20050606Vol III Tech Hearing.pdf

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-04-
) TECHNI CAL HEARING
HEARING BEFORE
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COMMISSIONER PAUL KJELLANDER (PRESIDING)
COMMISSIONER MARSHA H. SMITH
COMMISSIONER DENNIS S. HANSEN
PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:May 25, 2005
VOLUME III - Pages 367-557
.....--
P- .J
HEDRICK
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
COURT REPORTING
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For the Staff:
For Uni ted Water:
For Ci ty of Boise:
For Idaho Rivers United:
For Community ActionPartnership:
For Scott L. Campbell:
WELDON STUTZMAN, Esq.
DONOVAN WALKER , Esq.
Deputy At torneys General
472 West WashingtonBoise, Idaho 83702
McDEVITT & MILLER LLP
by DEAN J. MILLER , Esq.
420 West Bannock StreetBoise, Idaho 83702
DOUGLAS K. STRI CKLING , Esq.
Boise City Attorney's Office
150 North Capitol BoulevardBoise, Idaho 83702
WILLIAM M. EDDIE , Esq.
Advocates for the West
Post Office Box 1612
Bo is e , Idaho 83 70 1
BRAD M. PURDY, Esq.
Attorney at Law
2019 North Seventeenth StreetBoise, Idaho 83702
SCOTT L. CAMPBELL , Esq.
At torney at Law
101 South Capi tol Boulevard,
Tenth Floor
Boise, Idaho 83702
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID
APPEARANCES
83701
WITNESS
I N D E X
EXAMINATION BY PAGE
A. T. Wallace
(Uni ted Water)
Teri Ottens
(CAPAI)
Donn Eng ish
(Staff)
Kathy Stockton
(Staff)
Mr. Miller (Direct)
Prefiled Direct
Mr. Campbell (Cross)
367
369
378
Mr. Purdy (Direct)
Prefiled DirectMr. Eddie (Cross)
Mr. Stut zman (Cross)
Commissioner Hansen
Mr. Miller (Cross)Mr. Purdy (Redirect)
401
410
420
423
426
429
430
Mr. Walker (Direct)
Prefiled Direct
Mr. Miller (Cross)
Mr. Strickling (Cross)
Commissioner Smith
Commissioner Kj ellander
Mr. Walker (Redirect)
433
436
491
520
523
524
525
Mr. Walker (Direct)
Prefiled Direct
Mr. Walker (Direct)
526
530
554
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE, ID
INDEX
83701
NUMBER
For United Water:
13 .Wallace Biographical Data
and Resume
For the Staf f :
101.Staff Adjustments to Remove
and Reclassify AFUDC
102 .Staff Calculation of the
Product ion Credi t
103 .Staff Adjustments to
M&S Fees
PAGE
Premarked
Admi t ted 378
Premarked
Admi t t ed 554
Premarked
Admitted 554
Premarked
Admitted 554
104 .Staff Adjustments to Revenues Premarked
to Recognize Carrlage Hill Admitted 554
105.Accumulated Deferred Federal
Income Taxes
106 .Pre-1971 Investment Tax
Credi t s
107 .Staff Computation of State
and Federal Income Taxes
Premarked
Admi t ted 554
premarked
Admi t ted 554
Premarked
Admi t ted 554
108 .Details of Adjustments to Premarked
Operating Maintenance Expense Admitted 491
109.Details of Adjustments to Premarked
Payroll Taxes at Present Rate Admitted 491
For CAPAI:
301.Ottens Resume
302.Stipulation
303 .2004 HHS Poverty Guidelines
Premarked
Admi t t ed 420
Premarked
Admi t ted 420
Premarked
Admi t t ed 420
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
EXHIBITS
BOISE, IDAHO, WEDNESDAY , MAY 25, 2005, 9:00 A.
COMMISSIONER KJELLANDER:All right, sir , and
we'll go back on the record for continuance of the hearing in
United Water rate case, and let's see, Mr. Miller, I think you
have a wi tness to call on the direct side of your case.
that right?
MR. MILLER:We do, Mr. Chairman , that I s right.
The Company would call A. T. Wallace.
A . T. WALLACE,
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. MI LLER :
Sir , would you state your name and spell your
last name?
My name is Alfred T. Wallace, W-
And what is your occupation or profession?
m a retired professor of civil engineering,
retired from the University of Idaho.
Did you previously have occaSlon to submit to the
367
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
WALLACE (D i
United Water83701
Commission written prefiled testimony consisting of nlne pages,
which was also accompanied by Exhibit No. 13 which lS a
statement of your qualifications and training?
I did.
Are there any addi t ions or correct ions that need
to be made to your written prefiled testimony?
No, sir.
If I asked you the questions that are contained
in your written prefiled direct testimony, would your answers
be the same as they are written in your direct testimony?
Yes, sir, they would.
And are those answers true and correct, to the
be s t a f your knowledge?
Yes, sir.
Thank you, Dr. Wallace.
MR. MILLER:Mr. Chairman, we would ask that the
testimony of Dr. Wallace be spread on the record as if read
and that Exhibi t No. 13 be marked , and wi th that , Dr. Wallace
would be available for cross-examination.
COMMISSIONER KJELLANDER:Thank you, Mr. Miller.
Without objection , we'll spread the testimony across the record
as if read, and mark and admit Exhibit 13.
(The following prefiled direct testimony
of Mr. Wallace is spread upon the record.
368
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID
WALLACE (D i )
Uni ted Water83701
Please state your name.
My name is A. T. Wallace, Ph.D. P.
What is your business address?
Department of Civil Engineering, University of Idaho, Moscow, Idaho.
What is your occupation?
I am a Professor Emeritus of Civil Engineering.
Please describe your training and experience.
I have been a Civil Engineering teacher for over 40 years, specializing in
the fields of water and wastewater engineering and construction law.
qualifications are more fully explained in the vita attached to my
testimony as Exhibit No. 13.
What is the purpose of your testimony?
I have been asked by United Water Idaho ("United" or "Company ) to
express my professional opinion on certain matters relating to the
construction of the Columbia Water Treatment Plant(CWTP).
Specifically, my testimony addresses these topics:
1. The reasonableness of the company s decision to construct a
surface water treatment plant.
2. The reasonableness of the company s decision to employ a
design-build procurement process for the project.
3. The reasonableness of the company s decision to install
membrane technology.
A. T. Wallace, Di
United Water Idaho Inc.
369
Turning your attention to the company s decision to construct a surface
water treatment plant, have you reviewed the direct testimony of Scott
Rhead which discusses the Company s decision to construct a surface
water treatment plant?
Yes, and I have also independently reviewed the 1998 Water System
Master Plan, prepared for United Water Company by the firm of
Montgomery-Watson and the Treasure Valley Hydrologic Project Report.
Based on your training and experience and upon your investigation and
analysis, in your professional opinion, was the company s decision to
construct a surface water treatment facility reasonable in light of the
supply options and demands for water service existing at the time the
decision was made?
Yes. I believe the analysis contained in Mr. Rhead' s testimony is based on
sound engineering principles and that it fully documents the need for a
surface water treatment plant.
Did your perform your own independent analysis of this decision?
Yes. I examined the issue from the perspective of Idaho Division of
Environmental Quality (DEQ), the primary regulatory agency. DEQ
certifies a water system s capacity as adequate ifit is equal to or exceeds
the design maximum day demand with the largest producing well out of
service. This standard for system adequacy is based on, a recommendation
of the Great Lakes Upper Mississippi Board of State Public Health and
Environmental Managers in their Recommended Standards for Water
A. T. Wallace, Di 2
United Water Idaho Inc.
370
Works (2003). This document is incorporated by reference into Idaho
DesignStandards for Public Drinking Water Systems at IDPA 58.01.08
(550.01). The Recommended Standards for Water Works, also referred to
as "the 10 States Standards" is generally recognized as the authoritative
standard for public water system design. In applying this criterion to the
Gowen/Columbia service level, I am told by United Water engineers that
over 10 000 services and a population of over 20 000 people are expected
to be supplied by the year 2015. Historical data indicate a maximum day
demand at that time of about 16 mgd. The existing exceptional' quality
groundwater available in this service level is only 13 mgd and would be
only 10.2 mgd with the Company s Pleasant Valley well out of service. In
addition, lower elevation service levels, such as Barber and East Main, are
supported from the Gowen/Columbia water supplies, which further
exacerbates this water supply deficit As discussed in Mr. Rhead'
testimony, the supply deficit of slightly under 6 mgd cannot be imported
from other service levels. After consulting with Mr. Rhead and Dr.
Christian Petrich, the primary author of the Treasure Valley Hydrologic
Project Report, it is my opinion that, although potential for developing
additional wells in this area does exist in theory, many factors militating
against much additional groundwater development also exist.
I was also very much persuaded by the arguments over non-economic
benefits presented in Section 10 of the 1998 Master Plan. The benefits
which seemed most attractive were flexibility of system operation, the
A. T. Wallace, Di 3
United Water Idaho Inc.
371
high degree of public acceptance, the ability to respond to changing
regulations and most significant, the reduction in the uncertainty factor
with regard to supply. While groundwater will always be a major
component of United's supply, there are always reliability issues with
wells; their screens, pumps and other hardware. In a rapidly-growing area
such as the Boise Valley, there is particular concern over the sta!Us of
recharge areas for many of the existing wells. As one small dump of a
hazardous chemical onto the ground can put a given well out of service for
many years while remedial measures are being implemented, it is my
opinion that the Company should make decisions to try to reduce reliance
on groundwater supplies to the extent possible, particularly in the South
East Boise area.
Turning your attention to the decision to employ a design-build
procurement process, what investigation and analysis did you undertake?
First let me state that I have taught a course entitled "Engineering Law and
Contracts" at the University of Idaho annually since about 1986. Design-
Build, as a method of project delivery, is covered in this course, as are
several other methods, including the "traditional" Design-Bid-Build
method. This course focused on the essentials of each method and the
advantages and disadvantages associated with each. In addition to this
general background, I was supplied with several documents from United'
staff which dealt with this particular procurement. These included the
Request For Proposal (RFP) issued in April, 2002 , the list of invited
A. T. Wallace, Di 4
United Water Idaho Inc.
372
proposers and about a half-dozen pieces of correspondence between
United and the successful proposer dealing with clarifications, contract
conditions and projected costs, including a guaranteed maximum price.
Based on your training and experience and upon your investigation and
analysis, in your professional opinion, was the Company s decision to
employ a design-build procurement process consistent with prudent
business practice within the water industry?
Yes, it was.
Would your please explain the basis for your opinion.
As previously stated, there are many methods of project delivery, each
with its peculiar set of advantages and disadvantages. Design-Build is a
method which has seen increasing interest from all types of owners over
the past ten years or so.
As these owners have gained experience with the method and have
shared these experiences with others by reporting their case histories in
trade and professional publications, other owners have been more willing
to use this method of project delivery in order to take advantage of its
potential benefits. Some of the advantages of the Design-Build delivery
method, which have been well-documented on many past projects
include:
The owner only needs to deal contractually with a single
organization. This is significant as it increases efficiency, saves time and
reduces potential conflict.
A. T. Wallace, Di 5
United Water Idaho Inc.
373
The friction and finger-pointing which often occurs in the
traditional method of project delivery (Design-Bid-Build) when things go
wrong, is normally lacking and if it does occur, more easily resolved.
The close relationship between the design team and the
construction team leads to more efficient constructability of the design
concept because of the input of construction-savvy people during design
revIews.
This same relationship results in a more harmonious project
administration, especially with regard to interpretation of drawings and
specifications, as the design team and build team have less to "prove" to
one another.
Because the two teams are part of the same organization, many of
the scheduling and cost-saving advantages of fast-tracking (another
method of project delivery) become available to the owner.
Turning your attention to the question of the use of membrane technology,
what investigation and analysis did you undertake?
I have general background related to membrane processes, both pressure
and electrically driven, which comes from teaching a graduate-level
course in Water/Wastewater Unit Operations annually from 1965-67 at
Clemson University and 1967-2000 at the University of Idaho and
Washington State University. Course presentations focused on process
principles, process design and case histories related to applications of the
five major categories of this technology. In addition, I have evaluated the
A. T. Wallace, Di 6
United Water Idaho Inc.
374
use of micro- and ultra-filtration in connection with three past projects, all
involving wastewater, rather than water. However, two of these involved
reclamation and reuse of secondary effluents, an application quite similar
to treatment of water for potable use.
In connection with the Columbia Water Treatment Plant, the
primary references I used were the 1998 Water Supply Master Plan, for
general background, and the January, 2002 Basis of Design Report
prepared for United by a team of engineers from the firms of
Montgomery-Watson-Harza and Carollo Engineers. This report dealt
more specifically with the application of ultra-filtration at the proposed
Columbia facility and included the results of pilot-scale studies using
Boise River water.
Based on your training and experience and upon your investigation, in
your professional opinion, was the company s decision to install
membrane technology consistent with prudent engineering judgment
within the water industry?
Yes it was.
What is the basis of your opinion?
First, I need to remark that there is nothing wrong with conventional
technology, of the type incorporated into the Company s Marden plant.
Such treatment trains have served the public well, will continue to do so
and in some cases, may still be the proper choice among competing
alternatives.
A. T. Wallace, Di 7
United Water Idaho Inc.
375
However, for those higher quality source waters amenable to
membrane filtration, there are distinct advantages to using it, a few of
which I would like to discuss. A significant advantage relates to Federal
(USEP A) regulations with respect to finished water quality and their
prospect of future change. A membrane filtration plant, especially one
employing the small pore sizes associated with ultra-filtration, and also
employing chemical coagulation and solids removal as pre-treatment, can
be easily adapted to remove almost any contaminant which may become
of future concern. Also, the product water is more amenable to rigorous
disinfection without the same degree of disinfection by-product formation
that normally occurs in connection with conventional water treatment
systems. This is because of the generally higher removals of high
molecular weight organic compounds which membrane treatment is
capable of during routine operation. Further, as lower coagulant dosages
can often be used with membrane processes, the problems and costs
associated with residuals handling are often reduced.Last, there is the
evolution of the technology to consider. Membrane materials and
manufacturing methods are constantly being improved in response to a
strongly competitive market. It is quite likely that any membrane filtration
plant being constructed today will have available to it replacement
membranes which can produce more water, of higher quality, and at a
lower cost within a 5 to 10 year time frame. This statement is consistent
with the past history of membrane technology. Pilot-scale studies
A. T. Wallace, Di 8
United Water Idaho Inc.
376
performed prior to the selection of membrane filtration as the main
process at the Columbia plant demonstrated its feasibility convincingly.
Although the testing period was only two months, August and
September, these are likely to be the critical months of operation because
of high algal concentrations in the Boise River during this period. The
study results provide a high level of confidence that the selected design
concept will perform as expected.
Does that conclude your testimony?
Yes, it does.
A. T. Wallace, Di 9
United Water Idaho Inc.
377
(The following proceedings were had in
open hearing.
(Uni ted Water Exhibi t No. 13, having been
premarked for identification , was admitted into evidence.
COMMISSIONER KJELLANDER:And wi th that, why
don't we begin wi th the Ci ty of Boise.Just for clarification,
is it Mr. Strickling?
MR. STRI CKLING :I have no questions.Yes.
COMMISSIONER KJELLANDER:No questions.Okay.
Mr. Campbe 11 .
MR . CAMPBELL:Thank you.I have a few
questions.
COMMISSIONER KJELLANDER:You've got the
MR. . CAMPBEL :M i c rophone ?
COMM IS S lONER KJELLANDER:Yes.
MR.CAMPBELL:Pardon me.
CROSS - EXAMINATION
BY MR. CAMPBELL:
Mr. Wallace, turning to your direct testimony, if
you would, please, do you have that available to you?
Yes, sir.
Could you describe to me who provided you wi
the information that you relied upon with respect to the
378
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID
WALLACE (X)
United Water83701
statements contained on page 3 of your direct examination
concerning the number of services and population described on
lines 5 through, oh , 10 or 12?I think it goes down, quite a
lengthy --
You mean starting about eight where it talks
about services and population?
Yes.
Yes.Yes, Slr.Scott Rhead from United Water.
Is that the only individual that provided you
that information?
Oh, no.I had correspondence from Dan Brown,
another engineer.Dan Brown.
An engineer wi th Uni ted Water?
An engineer with United Water.
What information did Mr. Brown provide to you?
A series of time series of supply and demand
figures for the system as a whole, and also some information
about the Columbia service level.
What information concernlng the Columbia serVlce
level was provided to you?
Basically how many
- -
how many people were there
and the average day consumption per capita, and the maximum
peak maximum day consumption per capita in that area, and then
also some existing population figures and some proj ected
population .figures for that area based on a
- -
their assumed
379
HEDRICK COURT REPORTING
O. BOX 578, BOI BE , ID
WALLACE (X)
United Water83701
growth rate at I think 3.5 percent per year , something like
that.
And can you tell me what the Columbia basin area
that you re describing, what geographic area does that
encompass?
It's in Southeast Boise and it's at a fairly high
elevation, best of my knowledge.ve never gone out and
walked the area, but from the maps I was provided and
descriptions, it seems to be a pretty good -- pretty accurate
statement, I think.
Okay, just so I understand from the testimony
you've provided, this area, does it -- can you give me some
street --
Oh, no, no.
- -
notations?
I wouldn't know any streets.
Even based upon the map, you wouldn't know?
, the maps are not that detailed.They jus t
showed a general layout of various pressure zones.And my
recollection of the map as I looked at it, I think it was
oriented wi th a north arrow straight up, would have been in the
southeast area of Boise.
Was it the area bounded by Federal Way on the
north?
I couldn I t testify to that, sir.I don't know
380
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID
WALLACE (X)
United Water83701
what the - - what the streets and highways and
Well , okay.FromLet me ask this question then:
the standpoint of the population proj ections in this particular
area, what were they?
Just referring - - I'd have to refer to the
testimony.
Fine.Go ahead.
It said, I think
- -
I can t remember the exact
number existing services, but I think it was something like
or 7 900 existing when they did the master plan study, and it
was proj ected that that would increase to 10,000 services and
about 20,000 people by the year 2015.That's the information
was gl ven.
The data on the existing serVlces and population
about, agaln, about 7,800 , 7,900 existing services that was
known In
- -
when the master plan was done, which was, what,
1998, 1999?
So can you tell me how many additional serVlces
are projected by the year 2015 as expressed in your
testimony?
Well, it would be about 20 - - 2 200.
And what information did United Water provide to
you as to the average per-year consumption, per service?
They had breakdowns on average day demand and
peak demand for all of their service levels.They all were a
381
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID
WALLACE (X)
United Water83701
little bit different, but in the -- in the Columbia serVlce
level, they were
- -
they were estimating something like on a
service - - on a service connection basis, I think about 460 to
480 gallons per day as the average flow , and something in
excess of 1 000 gallons per service connection per day as the
peak flow, I think maybe as high as 1 200 , and that was based
on background information.
Wha t do you mean by "background"?Q .
Well , information they had on existing serVlces,
because they know how much flow is being provided to all of
their serVlce levels.
Okay.With regard to the Columbia basin serVlce
area level , did they provide you wi th any information
concernlng which of the services had alternate irrigation
supply?
No, sir.
No?
No.
Okay.Did they provide you wi th any numbers wi
respect to the proj ected increase of services over that time
frame that you testified about in lines 8 or so, 6 through 8
about nonpotable or al ternate supply irrigation service to
those addi t ional
No, sir.
They provided you wi th no information on that?
382
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WALLACE (X)
United Water
, it was my understanding was that they --No.
all the proj ections were based on potable water.
Okay.Turning your attention , if you would,
please, to lines 8 through 10 - - excuse me
- -
lines 8 through
11 of your testimony on page
Uh-huh.
Can you tell me what you meant by "exceptionalQ .
quality groundwater"?
Yeah.That would be groundwater that didn't need
any well head treatment.It had acceptable levels of iron
manganese, arsenic , so on and so forth.
Okay.And that's - - that statement is based upon
information provided by United Water?
That's correct , sir.
Okay.And that would be Mr. Rhead?
Well, it would be a combination of people.Yeah
Mr. Rhead provided input; also got some input from a Roger
Dittus, a groundwater hydrologist with United Water;
information from the master plan which I assume had lots of
cooks involved.I thinkSo it was a combination of things.
you 'll find in the master plan , I think you'll find those
numbers pretty well documented.
On line 11 of your testimony on page 3, you
In addi tion, lower elevation service levels such asstate:
Barber and East Main are supported from the Gowen/Columbia
383
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALLACE (X)
United Water
water supplies?
I don't see that in this.
Excuse me.At the end of line 11?
I see
- -
we may be looking at
- -
ve got this
one labeled as the latest draft, 11/11/04 , but you are
obviously referring to
. I I m referring to the direct testimony that was
Well , I thought this was it.ve got a copy
here that was the last
- -
the last copy.
Well , so we can
- -
so we can be on the same
page --
Yeah need see what you'referring to.
MR.MILLER:(Indicating.
THE WITNESS:Let'see how'this jive with
this?It I the same stuff but it'not the same deal.
MR.MILLER:Yeah.Use that one.
THE WITNESS:Well sorry about that confusion.
, no problem.BY MR. CAMPBELL:I didn't know
you didn't have what I had, so
Well I was a little surprised when you started
talking about line 5, because in here, line 5, we're still
talking about the regulations that control the
, sure.
So now we're down.You want me where?
Mr. Wallace , did you need to modify any of your
384
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALLACE (X)
Uni ted Water
prlor testimony based on that misunderstanding?
No, no, numbers should be right.
Line 11 is where I have at the end of the line
the last word says in"?
Okay.
In addition , lower elevation service levels such
as Barber and East Main are supported from the Gowen/Columbia
water supplies , which further exacerbates this water supply
def ici t?
Correct.
Who provided you with that information?
Again , it would have been a combination of
people.It would have been Mr. Rhead, Mr. Brown, and
information from the master plan to verify what they told me.
1.5 Okay.So really that's -- that's United Water'
testimony and not yours.Is that correct?
But I did look at all the
- -
I did look at all of
the information , including your references to hydraulic
analysis and what have you.
Okay.And then you go on toI appreciate that.
say In ine 14:As discussed in Mr. Rhead' s testimony, the
supply deficit of slightly under 6 mgd cannot be imported from
other service levels.
My question concerning that six mgd deficit
relates to other portions of your testimony.
385
HEDRICK COURT REPORTING
O. BOX 578 , BOISE, ID 83701
WALLACE (X)
United Water
Okay.
Can you tell me if the six mgd deficit relates to
the need for the Columbia wastewater (sic) treatment plant?
eve
The water treatment plant?
Yeah.
, sure.Most assuredly, that's part of it.
Okay.And what is that conclusion based upon?
Well , just the fact that the Columbia service
- -
has a high pressure zone , and so moving water
from a low pressure zone if there was a surplus available into
that zone would be quite difficult.The prospect as
understand it from talking to both Roger Dittus , their
groundwater person , and Dr. Christian Petrich, who did the
Treasure Valley hydrologic study, the chances of developing
more groundwater supplies in that particular area are like slim
to none.
of uncertainty.
There may be some water available.It's a great deal
And they have the problem of dealing with the
fact that a large area around there has been designated as a
groundwater - - basically groundwater protection area.
Okay.Again , I think you answered this question
but I just want to make sure that I understand your answer.
Okay.
And I'm not trying to mischaracterize your
testimony, so if I do so, please correct me.
I will.
386
HEDRICK COURT REPORTING
o. BOX 578, BOISE, ID 83701
WALLACE (X)
United Water
From the standpoint of your opinion that the
Columbia wastewater (sic) treatment plant is a reasonable
business decision or justified from an engineering standpoint,
that is based upon the population proj ection expansions in the
Columbia service level in large part.Is that right?
In large part, and also I went through that
master plan in great detail.That, of course, was done for
United Water by outside consultants, but I couldn't find
anything in there that would lead me to any other conclusion
and that the water treatment plant was
- -
would certainly be
desperately needed in the near future.
And can you tell me if the proj ection of SlX
million gallons per day for the Columbia service level would be
different if 75 percent of the services in that area were to
have al ternate irrigation supplies so that the peak demand
would be eliminated or reduced by a factor of at least 47 000
gallons per year?
, 000 gallons per year sounds ike a drop in the
bucket.
Per service connection?
Oh, per service connection., yeah , I think
that would be a reasonable conclusion.
Based upon the calculations that
- -
provided by
Uni ted Water in other test imony, the reduct ion in total
total demand per service area drops from 165,000 gallons per
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year to 118 000 gallons per year.That's a difference of
47,000 gallons per year, per service area.Based upon those
calculations, my conclusion is that the six million gallons per
day requirement would be reduced to 3,525, 000 gallons per
day?
Okay.
Does that make sense to you?
Well , I can t, you know, I can't check your
numbers, but they sound fairly reasonable.Nonetheless,
reducing - - you're talking about the deficit now , a six million
gallon a day deficit?
Well , I'm talking about the SlX million gallon
per day capaci ty of the Columbia water treatment plant that you
say lS justified based upon the engineering analysis.
Well, I don't think it's necessarily just
justified based on the six million gallon a day deficit that'
been referred to in my testimony, and I think there's a lot
more to it than that.It's reducing the reliance on
groundwater supplies, which my opinion is that that's a
critical priority for United Water.
At the time that the master plan was written , 86,
87 percent of the total water supply was by groundwater , and
some of those wells are not real high quali ty of water.They
addressed some of those issues with some well head treatment.
Some other wells are actually in jeopardy.There's a couple of
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them that look like their capaci ty is declining.The idea of
putting all your eggs in one basket never appealed to me.More
groundwater simply doesn I t seem to be in the cards.I really
think they need a surface water treatment plant to reduce
reliance on groundwater supply.
Mr. Wallace , are you aware that United Water has
existing water rights approximately twice the volume that it'
ever used on a peak day demand bas is?
, I was not.I knew they had water rights; I
didn't know the magni tude.
So that information was never provided to you?
If it was , water rights is not a
- -
not something
that I normally deal wi th It's - - you know , treatment options
lS my specialty.
So Uni ted Water never told you that they have
wells and water rights for in excess of 313 cubic feet per
second - - excuse me
- -
I haven't finished the question
- -
but
their actual peak day use has not
- -
never exceeded 160 cubic
feet per second from their system?
160 cubic feet per second.Let I S see.That'd be
like 120 million gallons a day.No, less than that.
93 million gallons , I think , the maximum?
No, I was not aware of that.
Would that information change your view of the
need for this additional surface water treatment plant at
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Columbia Village?
Well , how would it?
Well , you were saying that you need to have
additional supplies, and my question is if they have twice as
much water as they have ever used on a peak day demand, why do
they need an additional surface water treatment facility?
But the water rights you re talking about, are
they surface water rights?
No, they're not, they're groundwater rights.
All groundwater rights?
Most of them?
Well , having a right and then being able to
develop a well that supplies
They have the wells also, sir?
Well , they have the wells, but I know that the
MR. MILLER:Pardon me.Hang on for one second,
Mr. Wallace.
I know the . Commission grants great latitude in
cross-examination and I've been very patient in not obj ecting
until now , but Mr. Campbell is misstating the evidence as it'
been presented so far and he's cross-examining a witness on
material that's outside the scope of his direct testimony.
Dr. Wallace did not testify with respect to water rights or
whether a paper right of 300 amounts and how that translates
into actual demand.So for all of those reasons , we obj ect to
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this line of questioning and ask the Commission to bring it to
an end.
COMMISSIONER KJELLANDER:Mr. Campbell , would you
like to respond?
MR . CAMPBEL:I didn't hear the last part of what
he said.He was not speaking very loudly.
COMMISSIONER KJELLANDER:I believe what he said
was he would hope the Commission could bring this line of
questioning to an end, and turn to you and was seeking any
response from you on that.
MR. CAMPBELL:Thank you.I d be happy to
re spond .
I don't intend to inquire much further of this
witness on that line of questioning, but I understood his
response on my questioning indicated that his
- -
in his
oplnlon , the additional surface water treatment facility at
Columbia was required because the wells that they had were not
producing, they didn't have enough water supplies for future
growt h And I think the existing water rights and the wells
that they currently have demonstrate that they have plenty of
water for additional growth, and that's why I was asking him
he had that information available to him.
COMMISSIONER KJELLANDER:Okay.Mr. Miller
probably condemned his motion by starting off by saYlng that
the Commission allows for a lot of latitude, and we do;
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however, as you move forward, please try to keep it tied to the
direct testimony.And also it's also helpful to keep the level
of what may be perceived as argumentative questioning to a lull
on that.
MR . CAMPBELL:Thank you, Mr. Cha i rman .I'll
endeavor to do so.
COMMISSIONER KJELLANDER:Thank you.Please
proceed.
BY MR. CAMPBELL:On page 3 of your direct
testimony, Mr. Wallace - - I'm trying to find the exact
reference -- lines 21 through 23, you state:I was very
- -
was also very much persuaded by arguments over noneconomic
benefits presented in Section 10 of the 1998 master plan.
And then it goes on to say onto the next page:
The benefits which seemed most attractive were flexibility
system operation , the high degree of public acceptance, the
ability to respond to changing regulations, and most
significant, the reduction in the uncertainty factor with
regard to supply.
Yes.
Can you explain to me what you meant by the
reference to "the high degree of public acceptance"?
In my experience, the public perceives of
well-treated water, treated by a water treatment plant, wi
the ability to respond to all kinds of different conditions by
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changing the operation.The public, generally speaking,
believes that to be a real asset to a community, to have a high
value to the community.
So that's based upon your general experience?
Yes.
Not the experience wi th regard to the serVlce
area of United Water necessarily?
General experience., no.
Okay.And would you - - would you base that upon
the requested rate increase of United Water for residential
customers of over 22 percent lncrease in their water costs?
you think that would reflect a high level of public
acceptance?
Well , nobody likes to see their bills go up, of
course , but, you know , water is, generally speaking, again in
my experience , an underpriced commodity.
But you're speaking of your own personal opinion
at this point, not the public acceptance factor.Right?
Well --
Does the public generally in Boise think that
water lS an underpriced commodity from United Water?
No, I'm not saying the publ ic bel ieves it.
saYlng it is an underpriced commodity.
That's what I wanted to clarify.
Yes, it is an underpriced commodity.
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And then you go on to state that the reduction in
the uncertainty factor wi th regard to supply.What do you mean
by that exactly?
Well , what I mean by that is a well can go out of
commission at any time, a well can be contaminated by something
that happens at the surface and migrates down.Lots of bad
things can happen to wells.When your total reliance is on
well supplies, again , you have all the eggs in one basket sort
of a thing, and I just think that a more surface water supply,
proper treatment is a very important part of the mix.And if
were them - - which I'm not
- -
if I were them , I would have been
looking very hard at surface water treatment in order to reduce
the reliance on groundwater with the uncertainty involved in
the pumps, the valves, the hardware , the screens, and the fact
that they have data that show that their
- -
each of their
wells, on average, is losing almost one percent per year
capaci ty, partly probably because of increase in draw down, but
also because of incrustations and screens and all those other
things that happen to groundwater supplies over the years.
And those things, can they be remedied by
maintenance programs?
Some of them , yeah.
Wi th regard to the uncertainty factor wi th regard
to supply, were you provided any information by Uni ted Water
with respect to what surface water supplies they have available
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to them right now when you did your testimony?
You mean besides the Marden plant?
Excuse me , no.What water supplies they have
available to them at the time you did your testimony with
respect to the Columbia water treatment plant; how much
water - - in other words, how much water from the surface, the
Boise River , could they actually wi thdraw?
I don't know the answer to that question.
They provided you no information?
Oh, I think there might have been some
information , but again , if it had to do specifically with water
rights, I wouldn I t have paid as much attention to it as the
stuff that had to do with the treatment aspects.
And would not the ability of the water treatment
plant to act~ally wi thdraw water from the Boise River have any
impact upon the uncertainty factor wi th regard to supply?
Well , I had to assume that they had sufficient
water rights to supply to at least six million gallons a day,
and I would have also assumed that they thought they could get
the water rights to supply to 20 million gallons a day, which
is the ul timate capaci ty of the plant.Why one would proceed
lacking some assurance that would happen , I couldn't say.
wouldn'
You wouldn't what?
I wouldn't proceed if I didn't think there was a
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very good chance that I could get water rights up to the
ultimate design capacity of the plant.
So would your opinion change wi th regard to
whether or not the plant was supported
Are you speaking --
Excuse me.Excuse me.
MR.MI LLER:Mr.Cha i rman could ask a question
aid of obj ection?
COMM IS S lONER KJELLANDER:Yes.
MR . CAMPBELL:I don t have a question pending,
Mr. Chairman.
COMMISSIONER KJELLANDER:You're saYlng you
weren't allowed to finish your question because the response
started before you had completed it.Is that your position?
Right.MR. CAMPBELL:
COMMISSIONER KJELLANDER:And I would have to
concur on that, so why don't we let the full question get out
and we I 11 see where we're at.
All right.MR. MILLER:
COMMISSIONER KJELLANDER:And if I could just
advise the wi tness, I know that there's an eagerness to
respond.Let him finish
THE WITNESS:Sure.
COMMI S S lONER KJELLANDER:
- -
the question.
Yes, sir.THE WITNESS:
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BY MR. CAMPBELL:I think I've forgot ten where
was golng, so I'll move to a different area.
Turning to page 8, if you would, please?
Well, we may have the same problem , sir.Let me
go to my page Let's see if we're --
MR. MILLER:Just use this one al together and
discard your other one.
THE WITNESS:Okay.
MR. MILLER:The re you go.
THE WITNESS:Okay, I'm wi th you.
BY MR. CAMPBELL:Turning to line 1, you state in
your direct testimony:However , for those higher quality
source waters amenable to membrane filtration , there are
distinct advantages to using it, a few of which I would like to
discuss.
What do you mean by the term "higher quality
source waters"?
Water that , generally speaking, has fairly low
levels of turbidi ty, total organic carbon , reasonably good
microbiologically, those kind of waters.
And did you receive any information from a
scientific basis from United Water with regard to
- -
excuse me.
Did you receive any information from Uni ted Water
with regard to the quality -- that is, scientific
information -- water quality information from United Water
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United Water
concernlng the quality of the water at the Columbia wastewater
treatment - - excuse me
- -
Columbia water treatment plant
diversion from the Boise River?
Yes, sir , I did.
And what information did you receive?
That the average turbidi ty level was somewhere in
the six or seven NTU range; that maximum turbidi ties were in
the 14 to 17 NTU range; that the total organic carbon was about
maybe one and a half to two and a half milligrams per liter.
This would qualify as a water source that would be quite
amenable to membrane treatment.It would be amenable to
conventional treatment too, but membranes
- -
membranes work
very well for water that doesn't need a high degree of
pretreatment.
I see.And so in your estimation, the water at
that diversion point , that pumping station , is higher quality
source water?
It's a quite high quality source water.
Okay.Thank you.
Especially for rl ver supply.
Mr. Wallace , I think
- -
I think I just have one
or two more questions here.On Exhibi t 13 , if you could turn
to that, please?
Got cha .
Page 2 , you ve sort of described the summary
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United Water
your past consulting assignments.Do you see where I'
referring?
Yes, sir.
Okay.And you ve indicated that you have had
over 100 major assignments for a variety of private and public
clients, water and wastewater treatment plant evaluation
et cetera, et cetera.
Can you tell me how many water treatment plants
you have previously worked on in some capaci ty, ei ther as a
consul tant or englneer or whatever?
It would
- -
it would be about 15, I think
Okay.And how many of those were privately owned
water treatment facilities as opposed to publicly owned by
cities or districts?
None of them.None.
None were privately?
None were private.
Okay.Thank youThank you.That's all I have.
very much, Mr. Wallace.
COMMISSIONER KJELLANDER:Move now to Mr. Purdy.
I have no questions.MR . PURDY:
COMMISSIONER KJELLANDER:Mr. Eddie.
No questions.Thank you.MR. EDDIE:
COMMI S S lONER KJELLANDER:Let's go to legal
counsel representing PUC Staff.
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MR . S TUT ZMAN :No questions, Mr. Chairman.
COMMISSIONER KJELLANDER:Let's see if there'
any questions from members of the Commission.
And let's see if there's any redirect.
MR. MILLER:We have no redirect.
COMM IS S lONER KJELLANDER:Thank you.
Mr.Wallace,t hank you.
MR.MILLER:And we would ask that Dr.Wallace be
excused.
COMMISSIONER KJELLANDER:Wi thout obj ection.
Thank you again , Mr. Wallace.
THE WITNESS:Thank you.
(The wi tness was excused.
COMMISSIONER KJELLANDER:Okay.If I'm correct
I think at this point that concludes your direct portion , and
any pleces parts of the rebuttal, the other remaining rebuttal
will come after the rest of the remaining witnesses.
MR. MILLER:That's correct , members of the
Commission , the Company rests its direct case , and as you note,
we're reserving rebuttal presentation to follow the other
wi tnesses.
COMMISSIONER KJELLANDER:Thank you.
Mr. Purdy, would this be an appropriate time
to --
MR . PURDY:Normally I'd say "yes.I notice
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United Water
that my witness has left the room.I suspect she's just out
there somewhere.I could try to find her very quickly.
COMMISSIONER KJELLANDER:Why don't we take a
very short , seven-minute break.
MR . PURDY:Okay.
COMMISSIONER KJELLANDER:And we'll come back.
(Recess.
COMMISSIONER KJELLANDER:Okay, we'll go back on
the record.Mr. Purdy, would you like to call your witness?
MR . PURDY:Yes, Mr. Chair.Community Action
Partnership Association of Idaho calls Ms. Teri Ottens.
TERI OTTENS
produced as a witness at the instance of CAPAI , being first
duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. PURDY:
Would you please state and spell your name?
Teri Ottens , Teri -- T--- Ottens
And by whom are you employed and in what
capac i t y?
m the executive director of the Community
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CAPAI
Action Partnership Association of Idaho.
And Ms. Ottens, have you previously prefiled
direct testimony in this proceeding consisting of 11 pages of
narrative - - or , text , rather , questions and answer?
I have.
And you are also sponsoring or attached to your
testimony are Exhibits 301 , 302 , and 303.Is that correct?
Tha ti s correct.
All right.If I were to ask you the questions
contained in your prefiled direct testimony today, would your
answers be essentially the same?
They would.
MR . PURDY:Mr. Chair , in light of the fact, as
the Commission is aware, Community Action entered into an
Agreement with United Water and there has been at least one
change to that Agreement , I ask leave to ask Ms. Ottens just a
couple of additional direct questions , and I'll try to be
brief.
COMMI S S lONER KJELLANDER:And wi thou t obj ect ion
we'll go ahead and allow that.
MR . PURDY:Thank you.
BY MR. PURDY:Let's talk about the Agreement
that Community Action entered into with United Water.
Ini tially, that was, among other things , to provide for an
initial block rate.Is that true?
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CAPAI
That's true.
For all United Water customers?
Yes.
And that initial block rate was set at three ccf,
or 100 cubic feet , every two months.Correct?
Tha t 's correct.
And was that amount changed?
From the Amendment do you mean?It's my
understanding, yes, that it's been changed to two ccf per month
or four for the two-month period.
And that was a proposal made by Uni ted Water.
Correct?
Yes.
All right.Ms. Ottens, to the extent that anyone
might have concern that setting an initial block rate
regardless of the level might - - well , strike that.
To the extent anyone might have any concern of
setting an initial block rate at two ccf a month , in your
opinion, is that in any way likely to undercut the conservation
price signal currently embedded in the Company's summer rate?
I don t bel ieve so , because our research has
shown that that amount of water is the basic subsistence use
which is flushing your toilets, taking showers, running your
di shwasher .So I don't believe that there's going to be --
there's not much more you can conserve from the basic daily
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CAPAI
living, so I don't believe that this will affect anyone'
attempt to try to conserve water.
And, in fact, would it be fair to say, based on
the research that you've done and the knowledge you'
acquired, that a level of 2 ccf a month is essentially
nondi scret ionary; in other words, no matter how it's priced,
you've got to have at least that amount of water to survive?
Yeah , correct.
And perhaps then some?
Yes , I would agree wi th that statement.
You stated In your
- -
I believe in your direct
testimony that while you have agreed with United Water to this
initial block rate that's now been amended to two ccf a month
is it also your desire that that level , assuming that the
Commission were to accept it and implement some kind of a block
rate , might be revisi ted and perhaps increased in the future at
some point?
Yeah , that was our hope
- -
that was our hope
we could relook at it.
I f I might, I'll just explain that when we began
our conversations with United Water
- -
and we do thank United
Water for ini tiating those conversations - - we , because it'
such a new field for us to look at
- -
we have lots of
statistics on energy lssues , electrical energy issues, not so
much on water utility issues -- we went to our customers to try
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to determine what we thought would be a good level.
Unfortunately, we were unable to determine the best level.And
so we asked for Uni ted Water to keep an open mind in the future
that if we find this level was too low , we would certainly like
and would desire that it be increased.
All right.Also in your testimony though
- -
don't believe this is contained in the Agreement itself -- you
discussed a desire for one of at least two things , and that
would be some kind of a switching to a monthly billing or some
form of a level pay arrangement.Is that a fair
characterization of your testimony?
Yes , that is.According to Uni ted Water's own
testimony, what we saw was that at least one-third of the bill
for the year , the annual bill, falls within a two-month period,
and that would be your summer bill.That makes it very
difficult for low income to budget when 110 to $125 bill comes
due all at once in a two-month period.
What we were hoping for was some kind of budget
pay possibly, that that cost could be spread out over more
months than those two so that they wouldn't be found to be
delinquent.
So the term level pay" I think we all can agreeQ .
might carry certain connotations with it.You just used the
term budget pay.Can you envision some kind of a mechanism
whereby United Water customers are still charged the relatively
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CAPAI
higher summer rate , billed at that rate , but perhaps gl ven a
somewhat extended period of time to pay off perhaps some
deferred balance over and above a certain percentage of
consumpt ion?
I think that that's what our intention would be.
If we can do anything to help the low income manage their bills
and their budgets, then that'
- -
we would be for that.
And I apologize if I 'm mischaracterizing what
Mr. Sterling testified to, but I seem to recall that he
suggested perhaps the Commission order a workshop or some
additional proceeding for the purpose of perhaps fashioning a
mechanism that might make the most sense for United Water and
its customers.Would you support that and urge the Commission
to do that as well?
We would support it and we would attend the
workshop.
Okay.Grea t Finally, the Uni ted Water Shares
program that the Company has proposed implementing, how will
that - - isn't it true that Community Action Partnership
Association will at least partially administer that program?
Yes.
How will that take place?
The United Water territory falls within two of
our membe r agenc i e s .That would be EI-Ada Community Action
Partnership and the Western Idaho Communi ty Action Partnership.
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CAPAI
We would work wi th both of those agencies to administer the
Uni ted Water Shares program to get it to the most needy of the
low income that might be able to utilize it.
So you are going to determine eligibility.
that correct?
Right.Our agencies right now determine
eligibility, which we have agreed in the Stipulation to
150 percent of poverty, which is the guideline that we need to
follow for our weatherization programs that also come under the
Commission's purview.So these people will already be
prequalified basically by our agencies, and because we do case
management - - in other words , when someone comes in asking for
help, we look at their whole picture
- -
we'll now be able to
look at also their water bill , water utility bill , and see if
they're eligible for assistance on getting some help in getting
that paid , particularly during the summer months.
So the Uni ted Water Shares program would simply
be added to your portfolio, if you will , of assisting the low
income?
Yeah , Community Action Agencies offer a multitude
of programs, probably 30 different programs that help lead a
person towards self-sufficiency, and some of those are
emergency programs and that would be what Uni ted Water Shares
falls under , and we would basically add it to the programs that
we are able to tap into to help someone get through a tough
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CAPAI
time in their life.
This program is , to some extent, similar to Idaho
Power's proj ect Share program.Is that correct?
Tha t 's correct.
To your knowledge , is this the first of its kind
for a water utility in Idaho?
Yes , and we re very happy that Uni ted Water has
agreed to work wi th us on it.We think it will set a
precedent - - precedent
- -
and we think we might be able to use
this as leverage when we are approaching some of the municipal
owned water companies and others to see if we can't set up some
similar programs in other areas.
And, finally, as part of the Agreement, Communi
Action has agreed to disseminate conservation information and
conservation kits to people who it comes into direct contact
wi th Could you just very briefly describe what that will
entail?
Yeah.Conserva t ion for us a very,very
important factor of anything that we work wi th with utili ties,
because obviously,the more you conserve the less your bill
lS.And so we did have quite a bit of conversation with United
Water on the various options for conserving, from everything
from having a kind of program similar to weatherization in
which we could actually go in and actually install some
conservation measures , to the distribution of information , and
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CAPAI
through our negotiations we have agreed that the distribution
of conservation information on your water use is very important
and we will be distributing that as people come in for
assistance.
Grea t .
MR . PURDY:Mr. Chair , that's all I have in the
form of additional direct , and to the extent I haven't already
done so, I would ask that the direct testimony of Teri Ottens
be spread upon the record as if read , and that Exhibi t s 301
302 , and 303 be marked and identified as such.
COMMISSIONER KJELLANDER:Thank you, Mr. Purdy.
Without obj ection , we'll spread the direct testimony across the
record as if read , and admit the associated exhibits.
(The following prefiled direct testimony
of Ms. Ot tens is spread upon the record.
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CAPAI
I. INTRODUCTION
Please state your name and business address.
My name is Teri Ottens. I am the Executive Director of the Community Action
Partnership Association of Idaho headquartered at 600 N. Curtis, Suite 175 , Boise, Idaho, 83706.
On whose behalf are you testifying in this proceeding?
The Community Action Partnership Association 0 f Idaho ("CAP AI") Board of Directors
asked me to present the views of an expert on, and advocate for~ low income customers of United
Water, Inc. ("United Water ) on behalf of CAPAI. CAPAI's participation in this proceeding
reflects our organization s view that low income people are an important part of United Water
customer base, and that these customers will be uniquely impacted by the proposed rate increase.
CAP AI is an association of Idaho s six Community Action Partnerships, the Idaho
Migrant Council and the Canyon County Organization on Aging, Weatherization and Human
Services, all dedicated to promoting self-sufficiency through removing the causes and conditions
of poverty in Idaho s communities.
Community Action Partnerships ("CAPs ) are private, nonprofit organizations that fight
poverty. Each CAP has a designated service area. Combining all CAPS, every county in Idaho
is served. CAPS design their various programs to meet the unique needs of comITIunities located
within their respective service areas. Not every CAP provides all of the following services, but
all work with people to promote and support increased self-sufficiency. Programs provided by
CAPS include: employment preparation and dispatch, education assistance child care, emergency
food, senior independence and support, clothing, home weatherization, energy assistance
affordable housing, health care access, and much more.
Have you testified before this Commission in other proceedings?
Yes, the Commission has resolved, or is in the case of resolving, general rate cases for
Idaho Power Company, A VISTA, PacifiCorp and United Water all in the relatively short time
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410
fi-ame of approximately a year and a half. CAP AI intervened in all of those proceedings and I
have testified, or will testify, on CAP AI's behalf in each these cases.
Why has CAP AI intervened in past cases, and in this particular proceeding?
In my opinion, though the Commission Staff, and the Commission itself, have made an
earnest attempt to address low-income concerns over the years, the Commission s legal mandate
is to ensure the fair treatment of all customers and of the utilities it regulates. To the same extent
that a large industrial customer has the need for and right to representation before the
Commission, so do low-income utility customers. CAP AI believes that, to a certain extent, low-
income customers have not had adequate, independent, representation before the Commission in
recent years and it is CAP AI's mission to fill that void.
Specific to this case is CAP AI's desire to emphasize the impact of United Water
proposed rate increase on low-income customers and to encourage recognition of the value that
low incotne assistance programs play in helping our seniors, disabled and low income families to
become and to remain self-sufficient. This, in turn, benefits all of the utilities ratepayers.
CAP AI also seeks funding and design of applicable programs that will accomplish these
objectives. As discussed below, CAP AI is supporting the creation of programs similar in nature
to those provided by energy utilities to provide assistance with bills and help in the conservation
and use 0 f water.
What is your relevant experience regarding matters before, or issues involving, this
Commission?
CAP AI has been involved in low income issues, including energy related issues, since
the early 1980s. CAPs have been involved in the distribution of weatherization funding,
implementation of weatherization prograIns, and Low Incolne Hotne Energy Assistance Program
payments for more than three decades.
........
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,.............,......
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,........,..,......,....
r-.411
What other relevant involvement or activities have you or your organization been part of?
As the Executive Director of CAP AI, I am responsible as the statewide administrator of
the federal CoInmunity Service Block Grant, the Emergency Food Assistance Program, the Idaho
Telecommunication Services Assistance Program, the statewide Weatherization program, and in
working with the six Idaho CAPs and Canyon County Organization on Aging in the distribution
of the Low Income Home Energy Assistance and the Weatherization funds. These, and other
service programs administered and! or provided by CAP AI and our CAPs all deal with the needs
of the low income in Idaho.
Previously, I worked as the Energy Director for the Association of Idaho Cities, working
with 2002 cities and 44 counties to address energy and conservation issues within their
respective jurisdictions. Prior to that, I worked with several local governlnental entities in Idaho
Wyoming and California dealing with both low income and energy related issues. Exhibit 301 to
my testimony is my curriculum vitae.
II.SUMMARY
Please summarize your testimony?
My testimony will establish the following:
That United Water s proposed rate increase would have implications for the
Company s low income customers;
That these low income customers are at risk of paying a disproportionate
percentage of their income for a basic need commodity essential to human
survival, exposing them to potential payment arrears, disconnection, and even
homelessness;
That there is a significant number of residential customers who are low income
and are in need of assistance in lowering their water bills, and;
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That the negotiated Stipulation executed by CAP AI and United Water (discussed
below) will provide relief for low-income seniors and families and aid in
offsetting the impacts of a rate increase and should be approved by the
Commission.
III.STIPULA TION
Have CAP AI and United Water reached a negotiated settlement of certain issues in this
proceeding?
Yes, we have. Attached to this testimony as Exhibit 302 is a copy of the Stipulation
executed by the two parties. The essential components of the Stipulation are as follows:
Residential Summer Block Rate - United Water has agreed to propose an initial
block rate for the fust three hundred cubic feet (3 ccf) of usage for!!! customers
to be priced at the Company s winter rate, throughout the year. The summer rate
will be 25% higher and will remain in effect froln May 1 through Septelnber 300
each year. The lost revenue from this block is estimated to be $100 406 and is
proposed to be spread across the entire year by adjusting both the winter and
summer rate to block revenue neutral. As explained below, the purpose of this is
to provide the bare minimum, non-discretionary (i.
, "
subsistence level) use of
water at the lower winter rate. CAP AI and United Water submit that this small
amount of initial block rate usage will provide a benefit especially to low-income
customers, but not undermine the Commission s policy and objective of sending
price signals during summer months that excessive use of water drives up rates
for all customers.
United Water Shares - This program will be similar to Idaho Power
Project Share." Contributions to the fund will be voluntary on the part
ratepayers. United Water has agreed to fund the project in the amount of
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$10 000.00 in 2005, using shareholder funds, and would then match customer
contributions to the fund up to $20 000 in ensuing years. The money accumulated
in the fund account will remain in the possession of United Water at all times and
will be credited against the bills of qualifying low-income customers as
determined by United Water in collaboration with CAP AI's constituent groups.
Eligible customers will be those at or below 150% of the Federal Poverty
Guidelines; the same criteria used for Idaho Power s LIW A program. Customers
will be eligible a maximum of once per year and the individual benefit cap will be
$50., though this amount may be revisited after the parties have had experience
with the program. Assuming approval by the Commission, CAPAI will
immediately commence processing applications based on United Water s initial
contribution. After the fITst six months, montWy distributions will be based on
the average montWy collection from ratepayers of the previous three months
including United Water matching shareholder funds. The funds will be applied to
bills on a fITst come, fITst served basis. United Water will pay CAP AI an
administrative fee equaling 10% of the funds used, which the Company will book
as an operating expense. United Water will fund the costs of bill stuffers and
dissemination of literature by the CAPs to alert ratepayers about the program.
The estimated costs of the bill stuffers is $12 000.00 annually and will be booked
as an operating expense.
Targeted Conservation Help - CAP AI will assist in the dissemination of
conservation literature and "kits" to low-income, United Water customers who
come into direct contact with Community Action Agency staff. The literature and
kits will be provided by United Water.
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IV.NEED FOR ASSISTANCE
What defmitions are you using to describe a "low income household" and how many of
these households are located within the service area of United Water?
The state of Idaho uses an income defmition to derIDe eligibility for low income
weatherization and energy assistance as 150% of the federal poverty guidelines as established by
the Federal Office of Management and Budget. Exhibit 303 to my testimony provides a chart of
incomes in relation to the poverty level.
Would you please provide the Commission information regarding the state of poverty in
Idaho and, more specifically, within United Water s service territory?
Yes. According to the Idaho Department of Commerce, 12% of Idaho s population
based on the 2002 Idaho Census, fall within federal poverty guidelines and 21 % fall within the
state guidelines set at 150% of the federal poverty level. The Idaho Census is a state update of
the Federal 2000 Census figures and is conducted by the Idaho Department of Commerce.
Specific to United Water, the poverty rate in the Company s service area is 11.8%, based on
15. Idaho guidelines. The 2000 Idaho Census reveals that those living in poverty are categorized as
3% elderly, 13.8% children, 8.3% all other families, 35.3% smgle mothers and 34% all others.
According to United Water s website the Company serves 215 000 people in Ada and Canyon
counties. Of these, 25 370 live in poverty and 45 150 live at or below 150% of poverty.
According the United Water, the average residential bill is $323.05 annually or $26.
montWy. However, United Water states on its website that up to one tlrird of bill could be in two
months during the summer, placing severe burdens upon the low-income. senior, disabled citizen
or family during certain times of the year. Currently, United Water does not offer level payor
monthly billing, allowing a low-income family to spread this burden throughout twelve months
resulting in shut-offs of this service.
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415
The proposed rate increase for residential customers will raise this monthly rate to
$395., further adding to the burden.
Please discuss the level of water service costs in relation to the ability of low income
customers to pay those costs?
More than 20% of United Water customers make less than what is considered a living
wage in Idaho (set at $14.32 an hour by the Idaho Department of Labor and Commerce). Living
wage is described as the wage needed to pay basic expenses at today s costs, and includes the
costs of transportation, child care, food, housing and utilities. These people do not make enough
wages to sufficiently pay for these basic expenses.Though low income people are more easily
described in statistical terms, in reality they are our neighbors, ftiends and relatives. When
considering the possibilities of accidents, ill health, loss of employment, etc., they potentially
include each of us
What are the special circumstances that low income households face?
These households pay the highest percentage of their income for all utility costs
compared to other income groups and are the most vulnerable and at risk to change in a
competitive market. They live in society s worst case housing stock, are at risk to hypothermia
and indoor air quality problems. Coupled with an array of other fIhancial burdens (cost of child
care, lack of affordable housing, lack of living wage jobs, cutbacks in federal assistance of most
kinds, etc.) they are increasingly moving closer to homelessness.
EFFECT OF STIPULATED LOW -INCOME MEASURES
Please discuss how the proposed Stipulation came into being and how it will function?
United Water currently does not provide any form of low incolne assistance to ratepayers.
In recognition of this, the Company, in its pre filed direct testimony, invited the possibility of
some form of low-income assistance in light of the magnitude of the proposed rate increase.
Following proper notice, a public workshop was conducted on February 23 , 2005, including
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CAP AI, United Water, the Commission Staff, and one member of the public, to discuss the need
for, scope, and design ofa low income customer assistance program for the Company.
As a result of the workshop discussion, agreement was reached regarding general
parameters and features 0 fa low - inco me assistance pro gram. Thereafter, representatives 0 f
United Water and CAP AI continued to discuss possible program features resulting in the
Stipulation described above and attached hereto.
Residential Summer Rate Block CAP AI agrees that a two-tier inclining rate
structure for residential customers will reward those customers who dramatically limit their
summer water use. It will also provide low-incolne assistance in that the poor generally consume
much less water. Though CAP AI has stipulated to an initial block of3 ccfpriced at the
Company s winter rate, and believes that this initial lower block will assist low-income
customers whose usage is typically much less than other residential customers, the appropriate
level of an initial block is, of course, within the discretion of the Commission. CAP AI stands
flfmly by its Stipulation with United Water but suggests revisiting the amount at some future
point in time after the effects of the block have been analyzed.
CAP AI believes that 3 ccf is at the bottom range of what could be termed a "subsistence
level of water usage." As stated in the Stipulation, based upon a report generated by the Idaho
Department of Environmental Quality, 3 ccfis barely above the amount of water necessary just
to flush toilets and take showers. United Water estimates that approximately 10% of its
customers use 3 ccf or less in a winter billing period. Because the block rate applies to all
customers, it is not discriminatory or preferential.
CAP AI believes that an initial, lower priced block rate is appropriate for United Water.
Regardless of how the commodity is priced, people require a certain amount of water to survive
and perform the most basic of tasks such as laundry, dishes and personal consumption. This
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minimum level of usage is indifferent to price signals and setting a modest initial block would
not undermine the Commission s overall objective of encouraging water conservation.
United Water Shares - CAP AI believes that establishing a v~luntary giving program
that will establish a fund to assist low-income seniors, disabled citizens and families in paying
their water bills would be beneficial especially during the months when water usage increases.
Though there will be nominal costs associated with administration and awareness of the
program, CAP AI submits that these costs will be more than offset by reduced utility costs
associated with bad debt, collection, disconnections, etc.
Targeted Conservation Help - CAP AI believes that conservation education and aids are
beneficial for low-~come seniors and families in lowering their water bill amounts and is willing
to participate in the distribution of these materials and aids.
Do you believe that the low-income assistance provided by the Stipulation will address
all of United Water s low-income customer needs?
, but it is a welcome starting point. Along these lines CAP AI compliments United
Water for what could legitimately be characterized as an unprecedented gesture on the part of an
Idaho public water utility to offer unsolicited assistance to the poor in the context of a general
rate case. CAPAI greatly appreciates United Water s efforts and willingness to work toward a
worthwhile goal that ultimately benefits all ratepayers.
Are there any other low-income assistance measures that could be considered in this case
or in the future?
Yes, although not included in the Stipulation, CAP AI believes that a level payor n10nthly
pay program would also benefit low-incon1e seniors, disabled and falnilies in setting budgets and
controlling costs.
Though the largest public water utility in Idaho, United Water covers only a portion of
the state. How will this Stipulation help other low-income seniors and families around Idaho?
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418
The programs stipulated to by United Water and CAP AI are a good place to start in
setting examples and establishing the need for low-income customer assistance programs within
water utilities.
If the Stipulation is approved by the Commission, United Water would, presumably, be
the only regulated water utility in Idaho to have a low-income program. Because United Water
is the state s largest public water utility, it presents the greatest opportunity to assist the state
low-income citizens. Approval of the stipulation might also prove to be a catalyst for other
water utilities to implement similar measures.
VI. CONCLUSION
Could you summarize your recommendations to the Commission?
Yes. They are listed below:
Approve the Stipulation entered into between United Water and CAP AI establishing the
following programs:
Residential Summer Rate Block
Voluntary Giving Program
Targeted Conservation Help
CAP AI also believes that the CoffiIllission should consider a level or Illonthly pay progralll in the
future as another tool to assist low-income seniors, disabled and families with their budgeting on
water usage costs.
Does that conclude your direct testimony?
Yes it does. I thank the Commission for the opportunity to participate in this proceeding.
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(The following proceedings were had in
open hearing.
(CAPAI Exhibi t Nos. 301 through 303,
having been premarked for identification , were admitted into
evidence.
MR . PURDY:Thank you.I tender the wi tness for
cross.
COMMISSIONER KJELLANDER:Mr. Eddie, any
questions?
MR. EDDIE:I do have some questions.
CROS S - EXAMINA TI ON
BY MR. EDDIE:
Is it typical for low-income families to reside
In what I would call poor-quality housing stock , such as mobile
home s ?
Yeah.What we tend to see , obviously, is that
the lower the rent , the poorer the housing, the lower the rent
the more likely that you're going to see a low-income
individual 1 i ving there.
And these facilities probably in the general case
would not have updated systems such as low-flow shower heads or
efficient toilets, things of that nature?
I can't speak from expertise, but that would also
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be my assumption , that you would see in lower-cost housing less
maintenance and less concern on the part of the landlord to be
worried about conservation.
And are most - - are most of your clients , do they
reside alone or do they typically reside in - - I'm sure there'
a range , but if you could describe a typical low-income
household for us, that would be great.
I haven't done any statistical research on it.
can tell you from my personal experience and the experience of
our agencles that what we typically see in a low-income
household is a higher number of individuals , mainly because you
tend to see multigenerations living together because it saves
on cost.Sometimes you'll see single parents living together,
two single women with their children , that they tend to
- -
you
tend to see a more communal living when it can save on the cost
of the rent.
Do you have any reason to believe that a typical
indoor water usage by a low-income household would depart
significantly from the range observed by nonlow-income
households?
I can tell you that I think that the low income
at least the ones we work with , are very conscious of their
bills and do make an effort to keep their bills as low
possible.Obviously, a great number of our low income are the
senior citizens who may live alone and do -- are very conscious
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about what their bills are.Other than that , I think that, you
know , it's - - there's the typical - - there's the typical family
living there that has the typical needs for water.
And my last question is whether you believe that
the now two ccf per month amount that has been negotiated and
amended with United Water and your organization, do you believe
that represents a subsistence level of use for a low-income
household, a typical low-income household?
You know , once again , I'm not an expert in that
area , and we did agree to something similar to that because we
aren't experts and we really could not make a judgment on what
that level should be.
Since we've made the Stipulation with United
Water , we did -- we have done a little more research and we
find if it is subsistence, it's bare subsistence , and -- but
once again , we, when we talked wi th Uni ted Water, there seemed
to be a willingness on their part after a trial period to look
at whether or not this should be increased.
Okay.Thank you very much.
MR. EDDIE:Nothing further.
COMMISSIONER KJELLANDER:Thank you, Mr. Eddi e .
Mr. Strickling.
MR. STRI CKLING :No questions.
COMMISSIONER KJELLANDER:Mr. Campbell.
MR. CAMPBELL:No questions.
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COMMISSIONER KJELLANDER:Staff representative of
the PUC.
MR. STUTZMAN:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. STUTZMAN:
Just a couple of questions, Ms. Ottens.
Okay.
How much would you expect the United Water Share
program to recel ve in contributions each year?
Once again , well, I think we're going to find
The United Water has indicated that they will put 10,000out.
in the first year and then match up to 20 000 for years after
that.Any program like this I think will be slow getting
started.Once it's started - - I think Idaho Power sees qui te a
bit of contribution to their program, and once the information
is out there, I'm hoping we'll see at least up to the 20,000.
Okay.And some of the contributions you expect
to come from customers?
That's what I anticipated.When we looked at
this program , we looked at a program almost exactly like Idaho
Power I S program in which Uni ted Water might even place on their
bill , you know , you can add a dollar, $5, $10 to help in this
fund.So I anticipate that the maj ori ty of the contributions
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will be coming from customers.
Okay.And I believe your Attachment estimates an
annual cost of $12 000 to provide bill inserts about the
program.Are there other administrative costs?
m sorry, you'll have to tell me - - there's a
$12 000 figure for the bill stuffers.
Right.Tha t 's --
Was there another 12 000 somewhere?
No, that's the one I'm referring to.
, okay.
m just asking are there other administrative
costs in addi tion to that?
Well , the Communi ty Action Partnership
Association has talked about a 10 percent administrative cost
to basically administer the fund , seek out the clients,
determine their eligibility, and do the paperwork so that
we can get the lists back to United Water as to what accounts
need to be credi ted.
Okay.Is it possible the program could cost more
In administrative expenses than contributions it might receive
In a year?
Maybe in the first year , yes.
Let me ask you a little bit about the initial
block of three ccf and the assistance it will provide
low- income customers.Are you aware that an ini tial block of
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three ccf bimonthly at the proposed winter rate will decrease
summer bills by only 43 cents a month?
The - - yeah
- -
yes, I heard that figure.
- -
don't know how to explain.43 cents doesn't seem like a lot
and that's only $1.50 over the three-month summer period.
can tell you that the people we're dealing with , $5 a month is
a difference for them.You know, $10 a month makes a
difference for some of these people as to whether they can pay
their bills or not.We considered it a start.
Okay.And then , finally, a question about
monthly billing:I think the Company indicated that monthly
billing could assist low- income customers in paying their
bills.In your opinion , does the potential benefit for monthly
billing outweigh the 3.4 percent rate increase the Company
estimates it will cost to implement monthly billing?
Yeah , I can tell you this:When we put it in our
testimony, we did not have cost estimates on what transference
to a monthly billing would take.Obviously, a three percent
increase in rates is not good for low- income customers,
that's why we thought maybe a budget pay might be another way
to go.
Our whole intention of suggesting a monthly
bi 11 ing, once again , is that when we do case management on
low- income customers, oftentimes - - it's amazing, but
oftentimes we run into people who frankly don't know how to
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budget month to month , and the more we can get their payments
on an even basis , the more we can get them back on track.And
that was the reason behind why we proposed monthly billing from
our end , and that's why we're looking at maybe a budget pay
might be another al ternati ve.
Okay.That's all I have.Thank you.
COMMI S S lONER KJELLANDER:Thank you,
Mr. Stut zman.
Are there questions from members of the
Commission?Commissioner Hansen.
COMMISSIONER HANSEN:Just a couple of questions.
EXAMINATION
BY COMMISSIONER HANSEN:
Do you know what the average monthly billing
would be for the average low-income customer?
No, I don't , and that's part of the research
was explaining that we have not been able to do.I could tell
you that with electric bills, but with water bill , this is a
relatively new field for us.So we have dedicated ourselves to
try to collect some of that information over the next year , but
at this time, I can't answer that question.
In your opinion, it was stated yesterday that the
average monthly bill right now per customer would be about $27
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a month?
Yeah , I read that in the testimony.
So would you think for a low- income customer
they'd probably conserve maybe a little more than the average?
Would you think theirs would be lower than that?
I would
- -
I could make the assumption it's maybe
slightly lower , yeah.
And while we're just talking about the monthly
bill but kind of a follow-up, do you think it would cost more
to the low-income customer to implement a monthly billing than
it would actually benefit?I know you just discussed that, but
we're talking about the cost that United Water said it would
take to do a monthly billing and the customers that have to pay
for that.So do you think it's actually
- -
would it be worth
the cost, addi tional cost?
Well , I , unfortunately because I wasn't here and
I do apologize for that, I did not hear whether that cost was a
one-time cost or an annual cost.If it was a one-time cost, it
might be well worth taking the plunge.If it's an annual cost,
. then , yes, there would be
- -
I would have some problems wi
that.
Okay.You state in your testimony that with this
Agreement that you've made with United Water , you state that
the lost revenue would be $100 406.Is that correct?
That's correct.
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So I understand this , would that be passed on in
even higher summer rates and higher winter rates to all the
customers that use more than the three ccfs?
It's my understanding that it would be adjusting
both the winter and summer rates to make the Company revenue
neutral.
So it would have to lncrease those even higher?
Yeah.Yeah.
And in this Agreement
- -
one last question
well , I've got another one too
- -
but in this Agreement, In
your oplnlon , does United Water lose any revenue based on this
Agreement?
I think our intention was that they wouldn'
other than the contributions they would make towards the
proj ect Share - - I'm sorry
- -
uni ted Water Shares proj ect , but
I think that our intention was not that the Company should lose
revenue, but that maybe that there was a readj ustment so that
there might be some assistance for low income.
Last of all , I see wi th one of your exhibi
there that Mr. Miller signed on , I guess , in Agreement for
Uni ted Water.Who wi th Uni ted Water did you negotiate this
Agreement?
Mr. Wyatt.
Thank you.That I S all I have.
COMMISSIONER KJELLANDER:Thank you.
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Are there any further questions from members of
the Commission?
If not, we're ready for
- -
Mr. Miller.
MR. MILLER:I think I got skipped.
COMMI S S lONER KJELLANDER:My apologies.
Mr. Miller.
MR. MILLER:Accepted.
COMMISSIONER KJELLANDER:Okay.
CROSS - EXAMINATION
BY MR. MILLER:
I think this is clear , but I just want to clarify
one thing, Ms. Ot tens.This shift from two - - or , from three
to two is obviously contingent upon the Commission approvlng
the shift from bimonthly to monthly
, okay.
-- billing.Correct?So that
Thank you for clarifying that.
So that over a four
- -
over a two-month period,
the effective consumption block would now be four rather than
three, but two on a bimonthly basis contingent upon approval of
monthly billing by the Commission?
Okay.Thank you.
Correct?
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Yes.
I just wanted to be sure that was clear.
COMMISSIONER KJELLANDER:Thank you , Mr. Miller
and again, I apologize for passing over you.
Let's move now to Mr. Purdy for redirect.
MR . PURDY:Thank you.Just a couple.
REDIRECT EXAMINATION
BY MR. PURDY:
You were asked a question by Staff Counsel
Ms. Ottens, regarding whether the United Water Shares program
might not be cost effective and were pointed to a roughly
$12 000 cost figure pertaining to bill stuffers.Who provided
that cost estimate?
, we got that from United Water.
Okay.Communi ty Action has no control over that.
Is that true?
Tha t 's correct.
All right.And then on top of that, Community
Action will be paid 10 percent of the total amount funded into
the program every year.Is that true?
Actually, the way I understand it would work
10 percent of whatever money is distributed, so if there'
10,000 in the program and we only distribute 8,000 , then it
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will be 10 percent of that 8 000.
Okay.
And that 10,000 is actually part of the program
and therefore not over and above.The 10 percent is part of
the 10 000 and part of the program , not over and above that
000.
Okay.Thanks for clarifying that.
Do you have any idea what United Water Idaho'
requested total revenue requirement is in this case?
, I don'm sorry.
Subj ect to check, would you say it's roughly
$37 million?
, sure.Yes.
Commissioner Hansen asked you a question about
the $100,000 cost attributable to this Agreement.Now that,
just to clarify, that pertains to the initial block and the
lost revenue that will be attributable to that initial block.
Correct?
Tha t 's correct.
All right.And, agaln, that $100,000 we must
take in the context of the 37 million total revenue
requirement.True?
Yes.
Have you made any attempt to calculate what
percentage 100,000 is of 37 million?
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No, but it seems ike a very small percentage.
Thank you.And that's all I have.
COMMISSIONER KJELLANDER:Thank you , Mr. Purdy.
And I believe that concludes your direct testimony.
MR . PURDY:Yes.Yes.
COMMISSIONER KJELLANDER:And would you ike to
have Ms. Ot tens excused for the remainder of the hearing?
MR . PURDY:Yes , please.She might return later.
Thank you.
THE WITNESS:Thank you.
(The wi tness was excused.
COMMISSIONER KJELLANDER:I believe at this point
we're ready to move to Staff's case.Is that correct?
MR. STUTZMAN:Yes, Mr. Chairman , thank you.
Mr. Walker will spread the testimony of our first witness.
MR . WALKER:Commission Staff calls
Mr. Donn English.
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DONN ENGL ISH
produced as a wi tness at the instance of the Staff, being first
duly sworn , was examined and testified as follows:
BY MR. WALKER:
DIRECT EXAMINATION
Could you please state your name for the
Donn English.
And where are you employed and in what
I am employed by the Idaho Public Utilities
Commission as a senior auditor.
Did you prepare and prefile written testimony in
Yes, I did.
And does that consist of 55 pages?
Yes, it does.
Do you have any correct ions or changes to the
prefiled testimony?
Yes, I do.On page 8 , 1 ine 6, the fragment of
the sentence reads:The statistics indicate that the average
hourly wage for meter readers in this country is 15.58.
That amount should be changed to "16.58.
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record?
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On the next ine, the average wage of the four
meter readers employed by Uni ted Water , where it says " 16.
, "
that amount should be changed to "17.68.
And I'd like to add the following sentence, that
the average national median hourly wage for water utility meter
readers is $12.48 an hour.
COMMISSIONER SMITH:Could you do that once more?
THE WITNESS:The average median hourly wage for
water utility meter readers is $12.48 per hour.
BY MR. WALKER:Did you have any other
corrections or changes to your prefiled testimony?
Yes.On page 32 , line 18, the sentence reads:
It should also be noted that because the Company was awarded.
And I need to replace the fragment the Company
was awarded" wi th "Staff is recommending.
And I have one more correct ion.Due to
information received after Staff filed its direct testimony,
Staff has reached an Agreement with the Company to accept a
couple of adjustments , therefore, beginning on page 37 , line 7
through page 38, line 11 , like to strike that portion from my
testimony.
COMMISSIONER KJELLANDER:Those ines again?
THE WITNESS:Page 37 , 1 ine 7 , through page 38
line 11.
And that's all the corrections I have.
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BY MR. WALKER:Did you file any exhibits with
your testimony?
Yes, I did.
And do you have any correct ions or changes to
your exhibi t
Well , pertaining to the information I just had
stricken from my testimony, would probably make sense to remove
Exhibit No. 108 , Schedule 19 and Schedule 20.
If I were to ask you the questions in your
prefiled testimony today, would your answers be the same with
the corrections you made?
Yes, they would.
MR. WALKER:Mr. Chairman , I would move that the
testimony of Mr. English be spread upon the record as if read
and that the exhibits be admitted into the record.
COMMISSIONER KJELLANDER:Thank you.Wi thout
obj ection, we will spread the direct testimony of Mr. English
across the record as if read , and admit the exhibits as
amended.
(The following prefiled direct testimony
of Mr. English is spread upon the record.
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Please state your name and business address for
the record.
My name is Donn English.My business address
472 W. Washington, Boise, Idaho 83702.
By whom are you employed and in what capacity?
I am employed by the Idaho Public Utilities
Commission (Commission) as an auditor in the accounting
section.
What is your educational and experience
background?
I graduated from Boise State University in 1998
wi th a BBA degree in Account ing Following my graduation
accepted a position as a Trust Accountant with a pension
administration, actuarial and consulting firm in Boise.
a Trust Accountant, my primary duties were to audit the day-
to-day financial transactions of numerous qualified
retirement plans.In 1999 I was promoted to Pension
Administrator.As a Pension Administrator, my
responsibilities included calculating pension and profit
sharing contributions, performing required non-
discrimination testing and filing the annual returns (Form
5500 and attachments) In May of 2001, I became a
designated member of the American Society of Pension
Actuaries (ASPA)I was the first person in Idaho to
receive the Qualified 401 (k) Administrator certification and
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I am one of approximately ten people in Idaho with the
Qualified Pension Administrator certification.In 2001
was promoted to a Pension Consultant, a position I held
until 2003 when I joined the Commission Staff.
Wi th the American Society of Pension Actuaries,
I served on the Education and Examination Committee
for two
years.On this committee I was responsible for writing and
revlewlng exam questions and study materials for the PA-
and PA-2 exams (Introduction to Pension Administration
Courses), DC-1, DC-2 and DC-3 exams (Administrative Issues
of Defined Contribution Plans - Basic Concepts, Compliance
Concepts and Advanced Concepts) and the DB exam
(Administrative Issues of Defined Benefit Plans) I have
also regularly attended conferences and training seminars
throughout the country on numerous pension issues.
Have you previously testified before this
Commission?
Yes, most recently in cases AVU-04-1 and AVU-
19,04-I have also provided testimony in Idaho Power
. Company s most recent rate case, IPC-E- 03 -13 .
What is the purpose of your testimony in this
proceeding?
The purpose of my testimony is to present
Staff's findings and recommendations regarding united Water
Idaho (United Water; Company) operating expenses.
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Are you sponsorlng any exhibits with your
testimony?
Yes, I am sponsoring Exhibit No. 108 consisting
of 34 schedules and one summary page, and Exhibit No. 109
consisting of three schedules.
Would you please explain Exhibit No. 108?
Exhibit No. 108 details all of the adjustments
made by Staff to the Company s operating and maintenance
expense, and compares those adj ustments to what Uni ted Water
filed in their Application.The first page of Exhibit No.
108 is a summary of the adjustments to operating expenses
that united Water included in its original filing.The
summary lists the pro forma amounts calculated by the
Company to be included in rates and compares them to the
amounts that ~taff believes to be appropriate.The last
column (Column 8) is the difference between the Company
proposed expense adjustments and Staff's proposed expense
adjustments.The summation of Column 8 ($1,948,159) is the
total amount that Staff has removed from operating expenses,
excluding payroll taxes and depreciation expense, included
in the Company s filing.
Each schedule of Exhibit No. 108 coincides with
the page numbers of Exhibit No.3, Schedule 1 sponsored by
Company witness Healy.In these schedules, I have started
with the amount that the Company proposes to include in
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rates and then illustrate the calculation used to determine
Staff's adj ustment.
Please explain Schedule No.1 of Exhibit No.
108.
Schedule No.1 reflects the adjustment for
payroll costs chargeable to operation and maintenance
expenses.It starts with the calculation of the amount that
the Company requested for recovery in rates, which
similar to Exhibit No.3, Schedule 1, page 1 of 34 of Mr.
Healy s direct testimony.After the illustration of the
Company s request, Staff's adjustments are factored in
determine the amount that should ultimately be allowed for
recovery by the Company.
Please briefly explain how the Company
calculated its adjustment.
As indicated on page 7 of Mr. Healy ' s dire~t
testimony, United Water has proposed an adjustment to test
year payroll to account for known and measurable increases
to employee wages.The Company employs Bargaining Uni
(Union) employees, and the union contract calls for wage
increases to take effect on April 1, 2005.For non-
Bargaining Unit employees, the Company estimated a 3.
increase in salary.
The Company also proposes to recover wages paid
for three new full-time positions.Two of the new positions
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are operations positions related to the Company s increased
source of supply, pumping, and treatment facilities (Healy,
D i,
pg
7) .The third position is a Public Relations
Manager, which the Company states 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 (Healy, Di, pg 8) .
As of the filing of this testimony, it is
Staff's understanding that only the two operations positions
have been filled.The Company is currently seeking to fill
the position of Public Relations Manager.
Q .Please explain ' Staff's adjustments to the
Company s pro forma payroll.
The first adj ustment, reflected on line 17
removes $133,462 from the Company s pro forma payroll for
the Short Term Incentive Plan' (STIP)
Please describe the Company s Short Term
Incentive Plan.
Information provided to Staff as a part of the
Company s response to Audit Request No. 21 explains the
purpose of the incentive plan.Following is an excerpt from
that response:
The Short Term Incentive Plan (STIP) is an
annual compensation plan that supports
United Water s business objectives by:
Providing an annual incentive strategy
that drives performance towards
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obj ecti ves cri tical to creating
shareholder value.
Offering competitive cash compensation
opportunities to all eligible employees.
Awarding outstanding achievement among
employees who can directly impact United
Water s resul ts.
Providing cash awards for both qualitative
and quanti tati ve resul ts.
Providing cash compensation opportunities
for making- sound business decisions that
impact the Company s financial
performance and the overall success of
Suez.
Why does Staff obj ect to the inclusion of
incehtive payments in customer rates?
Staff obj ects to the inclusion of the Short Term
Incentive Plan in customer rates for the following five
reasons:
1 .United Water Idaho sufficiently compensates
its employees with a generous base salary and additional
benefits, such as pengion plan benefits, matching
contributions on 401 (k) contributions, medical, dental,
vision and life insurance, paid vacation time and holidays.
Short Term Incentive Plan payments
fluctuate from year to year and may not be paid
at all if
2 .
the obj ecti ves are not met.It is impossible to predict
that the Company will meet its financial goals and employees
will meet their individual objectives in the future,
therefore the incentive payments are neither known nor
measurable.
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3 .The obj ecti ves of the STIP are financial
objectives for creating shareholder value and the
overall
success of Suez Lyonaise, United Water Resources ' parent
Company.By aligning the incentive payments to the
financial performance of a parent Company, there is no
benef it to United Water Idaho customers when those
obj ecti ves are met and payments are made.
4 .The STIP rewards employees for merely doing
a job that they are already being compensated
for. Further
information provided as a part of the Company
s response to
Staff's Audit Request No. 21 indicates that employees may
recelve an incentive payment if only 80.1% of the financial
obj ecti ves are achieved.Staff believes that an incentive
payment that kicks in as soon as 80% of financial objectives
are achieved is extremely lenient and the costs of such
payments should not be passed on to customers.
5 .Incentive plans are self-funding.The
incentive plan only makes sense if the savings achieved are
greater than the amount of incentive payments made.Any
additional savings would self-fund the incentive plan.
Why do you believe United Water employees are
paid a generous base salary?
According to the Department of Labor s Bureau of
Labor Statistics Wage and Compensation Survey released in
August of 2004, the average wage for working Americans
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$17.75 per hour.The average wage received by workers in
the Mountain Census Division is $16.63 per hour.United
Water Idaho employees received an average base wage of
$23.25 per hour in 2003 before any benefits were included.
Furthermore, the statistics indicate that the. average hourly
wage for meter readers in this country is $15.58 per hour.
The average wage of the four meter readers employed by
United Water is $16.68 per hour.
Has the Commission excluded incentive payment
plans in the past?
Yes, most recently in Or~er No. 29505 regarding
Idaho Power Company s Application to increase rates in Case
No. IPC-E- 03 -13 .In addition to the five arguments listed
above, the Commissi9n expressed .concern about public
perception with a utility company offering bonuses to
employees at ratepayer expense during a time of increasing
rates.
Please continue with your explanation of
Schedule No.
Line 18 of Schedule 1 removes from the pro forma
payroll $6,000 in Above and Beyond the Call of Duty (ABCD)
Awards.The Company uses ABCD Awards to reward employees
for accomplishments or ideas that improve the . Company
overall productivity or efficiency.While Staff appreciates
the Company s willingness to reward employees for going
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above and beyond the call of duty, we have removed the
$ 6 , 00 Q from pro forma payroll for three main reasons.
First, the Company has not been using the ABCD
Awards program recently and did not reward any employees
during 2004.In fact, the Company only rewarded employees a
total of $500 in each of the two years prior to 2004.The
$6,000 included in pro forma payroll is only an estimated
budgeted amount, and payment of any ABCD Award is not known
to occur, nor can it be measured in advance.
Secondly, as discussed previously, employees
the Company are well paid.One of the responsibilities of
being a well-paid employee is commitment and loyalty to your
employer.Along with that loyalty comes the responsibility
to perform your best at all times, and to look for ways to
improve efficiency and productivity.Employees who display
those characteristics will eventually be rewarded with
annual meri t -based raises in salary.ABCD Awards allow for
the possibility for employees to be rewarded for simply
doing what they are expected to do on a regular basis.
And finally, if employees ' actions or
suggestions actually improve the productivity or efficiency
of the Company, then the reward program would be self-
funding.The savings achieved by the Company from
implementation of the employee's suggestion should outweigh
the cost of the reward; otherwise the reward would not be
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, 25
prudent.
Are there any other adj ustments to the Company
payroll?
Yes, line 19 of Schedule No.1 removes amounts
in excess of the 3. 3 % wage increase that was granted to non-
union employees.At the time of filing its Application to
increase rates, the Company had used an estimated wage
lncrease of 3.6% for non-union employees. United Water Idaho
just recently learned that its parent Company has approved a
3 .3% lncrease for its non-union employees.Staff has
removed from pro forma payroll $10,525 to reflect this
decision to approve a lower payroll increase.
However , when calculating the proposed wage
~ncrease, the Company included several vacant posi tions that
had not been filled.Staff believes it is not appropriate
to le.t the Company recover in rates the wage increases that
would be allocated to unfilled positions or new employees
who have not yet completed a probationary period.
Therefore, the $10,525 that Staff has removed from pro forma
payroll includes removal of salary increases for new
employees and vacant pos it ions.
Line 20 removes from pro forma payroll the
dollar amounts for budgeted overtime pay in excess of 2004
actual overtime pay.The Company estimates overtime pay
$103,374.The Company s response to Staff's Production
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Request No. 182 indicates that 2004 actual overtime pay was
only $ 9 9 , 13 6 .Staff obj ects to the use of estimated
overtime pay because it is not known and measurable.
Therefore, $4,238 has been removed from the Company s pro
forma payroll to reflect overtime pay at actual 2004 levels.
Line 21 removes from pro forma payroll the
amount of proj ected wages included in the Company s filing
for the Chief Operator position above the actual wage
currently being paid.At the time of filing its
Application, the Company proj ected the wage for the new
position of Chief Operator to be $23.28 per hour or $48,422
per year based on 2 , 080 working hours.The Company
response to Staff's Production Request No. 164 indicates
that the position has since been filled, and as of December
31, 2004 the current wage' being paid for that position was
$21.86 per hour or $45,468 per year.Line 21 reflects the
removal of the additional $2,954 included in the Company
request.
Line 22 removes from the Company s pro forma
payroll the $56,000 proj ected salary for the new , proposed
position of Public Relations Manager.As of the time
filing of this testimony, the position of Public ~elations
Manager is still vacant.Staff believes it is neither known
with -certainty that this position is going to be 'filled, nor
the exact salary that will be paid to the individual, if
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any, that is ~ired to fill this position.Furthermore,
Staff believes the duties of this position would include
that associated with corporate image and lobbying.
Company witness Healy states on page 8 of his
direct testimony:
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 vi tal to the business. Some of these
include quality of service, customer
communication, community involvement,legislative issues, media relations andothers.
The j.ob postings in the Idaho Statesman and Idaho Press
Tribune indicate thqt the Company is seeking an applicant
that has a "keen understanding of local governmental
affairs; and be skilled in political networking.The
successful candidate must also have a bachelor s degree in
Communications, Public Relations, Marketing or Advertising.
This Commission has a long- standing precedent of
excluding lobbying expenses from customers ' rates.The
duties described in the job postings and in Mr. Healy
testimony indicate that a major portion of this position
responsibility will be lobbying.Though this position may
have additional responsibilities, those responsibilities
would not pertain to the production, transmission and
distribution of water, and thus the salary of this position
should not be included in customer rates.
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Does that conclude Staff's adjustments to the
Company s pro forma payroll chargeable to operations and
maintenance?
Yes, although it is important to note that a
portion of all incentive payments is capitalized.In order
to remove all the effects of the incentive payment plan, an
adjustment of $135,630 to rate base, as well as an
adjustment of $4,361 to annual depreciation expense are
required to completely remove the costs associated wi th the
Short Term Incentive Plan.These amounts have been provided
to Staff witness Harms to incorporate into her testimony
regarding depreciat ion and rate base.
Would you please explain Schedule No.2 of
Exhibit No. 108?
Schedule No.2 reflects Staff's adjustment to
the Company s proposal to increase the amount of 401 (k)
matching contributions above the test year level.The
Company proposes an adjustment to test year expenses for
401 (k) matching contributions by using a weighted average
contribution percentage for all employees (2.1892%) and then
mul tiplying that percentage by pro forma eligible payroll
($4,178,650.83) .
Why does Staff obj ect to the Company
adj ustment?
Staff obj ects to this adj ustment simply because
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the amount of 401 (k) matching contributions is neither known
nor measurable.The Company simply took an estimated amount
(contribution percentage) and multiplied it by another
estimated amount (pro forma payroll) and claims the result
is known and measurable.
The United Water Resources, Inc. 401 (k) Plan
(401 (k) Plan) allows employees to cease their salary
deferrals at any time, thus ending the responsibility of the
Company to contribute a matching contribution.Furthermore,
the 401 (k) Plan allows all eligible employees who are not.
currently contributing to commence payroll deductions for
the 401 (k) at any time.Wi th the numerous vacant posi tions
and employee' turnover, it is not po~sible to determine a
precise amount for the Company s 401 (k) Matching
Contribution expense.Therefore,' Staff' rej ects the
Company s adjustment and removes the $1 321 from the
Company s f i ing .
Please explain Schedule No. 3 of Exhibit No.
108?
Schedule No.3 illustrates the calculation of
the Company s adj ustment to Employee Heal th Care Expense,
Long Term Disability and Group Term Life Insurance Expense.
The adjustment filed in the Company s Application was
calculated based on the July 2004 authorized level of
employees (Healy Di,
pg
9) .However , Mr. Healy indicates
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later in his testimony that the open enrollment period in
the late fall of 2004 would affect the Company s cost of
providing these benefits and the adjustment may need to
revi sed.Staff has reviewed the Company s revised Employee
Insurance estimates as of December 31 , 2004 and finds them
to be reasonable.Staff's acceptance of the Company
revised numbers increases the pro forma Employee Insurance
Costs filed in the Company s Application by $21,923.
. Q.Please explain Schedule No.4 of Exhibi
No. 108?
Schedule No.4 illustrates Staff's adjustment to
pension expense.
Please describe the penslon plan and the
Company s treatment of pension expense.
Uni ted Water Resources, Inc. sponsors two
traditional pension plans .in which participants will receive
a set monthly income upon retirement that is based on their
years of service and their final average earnlngs.One plan
is for the Bargaining Upi t employees and the other is for
non-Bargaining Uni t employees.These plans are fully funded
by United Water Resources, Inc. and its affiliates.Assets
In the plans are secured in a trust and guaranteed by the
Pension Benefits Guarantee Corporation.
Uni ted Water Resources, Inc. obtains the
services of an actuary to calculate penslon expense.The
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actuary calculated penslon expense on a business uni t basis,
so United Water . Idaho s pension expense is separately
calculated and not allocated from the corporate level.
Uni ted Water Idaho is proposing to use the
expense calculated under the methodology provided by
Statement of Financial Account Standards No. 87 (FAS 87) for
both the pension plans.
Please describe FAS expens e.
FAS expense,also referred to as Net
periodic Pension Cost (NPPC) , is a reference to the
statement issued by the Financial Accounting Standards Board
(FASB) .The statement was issued to alleviate long- standing
controversy regarding how to report for pension liability.
It mandates the use of Net periodic Pension Cost for
reporting pension expense on a Company s financial
statements.The NPPC is an accrual of pension expense for
gl ven year, but it is not the actual amount of cash that a
Company is required to contribute to a pension plan to meet
its minimum funding liability and avoid interest and
penal ties.It is also important to note that FAS 87 makes
no ment ion of regul atory account ing .
Have there been any perceived problems wi
FAS 87?
Yes.There has been a growing concern among
accounting professionals regarding the use of FAS 87 and the
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. 9
potential for manipulation of financial statements.
2003, the FASB agreed to put further review of FAS 87 on its
formal agenda.Though the Board has not made any changes to
the Statement, the concern is still present.
What was the actual amount of cash contributed
to the pension plans (United Water Resources) during 2004?
The Employee Retirement Income Security Act
(ERISA) and Section 412 of the Internal Revenue Code mandate
the required minimum contribution necessary for a plan
sponsor to meet its funding obligations.A completely
different calculation is used to determine the minimum cost
for a given plan year.The ERISA funding 'requirements for
Uni ted Water Resources, Inc. are determined on a plan basis
and not on a specific business unit basis.In years where
the minimum required contribution is greater than zero, the
minimum is then allocated over the participating companies
in the plan.In years where the minimum contribution
zero and no contribution is made, there is no allocation
needed or performed.
For the non-Bargaining Unit plan, no
contributions were required or made to the plan for the five
years covering 2000 through 2004.Staff initially tried
obtain further historical information to determine ten-year
trends, but agreed to accept five years' worth of
information after the Company indicated the reports were too
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voluminous and would be burdensome to photocopy.
For the Bargaining Unit plan, there were no
contributions made in 2000-2002.The actuarial calculations
of the actual cash contributions were not provided to Staff,
however the information was available on the Form 5500, the
Annual Return/Report of Employee Benefit Plans that
required to be filed annually pursuant to Sections 104 and
4065 of ERISA and Section 6047 (e), 6057 (b), and 6058 (a) of
the Internal Revenue Code.The 2003 Form 5500 for the
Bargaining Unit plan indicated that the total cash
contribution required and made to the plan for 2003 was
$706,187.This amount represents the total contribution
all business units to the United Waterworks, Inc. Employees
Retirement Plan - Bargaining Unit.Staff estimates that
Idaho s portion of the 2003 contribution was approximately
$162,454.This amount was calculated by taking Idaho
actuarially calculated FAS 87 expense and dividing it by the
overall total of actuarially calculated FAS 87 expenses for
all business units with positive FAS 87 expenses.The
resul ting percentage was then mul tiplied by the cash
contribution to estimate Idaho s share. ' All business units
with negative FAS 87 expenses were excluded from this
allocation process because it would be impossible for
Company to make a negative cash contribution to the plan.
Staff admits that our calculation of Idaho s portion of the
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cash contribution may not be exact, but it does obtain a
just and reasonable resul t that should be very similar to
the allocation that may have been calculated by Uni ted Water
Resources, Inc.
The 2004 cash contribution to the Bargaining
Unit plan was not provided to Staff, and the 2004 Form 5500
is not required to be completed and filed until October 15,
2005.Therefore, Staff could not ascertain the exact amount
of cash contributions due to the plan for 2004.
Please briefly describe ERISA.
ERISA was enacted by Congress in 1974 to ensure
some level of security in employee benefit plans. Since its
enactment, penslon plans are subj ect to intense federal
regulation bec~use of the long-term nature of the benefit
obligation and the resul ting potential for changed
circumstances.One of many ERISA requirements is the
systematic advanced funding requirements to protect
employees against employer default.ERISA mandates the
minimum amount that must be funded each year to a pension
plan to avoid a funding deficiency.
How is this amount calculated?
The first step of the calculation is to
determine the Normal Cost for the year.The Normal Cost is
the annual cost of the plan using the plan s actuarial cost
method as establ i shed in the plan document.The Normal Cost
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\ .
lS a calculation that takes into consideration the present
value of future benefits, the actuarial value of the Plan
assets, any unfunded liabilities and the present value of
the Company s future payroll.This information is used
calculate an accrual rate that is then multiplied by the
Company s current payroll to produce the Normal Cost.
adding or subtracting any charges or credits to the Normal
Cost one can obtain the Annual Cost.The Minimum Required
Contribution is the lesser of the Annual Cost or the
difference between the Full Funding Limitation and any
credi t balance.This minimum contribution is the amount
that a Company must fun9- in order to avoid a funding
deficiency in the Funding Standards Account.
Are you suggesting that this Commission adopt a
policy that only the ERISA required minimum contribution
accepted for rate recovery?
I am not necessarily recommending a strict
policy of only accepting the ERISA required minimum amount
for rate recovery purposes, but I do believe that the ERISA
mini'mum contribution is the best starting point in
determining the amount to allow for recovery.When deal ing
with the different pensio~ calculations, it is important to
remember that these "costs " we are referring to are
artificial numbers that have no connection to real-world
values.These costs do not accurately estimate the value of
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. 12
the plan s liability to pay benefits, the Company s legal
liabili ty. should the plan be terminated, or the value
benefits accumulated under the plan.These calculations are
simply a means by which the federal Tax Code and the ERISA
regulations dictate the level of funding in \a plan for
purposes of tax deductions and minimum funding rules.The
calculation methodologies consist of using inaccurate data
and speculative assumptions and running them through an
overly precise formula to produce a 'cost calculation.
Therefore, there is no accurate contribution value, and we
are forced to rely on a number that is produced by the
calculations.Given the speculative nature of pension
contribution calculation, I believe it is wise for the
Commission to reserve some discretion in determining amounts
to be recovered through rates based on the individual facts
and circumstances of each case.Given the large requested
rate increase in this case, funding at the ERISA mlnlmum
level is appropriate.
Are there any other differences between FAS 87
expense and the calculations performed under ERISA that you
would like to address with the Commission.
The cash contribution (ERISA) and the penslon
expense (FAS 87) calculations both reflect the cost of a
pension plan - one as cash and the other as a reduction in
Both are calculated using similarCompany earnlngs.
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principles, but the rules for calculation are very
different.Some specific differences that have not already
been previously mentioned are:
1 .FAS 87 allows the projection of benefit
limits under IRC 415, compensation limits
under IRC 401 (a) (17) and other items that
are not used in the ERISA calculations.
2 .FAS 87 explicitly counts assets based on the
actual time separated from the employer
control, while ERISA calculations have
provisions for receivables.
3 .Asset smoothing is not used in FAS
calculations as it is in ERISA calculations.
4 .FAS 87 has a specific funding method (pro-
rata unit credit), and a unique amortization
of past service liabilities that do match
the funding rules under ERI SA.
There are many other differences between FAS 87 expense and
the ERISA contributions, but those are a few of the maj or
points.
Wha t amount are you recommending the Company
allowed to recover in rates for pension expense?
I believe the Company should recover the actual
amounts of cash contributions it would have been required to
contribute to the plan for 2004.For the non-Bargaining
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unit plan, this amount is $0.00.The Bargaining Uni
contribution for 2004 was not provided to Staff, and Staff
had to rely on the 2003 report and calculations as mentioned
earl ier Therefore, Staff accepts the amount of $162,454,
which is approximately Idaho s portion of the overall
contribut ion.
Would Staff allow United Water Idaho to recover
their portion of the overall Bargaining Unit pension
contribution for 2004 if the Company provided those
calculations?
Yes.I have reviewed the actuarial assumptions
used in determination of the contributions and expense and
believe them to be reasonable and in line with what the
Commission has approved for other utilities in recent cases.
Provided that the actuarial assumptions did not change from
2003 to 2004, I believe the acceptance of Idaho s portion of
the ERISA minimum required cash contribution is appropriate.
Has anything led you to believe that these
amounts will increase dramatically in the near future?
The most compelling driver of pension cost
market performance.Though future market performance
uncertain, the Company s hired actuaries state in its report
their prospective view of the pension plans:
Going forward, we see evidence of recovery
with actual yields well in excess of
expected yields. This , however includes
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the moderate to flat performance during
2004 prior to the presidential election.
The measurement date of 9/30/04 reflectsassets prior to the election resul ts.
a measure of conservatism, we recommend
cont inuing wi th an 8. 5 % per annum
planned. We will revisit the rate for potential increase if experience continues
to support a higher long-term yield.
Given the Company s actuary s comments and the potential for
an increase in the expected long-term yield on assets
I 'assumption, I don t. believe the contributions to the plan
will increase dramatically in the near future.Though it is
important to note that pension contributions do fluctuate
and can vary widely from year to year.
Please explain Schedule No.5 of Exhibit No.
108?
Schedule No.5 is similar to Mr. Healy s Exhibit
No.3, Schedule 1, page 5 of 34.The Company reduces the
test year Post Retirement Costs by $145,345 to reflect the
2005 Post Retirement Costs calculated by the Company
actuary in accordance with Statement of Financial Accounting
Standards No. 106 (FAS 106) .Staff has reviewed the
calculations and the provisions of FAS 106 and accepts the
Company s adjustment.
Please explain Schedule No.6 of Exhibi t No.
108?
Schedule No.6 illustrates the adjustments to
payroll overheads charged to construction and other non O&M
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accounts.This schedule uses the same calculation method
that the Company uses in Mr. Healy s Exhibit No.Schedule
1, page 6 of 34, however many of the amounts listed on
Schedule 6 tie to amounts listed on other schedules and
adj ustments.Staff witness Stockton has reviewed the
calculation method and has deemed it to be reasonable.This
schedule simply updates the Company s figures to incorporate
Staff's adjustments to payroll and benefits, including
payroll taxes.The effect of Staff's adj ustment increases
the payroll overhead chargeable to Gonstruction and other
non O&M accounts proposed by the Company by $12,478.
Would you please explain Schedule No.7 of
Exhibit No. 108?
Schedule No.7 illustrates the calculation of
Staff's adjustment to the amortization of deferred costs
associated with the early retirement program.
Why does Staff obj ect to the deferral of the
early retirement program costs?
Staff obj ects to the recovery of the costs
associated with the early retirement program for two main
reasons.First, the Company has not proven that the
benefits exceed the costs at the Idaho level.Secondly, the
Company did not follow established regulatory procedures,
nor did it follow its own internal procedures when deferring
these. costs.
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i .
. I
Staff inquired of the Company to provide the
cost/benefit analysis of the early retirement program. and
enhanced severance packages in Production Request No. 180.
The Company s response indicated that the cost/benefits
analysis was prepared bi its actuar~ and were "performed on
a total pension plan basis and are not specific to any
individual Company.The study clearly indicates that on a
corporate-wide level, United Waterworks achieved significant
savings from the early retirement plan.However, at the
Uni ted Water Idaho level, the savings were not so clear.
Idaho water users and ratepayers do not benefit .when the
Company s parent achieves savings, and therefore should not
be required to pay costs associated wi th the increased
earnings of the parent company.The study did not
illustrate any cost saVlngs associated with the enhanced
severance packages.
How did Staff substantiate the savings,if any,
experienced by United Water Idaho from the early retirement
plan?
A review of Mr. Healy s workpapers in this
current proceeding indicates that in 2000, only six
employees took advantage of the early retirement
opportunity.Those six individuals had a combined salary
$252,527.The Company is seeking to recover $1,288,669
worth of expenses amortized over 60 months, or $257,734 per
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17
year, which is more than the combined salaries of those SlX
employees.Furthermore, the salary savings alone in the
almost 5 years since those employees retired would have
funded the Company s allocated expense of the early
retirement plan , and by allowing the Company to collect
those expenses from customers, the Company would in essence
be recovering these costs at least twice.
You mentioned the Company did not follow
procedures when deferring these costs.Would you please
elaborate?
Yes, the Commission has ruled in the past that
the deferral of significant expenses must be approved before
those expenses can be recovered in rates.Specifically, in
Order No. 258-80, page 9, relating to Idaho Power Company
request to recover nearly $7 million in environmental costs
associated with the Pacific Hide clean-up! the Commission
stated:
The al ternati ve the Company proposed to
recover the $7 million costs of the clean-
up, recouping the amount through rates overthe next five years, would violate the
principle that rates must be prospective
and may not be used to recoup past losses.
The proscription against retroactive
ratemaking means the Pacific Hide amountsspent by I PCo in the past are not
recoverable through future rates unless
they were preserved for that purpose by
deferral or other regulatory action. When
it became aware the clean-up costs would be
substantial, the Company had the opportunity
to request rate relief or deferral of these
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costs for future recovery. It did nei ther.
Had the Company requested deferral of these
costs and the Commission had approved it
we could now amortize t~is expenditure.
However , that is not the case and we are
wi thout a means to provide recovery of this
expense retroactively. (emphasis added)
The Commission affirmed its position in Order
No. 28097 , page 11, regarding Avista Corporation s request
to recover in rates a portion of the damages incurred from
the 1996 ice storm.The Commission in that order stated:
In this regard we find the transcript
reference to our treatment of Idaho Power
Pacific Hide hazardous waste clean-up costs
to be on point. Tr.p. 682-683; reference
Idaho Power Order No.5880. Avista ' s
proposal to recover uninsured costs of
1996 ice storm damages through rates would
violate the principle that rates must be
prospect i ve and may not be used to recoup\ past losses. The proscription against
retroactive ratemaking means ice storm costs
expended by the Company in the past are not
recoverable through future rates unless they
are preserved for that purpose by deferral
or other regulatory action. When it became
aware that the uninsured ice storm costs
. would be substantial, the Company had the
opportunity to request rate relief or
deferral of these costs for future recovery.It did neither.
Though the circumstances surrounding the events in these two
cases are different from that of Uni ted Water, the concept
of, recovery of past expenses is relevant.The 'substantial
costs of the early retirement plan were incurred in 2000 and
the Company did not request nor receive approval from this
Commission to defer those costs.The Company did however
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send a letter in Dece~er 2001 to the Co=ission notifyi~
those' costs and stating their intent recover those
costs in a future rate case.However,the Company. did not
seek,nor did the Commi s s lon grant,approval the deferral
of the early retirement costs, a procedure clearly
established by precedent.
Furthermore, the Company s internal policies
regarding deferral of expenses states that
in instances
involving large dollar amounts or out of the ordinary
circ~stances, Regulatory Business will seek an accounting
order from the Co=ission to ensure ac~owledgement and
thereby reduce the risk of not recovering the expense.
Certainly, the amount deferred involved a large dollar
a=unt and was out of the ordinary circ~stances, but the
Co~a~ still did not foll~ its own proce~res and re~est
Therefore, Staff has removed
approval from this Commission.
the $1,250,617 from deferred balances and adjusts the
Company s amortization expense by $257,734.
What is Staff's position regarding the
amortization of the 1999 early retirement plan that was
approved in the Company s last general rate case?
Staff does not take a position regarding the
deferral of the 1999 early retirement costs.However, the
re~lmng una=rtized balance of those 1999 e~enses is
$38,052.The Company was allowed to recover in
rates
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$152,208 per year from the 1999 E~P, and it will clearly
have recovered all costs associated wi th the 1999 ERP by the
time new rates go into effect.Therefore, Staff also has
removed the remaining unamortized balance of the
1999 ERP
from the Company s Application to ensure that the Company
does not over recover those expenses in customer
rates.
Do Staff's arguments related to removing the, ERP
amortization apply to the Deferred Enhanced Severance
Package (ESP) Expense shown on schedul e No.8 of Exhibi t No.
108?
Yes.The Enhanced Severance Plan should have
al so been sel f - funding or it would not have been prudent for
the Company to incur these expenses.Al so, the same
arguments regarding precedent for utilities to defer
expenses and recover them later through rates
applies.The
Company has not received authority from this Commission
, .
defer these expenses and thus, Staff had to remove from the
Company s request $49,751 of ESP amortization expense.
Please explain Schedule No.9 of Exhibit No.
108?
Schedule No.9 illustrates Staff's removal of
$77,479 from the Company s pro forma purchased water costs'
These adj ustments were made to reduce the amount of
purchased water to a level that appropriately aligns with
water usage in a typical year.Staff witness Sterling will
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address this adjustment in further detail.
Would you please explain Schedule No. 10 of
Exhibit No. 108?
Schedule No. 10 illustrates Staff's adjustment
to deferred tank painting expenses Staff does not take
exception to the inclusion of the amortized costs of
deferred tank painting.The issue here is the length
time that the expenses should be amortized.The Company
proposes to recover tank painting expenses over a ten-year
amortization period.Staff was not completely satisfied
that a ten-year amortization period is appropriate and
inquired of the Company in Production Request No. 168 to
provide a list of all tanks painted within the last twenty
years.The Company s response indicated that only one tank
the North Mountain tank on 24 th Street in Boise, was painted
twice during the last twenty years, once in 1984 and again
in 1999. Since tanks are not being painted every ten years,
Staff believes that a ten-year amortization period is not-
appropriate.
When determining an amortization period, it
important to take into consideration the estimated life of
the service or asset that is being amortized or depreciated.
The concept is to match the benefit received by the Company
to the life of the asset or service.In this case , it is
not appropriate for customers to pay through rates the
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expenses of painting tanks every ten years when they clearly
do not need painting that frequently.Therefore Staf
propo~es the use of a twenty-year amort i zation per~od and
adjusts the Company s amortization expense by $3,046 to
reflect this.
Would you please explain Schedule Nos. 11-13 of
Exhibit No. 108?
Schedule No. 11 illustrates Staff's removal of
$260,042 of purchased power costs from the Company
Application.Schedule No. 12 illustrates Staff's adj ustment
to the amortization of deferred power costs related to Idaho
Power Company s PCA mechanism above the level of power
expense established in Case No. UWI -W- 00-, Order No. 28505.
This adjustment effectively ends the date of the Company
deferral at April 30, 2003 and amortizes the deferred
balance over four years, resul ting in a decrease to the
Company s pro forma amortization expense of $258,142.
should also be noted that because the Company was awarded
carrying charge on the deferred balance, Staff has removed
the deferred balance from rate base.The Company shaul d not
be allowed to earn a rate of return on the deferred balance
in addi t ion to the carrying charge.
Schedule No. 13 illustrates Staff's adjustment
to chemical expense , removing $15,000 from the Company
Application for the normalization of phosphate usage.Staff
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witness Sterling will discuss these three adjustments in
further detail in his testimony.
Would you please explain Schedule No. 14 of
Exhibi t No. 108?
Schedule No. 14 illustrates Staff's adjustment
to Outside Laboratory expense.Staff reviewed the expense
levels of water quality testing for years 1999-2004 and the
estimated expense levels through 2011.Staff also examined
the frequency of each test to determine if the tests
included in the Company s filing are reflective of a typical
year.Staff accepts the Company s adj ustment to test year
expenses for the following tests on Schedule No. 14.
Line No.
3a.
3b.3c.
3d.
3g.
3h.
3 i .
3 j .
Test
Inorganic Chemicals
Volatile Organic Chemicals
Synthetic Organic Chemicals
Ni trates ArsenicRadionuclides
Disinfection By-Products
Col i form
Why does. Staff disagree wi th the Company ' s
proposed expenses for the other tests?
According to the Company s response to Staff
production Requ~st No. 98, testing for ni tri tes is only done
once every nine years.Rather than letting the Company
recover the costs of this test from customers each year,
Staff believes it is appropriate for the Company to only
recover 1/9 of the expense of this test each year.
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STAFF
The same response indicated that the testing for
Fe/Mn is not regulated and for aesthetic purposes only.
Though Staff agrees this test is necessary, the amount
proposed by the Company exceeds the amounts actually
incurred by the Company in any of the previous six years.
Staff accepts the 2004 level of expense for this test
$738, which is in line with the five-year average of $742.
The LT2ESWTR test, which tests for
Cryptosporidium , E. Coli , and turbidity is required bi-
monthly for only two years.Staf f bel ieves it would be
inappropriate for the Company to recover these expenses from
customers every year when after two years the tests are no
longer required.Staff believes allowing the Company to
recover 1/5 of the $12,000 annual expense of this test each
year, or $2 400, is reasonable.
Also included in the Company s pro forma
expenses lS $3,500 for miscellaneous testing which
represents repeat or response samples.The Company did not
provide "the historical costs of miscellaneous testing
expenses with its response to Production Request No. 169,
which asked for a 10 -year history of all testing expenses
included in this case.Though Staff understands the
occasional need for a repeat test or response sample, we
were unable to determine wi th any certainty the amount of
miscellaneous testing expense that will be incurred in the
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future.Based on the Commission s precedent that future
expenses be known and measurable, Staff has removed the
$3,500 miscellaneous expense for these tests.The total
amount removed from the Company s pro forma water quality
testing expense is $14,340.
Please explain Schedules No. 15 and 16 of
Exhibit No. 108?
Schedule Nos. 15 and 16 duplicate Mr. Healy
Exhibit No.3, Schedule 1, pages 15 and 16, where the
Company proposes adjustments for increased operating
expenses related to the new Columbia Water Treatment Plant
and decreased power and chemical expenses at other sites
because of the operation of the new treatment plant.Staff
witness Sterling examined these expenses and Staff accepts
the Company s adjustments.
Q. Please explain Staff's adj ustment
transportation expense shown on Schedule No. 17 of Exhibit
No.1 0 8 .
The Company s adjustment to test year
transportation expense includes mechanic payroll and
benef i ts Those amounts have already been accounted for
Adjustment No.1 (Payroll), Adjustment No.(Employee
Heal th and Other Insurance), and Adj ustment No.(Pension
Expens e) .The inclusion of mechanic payroll and benefits in
Transportation expense would allow the Company to recover
/C .
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19.
from customers twice the expense it would actually incur.
Thus Staff has removed the mechanic payroll and benefits
from Transportation expense.The Company is aware of this
adjustment and provided an updated amount as part of the
response to Staff Production Request No. 198.
Staff also takes exception with the calculation
of lease disposal proceeds .in the Company s filing.The
Company estimated the total net value of the vehicles with
leases expiring in 2005 to be $31 442.However, the Kelley
Blue Book wholesale value of those vehicle~ is $53,300.
Kelley Blue Book is an independent, obj ective vehicle
valuation service.Staff believes that the Kelley Blue Book
value is more indicative of the net value of the vehicles
than United Water Idaho s estimate for 2005 and should
therefore be used in determining the proceeds from the lease
disposals.The total amount removed by Staff from the
Cpmpany s Application for transportation expense is $18,661.
Please explain Schedule No. 18 of Exhibit
No. 108.
Schedule No. 18 illustrates the Company
adj ustment to test year expenses for customer postage.The
Company uses an estim~ted customer count as of May 31 , 2005
to determine the annual postage expense to be recovered in
rates.Though this amount is only an estimate and not known
with any certainty, Staff accepts this adj ustment.The
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inclusion of the Columbia Water Treatment Plant and the
associated revenue producing adjustments as discussed by
Staff witness Lobb supports the rationale for accepting this
adj ustment.
Please continue wi th the explanation of your
adj ustments and schedules.
Schedule No. 19 reflects the Company
adjustment to test year expenses for customer information
system (billing) expenses and incorporates Staff'
adj ustments.Again, the Company. uses a pro forma customer
level at May 31 , 2005 as the basis for its computation of
billing expense.Staff accepts the May 31 , 2005 customer
count per Staff witness Lobb's testimony, however Staff
disagrees with the number of past due notices the Company
uses in its calculation.The Company uses an estimated
number of 386 past due notices per month or 88,635 per
ann um .The average number of past due notices mailed per
month during the test year was 7,153 or 85,839 per annum.
Since it would be impossible to determine the exact amount
of past due notices that will be mailed in any given year,
Staff replaces the Company s estimate with the actual test
year number.The effect of this change reduces the
Company s pro forma adjustment by $1,678.
Schedule No. 20 illustrates Staff's adjustment
to the Company s pro forma customer outside collection
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expens e The Company uses a test-year level of lockbox
transactions and mul tiplies that by the pro forma number
bills produced based on May 31, 2005 customer counts.The
price per unit of lockbox transactions was also based on the
test year level of 23.44 cents per transaction.Howeve r ,
the Company indicated in its response to Staff's Production
Request No.1 72 that the actual cost per unit of lockbox
transactions as of December 31, 2004 is 14.77 cents.Staff
accepts the Company s calculation wi th the provision that
the December 31, 2004 lockbox price is used.The resul t
an adjustment to the Company s filing of $30/015.
Schedule No. 21 is similar to Mr. Healy
Exhibit No.3, Schedule 1 , page 21 of 34 and illustrates the
Company s adjustment to test year expenses for customer
records and collection expense and miscellaneous customer
accounting expenses.'Staff has reviewed these calculations
and accepts the Company s adjustment as filed.
Schedule No. 22 is duplicative of 'Mr. Healy
Exhibit No.3, Schedule 1/ page 22 of 34 and reflects the
Company s adjustment ,to Uncollectible Accounts expense.The
Company indicates that the uncollectible debt percentage
during the test year was abnormally high , so it used a four-
year average to attempt to normalize the expense.Staff is
concerned wi th the arbi trary use of the four-year average
because the Company seems to purposefully exclude years
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473
prior to 2001 where the percentage of bad debt
significantly lower.By using a five-year average, the
uncollectible debt. rate is . 3978% as opposed to .41565% as
filed in the case.A six-year average reduces the bad debt
rate to .3917%, and a ten-year average reduces the bad debt
rate to .366% percent.Staff's calculation uses the fi ve-
year average of .3978%, which reduces the Company s filing
by $ 5 , 52 9 .
Schedule No. 23 reflects Staff's response to the
Company s adjustment to increase test year expenses for the
IPUC annual assessment.The Company uses the 2004
assessment rate of .240500% and multiplies that rate by pro
forma revenue.Staff believes that this resul t only
produces an estimate, and not a known and measurable amount
and obje.cts to the Company s adjustment.Staff lS aware
that the annual assessment to be paid by United Water Idaho
is likely going to increase over the 2004 levels but cannot
determine wi th certainty the exact amount.Howeve r , by the
time the Company files its rebuttal, the actual assessment
amount will be known.Staff is willing to accept and
incorporate the actual assessment amount into its revenue
requirement if the Company files that amount on rebuttal.
Please explain St~ff' s adjustment to the
amortization of rate case expenses as shown on Schedule No.
24 of Exhibit No. 108.
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, 2
The Company estimated the expenses that it will
incur with regard to this current rate case at $245,000 and
requested a three-year amortization period to recover those
costs.Staff reviewed the invoices of all expenses incurred
through March 21, 2005, which totaled $183,074.The Company
estimates remaining expenditures to be $62,500, which would
bring the total rate case expenses to $245,574.
Included in the Company s $245,000 estimate was
$25/000 to Steele & Associates - Boise (S&A-B) for a public
information campaign and website enhancement.Staff
understands the need for the Company to inform customers of
the pending rate case, but also believes that much of the
public relations performed by S&A-B also enhances the
Company s image and goodwill.Therefore, Staff bel ieves
split of the expenditures is appropriate and the Company
should only recover 1/2 of the expense from customers.
removing 1/2 of the S&A-B estimated expenditures , the
remalnlng balance to be recovered and amortized is $232,500.
Secondly, as with any requested amortization,
Staff reviewed the amortization period.Staff notes that
Idaho Power Company incurred similar outside consulting
expenses In its last general rate case, Case No. IPC-03-
13, and the Commission accepted in Order No. 29505 a five-
year amortization period.Staff believes that an
amortization period of five years in this current proceeding
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475
23.
lS not only reasonable, but also consistent with the
Commission s recent decision.
The two adjustments noted above will reduce the
Company s pro forma amortization expense by $35,167.
Would you please explain Staff's adjustments
on Schedule No. 25 of Exhibit No. 108?
In 2003, the Company paid $130,093 in Employee
Reimbursement expenses for one employee to move to Boise to
work for Uni ted Water Idaho as a Senior Technical Analyst.
This amount is clearly excessive for an employee who was
paid a salary of approximately $81,500.Furthermore, Staff
believes that the employment pool in Boise is large enough
that the Company could have filled this ,position locally, or
promoted from within and thus mitigated the need for such
arge expens e .
What kind of expenses did the Company incur for
the relocation of this employee?
The Company paid $14,146 for two months of
lodging between April 23, 2003 and June 27, .2003.The
Company also paid $36,817 for all costs associated with the
sale of the employee s house, $8,452 for storage of the
employee s vehicles and personal items, and $7 992 in a lump
sum per diem that the employee could spend in ahy manner
chose.After all the relocation expenses were tallied, the
Company then grossed up the expenses for taxes so the
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476
5 .
employee would not be hit with an additional tax burden. The
Company paid the ~mployee an extra $40, 671 to help cover the
additional tax liability caused by the relocation
expense.
Did Staff review the Company s Relocation
Policy, and would you briefly describe that P91icy for
the
Commission?
Yes.The Relocation Policy is extremely
generous and indicates that the Company will pay for the
following costs associated with the sale of the relocating
employee s current home:
Real estate commission up to a maXlmum of 6%
Pre-payment penalties
Title examination
Title insurance
Attorney and escrow fees
Transfer and recording fees
Survey fees
Required inspections
If the relocating employee is currently leasing a home, and
cannot cancel the lease without penalty, the Company will
19 reimburse the employee up to an equivalent of one month'
rent for cancel ing the lease.
The Company will also pay for the relocating
employee and his/her spouse/partner to make two trips to
Boise of up to four nights each for the purpose of finding a
new home.The Company covers the lodging, plane tickets,
and rental car.
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477
The Company also assists the relocating employee
to purchase a new house for up to six months after the date
of transfer.The Company pays the following costs
associated wi th the new home purchase:
Loan origination fee not to
Title insurance or fees for
as required by lender
Appraisal of new home
Escrow and closing fees
Attorney fees
Recording fees
Assumption or transfer fee
Credi t report charges
Inspection fees
exceed 1 %
examination of title
The Company also pays for temporary living expense for up to
60 days, if the new employee is unable to move into the new
residence immediately.
The Company will also pay all the expenses
moving the employee and his/her family to their new
location, along with the costs of. storing any personal
items.Relocating employees also recelve a Miscellaneous
Expense Allowance "to aid in the defraying" of miscellaneous
costs associated with the move.These costs include:
Driver s license and automobile tags
Miscellaneous personal expenses during temporary
living, such as dry cleaning, parking and tolls,
entertainment, etc.
Pet shipping/ care/boarding
Cable TV and telephone remova~ and installation
Utility disconnection and connections
Carpet and drapery installation and cleaning25.
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Cleaning of old and new residence
Taxes not covered under the tax gross-up program
Tips to movers
Childcare during house-hunting trips
Meals and phone calls home while in temporaryhousing
Laundry while in temporary housing
All miscellaneous expenses associated withhouse-hunting trips, temporary living, final
move and moving of household goods
After all the relocation expenses have been calculated or
incurred, the Company then provides the employee wi th an
allowance to help offset the additional tax burden incurred
by receiving the benefit.
What is Staff's position with regard to this
policy?
Obviously, this policy is very generous.Staff
believes the policy to be extremely excessive and not
appropriate for a public utility that passes on costs
customers.The policy does not provide a maXlmum dollar
limit that an individual may receive, nor does it provide
for any repayments from the employee if the employee
terminates soon after relocating.
Is this employee s~ill currently employed by the
Company?
No, it is Staff's understanding that this
employee passed away approximately one year after moving to
Boise.
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Has the Company replaced this employee?
The Company eliminated the position and replaced
it with an employee earning $33 200 per year.
Would you briefly summarize Staff's position on
the relocation expense?
. Yes, Staff believes that the Company
relocation policy is excessive and it would be inappropriate
to pass on those excessive costs to customers.Staff also
believes that pertaining to this specific individual
position , the Company could have hired locally or promoted
from wi thin.Furthermore, a year after incurring these
expenses for the position of Senior Technical Analyst, the
Company deemed the posi tion obsolete and replaced it with a
much lower-paid posi tion.Therefore, Staff's recommendation
is to disallow all expenses associated with this employee
relocation expense.It should also be noted that with this
adjustment, Staff has decreased the deferred balance of the
employee relocation expense from rate base so the Company
will not receive a rate of return on the unamortized portion
of the expense.
Is the Company including any relocation expense
amortization left over from a prior case in this current
case?
Yes, the Company indicates that the remaining
unamortized balance of employee relocation expense left over
CASE NO. UWI -W- 04-04/06/05 (Di)
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from the UWI-00-1 case is $5,732.In that case, the
Commission granted an annual amortization expense of
$25,688.Staff removes the remaining balance of amortized
expense from the Company s filing because shortly after the
time the new rates go into effect, the Company will have
fully recovered its employee relocation expense from the
prlor case.
Will you please explain the Company s treatment
of Business Insurance expense and Staff's adj ustment shown
on Schedule No. 26 of Exhibit No. 108?
The Company includ~s the costs of casualty
insurance, worker s compensation coverage , property
lnsurance, and small property damage claims in its
adj ustment to Business Insurance expense.The amounts
included are derived from the Operating Plan of United Water
Resources, Inc. and then allocated to United Water Idaho,
with the exception of small property damage claims.The
Operating Plan Insurance expense is simply an estimate of
insurance expense that it anticipates will increase during
2005.It is likely that some policy premiums .will lncrease
while others decrease, and Staff contends that the Company-
proposed increases to test year expenses for additional
insurance costs are speculative and not based on known and
measurable charges.
However , Staff understands that test-year
CASE NO. UWI -W- 04-04/06/05 (Di)
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expenses for property insurance coverage are n abnormally low
due to a large, non-recurring property insurance credit of
$109 (271"(Healy, Di, page 21) .Staff does not wish to
penalize the Company because of this one-time credit and
will accept an adjustment to increase test year business
expense by $109,271.
compensate the Company
expect s the Company
Staff believes its proposal will
for business insurance expense that
will incur during a typical year.
The impact of Staff's adj ustment is a reduction to the
Company s pro forma Business Insurance expense of $184 264.
Will you please explain Staff's adj ustments on
Schedule No.2 7 of Exhibi t No.1 0 8?
Pursuant to Commission precedent, the Company
removed from test year expenses $14 005 for charitable
contributions, country club dues, and the lobbying portion
of industry association dues.Staff recognizes the
Company s attempt to comply with previous Commission Orders,
however a review of the Company s expenses indicates that
the Company did not remove all of these costs.
Specifically, the Company spent $3,800 on scholarships and
sponsorships and $11 833 on Company sponsored events such
golf tournaments, Christmas parties, and Fourth of July
parties during the test year. Staff appreciates the
Company s willingness to fund ,scholarships and sponsor
Community events, however these expenses serve to enhance
CASE NO. UWI-04-
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the Company s lmage rather than improve the production,
transmission , and distribution of water, and should not
passed on to customers.
Staff also understands the importance of
Christmas parties and Fourth of July parties to celebrate
special occasions and increase employee morale, however
is not appropriate to recover these expenses from
ra tepayers
Staff also believes the Company understated the
lobbying portion of the dues paid to the National
Association of Water Companies (NAWC)The 2004 NAWC Dues
Schedule, provided as a part of Mr. Healy s workpapers
indicates that 27% of the dues paid are for lobbying
expenses.The Company has removed only 18% of the dues from
the test year.Staff's adjustment also accounts for -the
additional 9% of the dues that is allocated to the lobbying
expenses of the NAWC.Staff's adjustment along with the
Company s adjustment removes $31,438 from test year
expenses.
Please explain Staff's adj ustments to Corporate
and Local Information Technology (IT) Maintenance and
Support as shown on Schedule No. 28 of Exhibit No 108.
The Company proposed a nearly 50% increase in IT
maintenance and support Staff was concerned wi th this
large increase and asked the Company in Production Request
CASE NO. UWI-04-404/06/05 (Di)
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ENGLISH , D.
STAFF
No. 175 to "provide a detailed narrative justifying the near
50% increase requested for corporate and local IT support.
The request also specifically requested the Company to
include in its response "all components of the increase and
include all contracts or agreements.The Company did not
file a response until after Staff had begun writing
testimony, and Staff was not able to fully review all the
components of the request.Also the response did not
include any contracts or agreements for the costs of this
support.However , the response did indicate that the main
driver of the ' increase was the conversion of the financial
system software to PeopleSoft 8.The conversion of a
financial system is a major task that is not a typical
occurrence that one can expect to duplicate each year.
Therefore, Staff cannot accept the Company s adjustment
because of Commission precedent that excludes extraordinary
and non-recurring expenses from recovery in rates.Staff
would be willing to continue to work with the Company to
review the IT Maintenance and Support expense , and could
possibly accept an amortization of the increased costs
one is truly warranted.
Please explain Schedule No.2 9 of Exhibi t No.
108.
Schedule No.2 9 is duplicative of Mr. Healy
Exhibit No.3, Schedule 1, page 29 of 34.The Company
CASE NO. UWI -W- 04-04/06/05 (Di)
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4 -
discovered a test year miscoding bn their books and removed
- $2,995 from test year expense.Staff has reviewed the
entries and concurs with the Company ' s adjustment.
Please explain Staff's adjustments on Schedule
No. 30 of Exhibi t No.1 0 8 .
The Company made an adjustment to test year
expenses to reflect additional variable expenses related
customer growth.Staff witness Lobb testifies as to the
rationale behind these expenses and Staff accepts an
adjustment to reflect customer growth.Staff has updated
the amounts on Mr. Healy s Exhibi t No., Schedule 1, page
30 of 34 to account for updates made to Transportation
expense, Purchased Power expense, Chemical expense, and
Customer Growth revenue.The latter three expenses were
provided to me by Staff witness Sterling.The overall
effect of this adj ustment is an increase in test year
expenses of $56,542, which is $16 480 less than the
Company s reque st.
r--
Would you please explain Staff's adjustment to
expenses related to weather normalization as shown on
Schedule No. 31 of Exhibi t No.1 0 8?
Staff witness Sterling will testify regarding
these expenses.The effect of the adjustment decreases the
variable cost power and chemicals filed in the Company
Application by an additional $1,888.
CASE NO. UWI -W- 04-
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STAFF
, 1 Please explain the adjustments to outside legal
expenses as indicated on Schedule No. 32 of Exhibit No. 108.
The Company removed from test year legal
expenses $28,851 to recognize the cessation of an
amortization allowance granted in the Company s prior rate
case regarding property tax valuations.The Company has
fully recovered those expenses and removed the amortization
expense from test year legal expenses.Staff agrees with
the Company that this amount should be removed from rates so
as to not over recover the initial expense.During the
review of the Company s finances, Staff also discovered
other legal expenses that should be removed from test year
legal expenses.During the test year, the Company incurred
legal expenses of $2 , 818 related to the disposi tion of the
Company s non-contiguous Carriage Hill system , $248 related
to the Cartwright Tank removal, and $7 980 related to Idaho
Power Company s operation of the Danskin Power Plant.
Clearly, the disposition of Carriage Hill , the removal of
the Cartwright tank and Idaho Power Company s building of
the Danskin power plant are extraordinary, non-recurring
incidents and the Company should not be allowed to recover
the legal expenses associated with these items as if they
would occur each year in the future.
Also during the test year, the Company incurred
$8,374 in outside legal e~penses as an intervener in Idaho
CASE NO. UWI -W- 04-
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ENGLI SH , D.
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Power Company s general rate case IPC-E-03-13.As a
regulated utility that consumes large amounts of
electricity, United Water cannot curtail its consumption of
~lectrici ty when power rates increase.Staff appreciates
United Water s efforts to serve in the best interests of its
customers by intervening in that case, however, it would not
. be appropriate to pass those legal expenses on to customers
In their entirety each year because rate cases of that
magnitude do not occur on an annual basis.Staf f proposes
the Company be allowed to recover one-fifth of the expenses
related to the Idaho Power case, in essence granting them a
five-year amortization of those expenses.This five-year
period is consistent with Staff's arguments regarding United
Water Idaho s amortization of the current rate case expenses
and is also consistent with Idaho Power s recovery of
expenses in 'that same case.
The total amount of the Staff's adjustment to
the Company s Application is $17,745.After Staff'
adjustment, approximately $50,000 of outside legal fees
remains in the test year.
, Q.Would you please explain the ,adj ustment to the
amortization of deferred legal expenses illustrated on
Schedule No. 33 of Exhibit No. 108?
The Company has requested in this case to defer
and recover $4 707 in legal expenses it has incurred related
CASE NO. UWI -W- 04-
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STAFF
to its efforts to assist the Commission with the challenges
posed by the Terra Grande Water Company (Healy, Di, pg 23) .
Staff appreciates the Company s efforts and assistance and
agrees that the Company should be able to recover these
expenses over time.Consistent wi th previous arguments made
in my testimony, Staff believes a five-year amortization
period is appropriate.
The Company s response to Staff Production
Request No. 137 states that "Mr. Healy s testimony failed to
recognize that $829.35 of the total deferred amount
actually attributable to Company labor and benefits overhead
actually expended on efforts related to due diligence
including wells and facilities inspection and line locating
at Terra Grande during the Summer of 2004." Since labor and
benef i ts overhead have already been accounted for in other
adjustments, it would not be appropriate for the Company to
include this amount in its deferral.Staff supports the
recovery of the $3,877 deferral over a five-year
amortization period.The result of Staff's adjustment
reduces the amortization expense by $794.Staff has also
reduced the deferred balance included in rate base to $3,877
so the Company will not receive a rate of return on the
expended labor and benefits overhead.
Would you please explain Staff's adj ustments
calculated on Schedule No. 34 of Exhibi t No. 108?
CASE NO. UWI -W- 04-04/06/05 (Di)
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The Company reduced test year operating. expenses
by $986 to account for the reduced power costs due to
cessation of its operation of the Carriage Hill system
(Healy, Di, pg 23) On page 24 of his direct testimony, Mr.
Healy states that the accounting expense is negligible, and
therefore the Company did not make an adjustment to reflect
the reduced accounting expense.Mr. Healy s workpapers
indicate that the test year accounting expense related to
the Carriage Hill system was $645.Because the Company
includes an adjustment for the disposition of the Carriage
Hill system and substantiated the total dollar amounts
involved, it is only appropriate to make an adjustment that
reduces all of the test year expenses related to the
operation of the Carriage Hill system.Therefore, Staff'
adjustment reduces the test .year expense by an additional
$645 to account for the decreased accounting expense that
will no longer be incurred due to the sale of this system.
Will you please explain Exhibit No. 109?
Exhibit No. 109 consists of three schedules that
illustrate the calculation of payroll taxes.These
schedules and calculations are similar to Exhibit No.
Schedule 2, pages 2 -4 sponsored by Mr. Healy. . Staff has
updated these schedules to reflect ~he adjustments made to
payroll chargeable to Operations & Maintenance.The effect
of Staff's adj ustment reduces the Company s proposed
CASE NO. UWI -W- 04-404/06/05 (Di)
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ENGLISH , D.
STAFF
Employer FICA and Medicare Tax Liability by $16 308, the
proposed State Unemployment Insurance Tax Liabili ty by $59,
and the proposed Federal Unemployment Insurance Tax
Liability by $56.
Does this conclude your direct testimoriy in this
. proceeding?
Yes, it does.
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ENGLISH, D.
STAFF
(The following proceedings were had in
open hearing.
(Staff Exhibit Nos. 108 and 109, having
been premarked for identification , were admitted into
evidence.
MR . WALKER:And the witness is available for
cross - examina t ion.
COMMISSIONER KJELLANDER:Thank you.Let's go
first to Mr. Miller.
MR. MILLER:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. MILLER:
Mr. English , good mornlng.
Good mornlng.
Wi th respect to the change in rate to your
testimony on page 8, could you provide to the Company a source
document that would support this change in the number of the
average salary for meter readers in the United States?
During the course of Discovery the Company did
ask for source documentation for the original figures, at which
time we did provide a link or a Web site to the Bureau of Labor
Statistics where this information came from.
And could you provide a source document for your
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ENGLISH (X)Staff
change in the number of the average Uni ted Water meter reader
from 16. 68 to 1 7 . 68?
That's just a simple calculation of the four
meter readers that were included in Mr. Healy s workpapers.
And do you have that?Have you calculated it out
on a piece of paper somewhere?
I do have Mr. Healy's workpapers sittingNo.
there right next to Terri.
All right.
your proposed adjustments to operating expense of the Company,
I'd like to discuss wi th you some of
the first of which is your adjustment for the short-term
incentive plan.
Yes.
And that I s covered on your - - in your testimony
at what pages , please?
m sorry?
At what pages of your testimony is that
covered?
I believe it starts on page 5 and continues on
for about three pages.
Right.And what you're proposlng is to remove
$133 000 of expense in connection with the short-term incentive
plan from allowed operating expense.Is that correct?
Yes, that is correct.
Is it true that 133 percent -- or , pardon me
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$133 000 is about three percent of the total compensation for
employees for the Company?
That is about
- -
that is correct regarding total
compensation.However , it should be noted that the number of
employees participating in that plan is not 100 percent of
Company employees, so that percentage seems a little skewed.
But it's true, is it not, that every posi tion
within the Company is eligible for participation,' not just
managers; that those who desire, can participate?
According to the Company's policy, not every
position is available.It's left up for the discretion of the
management to determine which positions are available or not.
Could very well be that management
- -
local management
- -
has
decided that all posi tions are available, but I'm not aware of
those statistics.
If I represented to you that is, in fact , the
case, would you have any reason to disbelieve it?
Joe , I would have no reason to disbelieve you.
I wouldn't either.Mr. Healy, in his rebuttal
testimony, indicates that approximately 60 percent of the goals
which are covered by the Stip are not tied to United Water
financial -- United Water Idaho's financial performance.Would
you accept Mr. Healy's representation that 60 percent are not
financially oriented?
That number has not been verified by Staff.
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ENGLISH (X)Staff
Any reason to disbelieve that one?
Well, again , that number has not been verified by
Staff , so I would rather not confirm nor deny that.
But that's the number that is in Mr. Healy'
rebuttal?
That may very well be.
Now , the 30 percent that would have
- -
somewhere
between 30 and 40 percent of goals that are tied to financial
performance, it's true , is it not , that, for example, meeting a
budget by a manager could have customer benefits in the sense
that costs are constrained within budgets?My point being that
meeting financial goals isn't always adverse to the interest of
customers?
m sorry, I did not hear the first part of that
question.
One of the reasons suggested elimination of this
lS an assertion that the goals are tied to the financial
performance of the Company.What I was suggesting to you
that meeting financial goals such as staying wi thin budgets
bringing proj ects in under budgets , can have customer benefits
in the sense that efficiencies are gained and costs are
constrained.Isn t that true?
Well , I would say that the shareholder benefits
are much more obvious if efficiencies are gained.Then the
Company would be recovering that through
- -
inherently through
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ENGLI SH (X)Staff
savlngs that it will achieve and not through customer rates.
But wouldn't you agree that meeting, let's say,
operational budgets lowers the cost of service to customers?
Well , I actually don t see the connection wi
meeting operational budgets.I f the Company was to not meet
operational budgets , that could just mean that the preparation
to prepare the operational budget was
- -
was flawed.You know
the error could have been in the budget and not necessarily the
management performance.
All right.Well , I won t belabor this, but isn'
it an obvious point that there can be customer benefits from
proper financial management of a company?
That, I will concede.
All right.The next adjustment to usage suggests
a elimination of a public affairs manager , and I believe your
discussion of this starts on page 11?
Yes.
Is that correct?
Yes , it does start on page 11.
Would you agree after reviewing the rebut tal
testimony of Mr. Wyatt that the public affairs manager has , In
fact , been hired and is currently actively servlng on the staff
of the Company?
Yes, I do agree wi th that.
So your ini t ial reason
- -
one of your ini t ial
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Staf f
reasons, that the manager has not been hired , no longer has
application.Isn't that correct?
Yes.One of the reasons for excluding that
pas i t ion was that it was not known and measurable, and the
Company had notified us during the process of writing testimony
that they did , indeed , hire a public affairs manager.
All right.When coming to the conclusion that
you assert in your testimony that the manager would only be
involved in promoting the corporate image and lobbying, did you
request and receive an actual job description for the
position?
We did request job descriptions , brief job
descriptions , of every employee classification , which included
the public affairs manager.
But you did not specifically request a job
description for the public affairs manager?
, we specifically requested the job
descriptions for every classification of employee.
Did you review the job description for the public
affairs manager?
We reviewed the job descript ions of every
classification of employee.
Well , did you reVlew
Which includes the public affairs manager.
But did you, specifically, did you review that
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one?
Yes.
And how did you then conclude that the duties of
the manager would be lobbying?
Well , I see an argument over semantics coming,
but I refer to not only Mr. Healy's testimony but also the job
postings where the Company states that it is looking for an
individual wi th keen government knowledge and experience in
political networking.I think that I s easily interpreted to
mean lobbying.
Is there a difference in your mind between
advocating the adoption of legislation which benefits a
company, and maintaining reasonable relations of a company
between itself and its important constituents?
m sorry, I didn't hear that question again.
m having a hard time hearing you.
Let me move this here.
Is there a difference in your mind between
influencing legislation for the sole benefit of a company and
maintaining reasonable relationships with important
constituents?
The last two words again?
Important constituents.
Important constituents.
Yes, there would be a difference.One seems to
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Staff
be a customer relations lssue, and one seems to be a lobbying
lssue.
And wouldn't you agree that all maJor utilities
in the state have some degree of public affairs staffs?
m sorry, I'm having a very difficult time
hearing you.
Is there something wrong wi th my microphone?
, there's something wrong wi th my ears.
COMMI S S lONER KJELLANDER:I think maybe the air
exchange might be causing some problems over the wi tness table.
BY MR. MILLER:Aren't you aware that all maj or
utilities have people on their staff that represent the
companies in public and community forums?
That could very well be possible.I am not aware
if that's the case or not.
Wouldn't you think it's a legi timate cost of
doing business for a company to maintain reasonable
relationships with important constituents in its service
terri tory?
Well , I'd have to ask what you're meaning by
"important consti tuents " rather than not just all
constituents.
Q .Well , let's say like the City of Boise, the
Department of Environmental Quality.
R~gulatory governing bodies is what you're --
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Other agencies that have an impact on utilities
operations.
Well, I would admit to you that all maJor
utili ties in this state do have a regulatory division that is
responsible for overseeing regulatory action.
Wouldn't you agree that working wi th local
authorities such as the City of Boise to develop conservation
policies would be an appropriate function for the Utility to be
involved in?
That could very well be.Again , all maj
utilities do have a regulatory department, including United
Wa ter
So based on this, you can't really say, can yo~,
that this public affairs manager is golng to be devoted to what
you call lobbying, as opposed to maintaining reasonable
relationships with important constituents?
Well , I would say given the information provided
in Mr. Healy's testimony, the information provided in the job
descriptions, and the information provided to the public in the
job opening announcements, a very significant portion of this
position would include lobbying, and given the rebuttal
testimony of Mr. Wyatt, I would also believe that another
important position or responsibility of this position would be
enhancing the Company's image.
Have you read
- -
I take it you have read
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Staf f
Mr. Wyatt's rebuttal testimony on this point?
Yes, I have.
Would you accept it as an accurate description of
the position or do you have any reason to disagree with it?
Well , I would say that it differs significantly
from what we received during the course of our audi Howeve r ,
being a new position to the Company, I would accept that its
responsibilities could change, especially as a result of this
case.
So you're saYlng to me that you're not
disagreeing wi th what Mr. Wyatt has described as the functions
of the position in his rebuttal testimony?
I have no authority over Mr. Wyatt to change the
responsibilities of this position.Who bet ter would know the
responsibilities of this position.
Precisely.
Thank you.
Thank you.Let'turn now to your adjustment to
the 401 (k) expenses.Now , here the issue , I take it , is that
in Mr. Healy s testimony, Mr. Healy used the contribution
percentage based on test year participation rates and actual
Is that correct?pay rates.
That is not correct.He used a pro forma
payroll.
The actual pay rates to be in effect on April
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. Staf f
1st?
Well , agaln , that would be an estimate , because
the Company has since updated its payroll , and given the
information in the original payroll was estimated much higher
than it actually was than they submitted on rebuttal.
So is it your point that the actual pay rates to
be in effect on April 1st as contained in the direct testimony
are not accurate?
I think the Company's rebut tal has proven that
they weren't accurate.
Why would it not be possible to use the pay rates
contained in the rebuttal testimony?
Well , during the course of an audit , you do have
to realize that there needs to be a cutoff date where Staff can
no longer continue auditing a company or be similar to chasing
a moving target.Again , the payroll that the Company suppl ied
in its rebuttal testimony may have been an accurate description
of the payroll on that date, but given employee turnover
promotions, hiring wi thin , people leaving, you know , payroll is
definitely not a set figure that is going to maintain its
stability throughout the entire year.There will definitely be
some fluctuation given overtime pay, call-back pay, et cetera
et cetera.
If that's true, you could never do a calculation
of 401 (k) contributions, could you?
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Staff
Well, you could never do an estimate of future
401 (k) contributions is what we're arguing here.It would
never be known and measurable.
So why won't it be appropriate to use the rates
known to be in effect for April 1st?
Again , we're not
- -
there are two parts of the
formula here.One is pay rates, the other is matching
contributions.What the Company is doing is simply taking an
estimate, mul tiplying by an estimate, and claiming that the
result is known and measurable.The 401 (k) policy allows
employees to commence payroll deductions at any time , to cancel
their payroll deductions at any time.The Company simply takes
an amount that was used during the test year , an average
contribution percentage used during the test year, multiplies
it by what it proj ects to be a future payroll , and claims the
result to be known and measurable , and quite simply it just
it's impossible.
Assuming that the Company employees were never
allowed to change their contribution percentages and the
Company was mandated to make a matching contribution and the
Company never had any turnover or overtime pay or any kind of
salary increase, I might submi t that , yes , it would be known
and measurable.
Well, let me try and ask it this way: . There's a
difference, isn't there , between what you call an estimate and
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a proj ect ion based on known figures?You're characterizing
this as a guess?
An estimate , a budget number , a proj ected number
all fall in the same category.Management uses its best
estimate to come up with a projection to prepare a budget
number.I mean, they're all - - they're all related.
We 11 , jus t as another exampl e , the Company used
proj ected customers and proj ected revenues through May of 2005
in its revenue requirement calculations and the Staff accepts
those proj ect ions.Correct?
Well , I will believe that you'd have to talk to
policy witness Lobb
- -
Randy Lobb - - behind the reasoning for
accepting the Company's revenue requirement , but I believe it
does have to do wi th the increased revenues coming from the
operation of the Columbia water treatment plant, and this
Commission in the past has indicated that when companies are
adding such significant operations to rate base after the test
year ended, then they would like to see an attempt by the
utilities to match
But
the Staff when a
it would be fair to say, would it not , that
the expenses wi th the revenues.
proj ection works against the Company, is
willing to accept proj ections; when a proj ection works in favor
of the Company, it's not willing to accept projections?
That is absolutely not true, because I had
proposed several adj ustments based on the Company's use of
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pro forma revenue that didn't qui te make it into my testimony
because we've accepted it.So there" are several adj ustments
that would have gone in Staff's favor that we decided not to go
wi th because of the Company I s use of the pro forma revenue to
match revenue with expenses by the addition of the Columbia
water treatment plant.
Well , I guess we can say it's hard to tell when
Staff will accept projections and when it won'
I want to now discuss with you the Staff'
proposed removal of penslon expense.Are you wi th me, Donn?
Yes.
understand it,the Company had proposed a
test year level pension expense approximately $637 000,
plus a small pro forma adjustment of about $12 000 , just to put
things in context?
Okay.
Tha ti s correct?
Yes.
All right.And it's correct, is it not, that
that amount was computed in accordance with FAS 87?
Yes, that is the actuarial calculated amount in
accordance wi th FAS 87.
And there isn't a dispute about the correctness
of the calculation , is there?That is , you do not contend that
it was incorrectly computed under the FASA
- -
pardon me --
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FAS 87 methodology?
Well , the calculation itself is not contested.
The calculation is a resul t of oftentimes inaccurate data and
speculative assumptions , but those - - that's the norm wi th the
FAS 87 expense.
So the dispute here is not a question of whether
it was correctly computed according to that methodology?
Correct.
Right.It's true, is it not, that the Company'
calculations under FAS 87 are consistent with prior practice
and that this methodology, the FAS 87 methodology, has been
accepted in every Uni ted Water rate case since the inception of
FAS 87?
It has been accepted in the Uni ted Water rate
cases, just as well as it has been rej ected in most recent rate
cases for Idaho Power and Avista Utilities.
The point I want to make here is that
consistently for United Water up until now , FAS 87 has been
accepted?
Yes, and consistently for other utilities up
until their most recent rate cases , it was accepted as well.
We'll talk about other utilities in some other
context.
You indicate at page 16 that there is some
concern that FAS 87 creates a potential for manipulation of
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financial statements.that correct?
That correct.
Did you discover any improprleties Uni ted
Water financial statements in this area?
, I believe we already agreed that the FAS
calculation was accepted.
Have you reviewed the rebuttal testimony of
Mr. David Degann who filed testimony in this case and who
indicates that he has two decades of working with the plan
United Water plan , is a cum laude graduate of the College of
Insurance, has a MBA from Pace Uni versi ty, and is an enrolled
actuarian and fellow in the American Society of Pension
Actuaries, and would you agree that he's a qualified expert in
this field?
I would agree that he is a qualified expert when
it comes to calculating pension expense both under FAS 87 and
the ERISA requirements; however , I saw nothing in his testimony
that would lead me to believe that he is an expert when
comes to regulatory recovery of pension .expense.
I would submit to you that there is absolutely no
correlation between FAS 87 and regulatory recovery.I t does
not make any logical sense. to allow a utility to recover an
expense that is merely an expense because it has placed on its
books and has no correlation with the amount of cash outflow
that the utility has to spend on a glven year.
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Is there any evidence that Mr. Degann is a
financial statement manipulator?
, there is not, and nor did I contend that
there would be.
And it's true, is it not, that the Company will
record on its books an FAS 87 liability regardless of what this
Commission does?
Just as it is true the Company will contribute to
the plan the ERISA contribution amount
- -
minimum contribution
amount - - regardless of what this Commission does.
And if the Commission allows something less than
the FAS 87 amount , by definition , that amount will go
unrecovered in rates?
No, not by definition.A FAS 87 , agaln , is a
financial reporting tool that was created to allow for
comparisons between financial reports of different
publicly-owned companies.I t was a shareholder and a
stockholder and a reader of financial statements tool so that
they can compare apples to apples , because the FAS 87 mandates
specific requirements that must be used by all companies who
are filing financial statements with the SEC.I t has nothing
to do with the regulatory requirement, nor does it have
anything to do wi th the amount of money that a company must
contribute to a pension plan in order to avoid penal ties and
maintain its funding status.
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I think the important part of your answer there
is your acknowledgment that the Company is bound to follow
FAS 87 for public reporting purposes with the Securities and
Exchange Commission.Correct?
Yes, it is.
You indicate at page 20 to 21 that the Commission
should not have a strict policy of allowing only the
ERISA-calculated contributions, and go on to point out that all
the methods employ various assumptions?
Correct.
You then conclude that glven the large requested
rate increase, funding at the minimum ERISA level is
appropriate.Isn't this result-oriented recommendation?
, this sounds like a misinterpretation of the
point that I was trying to make.I simply stated in my
testimony that the ERISA calculation should be the starting
point , but for the Commission to blindly accept the ERISA
calculation would be foolish because of the speculatory nature
of the assumptions that are used in calculating that figure,
since the calculation is not appropriate without actually
scrutinizing and investigating the assumptions that are used;
and by using the ERISA calculation as a starting point and then
scrutinizing and investigating the different data and
information used to get to that starting point is more than
appropriate.
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Staff
But your language where you're saYlng given the
large funding at the minimum ERISA level is appropriate seems,
to me, to be an invi tation to engage in resul t -oriented effort
of holding down the rate score.
No.For someone who had no understanding of how
the ERISA contribution worked , I could understand how that
statement could be misinterpreted; however, when calculating
contributions under ERISA , not only do you calculate the
required minimum contribution , you could also calculate the
maximum deductible contribution to the ERISA contribution.
Gives you a range that can vary given that the Company has
requested such a large increase.I believe it's appropriate to
keep them at the ERISA minimum contribution and not allow them
to recover something that would be used mainly for a tax
deduction purpose.
Is this an invitation for the Commission to
flip-flop between methods, between the cash method and accrual
method, depending on which produces a lower revenue requirement
at the moment?
Has never been used that way.Consistently for
the last three rate cases in front of this Commission I have
argued the same point regardless of the FAS 87 or ERISA
contribution expense.
But not in Uni ted Water cases.
Well , I was considering this one number three.
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Right.In Mr. Degann' s testimony, he indicates
that the required minimum ERISA ,contributions are expected to
rise dramatically in the next three to five years.Would you
then recommend that the Commission go back to FAS 87 if those
increased costs came in conjunction with a large requested rate
increase?
I strongly believe that this Commission should
only grant a utili ty to recover the amount of cash
contributions that it is required to fund to a pension plan on
an annual basis to keep the plan from becoming or to keep the
plan from not having a deficient value, a deficiency.
So if, in the future, the ERISA cash indicated
contribution was substantially greater than the FAS 87 accrual
amount, it would be your recommendation that the Commission
permi t that recovery?
You know , our job as audi tors is not to come in
wi th the lowest possible recommendation for an increase.It'
to determine your expenses that are just and reasonable.
weren't shooting to give you the lowest recommendation or the
lowest increase.
You did a pret ty good job of it.
Well , I won't respond to that.
All right.At page 7 of Mr. Degann' s testimony,
he lists the
- -
what he perceives to be the advantages of FAS
87.
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COMMI S S lONER KJELLANDER:Mr. Miller , at this
particular point , do you have a lot of questions left?
MR. MILLER:Oh, a few.This would probably be a
good time to take a break.
COMMISSIONER KJELLANDER:Why don't we take a
break, about 15 after.
(Recess.
COMMISSIONER KJELLANDER:Okay, we'll go back on
the record, and Mr. Miller , you were in the midst of
cross-examination of the witness , and so if you'd like to
cont inue
MR. MILLER:Thank you , Mr. Cha i rman .
BY MR. MILLER:Mr. English , let me now go to the
topic of transportation expense.In his rebuttal testimony,
Mr. Healy corrects adjustments for the mechanic and
transportation payroll expense items.I was curious to know
first , if you agree wi th those corrections.
Well , I wouldn t necessarily call them
correct ions. Rather , they were more of a miscommunication.
The Company provided to Staff as a part of
Response to Production Request No. 198 an update to their
transportation expense , so when Staff calculated their
adjustment, the adjustment was based on that updated Exhibit
No. 17 or Adjustment No. 17 , which was assumed to have been
filed wi th the Commission but it was not.So it's -- it's just
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a matter of where you start when you calculate your adjustment.
Staff and the Company both agree that the
mechanic's benefits and payroll should be excluded from
transportation expense because they are covered under other
areas of thi s case, and allowing them to recover it wi thin the
transportation expense would allow for double recovery.The
only issue remaining is the resale value of the leased vehicles
that are due to expire in 2005.
All right.So the mechanic and that related
lssue are now not disputed?
Yes , both the Company and Staff agree that the
mechanic's payroll and benefits are included elsewhere in this
case and should not be included with transportation expense.
All right.Fine.So the remaining issue is the
values to be assigned to disposal of leased vehicles.
Correct?
That is correct.
And the Company in its case uses the actual
amounts obtained from the sale of those vehicles or disposal,
and you proposed using Kelly Blue Book values.Is that the
essence of the dispute?
Tha t is correct.I believe that Kelly Blue Book
value is more of an objective valuation of the Company'
vehicles.
Did you actually go to the Company to examlne
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these vehicles to determine if they are, in fact , comparable to
vehicles that are in the retail market surveyed by the Kelly
Blue Book?
No.In fact, we actually accepted the Company'
use of - - or , assignment of Kelly Blue Book values.The Kelly
Blue Book values for these vehicles came from the Company.
But you didn't go determine whether those values
are applicable to the type of vehicles or the specific vehicles
that were disposed of, did you?
No.Like .1 said , we have accepted the Company I s
use of Kelly Blue Book value in their work papers.
But in the Company's adj ustment , it uses the
actual disposed-of value?
Not the actual disposal value.The Company uses
its own estimate for disposal value.
It uses specifically the amounts it actually
realized.I sn t that correct?
Well , seeing as 2005 is not over yet, the net
value used in the work papers was a forecasted estimate value
and not an actual value.
And which work paper would that be?
Well, it was
- -
there was a reference to a
spreadsheet in Mr. Healy's work papers , and a Production
Request of Staff asked him to supply that work paper, which was
actually not included in its original filing.So it was
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Production Request No. 162 because the work papers related to
Adj ustment No.1 7 , transportation expense , there was the amount
of the resale value listed on page 1 of three with a notation
. .
saYlng "See at tached spreadsheet.Tha t spreadsheet was not
attached.So in Request No. 162 , we asked the Company to
provide that spreadsheet.
And was it provided?
Yes, it was.
And getting back to the initial point of this
question , you did not go to the Company to actually look at the
vehicles to see if they were comparable to vehicles that are
covered by the Kelly Blue Book.I sn 't that correct?
No.We have accepted the Company's Kelly Blue
Book wholesale value that was assigned to each of those
vehicles.
But you did not go to the Company and look at the
vehicles.I sn 't that correct?
No.The Company provided us with the Kelly Blue
Book wholesale value.
But you never went to the Company
MR. WALKER:I believe he answered "no" to that
question twice.
COMMISSIONER KJELLANDER:Tha t is correct, I did
hear that the response started with the word "no.
Q .BY MR. MILLER:In the course of your audi t, did
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you visi t the company for any purpose?
No.
Is there any reason specifically that you have to
disagree with Mr. Healy's statement in his rebuttal that the
Company vehicles usually realize 15 to 20 percent less than the
Kelly Blue Book values because of their limited features
exce s s i ve wear and tear , and so on?
Well , I would have to say that the Kelly Blue
Book wholesale value does account for options , mileage , vehicle
quality when assigning that, and I would assume that the
Company is competent enough to ascertain a correct Kelly Blue
Book value when they provide it to the Staff.
Do you have any reason to disbelieve Mr. Healy'
statement that I have just recounted?
That they typically sell for 15 to 20 percent
less than the Kelly Blue Book wholesale?
That's right.
The only thing I'd point out there is the Company
In this particular case is using a net value that is 41 percent
less than Kelly Blue Book wholesale.
The question though is do you disagree with
Mr. Healy's statement in his rebuttal?
I have no proof to tell me what the Company
resells its vehicles for.
All right.Let me discuss with you your
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adjustment for outside legal expense, which is I believe on
page 51 of your - - starts on page 51 of your testimony.Now
in this item , the Company filed its actual test year amounts
less a cessation of the amortization for its prior rate case
expens e Is that correct?
That is correct.
And you propose removing certain items
- -
that
is, the Carriage Hill disposition , the Cartwright tank removal,
the Idaho Power Danskin power plant , and the Idaho Power rate
case items - - on the theory of they are extraordinary and
nonre curr i ng?
Yes , that is correct.
Would it surprise you to know that the Danskin
item in that category had nothing to do with the Idaho Power
generation plant by that name , but had to do wi th a dispute
wi th a developer of a noncontiguous subdivision by the name of
Danskin?
And the quest ion was?
Would it surprise you to know that the item you
refer to as the Idaho Power Danskin power plant had nothing to
do wi th the Idaho Power plant , but was , in fact, a dispute wi
a developer of a noncontiguous subdivision by the name of the
Danskin subdivision?
Honestly, that doesn't surprise me.
So your assertion that the Company incurred
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expense in connection wi th the Idaho Power Danskin power plant
lS admittedly incorrect?
, it's not admi t tedly incorrect.I just said
it does not surprise me.Given the lack of information
received from the Company throughout the course of this audi t
I am not surprised.
, come on , Mr. English.Did you ask for any
clarification of what the Danskin item really was?
, we did not.
Okay.And I've just represented to you and
think you don't have any reason to disbelieve that it had
nothing to do wi th the Idaho Power Danskin plant?That would
be "yes"
Yes.
Thank you.Would you think that even though
these specific items might not recur or -- might not recur
that it's reasonable to expect in the normal course of the
Company's business that it will acquire and sell service
territories, remove abandoned plant , and participate in
regulatory proceedings when it's appropriate to the Company I
interest?
Well, that may be the case.I would refer to
Order No. 29505 in the Idaho Power case, and more recently
Order No.2 9602 in the Avista case, regarding legal expenses
and I will quote that the Commission finds Staff's adjustment
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removlng nonrecurrlng extraordinary legal expenses to be
reasonable and appropriate.
Avista contended that some extraordinary expense
always comes up and should not be a reason for excluding a
level of expense requested.Our view is that the level of
legal expense incurred by the Company is somewhat within its
control.
Further , we note that the regulatory accounting
system does not permit inclusion of unusual expenses in a test
year for rate making purposes.The Commission has confidence
that the Company will continue to act in the best interest of
its customers.Paraphrase that last sentence.
It I S true though , is it not , that the expense
reflected in the Company's case is its actual test year
expense?You don't dispute that?
We do not dispute that.
And whether an expense was found to be
extraordinary in Avista has no relationship to what expense
might or might not be extraordinary for Uni ted Water.
Correct?
Well, it seems to me that Avista' s argument and
Uni ted Water's argument are very similar in that the Commission
should include a levelized or normalized portion of legal
expense and not exclude extraordinary expenses, and this
Commission has ruled at least a couple of times that
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extraordinary legal expenses are not to be allowed in customer
rates.
But what is an extraordinary expense is
necessarily a case-by-case , instance-by-instance determination
is it not?That is, you can't just say that expenses in Avista
were extraordinary, therefore, these expenses were
extraordinary?
No.I would say that the Company is not going to
sell Carriage Hills more than once , it's not golng to remove a
Cartwright tank more than once..Those cases seem to be
extraordinary, def ini tely nonrecurring.
But the Company has other properties that it
might sell or acqulre.I mean , that's not an unusual thing to
occur in the course of its business, is it?
Well , and in those particular instances , those
cases may be extraordinary and not recurring.
It's important to note that the Staff did leave a
level of legal expenses in here for the Company to recover to
participate in actions on an ongoing basis.We did not remove
all legal expenses.We removed the ones that seemed to be
extraordinary and wi 11 not be recurring.
Like the Idaho Power Danskin plant
Well , possibly.
- -
that the Company had nothing to do wi th
MR. MILLER:All right.Those are all the
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questions we have for this witness , Mr. Chairman.
COMMI S S lONER KJELLANDER:Thank you , Mr. Miller.
Let's move to Mr. Purdy.
MR . PURDY:No quest ions.
COMMISSIONER KJELLANDER:Mr. Eddie.
MR. EDDIE:No quest ions.Thank you.
COMMISSIONER KJELLANDER:Mr. Strickl ing.
MR. STRICKLING:Yes, a couple questions
Mr. Cha i rman .
CROSS -EXAMINATION
BY MR. STRICKLING:
In your testimony on page 12, you indicate the
Commission has a long-standing precedent of excluding lobbying
expenses from customer rates.
What is the definition of "lobbying expenses" for
the Commission?
Well , I don't know if the Commission has actually
def ined "lobbying expenses.It would
- -
any definition I gave
you would just be speculation , but I would assume that lobbying
would be advocating for
- -
the Legislature - - for a particular
cause.I mean
And taking it to a local government , it'
difficult for local governments to plan especially when they
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Staf f
don't own and operate the water provider , and provision of
water is a cri tical element in planning.Do you be 1 i eve
there's a limitation on United Water to be able to participate
in the planning process of a Ci ty, for instance Boise Ci ty?
No.I believe that the City makes it available
to everybody to participate in the process.Whether or not
people show up is a whole different story.
So you think Uni ted Water can be a member of the
planning process for creating a comprehensive plan?
Yes, I do.
And there's no limitation on them proposlng
ordinances to the City for conservation plans?
Well , again , they can propose and support.
don't know if they have the authority to enact any type of
ordinance, but --
But - - and, again , your
- -
they aren't limi ted
as - - your testimony is they aren't limited in participating in
local government planning activities?
No, I don't believe anybody is limited in
participating in local government.
Through the lobbying expenses that you say
they re limited to?
Well , this Commission has a long-standing
precedent in excluding lobbying expenses.It wasn't an
adjustment that was made up.It was one that companies have
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followed for a long time.
And what I'm trying to get at, does that
restrict ion limit United Water's ability to participate in
planning acti vi ties for the Ci ty and growth management
acti vi ties for the Ci ty?
, I don't believe it does.I bel ieve Uni ted
Water should be acting in the best interests of its customers
and shareholders regardless of any restriction on lobbying
expense , and if the best interest includes participating in
Ci ty government and proposing Ci ty ordinances, then
definitely should be doing that.
And that would benefit current customers also,
would it not?
Yes, it would.
MR. STRI CKLING :No further questions.Thanks.
COMMISSIONER KJELLANDER:Thank you.
Mr. Campbe 11 .
MR . CAMPBELL:No questions.Thank you
Mr. Cha i rman .
COMMISSIONER KJELLANDER:Ready for questions
from members of the Commission.
COMMISSIONER HANSEN:I have none.
COMMISSIONER KJELLANDER:Commissioner Smi th.
COMMISSIONER SMITH:, just a couple.
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EXAMINATION
BY COMMISSIONER SMITH:
You were asked earlier today a number of
questions about the FAS 87?
Yes.
And if I understood the conversation between you
and Mr. Miller , it seems that perhaps in the last couple of
years, there's been a shift in the Commission's posi tion on
these expenses?
I believe so.
Do you know whether FAS 87 was a contested lssue
earlier in time?
I do not know in front of this Commission because
there was such a lag between rate cases on all utilities.
However , it was a contested issue in the Montana Public Service
Commission where the Montana PSC had allowed the companies to
choose in their next rate filing whether or not they were going
to accept the ERISA contribution or the FAS 87.Most of the
contention came in the late ' 80s after the adoption of FAS 87.
Okay.And I guess , finally, when aAll right.
utility -- it seems kind of penalizing to throw out
extraordinary expenses from a test year , but there is a
regulatory mechanism , isn't there , if a utility encounters an
extraordinary expense along the way?
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There is.A utility has it available to them to
file for a deferred accounting treatment in which the expenses
could be recovered at a later date.
COMMISSIONER SMITH:Thank you.That's all.
EXAMINATION
BY COMMISSIONER KJELLANDER:
Just one question and back to the lobbying issue
in relationship to the position that was recently filled with
Uni ted Water.When you filed your direct testimony, the
position wasn't filled.Now that it is , is there any way that
you could accurately estimate at all at this time what percent
if any, of that position is tied to lobbying?
Our Staff's best recommendation is based on the
information that the Company provided to us.That would - - the
information provided to us indicated that the lobbyihg portion
would be a maj or responsibili ty.There seems to be a shift in
the Company based on the rebuttal.Again , I'd say that most
, and Greg Wyatt's rebuttal it seemed that the maJor
responsibility would actually be along the lines of enhancing
the Company image, and for me to determine what percentage,
would be a futile guess.
Okay, thank you.
COMMI S S IONER KJELLANDER:Are there any other
524
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ENGLISH (Com)Staff
questions from members of the Commission?
I f not, then we're ready for redirect.
MR. WALKER:Thank you, Mr. Cha i rman .Just a few
questions.
REDIRECT EXAMINATION
BY MR. WALKER:
Mr. Miller discussed customer benefits with you
on the short - term incentive pay.Isn't it true that customers
do not benefit from savings when the costs have been included
in rates?
That's true.The Company was usually allowed a
certain level of expense, and if they were able to achieve
savings through efficiencies , then the incentive payment
program should be self-funding and any additional savings would
be rewarding the Company or allowing them to double-recover
that amount.
One last clarification:Now , are costs that are
incurred to participate in , for instance, City conservation or
planning, is that necessarily part of a lobbying expense that
would be disallowed?
, I don't believe those are lobbying expenses.
I believe those are regulatory expenses, and Uni ted Water does
have a regulatory person now on staff to handle those
525
HEDRI CK COURT REPORTING
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ENGLISH (Di)Staff
particular lssues.
MR. WALKER:Nothing further , Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you.
Thank you for your testimony, and I guess we
ready for the next wi tness.
(The wi tness was excused.
MR. WALKER:Commission Staff would call
Kathy Stockton.
COMMISSIONER KJELLANDER:Before we get started
with this witness , do we anticipate a lot of questions from the
parties of this witness?
MR. MILLER:Not lengthy.
COMMISSIONER KJELLANDER:Not lengthy.No?
Okay.Thank you.Good.
KATHY STOCKTON
produced as a witness at the instance of the Staff , being first
duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. WALKER:
Could you please state your name for the
record?
Kathy Stockton.
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HEDRI CK COURT REPORTING
O. BOX 578, BO IS E , I D 83701
STOCKTON (Di)
Staff
capaci ty?
And where are you employed and in what
m a Staff audi tor wi th the Idaho Public
Utilities Commission.
this case?
Did you prepare and prefile written testimony in
Yes, I did.
And does it consist of 24 pages?
Yes.
Do you have any corrections or changes to this
prefiled testimony?
Yes, I do.I have a number of changes.
The first change would be on page 5, line The
dollar amount " 94,918" should be changed to "101 719.
And I have a change on page 9, 1 ine 10.The
dollar amount "067" should be changed to "$7,071.
I have a change on page 15, line 19.The dollar
amount "501" should be changed to "$87 034.
And I have a change on page 20 , 1 ine 22.The
11 $14 million" should be changed to "$13,527 105.
And on the next page, page 21 , 1 ine 2 , the
$3.3 million" should be "382 716.
On page 2 2 , I have a change on ine The
percent "4.65" is now "6.675" percent.
And on line 7 , it's no longer "Exhibit 117.
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STOCKTON (Di)Staff
is "Exhibit 131.
And , finally, on page 23 , I have four or five
changes.On ine 3 where it says " 1 ine 11 " it should read
"line 12.
On ine 16 , the words " a decrease" should be
changed to "an increase.
And on that same line , the "96,000" should be
changed to "117,659.
And my last change , on 1 ine 17 , the " 444 , 000"
should be changed to "$313, 020
. "
And you had a number of exhibits?
Yes.
And you would have corresponding changes in those
exhibits to the ones we just went through in testimony?
That is correct.The changes flow through to the
exhibi ts, and I believe you passed them out.
And those have been passed out?
1 0 1 , 1 0 2, 1 0 5, and 1 0 7 .
If I were to ask you the questions in your
prefiled testimony today, would your answers be the same with
the corrections you've just made?
Yes, they would.
MR. WALKER:I move that the testimony of
Kathy Stockton be spread upon the record as if read, and that
the exhibi ts be admi tted into the record.
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STOCKTON (Di)Staff
COMMISSIONER KJELLANDER:And wi thout obj ection
we'll spread the testimony across the record , and also admit
the exhibi t s .
(The following prefiled direct testimony
of Ms. Stockton is spread upon the record.
529
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STOCKTON (Di)Staff
Please state your name and business address?
My name is Kathy Stockton.My business address
lS 472 West Washington Street, Boise, Idaho.
By whom are you employed and in what capacity?
I am employed as a Senior Audi tor by the Idaho
Public Utilities Commission.
Please describe your educational background and
professional experience.
I received my B.A. degree in Accounting from
Boise State University in December 1992.Following
graduation I was employed by the Idaho State Tax
Commission as a Tax Enforcement Technician.In that
capaci ty I performed desk audi ts on individual state
income tax returns.I was promoted to Tax Audi tor and
later to Senior Tax Audi tor.In my capacity as an
auditor, I performed audits on Special Fuel and Motor Fuel
Tax returns, International Fuels Tax Agreement Returns and
Special Fuel User tax returns.I accepted employment with
the Idaho Public Utilities Commission Staff in July
1995.I attended the National Association of Regulatory
Utility Commissioners Annual Regulatory Studies program
Michigan State Uni versi ty.I have conducted numerous
audits and cases for electric, gas, and water utilities.
I have previously presented testimony before this
Commission.
CASE NO. UWI -W- 04-
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STAFF
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530
What is the purpose of your testimony?
The purpose of my testimony is to explain
Staff's adj ustments for Uni ted Water Idaho (UWI) to Plant
in Service regarding Allowance for Funds Used During
Construction (AFUDC); to explain Staff's adj ustment to
federal income taxes to include the production credit;
Staff's adj ustment of Management and Service (M&S) fees;
Staff's adjustment to revenues to recognize the "risk
premium" from the sale of the Carriage Hill water system;
to explain Staff's adjustment to the Accumulated Deferred
Federal Income Taxes and to the Investment Tax Credi t, and
Staff's Income Tax and Debt Interest Synchronizations
calculation.
Are you sponsorlng any exhibits?
Yes, I . am sponsoring 7 exhibits, Exhibit No. 101
through Exhibi t No.1 0 7 .
AFUDC Section
Do you have any adjustments to United Water
Rate Base?
Yes , I have adj ustments to Rate Base,
specifically Plant in Service, relating to the Allowance
for Funds Used During Construction (AFUDC) , as well as the
associated adjustments to Accumulated Depreciation.
What types of adjustments to Plant in Service
related to AFUDC do you have?
CASE NO. UWI-04-
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531
I have an adjustment to AFUDC to remove the
equity gross-up portion of the AFUDC rate the Company has
included in the AFUDC calculation for Plant in Service and
Construction Work in Progress (CWIP)I al so have an
adj ustment to AFUDC related to wate-r rights, as identified
in Staff witness Sterling s testimony.
What is Allowance for Funds Used During
Construction?
Allowance for Funds Used During Construction or
AFUDC is an accounting mechanism, which recognizes capi tal
costs associated wi th financing construction.Generally,
the capital costs recognized by AFUDC include interest
charges on borrowed funds and the cost of equity funds
used by a utility for purposes of construction.The main
purposes of AFUDC are to capi tal i ze wi th each proj ect the
costs of financing that construction; separate the effects
of the construction program from current operations; and
to allocate current capital costs to future periods when
these capital facilities are in service, useful and
producing revenue.AFUDC represents the cost of funds
used during the construction period before plant goes into
servi ce When it is placed in serVlce, the entire cost of
the plant, including AFUDC , is added to rate base, where
it earns a rate of return and is depreciated over the life
of the plant.
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STAFF
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Has the Company properly accounted for this
carrYlng charge on the construction work in progress
accounts?
AFUDC has been improperly charged on water
rights, which clearly are not construction work in
progress.Plant items that are not construction proj ects
do not accrue AFUDC.Staff's Adj ustment to AFUDC, as
shown on Staff Exhibit No. 101, removes AFUDC that was
accrued on water rights.
Why is it inappropriate to accrue AFUDC on water
rights?
Water rights are not Construction Work in
progre s s .No physical construction is actually taking
place.While the water rights are being pursued, the
amounts expended can be booked to Preliminary Survey and
Investigation Charges, Account 183.Once the water rights
have been secured , they are ei ther used and useful, and
should be booked to the sub-account Land and Land Rights
in the Plant in Service records or, if they are not used
and useful, but anticipated for future use, then the water
rights should be booked to Land and Land Rights, Plant
Held for Future Use.It may benefit the shareholders of
the Company to make the investment in water rights for the
future, but it does not benef it the customers until they
are actually using the water rights.
CASE NO. UWI -W- 04-
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What is the amount of your adjustment to remove
the AFUDC that was accrued by the Company on water rights?
My adj ustment to remove the AFUDC accrued on
water rights is $101,719, and is incorporated in Staff
Exh i bit No.1 0 1 .
Do you have other concerns regarding the way the
Company computes AFUDC?
Yes, I do.Beg inning in 1995 the Company
grossed-up, for income tax purposes, the equi ty portion of
the AFUDC rate , and added this addi tional AFUDC component
to the overall rate of return the Company was using to
calculate AFUDC.
Why did the Company change the way it was
calculating AFUDC?
The Company changed the way it calculated AFUDC
as a result of the Financial Accounting Standards Board'
promulgation of Statement of Financial Accounting
Standards No. 109 (SF AS 109)Accounting for Income Taxes,
which was introduced in February of 1992.Under SFAS 109,
a current or deferred tax liability or asset is recognized
for the current or deferred tax consequences of all events
that have been recognized in the financial statements or
tax returns / measured on the basis of enacted law.This
was a change from Accounting Principles Board Opinion No.
11, Accounting for Income taxes (APB 11) .Under APB 11/
CASE NO. UWI-04-
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STOCKTON , K.
STAFF
deferred tax consequences were recognized based on the
differences between the periods in which transactions
affect taxable income and the periods in which they enter
into the determination of pretax accounting lncome.This
change from APB 11 to SFAS 109 affected the measurement
and recognition of current and deferred income taxes
reported in financial statements.
One of the changes that resul ted from the
promulgation of SFAS 109 is the way in which AFUDC
accounted for.SFAS 109 considers the equity component of
AFUDC as a temporary difference for which deferred income
taxes must be provided.Therefore, an entity should
record the deferred tax liability for the equity component
of AFUDC in a sub-account of Accumulated Deferred Income
Taxes - Other , Account 283 (Uniform System of Accounts for
Class A and B Water Utilities , National Association of
Regulatory Utility Commissioners; which the Company
currently following) and the corresponding regulatory
asset in sub account of Miscellaneous Deferred Debi ts,
Account 186.
Currently the Company is including an income tax
gross-up on the equity component of AFUDC as part of the
AFUDC amount.Staff asserts that this is an incorrect
application of SFAS 109.In discussions with Company
witness Healy, Staff understood the Company s position to
CASE NO. UWI -W- 04-
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STAFF
(Di)
535
be that there were no adverse effects on the customer as a
resul t of the Company including the equi ty income tax
gross-up component of AFUDC as part of the total AFUDC
amount.According to the Company, there is no effect on
the customer because the amount of AFUDC attributable to
the income tax equity gross-up included in rate base
should be equal to the amount of the deferred tax
liability associated with the AFUDC equity income tax
gross-up component that is deducted from rate base,
resul ting in no net rate base change as a resul t of the
way the Company calculates AFUDC.
issue.
Staff does not agree with the Company on this
Because the \equi ty income tax gross -up component
of AFUDC is included in the calculation of AFUDC, then the
AFUDC is overstated.When a construction proj ect
placed in service, the amount in the Construction Work in
Progress account for that proj ect, plus the associated
AFUDC for that proj ect, is transferred to Plant in
Service.At this point Plant in Service will be
ov~rstated by the amount of the equity income tax gross-
component of AFUDC.Al though this rate base amount
theory, should net out to zero when the deferred income
tax associated with the AFUDC is removed from rate base,
the problem of the overstated depreciation expense still
remains.It is this higher depreciation expense that
CASE NO. UWI-04-
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STAFF
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adversely affects customers.
Please describe the adj ustments to correct this
problem.
Staff adjustments (a) remove the equity income
tax gross-up component of AFUDC from Plant in Service;(b)
reclassify the Plant in Service amount associated with the
equity gross-up of AFUDC as Miscellaneous Deferred Debits,
Account 186;(c) reduce Accumulated Depreciation , and (d)
reduce Depreciation Expense.The balance sheet
adj ustments '' and ' b' correct the equi ty income tax
gross-up component of AFUDC from 2001 through the adjusted
test year.
How did you calculate the balance sheet
adj ustments?
Staff Exhibit No. 101 shows these adjustments.
Staf f received from the Company, a spreadsheet wi th the
amount of AFUDC, by proj ect, by year.I backed out the
amount of AFUDC that is attributable to the income tax
gross-up on equity.
United Water Idaho used an AFUDC rate of 8.84%,
the overall rate of return granted the Company in their
last rate case, Case No. UWI-00-1, Order No. 28505.The
Company calculated the equity gross-up factor to be 2.78%.
This calculation and factor were verified from a
spreadsheet requested by Staff and provided by the Company
CASE NO. UWI -W- 04-
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STAFF
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during this rate case.
Please explain how the Accumulated Depreciation
Adjustment and the corresponding Depreciation Expense were
calculated.
These two adj ustments were calculated using the
Company s overall depreciation rate.Staff did not have
sufficient information at the detailed plant level to
adequately make the adj ustments by plant account.The
Accumulated Depreciation Adjust~ent is $13,482 and the
Depreciation Expense adjustment is $7,071 as shown on
S t a f f Exh i bit No.1 0 1 .
Do you have an adjustment to Deferred Debits
a resul t of moving the equi ty gross -up component of AFUDC
out of Plant in Service and into a Miscellaneous Deferred
Debits account?
Yes, Staff Exhibit No. 101 shows the inclusion
In deferred debits of the equity gross-up component of
AFUDC reclassified as a miscellaneous deferred debit to
Account 186XXX.
Do you have a recommendation regarding the AFUDC
equity gross-up component included in the various Plant in
Service accounts?
I recommend that the Commission order theYes.
Company to correct its Plant in Service records to remove
the equity gross-up component of AFUDC improperly included
CASE NO. UWI -W- 04-
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(Di)
538
STOCKTON , K.
STAFF
In Plant in Service.The Company should recalculate its
Plant in Service from the time it implemented the SFAS 109
equi ty gross-up AFUDC component.The Company shoul d be
required to correct the AFUDC components of Plant in
Service as well as accumulated depreciation and
depreciation expense; and provide Staff an opportunity to
review the corrected Plant in Service accounts.At that
point it may be necessary to update the rate base and
operating income included in the final order for this case
and to update the rates that are set in the final order in
this case as a resul t of a Commission ordered change in
accounting method.
Are there other issues associated with AFUDC
that the Commission should address?
For all Construction Work in ProgressYes.
projects that are included in rate base but are not yet
placed in service at the time rates become effective,
special treatment must be implemented by the Company.
proj ect work orders for plant included in rate base must
stop accruing AFUDC when rates from this case are
implemented. If AFUDC is not stopped, the Company will be
earning a return on the plant in rates and still accrulng
an AFUDC return for future recovery.This would allow
over-recovery and is inappropriate.
CASE NO. UWI -W- 04-
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STAFF
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539
American Jobs Creation Act of 2004 Section
Do you have an adjustment associated with the
American Jobs Creation Act of 2004?
Yes.I have an adjustment that reduces federal
income taxes as a resul t of the production credi t from the
American Jobs Creation Act of 2004.
How did the American Jobs Creation Act of 2004
affect public utilities?
On October 22, 2004 , President Bush signed into
law the American Jobs Creation Act of 2004.This act
includes tax relief for domestic manufacturers by
providing a tax deduction up to 9 percent (when fully
phased in) of the lesser of (1)qualified production
activities income " as defined in the act or (2) taxable
income (after the deduction for the utilization of any net
operating loss carryforwards) This tax reduction applies
to specific public utility operations.
Qualified domestic production gross receipts
(QDPGR) include gross receipts from the production in the
Uni ted States of electrici ty, gas and potable water, but
. exclude gross receipts from the transmission of these
items.Activities included in the production of potable
water include the acquisi tion , collection and storage of
raw (untreated) water, as well as the transportation of
raw water to, and the treatment of raw water at, a
CASE NO. UWI -W- 04-
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STAFF
(Di)
540
treatment facility.However, gross receipts attributable
to the storage of potable water or the delivery of potable
water to customers do not give rise to QDPGR.A taxpayer
that both produces and distributes potable water must
properly allocate gross receipts between qualifying and
non-qualifying domestic production gross receipts (H. R.
Conf. Rep. No.1 0 8 - 755) .(Tax Legislation 2004; American
Jobs Creation Act of 2004; Law , Explanation and Analysis;
CCH Editorial Staff Publication; pages 88-89)
The Commission Staff , in Productipn Request Nos.
146 and 147 , asked the following questions:Has Uni ted
Water Idaho or its parent corporation (s) done any
investigation or research to ascertain how this act
applies to the Company or its parent corporation?Please
provide a schedule and a description of how this Act
appl ies to the Company, and/ or its parent; and a schedule
showing the financial impact and how it was calculated.
How did the Company respond?
The Company responded wi th the following answer
to Production Request 146:This provision will apply to
Uni ted Water Idaho.However , at this time United Water
Idaho is still in the process of determining how it will
separate gross receipts from production vs. gross receipts
from distribution and storage.Guidance will be provided
through U. S. Treasury Regulations that have yet to be
CASE NO. UWI-04-
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STOCKTON, K.
STAFF
(Di)
541
released. "
The Company further responded to Production
Request 147 with the following answer:It is premature
to determine how the domestic production deduction will
impact United Water Idaho because the U. S. Treasury has
yet to promulgate regulations that will give guidance on
how to allocate between gross receipts from production and
gross receipts from distributions.
Should the impact of the production credit be
considered in this proceeding?
Yes.Staff notes that the Company has stated
that this provision will apply to United Water Idaho, but
did not attempt to determine an amount to include in this
filing.Staff recognized the fact that there will be a
reduction to the Company s income taxes beginning with the
2005 income tax filing and the impact will increase going
forward.Staff finds it reasonable to include an amount
that recognizes a benefit to customers in this case Slnce
the production credit will benefit the Company.
Has the Staff calculated such an amount?
Yes, Staff has calculated an amount as a proxy
for the production credit that the Compqny will be
recel vlng.It is reasonable to include a proxy amount for
the production credi t since the Staff is recommending that
the Columbia Water Treatment Plant be included in rates as
CASE NO. UWI -W- 04-
REV I SED 0 5 / 2 5 / 0 5
(Di)
542
STOCKTON, K.
STAFF
if it were in service for a full year.The CWTP is a
large portion of plant in service that will be eligible
for this credi Including a proxy for the production
credit better reflects the cost of the plant and will
allow this advantage of the new water treatment plant to
flow to customers since increased expenses that are not
fully known are being charged to customers.
It is also reasonable to include a proxy for the
production credit because it is known that the credit will
be available to the Company.The exact amount is not
fully measurable at this point but the 3% production
credit in the 2005 tax year and increasing to 9% for'
Uni ted Water Idaho is known.
It is also reasonable to include a proxy for the
production credi t because it is measurable.Staff has
proposed a conservative way to measure the credi The
proxy amount is conservative, since only the production
and water treatment plant in service is being used to
calculate the proxy production credit amount and only the
3% credit is being used.Al though the exact method to be
accepted by Treasury is unknown, Staf f 's conserva t i ve
proxy allows this Commission to recognize that in the 2005
tax year there will be an amount of the production credit
that United Water Idaho will be able to take advantage of.
Inc 1 uding at eas t thi s conserva t i ve amount in recogni t ion
CASE NO. UWI-04-
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STOCKTON, K.
STAFF
(Di)
543
of the existence of this lncome tax credit will help
lnsure customers are not overcharged.
What is the adj ustment Staff proposes to
recognize the impact of the production credit and how did
you calculate it?
Staff proposes to reduce federal lncome taxes by
a proxy amount for the production credit.I have
calculated this adj ustment by reducing federal income
taxes by the production credit percentage for the first
year (3% in 20041 increasing to 9% by 2010) multiplied by
the amount of production and water treatment Plant in
Service, as supported by Staff wi tness Harms.The
calculation is shown in Staff Exhibi t No. 102.I used the
production and water treatment. accounts when calculating
this adjustment, as shown on Staff Exhibit No. 102, Column
(5)
What is the amount of the proxy production
credi t used to reduce federal income taxes?
The proxy production credit is $87 034 as shown
on Staff Exhibit No. 102.
Management and Service Fees Section
During your on-site audit, did you review the
allocation method that the affiliate company, Management
and Service Corporation uses to allocate costs to the
various subsidiaries of United Water Works?
CASE NO. UWI -W- 04-
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STAFF
(Di)
544
Yes. I reviewed the allocation methodology that
the Management and Service corporation uses to allocate
costs to the subsidiaries that they serve.Staff is
satisfied that the allocation method in the agreement that
United Water Idaho has with the Management and Service
Company is being applied properly.
What is the relationship between United Water
Idaho and Uni ted Water Management & Service Company?
United Water Management & Service Company (M&S)
provides services to Uni ted Water Idaho for accounting,
engineering, information technology, treasury, regulatory,
central purchasing, management, human resources and other
functions based upon the agreement that Uni ted Water Idaho
has wi th the M&S Company.The relationship established
with the M&S Company is designed to take advantage of
economies of scale in the provision of the common
serVlces.The desired resul t is that the relationship
avoids inefficiencies and duplication of costs that could
occur if each operating group that contracts with the M&S
Company were to perform these functions separately.
other words, the M&S Company can save the overall parent
corporation money by handling all these functions
centrally for the various operating uni ts of Uni ted Water
Resources.The M&S Company is operated as a cost center,
billing all costs out to the various operating groups
CASE NO. UWI-04-
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STAFF
(Di)
545
whi ch they serve.The personnel code their time to the
operating units that they serve in proportion to the
amount of time spent working on behalf of each operating
group.
Do you have an adjustment to the M&S fees?
Yes.My adjustment is based on using the M&S
fees for the calendar year ended December 31, 2004.
stated in the testimony of Company witness Healy in the
last rate case, Case No. UWI-00-The calendar year
provides a more reliable indication of the true level of
M&S expense since these expenses are planned, accounted
for and adj usted, if needed, on a calendar basis. (Healy,
Di, pgs 11 & 12) .In the last rate case, the Commission
accepted the Company s adj ustment that was based on the
calendar year basis rationale.Staf f proposes to use the
same rationale in this case.Staff notes that the new
computer software from PeopleSoft now allocates the M&S
fees between corporate, regulated, and non-regulated
acti vi ties.Staff has removed the non-regulated M&S fees
as part of this adj ustment
What is the amount of Staff's adj ustment?
Staff's adj ustment to M&S fees, as shown on
Staff Exhibit No. 103, reduces operating expenses by
$20,678, increases state income taxes by $1,654 , increases
federal income taxes by $6,658, and increases net income
CASE NO. UWI -W- 04-
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STAFF
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546
by $ 12 , 3 6 6 .
Carriage Hill Revenue Section
Please explain the Carriage Hill issue.
Uni ted Water requested authori ty, in Case No.
UWI-04-, to remove the Carriage Hill Subdivision from
the Company s certificated serVlce area and for an
accounting order regarding distribution of proceeds from
the sale of the Carriage Hill domestic water system by
Uni ted Water to the Ci ty of Nampa.The Commission in
Order No. 29625 addressed the sale and ordered revenue
a ,resul t of the sale to be included in this rate case.
What has the Company proposed to do in thi s case
regarding the proceeds from the sale of the Carriage Hill
water system?
Company witness Wyatt states that "The Company
has no obj ection 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.(Case No. UWI-04-
Wyatt, Di, pg 18)
Did the Commission, In Order No. 29625, direct
the Company to book the remainder of the "risk premium
CASE NO. UWI -W- 04-
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STAFF
(Di)
547
after final closing as regulated revenue?
No, the Commission, in Order No. 29625 made the
following statement about the allocation of the sale
proceeds,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
regulated revenue to be passed through to customers in the
Company s upcoming general rate case.(emphasis added)
Q .Did the Commission in Order No. 29625 requlre
the Company to submi t the actual revenue amount when
was known so that the Commission Staff could include that
amount in this rate case, as proposed by Company wi tness
Wyatt?
No, the Commission specified the ,exact amount.
The Commission in Order No. 29625 did not direct the
Company to provide numbers for the Commission Staff to
include as the actual revenue, nor did the Commission
direct the Company to submi t a final accounting of the
sale proceeds.The directive was provided in the above
quote.
Did the Commission propose that the revenue for
ratemaking purposes be amortized over a three~year period
as proposed by the Company?
No, the Commission did not specify ratemaking
treatment other than including $28,138 in revenues in the
CASE NO. UWI -W- 04-
04/06/05
STOCKTON, K.
STAFF
(Di)
548
next general rate case.Staff believes, due to the
affiliate transaction and generous treatment to accomplish
the sale, the fixed amount was the amount intended to be
included in regulated revenues by the Commission.
Staff proposes that the full revenue amount be
amortized over a five-year period for ratemaking purposes.
A five-year amortization period is consistent with other
amortization periods recommended by Staff in this case.
Q .What is your adj ustment to revenues as a result
of Commission Order 29625?
My adjustment, as shown on Staff Exhibit No.
104 , lncreases revenues by $5,628; increases state lncome
taxes by $450; increases federal income taxes by $1,812;
and increases net income by $ 3 , 365 .
Accumulated Deferred Federal Income Taxes Section
Do you have an adjustment to Accumulated
Deferred Federal Income Taxes?
Yes.Since depreciation expense was adj usted
Staf f wi tness Harms, Accumulated Deferred Federal Income
Taxes (ADFIT) has a corresponding adjustment.Staff'
Total Accumulated Deferred Federal Income Tax balance of
$13,527 1 105 is shown on line 13 of Staff Exhibit No. 105.
Staff's adjustment is the difference between the Staffl
calculated Total Deferred FIT and the Company s Total
Deferred FIT July 31, 2004 Balance of $11,144,389.
CASE NO. UWI -W- 04-
REVISED OS/25/05
STOCKTON, K.
STAFF
(Di)
549
Staff's adj ustment increases Accumulated Deferred Federal
Income Tax by $2,382,716.
ITC Amortization Section
Do you have an adjustment to the Income Tax
Credit Amortization?
Yes, I do.The Company s Exhibi t No.1, page
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 adjusted by the Company to reflect the
balance at May 31, 2005.Because Staff used an average of
monthly averages rate base, Staff reversed the Company
adj ustment to investment tax credi ts, as the booked amount
would already reflect an average amount using the Average
of monthly averages rate base methodology.As a resul t
the average rate base methodology, Staff wi tness Harms
Exhibit No. 111 , Column (C), line 8 shows the Company
investment tax credit balance as of July 31, 2004.Staff
Exhibit ,NO. 106 summarizes Staff's adjustment.
Income Taxes & Debt Interest Synchronization Section
Please explain Staff Exhibit No. 107 , which
shows the lncome tax calculations and the debt interest
synchronization.
The purpose of Staff Exhibit No. 107 is
determine both the state of Idaho and federal income tax
CASE NO. UWI-04-
REVISED OS/25/05
STOCKTON , K.
STAFF
(Di)
550
expense and the debt interest synchronization.
Lines 13 through 18 of Staff Exhibit No. 107
calculate the tax deductible interest expense.The resul t
of this calculation is carried to line 3 to calculate the
tax expenses.The calculation, using the debt ratio
53.41% and debt cost rate of 6.675% from Staff Exhibit No.
131, together wi th the rate base Staff wi tness Harms
developed on Staff Exhibit No. 111, is commonly referred
to as interest synchronization.The purpose is to match
the tax deductible interest expense with the case filings
and ul timately the Commission I s findings for the other
three items.Any time one of these factors is changed,
this calculation must be made to maintain the
synchroni zation of the expense wi th the tax effect.
Lines 19 through 22 on Staff Exhibit No. 107
calculate the difference between the Company s proforma
tax depreciation and the adjusted book depreciation.The
excess of tax depreciation - over book depreciation shown on
line 22 is carried to line 4 of the exhibi t to calculate
the tax expenses.This calculation only affects the
calculation of state income taxes for which the benefits
of accelerated depreciation are flowed through to the
Company s customers.Accelerated depreciation benefits
are required to be normalized for the federal tax
CASE NO. UWI -W- 04-
REVISED OS/25/05
STOCKTON , K.
STAFF
(Di)
551
calculation.
The resul ting income tax expenses shown on line
7 for Idaho state income taxes and on line 12 for federal
lncome taxes, are also shown on. lines 23 and 24, Column
(P) on page 2 of Staff witness Harms ' Exhibit No. 111.
The calculations shown on Staff Exhibit No. 107
incorporate all of the financial data shown in Columns (A)
through (N) of Staff witness Harms Exhibit No. 111 for the
computation of the income taxes.The calculated taxes are
shown in the end result in Column (P) of Staff Exhibit No.
111.The difference between the amount on Column (P) and
the amounts shown on Staff Exhibit No. 107 are due to the
interest synchronization effect and the book vs. tax
depreciation effect in the other columns and are shown in
column (0)The debt interest synchronization calculation
results in an increase of state income tax of $117 659 and
an lncrease of federal lncome tax of $313,020.These
amounts are shawn on lines 23 and 24 , Column (0) of Staff
witness Harms Exhibit No. 111.Columns (D) through (N)
were calculated at the statutory tax rates to approximate
the tax effect of the individual adjustments.Staff
Exhibit No. 107 and Column (0) of Staff Exhibit No. 111
incorporate the debt interest synchronization for all of
Staff's adj ustments.
Does this conclude your direct testimony in
CASE NO. UWI -W- 04-
REVISED OS/25/05
(Di)
552
STOCKTON , K.
STAFF
this proceeding?
Yes, it does.
CASE NO. UWI -W- 04-
04/06/05 553
STOCKTON, K. (Di)
STAFF
(The following proceedings were had in
open hearing.
(Staff Exhibit Nos. 101 through 107
having been premarked for identification , were admitted into
evidence.
MR. WALKER:The witness is available for
cross-examination.
COMMI S S lONER KJELLANDER:Thank you.Let's go to
Mr. Miller.
MR. MI LLER :Perhaps, Mr. Chairman , the rather
extensive nature of these changes in the testimony, we could
either take the lunch hour to try and figure them out, or
perhaps Staff could offer some explanation for these changes so
we'd understand what the nature of them is.They're qui
extensive and I just don't know what they actually reflect.
COMMISSIONER KJELLANDER:Why don', before we
break for lunch , why don't we have Staff at least respond to
that question , and then we can determine what the lunch break
will look like and when it will start.
BY MR. WALKER:Could you please - - you made two
maj or changes.Is that correct?Could you explain the change
you made for the AFUDC?
Yeah , I had
- -
I had a change
- -
the Company
witness Healy had pointed out that I had not included in my
exhibit the
- -
the amount of the AFUDC that I am recommending
554
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
STOCKTON (Di)
Staf f
be removed that the Company has accrued on water rights, so In
my Staff Exhibit 101 that I s now properly reflected.
The dollar amount changed in response to Staff
witness Sterling I s changes to his recommendations in regards to
the IMAP and part of that is water rights.He changed the
amount that he was recommending be disallowed , and so that
changed the amount
- -
my dollar amount.So that explains the
101 719 that's shown on Exhibit 1 and referenced In my
testimony.
And could you also explain the accumulated
deferred federal income taxes?
Yes.I have recalculated the Staff pro forma tax
depreciation to reflect tax depreciation for the years 2004 and
2005 , and as shown in my revised Staff Exhibit 105 , that
Staff's accumulated deferred federal income tax adjustment
now $2.3 million instead of the 3.3 that it had been before
and this revised adj ustment lncreases rate base by $994 563
from Staff's rate base calculation in Staff's direct testimony.
And in the original adj ustment , I used the tax
depreciation rates for 2004 for all of the plant additions.
used that tax depreciation rate because of Staff's use of a
13-month average rate base for the year ended July 31 , 2004
with post-test year plant adjustments included through
December 31 , 2004 , and certain Columbia water treatment plant
costs included on an annualized basis as if they had been in
555
HEDRICK COURT REPORTING
O. BOX 578 , BOI SE , ID 83701
STOCKTON (Di)
Staff
rate base the entire test year , rather than as an addition in
2005.
However , the tax rates for 2005 included bonus
depreciation rates and using those rates on a going- forward
basis would overstate the adjustme~t to accumulated deferred
federal income taxes, and since we are set ting rates for a
future time period and because the in-service date for some of
the plant that Staff has accepted will be in 2005 , it is also
appropriate to use 2005 tax depreciation rates for a portion of
the plant addi tions , so I incorporated the methodology that the
Company used in their rebuttal Exhibit 15 , Schedule 7 , and I'
recalculated the tax depreciation using the same overall plant
in service additions in 2004 and 2005 as the Company did in
their work papers.And their work papers show that the
percentage of plant addition for 2004 is 19.189 percent of
total plant additions, and the percentage of plant additions in
2005 is 80.811 percent of the total plant additions.
COMMISSIONER KJELLANDER:Since I think that that
may take a little while to digest, this might be an appropriate
time to break for lunch.It would be my expectation that we
would resume at 1: 15.That should allow time for lunch and
maybe an opportunity too to actually inquire further if there'
some more detail that might need to be acquired in order to
understand those shifts.
So with that then , we'll go off the record, and
556
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE, ID 83701 STOCKTON (Di)Staff
hopefully return at 1:15.
(Noon recess.
557
HEDRICK COURT REPORTING STOCKTON (Di)BOX 578,BOISE 83701 Staf f