company
will be introduced as they appear.
COMMISSIONER KJELLANDER:Thank you, and welcome
this mornlng.
Let I S move now to the Deputy Attorney General
representing the Staff of the Idaho Public Utilities
Commission.
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID
COLLOQUY
83701
MR. STUTZMAN:Thank you , Mr. Cha i rman .
Weldon Stutzman and Donovan Walker on behalf of the Commission
Staff.
COMMISSIONER KJELLANDER:Good morning.
And let's see.How about the City of Boise?
there anyone representing the Ci ty of Boise here today?
MR. STRI CKLING :Yes, Mr. Chairman.
Doug Strickling
COMMI S S IONER KJELLANDER:Before we move forward,
just a reminder to everyone:There are these little black
microphones that are on your table and you need to hit the
words that say " touch," and when the red light is on , that
means you can talk and we'll be able to hear you.
MR. STRICKLING:Yes, Mr. Chairman.
Doug Strickling representing the City of Boise, Boise City
Attorney's Office; and William Johnson, Assistant City
Engineer, here today also.
COMMISSIONER KJELLANDER:Good morning, and
welcome to the Commission.
Let's look at the Communi ty Action Partnership.
MR . PURDY:Yes, Mr. Chairman.Brad Purdy on
behalf Community Action Partnership Association of Idaho.
COMM IS S IONER KJELLANDER:Good morning,Brad.
And there anyone from Idaho Rivers United?
MR. EDDIE:Yes , Mr. Chairman.William Eddie
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE, ID
COLLOQUY
83701
from Advocates for the West appearing on behalf of IRU 1 Idaho
Rivers Uni ted
COMMISSIONER KJELLANDER:Thank you.
Mr. Campbell.
MR . CAMPBELL:Yes, I'm present.Scott Campbell,
represent ing mysel f
COMMISSIONER KJELLANDER:Welcome to the
Commission.
And the only other Intervenor I m aware of
Sharon Ullman , and I don't believe that she's here this
mornlng.
Is there anyone else who is present here today
and needs to be included as a possible party for purposes of
cros s - examina t ion?
I f not , then we'll move forward.
And are there any preliminary matters that need
to come before the Commission this morning?
MR. STUTZMAN Just one I know of Mr. Chairman.
I distributed what we marked as Exhibit No. 132.It is
sometimes difficult after rebuttal testimony is filed to sort
out the last position of the Staff and the Company on specific
expense entries, so we worked together , the Staff and the
Company, to put this exhibit together that shows the positions
on 34 operating expense items for United Water , and we thought
if there I s no objection, Exhibit 132 could be admitted in the
HEDRI CK COURT REPORTING
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COLLOQUY
83701
record now and then could serve as sort of a reference
throughout the hearing.So if there's no obj ection, we I d move
that Exhibit 132 be admitted at this time.
COMMISSIONER KJELLANDER:So is there any
obj ection?
MR. MILLER:Mr. Chairman , we concur that it's an
accurate reflection of operating and expense issues that are
both contested and uncontested and can serve as a
- -
something
of a road map for the Commission to sort out what lssues are
contested and aren't, recognizing that there are a number of
other issues not covered by Exhibit 132.
COMMISSIONER KJELLANDER:Okay.So then without
objection , we'll admit Exhibit 132 into the record.
(Staff Exhibit No. 132, having been
premarked for identification , was admitted into evidence.
COMMISSIONER KJELLANDER:Are there any other
preliminary matters that need to come before the Commission?
MR. MI LLER :Only, Mr. Chairman , to advise the
Commission and the parties of our intended order of witnesses
so that everyone will know what's ahead of us.
COMMI S S IONER KJELLANDER:Okay.
MR. MILLER:Our intention is as follows:
present the direct testimony of Mr. Wyatt, the direct testimony
of Mr. Rhead, the direct and re-
- -
pardon me, the direct
testimony of Mr. Healy -- so it's Wyatt, Healy -- then the
HEDRI CK COURT REPORTING
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COLLOQUY
83701
direct and rebuttal testimony of Mr. Rhead, the direct
testimony of Dr. Peseau, the direct and rebuttal testimony of
Ms. Ahern , the direct testimony of Mr. Gradilone, and the
direct testimony of Mr. Wallace.
Then we would anticipate the presentations by
Staff and Intervenors, after which we will present the rebuttal
testimony of Mr. Degann, rebuttal testimony of Mr. Healy,
rebuttal testimony of Mr. Wyatt, and the rebuttal testimony of
Dr. Peseau.
COMMISSIONER KJELLANDER:Okay.Thank you.Are
there any other preliminary matters that need to be brought
before the Commission?
So just one point of clarification at least for
I believe that there was a Stipulation that might haveme:
been reached.Is there any information you could provide the
Commission at this time in relationship to that Stipulation?
MR . MI LLER :I believe the understanding that we
have wi th Counsel for the Staff is that at the time we get to
Ms. Ahern s testimony, we would present the Stipulation in
conjunction with her testimony.
COMMISSIONER KJELLANDER:And that Stipulation
has been shared with all the parties?
MR. MILLER:Yes.
COMMISSIONER KJELLANDER:Well, thank you.
there anything else that needs to come before the Commission?
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P. O. BOX 578, BOISE , ID
COLLOQUY
83701
If not then , let's call your first witness.
MR. MILLER:Call Gregory P. Wyatt.
GREGORY P. WYATT,
produced as a wi tness at the instance of Uni ted Water, being
first duly sworn, was examined and test i fied as follows:
DIRECT EXAMINATION
BY MR. MILLER:
Sir , would you state your name, please?
My name is Gregory P. Wyatt.
And what is your occupation or employment?
m the general manager of Uni ted Water Idaho.
Mr. Wyatt, did you have occasion to previously
submit for filing in this matter direct written testimony
consisting of 19 pages?
Yes,did.
Are there any
would like to make to your
Yes,there'one correction that I'd like to make
addit ions or correct ions that you
direct prefiled testimony?
to my prefiled direct.That would be on page 5, on line 9 of
page 5.The reference to 16 miles of water main line should be
14.7 miles of water main line.
Any other addi t ions or correct ions?
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (Di)
United Water83701
No.
If I asked you the questions that are contained
in your direct prefiled testimony, would your answers be the
same as they are written in your testimony?
Yes, they would.
And are those answers correct, to the best of
your knowledge?
Yes, they are.
Were there any exhibi ts accompanying your direct
prefiled testimony?
I don t believe so.
MR. MILLER:Mr. Chairman , I would ask that the
direct prefiled testimony of Mr. Wyatt be spread on the record
as if read, and the witness is available for cross-examination.
COMMI S S IONER KJELLANDER:Thank you.Wi thout
objection, we will admit -- or , spread the testimony 1 direct
testimony only, of Mr. Wyatt, and he'll then be available for
cross.
(The following prefiled direct testimony
of Mr. Wyatt is spread upon the record.
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE, ID
WYATT (Di)
United Water83701
Please state your name and business address.
Gregory P. Wyatt. United Water Idaho 8248 West Victory Road, Boise
Idaho.
What is your occupation?
I am the General Manager of United Water Idaho ("United" or
Company
Please describe your educational background and other qualifications.
I am a graduate of Bloomsburg University with a Bachelor of Arts
degree in Business Administration Management. I have previously
provided testimony before the Indiana Utility Regulatory Commission
the Pennsylvania Public Utility Commission, and the Idaho Public
Utilities Commission.
Please describe your work experience.
I have been employed at United Waterworks properties, formerly
General Waterworks, since December 1974. Prior to assuming my
current duties as General Manager of United Water Idaho in late 1999
I worked in various capacities in several states including General
Manager for United Water Pennsylvania, Area Manager for the United
Water Indiana properties, Assistant Manager of United Water Idaho
and various accounting positions in New Jersey and Pennsylvania.
Please describe your duties as General Manager.
Wyatt, OJ
United Water Idaho Inc.
My duties are to oversee the daily operation of providing potable water
to the customers of United Water Idaho.I supervise the various
departments of Engineering, Production, Transmission & Distribution
Customer Service, Billing, Information Technology, Planning and
Accounting in meeting their responsibilities for the delivery of potable
water and the related services in dealing with customers.
These functions include planning for raw water source
construction, maintenance and operation of the treatment and pumping
facilities, construction, maintenance, and operation of the distribution
system including mains, services, and storage tanks, responding to
customer needs regarding initial service or discontinuing service by
reading customer meters processing and delivering bills, and
responding to customer needs through the Customer Service
Representatives.
My duties also include supervision of the Company s compliance
with all regulations in regard to safety, complying with the Safe
Drinking Water Act, and meeting other similar requirements.
What is the purpose of your testimony?
I will testify regarding the major reasons for the rate increase requested
in this present case, the operations of the Company, the Company
efforts to comply with the Commission s recent directive regarding
revenue and expense effects of major new investments, the Company
conservation and customer service efforts, a new Company proposal
Wyatt, Oi
United Water Idaho Inc.
regarding assistance for low-income customers, and the Commission
recent Order No.29625 regarding "risk premium" proceeds to United
Water Idaho from the sale of Carriage Hills to the City ofNampa. I will
also be available to answer questions of a general nature.
Please identify the other witnesses who will testify on behalf of the
Company and the topics on which they will testify.
Mr. Jeremiah Healy, Coordinator, Planning and Rates, will testify
regarding rate base and expense adjustments.
Mr. Scott Rhead, Managing Engineer, will testify regarding capital
additions including the Columbia Water Treatment Plant (CWTP).
Professor A.T. Wallace, a consulting engineer from the University
of Idaho, will testify regarding the Columbia Water Treatment Plant.
Mr.Frank Gradilone, Manager Business Development with United
Water New Jersey, will testify regarding revenue adjustments.
Ms. Pauline Ahem, consulting expert with AUS consultants, will
testify regarding cost of capital.
Dr. Dennis Peseau, consulting expert with Utility Resources, Inc.
will testify regarding cost of service and rate design.
Rate Increase Drivers
Would you briefly explain why the Company is seeking a rate increase
at this time?
Wyatt, Oi
Unjted Water Idaho Inc.
The increase is necessary for the Company to continue to provide
quality service to our customers, to improve service by replacing aging
infrastructure and to replace infrastructure that is in conflict with other
infrastructure renewal (such as highway and street rebuilds). For these
reasons, United continues to make capital investments in utility plant.
A major example of this is the investments required for the Columbia
Water Treatment Plant. As a result of this and other infrastructure
investments, the Company s rate base of $98 862 937 as allowed in our
last rate proceeding, has increased to $140 062 546 in this proceeding
or an increase of $41 199 609. In addition, our operating costs have
increased from $17 059 284 to $21 766 679 or an increase of
707 395.An increase in rates is necessary in order to provide
sufficient capital dollars to maintain and improve quality service to our
customers, to provide adequate operating and maintenance coverage
and to maintain a sound financial position.
What are the major capital investments the Company has made since
the last rate case that account for the significant increase in rate base?
The Columbia Water Treatment Plant itself comprises an investment of
over $18 million dollars. Facilities associated with the CWTP, such as
land, piping, clearwell, and pump station and equipment amount to
approximately $11 million dollars.Additionally, the Company is
investing over $2 million dollars in wellhead treatment at two locations
elsewhere in the system, (Bali Hai and Maple Hills). The investments
Wyatt, Oi
United Water Idaho Inc.
at Bali Hai and Maple Hills wells have enabled the Company to
improve water quality to customers while also utilizing more of the
source well water from those sites. Water storage facilities have been
constructed at a cost of about $3.5 million dollars that provide fire
protection and sustainable pressure to customers in the system, most
notably in the South County area, which was acquired from the South
County Water Company in 1999. The Company has made investments
totaling about $11 million dollars in replacing aging infrastructure.
Since the last case the company has replaced about 16 miles of water
mainline, 2 900 water services, and 22 000 meters. The Company has
improved safety for employees and the community by investing over
$1 million dollars in non-hazardous disinfection systems in order to
replace all liquid chlorine gas operations throughout the water system.
All these and other capital additions are discussed more fully in
Witness Rhead's testimony and exhibits.
What are the major areas of cost Increase that the Company has
experienced since the last rate case?
A significant portion of the expense increase in this case comes from
depreciation related to the CWTP and other capital investments the
Company has made. The depreciation expense has increased by more
than $1.9 million dollars. Additionally, costs have increased by almost
$1.2 million dollars related to purchased power and the amortization of
deferred power, as referred to in Witness Healy s testimony. Employee
Wyatt, Oi
United Water Idaho Inc.
benefits, including medical, dental and pension costs have increased
over $700 000. General insurance has also increased over $700 000.
Payroll and property taxes have increased over $300 000 and purchased
water and chemicals have increased over $200 000. All of these and
other expense changes are discussed more fully in Witness Healy
testimony and exhibits.
What is the current average annual residential water bill as determined
in the test year?
Currently, the average annual residential bill is $323., exclusive of
IDEQ fees and franchise tax.
What would be the average annual residential bill under the proposed
rates in this filing, and what is the overall increase request?
The average annual residential bill under proposed rates would be
$395., or an increase of 22.35%. The overall increase request in this
present filing is 21.46%
Company Operations
Please describe the operations of the company.
As of July 31 , 2004, United Water Idaho provided domestic water
service and fire protection to approximately 75 400 residential
commercial, industrial, private fire protection and public authority
customers within the City of Boise and the immediate surrounding area.
Over ninety-nine percent (99%) of the customers are located in what
Wyatt, Oi
Unjted Water Idaho Inc.
we call the core area system, which is a totally interconnected system.
Additionally, there are five (5) satellite systems that are not
interconnected with each other or to the core area system.These
satellite systems are identified as Mesa area, Coventry Place
Danskin/Saddle Ridge, Belmont, and M&M. F or the purposes of this
filing the Carriage Hills system has been removed in anticipation of its
pending sale to the City of N ampa. Currently our source of supply for
the core area is one (1) surface water treatment plant and eighty (80)
deep wells, which are located throughout a service area of
approximately 140 square miles. The projected delivery capacity in the
year 2004 of the surface water treatment plant and the eighty (80) wells
to the customers in the core service area is 95.09 million gallons per
day (mgd). The Mesa area is served by three (3) wells with a combined
rated capacity of 1.7 mgd; Coventry Place is served by one (l) well
with a rated capacity of 0.4 mgd; the Danskin/Saddle Ridge area is
served by two (2) wells with a combined rated capacity of 2.0 mgd; the
Belmont system is served by two (2) wells with a rated capacity of 1.
mgd; and the M&M system is served by one (l) well with a rated
capacity of 0.14 mgd. The wells in the satellite areas are all currently
capable of meeting the maximum day demands in those areas.
At this time, water treatment essentially consists of the addition of
chlorine for disinfection and system residuals and polyphosphate for
sequestration of iron and manganese. In addition, green sand filtration
Wyatt, OJ
United Water Idaho Inc.
systems treat water at two well stations in the system, (Bali Hai and
Maple Hills). At the surface water treatment plant, the treatment ranges
from direct filtration to full coagulation settling and filtration
depending on the quality of the raw water.
During the test year, the maximum day production from all sources
was 86.8 million gallons; the minimum day production was 18.
million gallons; while average day production was approximately 43.
million gallons.
The distribution system consists of approximately 1 043 miles of
water main, varying in size from 2 inches to 30 inches in diameter. The
distribution system also is supported by 34.8 million gallons of storage
capacity contained in 31 ground-level reservoirs.
Due to differences in elevation within the coverage of the service
area, United Water Idaho has 10 different pressure zones in the core
area. Each satellite area also can be considered as a separate pressure
zone. These zones are necessary to maintain a reasonable range of
pressure at our customers' points of use. Connections from adjacent
pressure zones allow us to transport water between some pressure
zones; however, it is impossible to transport water from each pressure
zone to all 9 of the other pressure zones. Since we have 81 sources
(points from which water originates) in the core area, the customers
within the area of influence of a particular source normally will receive
water from that source. As the customers near the source begin to use
Wyatt, OJ
Unjted Water Idaho Inc.
up the water and as distance from the source increases, more water will
be consumed until the supply from a particular source is exhausted and
adjacent customers then receive water from a different source.
You note that the combined delivery capacity in the core area
approximately 95.1 mgd while the maximum day production during the
test year was 86.8 million gallons. Does this mean that you can serve
additional customers without adding any additional source?
, it does not. That would require a perfectly balanced distribution
system and every well would have to produce 1 000/0 of capacity at the
same time. This perfect balance would have to be between the main
sizes, main locations, source locations, pumping capacity, storage size
and storage locations. As discussed in Witness Rhead's testimony,
history from 2001 , 2002 and 2003 shows maximum day demand of
93.673 million gallons, 94.553 million gallons and 94.061 million
gallons respectively, all of which are quite close to the system
delivery capacity of approximately 95.1 mgd.
Revenue and Expense Effects of Major Capital Additions
Have you reviewed the Commission s recent decisions in the Idaho
Power Company (IPCo) and A vista Corporation rate cases regarding
revenue and expense effects of major new investment?
Yes, I have reviewed the pertinent areas of Commission Orders Nos.
29505 (IPCo) and 29602 (Avista) that address this issue.
What is your understanding of the guidance provided by those orders?
Wyatt , OJ
United Water Idaho Inc.
As I understand those orders, the Commission is concerned that when
significant plant improvements are completed during the test period
proper, or post-test period, there should be an effort made by the
Company to identify expense reductions and/or revenue additions
associated with the plant improvements. This is in addition to the direct
effects of the plant improvement itself, such as incremental operating
and maintenance expense depreciation expense and return on
investment.
Do the Orders in question have relevance to United's instant case?
Yes, I believe they do. The Company is including in rate base several
major plant adjustments, collectively referred to as the Columbia Water
Treatment Plant. The new facility is expected to begin providing
service to United's customers in March 2005.
Has the Company attempted to comply with the Commission guidance
provided in recent Orders?
Yes, although the guidance provided in the aforementioned cases does
not provide a clear means or a defined methodology by which a utility
is to determine how or to what extent compliance is accomplished.
Nonetheless, United has used its best efforts in proposing adjustments
that both increase revenues and decrease expenses as a result of the
addition of the CWTP. While the Commission s direction in the IPCo
and A vista cases have been more at a conceptual level, the revenue and
expense effects are difficult to quantify accurately in actual practice.
Wyatt , Oi
United Water Idaho Inc.
1 7
Because the amount of investment associated with a facility such as the
CWTP is known and measurable, the return and depreciation expense
are easily calculated. Operations and maintenance expense can also be
estimated with a high degree of accuracy. However, the revenue
producing or expense mitigating effects of the CWTP are much more
difficult to identify because they are not yet known and measurable.
Over time, United reasonably assumes that the CWTP will provide
reliable service to an increasing customer base. United also expects
CWTP to immediately provide a margin of capacity safety to customers
in the event of the failure of less reliable source(s). Company
Management, Engineers and consultants have, over time, all combined
to do a prudent job of adding incremental source, at a reasonable cost
and best utilizing the natural resources available to the Company.
What revenue increasing adjustment has United made that
attributable to the CWTP?
Pro forma revenue has been increased by $462,480 to account for
additional customers, annualized at existing rates, from July 31 , 2004
the end of the test year, through May 31 , 2005. This adjustment is
further discussed in the testimony and exhibits of Witness Gradilone.
In what way is this revenue adjustment appropriate in responding to the
Commission enhancementsconcern regarding revenue from
additional plant?
Wyatt, Oi
United Water Idaho Inc.
First, let me say that in United's prior rate proceedings, it had been
Commission practice to accept Company adjustments to annualize
revenue only for test year customer growth. Never before has United
offered or has the Commission calculated revenue from future growth
customers in determining base revenues upon which future rates may
be calculated.Second, I suggest that increases in revenue to the
Company typically arise from one of three situations: adding new
customers, increased consumption from existing customers, or from an
increase in rates. Increased revenue to the Company does not simply
happen" because the Company makes an investment in new or
replacement plant.Neither does a new source of supply plant
automatically add new customers or increase existing customer
consumption. As described in Witness Rhead's testimony, the CWTP
is designed to provide a margin of capacity safety to customers in the
event of the failure of less reliable source( s), and to provide for service
to new customers added over time.
With these thoughts in mind, United has attempted to comply with
the direction and guidance from the IPCo and A vista cases by adding
annualized customer growth revenue at current rates to the Company
base revenues for all customers anticipated to be added to the entire
system from the test year through May 31 , 2005.
What expense reducing adjustment has United made that is attributable
to the CWTP?
Wyatt, Oi
United Water Idaho Inc.
An expense reduction adjustment for power and chemical expense of
$139 580 has been made to reflect changes in system operation caused
by use of the CWTP. This adjustment is included in Witness Healy
exhibits and testimony.
Witness Rhead testifies that as many as nine (9) existing wells that
currently supply water in the vicinity of the CWTP may be idled or
have their production level reduced as a result of using the CWTP. The
expense reduction of $139 580 is related to the costs for power and
chemicals foregone at these sources.
Water Conservation
Would you please provide an overvIew of the Company s water
conservation and demand side management efforts and programs?
For over 10 years the Company has developed and implemented
various customer information, education and awareness programs and
outreach efforts that promote wise water use and water conservation
and that assist customers in managing their water demand and
consumption. Although some of these efforts have sought to inform
customers about water use in the home, the majority of them have
targeted customer water use outside on lawns, gardens and landscape
areas.This focus is designed to enable customers who use water
provided by the Company for irrigation purposes to benefit the most
from the Company s efforts, since irrigation demand is the driver of
overall water system demand in the summer.
Wyatt, OJ
Unjted Water Idaho Inc.
Below is a brief summary of the company s efforts in these areas:
Water Efficient Landscaping Classes:
In February of each year, United and others conduct seven, two-hour
class sessions focused on the fundamentals of water efficient
landscaping. In 2004, 747 adult individuals attended the classes.
Water Awareness Week
In May of each year, United participates in Water Awareness Week
which promotes water education and conservation information for
school students in Region 3, which includes the Boise area.
Indoor Water Conservation Kit give-a-way
Customers seeking ways to reduce their water consumption are offered
a free water conservation kit that includes a low flow showerhead
faucet aerators and toilet dams.
Summer water conservation bill insert
As customer bills go out throughout the spring and summer, the bill
includes an insert that provides information on how customers can
reduce their outside water demand during the summer.
Water use management messaging through the media
The overall media effort is designed to increase customer awareness
about their water use and to provide them with concrete reminders and
ways to manage their water consumption.This consists of a
Wyatt, OJ
United Water Idaho Inc.
coordinated use of newspaper, radio and television to communicate
wise water use and management throughout the summer. It includes
weekly newspaper ads in the spring and early summer targeting ways
customers can use water more wisely outdoors around their homes;
daily radio spots during drive time that feature water conservation
messages and tips; and weeknight television partnership with Channel 6
KIVI highlighting United's daily production compared to normal and to
history, along with conservation tips, trivia, and interviews.
Educational and Community outreach
United has developed various water awareness and conservation
presentations that it makes available and delivers to schools and
community organizations in the area.These include PowerPoint
presentations, topical lectures, school skits and plays, puppet shows
and a video library.
Customer Service
Please comment on the Company s customer service efforts.
United uses various measures and metrics to ensure that it maintains a
high level of service and responsiveness to its customers. For example
the Company tracks customer complaints it receives relating to water
quality.Over the past four years, Water quality complaints that
required a field visit to resolve have averaged only .87% of total
customers.Complaints relating to high bills and disconnection have
Wyatt, Oi
United Water Idaho Inc.
averaged only .360/0 and .380/0 respectively as a percentage of bills
rendered.
Are there other measures used by the Company to track customer
service performance?
Yes. Our Customer Service group maintains various data relating to
customer calls, response time, length of call, and number of dropped
calls. For the current year to date through September, the Customer
Service office has answered 66 887 calls with an average answer speed
of 36 seconds. The average length of calls is 2 minutes, and the
abandoned or dropped call rate is 5.20/0 of all calls. Almost 400/0 of the
dropped calls occur during the first 30 seconds of hold time and this
would include those customers who may have reached our office in
error (i.e. wrong number) and hung up. Assuming a caller is willing to
hold more than 30 seconds, the dropped call rate falls to 3.1 %.
addition, due to the fact that virtually all customer meters are located in
outside pits or vaults, we are able to render bills based on actual meter
readings 99.9% of the time.
Low-Income Customer Assistance
Does the Company currently have any kind of low-income customer
assistance program in place?
Wyatt, Oi
United Water Idaho Inc.
, but the Company recognIzes that its requested increase of
approximately 22% in this proceeding increases the need for
consideration and discussion of such a program.
What does the Company propose with regard to low-income
assistance?
The Company proposes that between the time of this filing and before
hearings in this proceeding, the Company, along with Commission
Staff and other interested parties, convene a workshop(s) to evaluate
the need for, scope and design of such an assistance program for
United's low-income water customers.The Company believes a
collaborative effort between the parties is the most effective way to
develop a program that truly meets customer s needs and guards
against excessive costs to either the shareholder or the general customer
base. Assuming a program agreeable to all parties can be developed
the Company would seek implementation in conjunction with new rates
and effective with an Order in this case.
Commission Order No. 29625
What does Commission Order No. 29625 state regarding the "risk
premium" portion of the proceeds to be paid to United Water Idaho in
conjunction with the sale of the Carriage Hill water system to the City
of Nampa?
Order No 29625 states:
Wyatt, Oi
United Water Idaho Inc.
We further find it reasonable and direct United Water to book the
$28 138 amount originally proposed as a risk premium distribution to
United Waterworks as regulated revenue to be passed through to
customers in the Company s upcoming general rate case.
What is United's position with regard to this portion of Order No.
29625?
The Company has no objection to booking whatever remains of the
risk premium" as regulated revenue on its books, however the actual
amount of that revenue will not be fully known until the transaction in
that proceeding closes sometime in December. All transaction costs
must be netted against the amount before a final accounting of the
remainder can be recorded as regulated revenue.
In addition, United believes the proper way to treat the revenue for
rate making purposes is to amortize it over a three-year period, which
would coincide with other amortizations the Company
recommending in this case, such as rate case expense, based on the
anticipated rate filing frequency. Receipt of revenue from the risk
premium is a one time, non-recurring event and it is not appropriate to
include the total amount in annualized revenue for ratemaking
purposes.
When the actual revenue amount is known United intends to submit
that information to the Commission Staff for inclusion in this rate case.
Wyatt, OJ
United Water Idaho Inc.
Does this conclude your testimony?
Yes.
Wyatt, OJ
Unjted Water Idaho Inc.
(The following proceedings were had in
open hearing.
COMMISSIONER KJELLANDER:Let's move to the
Deputy Attorney General representing Staff.
MR . WALKER:Thank you, Cha i rman .
CROSS - EXAMINATION
BY MR. WALKER:
Mr. Wyatt, you testified on direct that you
reviewed the most recent Idaho Power and Avista rate cases.
tha t correct?
I believe that's correct.
Excuse me.And you also testified that in your
case, you at tempted to comply wi th the guidance from the
Commission from those two cases.Is that al so correct?
17 Would you please direct me to the specific area
of my testimony you're referring to?
m referring to page
- -
page 9 of your direct,
starts at line 18, and would move through page 10, bottom of
the page.
Thank you.
Yes, it was my direct testimony that I had
reviewed pertinent areas of the Commission's Orders out of
those two cases, and it was my understanding that the
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WYATT (X)
United Water83701
Commission was concerned wi th certain lssues relative to
significant plant improvements.
Do you know what rate base methodology was used
for both of those cases?
I believe that in both of those cases, if my
recollection is correct 1 that both Idaho Power and Avista
prefiled 13 -month average rate base proposals, as they have
done in numerous cases preceding.
And wasn't the Commission in those two cases
trying to correct a mismatch that occurs when investments are
added after the test year?
Well , as I read the Commission's Orders, it was
my understanding that they were concerned that when significant
plant improvements are completed during the test period or
post test period, that there should be an effort made by the
Utility to identify revenue-producing or expense-reducing
adjustments related to those , and in our case I believe that we
have attempted to do that by virtue of the revenue-producing
adjustments we have made in our case and the expense-reducing
adj ustments we I ve made in our case.
Thank you.
MR. WALKER:No further questions on direct.
COMMISSIONER KJELLANDER:Thank you.Let I S move
now to the Ci ty of Boise.
MR. STRI CKLING :Thank you very much.
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE, ID
WYATT (X)
United Water83701
CROSS - EXAMINATION
BY MR. STRI CKLING :
Mr. Wyatt, one - - you indi ca te one of the drivers
for constructing the Columbia plant would be the need to keep
up with current anticipated growth.Is that one of the
reasons?
m having trouble hearing you.Could you repeat
that?
One of the drivers for the construction of the
Columbia plant would be to keep up with current anticipated
growth.Would that be a correct statement?
The drivers of the construction of the Columbia
water treatment plant were primarily related to meeting current
demands on the system , and to accommodate what we see as needs
for utilities to have a certain level of redundancy in their
capaci ties to meet peak demands should there be some mechanical
failures elsewhere in the system which could
- -
which could
jeopardize serVlce to our customers.
It is true that in the years of 2002 , 2003, we
were very close to our maximum capaci ties , very close.And
quite frankly, if I had had a significant facility failure 1 I
very likely would have had to be asking for customers to
restrict or curtail their consumption in those years.
What is the Company's philosophy on participating
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WYATT (X)
United Water83701
with local governments on growth and planning issues?
I would say that the Company s philosophy on
participating on issues related to growth and planning is one
of cooperation.
Okay.How closely do you work with Boise City,
for instance, on growth and planning issues?
Well, Uni ted Water is not an approval agency, but
to the extent that we have numerous times met with City
parties, both the wastewater facility, the City engineer'
office, public works director , in order to attempt to make
similar plans, to understand the Ci ty' s comprehensive plan.
a matter of fact, I believe it is in the City s comprehensive
plan to see growth occur In the area in the vicini ty of where
the Columbia water treatment plant has been constructed.
Do you attend council meetings?Do you have
somebody from your staff that attends council meetings?
No, currently, or I should say historically,
previously, I've not had staff available to attend those on a
regular basis.As on a need-be basis, yes.
Okay.And do you comment on applications?
you recelve applications?
I m not sure what you mean by "applications.
Q .Initial use applications or growth applications
especially in the Southeast area?
I can't say that I can tell you that we have done
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WYATT (X)
Uni ted Water83701
that consistently.
And do you have an interaction with Ada County
also in their planning process?
We have to go before the Ada County Commissioners
and the Ada County Planning and Zoning on certain lssues.
Okay.Do you believe that Company involvement in
local planning would potentially defer future rate increases or
future needs for capital improvements to accommodate growth?
I would say that I don't know that that's a
realistic outcome of our utility s involvement in those
processes.We do not have authorization to approve or deny any
of those kind of facilities.That rests with the County and
the Ci ty agencles.So to the extent that those kind of
planning efforts could serve to, as you say, reduce the need
for supply addi tions, I don't know that I see the linkage yet.
Do you believe there is
- -
there - - it I
important for United Water to participate in local planning
issues?
Yes.
Okay.Have you taken any steps to lncrease your
involvement in local planning issues then?
Yes, we have.Most recently, we've hired a
public affairs manager , and one of that individual's roles will
be to be involved in lssues such as you've mentioned.
Okay.What was the involvement of local planning
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WYATT (X)
United Water83701
agencies and entities in the decision to build the Columbia
treatment plant?
Well, the requirements of Planning and Zoning had
to be met.We had to appear before the Planning and Zoning
boards of Ada County since the facility is located in Ada
County s jurisdiction and is currently not inside the Boise
Ci ty ' s jurisdiction.I believe it's inside their planning
area, but I don't believe it's inside their City boundaries
So we interacted with the appropriate agency inproper.
regards to the process of permitting and so forth related to
that plant.
In a similar veln , I understand from your
testimony you I re proposlng a new conservation plan , is that
correct, an update of the 1993 plan?
m proposing that we be allowed to follow
through wi th that process, yes.
Would that be creation of a new plan or an
update, or how would you
I would characterize it as both an update and a
new look.
Okay.And I believe you indicated in your
testimony, part of that was passing conservation-oriented
ordinances or working wi th local governments to do that.
that correct?
I believe you're speaking to lssues In my
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WYATT (X)
United Water83701
rebuttal testimony right now.
Okay.Is
- -
when you're propos lng to do the
conservation plan , are there any specific ordinances that you
have in mind for the conservation plan?
No, I have none particularly in mind.
Have you proposed any specific ordinances or
passed them by Boise City in the last five years?
Not that I'm familiar with, no.
Do you feel that it's important to work closely
with local governments and have conservation issues?
I think it's important for our utility to work
closely with local governments in a variety of areas, including
conservation.
Okay.On a different veln, what was your
involvement in the selection of CDM as a contractor?
I was one of a number of individuals who was
involved in the process of reviewing the proposals from the
four different contractors, and in evaluating them and making
recommendations related to those submittals.
Okay.Did CDM have the lowest cost estimate of
the proposers?
What do you mean by, "lowest cost estimate,
please?
Q .They re indicated that they re
- -
each - - did you
ask each proposer to provide a cost estimate, a lowest cost
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WYATT (X)
United Water83701
estimate, I believe?
We requested the four providers to provide us
wi th cost estimates in two areas, which is why I asked you
which one you meant.Can you help me?
Both.In both.
Okay.With regard to the two categories of cost
proposals, we had asked all four of the proposing companies to
give us both a target prlce or target cost of the entire
proj ect, if you will , which we did not use in our analysis of
the four contractors for the construction proj ect.And then we
also invited them to glve us their proposed estimate of their
fixed fee for the proj ect.So those will be the two cost
categories that I believe we're talking about here.
Was CDM the lowest proposer on either of those
categories?
I can only recall the one 1 and that would be
related to the fixed fee.Wi th regard to the fixed fee 1 I
believe CDM' s fixed fee was $888,000 and the lowest proposer
was, I believe, 846 -- excuse me -- $888,000, I think I said
that, and then I think the lowest proposer was $846,000, a
difference of some $42 000.
All right.Was CDM your choice?
CDM was not my initial first choice.I will say
though that 1 you know, hindsight is a great teacher 1 and wi th
regard to the fact that I was certainly proposing a different
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE, ID
WYATT (X)
United Water83701
contractor initially, that contractor was also proposlng a
significant amount of self -performance on this proj ect and
which would have precluded - - likely precluded
- -
a significant
amount of competi tion for significant portions of the proj ect.
CDM , al though they did propose to do some
self-performing, ultimately did very little and almost no
self-performance on the project whatsoever, and virtually all
of maj or components of the construction equipment, materials,
maJ or processes , were competi ti vely bid.
Okay.What is the Company s philosophy on making
decisions on contractors at a local level as opposed to a
national level or SUEZ?
Well, the vast, vast maj ori ty of the decisions
that I have to make on a daily basis are made locally, there'
no question about that, and the people in my employ have to
make are 99 percent, if I was to give an estimate, which I
probably shouldn't do but I'll do it, of are local decisions.
In this particular case, a very unlque situation,
it's - - you don't build a six-million-gallon-per-day membrane
technology water treatment plant every day, and wi th regard to
that very unique construction, yes, we did ini tially recommend
the bidder that had the $846,000 fixed fee proposal.As I
said, hindsight is a great teacher.Wi thin the corporation at
United Water Management and Services level and other levels in
the organization , there are folks experienced with design-build
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (X)
United Water83701
and have been involved wi th design-build proj ects such as this
with membrane construction projects such as this with water
utili ty plant construction proj ects such as this before.
locally have not had a vast experience in surface water
treatment plant construction, albeit we did get involved with
the Marden plant, no question about that.But given the new
technologies and new processes, I welcomed the experience and
wisdom ot some of our corporate entities, and with that wisdom
we ultimately did make the decision to choose CDM.
MR. STRICKLING:Thank you.I have no further
questions.
COMMISSIONER KJELLANDER:Thank you.Let's move
to Mr. Purdy wi th Communi ty Action Partnership.
MR . PURDY:Thank you.I III defer to his
rebut tal.Thank you.
COMMISSIONER KJELLANDER:Thank you, Mr. Purdy.
Mr. Eddie wi th Idaho Rivers Uni ted.
MR. EDDIE:Thank you.I also will reserve my
questions for rebuttal.
COMMISSIONER KJELLANDER:Mr. Campbell.
MR . CAMPBELL:Thank you.
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE, ID
WYATT (X)
Uni ted Water83701
CROSS - EXAMINATION
BY MR. CAMPBELL:
Mr. Wyatt, turning your attention to page 12 of
your direct testimony, particularly lines 13 through 16, if
you I d like to read that so I can ask you a question or two
about that testimony, starting wi th:As described.
Tell me when you finish reading it.
As described in wi tness --
No, you don't have to read it out loud.I just
want you to tell me when you ve read it.
ve read it.
All right.With regard to the reference to the
event of failure of less reliable sources, can you tell me what
you mean by "less reliable sources"?
I mean
- -
by "less reliable sources," I would
mean facilities which have the potential for failure due to
wear and tear on those facilities.Mechanical things break.
Q .Can you glve me some specific examples of what
you're talking about?m assuming you re talking about wells.
Is that correct?
m talking about sources of supply.
And what are the sources of supply of Uni ted
Wa ter?
Wells and surface water treatment plants.
HEDRI CK COURT REPORTING
O. BOX 5 7 8, BO I S E ,
WYATT (X)
Uni ted Water83701
All right.And in terms of the reliability, can
you describe to me why the CWTP is more reliable than these
other resources?
The CWTP would be more reliable than some of our
other sources simply because of its newness.Typically, a new
facility has an experience of breakage rate less than , less
frequent than , a facility that has been in service for some
period of time.
All right.With regard to the CWTP, I'd ike to
inquire wi th respect to the
- -
the abili ty of that facili ty to
actually treat water, and this goes to the issue of what
quantities of water United Water has available under water
rights pursuant to the laws of the State of Idaho or contracts
with the Bureau of Reclamation.What quantities of water does
Uni ted Water have available for diversion into the CWTP?
I don't know the answer to that question on a
specific acre feet basis.
Who would?
I believe that witness Rhead would have more
information along that line.
Very well.Wi th regard to the amounts of water
that CWTP can treat presently, do you know if there are any
limitations upon the time of year during which CWTP could
actually divert that water under your existing water rights?
Again, I don t know that I'm the expert on water
HEDRI CK COURT REPORTING
O. BOX 578, BOI SE , ID
WYATT (X)
United Water83701
rights in our business 1 but I would say that certainly some
water rights have conditions on them , which would potentially
indicate the time of year that certain water rights may be
available.
All right.With regard to that issue, do you
know if any of the water rights that United Water possesses for
diversion from the Boise River allow diversion at any period of
the year except for April through October of each year?
Could you repeat that, please?
Do you know if any of the water rights United
Water presently owns for diversion at the CWTP contain any
ability to divert water except for the period of April through
October of each year?
I do not know the particular conditions of each
of the water rights in our portfolio, so I 1 m not sure that I'
the correct person to answer that.
All right.Turning your attention to page 13 of
your direct testimony, if you would, please, particularly
focusing upon lines 11 through 23, and if you I d like to take a
moment to review that so that it can be fresh in your mind and
then just tell me when you ve reviewed it, then I'd ike to ask
you some questions.
All right.ve read it.
Thank you.Wi th respect to the Company I s
conservation efforts, is it correct in stating that the
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O. BOX 578, BOISE , ID
WYATT (X)
Uni ted Water83701
maj ori ty of the water use by customers of Uni ted Water occurs
during the so-called irrigation season?
What do you mean by the irrigation season"?
Q .Well, the period from April through October.
It I S true that more than half
- -
or 1 excuse me.
Let me correct that.It's true that more water is used by
customers during the summertime, mainly the April through
October time frame that you reference.More water is used by
customers during that time frame than during the winter time
frame, which I would call , say, November through March.
Okay.And based upon the testimony of some of
the other witnesses, it appears to me that there is at least a
31 percent increase of the consumption of water during the
so-called irrigation season.Is that a correct statement?
Could you point me to someone' s testimony that
references that so I could verify?
Well, I could, yes, if you'd like to have me do
that.
It would be the testimony of Mister
- -
and I
don t know
- -
I apologize, I don't know how to pronounce
this
- -
Gradilonee (phonetic)Is that --
I believe it's Gradilone (phonetic)
Gradilone.And particularly the description of
the water use on page He testifies that those individuals
using alternate irrigation supplies use 110,000 gallons per
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O. BOX 578, BOISE , ID
WYATT (X)
Uni ted Water83701
year - - no 1 excuse me 1 118, 000 gallons per year 1 whereas those
who do not have alternate irrigation supplies use 165,000
gallons per year, which is a 47 000 gallon per year
difference?
You re saying that's on page 9 of Mr. Gradilone'
direct testimony?
I believe it is.
Again , I'm not seeing it.Maybe you could direct
me there, or maybe it's just my eyes today.
Well , perhaps I was incorrect in that page
reference.I'll find it in just a moment.
MR. MILLER:Perhaps I could help.Mr. Campbell,
lS it possible that you re actually referring to
Mr. Gradilone 1 s Exhibit No.6, page
MR. CAMPBELL:That's, in fact, the case, yes,
Exhibit No.Thank you, Counsel.
THE WITNESS:Which Schedule of Exhibi t No.
BY MR. CAMPBELL:That's Schedule 2, Exhibi
No.6, page It's in the middle part of the page.
And, again, what are you - - which particular
piece are you pointing out to me?
, the line that reads in the middle of the page
that reads:On average, customers in the system before the
rule changed used 165 - - I assume that I s thousand gallons, that
KG - - per year.
HEDRI CK COURT REPORTING
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WYATT (X)
United Water83701
And there I s a reference to another exhibit.
To assess the amount of water for customers that
utilize alternate irrigation supplies, the Company was able to
identify and isolate five areas in the system based on meter
reading books that used alternate supply exclusive for
irrigation.As shown in Exhibit 6, Schedule 3, page 8 of 25 --
excuse me - - over the past four years, this group of customers
consumed only 118,000 gallons of water on average per year.
And your question to me is?
My question was is there not a differential
between the amount of water used by customers during the
irrigation season that is an increase of consumption by the
percentage of at least 31 percent?
I believe that the
- -
again, this is not my
testimony, so I'll defer to Mr. Gradilone, but my simple
reading of the area you've directed me to tells me that what is
being compared here is an average customer on the system as
compared to a customer on the system or customer group on the
system who has access to what we've termed al ternate
irrigation , or in other words, does not use Uni ted Water water
for
- -
predominantly for outside water uses.I think that'
the comparison that is being related to here.
I understand that.And I won't belabor the
point.I'll ask Mr. Gradilone, since obviously you're not as
familiar with that particular area.
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P. o. BOX 578, BOISE, ID
WYATT (X)
United Water83701
My question now concerns the so-called peak day
demand that you described in re~ponse to Mr. Strickl ing , s
testimony (sic)You indicated, I believe, in year 2003 and
perhaps 2002, the peak day demand almost exceeded the capacity
of the system.Is that right?
I believe I testified that the peak day demands
in 2002 and 2003 were in the 92, 93 million gallons per day
range, and that they were close to
- -
very close to
- -
the
maximum capacity of the system.
Right.And those peak day demands, what time of
the year did those occur?
I bel ieve that they occurred during the month of
July.
Right.And that would be during the irrigation
Correct?season.
I believe that's correct.
All right.In that regard, what efforts has the
Company, besides the conservation program that is in place
currently, what efforts has the Company undertaken to examine
addi tional conservation measures as opposed to building new
plant and new distribution facilities?
Well, in addition to the conservation programs
offerings that we have had and have grown over the years since
the early -- late ' 80s , early ' 90s, United Water was a partner
with both the City and the County in helping establish what we
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WYATT (X)
United Water83701
call the al ternate irrigation ordinance, slang term I guess for
the ordinance that requires in both the City of Boise and in
Ada County for new development In areas that had previously
been irrigated farmlands or croplands or pasturelands, as those
areas develop, they re required
- -
developers are required to
put in a dual system:A potable water system and an al ternate
irrigation water system.And United Water was a participant in
helping to see that occur.
Can you tell me when this occurred, this
participation to help this occur , when United Water was
involved in this effort?
I was not employed at Uni ted Water Idaho at the
time, but it I S my understanding that this occurred in about the
mi d '90s,'95ish, I believe.I believe
- -
and again, subj ect
to check
- -
I believe the first ordinance went into effect
in '95 or 1 96, and I I m not certain about that date.
Who with United Water would be better able to
testify about that particular effort?
don'know.
Would strike you as somewhat curlOUS earn
that United Water actually resisted the efforts of irrigation
entities to convince local governments to pass such ordinances
much earlier; that in the early ' 90s and late ' 80s, United
Water, in fact, resisted vigorously any kind of ordinances that
would require such alternate irrigation systems?
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WYATT (X)
United Water83701
m not aware of that.
Okay.Has Uni ted Water explored - - weIl , let me
ask the question this way:
Has United Water -- lS it familiar with the
conservation program utilized by the Las Vegas Water Authority
with respect to conversion of grass lawns to xeriscape?
m not intimately aware 1 or as you say
"familiar " with Las Vegas's particular plan, although I'
aware of similar plans.
How are you aware of similar plans?
Various reports and studies that I've read.
And what familiarity does that exactly involve?
What particulars are you aware of?
m aware that certain cities pass ordinances
that either
- -
either require or encourage various ways of
doing that, converSlon from lawns to lower water use
landscaping.
Okay.Are you - - are you aware that Las Vegas
Water Authority actually pays residential homeowners a certain
sum per square foot to remove their existing lawns and convert
to xeriscape water systems as a conservation measure?
I don't know no, I'm not particularly aware of
that aspect of their plan, al though I'm aware that those kinds
of plans are adopted by some cities who have particular needs.
Okay.Uni ted Water hasn't considered any kind of
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P. O. BOX 578 , BOISE , ID
WYATT (X)
Uni ted Water83701
conserva t ion program along those ines, has it?
Uni ted Water in this case is proposing that we
undertake an analysis to determine what are the appropriate
conservation programs and measures to be taken during this
time, at this time now , and with regard to the Boise area and
Boise clientele and our system.
All right.Wi th respect to the existing
facility, the Columbia water treatment plant, do you know
United Water has the ability to utilize water other than
surface water from the Boise River for that facility?
m not aware that are.
Okay.Do you know what the total amount water
rights Boise Water (sic)currently claims in terms the
volume of water it has under its water rights portfolio?
I believe it's in the range of 310 cfs, cubic
feet per second.
All right.And are you aware that that is almost
twice as much as the peak day demand that you referred to of
2003?
Yes, I am.
All right.And can you explain to me and the
Commission why United Water feels it's necessary to
- -
that it
was necessary to construct the Columbia water treatment plant
in view of the fact that it has in its water rights portfol
twice as much water as it has ever used?
HEDRICK COURT REPORTING
O. BOX 578, BO IS E , I D
WYATT (X)
United Water83701
The water rights portfolio is predominantly made
up of water rights related to well supplies 1 and certain
certain of those well supplies have significant conditions on
them.Certain of those well supplies are si tuated in areas
which are not in the eastern part of the ci ty of Boise and to
the east of that area.So the
- -
the water rights that we
have, which are In a greater number than the maximum demand
volume of water , are not always available in the same place in
the system as the demand occurs.
And is it not possible for United Water to build
conveyance facilities to move the water to the eastern portion
of the service area?
I believe as part of the master plan study that
was performed in mid to late ' 90s , that was one of the options
looked at by the firm performing the master plan analysis.And
the economics of that were, I believe, at that time shown to be
not beneficial.
Well, let me ask this question then:Are you
aware of the proposed development by Skyline Corporation on the
north side of the Boise River in the Foothills?
Can you be more specific to help me recognlze
what you're referring to?
Sure, be happy to.Ted Johnson and his son
recently bought approximately 700 acres in Ada County north of
the Boi se River and I bel ieve west of Highway 21 bridge 1 very
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID
WYATT (X)
United Water83701
close to the diversion pumplng plant of your Columbia water
treatment plant.
Uh-huh.
That's the proj ect I'm talking about.
Yes, -m familiar with the fact that they have
rights to that land and are seeking to develop it.
Okay.Have you or anyone at United Water engaged
In any discussions wi th representatives of that proj ect wi th
respect to servicing that proj ect wi th potable water?
Yes, we have.
And what were those discussions?
Well , they came to us to ask us if we could serve
that facility, and although there's only early preliminary
engineering analysis performed on that, our assessment was that
it was serviceable, al though significant investments in
facilities would have to be made to make it feasible, to make
it workable.
Okay.And where would it be serviced from?
Which sources of supply would it be serviced from?
Due to its location, it would initially be
serviced from supplies from the Marden treatment plant;
however , we have also indicated to them that at a certain time
during their plan of construction it would require a secondary
feed into that system , which would come from the waters
produced from the Columbia water treatment plant.
HEDRICK COURT REPORTING
O. BOX 578, BOI SE , ID
WYATT (X)
United Water83701
Okay.Do you know how much
- -
how much plpe
would be required to provide serVlce from your existing
facil i ties to this proj ect?
No, I don I
Is it in the neighborhood of more than a mile?
Just remembering the layout on a map that I'
seen , I would assume that it's a mile or could be more.
Do you know if this proj ect is within the City of
Boise's urban service planning area?
I believe it is not, but I'm not certain.
If it is not, why would Uni ted Water even
entertain serving that proj ect in that area?
I said I'm not certain.
No, I said if it is not, would Uni ted Water even
entertain serving that particular proj ect?
When a developer comes to United Water and
requests on a preliminary basis the viability of service, I
simply answer the developer's request.It's the developer'
responsibil i ty to determine whether or not his or her proj ect
is going to be approvable wi thin the Ci ty and/ or County
requirements.
Well , let me ask my question a different way
then:
What is the policy of Uni ted Water wi th respect
to providing service to proposed development proj ects outside
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (X)
United Water83701
of the Boise Ci ty urban serVlce planning area?
I believe it would be our policy to provide
service to developments that are approved by agencies
regardless of where their service location is.
Well , I'm confused by that response.So you
telling me that if Elmore County approved a development and
someone wanted to pay to have Uni ted Water provide the service,
United Water would do so?
If that was authorized by Elmore County.
Thank you.
MR . CAMPBELL:I have no further questions.
COMMISSIONER KJELLANDER:Are there any questions
from members of the Commission of Mr. Wyatt's direct testimony?
Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
Mr. Wyatt, on page 6 - - and I know other
witnesses have discussed this , but where you talk about on
page 6, line 11 through 15, you talk about the customer'
average bill being $323 a year , and I just did a little math on
that, that'd be about $27 a month.My question would be is do
you know what the average summer bill would be, like April
through October through September?
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
WYATT (Com)
United Water83701
Well , it would depend
- -
I haven't done the
analysis on that.I would estimate that approximately
percent of the annual bill is billed during the summertime
periods.
So would you say then half the time, during the
winter months 1 the average - - we're talking average
- -
it may
only be 12, $13 a month?
Certainly, the average winter bill to
customers - - residential customers
- -
is significantly lower
than the average summer bill , and I believe Mr. Gradilone in
his exhibi ts does demonstrate the summer averages and the
winter averages, so we could look and check.
Okay, I'll check that.
Yeah , the other point I'd like to talk to you
just a little about is on page 12 of your testimony 1 lines
through
Okay.m there.
Okay.Here I believe you're discussing three
ways the Company can increase its revenue.Is that correct?
Yes.
And you're saYlng that adding new customers
one of its ways the Company can increase its revenue.Is that
right?
Yes, that's correct.
So my question is does the hookup fee paid by the
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (Com)
United Water83701
new customer cover the added cost they bring to the system , or
is the other two methods that you talk about increasing revenue
lS existing customers or rate increases subsidizing adding new
customers?
First of all , your reference to a hookup fee
Uh-huh.
- -
we do not charge a hookup fee , so there is no
connection charge or tap fee to connect to the system.
What I'm referring to here would be the annual
revenues - - water revenues
- -
billed to the customer for their
service use.
Right.I probably used the wrong term when
said hookup fee 1 " but in bringing on new customers
- -
and I
realize the developer would pay for the installation costs and
so forth
- -
but by adding those new customers, let's just take
this Columbia treatment plant , for example, them coming on the
system , are they paYlng the fair share of cost to add this
treatment plant, the new customers, or is it the existing
customers that have to shoulder a lot of that increased cost
because of you adding the new customers to your system?Does
that make sense?
I believe I understand your question.
Okay.
My response would be that to the extent that a
new customer lS a new customer only for a moment and then
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (Com)
United Water83701
becomes an existing customer , it's hard to define.I mean , you
have to pick a point in time of which we're going to have the
discussion about.
That being said , the Columbia treatment plant
constructed for a variety of reasons:To meet both current
demands on the system , to enable us to have a certain level of
redundancy in the supply sources which I had talked about
previously, to preclude having to curtail use by customers
during mechanical failures or what have you, and as well to
enable the Company to comply with regulations with regard to
arsenic to enable us to be able to do some al ternate sourcing.
So to the extent that the Columbia treatment
plant is providing water to new , addi tional customers that come
on-line, that will be true.The revenues derived from them, as
all customer revenue does, supports the entire investment of
the organization.
It's also true that customers who have access to
what we've called alternate irrigation where those customers
are not using United Water water for predominantly for their
outside use but have other sources of water supply for their
outside water use, the revenue received from those customers is
significantly less than the average, and a recent analysis of
our data shows that at least in the most preceding last year
time during the test year and prior , almost 75 percent of the
new addi tions to the system had al ternate irrigation available
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID
WYATT (Com)
United Water83701
to them.
So then that kind of shoulders the burden on
those that don't have the irrigation system
- -
is that right
pressurized irrigation?
Well , all users add demand to the system.
Right.You know , inWell, let me ask you this:
our last rate case we had wi th Idaho Power, at our publ ic
publ ic comment was, you know , it's growth that's caused these
rates to go up because you've got to get more - - you ve got to
go out and secure more generation , you ve got to have more
distribution , you ve got to have more transmission , you might
have to buy more on-the-spot market, blah , blah, blah.
Well , we're getting the same thing from the
customer wi th
- -
In this case is saying, Because Uni ted Water
is adding all these new customers, that I s increasing our costs.
So, my question to you is how do you respond back
then?How do you verify that going out and adding new
customers, recrui ting new customers to your system , isn't
putting a burden on the existing customers
- -
that would be my
question - - or is it?
Certainly, growth in the system can resul t
some additional cost to let's call them previously-existing
customers, but the investments that Uni ted Water is making in
its plant facilities is not restricted to simple costs related
to new sources of supply or new facilities , treatment plants,
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (Com)
United Water83701
Our company is investing significant amounts ofcetera.
money in replacement facilities and infrastructure upkeep and
replacements which do benef i t existing customers:Main
replacement programs , service line replacement programs, meter
replacement programs, as well as refurbishment and operational
changes relating to existing facilities.So it's a balance.
There are a variety of costs that are being requested in this
case of both a capi tal nature and an operations nature which
serve to benefit existing customers.
Thank you.
COMMISSIONER HANSEN:That I S all I have.
Further questions fromCOMMI S S IONER KJELLANDER:
members of the Commission?
EXAMINATION
BY COMMISSIONER KJELLANDER:
I just have one, Mr. Wyat Mr. Campbell was
asking you about some specific conservation methods 1 I believe
he mentioned in Nevada, that they re trying to encourage
xeriscaping, and while I don 1 t want to go into specifics of a
program that you've already said you're not fully apprised of
he was talking about what might be considered a carrot
approach.
How would you describe the current summer billing
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
WYATT (Com)
United Water83701
scenario that we have within United Water's territory as far
its ability to send a message towards possibly some additional
xeriscaping down the road?
How does our billing send the message?
The pricing summer schedule.
I think , first of all, let me remind everyone
that the current billing regime lS a bimonthly billing process,
and as Il m sure you've read in my rebuttal testimony, I'
offered the idea and recommended to this Commission that there
be an approval to allow us to move to a monthly billing regime,
monthly meter reading and billing regime; and I believe I'
testified there that I believe that that would be a method
one of the benefits would be to send customers a more current
price signal related to their water use, thus giving customers
an opportuni ty to see how much water they're using on a more
frequent basis through the billing process and then have an
opportunity to adj ust their water use with regard to the price
signal that they I re receiving through their billing.
Let me ask the question a little more
specifically.I really wasn't movlng towards the number of
bills that they would receive, whether it's every two months or
once a month.
m sorry, I misunderstood.
More, instead , to the pricing per gallon during
the summer is obviously more than it is during the winter
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE , ID 83701
WYATT (Com)
United Water
months.
Yes.
Could you comment on what you percelve its impact
to be in relationship to maybe a transition to more xeriscaping
down the road as we continue to see more drought and we
continue to see more demand on water wi thin the state and in
your serVlce terri tory?
The current 25 percent rate change in the summer,
25 percent increase in the summer , sends a certain level of
price signal to the customers.m not sure I'm in the best
position to assess the ability of that price signal to serve as
a carrot wi th regard to customers xeriscaping their lawns
versus having them be green.
I guess I wouldn't describe it as a carrot
ei ther, more an approach.
Yeah.
COMMISSIONER KJELLANDER:Are there any other
questions from members of the Commission?
Ready for redirect.
REDIRECT EXAMINATION
BY MR. MILLER:
Mr. Wyatt , golng back to the start of your
cross-examination, did the Company understand the Commission'
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (Di)
Uni ted Water83701
Orders in the Idaho Power case and the Avista case as mandating
the use of a 13 -month average rate base as a solution to
revenue expense and investment mismatches?
No, the Company did not understand those Orders
in that way.
When did the Company first learn that the Staff
was interpreting those Orders to require a 13 -month average
rate base?
m going to obj ect to thatMR. STUTZMAN
question.m not sure that properly characterizes Staff'
testimony in this case.
I'll rephrase the question.MR. MI LLER :
When did the Company first learnBY MR. MI LLER :
that the Staff intended to propose a 13 -month average rate base
as a solution to that problem?
The Company first learned about Staff's proposal
or intention to propose a 13 -month average rate base was when
we received Staff's case.
No further quest ions.MR. MI LLER :
Thank you, Mr. Miller.COMMISSIONER KJELLANDER:
And I guess we'll see you back up for the
rebut tal later in this proceeding.Thank you , Mr. Wyatt.
THE WITNESS:Thank you.
(The wi tness was excused.
COMMISSIONER KJELLANDER:Mr. Miller 1 if you'd
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (Di)
United Water83701
like to call your second witness.
Call Jeremiah Healy.MR. MILLER:
JEREMIAH HEALY,
produced as a wi tness at the instance of Uni ted Water 1 being
first duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. MILLER:
Sir , would you state your name, please?
Jeremiah Healy.
How do you spell that?
J -M- I -H H-L- Y.
Did you previously have occasion to submi t
written prefiled testimony in this proceeding consisting of
34 pages?
Yes, I did.
And was your written testimony accompanied by
exhibits?
Yes 1 it was.
And how many exhibits accompanied your written
prefiled testimony?
I believe there were five exhibits.
So your exhibi t numbers would be Exhibi t Nos.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
HEALY (Di)
Uni ted Water83701
through 5, wi th several schedules?
I believe so, with many support schedules.
Right.Mr. Healy, I have distributed to the
Commission and the parties a document consisting of five pages
which is labeled Second Revised
- -
first page is labeled Second
Revised Exhibi t No.Do you have that with you?
Yes, I do.
Could you just briefly describe these pages that
are your Second Revi sed Exhibi t Nos. 2, 1, 3, and 15?
Sure.The Second Revised Exhibi t No.2 is a
summary of the Company's rebuttal position in this case.
indicates revenues, operating expenses, and rate base.
indicates the Company's position on test year adjustments, as
well as the Company s position on the revenue increase required
to produce the stipulated rate of return.
Exhibi t No.1 is simply the Company's rebut tal
position with regard to our rate base.
Exhibit No.2 summarlzes the Company's position
with regard to operating expenses.It indicates - - I'm sorry,
it doesn't indicate.It encapsulates our rebuttal position.
Exhibi t 15, Schedule 11, is simply
- -
determines
the required net operating income, shows the adjusted net
operating income realized, and grosses up the difference for
income taxes to arrive at the
- -
our requested increase in
rates for this case.
HEDRI CK COURT REPORTING
O. BOX 578, BO IS E , I D
HEALY (Di)
United Water83701
Exhibit No.3, Schedule 4, Second Revised, is the
income tax calculation that ul timately flows to Exhibi t No.
And I don't know if everyone has this.I don't
think
- -
I have an extra page here that shows the settlement
posi tion and the cost of money, but I don't think that'
officially included in the package.
Very good.
Mr. Chairman , I hope this won't beMR. MILLER:
confusing because we are just doing Mr. Healy's direct
testimony, but we wanted the Commission and parties to have , to
the extent it's necessary at this time, an accurate picture of
the Company s final rate recommendation positions.So we would
ask the Second Revised Exhibits that have just been identified
be marked for that purpose and with that understanding.
And, Mr. Miller , doesCOMMISSIONER KJELLANDER:
that include Exhibit No. IS?
MR. MILLER:Yes.
COMMISSIONER KJELLANDER:Okay.Wi thout
obj ect ion then , we would admi t the revi sed exhibi t s as if read.
(Uni ted Water Exhibi t Nos. 1, 2 , 3 and 15,
having been premarked for identification , were admitted into
evidence.
Mr. Healy 1 wi th respect to yourBY MR. MILLER:
written direct testimony, are there any additions or
corrections that need to be made to that testimony?
HEDRI CK COURT REPORTING
O. BOX 578 , BO IS E , I D 83701
HEALY (Di)
United Water
I don't believe so.
If I asked you the questions that are contained
in the testimony today, would your answers be the same , wi
the caveat, of course, that since the time of filing that
testimony, certain numerical values have changed as the case
has evolved?
Yes, they would.
All right.
With that, we would ask that theMR. MILLER:
direct testimony of Mr. Jeremiah Healy be spread on the record
as if read, that the exhibits identified be marked , and
Mr. Healy would be available for cross-examination.
COMMI S S IONER KJELLANDER:Thank you, Mr. Miller.
And wi thout obj ection , we will spread the testimony across the
record and al so admi t the exhibi t s .
(The following prefiled direct testimony
of Mr. Healy was spread upon the record.
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE , ID 83701
HEALY (Di)
United Water
Please state your name and business address?
Jeremiah 1. Healy, 8248 West Victory Road, Boise, Idaho 83709.
By whom are 1 you employed and in what capacity?
I am employed by United Water Idaho Inc. ("United" or "the
Company ) in the capacity of Coordinator of Planning and Rates.
How long have you been employed by United Water Idaho?
I have been employed by United Water Idaho or United Water
Management and Services Company since February 1980.
Briefly describe your responsibilities during your tenure.
As a Staff Accountant with the Central Region Office in Harrisburg,
P A until April 1982 I performed general accounting, prepared federal
and state tax returns and public utility commission annual reports. In
May, 1982 I became an Internal Auditor responsible for conducting
financial and special audits on regulated and non-regulated
subsidiaries. From September, 1985 until December, 1989 I was
Accounting Supervisor for United Water Idaho. In this capacity, I was
responsible for accounting and planning functions. In January, 1990 I
became Financial Coordinator for the Western Region of General
Waterworks responsible for accounting, budgeting and strategic
planning for five water and/or wastewater utilities. From August, 1993
until October, 1994 I was Director of Rates at United Water
Management and Services Company. In this capacity I prepared rate
Healy, OJ
Unjted Water Idaho Inc.
filings for various utility subsidiaries. In November, 1994 I assumed
my current position.
What is your educational background?
I was granted a Bachelor of Science degree with a major in accounting
from the University of South Carolina in May, 1977.
Before what regulatory commissions have you appeared and presented
expert testimony?
I have testified in various proceedings before the Idaho Public Utilities
Commission ("IPUC") and I have submitted written testimony before
the regulatory bodies in Illinois and Arkansas.
What is the test year United Water is utilizing in this proceeding?
The Company is using the twelve-month period ended July 31 , 2004.
Normalizing and annualizing adjustments have been made to the test
period and known and measurable adjustments have been made to
revenue, operating expense and rate base elements through May 31
2005. The Company is utilizing a year end rate base in this proceeding,
as is consistent with past IPUC decisions in Cases UWI-OO-
UWI-97-, UWI-96-, BOI-93-3 and BOI-93-
In connection with the Company s present application for an increase
in rates and charges, what is the scope of your participation and
testimony?
My participation and testimony covers both operating expenses and
rate base. I have analyzed the Company s books and records and
Healy, OJ
United Water Idaho Inc.
prepared the necessary accounting exhibits to adjust operating
expenses. I also have developed and will present testimony on rate base
for the Company, integrating the capital projects discussed by Witness
Rhead. Both operating expenses and rate base are predicated on a test
year ending July 31 , 2004. Also included are known and measurable
adjustments that will occur prior to the time that new rates will become
effective in this case, which was estimated to be May 31 , 2005. In the
early stages of planning the case, this was the best estimate for the in-
service date of the Columbia Water Treatment Plant ("CWTP"), and all
pro forma adjustments were developed consistent with that date. The
Company continues to anticipate that the facility will be in-service on
or before May 31 , 2005. However, the Company was not able to
properly prepare and file the rate case in the period of time which
would have been necessary to have this date and the end of the
Commission s suspension period coincide. The pro forma adjustments
are all projected to May 31 , 2005, the originally planned in-service date
for CWTP, but because of the time necessary to prepare the filing, this
will not coincide with the effective date of the new rates as originally
planned, unless it is possible to resolve the case by then.
Please generally describe the approach you have taken in preparing the
exhibits for operation expenses.
For operation and maintenance expenses, I have relied on information
and data produced within the Company, and my own investigation
Healy, OJ
United Water Idaho Inc.
thereof, as the basis for my adjustments. For depreciation, amortization
of plant held for future use, amortization of utility plant acquisition
adjustments , operating taxes and income taxes, supporting details are
shown which provide the basis for these adjustments.
Have you prepared from the Company s books and records a series of
exhibits depicting the Company s balance sheet and operating income
statement for the test year ended July 31 , 2004?
Yes, I have prepared Exhibits Numbers 4 and 5 illustrating the Company
Balance Sheet (Exhibit No.4) and Operating Income Statement Per
Books (Exhibit No.5). Both of these exhibits are based upon results
for the test period.
Have you prepared an exhibit that indicates the pro forma operating
income for the Company at existing and proposed rates?
Yes. I have prepared Exhibit No.which is titled "Statement of
Operating Income Per Books and Pro Forma under Present and
Proposed rates for the year ended July 31 , 2004". I have also prepared
Exhibit 3 Summary identifying the individual adjustments, except for
revenue adjustments discussed by Witness Gradilone, found on Exhibit
Column 1 of Exhibit 2 identifies the schedule on Exhibit 3 that
details the test year pro forma adjustments indicated in Exhibit 2
Column 2.Column 2 indicates the elements of operating income:
operations and maintenance expense, depreciation and amortization
Healy, Oi
United Water Idaho Inc.
expense, taxes other and income taxes. The amounts therein are per
books, as shown in Exhibit No.5. Column 3 shows a summary of test
year adjustments made to revenues and expenses. The adjustment to
operating revenue shown on line 4 will be explained by Witness
Gradilone. The adjustments to operation and maintenance expenses
summarized on line 6, are ~etailed in Exhibit No.3 Summary, Schedule
1 and they will be explained in conjunction therewith. The adjustments
to depreciation expense, amortization of plant held for future use and
amortization of utility plant acquisition adjustments summarized on
lines 7, 8 and 9 are detailed in Exhibit No.3 Summary, Schedule 2
pages 1 to 4, and will be explained in conjunction therewith. The
adjustments to operating taxes summarized on lines 11 and 12 are
detailed in Exhibit No.3 Summary, Schedule 3 , pages 1 to 4, and will
be explained in conjunction therewith. Column 4 shows the adjusted
operating income at existing rates for the test period.Column 5
indicates the adjustments to operating revenues operation and
maintenance expenses, and income taxes under the increased rates
proposed herein. The adjustment to operating revenues of $6 767 870
was computed based on an 8.930/0 rate of return on rate base. Column 6
shows the adjusted operating income necessary to produce the
requested return. The income taxes shown on lines 18 and 19 were
computed as indicated on Exhibit No.3 Summary, Schedule 4, and will
be explained in conjunction therewith.
Healy, OJ
United Water Idaho Inc.
Returning to Column 5 of Exhibit No.3 Summary, please explain the
adjustments to operating expenses?
Operation and maintenance expenses have been increased by
933 193 (Exhibit 3 Summary, line 35).Depreciation and
amortization expense have been increased by $1 598 479 (Exhibit 3
Summary, line 50).Property taxes and payroll taxes have been
increased $72 522 (Exhibit 3 Summary, line 57). Federal income taxes
have decreased $1 453 467 and State income taxes have been decreased
by $680 427 (Exhibit 2, lines 18 & 19).
The detailed support for the operation and maintenance expense
adjustments are shown on the four Schedules following the Exhibit 3
Summary. Schedule 1 , pages 1 to 34, provides detail for adjustments
made to operation and maintenance expense. Schedule 2, pages 1 to 4
provides detail for adjustments to depreciation and amortization
expense. Schedule 3 , pages 1 to 4, provides detail for adjustments to
property and payroll taxes. Schedule 4, page 1 provides detail for
adjustment of State and Federal income tax expense.
Please describe the various normalizing and annualizing adjustments
as well as known and measurable adjustments, made to operation and
maintenance expense.
Adiustment No.Increases payroll expense by $232 555
(Schedule 1 , Page 1).This adjustment reflects anticipated pay
increases for salaried employees to be effective April 1 , 2005. For
Healy, OJ
United Water Idaho Inc.
Bargaining Unit employees, the pay rates used reflect those that will
become effective April 1 , 2005 as called for in the current contract. For
all employees, total hours by employee, covering the period August 1
2003 through July 31 , 2004, were determined and applied to the
contractually obligated (for Bargaining Unit employees) and
anticipated pay rates (for non-BU employees, anticipated to be 3.5%).
During the test year, the Company had a fully staffed payroll roster of
88 employees. Three new positions are proposed in the pro forma
period.
Please identify the three staffing additions incorporated into the
Company s filing.
The Company proposes to add one Chief Operator, one Operator, and
one Public Relations Manager, to its current complement of staff. All
staff additions are anticipated to occur prior to hearings in this
proceeding.
Please explain the rational and need for the additional staff.
The two operations positions , Chief Operator and Operator, are
required in order to maintain operations and maintenance activities
related to the Company s increased source of supply, pumping, and
treatment facilities. Treatment and well system technical requirements
have steadily increased due to the addition of chlorine generation and
greensand treatment facilities within the system as well as the addition
of the Columbia Water Treatment Plant (CWTP).The technical
Healy, OJ
United Water Idaho Inc.
requirements include operation and maintenance, calibration and
troubleshooting of the 28 chlorine generation units and two greensand
treatment facilities at wells, plus chlorine generation at the Marden
Treatment Plant.The Columbia Water Treatment Plant, with its
membrane filtration and chlorine generation processes adds
additional and unique set of technical requirements of its own.
The Chief Operator will coordinate and support the activities at
Marden, Columbia, and the two greensand facilities, and will also work
as a functional operator at facilities throughout the system.The
Operator position provides staffing needed to support the operations
and maintenance requirements of all water supply, pumping and
treatment facilities throughout the system.
The Public Relations Manager is required to enable the Company
to effectively participate in the business and political community on a
wide range of issues that are vital to the business. Some of these
include quality of service, customer communications, community
involvement, legislative issues, media relations and others.
test year based ratio of labor charged to operation and
maintenance expense was applied to total labor to determine the O&M
component.
Adjustment No.increases the Company s contribution to the
401 (K) thrift plan by $1 321 (Schedule 1 , Page 2) based upon historical
participation rates in this supplemental pension plan. The Company
Healy, Di
United Water Idaho Inc.
payment into the plan of $91 477 represents partial employer matching
of employee contributions into the plan. The Company matches 500/0
an employee s contributions up to a maximum of 3% of regular annual
pay for all participating employees.
Adjustment No.increases the cost of providing medical and
dental care, vision care, long-term disability insurance and group term
life insurance coverage to employees by $148 338 (Schedule 1 , Page
3). The pro forma cost of providing the various coverages was applied
to the July 2004 authorized level of employees plus the three new
positions discussed earlier. Contributions from all employees offsetting
Company costs were calculated based on the current level for various
coverage options.
Will the Company s late fall 2004 open enrollment period have any
impact on the pro forma cost of Medical Care?
Yes. As this information becomes available, the cost of providing
medical and dental coverage will be updated to reflect the most current
available information.
Please continue with your discussion of adjustments to operations and
maintenance expense.
Adjustment No.Increases test year expense by $12 279 for
employee pension cost (Schedule 1 , Page 4). This adjustment reflects
the estimated 2005 Financial Accounting Standards Board (F ASB)
cost as developed by the Company s actuary for Bargaining Unit and
Healy, OJ
Unjted Water Idaho Inc.
non-Bargaining Unit employees of the Company and is consistent with
the standard treatment afforded pension expense by the Idaho Public
Utilities Commission.
Adjustment No.decreases test year expense by $145 345 for the
normalization of PBOP (Post Retirement Benefits Other Than Pension)
Schedule 1 , Page 5. The pro fC?rma level of expense represents the
actual 2005 FAS 106 expense as developed by the Company s actuary
plus a 20-year amortization of the deferred portion of F AS 106
expense.
Adjustment No.decreases test year expense by $52 956 for the
normalization of payroll overheads chargeable to other than Operations
and Maintenance expense (Schedule 1 , Page 6). The relationship of
employee benefit expense to workday payroll dollars is 63.03%.
Added to this percentage is 16.28% for non-work days, which, when
combined, totals 79.310/0. When 79.31 % is applied to pro forma non-
O&M payroll, the result is a pro forma overhead credit of $912 751.
This is $52 956 larger than the test year overhead credit of$859 795.
Adjustment No.(Schedule 1 , Page 7) increases test year expense
by $105 526 for the amortization of deferred early retirement cost. In
Case No. UWID-OO-, Order No. 28505 , the Commission allowed
the Company to recover, over 5 years, $761 081 of deferred benefit
cost associated with four employees who participated in the Company
1999 voluntary early retirement program (ERP). The program was
Healy, OJ
United Water Idaho Inc.
offered to all employees who met plan age and length of service
requirements. In year 2000, the Company again offered an ERP
opportunity to employees who met program requirements. Six
additional employees took advantage of the opportunity. The Company
recorded an additional $1 250 617 in deferred benefit cost. (Notice was
sent to the Commission regarding the recording of this expense
deferral). In the current case, the Company is requesting recovery of
the small un-amortized balance of the original ERP ($38 052) along
with the year 2000 ERP cost for a total of $1 288 669. United Water
requests a five-year amortization period, resulting in annual expense of
$257 734. The test year level of expense was $152 208 leading to an
incremental adjustment of $105 526.
What was the Company s rationale for offering ERP?
The intent of the ERP offering was to entice employees to retire early.
The Company expected to and did benefit in several ways from these
programs. The economic and efficiency benefits generated flow
through to our customers at the time rates are determined, and, by
enabling the Company to extend the period between rate-increase
requests.
Please explain the benefits realized by the Company and its customers.
The ERP program allowed the Company to reduce the size of its
workforce, resulting in substantial labor and benefit savings. Coupled
with the smaller workforce, United Water re-aligned responsibilities
Healy, Oi
United Water Idaho Inc.
and increased productivity and efficiency. I will illustrate this point in
several ways: First, the Company s ratio of customers per regular
employee has increased from 608 in 1997 and 605 in 1998 to 845 pro
forma as of May, 2005. This represents an increase of over 39%.
Secondly, the Company has controlled its operations and maintenance
expense, based on the information provided in the IPUC Annual
Report, to a 3.81 % average annual increase from 1997 through 2003. If
employee benefit costs, including the ever-rising cost of medical
coverage are removed, this percentage drops to 2.240/0. The ERP and
other cost saving practices have helped the Company maintain expense
growth at this level while, at the same time, the water system has
experienced the addition of nearly 10 000 new customers.
Adjustment No.(Schedule 1 , Page 8) Increases test year
expense by $49 751 for the amortization of deferred enhanced
severance program expenses. In 2002 and in 2003, the Company
offered an enhanced severance package (ESP) that was intended to
entice employees to take advantage of other employment opportunities.
Similar to the ERP discussed above, the intention was to reduce cost
and increase efficiency. A total of four employees took advantage of
the ESP at a cost of $248 753 , the largest component of which was
severance pay. The Company requests a five-year amortization
amounting to $49 751 annually. The test year contained no ESP cost
other than an accounting miscode corrected in adjustment 29.
Healy, OJ
United Water Idaho Inc.
Adiustment No.increases Purchased Water expense by $87 528
(Schedule 1 , Page 9). The Company, in addition to owned water rights
has long and short-term lease and rental agreements with various
entities to use surface water rights. The expense increase is driven by
the opening of the Columbia Water Treatment Plant, which will
necessitate the use of 3 000 Acre Feet of additional water at
estimated $26 per AF.
Adiustment No. 10 increases test year expense by $6 091 for tank
painting amortization (Schedule 1, Page 10).The Company has
historically received a ten-year amortization of this expense in accord
with prior Commission orders. In addition to existing amortizations
that began amortization in the 2000 case, two additional tanks have
been painted in the interim period, increasing the annual level of
expense.
Adiustment No. increases purchased power cost by $514 265.
(Schedule 1 , Page 11). The 41 % increase is due to three major factors.
First, the Columbia Water Treatment Plant and its associated pumping
station will require an annual level of power expense of $284 400. This
estimate has been developed by Witness Rhead and provided to me.
The CWTP and associated raw water pumping station will be
consumptive power users to the extent of $236 400 of the above
$284 400. The balance of $48 000 is the annual expense of maintaining
a redundant power supply. Secondly, the Company will no longer be
Healy, Oi
United Water Idaho Inc.
subj ect to the deferred accounting order issued by the IPU C in Case
UWI-OI-, Order No. 28800 , once proposed rates go into effect in
this case. Due to the power crisis suffered by the Northwest in 2001
and 2002 and the extraordinary impact the crisis had on Idaho Powers
rates, through the operation of the Power Cost Adjustment mechanism
the IPUC granted the Company permission to establish a deferral
account for incremental cost related to "... recent and future PCA
related increases in Idaho Power Company electric power rates
beginning May 1 , 2001 .
. . .
. The Company deferred to its balance sheet
the impact of the higher power cost. The balance of this deferred
account as of the end of the test year is $1 363 240 and it is expected to
rise to over $1 550 000 by May 31 , 2005. The recovery in customer
rates of the deferred expense is discussed in Adjustment No. 12 my
testimony. As of the effective date of the new rates put in place in this
case, the Company will revert to full expensing and recovery of power
included in customer base rates. No deferral of expense will be
necessary. Third and finally, in the summer and fall of 2004, Idaho
Power was granted its first base rate increase in approximately ten
years. Idaho Power tariff rates effective July 28, 2004 for Schedule 7 &
9 usage, as well as schedule 19P "time of use" rates to be effective
December 1 , 2004 (applicable to United's Marden WTP) were applied
to test year power consumption to determine pro forma expense. In a
Healy, Oi
United Water Idaho Inc.
separate adjustment, United reduces power expense due to operational
changes in the system once CWTP comes on-line.
Adiustment No. 12 increases operations & maintenance cost by
$516 667 due to the previously mentioned deferred treatment of
extraordinary power cost incurred from May 1 , 2001 through the
effective date of rate implementation in this case (Schedule 1 , Page 12).
The Company deferred power cost related to Idaho Power s PCA
mechanism above the level of power expense established in Case UWI-
W -00-, Order No 28505, dated September 5 , 2000.United has
maintained detailed accounting records of the deferral, which includes
a modest carrying charge based on the annual customer deposit interest
rate (currently
%),
as established by the IPUC. The three-year
amortization period was chosen because the impact of the several PCA
increases subject to deferral was heaviest in the early years of the
deferral period. For example, from the base rate established in United'
2000 rate case ($0.026858 per Kwh) the Company experienced a
47.31 % increase in schedule 9S energy cost (Company facilities of any
size were virtually all subject to tariff 9S at this time) on May 16, 2001.
The PCA for schedule 9S was adjusted again as of Oct 1 , 2001 by an
incremental increase of 9.670/0. This brought the cumulative impact of
PCA adjustments on Schedule 9S energy to over 620/0. Again on May
2002 the PCA was increased an additional incremental 4.910/0
raising the cumulative impact to 69.5%. In May of 2003 some relief
Healy, OJ
United Water Idaho Inc.
was received, but only in the form of a partial PCA decrease that still
left energy rates 19.8% above the base rates established in the 2000 rate
case. By December 2003, two-thirds of the balance of the current
deferred asset had been incurred. Carrying charge interest rates have
steadily decreased from the 2001 level of 6% to the current 10/0.
Adiustment No. 13 increases operations and maintenance expense
by $78 224 to reflect water treatment chemical usage and pricing over
and above the test year level (Schedule 1 , Page 13). Again, Witness
Rhead supplied me the support for increased chemical expense for
CWTP. This expense is estimated at $57 145. The Company has made
a corresponding adjustment (No. 16) that reflects power and chemical
savings at facilities that are anticipated to produce less water, initially,
due to CWTP operations. The use of phosphate has been normalized
upward from the test year level by $15 000. Company operating
personnel have learned through experience that certain areas of the.
system become "unstable" in the winter season, leading to an increased
level of customer complaints, unless phosphate use is continued
through the winter season. The underlying adjustment for chemical
expense utilized test year quantities of the various chemicals at the
most current known prices. Due to price instability in the water
treatment chemical market, the Company may need to update this
adjustment as suppliers reveal 2005 prices.
Healy, OJ
United Water Idaho Inc.
Adjustment No. increases test year expense by $7 662
(Schedule 1 , Page 14) for the normalization and known and measurable
changes to the Company s water quality outside laboratory expense.
The Company follows a sampling regimen required by water quality
regulators. In 2005 , the "Long Term 2 Enhanced Surface Water
Treatment Rule" takes effect, raising testing expense by $12 000. An
expired amortization from the previous rate case was normalized out of
the test year.
Adjustment No. 15 increases test year expense $57 210 for known
and measurable operating expense items associated with the operation
of CWTP (Schedule 1 , Page 15). Major expense adjustments associated
with Columbia are included in the individual adjustments to that
particular expense, such as power, chemicals and purchased water. This
adjustment includes communications expense (primarily, operation of a
Tl line), outside laboratory cost and building utilities (natural gas
electricity, landscape and building maintenance, as well as sanitation
and security alarm monitoring services).
Adjustment No. 16 (Schedule 1 , Page 16) decreases the test year
level of variable cost (power and chemicals) by $139 580 as a result of
the operation of the CWTP. Witness Rhead who supplied this
estimate to me, has developed a plan of operations for Columbia that
involves relying less on several groundwater sources. He has calculated
Healy, OJ
United Water Idaho Inc.
a price per million gallons of operating the several facilities and this
adjustment eliminates from expense the expected level of savings.
Adjustment No. 17 increases the test year level of transportation
cost by $43 652 (Schedule 1 , Page 17). Transportation expense
includes net lease cost, fuel cost, vehicle maintenance materials and
outside service expense, payroll and overhead expense for the
mechanic position and vehicle insurance. The primary drivers of the
increasing expense are the addition of two new leased vehicles
increasing fuel prices and increased personnel wage and benefit cost.
Adjustment No. 18 increases test year expense by $8 061 for
customer postage expense (Schedule 1 , Page 18). The Company has
included in this case an expected level of customers as of May 31 , 2005
of 76 907, an increase of 1 507 customers from the test year-end level.
The amount the Company s billing contractor charges to mail a
customer bill is composed of several pre-sort postal rates, and averages
$0.306. The Company also mails annually thousands (55 000+) of
customer urgent notices through a postage machine resident in the local
office, as well as all general office mail. A small amount of expense
credits erroneously charged to UWID were normalized out of the test
year.
Adjustment No. 19 (Schedule 1
, '
Page 19) increases expense by
$14 416 related to the Company s outside contractor who prepares
customer bills. The number of bills to be processed was annualized on
Healy, Oi
United Water Idaho Inc.
the same basis as customer postage. In addition to the per item price for
bills and past due notices, the Company incurs a small amount of
programming charges annually. Like customer postage some out of
period credits were normalized into test year expense, while the test
year level of programming charges was normalized downward.
Adiustment No. 20 (Schedule 1 , Page 20) reduces outside
collection expense by $20 125. Outside collection includes bank
service fees for collecting and processing customer payments, and
miscellaneous other payments, be they made in person, through the
mail or electronically. Again, the number of payments processed is
based on the customer count at May 31 , 2005. Test year expense was
normalized resulting in an expense reduction.
Adiustment No. 21 (Schedule 1 , Page 21) reduces expenses for
customer records and collection expense and miscellaneous customer
accounts expense by $10 879. For seven/twelfths of the test year the
Company had a contract temporary "employee" provide services in this
area for $14 466. This expense was eliminated when the position was
filled with a regular employee whose expenses are included in the labor
adjustment. However, the test year is missing the expense ($3 700)
associated with printing United's annual notification to customers of
rules & regulations, and this expense has been normalized. The
remainder is a normal level for supplies and legal services.
Healy, Oi
United Water Idaho Inc.
Adjustment No. 22 decreases test year expense by $31 661 for the
normalization of uncollectible accounts expense (Schedule 1 , Page 22).
The uncollectible accounts rate of 0.41565% was determined by
dividing $498 727 of four-year total net uncollectible expense by four-
year total revenues of $119 986 045.The resultant average
uncollectible rate was applied to pro-forma revenue at existing rates.
Adjustment No. 23 increases test year expense by $3 476 for
normalization of the annual IPUC assessment (Schedule 1 , Page 23).
The most recent Commission billing indicates an assessment rate of
0024050/0.This assessment rate is then applied to adjusted test year
operating revenue to determine pro forma IPUC Assessment expense
for rate purposes.
Adjustment No. 24 increases test year expense by $81 667 for rate
case expense amortization (Schedule 1 , Page 24).The Company
estimates deferred expense for the instant case to be $245 000. This
deferral is be'ing tracked in detail and an updated cost projection will be
available prior to hearings in the case. The Company proposes a three-
year amortization period to coincide with the anticipated filing of the
next general rate case.
Adjustment No. 25 Increases test year expense of $25 688 by
477 for employee relocation expense amortization, traditionally a
five-year amortization (Schedule 1 , Page 25). The Company incurred
additional relocation expense in early 2003 for the position of Senior
Healy, OJ
Unjted Water Idaho Inc.
Technical Analyst, which was deferred. For rate making purposes the
small balance of unamortized relocation expense that is leftover from
the prior case is being re-amortized over five years.
Adiustment No. 26 increases test year expense for business
Insurance (casualty, property and workers compensation; Schedule 1
Page 26) from $789 765 to $1 083 300, an increase of $293 535. The
test year level of expense was abnormally low due to a large, non-
recurring property insurance credit of $109 271. Property Insurance
coverage for the pro forma rate year is $55 500, a swing of nearly
$165 000. The detail of the Company s business insurance package is
illustrated on Schedule 1 , Page 26.
Adiustment No. 27 eliminates $14 005 of expense recorded as
lobbying, charitable contributions, and memberships which are not
appropriate for rate-making purposes based upon prior Commission
decisions (Schedule 1 , Page 27).
Adiustment No. 28 (Schedule 1 , Page 28) increases the annual cost
of supporting information technology (IT) infrastructure by $51 046
over the test year level. Operation and maintenance of the IT
infrastructure is a shared responsibility between local personnel and
corporate support. Corporate services include Infrastructure Operations
such as helpdesk services, desktop/server engineering and support and
network services including the local area network, wide area network
internet access (primarily for web-based programs) and remote access
Healy, Oi
Unjted Water Idaho Inc.
as well as e-mail. It also includes Application Support for the customer
billing system, PeopleSoft and operations system services. Vendor and
contract management is also included. Local personnel maintain and
support Oracle, maintain and support local file servers and databases
provide hydraulic model support and maintenance, oversee the
Supervisory Control and Data Acquisition (SCADA) system including
the Intellution software, provide local desktop support and support
radio and telephonic communications systems. The primary drivers of
expense increases are the level of finance system support and frame
relay communications support.
Adiustment No. 29 (Schedule 1 , Page 29) eliminates $2 995 of
expense charged to account 930250 Enhanced Severance Package
during the test year that will not recur in the rate year.
Adiustment No. 30 (Schedule 1 , Page 30) increases test year
expense by $73 022 in recognition of the additional variable operation
and maintenance expense that will be incurred as a result of the
annualizing the impact of test year customer growth, as well as making
a known and measurable change for customers to be added through
May 31 , 2005. The adjustment is based upon the relationship of test
year levels of purchased power, chemicals, transportation, general
insurance and T &D cost excluding payroll (the variable cost) to test
year revenue. The variable cost represents 9.74% of revenue (line 11).
Healy, OJ
United Water Idaho Inc.
The 9.740/0 variable cost factor applied to customer growth revenue of
$535 161 results in additional O&M expense of$73 022.
Adiustment No. 31 (Schedule 1 , Page 31) decreases test year
expense by $8 792 in recognition of lower operating cost associated
with Witness Gradilone s weather normalization adjustment.The
adjustment is based upon the relationship of purchased power and
chemical cost (the variable cost) to test year revenue. The variable
costs represent 4.930/0 of revenue (line 7). The 4.93% variable cost is
applied to the weather normalization revenue impact of ($184 354)
resulting in decreased O&M expense of$9 085.
Adiustment No. 32 (Schedule 1 , Page 32) reduces test yearoutside
legal expense by $29 094 related to the expiration of an amortization
allowance granted in the prior case for deferred legal expense incurred
to contest property tax valuations.
Adiustment No. 33 (Schedule 1 , Page 33) increases test year
expense by $1 569 due to a three-year amortization of deferred legal
expense related to United's efforts to assist the Commission with the
challenges posed by the Terra Grande Water Company.
Adiustment No. 34 (Schedule 1 , Page 34) decreases test year
expense by $986 due to the cessation of United's operation of the
Carriage Hill non-contiguous system. The adjustment represents annual
power expense. Depreciation expense and property taxes have self-
Healy, Oi
United Water Idaho Inc.
adjusted. There were no chemicals used at Carriage Hill and the
customer accounting expense is negligible.
Please explain Exhibit No., Schedule 2.
Exhibit No.3. Schedule 2 consists of four pages. Page 1 summarizes
the adjustment to depreciation expense in the amount of $1 647 661.
Pro forma depreciation expense amounts to $6 386 509.This is
647 661 greater than depreciation recorded during the test year
738 848 due to increases in the Company s plant investment. Plant
investment information post July 31 2004 was supplied to me by
Witness Rhead.
Page 2 of Schedule 2 indicates the depreciable basis of Utility
Plant by primary account, net of contributions and advances (advances
for construction were judged as non-depreciable property until the
Company had an investment in the property through the payment of
advance refunds), the depreciation rate for each plant account and the
annual depreciation expense by primary account. Pro forma annual
depreciation expense is carried forward to Page 1 in order to determine
the adjustment needed to test year expense. The depreciation rates
used are the same as those utilized in prior rate case filings with one
exception. The CWTP is a membrane filtration facility rather than a
conventional treatment facility like the Marden WTP. The membrane
filters themselves have a useful life that is not congruent with the 20-
year life associated with other investment in water treatment
Healy, Oi
United Water Idaho Inc.
equipment. Although membrane filter use in the public water supply
field is an emerging technology, there is evidence that supports a
seven- year life. First, USFilter, the manufacturer of the membranes
unconditionally warrants their membranes for one year and provides a
lesser quality of warranty for the next six years. In addition, CDM
Construction Inc., the Design-Build contractor for the CWTP provided
through Witness Rhead, two examples of operating membrane plants.
The Saratoga Plant in the San Francisco Bay area replaced its
membrane filters after seven years of use. The membrane filtration
plant in Marquette, Michigan opened in 1997 and as of 2003 had not
replaced the filters, though an attempt will be made by the Company to
confirm whether replacement occurred in 2004. The Company
requesting permission to depreciate the membrane filters at a 14.00%
annual rate, which is the best evidence of their expected useful life.
Please explain Exhibit No., Schedule 2, Page 3.
Exhibit No.3. Schedule 2. Page 3 adjusts amortization of plant held for
future use to $0 from a test year level of $51 113. This reflects the fact
that investment in the raw water pumping station related to the CWTP
will be used and useful coincident with the in-service date of the plant.
The IPUC allowed United to recover a return of, but not a return on
the raw water pumping station and pipeline in prior rate case UWI-
97 -06. The instant adjustment re-categorizes the amortization of the
investment held for future use to normal depreciation expense and has
Healy, Oi
United Water Idaho Inc.
no impact on the overall revenue requirement.The accumulated
balance of plant held for future use amortization is similarly
reclassified to accumulated depreciation in a rate base adjustment
Please explain Exhibit No., Schedule 2 , Page 4.
Exhibit No.3. Schedule 2. Page 4 increases test year expense by
932 for the amortization of Utility Plant Acquisition Adjustments.
The UPAA account has a gross balance of $600 762 as of July 31 , 2004
and is comprised of acquisition adjustments previously approved by the
IPUC in various cases, all with 20 to 40 year amortization periods. The
small upward adjustment is caused by the normalization of an
accounting error that occurred in the test year.
Please explain Exhibit No., Schedule 3 , Page 1.
Exhibit No.3. Schedule 3. Page increases test year property taxes by
$42 245. The schedule details the methodology used to arrive at a pro
forma level of property tax expense. Essentially, historical property tax
expense increases are averaged over a six-year period to derive an
annual increase rate of 4.420/0. This factor is applied to the estimated
2004 property tax expense of $1 504,445 to arrive at a pro forma level
of expense, $1 570 941. This is an increase of $42 245 over the test
year level of taxes, $1 528 696. The Company will have further insight
into the level of tax expense with the arrival of the actual Ada and
Canyon County tax bills later this year.
Please explain Exhibit No., Schedule 3 , Pages 2, 3 and 4.
Healy, OJ
United Water Idaho Inc.
Exhibit No.3. Schedule 3. Pages 2. 3 and 4 increase the test year level
of payroll taxes by $30 277 combined. Page 2 indicates an increase in
FICA taxes of $29 425. Page 3 shows an increase of $469 in Idaho
State unemployment taxes. Page 4 reflects an increase of $383 in
Federal unemployment taxes. The test year also included $227 in
unidentified payroll tax that has been normalized out. The respective
payroll tax increases are driven by salary increases and increased
headcount. FICA has been adjusted based on information received
indicating statutory limits and rates for 2005.
Please explain Exhibit No., Schedule 4.
Exhibit No.3. Schedule 4. Page 1 of 1 shows the calculation of state
and federal income taxes at existing and proposed rates. The amounts
shown on line 1 of columns 1 and 2 are the same as the amounts shown
on line 16 of columns 4 and 6 of the summary schedule of Exhibit No.
2. These figures represent operating income before income taxes. From
these figures must be deducted the applicable statutory deductions
when computing the state and federal income taxes.
The first deduction is imputed interest expense and it is deductible
In the computation of both state and federal taxable income. The
calculation for the interest deduction is shown in Note A on lines 13
through 17. The deduction of interest is shown on line 3 and is self-
explanatory .
Healy, OJ
Unjted Water Idaho Inc.
The second deduction is the excess of pro forma tax depreciation
over pro forma book depreciation.The excess tax depreciation is
deducted from state taxable income only since state income taxes are
calculated on the basis of flow through accounting while federal
income taxes are calculated on the basis of normalization accounting.
Lines 19, 20 and 21 indicate the amounts used in determining excess
tax depreciation.
The remaining calculations are self-explanatory except for the
amortization of investment tax credit shown on Line 10.Federal
income tax expense was reduced by the amortization of ITC that
amortized ratably over the lives of the assets and represents 20/0 of the
ITC claimed from 1971 through 1999.
Please explain the adjustment shown on line 6, Column 5 of Exhibit
No.
The adjustment shown on line 6, Column 5 of Exhibit No.2 represents
additional uncollectible expense and IPUC assessment as a result of the
pro forma adjustment to operating revenue shown on line 4, Column 5
of Exhibit No.
Does this conclude your testimony regarding operating expenses?
Yes.
Please address your rate base testimony.
Rate base is founded on an actual test year ended July 31 , 2004. Also
known and measurable adjustments are made to rate base components
Healy, Oi
Unjted Water Idaho Inc.
through May 31 , 2005 , incorporating adjustments that will take place
prior to the time that rates will become effective in this proceeding.
What is the level of rate base the Company is requesting in this
proceeding?
The rate base is $140 062 546. This includes an increase in gross plant
investment of $31 156 521 (net of retirements) that will go into service
prior to the rates effective date in this case. Included in this gross
capital is $2 555 658 associated with the raw water pumping station
which will serve the CWTP. This asset has been resident in plant held
for future use since 1997 but will become used and useful with the
commencement of operations of CWTP. Rate base as determined in the
2000 case was $98 862 937.
Please explain Exhibit 1 , Page 1 of 9.
Exhibit 1 , Page 1 of 9, Rate Base Summary, indicates the elements of
the Company s rate base as of July 31 , 2004, as reflected on the
financial statements of the Company. The elements are Utility Plant in
Service; Accumulated Depreciation, Accumulated Amortization of
UP AA and Accumulated Amortization of Plant Held for Future Use;
Customer Advances for Construction; Contributions In Aid of
Construction; Utility Plant Acquisition Adjustments; Accumulated
Deferred Income Taxes; Pre-1971 Investment Tax Credits; Deferred
Charges and Working Capital. It is necessary to adjust the "per book"
amounts due to reclassifications and adjustments. These adjustments, if
Healy, Oi
United Water Idaho Inc.
any, are shown in Column (B).As you will note, there are no
adjustments in Column B. The working capital allowance, on line 10
was calculated in accord with past Commission practice and as such
does not require a separate adjustment page. The adjustments in
Column D reflect pro forma adjustments to Plant in Service
A ccumula ted Amortization forAdvancesDepreciationand
Construction, Contributions in Aid of Construction, Accumulated
Deferred Income Taxes, Pre-1971 Investment Tax Credits and Deferred
Charges.
Do you have an Exhibit regarding plant in service additions?
Yes. I have Exhibit 1 , Page 2 of 9. Total plant in service as of
approximately May 31 , 2005 is expected to be $258 639 920. Witness
Rhead has summary and detailed testimony and exhibits regarding pro
forma additions and retirements to plant in service. I have incorporated
these exhibits into rate base.
How do your rate base exhibits treat the Carriage Hill disposal recently
decided before the IPU C?
Original booking entries for Carriage Hills, and subsequent activity has
been "undone in these exhibits. Plant in service, accumulated
depreciation, advances and contributions have all been adjusted to
erase the vestiges of Carriage Hill.
Please explain Exhibit 1 , Page 3 of 9.
Healy, Oi
United Water Idaho Inc.
Exhibit 1 , Page 3 of 9 explains changes in the balance of accumulated
depreciation accumulated accumulatedCIACamortization
amortization of PHFU and accumulated amortization of UP AA for the
- .
period July 31 , 2004 through May 31 , 2005. The major additions
represent ten months of depreciation expense (including projects placed
in service between August 1 2004 and May 31 , 2005) and CIAC
amortization. The primary deduction is pro-forma plant in service
retirements along with associated cost of removal or salvage. The
balance of accumulated amortization of plant held for future use is
simply transferred from its home account into the accumulated
depreciation account, to mirror the treatment of the asset. UP AA debits
and credits are all amortized over twenty or forty year periods, as
approved by the Commission in various decisions.
Please explain Exhibit 1 , Page 4 of 9.
Exhibit 1 , Page 4 of 9 summarizes pro forma changes to advances for
construction. It was necessary to reclassify some advance plant account
designations as of the end of the test year to correct misstatements in
the asset management system. Since the issuance of Order No. 28505
in case UWI-OO-, the Company does not depreciate advanced
property. This requires the Company to accurately track, by associated
plant account, all additions and refunds impacting the advance account.
On a pro forma basis, the Company has adjusted the balance of
Advances downward by $376 073 for refund activity that will occur
Healy, Oi
United Water Idaho Inc.
from July 31 , 2004 to May 31 , 2005 on existing contracts. Also, the
sale of the Carriage Hill non-contiguous property has been reflected by
un-doing the original booking entries, reducing advances an
additional $330 906. The Company does not foresee any additions to
advances in the pro forma period. Additions, in the last 5 years, have
typically occurred due to special facility agreements or non-contiguous
development agreements. The new business and engineering group are
unaware of any prospective activity in these respective areas.
Please explain Exhibit 1 , Page 5 of 9.
Exhibit 1 , Page 5 of 9 indicates activity in Contributions in Aid
Construction that is all related to CIAC on the books as of July 31
2004. Some of these CIAC dollars, $544 626, are associated with
CWIP. The CWIP is not included in this case as of July 31 , 2004 or in
the pro forma period, and therefore associated CIAC has been removed.
Also, the CIAC balance has been reduced by ten months of
amortization, $954 170. No new investment funded by CIAC has been
included in rate base from the test year-end. The vast majority of new
customers are associated with developer funded mains and services.
Since assets acquired in this manner have no impact on Company
investment, they are not reflected in rate base. However, new
customers added in the pro forma period contribute revenue, as
discussed by Witness Gradilone. These customers also impact
operating and maintenance expense as noted in many of the expense
Healy, Oi
United Water Idaho Inc.
adjustments. CIAC associated with Carriage Hill has again been
removed.
Please explain Exhibit 9, Page 6 of 9.
Exhibit 9 , Page 6 of 9 indicates pro forma adjustments to Utility Plant
Acquisition Adjustments on a gross basis. The UP AA gross balance is
comprised of both debit and credit balances. The gross value of the six
individual adjustments, all approved by the Commission in various
proceedings, is a positive $600 762. Amortization of these Acquisition
. Adjustments was previously reflected on Exhibit 1 , Page 3 of 9.
Please explain Exhibit 1 , Page 7 of 9.
Exhibit 1 , Page 7 of 9 indicates the changes to accumulated deferred
income taxes from July 31 , 2004 to May 31 , 2005. The tax depreciation
portion of this account was adjusted through May 31 , 2005 for assets in
service as of July 31 , 2004 as well as assets added in the pro forma
period.
Please explain Exhibit 1 , Page 8 of 9.
Exhibit 1 , Page 8 of 9 , represents the pro forma calculation of pre-1971
investment tax credits that are deducted from rate base and amortized at
a rate of $750 annually. The balance at July 31 , 2004 was $16 620.
This is adjusted by $625 to reflect the balance at May 31 , 2005.
Please explain Exhibit 1 , Page 9 of 9.
Exhibit 1 , Page 9 of 9, identifies the six deferred items the Company
has included in rate base. The most significant item is obviously the
Healy, OJ
United Water Idaho Inc.
.,)
deferred power on line 2, encompassing over 76% of the entire balance
of $2 031 692. Again, this power expense was deferred in accord with
Commission Order No. 28800 in Case No. UWI-01-2. The
Company deserves an opportunity to earn fair return on this
investment while it is being amortized to expense.
Does this conclude your testimony with regard to United Water Idaho
rate base?
Yes.
Healy, OJ
United Water Idaho Inc.
(The following proceedings were had in
open hearing.
(Uni ted Water Exhibi t Nos. 4 and 5 , having
been premarked for identification, were admitted into
evidence.
COMMISSIONER KJELLANDER:And let's begin with
Mr. Purdy.
MR . PURDY:No questions, thank you.
COMMI S S IONER KJELLANDER:Mr. Eddie.
MR. EDDIE:No questions , thank you.
COMMISSIONER KJELLANDER:Let's move to
Mr. Campbell.
MR . CAMPBELL:No questions.Thank you.
COMMISSIONER KJELLANDER:Okay.The City of
Boise.
MR. STRI CKLING :Just a couple questions, if
may.
COMMISSIONER KJELLANDER:Please.
CROSS -EXAMINATION
BY MR. STRICKLING:
Are you familiar with the public affairs manager,
lS that discussion of the payroll adjustment?Is that part
of your testimony?
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID
HEALY (X)
United Water83701
Yes, it is.
And is his position -- what is the purpose of
that position?
The purpose of the position is as basically
threefold.As Mr. Wyatt described in his testimony
- -
pardon
, let me get the right schedule here
- -
the position is
related - - pardon me
- -
I'll
- -
give me one second to find my
place here.
Yeah , the maJor responsibilities of the public
affairs manager is for public, community, and customer
relations and communications.
Secondly, the responsibility for outreach and
education - - the outreach and education coordinator who reports
to the public and public affairs manager to support the
Company s conservation efforts.
The third element and the smaller element of the
job, al though important, is to maintain government relations
involving regulators, the Department of Environmental Quality,
Department of Water Resources , the County, the Ci ty, and the
entities that United Water deals with on a regular basis.
Do you currently have a government affairs
officer or official?
Yes.
And who is that who interacts wi th local
government such as Boise Ci ty, in general?
HEDRI CK COURT REPORTING
O. BOX 578 , BOI SE , ID
HEALY (X)
Uni ted Water83701
Well, the current - - the public affairs manager
position was hired in April , I believe started April 18th, so
when you say do we have one, we do now.
Okay.Is it the intent then of Uni ted Water to
have this position interact and assist cities with planning
issues?
Mr. Wyatt is better to address the intent, but
the intent is to certainly bring the Company
- -
have the
Company participate more fully in community issues, in policy
lssues, in issues that affect our customers, affect the
Company, to have a voice in those issues; whereas 1 due to our
size, prior to having this position , we did the best we could
at doing that 1 but we spread people so thin we weren't able to
attend every function that we wanted to attend or have input in
every forum that we would like to have input.
Okay.Would you agree the decisions made by
United Water impact local governments in their planning
process?
m not
- -
you know , I'm not an engineer.
basic thought would be United Water does not go out and solicit
developers.Developers come to United Water and we are
obligated to serve them.Do - - we do interact wi th the
planning agencies, we need approvals from planning agencles.
We work very hard to make sure we have an adequate supply of
water and try and be prudent about the way we do that.But,
HEDRICK COURT REPORTING
O. BOX 57 8, BO IS E , I D
HEALY (X)
United Water83701
from a technical point of view 1 I'm not
- -
Mr. Rhead would be
much more familiar with how we interact with governmental
agencies.
Okay.Thank you.
MR. STRICKLING:I have no further questions.
COMMISSIONER KJELLANDER:Thank you.
Let's move now to the attorneys representing the
Staff of the Public Utilities Commission.
MR. WALKER:No questions on direct, your Honor.
COMMISSIONER KJELLANDER:Any questions from
members of the Commission?
COMMI S S IONER HANSEN:None.
COMMISSIONER SMITH:I have none.
COMMISSIONER KJELLANDER:Any redirect?
MR. MILLER:None.
COMMISSIONER KJELLANDER:Mr. Healy 1 I believe
we'll see you on rebuttal testimony.
THE WITNESS:Very good.
(The wi tness was excused.
COMMISSIONER KJELLANDER:Mr. Miller, you were
looking at the clock as if you thought this might be a good
time to take a ten-minute break , and I concur.So we will go
off the record, and we will be back at the top of the hour.
MR. MI LLER :Very well.
(Recess.
100
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
HEALY (X)
United Water83701
Okay, we'll go back onCOMMISSIONER KJELLANDER:
the record, and before we took the break , we were ready for
Mr. Miller's next witness.
Thank you, Mr. Cha i rman .TheMR. MILLER:
Company would call .Scott Rhead.
SCOTT RHEAD
produced as a wi tness at the instance of Uni ted Water , being
first duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. MILLER:
Sir , would you state your name and spell your
last name for the record, please?
Scott Rhead , R-
And what is your occupation or employment?
m the managlng engineer for Uni ted Water Idaho.
Did you previously have occasion to submi t to the
Commission written prefiled testimony consisting of 29 pages?
Yes, I have.
And did that written direct testimony have
exhibi ts accompanYlng the testimony; that is, Exhibi t 8 through
l1A?
Yes, it does.
101
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE , ID
RHEAD (Di)
United Water83701
Are there any additions or corrections that need
to be made to your direct written prefiled testimony?
Yes , I have two slight corrections.
Would you identify those for us ,please?
On direct, page 18, line 8, the revised date
should be "August 20th " rather than "September 20th.
And on line 19, that same correction:Augus t
20th " not "September 20th.
I s there al so a correct ion that needs to be made
on page 23; that is, specifically, should "Exhibit 12" read
Exhibit lIA"
That is, yes, that's correct.On line 2
"Exhibit 12" should be "IIA.
Very good.If I asked you the questions that are
set forth in your written direct prefiled testimony today,
would your answers the same
Yes,they would.
Are your answers
your knowledge?
true and correct, to the best of
as they are there written?
Yes, they are.
MR. MILLER:Mr. Chairman , we would - - well , let
me do the next step first.
Did you also have occasion toBY MR. MI LLER :
submit to the Commission written prefiled rebuttal testimony
consisting of 18 pages?
102
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
RHEAD (Di)
United Water83701
Yes,did.
Are there any
to be made your written
additions or corrections that need
prefiled rebuttal testimony?
Yes 1 there's one small correct ion.On page 14
line 12 , where it says "Bureau of Reclamation," parentheses
"BLM " that should say, parentheses, "BOR.
If I asked you the questions that are set forthQ .
in your written prefiled rebuttal testimony, would your answers
be the same as they are there written?
Yes, they would.
And did your rebuttal testimony also have
accompanying with it a number of exhibits?
Yes, it does.
And those would be Exhibit 16 - - that would be
Exhibits 16 and consisting of several schedules?
Tha t 's correct.
MR. MILLER:Mr. Chairman , we would ask that the
written direct testimony and written rebuttal testimony of
Mr. Rhead be spread on the record as if read, and that the
exhibits identified be admitted.
COMMISSIONER KJELLANDER:Thank you, Mr. Miller.
Without --
MR. MILLER:You'll get it.
COMMI S S IONER KJELLANDER:Wi thout obj ection , we
will spread the direct and rebuttal testimony across the record
103
HEDRICK COURT REPORTING
O. BOX 578 , BOISE , ID 83701
RHEAD (Di)
United Water
as if read, and also admit the exhibits associated with both of
those sets of testimony.
(The following prefiled direct and
rebuttal testimony of Mr. Rhead is spread upon the record.
104
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
RHEAD (Di)
United Water83701
Please state your name.
Scott Rhead.
By whom are you employed and in what capacity?
United Water Idaho ("United" the "Company ) as Managing Engineer.
What are your duties and responsibilities in your capacity as Managing Engineer?
I manage all activities of the Engineering group. These responsibilities
include strategic planning, capital budgeting, engineering design, information
technology, water quality and construction management for capital
improvements.
Please describe your professional training and experience.
I received a Bachelor of Science Degree in Civil Engineering from Idaho
State University in 1972. I was employed by Forsgren Consulting
Engineering from 1975 to 1990 designing and managing a variety of water
and waste water municipal improvement projects. I joined United in 1990.
Since then I have had diversified responsibilities in both the Engineering and
Production departments. I am a registered professional engineer in Idaho
Oregon, Washington, Utah and New Mexico. I am also a certified Idaho
Water Treatment Operator Level I.
What is the purpose of your testimony?
The primary focus of my testimony is to discuss the Company s decision to
construct the Columbia Water Treatment Plant (CWTP) and operating
expense changes as result of CWTP. I will also discuss other significant
105
Rhead, Di
United Water Idaho Inc.
18 -
capital additions planned between August 1 2004 and May 31 , 2005. These
capital. expenditure additions are indicated on Exhibit 8.
Where is the Columbia Water Treatment Plant located?
CWTP is located at 6056 E. Columbia Road in an area known generally as
the Columbia Bench Service Level (CBSL).
Are there unique water supply considerations in Southeast Boise where the
plant is located?
Yes. During 1994, the Idaho Department of Water Resources (IDWR)
designated a significant portion of Southeast Boise as a ground water
management area (Southeast Boise Groundwater Management Area
SBGMA). As a result of the designation, additional groundwater
appropriations from within the Boise-Fan Aquifer, which underlays the
SBGMA, are essentially impossible to obtain. Parties interested in
developing additional groundwater supplies from within the SBGMA are
required to furnish sufficient technical data to show that water is available
that existing users will not be injured and that depletion of the aquifer will
not be increased. Due to a history of declining water levels in the then
United wells (Oregon Trail and Gowen), and the establishment of a
groundwater management area, it is highly unlikely that future municipal
groundwater development in this area will be possible.
Please describe the events leading up to the SBGMA designation.
In the early 1990', the 1. R. Simplot Company (Simp lot) was developing
sub-divisions in the Columbia Bench area and had filed an application with
106
Rhead, Di
United Water Idaho Inc.
the Idaho Department of Water Resources for the drilling of new wells for the
purpose of irrigating a golf course. United filed a protest of this application
as United had observed declines in water pumping levels from its existing
Gowen and Oregon Trail wells. United believed that new water diversions
could not be added without injury to existing supplies. This action ultimately
led to Simplot's withdrawal of the application. These events also caused
United and others to more closely evaluate the availability of water for this
particular area of Southeast Boise. The other major water user in Southeast
Boise is Micron Technology, Inc. (Micron).
What else was occurring at the time?
Coincidentally, water level recorders were placed on two observation wells
completed in the subject aquifer. The results of the measurements were
troubling. They showed sharp annual declines in water levels due to pumping
from the existing supplies, and called into question the possibility of adding
more wells in the future. As a result of these efforts, United filed an
application with the Idaho Department of Water Resources (IDWR) for the
establishment of a groundwater management area in Southeast Boise, in
October of 1993. In October of 1994 the application was approved. Because
of the groundwater management designation, IDWR will not permit
additional groundwater appropriations in the Southeast Boise service area.
What efforts did the Company and other water users undertake in response?
The groundwater management declaration placed United, Simplot and
Micron in a position where future development or, in Micron s case, added
Rhead, Di
United Water Idaho Inc.107
manufacturing capacity, was in jeopardy. The initial step toward the
solution, developed jointly between United and Micron, was The Southeast
Boise Water Supply Project, initiated in 1995. United and Micron jointly
constructed seven miles of 24- inch pipeline, drilled two new wells, tied in a
third existing well and constructed a 3.0 million gallon water storage
reservoir. A fourth well was added a few years later. The well field is named
the Ten Mile Ridge Wells. The combined capacity of these four wells is
approximately 8.0 million gallons per day (mgd). The objective of this
project was to reduce groundwater production from within the groundwater
management area to sustainable levels. Both of United's major production
wells within the SBGMA (Gowen and Oregon Trail) were transferred to
Micron pursuant to the project. As part of the Southeast Boise Water Supply
Project, the Ten Mile Ridge wells were constructed as replacements to offset
the loss of production from the Oregon Trail and Gowen wells located within
the groundwater management area. Thus, by minimizing groundwater
production within the SBGMA, the aquifer underlying this area would have
the chance to recover and annual groundwater declines would be curtailed to
more sustainable levels.
Is the Southeast Boise Supply Project a long-term solution to the problem?
No. The Southeast Boise Water Supply Project has provided an answer to
the supply problems in the area for the past ten years. However, growth
already occurring in the area has put a significant strain on this system.
the summers of 2001 , 2002 and 2003 it became difficult to maintain water
Rhead, Di
United Water Idaho Inc.108
levels in the Gowen and Columbia reservoirs-the two major storage
reservoirs feeding Southeast Boise. During peak water demands these
reservoirs supply water to customers when demand is in excess of well
supply capacities. The inability to maintain these reservoirs at normal
operating levels is the result of insufficient ground water supply in this area
of United's system. These reservoirs also provide critical fire protection
supply for the industrial facilities at Micron and water customers in United'
Gowen service area.
The Southeast Boise Water Supply Project stopped the depletion of a vital
groundwater resource and deferred the need for new water supplies in
Southeast Boise, but a more permanent solution to the need can no longer be
deferred. Immediate source of supply additions are required in Southeast
Boise to assure peak customer demands are met and system operating
pressures are maintained. This is further discussed and explained in later
testimony.
In light of the limited capacity of the water supply project, what other options
did the Company evaluate?
During 1997 , United hired Montgomery Watson Americas, Inc. to complete a
Water System Master Plan. One objective of this project was to assess future
water supply requirements over a twenty year planning horizon. United
engineers and operational staff worked together to evaluate water supply
alternatives for Southeast Boise.
109
Rhead, Di
United Water Idaho Inc.
First, the master plan evaluated the possibility of an expansion of the
Marden Water Treatment Plant. It was determined that expansion of Marden
is not feasible to the extent necessary to provide adequate supply capability
for Southeast Boise. Expansion to any great degree is limited by the
hydraulic infrastructure of the plant and the site dimensions. Furthermore
any additional capacity that could be developed at Marden would be required
to meet existing and future customer water demands within the Main Service
Level. The Main Service Level supplies the downtown corridor and areas
north and west of the Boise River which also is limited for future
groundwater development. Thus, United determined that expansion of the
Marden Plant is not a feasible solution.
What other options were considered?
Also examined was the possibility of moving groundwater into the
Groundwater Management Area from other well facilities developed as part
of the Southeast Boise Water Supply Project, discussed above. However
future development in the region south of the airport will erode the capability
for these wells to provide supply for Southeast Boise. Water levels in the
Ten Mile Ridge well complex have declined but reached a stable equilibrium
at current pumping rates. Development will most certainly occur in this area
over time and the aquifer yield must be preserved to accommodate this future
growth.
Did the company evaluate the possibility of drilling additional wells?
Rhead, Di
United Water Idaho Inc.
110
Yes. United also considered the possibility of drilling more wells in the
Columbia Service Level. Observation from existing operations indicate the
existing well capacity is near the limit of the safe yield for this aquifer
system. In other words, additional wells would likely aggravate pumping
water levels. Thus, as new water demand occurs in the Ten Mile region
progressively less water will be available for export to the Ground Water
Management Area. The aquifer system has sufficient safe yield for producing
the supply required to serve contiguous development with wells located on
approximately a one-mile grid. United's experience indicates the aquifer
system is not strong enough to supply both the immediate vicinity and
produce water for export to another area. This leads to the inescapable
conclusion that construction of a surface water treatment plant is the only
feasible solution.
The master plan also concluded that the development of a surface water
supply was the best alternative in meeting the source of water supply
requirements of Southeast Boise. The master planning document concluded
that United should proceed with the development of a surface water treatment
plant in the Columbia Bench Area.
Based on this analysis did United begin taking steps toward the eventual
construction of a surface water treatment plant in southeast Boise?
Yes. As the Commission is aware, United constructed the Boise River
Intake Project, consisting of 2900 feet of 30 inch discharge main through the
111
Rhead, Di
United Water Idaho Inc.
Surprise Valley Canyon wall cut for Highway 21 and a river diversion
structure.
Why was the Boise River Intake Project constructed in advance of the water
treatment plant?
The decision to construct was explained to the Commission in Case No.
UWI-97-6 and was summarized by the Commission as follows:
The Company s decision to go forward with the river
intake project at this time, it states, was based on a number
of factors: (1) opportunity to utilize an existing diversion
(2) avoidance of perceived legal challenges to a new
diversion, (3) opportunity to join and share construction
costs with Micron Technology, JR. Simplot Company and
Surprise Valley L'td Partnership, who independently were
working on a proposal to upgrade the existing river
diversion, (4) timing of construction dictated by forces over
which United Water did not have control-Micron/Surprise
Valley needed water by spring of '98; mandate of Idaho
Department of Transportation and (5) its obligation to
serve. Order No. 27617.
Did the Commission allow the Boise River Intake Project in rate base at that
time?
No. As I understand Order No. 27617, the Commission believed it was
constrained by Idaho Code 61-502A, which prevents a return on plant not
currently used and useful, except in cases of extreme emergency.
Did the Commission find that construction of the Boise River Intake Project
was imprudent?
No. To the contrary, it found that construction of the project was a good
business decision:
We find, however, that the Company s decision to install facilities
Rhead, Di
United Water Idaho Inc.112
now may be of future benefit to its customers. We do not wish to
discourage the Company from making decisions that make good
business sense. Certainly, in this instance, the opportunity to share
construction costs and utilize an existing diversion with others was
an incentive to action. Order No. 27617.
Based on this finding, the Commission allowed amortization of the project
through depreciation so that United would receive a return of, but not a return
, its investment. The Commission, it appears to United, has endorsed the
concept of constructing a surface water treatment plant in southeast Boise.
Please provide a summary of overall customer growth in the last 20 years.
The United system has experienced a very steady and strong expansion.
Year-end customers (exclusive of private fire) have increased from 40,432 in
1985 to 73 332 in 2003. This is an average annual increase of approximately
50/0.
Please list United's overall peak day demand in the past five years.
Customer demand, or consumption, is the sum of production plus the net
effect of gains or losses in water storage levels. The figures listed below, in
mgd, reflect peak day customer demands for 2000-2004:
2000 2001 2002 2003 2004
93.93.673 94.553 94.061 85.972
What is United's delivery capacity in accordance with Idaho s Department of
Environmental Quality for Public Drinking Water Systems and the 2003
Edition of Recommendeds Standard for Water Works (ie. Ten State
Standards)?
113
Rhead, Di
United Water Idaho Inc.
Paragraph 3.1.1 in the Recommended Standards for Water Works indicates
the source of supply capacity shall meet the design maximum day demand
with the largest groundwater source out of service. Due to the size and
number of wells in our system it is reasonable to predict that the two largest
sources, one in the west and one in the east (Bethel well-5 mgd and
Pleasant Valley well- 2.7 mgd respectively) could be out of service during a
peak period. The contiguous system nominal delivery capacity of95.09 mgd
less 6.2 mgd as discussed, results in 88.89 mgd as the reliable capacity. As
mentioned above, the design standard under source development paragraph
Source Capacity specifically discusses this approach in approving
proper design.
Is additional source of supply needed?
Yes. We have been very fortunate during the last three summers to avoid
source of supply breakdowns during peak periods. Peaking demands have
been met by draining the reservoirs dangerously low with significant
difficulty in refilling during off peak hours. In late July 2003 Micron allowed
United to pump their well (Gowen) into the system. Exhibit 9 shows how
low the three major reservoirs would have been without this emergency
backup. Thus, when compared to the system reliable capacity of 88.89 mgd
we are currently deficient in the range of 6.2 mgd. The Columbia Bench
portion of our system is especially vulnerable because water can not be
imported due to the high elevation. There simply are no other choices for
reliable base load source in this high growth part of the system.
Rhead, Di
United Water Idaho Inc.114
Will CWTP enable the company to meet other regulatory requirements?
Yes. Idaho DEQ and EP A have adapted new regulation related to the
allowable arsenic limit in drinking water. The old limit was 50 parts per
billion (ppb) and the new limit is 10 ppb. Systems of United's size must be
in compliance by January 2006. United has elevated arsenic in five wells
primarily on the east side of the system. Weare faced with either abandoning
or treating in some fashion. Abandoning any source in East Boise is a poor
option and simply compounds the supply problem even further. DEQ has
adopted a program that will allow compliance by source management and
concentration averaging. In effect we can avoid additional arsenic treatment
by limiting the use of these wells for a portion of the year and allow CWTP
to supply the demand.
Will CWTP provide benefits in addition to meeting immediate demand for
water supply and arsenic treatment?
Yes. There are certainly benefits. There are three areas where the benefit is
most obvious:
1 5t Drought Protection: Allowing the aquifer to rest and be preserved is
critical. It makes sense to use the more renewable surface water when
available and take advantage of upstream storage opportunities that already
exist (eg. Lucky Peak and Anderson Ranch Reservoir).
2nd Postpone surface water expansion used for peaking: As the aquifer
recovers or stabilizes it will become possible to use groundwater more for
115
Rhead, Di
United Water Idaho Inc.
summer peak load only and meet base load using existing surface water
treatment.
3rd Potential for Aquifer Storage and Recovery (ASR1: Water right conflicts
will most certainly require use of ASR to meet a portion of future demand.
Because water is pumped twice this option is operationally more expensive
but has a seasonal benefit. The Treasure Valley and the Boise River are
positioned on the west side of the state. Normal snow pack runoff exceeds
the storage capacity and simply runs through the valley during March through
May. From a water right perspective this "free" water could be treated and
injected into the aquifer for withdrawal later in the summer. Membrane
treatment is ideally suited to accomplish ASR due to its positive barrier and
concern over aquifer contamination using conventional treatment methods.
Please describe the initial planning phases for the CWTP.
In late 2000 United contracted the services of Montgomery/Carollo
Engineering. The purpose of the work was to prepare a Basis of Design
report for the proposed CWTP. The consulting team and United personnel
metand evaluated several elements in the Basis of Design Report dated
January 8 , 2002. Elements considered were:
~ Raw Water Quality
Finished Water Goals
Treatment Technology
Alternative Screening
Cost Analysis
Rhead, Di
United Water Idaho Inc.
116
Process Recommendation
The final report recommended treatment process was membrane filtration
with dissolved air flotation pretreatment and ultraviolet disinfection.
Please describe membrane treatment technology and why it was selected over
conventional treatment with granular media filtration.
Membrane treatment was selected after a rigorous review and discussion.
Operation costs were essentially the same. Twenty-four separate decision
criteria were identified. The five with the greatest weight are presented
below.
1) Reliability
Membrane filtration is generally considered to be more reliable than
conventional treatment, most notably in the following three areas.
Water Quality: Finished water quality for membranes is rated higher
for its low turbidity and removal of micro-biological contaminants because
membranes rely on a physical barrier.
Regulatory Performance: Membrane filtration has a higher reliability
in meeting future water quality regulations than granular media filtration. The
filtered water turbidity standard has been adjusted by EP A three times in the
last decade, and at each step it becomes more difficult for granular media
filters to meet the new standard. Membrane filtration is a more reliable
process for meeting future water quality regulations governing turbidity and
particulate removal because it acts as a physical barrier and will not permit the
minute particles to pass through to the finished water.
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Reliability During Unmanned Operation: One of the objectives for
CWTP is unmanned operation using remote surveillance. Membrane filtration
is more reliable, in terms of water quality, for remote or unmanned operation
because finished water quality is independent of pretreatment or process
optimization. Granular media filtration quality is dependent upon factors such
as proper operation of chemical feed systems, flash mix, and flocculation, all
optimized for specific water quality conditions. If the raw water quality
changes or chemical feed is interrupted, the granular media finished water
quality can be adversely affected. With membrane filtration these raw water
quality changes do not materially affect the membrane operation while
accomplishing consistent finished water quality.
2) Capital Costs
Planning level accuracy costs were developed for both the granular media and
membrane filtration options. The estimated costs were prepared using the
proposed design criteria and unit cost assumptions from similar projects. The
estimated construction cost of the membrane filtration option ($15 740 000)
was approximately 10% higher than the estimated cost of the granular option
($14 340 000). At a planning level accuracy these options were considered
equivalent.
3) Operation and Maintenance Costs
Operation and maintenance (0 & M) cost were estimated at an operating
capacity of 6 mgd. Annual 0 & M for the membrane option was $663 000
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compared to $666 000 for granular. Again the options were equivalent
, .
however membranes allow for more unattended operation.
4) Modularity for Expansion
The membrane filtration option allows expansion in smaller increments than
the granular media option. As an example, the Marden WTP was originally
constructed with four granular media filters, each with a 2 mgd capacity. In
theory, the plant could have been expanded in 2 mgd increments; however, in
practice the cost of mobilizing a contractor and performing the necessary
excavation and construction of a 2 mgd filter is prohibitive. Therefore, the
Marden WTP was expanded by an 8 mgd capacity increment to allow
economies of scale in the expansion.
By contrast, the membrane unit of production is a frame-mounted skid
which can be economically added to existing facilities to increase the
production capacity in smaller increments. The proposed low-head
pressurized membrane systems used for CWTP will not require excavation or
significant structural concrete construction for capacity additions of 1 to 2
mgd up to 10 mgd.
5) Production Flexibility
The membrane filtration option has more flexibility in production capacity
than the granular media filtration option. This is because granular media
filtration capacity is limited by water quality considerations; whereas, with
membrane filtration the finished water quality is independent of production
capacity. Membrane filtration allows the opportunity to increase production
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by increasing production costs. For example, production capacity can be
increased by increasing the frequency of chemical cleaning of the membrane
without adversely affecting finished water quality. Granular media filtration
does not provide the same flexibility for increasing production capacity
without jeopardizing finished water quality.
Please describe the site selection alternatives considered by the company for
the CWTP and the site finally selected.
The site selection process began fall of 2000 and was concluded in December
of 2001. Three sites were identified and evaluated for size, location, and
suitability. Sites were across Highway 21 from Surprise Valley, Highway 21
and Grand Forest, and Columbia Road. The chosen site was Columbia Road
due to elevation, operational considerations, access and ability to obtain
zonIng.
Why did United decide to use a "Design-Build" (") procurement
process?
The primary driver behind this decision was contractor experience in this
type of construction. One disadvantage we face in Idaho is that surface water
treatment plant construction on a large scale is not typical. It has unique
process elements.
We faced this same situation during Marden Plant construction. There are
good sub contractor skills for specific trades but overall project management
and leadership are lacking. This "Design-Build" method puts the experience
of the contractor working directly with the design group early enough to
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assure an adequate but not "over" designed facility. Other benefits to United
are:
)- Early budget information and control
)- Sub contractor competition and price reduction
)-
Alternative methods for the work
)- One contract to manage
)- Open book cost of work review
)-
Ability to use United work force for critical elements
How was the design-build contractor selected?
F our teams were pre-qualified and asked to submit proposals as stipulated in
the Request for Proposal (RFP) dated April 22, 2002. The four teams were
Camp Dresser McKee, Black and Veach, Montgomery Watson Harza and
Carollo Engineering. The RFP provided background along with the Basis of
Design Report previously discussed. Teams were required to provide
proposals which included:
)-
Qualifications
)- Proj ect Team
)- Project Approach
)- Price (Both fee and overall target cost)
All teams were responsive and submitted good quality information with
valuable ideas for improvement. Proposals were evaluated by United
considering both non-price and price criteria. Ultimately the team Camp
Dresser McKee (CDM) was chosen July 31 , 2002 to begin negotiations for
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execution of the contract. CDM is a large worldwide company with over
$600 million in annual billings and 3700 professionals working 110 offices.
CDM is ranked among the nation s 20 largest design teams and 400th largest
general contractor according to Engineering News Record, 2002. Several
items were resolved over the next two weeks including fee, overheads, sub
contractor administration, risk sharing, value engineering ideas, and
schedule. A final CDM proposal was received June , 2002.
The contract was executed September 20, 2002 after all legal language and
performance bonds were in place.
What were the initial steps in the design-build process?
The initial step to the D- B process was to initiate the design and incorporate
all of the good ideas that had developed throughout the RFP process. These
included using a steel clearwell, single building layout, reduction of raw
water pumping requirements at the treatment site, waste handling basin, and
future pre-treatment configuration. We also completed the conditional use
approval process through Ada County.
What happened between the time the contract was signed and the guaranteed
maximum price (GMP) was provided?
As stated above, the contract was signed September 20, 2002 and the final
GMP was presented January 14 2004. This was a very important period to
insure that the membrane filtration process was compatible with the raw
water characteristics. Keep in mind that membrane technology is very
dynamic and better design ideas or layouts are routinely coming from
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vendors. These include footprint, backwash efficiencies, material types that
are resistant to chlorine, loading rates, and sensitivity to metals and
temperature. We also needed to be sure the design could accommodate
future processes like pre-treatment and ultraviolet disinfection.
The D-B process was also very new to approving agencies including DEQ
and County Building Departments. The concept behind D-B is to complete
the design in increments, obtain approvals and construct while other design
elements are being perfected. This separated approval process proved to be
new experience for these agencies and many workshops and submittals were
required to bring along their confidence that all codes were in compliance.
As previously mentioned, water treatment using membranes is new to Idaho
at this scale. These factors all needed to be resolved in order to reduce risk
and contingencies that are a part of any complex project. During this period
CDM did an excellent job getting competitive sub contract packages out to
major trades including structural, mechanical, electrical, instrumentation and
civil. Sub contractors knew that CDM could self perform the work with their
own forces and if they wanted to work on this project their bids must be
economical. This is especially important in a small market where sub
contractors certainly communicate with each other. When United received
the GMP there was excellent documentation of which sub contractors where
chosen, where CDM had administration and overhead planned, what the
contingencies were and the fee (which was unchanged from the original
proposal in May 2002).
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Did CDM provide a guaranteed maximum price for the CWTP, and what was
it?
Yes, the GMP was $16 844,498.
. .
When did physical construction of the plant commence?
Initial site grading, temporary utilities, and gravel construction staging areas
began in October 2002. In anticipation of spring rain and mud condition
CDM was issued incremental work authorizations for specific tasks once the
cost and scope of each was identified. Rock excavation for the 24 inch
transmission main in Columbia Road was also commenced. The balance of
this main was completed through the winter and spring 2003.
Have portions of the initial construction helped United meet its supply
requirements during the construction phase?
Yes. In 2003 the final phases of Columbia Village and Surprise Valley
subdivisions were nearing completion. This phase of Columbia Village, at
the east end of the service area, is also at the highest elevation in the
development. Water was previously supplied from one feed at Grand Forest
and traveled across the entire development. During peak periods friction and
elevation losses resulted in pressure falling below DEQ requirements at these
homes. One of the reasons the CWTP was sited at this location is because of
its elevation and ability to provide pressure stabilization by gravity at the east
end of Columbia Village. We were able to obtain permits and approvals to
advance the schedule of the clearwell and associated 16-inch distribution
main, adding a second feed into this area. This work was completed in May
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2004 before peak season. Customers experienced adequate pressure, better
service, and United received no complaints. Exhibit 10 demonstrates the
pressure stabilization result of this tank and associated 2nd feed.
Is CWTP currently in service at the time this testimony is being prepared?
No. The construction is approximately 850/0 complete and is expected to be
partially operational in March, 2005. Full operation is expected no later than
June 2005.
What was the final cost of the proj ect and how does that compare to the
Guaranteed Maximum Price?
The final cost of the CDM portion of the project is not yet concluded. A full
and detailed accounting will be accomplished at time of completion. The
GMP appears to be adequate due to many favorable factors related to sub
contractor performance, early pump procurement before steel price increases
this Spring, early completion etc.
What is the construction cost of the treatment complex portion of the project
as expressed in dollars per million gallon assuming the GMP is the final
price?
$2.15/gal.
Do you believe the design-build process and other efforts undertaken by
United have produced the lowest realistic price for the project?
Yes. CDM has done an excellent job of project management and cost
control. Sub contractors have been competitively bid. CDM has used their
buying power influence to get favorable prices on steel and electrical
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hardware. The construction schedule has been enhanced and they have only
had one full time Superintendent on-site to keep overhead costs down. All
these elements have lead to the lowest realistic price for the project.
Have you also compared the cost of CWTP in $/ gallon with other similar
membrane plants?
Yes. I have reviewed the comparable cost data provided by CDM from
available information at other locations. I assisted them in developing
comparisons to make the information as relevant as possible. No two
projects are ever the same. Please refer to Exhibit 11. Costs per gallon range
from $.73/gal to $2.23/gal adjusted to 2005.
Do you believe the cost of the Marden Water Treatment Plant, expressed in
dollars per gallon provides an appropriate benchmark for cost comparison
purposes?
Not necessarily. Marden WTP is an excellent conventional plant and
produces high quality water. The initial construction costs for Marden were
very economical. The concern is that the Marden costs are artificially low.
The General Contractor for Marden (Alder Const.) was significantly below
the other bidders. They, however, decided to go forward with the
construction rather than forfeit their bid bond. As a result, they were required
to self perform and in effect lived on-site in order to complete the project and
minimize their costs. This is not a typical situation under normal
construction. I was told by their president at the end of the job that it was a
financial disaster for them and well below their cost margins. The better
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question is to compare what conventional plants cost today. I have provided
Exhibit 12 showing other conventional plants constructed since 1999 adjusted
to 2005 costs for comparison. This data was provided by CDM from
available information at other locations. I assisted them in developing these
comparisons. Costs range from $ 1. 44/gal to $3.47/gal. Marden indexed to
2005 is $2.03/gal.
In addition to the capital cost of the CWTP, have you identified additional
operational costs?
Yes. The primary additional operation costs associated with the CWTP are
identified below in four major categories:
Purchased Raw Water $ 78 000
Power $284,400
Chemicals $ 57 145
Miscellaneous $ 45 580
Total $465 125
Is United requesting that these additional operational costs be recognized in
this rate decision?
Yes. Mr. Healy has provided pro forma adjustments to capture these
additional operational costs.
In its recent decision in the Idaho Power rate case, the Commission indicated
that utilities should attempt to identify expense decreasing effects of major
plant additions. Have you attempted to do so and what is the result of your
analysis?
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20/
Yes. Nine wells will be affected as a result of operating CWTP. Wells will
either be idled or curtailed in two primary categories. One category is
redundancy or backup capacity related. The other category is for water
quality compliance required for upcoming arsenic regulation. The estimated
power and chemical annual expense decrease is $139 580.
Are there other project elements included in conjunction with the CWTP
project?
Yes. The proforma additions included with the CWTP project are Project
C04BO02 - Raw Water Pump Station and Project C04BO04 - 30" Raw Water
Pipe Line. These two projects will go in-service at the same time as the
CWTP. The Raw Water Pump Station will pump the Boise River water to
the treatment plant. The 30" Raw Water Line is needed to carry the water
from the pump station to the plant.
Please now describe in general the other categories and purposes of the
capital expenditure program planned to be placed in service between August
2004 and May 31, 2005.
The following discussion provides information regarding projects included in
the plant additions.
Project CO2AOO8 - New Maple Hill Well #2. This project is proposed for
the drilling and equipping of a new well in the First Bench Service Level with
a projected capacity of 0.72 mgd. This additional capacity is needed to meet
increases in peak season demands resulting from new customer growth and
prevent deterioration in customer service pressures and fire protection
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capacities in that area of the system. Over 2 000 new customers have been
added in this service area in the past five years. This well will be located on
the site of the existing Maple Hill Well #
Project CO4A102 - Water Rights: This project is intended for the purchase
of water rights, including natural flow rights, shares in canal companies and
storage water. Also included are the efforts necessary to preserve and perfect
existing water rights.
Project CO3BOO3 - Maple Hill Well #1 Treatment. This project is for the
design and construction of a treatment facility at the Maple Hill Well. This
well has the capacity to produce 1800 gpm. However, due to water quality
problems it typically runs at approximately 800 gpm. This proposed treatment
facility would allow us to take advantage of the additional 1 000 gpm which
is needed to meet peak season demands resulting from new customer growth
and to prevent deterioration in customer service pressures and fire protection
capacities.
This well has high levels of ammonia and requires large doses of chlorine to
neutralize it. However, the chlorine causes the precipitation of iron and
manganese, which results in customer complaints due to discolored water and
staining. A pilot study has shown that break point chlorination along with a
manganese greensand filter can be used to neutralize the ammonia and
remove the iron and manganese.
Project CO5BOO1 - Marden WTP Chorine Generator. This project is for
the removal of the existing gas chlorination system and scrubber at the
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Marden WTP, and installation of one 300 pounds per day chlorine generation
uni t.
Replacing hazardous chlorine gas with non-hazardous 0.8% sodium
hypochlorite reduces the handling risks for employees and risks to the public
in the event of a leak. This project will also eliminate the need to "harden
the chlorine room walls, doors and windows at Marden to meet the
recommendations of United's EP A vulnerability assessment.
During the EP A vulnerability assessment, United's consultant encouraged
the transition from the use of gaseous chlorine in ton cylinders to the use of a
chlorine generator, as proposed in this project. The generator significantly
reduces the potential exposure of United to the public in the event a
determined and knowledgeable adversary attacks the facility.
Ten States Standards indicate a water system should maintain a minimum
of 30 days of chemical supplies on site. Weare not currently operating the
plant in this manner in order to avoid the more stringent regulations
associated with chlorine quantities greater than 1 500 lbs. A chlorine
generator will enable us to achieve the 30-day supply without additional
regulatory requirements.
Project CO4COO2 - Auxiliary Power at Pleasant Valley Well. This project
is for the relocation of a 500 KW auxiliary power generator originally sited at
the Marden WTP to supply the 500 HP pump at the Pleasant Valley well in
the event of a power outage. Included in this project are the construction of
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suitable structure to house it, the purchase and installation of an automatic
transfer switch and other electrical panels, and conduits and wiring.
The vulnerability assessment completed in March 2003 recommends that
United increase its standby power generating capacity. This project will help
to achieve that goal by taking advantage of the existing generator that was
removed from Marden when a new 1 000 KW generator was installed in
2002.
The Pleasant Valley well is located in the Columbia Bench Service Level
at the high end of the system. Water from this facility can support much of
the easterly side of the water system by gravity feed through the various
pipeline interties during a major power outage.
Project CO4DOO4 -First Bench Service Level Split - Main Improvements.
This project will implement the critical distribution system improvements
needed to resolve the low pressure problems experienced on the east end of
the First Bench Service Level during peak summer demand periods. These
improvements create a hydraulic boundary, splitting the First Bench into two
pressure zones along Roosevelt Street.
The First Bench is a continuous nine-mile long pressure zone from Federal
Way to Cloverdale Road. There is an approximate 150- foot drop in ground
elevation from east to west, which equates to about a 65 psi water pressure
difference. As pressures are increased to improve service to customers at the
east end, the water, in essence, runs down-hill and overloads the service
pressures to customers on the west end. Splitting this system into two
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pressure zones will enable increased pressures for the east end without
adversely affecting the customers in the west. It will also improve fire
protection capabilities throughout the east end with the higher operating
pressures.
Project CO4D607 - Main Replacement on Woodlawn, Pleasanton, Ross
and 29th Streets. This project is for the installation of3 375 feet of new 8-
inch and 6-inch mains in the Woodlawn and 29th Streets vicinity. The project
will replace 2 970 feet of 2-inch galvanized iron pipe and 550 feet of 6-inch
cast iron pipe installed between 1920 and 1950. This is part of our annual
commitment to the City of Boise for improvements in fire protection
capabilities as a part of our franchise agreement. It also is in conformance
with our main replacement goals of focusing on the replacement of small
galvanized iron pipe and aged cast iron pipe.
Project CO4DI08 - New Floating Feather 16-inch Main. This project is
for the installation of approximately 8600 feet of 16-inch main in Floating
Feather Road. United currently has an agreement with the City of Eagle to
use a 12-inch city owned main to move water from the Floating Feather
booster station to the West Main service level where it is needed to serve the
existing customers and growth in that area. The volume of water that can be
moved to the West Main service level is limited by the capacity of the 12-
inch main. This project will install 16-inch main that will allow transmission
of an additional 500 gpm to the West Main service level and end reliance on
the city's water main.
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Project CO4J901- PeopleSoft 8.4 Upgrade. This project is intended to
upgrade the existing financial system to the current PeopleSoft 8.4 version.
The current software is eight years old and is no longer supported by
PeopleSoft. All financial systems of United are managed through this
software including general ledger, asset management, construction
accounting and payroll.
Project CO4K304 - United Water Idaho Master Plan Update. This
project is intended to update the existing master plan and develop a hydraulic
model for the distribution system. The existing plan is over 5 years old and
needs to be updated in order to plan, prepare and implement system
improvements needed to meet customer demand. Also as a part of the project
a computer model will be developed to enable engineering analysis and
decision making related to current system operation and future system
changes. The hydraulic model will interface with the existing GIS system in
order to be continually updated as completed mainline projects are digitized
and electronically downloaded into the database. The master plan update will
look at areas of growth, supply, storage etc. and outline options to be
considered for the next 20 year planning horizon.
Does this conclude your testimony?
Yes it does.
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Please state your name.
Scott Rhead.
Are you the same Scott Rhead who previously filed direct testimony in
this case?
Yes, I am.
What is the purpose of your rebuttal testimony?
My rebuttal testimony replies to the direct testimony of Staff witness
Sterling. More specifically, I will:
~ Respond to Mr. Sterling s critique of the Design-Build procurement
method for CWTP;
~ Demonstrate that the early completion incentive to CDM was
prudent and cost effective;
~ Demonstrate that Mr. Sterling s proposed adjustment for CWTP
excess capacity and land is over stated;
~ Demonstrate that the amount paid for the Initial Butte water right
corresponds to the value of the usable quantity of the right acquired;
~ Demonstrate the proposed adjustment to purchased water is
incorrect;
~ Demonstrate that the Company s investment in the Integrated
Municipal Application Package (IMAP) should be allowed in rates;
~ Demonstrate that the Company s natural flow right no 63-31409 is
currently in service;
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~ Provide an updated Exhibit 8, dated 04/22/2005 with revised
proforma capital additions thru 03/31/2005.
Have you prepared any Exhibits to your rebuttal testimony?
y es~ I have one, Exhibit No. 16, Schedules 1 through 8.
How would you summarize Mr. Sterling s critique of the design-build
procurement process?
Mr. Sterling discusses the advantages and perceived shortcomings of
the process compared to the more traditional design-bid method.
While I disagree with some of his criticisms, I will not discuss each in
detail because, in the end, Mr. Sterling does not recommend any
disallowance based on the decision to employ the design-build
method.
Does Mr. Sterling make a recommendation with which you disagree?
Yes. Mr. Sterling presents several arguments in favor of design-build
and presents no evidence that these benefits have not been achieved.
Mr. Sterling presents several theoretical downsides to design build, but
presents no evidence that these downsides occuITed on the Columbia
WTP project. In particular, Mr. Sterling discusses three specific
theoretical problems with design build, and the ways to overcome
them:
1. Owner must exercise greater responsibility to ensure interests are
protected. The Company did this, assigning an experienced project
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engineer to the project to observe daily construction activities and
review all subcontracting decisions.
2. Establish a guaranteed maximum price GMP at some stage in the
process. The Company obtained a GMP prior to issuing notice to
proceed with construction.
3. Require competitive bidding for each element of the construction.
The vast majority of equipment, materials, and construction
elements were competitively bid.
The Company exercised all the cautions recommended by Mr. Sterling,
and realized all the potential benefits of design build that he identifies.
Mr. Sterling has presented no evidence to the contrary. The Company
believes that this method has responded to the circumstances more
flexibly, in less time, and at lower cost than the traditional design-bid-
build method, and Mr. Sterling has provided no evidence to the
contrary. The Company s experience in this area has been favorable
and doesn t anticipate reverting to a design-bid-build method in similar
circums tances.
Has Mr. Sterling made any particular recommendation with regard to
United Water s use of the design-build procurement approach on future
company projects? If so, please reply.
Mr. Sterling recommends that the Company be directed not to use the
design-build method for major projects in the future. This is an un-
warranted intrusion on management's business judgment. The
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Company must keep procurement options open based on future
circumstances of specialty construction, schedule and contractor
availability. Domestic water facilities by their very nature require
experience and a unique understanding of the public health
requirements. The Company must be contractor selective and be able
to use judgment as to the best way to manage, construct facilities and
operate the business.
Mr. Sterling also questions the early completion bonus paid to CDM
and in the absence of further cost justification recommends its
disallowance. Have you developed additional support for the bonus?
Yes. The incentive payment earned by CDM has a direct impact on
bringing down the overall project cost. There is a legitimate project
management cost for labor, overhead and expenses spread throughout
the contract duration. These costs are calculated on a per day basis
and are attached as Schedule 1. As shown these legitimate costs are
191/day and are charged until the project is substantially complete
so long as the Guaranteed Maximum Price is not exceeded. Pushing
the project to an earlier completion by paying an incentive of
500/day saves the overall project a direct benefit of $1 691/day.
The sooner the project could be completed the less the overall cost.
The project benefited a total of $1 691 x 82 = $138,662 from this
incentive provision, it is justified and should be allowed in rate base.
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What is your understanding of Mr. Sterling s recommendation
regarding portions of the CWTP that will accommodate future
expansion?
Mr. Sterling estimates that approximately 200 sq. ft. of the plant will
accommodate future addition of ultraviolet disinfection. He then
multiplies the 3,200 sq. ft. by an estimated cost of $110 per square foot
and proposes that $352 000 of investment be considered plant held for
future use.
Do you agree with this calculation? Please explain.
No. The main process building was designed and laid out in the most
efficient way possible. It would be unreasonable to deny recovery of
any floor space constructed that took advantage of economics of scale
during the initial construction. Certainly it is unreasonable and unwise
to penalize future customers more by paying a premium for future
space that can be enclosed now at a fraction of the future cost. The
200 sf in question is specifically this situation. The construction of
this space was the least cost! y area of the entire process building.
Costs to enclose were floor slab, roof system and simple masonry wall.
The building as a whole is used and useful. The as built cost of this
200 sf space as documented by CDM is $173 630 or $54.26/sf (See
Schedule 2). This space should not be classified as plant held for
future use. If, however, any adjustment for recovery is thought
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necessary the actual construction costs, not the design estimate, is the
appropriate measure which would yield an amount of $173 632.
Do you agree with the recommended adjustment of 2.8 acres of land
held as future use totaling $181 083. 70? Please explain.
No. United Water believes the entire site should be allowed in rate
base. Mr. Sterling cites 2.8 acres of the plant site as being unused and
intended for future facilities. In response to United's Production
Request No. 27 , Mr. Sterling provided his calculations used to arrive at
8 acres as shown on Schedule 3, this calculation is incorrect and the
correct amount is 1.84 acres. Mr. Sterling states that it was prudent for
the Company to acquire this land. Mr. Sterling incorrectly includes for
disallowance approximately .64 acres of site space that is devoted to
stormwater management and septic tank/drain field that are required
by Ada County and are an integral part of the initial facilities. Ada
County Comprehensive Plan Policy # 3 for Storm Drainage, as stated
under paragraph 2.2 on page 4 of the August 22, 2002 Conditional Use
Permit, requires that on-site treatment (bioswale), storm drain, and
flood control (detention basin) facilities be constructed coincident with
the development of the rest of the site. In addition, the project could
not have been built on only the space required for the footprint of the
initial facilities. All construction projects require space, beyond that
required for the facilities themselves, for materials laydown, staging,
construction offices and storage, construction equipment access
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maneuvering, and setup. The small amount of additional land acquired
was essential for the construction of the initial facilities. Any
adjustment for recovery would be unreasonable but if any adjustment
is thought necessary the area should be no more than 1.2 acres due to
the requirements discussed above. The cost of the 1.2 acres is 10.43%
of the total 11.5 acres and equates to $77,571.73 (743 736.64 1043)
using the same cost basis.
Please explain the background and history of the Integrated Municipal
Application Package (IMAP) that has been submitted to the Idaho
Department of Water Resources.
Three main factors motivated the Company to submit the IMAP. First
the Idaho Department of Water Resources ("IDWR") is beginning to
implement conjunctive management of water rights in Idaho , which
means that ground water rights are managed in conjunction with
surface water rights. Before now, ground water rights generally were
administered separately from surface water rights. Under conjunctive
management, junior priority ground water rights may be curtailed in
order to make more water available for senior surface water rights.
major goal of the IMAP is to allow the Company to use its most senior
ground water rights at its most productive wells. This would allow
United Water to respond efficiently to a ground water curtailment in
the Treasure Valley. To achieve this, United Water had to file an
application to transfer essentially all of its ground water rights to
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recognize all of its ground water wells as alternate points of diversion
for each right. It involves 93 separate transfer applications and
separate applications to amend water rights permits.
Is the possibility of curtailment a present day reality or only something
that might occur in the future?
It is a present day reality. For example, the curtailment order affecting
ground water pumpers in the Eastern Snake Plain Aquifer that has
been in the news recently is a good example of the effect of
conjunctive management. In response to this order, and potential
additional orders , communities are having to restrict or make plans to
restrict municipal water use. For example, the City of Shoshone
recent! y imposed water use restrictions on its citizens and is making
plans to impose further restrictions if another curtailment order is
issued. A major goal of the IMAP is allow the Company to use it most
senior ground water rights at its most productive wells in response to
potential curtailment orders. For example, if a curtailment order
restricted use of ground water rights in the Treasure Valley with
priority dates junior in time tq 1967, without the IMAP the Company
could not divert from any of its wells that were drilled after 1967, even
if these wells were the most productive wells. When the IMAP is
approved the Company can utilize its pre-1967 water rights to pump
from its most productive wells and thereby maximize its ability to
serve its customers in the event of a curtailment order. To achieve
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United Water Idaho Inc.
141
this, United Water had to file an application to transfer essentially all
of its ground water rights to recognize all of its ground water wells as
alternate points of diversion for each right. This application for
transfer is the foundation of the IMAP. This is a massive undertaking,
but one the Company believes is imperative to serve its existing
customers in this new era of conjunctive management. The Company
believes conjunctive management in the Treasure Valley is inevitable.
The IMAP is a proactive tool that will maximize the Company
ability to effectively serve its customers in response to conjunctive
management.
What are the other factors that led United Water to submit the IMAP?
The second major reason United Water submitted the IMAP was to
consolidate its water rights in advance of review by the Snake River
Basin Adjudication ("SRBA"), including the alternate point of
diversion transfer described above. In the SRBA, the Idaho
Department of Water Resources and the Snake River Basin court
evaluate each party s water rights as part of a court process that
reviews most of the water rights across the state. Other water rights
holders have the opportunity to challenge others' water rights in this
process. We believe our chances of successfully defending our
existing water rights in the SRBA are enhanced by seeking a transfer
to consolidate points of diversion and to recognize a consistent service
area and municipal purpose of use for all of the Company s rights.
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United Water Idaho Inc.
The IMAP seeks to consolidate Company s water right portfolio in this
manner.
Are there any other reasons for submitting the IMAP?
Yes. The third major reason the Company submitted the IMAP was to
bring our water right portfolio into compliance with the Municipal
Water Rights Act of 1996 (the "1996 Act"). This Act encourages
municipal water providers to plan to meet future demand. While this
requires an aspect of future planning, our primary motivation for
seeking protection under the 1996 Act is to protect our existing
portfolio of water rights, and particularly our most senior ground water
rights, from forfeiture. Importantly, the IMAP does not seek any new
water rights. But to ensure protection of our existing, senior water
rights, and to prevent forfeiture of those rights , we need to show that
those rights will help to meet some future demand.
Would the Company have filed the IMAP even if the 1996 Act had not
been passed?
I think we would have. We had discussed the need to respond to
possible conjunctive management scenarios and the need to
consolidate our water rights in preparation for the SRBA even before
the passage of the 1996 Act. Accomplishing these goals would have
required a comprehensive transfer application like the IMAP
regardless of the 1996 Act.
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United Water Idaho Inc.
Mr. Sterling states that based on the IMAP the Company is seeking to
hold and protect at least 160 cubic feet per second (cfs) under its
current portfolio for future growth. Is Mr. Sterling correct?
No. Mr. Sterling s 160 cfs number is derived from a summary of the
IMAP that assumes the application will be approved in a manner that
will allow the Company to pool all of its water rights without any
conditions. In reality, water rights and administration are more
complicated than this, and any approval of the IMAP will very likely
include conditions that restrict the manner in which the Company can
use its rights. The Company has always recognized this and has
engaged in extensive negotiations with other parties to the IMAP
regarding possible conditions that should be imposed. Thus, even
though the total authorized diversion rate under the Company s ground
water rights is 310 cfs when all the rights are pooled, the rights have
(and likely will continue to have) limitations that include, among other
things , where they can be diverted, and/or when they can be diverted.
Consequently, even though the Company s peak demand in 2000 was
about 150 cfs, the Company cannot meet this demand simply by using
150 cfs worth of its water rights. To meet its annual demand, the
Company must use all , or at least nearly all, of its existing water rights.
Does Mr. Sterling dispute the prudence of the Company s actions
regarding the IMAP?
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144
No. In fact, he says, "I am not challenging the prudence of IMAP
activities in any way; in fact IMAP is something United Water should
be doing." (Sterling Di. Pg 34).
Even though he acknowledges the prudence of IMAP activities, Mr.
Sterling recommends disallowance of the entire investment, claiming
IMAP is intended to preserve and protect water rights for future use.
(Emphasis in original). Does Mr. Sterling correctly understand the
nature of the IMAP?
, I do not think he does. As I explained above, the main thrust of
the IMAP is to consolidate the Company s water right portfolio in a
manner that will allow it to respond efficiently today to potential
ground water curtailments and to maximize its ability to defend the
existing water rights from challenges, including challenges that it has
forfeited some of its most senior water rights in the ongoing Snake
River Basin Adjudication.
Do the Company and its customers obtain value today from knowing
that there is security in the Company s water rights portfolio?
Absolutely. As described above, the Company s ability to serve its
customers is threatened by potential ground water curtailments under
conjunctive management and also by challenges to the existence of the
Company s most senior water rights. The present challenges require
the company to take proactive measures to protect its water rights so
that it can continue to serve its existing customers most effectively.
Rhead, Re 12
United Water Idaho Inc.145
Mr. Sterling also recommends a disallowance with respect to water
permit No. 63-31409, believing that the permit relates solely to future
ground water recharge projects. Is this water right intended only for
future recharge projects?
No. Recharge projects are only one component of permit 63-31409,
and an ancillary one at that. The primary purpose of permit 63 31409
is to allow the Company to divert natural flow from the Boise River to
the Columbia Water Treatment Plant (CWTP) for municipal purposes.
Based on his Response to United Water Idaho Production Request No.
31 Mr. Sterling now recognizes that this water right has two purposes.
As stated in the Response: "Upon further investigation and
examination of the actual permit and other documents contained in the
water rights file held by the Department of Water Resources, Mr.
Sterling now recognizes admits that the water right has two purposes.
This water right is used and useful now and this investment should be
allowed in rate base. The use of flood flow when available is not only
prudent but very economical because of no annual costs.
Please explain the background and history of the three water rights
known collectively as the Initial Butte Water Right?
In 2002 the Bureau of Land Management (BLM) had negotiated for
the land purchase of the Initial Butte Farm totaling 2055 acres. The
BLM wanted the land for habitat purposes associated with the Birds of
Prey facility and therefore wanted to let the land revert back to its
Rhead~ Re
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146
natural condition. This provided the unique opportunity to separate
the land from the associated water rights. This situation does not
happen very often without injury to some party. The landowners
approached the Company about the potential purchase of this water
right. The difficulty for the Company was to determine a price for
Snake River water due to the fact the Company s pumping and
treatment facilities are all located on the Boise River. Aftermany
work sessions with interested parties a creative and efficient exchange
was approved between the Snake and Boise River. This exchange
occurs during summer periods of salmon flow augmentation and is
monitored by Water District #63, Idaho Department of Water
Resources and Bureau of Reclamation (BLM). This exchange
provided raw water availability during the summer without the
significant capital cost of pipelines and pumping infrastructure to
deliver the water 25 miles to Boise. Of course it is not possible to
purchase a partial water right for a portion of the season. It was
necessary for the Company to purchase the entire 9 247.5 acre-feet
with a combined diversion rate 35.21cfs.
Mr. Sterling recommends that the purchase price of $1 838 560 be
discounted to take into account portions of the rights he believes
cannot physically be used. Is this adjustment appropriate? Please
explain.
Rhead, Re
United Water Idaho Inc.147
No. Based on his Response to United Water s Production Request No.
, it appears that Mr. Sterling has not considered the price paid by the
Company compared to market value. The Company knew that only a
partial summer use was available related to the exchange discussed
above. Because the owners were also getting value for the land sold to
the BLM they were willing to negotiate a below market value for the
water right. The market price was estimated at $300/acre foot and was
later confirmed by an independent appraisal completed for the State of
Idaho associated with the Bell Rapids Water Right Purchase in 2004.
(See Schedule 4). Mr. Sterling also recognizes this market price based
on the attachment to his Response to Request No. 33. The Company
purchased Initial Butte for $135/acre foot (See Schedule 5) or 450/0
market value with the understanding that approximately 45% of the
volume could be diverted under the exchange. Lee Sisco, Watermaster
for Water District #63 confirmed that salmon flow was 60 days in
2004 (See Schedule 6). This calculation is as follows:
Both water plants at 2005 Capacity 35cfs x 2 af/day/cfs x
60 days = 4 200af. Total purchase 4 200 af/9,247.5 af = 45.42%. This
matches almost exactly with the purchase price compared to market
price of $135/$300 = 45%. In other words , the water right "yield" and
price paid are fair and appropriate. The Company should be allowed to
recover the entire price of the Initial Butte water right, as it is all used
and useful.
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United Water Idaho Inc.
Does the estimated 4 200 af Initial Butte water right provide all of the
surface water needed for both the Marden Water Treatment Plant and
Columbia Water Treatment Plant?
No. Both plants combined require approximately 000 af to operate
at capacity during the summer.
Do you agree with Mr. Sterling s adjustments No.for a total
purchased water cost of $117 ,837?
No. Mr. Sterling fails to consider the overall volume requirements of
both plants and the variety of annual mechanisms necessary to assure
availability
Do you consider 2005 a "normal" water year related to these annual
mechanisms?
No.
Can you explain and provide an estimate of what the normal level of
expense should be?
Yes. For the past 10 years the supply and demand on the Boise River
has been reasonably stable. The Company has had rental leases and
storage contracts in place to augment the early natural flow from the
Boise River drainage. Three primary changes all occurred at the same
time, which have now complicated the certainty and associated price.
These changes are extended low snowfall conditions , Bureau of
Reclamation Lucky Peak contract renewal uncertainties and
149
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United Water Idaho Inc.
conjunctive management enforcement between ground water and
surface water in the upper Snake River.
Willing parties, relationships and competition have been in
tremendous flux over the past 12-18 months. The "picture " is
beginning to clear but as a result of market forces all of the prices
increased both for annual and acquisition costs. Examples are, Basin
63 rentals increased from $6.50 to $14.00 af, State administered water
bank leases increased from $11.00 to $20.62 af, natural flow
acquisition on the Snake River increased to $300 af etc. This
background is provided in an effort to explain the difficulty in
predicting "normal" annual purchased water costs. The Company also
must make the difficult decision each year to keep its own storage and
lease water beyond the natural flow uncertainties or drain the system
and hope for refill next year.
Several contracts were not known and measurable during
staff review as discussed by Mr. Sterling s Response to Request No.
34. These items have since been executed and previously have been
provided by Jerry Healy (4/27/2005) including a 2005 purchased water
spreadsheet. The estimated 2005 cost is $274 982. I have provided as
Schedule 7 , a revised spreadsheet, which attempts to normalize the
affects of 2005. I have assumed three primary elements will become
normal" and that the associated costs will come down. These
elements are the natural flow exchange from Initial Butte will become
150
Rhead, Re
United Water Idaho Inc.
available 200 af). Basin 63 incentive payments will come down to
$7.00 from the higher costs paid to Simplot and Trinity Springs in
2005. The Lucky Peak payments to the Bureau of Reclamation will
return to the minimum and all existing storage water will be held for
drought protection. The normal annual purchased raw water cost then
is $185,484 for the 13,454 af needed to operate Marden Water
Treatment Plant and Columbia Water Treatment Plant annually and to
meet peak summer demand.
The Company has provided several updates to the capital proforma
additions referred to as Exhibit 8 in the direct testimony filed by Scott
Rhead. Are you providing a final update of the expected additions?
Yes. The updated Exhibit 8 dated 4/22/2005 is attached as Schedule 8.
The total forecast in-service addition is $39,471,461 of which
$37 264 250 is in service as of 3/31/2005. Several large invoices were
processed in April and early May for payment. These invoices total
approximately 150 000.
Does this conclude your testimony?
Yes it does.
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United Water Idaho Inc.
(The following proceedings were had in
open hearing.
(United Water Exhibit Nos. 8 through l1A
and 16 , having been premarked for identification , were admitted
into evidence.
And the witness is now available forMR. MILLER:
cross-examination.
Thank you.Let's beginCOMMISSIONER KJELLANDER:
with the legal counsel representing the Public Utilities
Commission Staff.
MR . WALKER:Thank you, Commissioner.
(Staff Exhibit Nos. 133 through 136 were
marked for identification.
CROSS - EXAMINATION
BY MR. WALKER:
First of all , Mr. Rhead, referring to the
Columbia water treatment plant, did Staff witness Sterling
recommend any di sallowance wi th regard to the Company s choice
to employ a design-build process?
Yes, I bel ieve he did.I bel ieve he recommended
that we not be allowed to use it in the future.
Other than that, did he recommend any
disallowance in this rate case pertaining to rates related to
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the design-build process?
No, I don't believe there's any effect on the
rate --
Okay.
-- financial side of it, just in the
recommendation not to proceed in the future, which we believe
is an infringement on business management's options in the
future.We think that it's important that the Company be
allowed to pursue whatever option is the best.There are
certainly unique circumstances related to public works water
facilities, and that we need to take advantage of the specialty
construction that's out there.So our view is
- -
is that we
need to have that option open to us in the future, but we
understand that there weren't any financial changes in this
case.
Okay.Isn't it true that witness Sterling was
critical of this design-build process because he felt that it
resul ted in a lack of evidence that would assure both customers
and the Commission that the best value was obtained for the
investment made?Is that accurate?
What I understand, Mr. Sterling was critical in
that he made some statements that, in my view, you know, are
unsubstantiated.The Company provided significant experienced
personnel.The GMP was established prior to issuing notice to
proceed.The assurances were in place for the contractor to
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work with United to understand the financial impacts of the
proj ect So I think the basis for his statements are there,
but in my Vlew they are unsubstantiated.
And you testified on page 3 of your rebuttal
testimony, line 14 through 17 , you testified that the Company
doesn't anticipate reverting from this design-build process in
the future.that correct?
That'correct.
the Commlssion were VOlce some concern
about uslng the design-build process, is it still United
Water I s position that it will continue to use this process on
similar proj ects?
Yes, I believe it's the Company's position that
the Company should be allowed to choose the construction option
that I S in the best business judgment of the Company.This
proj ect met the criteria , and we believe that the design-build
option should be available to us in the future.
Okay.Regarding the early completion , your early
completion bonus testimony, and referring to Exhibit 16,
Schedule 1 of your rebuttal testimony, that shows - - that'
showing the calculated daily burn rate.Is that correct?
Tha t 's correct.
And this amount is charged until the proj ect
substantially complete.Is that correct?
Yeah , this is an estimated amount that's spread
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throughout the proj ect for proj ect management responsibili ties
that starts when the proj ect begins and is spread up to the
completion date.It's estimated at $5,191 a day.
Okay.And that amount is charged until the
proj ect is deemed substantially complete.Is that what you
testified to?
Pardon me, Counsel.Could we have aMR. MILLER:
page and line reference?
BY MR. WALKER:Page 4 of your rebuttal
testimony, line 15 and 16?
Yes, I state that they are charged until they'
substantially complete, so long as the guaranteed maximum price
is not exceeded.
Okay.And when was this proj ect considered
substantially complete?
The substantial completion date was established
when the performance test began for the membranes.I think it
was March 18 th
And could you tell us how much of an early
completion bonus was actually paid to CDM?
The way the mathematics are In the contract , the
incentive clause to get the proj ect done early and save the
burn rate of $5, 100 a day, the daily incentive is $3, 500 a day.
So based on the substantial completion establishment , there
were 82 days at $3 500 per day, I believe that's $287 000
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which is a savlngs to the overall project of 138,672.
And when was that
- -
was that paid to CDM?
I don't believe it's been paid yet, but the
obligation is there.
Okay.How much of the total proj ect cost reduced
specifically because of the early completion , was that the 138
that you testified about just now?
Tha t 's correct , the underrun to the total proj ect
will be the net savings between the $5,100 burn rate and the
$3,500 pay.The proj ect is estimated
- -
will underrun 138,622
related to this incentive portion.
And has Uni ted Water provided any wri t ten
documentation that demonstrates the amount billed to United
Water has actually been reduced by this daily rate?
Please restate.
Has your company provided any documentation that
shows this amount billed was reduced by the daily rate?
Well, the Company evaluates their progress
reports and pay applications as the proj ect progressed.We are
currently in the final close-out portion and developing the
audi t arrangements and what have you to determine the actual
proj ect cost s, you know , are just coming in right now.
then " no " ?your answer
guess " no,yes.
guess " no,yes?
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When was the Columbia water treatment plant
opera t ional ?
I believe it's coincident with the substantial
completion date:March 18 th
Okay.Regarding your rebuttal Exhibit No. 16,
Schedule 8, that identifies capital expenditures for varlOUS
time periods.Isn't it true that for various Columbia water
treatment projects, that the April 22, 2005, revised forecast
for the in-service addition amount, that's greater than the
March 31st capital expenditures?Is that correct?
Tha t 's correct.We cant inued to add capi tal
after the proj ect is substantially complete.
Okay.Do you know when the final expenditure
amount wlll be known for Columbia?
Well, as I previously stated , we are
- -
we are
close.We are
- -
right now have received their final estimate.
There are still some values set aside for punch list work , some
final subcontract negotiations, and some proj ect training.
we should know all of the final proj ect costs in July.
MR. WALKER:Chairman, may I approach the
witness?
COMMI S S IONER KJELLANDER:Yes.
BY MR. WALKER:Mr. Rhead, I I m handing you what'
been marked as Exhibit No. 133 and 134.Could you please look
at 133 for a moment , and is -- does Exhibit 133, is that titled
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the Yard Piping Plan on the bottom , right corner?
That's correct.
Do you recognize this drawing?
Yes, I do.
Could you tell us what it is, please?
It -- it's a part of --
COMMISSIONER KJELLANDER:Before you go on , just
We want to make sure we're on the right page.a moment.
believe one of these is marked Response No. 130.m assuming
that is intended to be Exhibi t 130.And I'm not sure what thi s
other one is.Is this Exhibit 133?What do we have here?
MR . WALKER:Chairman, the Yard Piping Plan , the
one that has Response 130, that's been marked as Exhibit 133.
And the following page that says Process Area
Plan on the bottom right , that's been marked as 134.
COMMI S S IONER KJELLANDER:Thank you.134 .
MR. WALKER:I apologi ze
COMMISSIONER KJELLANDER:Just need
clarification.Appreciate it.Please proceed.
BY MR. WALKER:Yes, Mr. Rhead, could you please
identify for us what this depicts?
What this plan is is it's a plan , it's one of the
plans , of the design package used by CDM.It I s the overall
site plan in general.It shows the proj ect boundaries, the
facilities that are being constructed, some of the yard plplng
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requirements.So it's an overall si te plan.
Okay.And what I s - - what's that writing that'
highl ighted in yellow , can you explain that to us?
I believe in one of the response questions we
were asked by Staff to provide on this plan where future
expansion facilities are planned.
Okay.t hat'writing from the Company?
That'correct.
And look at the next page,whi ch has been
marked as Exhibi t 134 , do you recognize that also?
Yes, I do.
And could you tell us what that's a drawing of?
This is a more detailed drawing of the process
building.It I s the floorIt's the mechanical plan , sheet M2.
plan in general wi th the mechanical equipment posi tioned on it,
again identifying the primary process equipment and where it'
placed.
Okay.And the spots that are highlighted in
yellow , are those also future expansion points inside the
plant?
Yes , that's correct.
MR.WALKER:Chairman we'handing out what'
been marked as Exhibi t No.135 and 136 and agaln for
clarification what'been marked as 135 smaller verSlon
of the Yard Piping Plan , and what's been marked as 136 is a
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smaller verSlon of the Process Area Plan.
BY MR. WALKER:Mr. Rhead 1 do you recognl ze these
two documents?
Yes, I do.
And are you familiar with Staff witness
Sterling's testimony and recommendations regarding plant held
for future use at Columbia water treatment plant?
Yes , I bel ieve I am.I attempted to answer those
In my rebuttal case.
Okay.And would it be correct that the shaded
areas on Exhibits 135 and 136, that that depicts Staff witness
Sterling's calculated areas on his recommendations for plant
held for future use?
Yes, I believe that represents the area that he
calculated.
Okay.And now , looking at these exhibits
together , are there areas indicated by the Company that are
held for future use that were not included in witness
Sterling's calculation?
Well , I believe perhaps the best way for me to
respond is to break it into the categories in which , you know
Mr. Sterling identified.
The first area that was up for discussion is the
200 square feet of future UV floor space , and I just think
it's important to point out that the building was designed and
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configured in the most efficient way possible.There are
numerous requirements from DEQ for redundancy, for chemical
storage, for process piping layouts.We believe there was
value added to take economies of scale into consideration when
we buil t the building.Certainly some of the costs are the
same regardless of the Slze when you consider the permits , the
mobilization , and even some of the design.
The floor space that Mr. Sterling identified
inside the building; it is part of the building; it is used;
may be used for something more , you know , different in the
future , but it is, in our view , it is part of the building now
and used now.It's my view that customers, you know , are
penalized if we don't accommodate economies of scale when we
construct our buildings in the most efficient way possible.
So are there areas on the map that the Company
designated as future use that witness Sterling did not include
in his calculations for plant held for future use?
Well , there's 3,200 square feet of floor space
identified in the building as set aside for future UV area.
That's one piece of it.
The other piece of it relates to the land, and
guess I didn t respond to that.
Well , if we're talking about the building, what
about inside the building?Are there any areas designated for
future membrane filtration units?
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Yes, there are.
And were these included in Staff witness
Sterling's calculations?
No, they weren't , not where the membrane space
called out.
Okay.So if we look at the other ones that
depict the outside
- -
outside the building premises, are there
any areas that the Company indicated are future use areas that
witness Sterling did not include in those calculations?
I guess the land
- -
I guess what's important for
me to point out on the land side is it's our view there's a
calculation mistake in the way the mathematics was done.
I understand that 1 but is there an area outside
that was not included in the calculation made by witness
Sterling?
No.
What about the future clear well location?
, I guess I stand corrected.He did not
identify the future clear well location.
Thank you, Mr. Rhead.I'd like to move on
regarding your testimony about the I MAP 1 and that's the
Integrated Municipal Application Package with the Department of
Is that correct?Water Resources.
That's correct.
And looking at your rebuttal testimony on
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page 10, lines 11 through 13, and page 12 , line 14 , you refer
to forfei ture of water rights in several places.And i sn 't it
true that the reason that United Water could forfeit water
rights is that those rights are not being used?
I don't believe
- -
I don't believe that's been
determined.I believe that's the purpose of the Snake River
Basin Adj udication is to identify, you know , whether there'
been forfei ture of water rights.
Okay.But is that one of the reasons, is that
one of the ways that United Water could forfeit its water
rights, if it was determined that they're not being used?
Yes, that's my understanding.I think as the
Snake River Basin Adjudication has required , it's important
that every water right holder in the state of Idaho provide how
much water they have and how much water they use and what are
the circumstances related to that , and that
- -
and that the
IMAP is certainly an element of that.
And isn't it true you testified United Water has
water rights of approximately 310 cfs?
Yes, that's established in the IMAP.The IMAP
And United Water currently requires about 150 cfs
to meet peak demand.Is that correct?
In a very simplistic statement 1 that is correct.
It's infinitely more complicated than that.
Okay.And isn't it true that a large portion of
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the cost associated with the IMAP was for legal fees?
Yes , certainly, the undertakings related to the
IMAP and identifying the Company's portfolio, the elements of
the IMAP required by the law , the characteristics of how the
water is used, how it's been used, what the needs are, those
have been a very significant undertaking by the Company and
between engineers and attorneys and filing requirements.That
makes up the bulk of the cost, that's correct.
And isn t it also true that a large portion of
the legal work involved wi th the IMAP was associated wi
arguments upon the proposed future use and preservation , and
not so much about the changes in the point of diversion?Would
that be correct?
I don't believe that's correct at all.We - -
the IMAP has proceeded, we have had the benefit of being the
first in the state of Idaho to make one and to present it to
the Department.It has been contested , there was quite a
significant outcry about what it was about and what does
Well, we embarked on a variety of negotiations to try tome an .
sol ve it.We actually have reached resolution from several of
the municipal suppliers out there.We have got parties to drop
out because now they understand it.And that has taken a lot
of work.But it's not all about the future.
The idea of the IMAP is to establish , In my Vlew
wha t is needed.It's not about what you have or what you don'
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have.It's more about what is needed, and you have existing
needs and you have future needs.
Okay.If I can turn your attention to testimony
relevant to Water Permit No. 63-31409, and Staff
A page reference?MR. MILLER:Pardon me.
MR. WALKER:Page 13.
Subsequent to its directBY MR. WALKER:
testimony, isn't it correct that Staff has acknowledged that
this permit can be used for two reasons?
Yes, that's correct.
And would that be both groundwater recharge at
Marden and Columbia, as well as for municipal use in the
service terri tory?
Tha t 's correct.
Okay.Does United Water currently have any
capability , to implement groundwater recharge at either Marden
or Columbia?
The Company has not implemented ASR recharge , you
know , at the Columbia treatment plant site.We do do aquifer
storage and recovery at our Swift complex; it's not related to
this water right, however.
When did
- -
when did United Water acqulre this
particular water right?
This water right came about as a resul t actually
of filing for a permit.We proceeded on this same track at the
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end of the Marden treatment plant.In our Vlew when there
flood flow available in the river it would be imprudent not to
use it if you can , so at the end of the Marden treatment plant
project we filed for a junior natural flow right and we took
to the permit process and got a license for it.And we've done
exactly the same thing here.We filed for this I'm going to
say four years ago.This one was protested and it was much
more difficul t to obtain the permi
Now 1 has Uni ted Water yet been able to obtain any
water under this right since it was acquired?
Since - - Slnce this right actually became
negotiated after three years and we were actually able to get
the permit we've been in a drought, and this is a junior flood
flow right that runs when the river is in flood flow , April
May, and June, and since we have got the permi t 1 we have not
been able to
- -
there has not been any flood release in the
Boise system , so we have not diverted , no.
Okay.Now , if we move along regarding the
Initial Butte water rights, what's the total volume of the
Initial Butte water rights?
The Initial Butte has 9 200 acre feet 1 9,247.
acre feet.
Okay.And of that total volume , what amount does
United Water believe it can currently use?
Well, that's a movlng target, as I explained in
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my rebuttal.The way we actually use the Initial Butte water
right is through an exchange, which is a very efficient way to
use water available on the Snake River and exchange it to the
Boise without the infrastructure required to do that.
The exchange is also tied to the drought.The
exchange when we first did it , you know , I think it might have
been in 40 or 45 days.The last time the exchange was used we
actually got 60 days out of it.
I think the amount of days that the fish
augmentation program is going to be utilized has a lot to do
wi th the snowpack condi tions , so it's a moving target.m not
able to give you a specific answer.I think it could be
between 3,500 and 5 000 acre feet.
Does United Water ever intend to use the full
amount of water under this rate?
We hope so.
Do you believe that any portion of this right
that United Water is not able to use has any value to the
Company?
Well , absolutely.The portions of the water
right that we're not able to complete into exchange, as has
been shown lately, the Snake River is becoming more of a
resource for meeting obligations, flow target obligations.
foresee perhaps the time that we might pump water all the way
from the Snake River to Boise , and we would use that water
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right then.
I think what's important to understand is what we
paid for this water right matches the yield.We knew when
became available that we were only going to be able to get a
certain amount of it, like 40 to 50 percent of it.And when we
sat down wi th the landowners who had it 1 we went through that
And because they were getting value for their landprocess.
based on the fact they were selling it to the BLM , they were
willing to separate the water from the land, and because of
that take a less than market price.And so what we paid was
45 percent of market value and we're diverting 45 percent of
the water right.So in my view , the yield matches the price,
and it's all used.The tails, which we hope to use later , is
jus t bonus.
Has United Water ever considered selling or
leasing that portion you just referred to as the tails , or the
portion that you re not currently using?
I would say we've considered it.It's - - we
don't really know how to do it.We don't know how
- -
the Idaho
State Water Bank is how it would have to be administered, and
dealing with a partial water right through the Water Bank , I
don't think it's ever been done.
Isn't it true that United Water has discussed or
lS planning to lease all of this Initial Butte water right for
thi s year?
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2005 is a unlque year.When it became obvious
that we were not going to get the exchange on the Boise and we
weren't going to get any use of it, we had to scramble, and you
can't not understand the problems also on the Snake River.And
we were approached by - - we didn't seek them out , they found
us, and said, you know , we're in -- we're in this situation for
If you re not golng to be able to exchange yourone year.
water on the Snake for the Boise, would you consider a one-year
lease.And if we can't get an exchange out of it 1 we believed
it was prudent to do a one -year lease and we have engaged in
that for this one year , that's true.
Okay.Do you know how much compensation United
Water will receive by offering these water rights for lease
thi s year?
We offered them up for one and a half times the
rental pool rate.
Do you know what that amount is?
I think the rental pool rate lS
- -
seems to be
something that changes every spring, but I guess
- -
the only
reason I'm hesitating is I believe they are actually discussing
a new rate even this month , but I believe the rate is $11 right
now.
Okay.Let's move on to the purchased water
This is found in rebuttal pages 16 through 18.Isn'costs.
it true that
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Well , before I start, there's also - - also
Exhibi t 16, Schedule 7.That depicts some of these purchased
water costs.Is that correct?
That's correct.
Okay.And isn't it true that several of these
contracts were not known and measurable at the time of Staff'
direct testimony?
2005 has been a difficult year.That's true,
they were not known and measurable at the time they were
preparlng their testimony.
And isn't it true that the Company I s spreadsheet
showing these purchased water costs has actually changed
several time s in the last four months?
will tell you that 2005 has been a very unlque
year in that we have had to provide
- -
you know , do a series of
negotiations to backfill our portfolio, that's true.The known
and measurable elements of it we believe we have now provided,
and that is represented by the spreadsheet , and I think as
previously provided by Mr. Healy.
Now , if United Water is able to utilize its
surface water rights like that of Initial Butte, wouldn't that
reduce the Company's purchased water?
No, absolutely not.Initial Butte is part of the
overall annual requirement for both plants.
So if you were able to use more of Initial Butte,
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it would not reduce your purchased water costs at all?
Well , I guess I have to back up.Certainly we
plan right now a certain amount of Initial Butte in this
spreadsheet.If we're ableWe planned 4,200 acre feet of it.
to get 9,000 acre feet or more on top of the 42 , it would defer
some of the annual costs.
Okay.
This is set up on what I believe is realistic,
which lS a 60-day flow exchange program , which takes 4 200 acre
feet into account for a normal year.
Okay.If we look at your Exhibit 16, Schedule
down in the bottom under the Basin 63 rental pool 1 now, there'
four entries there where the volume's been reduced to zero.
Why wasn't the associated cost wi th those also reduced?
that a mistake?
, I think it's perhaps Staff not understanding
how the spreadsheet works.The way it works is, at least the
way we've established it through the Basin 63 program , is we
need to incenti vize people to
- -
water right holders to
- -
rent
us water similar to the Snake River.
So the way it works is we go to the Basin
rental pool and we put in an order for 4 , 000 acre feet , and
right now that I s $14 an acre foot.It was 6.50, it went to 14
just to glve you an idea how 2005 has changed.That 4 000 acre
feet, I then have to go out and find water right orders to go
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fill that order , and we incentivize that to make that happen.
So we incent i vi ze it, we pay them money to do it,
but it doesn't add volume.And so the following four lines are
the incentive payments.It doesn't 'add volume to the amount
tha t we need.
We need 12 to 13 000 acre feet to run our two
treatment plants.Initial Butte is 4,200 of it.The remaining
eight to 9,000 is laid out in this exhibit.
MR. WALKER:No further questions from Staff.
COMMISSIONER KJELLANDER:Thank you.Before we
move on , we re getting close to the noon hour.I'd just like
to see if we can go off the record for a moment.
(Discussion off the record.
COMMISSIONER KJELLANDER:Let's go back on the
record.Let's see if we have any cross from Mr. Purdy.
MR . PURDY:No, sir.
COMMISSIONER KJELLANDER:Thank you, Mr. Purdy.
Any cross from Mr. Eddie?
MR. EDDIE:No., thank you.
COMMISSIONER KJELLANDER:Thank you, Mr. Eddi e .
I think at this point we will take a lunch break.
It would be our intent to resume at about 10 minutes after
1: 00, and at that point then we'll continue with
cross -examination.So we'll go off the record then for lunch.
(Noon recess.
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