20050606Vol VI Tech Hearing.pdf

ORIGINAL
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SEVI CE' IN
THE STATE OF IDAHO.
) CASE NO.UWI -W- 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 26, 2005
VOLUME VI - Pages 812 - 1084
---
-I
HEDRICK
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
COURT REPORTING
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For the Staff:WELDON STUTZMAN , Esq.
DONOVAN WALKER , E sq.
Deputy Attorneys General
472 West Washington
Boise , Idaho 83702
For Uni ted Water:McDEVITT & MILLER LLP
by DEAN J. MI LLER , Esq.
420 West Bannock StreetBoise, Idaho 83702
For Ci ty of Boise:DOUGLAS K. STRI CKLING, Esq.
Boise City Attorney I s Office
150 North Capitol BoulevardBoise, Idaho 83702
For Idaho Rivers Uni ted:WILLIAM M. EDDIE , Esq.
Advocates for the West
Post Office Box 1612
Boise , Idaho 83701
For Community ActionPartnership:BRAD M. PURDY , Esq.
Attorney at Law
2019 North Seventeenth StreetBoise, Idaho 83702
For Scot t L. Campbell:SCOTT L. CAMPBELL , Esq.
Attorney at Law
101 South Capitol Boulevard
Tenth FloorBoise, Idaho 83702
HEDRI CK COURT REPORTING
O. BOX 578, BO IS E , I D
AP PEARANCE S
83701
WITNESS
I N D E X
EXAMINATION BY PAGE
Randy Lobb
(Staff)
Terri Carlock
(Staff)
Jeremiah J. Healy
(United Water - Rebuttal)
Don Woj
(Idaho Rivers United)
Gregory P. Wyatt
(United Water - Rebuttal)
Denni s E. Peseau(United Water - Rebuttal)
Mr. Miller (Cross)
Commissioner Smith
Mr. Stut zman (Redirect)
Commissioner Smith
812
828
832
834
Mr. Stutzman (Direct)
Prefiled Direct
Mr. Miller (Cross)
Commissioner Smith
835
837
850
851
Mr. Miller (Direct)
Prefiled Rebuttal
Mr. Walker (Cross)
Commissioner Smith
Mr. Miller (Redirect)
854
866
916
924
927
Mr. Eddie (Direct)
Prefiled Direct
Mr. Strickling (Cross)Mr. Purdy (Cross)
Commissioner Smith
932
936
954
957
959
Mr. Miller (Direct)
Prefiled RebuttalMr. Purdy (Cross)Mr. Eddie (Cross)
Mr. Strickling (Cross)
Commi s s i one r Hans en
Commissioner Smi
960
964
990
1006
1011
1013
1015
Mr. Miller (Direct)
Prefiled Rebuttal
Mr. Stutzman (Cross)Mr. Eddie (Cross)
Mr. Miller (Redirect)
1023
1026
1053
1059
1061
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE, ID
INDEX
83701
NUMBER PAGE
For United Water:
15 Schedule 11.
Request and Response No. 162
15 Schedule 12.Allocation - Infrastructure
15 Schedule 13.
Allocation Factors
15 Schedule 14.
Request and Response No.1 75
15 Schedule 15.
Year 2004 Insurance Policies
Mar ked
Admi t ted 858
916
Mar ked
Admitted 860
916
Mar ked
Admi t t ed
861
916
Marked
Admi t ted 836
916
Marked
Admi t ted 864
916
17.First Year Earnings Shortfall Premarked
Admi t t ed 1053
18A.(premarked as Exhibi t No. 18) Marked
Recommended Debt Cost Rate Admitted
1063
1069
For the Staff:
120.Bank Prime Interest Rates
133 - 136
Peseau Direct Testimony
Case Nos. AVU-04-1 and
AVU-04-
137.
Premarked
Admi t ted 850
Admi t t ed 1069
Marked 1055
Admi t ted 1069
HEDRICK COURT REPORTING
o. BOX 578, BOI SE , ID 83701
EXHIBITS
For Idaho Rivers United:
401.Water, A Compariati ve Study
of Urban Water Use
402 .Water Rate Structures in
Colorado
403.Water Rate Structures in
Utah
Bi 11 s At and Use At Graph404 .
405.Request and Response No. 43
406 .Request and Response No.
407 .Request and Response No.
408.Request and Response No.
409.Residential Summer-time
Bill Comparison
Premarked
Admitted 954
Premarked
Admitted 954
Premar ked
Admi t t ed 954
Premarked
Admi t ted 954
Premarked
Admi t ted 954
Premarked
Admi t ted 954
Premarked
Admi t t ed 954
Premarked
Admitted 954
Marked
Admi t t ed
1059
1061
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
EXHIBITS
BOISE, IDAHO, THURSDAY , MAY 26, 2005, 9:00 A.
RANDY LOBB
produced as a witness at the instance of the Staff , having been
previously duly sworn , resumed the stand and was further
examined and testified as follows:
COMMISSIONER KJELLANDER:Well , good morning, and
I believe we're ready for cross-examination for Mr. Lobb, or
have we actually got him on the record yet?I don't recall.
MR. STUTZMAN:Yes, Mr. Chairman, I believe we'
ready for Mr. Miller's cross-examination of Mr. Lobb.
COMMISSIONER KJELLANDER:Good.Thank you.
Mr. Miller , if you'd like to proceed.
Thank you, Mr. Cha i rman .MR. MILLER:
CROS S - EXAMINA T I ON
BY MR. MILLER:
Good mornlng, Mr. Lobb.
Good mornlng, Mr. Miller.
How are you thi s morning?
Just fine, thanks.
Good.Good.I have a question for you or two on
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LOBB (X)Staff83701
the 13 -month average rate base idea.
Okay.
I guess we can start with the observation that
the Company and the Staff have a substantial disagreement on
that point?
It would seem so.
All right.m always hesitant or skeptical of
the wisdom of trying to use cross-examination to have a
discussion on policy or the merits of particular positions , so
I thought maybe what I could try and do is identify some
factual matters that aren't in dispute between the Company and
the Staff, which would hopefully help the Commission consider
the policy implications that are involved in the two positions.
First , it's undisputed , is it not , that in every
United Water rate case since 1993, the Commission has used a
year-end test year in determining United Water's revenue
requirement?
Tha t 's correct.
And the Staff , in its case, has not presented any
evidence to show that during that period, the use of a
ten-year - - or, pardon me
- -
the use of a year-end average rate
base resul ted in consistent overearnings by the Company?
Could you ask that question again?m sorry.
In the Staff I s case, there is not evidence that
during that period of time when the ten-year - - or, year-end
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LOBB (X)Staff83701
year-end rate base was employed, that United Water consistently
overearned its allowed return?
The Staff didn't oppose the use of the average
rate base in those cases
- -
or, the year-end rate base in those
cases, that I s correct.
Right.And during that period of time, there is
not evidence that use of the year-end rate base resulted in
overearnlngs by Uni ted Water during that period of time?
There was no identified overearnings during that
period.
Right.And it's also I think undisputed that in
the Idaho Power and Avista cases, both companies filed or came
in wi th a proposed average test year as opposed to a year-end
test year?
Tha ti s correct.
And I bel ieve it's al so acknowledged and
undisputed, essentially, that there are differences in cost
structure between electric utilities and a water utility such
as Uni ted Water?
There are some cost differences, that's correct.
As a general matter , it I S true that a utility
like United Water is more capital intensive than a utility like
Idaho Power or Avista or PacifiCorp?
No, that's not true.That's not true.Electric
utilities are much more capital intensive.
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LOBB (X)
Staf f83701
MR. MILLER:Could I approach the witness?
COMMI S S lONER KJELLANDER:Yes.
BY MR. MILLER:Mr. Lobb, I've handed you what
has been marked as Exhibit No. 18, and I believe that the pages
that make up Exhibit 18 were previously transmitted or given to
the Staff, I believe, on Monday of this week.
Yes, I recognize it.
All right.I apologize to theThank you.
Commission that the numbers on the three pages, particularly
the first two pages of the schedules of the exhibi t, are
somewhat small , di f f i cuI t to read, so I've prepared a cover
sheet that indicates the relevant numbers.
And, Mr. Lobb, directing your attention to the
first page of the schedule, do you recognize that as a exhibit
from the recent Idaho Power rate case?
Page
Yes,Slr.
appears to be an exhibit from the Idaho Power
rate case,yes.
And the third page,which is labeled page
four I'll represent to you exhibi t from the PacifiCorp
rate case presently pending before the Commission , which
believe in the Commission's record is labeled Exhibit No.
and the third (sic) page, I'll represent to you, is an exhibit
from this case , which is Healy Revised Exhibi t No.
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HEDRICK COURT REPORTINGP. O. BOX 578, BOISE, ID
LOBB (X)
Staff83701
I recogni ze that.
Thank you.And on the front page I've referred
the Commission to on the Idaho Power exhibit line 20 and line
31 which show the revenues and operating expense of Idaho Power
Company as filed in that case, and then indicated that if you
do a simple ratio of variable expense to revenue, you get the
figure of 60 percent, and with the same type of calculation on
Pac i f i Corp Exhibi t 9 you get 70 percent , and wi th the same
calculation for United Water you get a ratio of 35 percent?
I see that calculation.
Now , do you recall being asked in Discovery a
Production Request No. 40 in which the Staff was asked to
perform or provide a calculation that would demonstrate that
the rates proposed by the Staff would allow the Company a
reasonable opportunity to return -- to earn its allowed return,
whatever that may be , on investments in plant that are used and
useful in serVlce to the public?
I recall that request.
All right.And was your Response to that Request
Staff has not attempted to make the calculation because it is
not possible to quantify future changes in revenues and
22 expenses that will result from additions to plant made during
or after the test year?
I recall that reply.
Notwithstanding that, Mr. Sterling in Exhibit 126
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LOBB (X)Staff83701
was able to provide a rate proof intended to show that the
recommended rates will recover the Staff recommended revenue
requirement.Isn't that correct?
Yes , he has done that.
All right.Have you had an opportuni ty to
examine Company Exhibi t No.1 7?
Whose testimony is that attached to?No. 17 .
Doctor --
I have looked at Dr. Peseau' s Exhibi t 17.
It I s the one exhibit attached to his rebuttal
test imony .
Yes, I have that.
Now , I I d just like to ask a couple questions to
make sure that we and the Commission understand the exhibit in
the same way.The first column essentially contains Staff'
recommended allowed operating revenues, the Staff's recommended
net operating income, and the Staff I s recommended rate base.
Is that correct?
I believe so.
And the second column adds to the Staff
recommended rate base the $6.3 million, which is, in effect,
removed from rate base by virtue of the 13 -month average test
year treatment of investments made up to July 30th.Is that
the way you understand the exhibi
Which column , three?
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Column two.Column two identifies the amount
that is removed from rate base by virtue of the 13 -month
average, averaglng of rate base, up through July 31st?
Yes, I'll accept that.
So then the third column would show the amount of
rate base if the $6.3 million was included, bringing the rate
base up to 130 million?
Yes.
And the bot tom two numbers in column three
reflect the return that would be earned if operating revenues
and net income were held the same but the $6.3 million was
added to rate base?
Yes, I see the calculation.A.,
Okay.Then column four identifies the amount of
investment that is not included in rate base because of the
one-thirteenth treatment of posttest year investment through
12/31/04?
Yes.
And then the column five shows the amount of rate
base if the $8.7 million was added in in addition to the $6.
million?
That's correct.
Which , of course, the numbers have changed
slightly during the course of the case , but then brings the
rate base to the 139 million , and then shows the return that
818
HEDRI CK COURT REPORTING
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LOBB (X)Staff
the Company would earn if net income was held the same as
proposed by Staff rates.Is that the way you understand it?
I understand how the calculations were made, yes.
Okay.Thank you.
I would also add though that it makes the
assumption that no expenses changed during the test year and no
revenues changed during the test year when you add some
$15 million of rate base.
Well , two points on that.The Staff revenues
include revenue through May 31 of 2005?
That's correct , to reflect the addition of the
Columbia water treatment plant as if it were in service during
the entire test year.
And all other investment made during that
period?
That's not what the testimony says, and just
simply, the addition of the Columbia water treatment plant
requires the addi tion of the total revenue.The other plant
investment could have other revenue impacts that aren't
capt ured,and certainly
the other investment.
Well the Company didn't at tempt to segregate
there's no expense impacts of any of
revenue attributable to the Columbia water treatment plant and
include only that up through May 31st.It attempted to proj ect
all revenue up through May 31st.
819
HEDRI CK COURT REPORTING
O. BOX 578 , BOISE , ID 83701
LOBB (X)Staff
I understand, to allow addition of the Columbia
water treatment plant.
And all other investment that occurred during
that period?
The testimony doesn't say that.Could you direct
me in testimony where it says that?
I'll look for it, but I think that's - - whether
it says it or not, that I s the case, as I understand it, but
1 e t 's go on.
MR. STUTZMAN Just for the record , Mr. Chairman,
I'll obj ect to Mr. Miller's testimony.It's, you know
- -
i t
might contradict what's actually been filed as testimony, he I s
not a sworn wi tness, and it's inappropriate.
Probably a fair obj ection.MR. MI LLER :
Sustained.COMMISSIONER KJELLANDER:
I think it's also undisputed, BY MR. MI LLER :
it not, that the Staff's proposal for investment made after the
test year is to include that investment at a value equal to
one-thirteenth of its actual amount?
All of the investment that occurred within the
five months after the end of the test year that is not
associated with the Columbia water treatment plant, that'
correct.
Right.And, of course, the Staff cuts off its
consideration of investment at 12/31?
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
LOBB (X)Staff83701
That's correct.
All right.So all the investment after 12/31 is
not recogni zed at all?
Tha t 's correct.
And investment between the end of the test year
and 12/31 is recognized at one-thirteenth of its actual
amount?
That's the Staff recommendation.
Right.Which means that up to 92 percent of
posttest year investment is not recognized in rates?
No, that's incorrect.In fact, the vast majority
of the posttest year investment in terms of the Columbia water
treatment plant are included in test year, so
Putting aside the Columbia water treatment
plant?
, okay.In that case, then you may be correct
on that number.I haven't made that specific calculation.
Well , the reciprocal of one-thirteenth is
percent, approximately.
Okay.I'll take your word for the math.
And with minor exceptions on some investments
that the Staff questioned the used and useful nature of, it I s
undisputed that the plant associated with that investment is in
service and providing service to the public?
I want to make sure we're talking about the same
821
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
LOBB (X)Staff
. 17
posttest year plant investment.When you talk about the
percent, are we talking about the May 31,, 04 , to December 31,
I 04, or are we talking May 31 , 05?Is it'04 , to the May 31
92 percent calculated on the 10-month period or the five-month
period?
Well , in my mind, I was considering the period
between the end of the test year and the time that the Staff
proposes to cut off consideration of investment.
Okay.So the plant that the
- -
the plant that
was added between May ' 04 and December 104 , your question is is
there dispute that plant is in service?Is that your question?
Yes.
I don't believe that there is.
There might be some minor exceptions, but
generally there's no dispute that it's in service, providing
service to the public?
Yes.
And the amount of the investment in that plant is
recognized under your proposal at one-thirteenth of its actual
amount?
As a compromise for not allowing any of it in the
test year.
Well, agaln , I don t want to use this necessarily
as a forum for trying to debate policy and precedent and so on
but there is, of course, a history of recognizing posttest year
822
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
LOBB (X)Staff83701
investments that are both known and measurable and used and
useful.Right?I mean, that's not a new thing.
Some plant has been recognized if properly
included in the test year.Certainly, known and measurable
changes in expenses have routinely been included for many
years.
Plant additions are really what we're talking
about here, that is the issue, what plant addi tions can be
incl uded in the test year and can you reasonably account for
expense and revenue effects that would occur once that plant
added for a full year , or assumed to be in place for a full
year in the test year, and there is a question about what plant
can and can't be added and whether or not there are
- -
you can
properly account for those effects, whether it's added during
the test year partially or whether it's added completely after
the test year.Both types of plant additions have impacts on
revenues and expenses in the test year.
Let me ask, I guess, a question this way:
don't really know the details of the calculations used by the
Commission to create the proxy adj ustment in both the Idaho
Power and Avista cases that were intended to address the
problem of mismatching of revenue expense and investment?
Well --
They are somewhat hidden to us?
I think the, you know , review of the Commission
823
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
LOBB (X)
Staf f83701
Order indicates that there is ratios of maintenance expenses
and revenues and so forth.For the particular type of plant
that those companies
- -
Avista and Idaho Power
- -
wanted to
add, which was transmission , electrical transmission, I don I
know that it would do you any good to use the proxy developed
to make expense and revenue adjustments for that type of plant
in the case of a water treatment plant or well or a water
transmission main.I don't know that there would be any
relevance to the proxy that was used in that case for those
for that type of plant, and I think that really gets to the
problem.You know , what effect does plant have and can you
accurately account for it, regardless of the type of plant.
And that's the dilemma that utilities are in
somewhat of trying to comply with the Commission's directive to
make an adjustment when , as you have indicated, that adjustment
lS somewhat forward-looking and difficult to estimate?
Well , and that is true, and the alternative is to
be very careful on what types of plant you add to the test
year otherwise, the test year really becomes meaningless.
It's an attempt to capture actual costs , actual revenues,
actual plant in serVlce.And when 'you add plant outside of the
test year or for part of the test year , then you develop
mismatches during the test year.
And I guess as far as I'm concerned, the answer
to the problem with trying to determine expense and revenue
824
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LOBB (X)Staff
adjustments is not to just don't do them.You have to figure
out a way.You either add the plant and make the adjustments,
or you don't add the plant.
And the Company attempted to make an adjustment
by proj ect ing out revenue and expense
- -
customer growth
revenue and expense - - through May 31st of this year?
For one very large
- -
very large - - water
treatment plant.
Where I was initially trying to go with that
question was even though we don't know the details of how the
proxy was calculated , isn I t it true that disallowance of all
investment except for one-thirteenth of its value is a much
larger end effect adjustment than the end effect of the proxy
adjustment in the Idaho Power and Avista cases?
Well , first of all , it's not - - I don't consider
it disallowance of the plant.It's incorporating - - it'
incorporating the plant in a way that will resul t in a matching
of revenues and expenses; better matching of revenues
expenses, certainly.I haven't made the calculations
specifically with regard to the proxy revenue increase and its
relationship to the disallowance of or the adjustment -- the
adjusting out twelve-thirteenths of the plant added between
May 31 and December 31 , 04 .
Getting back to. things that are undisputed , it is
undisputed, I believe, that this one difference , the difference
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HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID 83701
LOBB (X)Staff
in accounting methodology, resul ts in a difference in rate base
of more than $2 million between the Company and the Staff?
Yes.
And just one final point:ve taken it that
part of the underlying rationale for Staff's recommendation in
this area is some concept of consistency, consistency of
treatment across utilities?
Consistency and logic.
Let me just ask this then:I s the goal of
consistency to use the same method for everybody, or is the
goal of consistency to consistently produce a resul t that is
fair, regardless of methodology?
The goal is the same:To produce a result that
lS fair and apply that fair methodology to all utilities
uniformly, unless there is some specific reason not to do that.
Well , just in conclusion , how is it fair to
Uni ted Water to have a rate base that has grown from
approximately $90 million in its last case to $140 million in
this case, and for the Staff to conclude that its revenue
increase should be around two percent?
The Staff looked at the case on the basis of
Commission Orders and application of Commission Orders with
respect to Idaho Power.The Commission has applied an average
rate base methodology to Idaho Power.I daho Power has a much
larger rate base per customer growth than Uni ted Water does.
826
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
LOBB (X)Staff
Idaho Power added $124 million during its test year , some seven
percent increase; United Water adds some $3 million during the
test year , which is about just under three percent.The
investment per customer for United Water is significantly less,
the rate base increase per customer for United Water
significantly less than the rate base increase for Idaho Power
and the Commission ordered at use or accepted and used average
rate base in that case, and they made adjustments to any
posttest year - - made adjustments for post test year
investments.
And the average test year in that case was what
was proposed by the Company?
Tha ti s correct.
All right.I think that's adequate to illuminate
our differences.
COMMI S S lONER KJELLANDER:Thank you, Mr. Miller.
Let I S move to Mr. Purdy.
MR . PURDY:I believe we've already crossed
Mr. Lobb yesterday.Thank you.
COMMISSIONER KJELLANDER:Was I here?Then it
would make us, I believe , ready for the Commission , but before
we do so, just for the record, just to note that Mr. Campbell
l S not here thi s morning.
Okay, so let's see if there are any questions
from members of the Commission.
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LOBB (X)Staff
COMMISSIONER SMITH:I have questions.
COMMISSIONER KJELLANDER:Commissioner Smith.
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Lobb, just for a moment yesterday when
Mr. Sterling was on the stand, we talked about fixed costs and
flat rates, very low costs, usage rates, and it seemed to be a
question of the Company hoping to have a larger customer charge
on the theory that their fixed costs ought to be recovered in a
monthly flat charge and not
- -
not rolled into their commodi
charge.Do you recall that?
I recall that testimony.
And so I've been trying to weigh because they
seem to think that it adds risk , which I assume can be taken
care of somehow in a rate of return type of analysis, but how
risky is it?I t seemedIs our forecast usually that way off?
to me that usually part of the risk falls on the customers that
the Company is going to collect too much because there's growth
in customers or growth in usage or, you know , it seems to me
we're always conservative.Am I wrong on that?
Well , I think it's kind of a balancing act.
Certainly, if you re investing more capi tal in your
- -
in your
system for new customers, then you recover through rates
828
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID 83701
LOBB (Com)Staff
collected from those new customers and your rates are a
commodi ty, which are - - then I think you have some risk of not
collecting enough revenue from new customers to cover your
capi tal investment.
But with respect to recovery of
- -
maybe it's a
little bit more of a problem for water utilities, and I want to
make sure I understand your question in terms of cash flow and
the risk of
Well , if we don I
- -
if we don't increase the
customer charge to the level that the Company is proposing, are
we somehow exposing them to some greater risk than they would
otherwise experience?
Only wi th respect to falling revenues, falling
consumpt ion.And if consumption falls and a larger part of
their costs are recovered through the commodi ty rate , then they
would fail to recover costs associated wi th capi tal
investments.
But it seems to me that if we're assumlng that
75 percent of the new customers have outside irrigation
somehow we're taking account of the fact of where we think the
per-customer usage is going to go, down or up.Is that part of
the anal ys is?
I think it certainly should be, but the fact is
think if you have customers that don t use much commodity
Right.
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HEDRICK COURT REPORTING
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LOBB (Com)Staff
- -
but they, even wi th separate irrigation
systems, they could draw on the facilities during times of the
year , that the Company has - - then , you know , it's important
for
- -
I think it's somewhat important for those customers to
cover the basic costs because they're not going to use the
commodi ty that is required to cover the costs associated wi
their capital investment.Otherwi se , if they don't pay enough
money through a customer charge or a fixed fee, they'
simply - - somebody else is going to have to pay the cost of
their meter and their service and their other facilities that
they use , but they don't use enough commodi ty to pay those
costs.
So is the Staff changing its position on the
customer charge?
Not necessarily, and the reason is
- -
is there'
other - - we talked about cost of service and how you parcel out
fixed costs.There are a lot of fixed costs associated with
water service , and it becomes absurd to try to recover all of
the fixed cost in a customer charge.Customers can't control
their bill.They can'
- -
it does no good to conserve water.
Well that would be a new regulatory approach.
could recover all the costs in a fixed charge and the commodi ty
would be free.
Taken to the extreme , that's what - - that's what
would happen.So like I say, it's a balancing act.
830
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
LOBB (Com)Staff
. 12
That I s kind of like getting Internet service with
your cable.Right?
Yeah.
COMMISSIONER KJELLANDER:Or wi th power.
BY COMMISSIONER SMITH:I guess I'm still
troubled by the questions that Mr. Miller asked you about the
difference in capital intensiveness between water utilities and
electric utili ties, and maybe I'm missing something, but
don't see how variable expense to revenues covers the
waterfront on that issue.
Well , and ve looked at those numbers as well
and , you know , what Exhibit No. 18 shows is it shows the
relationship between variable costs and
- -
variable costs and
costs associated with capital investment.And it shows that
the variable cost for Uni ted Water compared to capi tal
investment is lower than it is than for Idaho Power or
, PacifiCorp.But the fact is, the capi tal , both of the electric
utilities , are way more capital intensive.They simply have
more variable costs because they have thousands of miles of
transmission line that they have to operate and maintain.
So would you more look at investment per
customer?
Yes.
Or is there another measure that you would
I think you should look at rate base per
831
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID 83701
LOBB (Com)Staff
customer.
Okay.
And certainly rate base growth per customer.
And,you know calculations show that you know
Uni ted Water added $41 rate base per customer theirsome
test year.Idaho Powe r added about 300 in rate base per
customer for their test year.So the impact certainly of an
average rate base is certainly as great or greater for Idaho
Powe r .
And, finally, it just escapes me why we ever got
In this discussion in the first place about who's more capital
intensive.
I think we're trying to distinguish United Water
from Idaho Power.
Okay.Thank you.I think I can do that.
COMMISSIONER KJELLANDER:Any further questions
from members of the Commission?I f not, we're ready for
redirect.
MR. STUTZMAN Thank you , Mr. Cha i rman .Just a
couple of questions.
REDIRECT EXAMINATION
BY MR. STUTZMAN
Mr. Lobb , you were asked about Idaho - - or
832
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID 83701
LOBB (Di)Staff
excuse me, United Water's rate cases Slnce 1993.Were average
test years used for United Water in previous rate cases?
Yes.In fact, they were used for the prior three
United Water rate cases.
And did they file an average test year in their
1993 case?
They actually had two ' 93 cases.93 -, they did
not file -- let's see.Maybe it wasI 11 have to recall that.
the 93 -3 case that they failed to file.I 11 have to check on
that to make sure.
Okay, the 93 -1 case the Company did not file an
average test year and the Commission approved a year-end on the
basis they had nothing else to go by, and they directed the
Company in their next case, which was the 93 - 3 case, to file an
average test year methodology.
So the Commission in its Order in the 93 -1 case
expressed some concern about lack of information on an average
test year?
In fact , they approved the year-end on anYes.
interim basis pending an average year test year methodology in
the 93 - 3 case.
Thank you.That's all I have.MR. STUTZMAN
Thank you.COMMISSIONER KJELLANDER:And I
believe we have one more question from Commissioner Smith.
Yeah, it was on the otherCOMMISSIONER SMITH:
833
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LOBB (Di)Staff
page.
EXAMINATION
BY COMMISSIONER SMITH:
since 1993?
How many Uni ted Water rate cases have there been
Well , we had the 93 -1, the 93 -
So after ' 93?
After ' 93 .Two:, 9 7 and 2 0 0 0 .
COMMISSIONER SMITH:Okay.Thank you.
COMMI S S lONER KJELLANDER:Okay.
(The witness was excused.
COMMISSIONER KJELLANDER:I believe we're ready
then for , Mr. Stutzman , your next witness.
MR. STUTZMAN Thank you, Mr. Cha i rman .
calls Terri Carlock to the stand.
834
Staff
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID 83701
LOBB ( Com)Staff
TERRI CARLOCK
produced as a witness at the instance of the Staff , being first
duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. STUTZMAN
Please state your name for the record and spell
your last name.
Terri Carlock , C-
And where are you employed and in what
capaci ty?
The Idaho Public Utilities Commission, and I'
the supervisor of the accounting audi t section.
Did you prepare and prefile written testimony in
thi s case?
I did.
And does that consist of approximately
page s
It does.
Do you have any corrections or changes to make to
your prefiled testimony?
No, I do not, and that correction would be that
it's 13 pages.
Thank you.If I were to ask you the questions in
835
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
CARLOCK (D i
Staf f
your prefiled testimony today, would your answers be the same
as contained therein?
They would.
Did you file any exhibits with your testimony?
Yes, I did.I filed Exhibi t No. 120 , consisting
of two schedules.
Do you have any changes or corrections to make to
your exhibi t
No.
MR. STUTZMAN Mr. Chairman , I move that the
testimony of Terri Carlock be spread upon the record as
read, and Exhibi t No. 120 be admi t ted into the record.
COMMISSIONER KJELLANDER:Okay, without
obj ection , we'll spread the testimony across the record as
read for Ms. Carlock , and admit Exhibit 120.
MR . S TUT ZMAN :Thank you.
(The following prefiled direct testimony
of Ms. Carlock is spread upon the record.
836
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE, ID 83701
CARLOCK (Di)Staff
Please state your name and address for the
record.
My name is Terri Carlock.My business
address is 472 West Washington Street, Boise, Idaho.
By whom are you employed and in what
capaci ty?
I am employed by the Idaho Public Utilities
Commission as the Accounting Section Supervisor.
Please outline your educational background
and experience.
graduated from Boise State Uni versi ty
May 1980, with a B.A. Degree in Accounting and in
Finance.I have attended various regulatory, accounting,
rate of return, economics, finance and ratings programs.
I chaired the National Association of Regulatory
Utilities Commissioners (NARUC) Staff Subcommittee on
Economics and Finance for over 3 years.Under thi s
subcommittee, I also chaired the Ad Hoc Committee on
Diversification.I am currently a member of the NARUC
Staff Subcommi ttee on Accounting and Finance.I have
made presentations before the Institute of Public
Utili ties at Michigan State Uni versi ty, NARUC Accounting
and Audi t Seminars and for many other conferences. Since
joining the Commission Staff in May 1980 , I have
participated in audi ts, performed financial analysis on
CASE NO. UWI-W-04-
04/06/05
CARLOCK , T (Di) 1
STAFF837
varlous companles and have presented testimony before
this Commission on numerous occasions.
Please describe the scope of your
responsibilities in the preparation of this case.
My responsibilities were numerous but
generally fall in three basic categories.The first
category includes an analysis of all theories, policies
and rat~making analysis.This responsibility ranges from
coordinating Staff witness testimonies to assure the
theories and policies used to establish rate base and the
revenue requirement are implemented appropriately and are
consistent with general ratemaking and accounting
theories.I support the position presented by Staff
witness Lobb to assure that no accounting requirements
are violated with this policy.
The second category of responsibility
encompasses the supervision of all accountants working on
this case.I discussed numerous adj ustments wi th the
Staff and assisted in coordinating the posi tions and
testimonies.
The third category of responsibility relates
to the cost of capital.My testimony supports the Staff
recommendations for the 10% r~turn on equity and the
development of the recommended 8.1% overall rate of
return.
CASE NO. UWI-04-
04/06/05
CARLOCK , T (Di) 2
STAFF838
Please elaborate on the Staff's policy to
establish rate base levels based on the average of the
monthly averages.
Staff witness Lobb discusses this policy in
his testimony.I support this policy posi tion and the
rationale he has presented and have assisted in
coordinating the numerous adjustments to assure
consistent treatment.As discussed by other wi tnesses,
the Columbia Water Treatment Plant is included in rate
base as if in place for the full year and the associated
costs and revenues are annualized.Other construction
proj ects are reflected in rate base uslng the average of
monthly averages rate base calculation.This is
consistent with other cases recently evaluated by Staff
and was determined by the Commission where only maj or
proj ects are included in rate base at a level greater
than the average of the monthly averages figure.
Inclusion by Staff witness Harms of the December 31, 2004
plant balances for proforma plant adjustments
reasonable for many reasons.These reasons incl ude the
availability of financial statements, consistency between
the reporting period used by United Water Idaho and
ratemaking adj ustments, the abil ity to reconcile the
various adjustments, and the desire to reduce regulatory
lag where possible.
CAS E NO. UW I - W - 04 - 4
04/06/05
CARLOCK, T (Di) 3
STAFF839
Please move to the cost of capital analysis
and recommendations made by Staff in this case.Please
summarlze the cost of capital recommendations.
I am recommending a return on common equity
in the range of 9.25% - 10.25% with a point estimate of
10.0%.The recommended overall weighted cost of capital
is in the range of 7.75% - 8.21% with a point estimate of
8 . 1% to be applied to the rate base for the test year.
Are you sponsoring any exhibi ts to accompany
your testimony?
Yes, I am sponsorlng Staff Exhibi t No. 120.
Have you reviewed the testimony and exhibits
of Uni ted Water Idaho (UWI, Company) wi tnesses,
particularly witness Ahern?
Much of the theoretical approach usedYes.
by UWI witness Ahern in her testimony and exhibits
generally the same as I have used.My judgment in some
areas of application results in different outcomes and
recommendations.
Please explain how Staff witness Hall'
testimony links with your testimony.
Staff witness Hall prepared, under my
direction, Exhibit Nos. 117 , 118 and 119 along with
supporting testimony.I asked her to cover the legal
standards and basic explanation on how returns are
CASE NO. UWI -W- 04-4
04/06/05
CARLOCK, T (Di) 4
STAFF840
derived.She also makes the Staff's recommendations on
cost of debt, cost of minority interest (preferred stock)
and the capi tal structure used to calculate the revenue
requirement for UWI in this case.
What approach have you used to determine the
cost of equity for United Water Idaho specifically?
I have primarily evaluated two methods:the
Discounted Cash Flow (DCF) method and the Comparable
Earnings method.
Please explain the Comparable Earnings
method and how the cost of equi ty is determined using
thi s approach.
A. The Comparable Earnings method for
determining the cost of equity is based upon the premlse
that a given investment should earn its opportuni
costs.In competitive markets, if the return earned by a
firm is not equal to the return being earned on other
investments of similar risk, the flow of funds will be
toward those investments earnlng the higher returns.
Therefore, for a util i ty to be competi ti ve in the
financial markets, it should be allowed to earn a return
on equi ty equal to the average return earned by other
firms of similar risk.The Comparable Earnings approach
is supported by the Bluefield Water Works and Hope
Na tural Gas decisions as a basis for determining those
CASE NO. UWI -W- 04-
04/06/05
CARLOCK, T (Di) 5
STAFF841
average returns.
Industrial returns tend to fluctuate with
business cycles, increasing as the economy improves and
decreasing as the economy declines.Utility returns are
not as sensitive to fluctuations in the business cycle
because the demand for utility services generally tends
to be more stable and predictable.
Please evaluate interest rate trends.
The prime interest rate ranges by year are
shown on Staff Exhibi t No. 120, Schedule Interest
rates are increasing but continue to be below the level
seen during the last two Uni ted Water Idaho rate cases,
UWI - W - 00-1 and UWI - W - 97 - 6 .
Please evaluate the recent prlce index
trends.
The trends for prlce indexes are shown on
Staff Exhibit No. 120, Schedule Both the consumer
prlce index (CPI) and the producer price index (PPI) were
higher in 2004.The percent change in the CPI averaged
5% for 2002 -2004.The average remains less than many
historical periods.
Please provide the current index levels for
the Dow Jones Industrial Average and the Dow Jones
Utility Average.
The Dow Jones Industrial Average (DJIA)
CASE NO. UWI -W- 04-
04/06/05
CARLOCK , T (Di) 6
STAFF842
23
closed at 10,458 on April S, 2005.The DJIA high of
10,940 in February 2005 is the highest close since 2001.
The Dow Jones Utility Average closed at 363 on April
2005.
Please explain the risk differentials
between industrials and utilities.
Risk is a degree of uncertainty relative to
a company.The lower risk level associated wi
utilities is attributable to many factors even though the
difference is not as great as it used to be.Utili ties
continue to have limited competition for distribution
utility serVlces within the certificated area.With
limited competition for regulated services, there is less
chance of losses related to pricing practices, marketing
strategy and advertising policies.The competi ti ve risks
for water utilities, including United Water Idaho are
less than for other utilities operating in Idaho. The
demand for utility services is relatively stable and
certain wi th customer growth increasing at about 3 % for
the last two years.
The investment r~sk following this case for
UWI will be less since Staff proposes to include the
Columbia Water Treatment Plant as if it were in service
for the full year.This allows UWI the opportunity
fully recover the used and useful costs invested in this
CASE NO. UWI-04-
04/06/05
CARLOCK , T (Di) 7
STAFF843
plant.The investment risk for UWI will still be lower
than for other utilities even though the Staff recommends
the average of monthly averages rate base instead of the
forecasted year-end rate base proposed by the Company.
Under regulation, utilities are generally
allowed to recover through rates, reasonable, prudent and
justifiable cost expenditures related to regulated
servlces.Unregulated firms have no such assurance.
Utilities in general are sheltered by regulation for
reasonable cost recovery risks, making the average
utili ty less risky than the average unregulated
industrial firm.
Considering all of these comparisons, I
believe a reasonable return on equity attributed to
United Water Idaho ,is 9.5% - 10.5% under the Comparable
Earnings method.Uni ted Waterworks, Inc. and Uni ted
Water Idaho continue to be able to obtain financing at a
reasonable cost.
You indicated that the Discounted Cash Flow
method is utilized in your analysis.Please explain this
method.
The Discounted Cash Flow (DCF) method
based upon the theory that (1) stocks are bought for the
income they provide (i. e ., both dividends and/ or galns
from the sale of the stock), and (2) the market price of
CASE NO. UWI-04-
04/06/05
CARLOCK , T (Di)
STAFF844
stocks equals the discounted value of all future incomes.
The discount rate, or cost of equity, equates the present
value of the stream of income to the current market price
of tpe stock.The formula to accomplish this goal is:
--------------. +------------
( 1 +ks ) 1 (1 +ks) 2 (l+ks ) N ( 1 + ks ) N
Po =Current Price
D =Di vidend
ks =Capi talization Rate, Discount Rate, or Required
Rate of Return
N =Latest Year Considered
The pattern of the future income stream
the key factor that must be estimated in this approach.
Some simplifying assumptions for ratemaking purposes can
be made without sacrificing the validity of the results.
Two such as sumpt ions are:(1) dividends per share grow
at a constant rate in perpetuity and (2) prices track
earnlngs These assumptions ,lead to the simplified DCF
formula, where the required return is the dividend yield
plus the growth rate (g)
ks =
-; - - + g
CASE NO. UWI -W- 04-
04/06/05
CARLOCK, T (Di) 9
STAFF845
Staff witness Hall shows a basic DCF
analysis using the Value Line water utilities industry.
I have evaluated additional DCF analyses for other
groups, including those presented by UWI witness Ahern,
and expanded on the basic analysis to develop the Staff
recommended return on equi ty range.
Have you factored flotation costs in with
your cost of capital analysis?
Yes, I have considered direct flotation
costs in my analysis by increasing the dividend yield
component of the DCF analysis.Since only direct costs
should be considered, I have used a flotation cost factor
of 2% that is consistent with that previously used for
Uni ted Water.Flotation costs shou~d be company specific
so Staff witness Hall's Exhibit No. 119 does not reflect
the increase for flotation costs.I have adjusted the
DCF formula to include the direct flotation costs as
df"
ks = (-
- ~
(1 + df) J +
What is your estimate of the current cost of
capi tal for UWI using the Discounted Cash Flow method?
The current cost of equi ty capi tal for UWI,
CASE NO. UWI -W- 04-
04/06/05
CARLOCK , T (Di) 10
STAFF846
uslng the Discounted Cash Flow method is between
8% - 10.5% during various time intervals.Due to ongolng
capital requirements, including refinancing requirements,
I believe a dividend yield of 3.4% to 3.5% with a growth
rate of 5% to 6% is the most representative for UWI.
How is the growth rate (g) determined?
The growth rate is the 'factor that requlres
the most extensive analysis in the DCF method.It is
important that the growth rate used in the model be
consistent wi th the dividend yield so that investor
expectations are accurately reflected and the growth rate
is not too large or too small.
I have used an expected growth rate of
5 % to 6 % .This expected growth rate was derived from
analysis of various historical and proj ected growth
indicators, including growth in earnings per share,
growth in cash dividends per share, growth in book val ue
per share, growth in cash flow and the sustainable growth
for water utility industry groups.
You indicated the cost of common equity
range for UWI is 9.5% - 10.5% under the Comparable
Earnings method and 8% - 10.5% under the Discounted Cash
Flow method.What is the cost of common equi ty capi tal
you are recommending?
The fair and reasonable cost of common
CASE NO. UWI -W- 04-
04/06/05
CARLOCK, T (Di) 11
STAFF847
20'
equity capital I am recommending for United Water Idaho
is in the range of 9.25% - 10.25%.Al though any point
within this range is reasonable, the return on equity
granted would not normally be at ei ther extreme of the
fair and reasonable range.I utilized a point estimate
of 10% in calculating the ov€rall rate of return for the
revenue requirement.
What is the basis for your point estimate
being 10% when your range is 9.25% -10. 25%?
The 10% return on equity point estimate
utilized is based on a review of the market data and
comparables, water utilities industry and UWI capital
structures and ratios, and average risk characteristics.
What are the costs, the capital structure
and overall cost of capital recommended?
Staff witness Hall's Exhibit No. 117 shows
the capi tal structure and cost rates recommended in this
case.I support each of these components, as they are
consistent wi th my independent analysis.
The overall weighted cost of capital
recommended in this case is in the range of 7.75% -
21%.For use in calculating the revenue requirement, a
point estimate consisting of a return on equity of 10%
and a resul ting overall rate of return of 8.1% was
utilized as shown on Staff Exhibit No. 117.
CASE NO. UWI -W- 04-
04 / 0 6 /0 5
CARLOCK , T (Di) 12
STAFF848
Does this conclude your direct testimony in
thi s proceeding?
Yes, it does.
CASE NO. UWI -W- 04-
04/06/05
CARLOCK, T (Di) 13
STAFF849
(The following proceedings were had in
open hearing.
(Staff Exhibit No. 120, having been
premarked for identification , was admitted into evidence.
MR. STUTZMAN And she is available for
cross-examination.
COMMISSIONER KJELLANDER:Let's move first to
Mr. Purdy.
MR . PURDY:No questions , thank you.
COMMISSIONER KJELLANDER:Thank you.
Mr. Eddie.
MR. EDDIE:No questions, thanks.
COMMISSIONER KJELLANDER:Mr. Strickl ing.
MR. STRICKLING:No questions, thanks.
COMMI S S lONER KJELLANDER:And Mr. Miller.
CROSS - EXAMINATION
BY MR. MILLER:
In light of the Stipulation that the parties have
entered into wi th respect to cost of capi tal , I don't have
significant cross-examination other than just one question,
Ms. Carlock:
On page 4 of your testimony, you identify the
range of cost of capital having a low end of 7.75 for United
850
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
CARLOCK (X)
Staf f
Water Idaho?
Commission?
For the overall weighted cost of capi tal.
Yes.
That's correct.
MR. MILLER:Thank you very much.
COMMI S S lONER KJELLANDER:Thank you.
Are there questions from members of the
COMMISSIONER SMITH:Yes.
COMMISSIONER KJELLANDER:Commissioner Smith.
COMMISSIONER SMITH:Jus t one , I hope.
EXAMINATION
BY COMMISSIONER SMITH:
ERI SA issue.
FAS 87?
ve been trying to think my way through this
Is that the correct one that
On pensions?
On pens ions.
Yes.
And it seems that there is some kind of formula:
FAS 87 is the financial reporting requirements
Okay.
- -
for all companies that
851
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
CARLOCK (Com)Staff
To the SEC?
- -
that file reports to the SEC, right.
And it calculates a number.And what I'm trying
to figure out is what is the relevance of that number to how we
make rates?
The relevance of that number is not so much as to
how we make rates , it's as to the reporting balance sheet and
income statement of the companies for comparison purposes, so
that is the expense that they would be reporting for that
purpose.And so investors would be looking at those numbers.
And it seemed that yesterday it became apparent
that in
- -
because of markets and interest rates, that there
were a number of years where the Company was even prohibi ted
from making a cash contribution into this pension?
They would not have been able to make a cash
contribution and be able to deduct it for tax purposes.
Aha.But during that period of time in our rate
making process , were customers paying rates that included an
amount as if the Company were making a contribution?
They would have been paying rates based on the
amount of pension included in the last case.I don't know that
dollar amount, but there was a dollar amount that was included,
so the answer would be yes.
Okay.ThankWell, I III still think about that.
you.
852
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
CARLOCK (Com)Staff
COMMISSIONER KJELLANDER:Ready for any redirect?
MR. STUTZMAN No redirect , Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you.
(The wi tness was excused.
MR. STUTZMAN:And that, I believe , completes the
presentation of Staff's case.
COMMISSIONER KJELLANDER:Okay.Well , thank you.
And, Mr. Miller , I think in light of the fact
that Mr. Eddie's wi tness is not here yet and we had said on the
record yesterday that we would accommodate that witness upon
his arrival , I think the only thing it leaves us wi th might be
some of your rebuttal testimony.Is that correct?
MR. MILLER:Yes , Mr. Chairman.I believe that
is the status of the proceedings.
COMMISSIONER KJELLANDER:Do we have any problem
or do you see any problem with moving forward with that
rebuttal testimony at this time?
MR . MI LLER :If we could have just a short
prepara tory break , I think we'll be ready to go.
COMMISSIONER KJELLANDER:Why don't we go ahead
and take until five minutes after the hour.
(Recess.
COMMISSIONER KJELLANDER:We'll go back on the
record , and before our break , we were ready for Mr. Miller to
proceed with the remaining of his rebuttal portion of the case.
853
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID 83701
CARLOCK (Com)Staff
Jeremiah Healy.
MR. MI LLER :Thank you, Mr. Cha i rman .We'll call
COMMISSIONER SMITH:You're still under oath.
MR. HEALY:Still under oath.Excellent.
COMMISSIONER SMITH:It sticks.
JEREMIAH J. HEALY
produced as a rebuttal witness at the instance of United Water
having been previously duly sworn , ~esumed the stand and was
further examined and testified as follows:
BY MR. MI LLER :
this case.
DIRECT EXAMINATION
Sir , would you state your name, please?
Jeremiah Healy.
You previously testified on direct testimony in
Is that correct?
Yes.
Did you have occasion , in addi tion , to submi
written rebuttal testimony to the Commission
Yes.
- -
for prefiling consisting of 50 pages?
Yes.
And was your rebuttal testimony accompanied by an
854
HEDRICK COURT REPORTING
O. BOX 578 , BOI SE , ID 83701
HEALY (Di-Reb)
United Water
exhibi t
Yes, it was.
Number 15 consisting of several schedules?
Yes , it was.
Are there any additions or corrections that need
to be made to your written rebuttal testimony?
There are several.
On page 37 , there is a table that highlights the
differences in rate base elements between the Company and the
Staff.On line 16, I I d like to amend the Company's accumulated
deferred FIT number to 14,442 304.
And could you identify the reason for that
change?
Just an updated calculation.
I would also
- -
that will change the grand total
in that same column to 140 148,049.
It will also change the difference on line
between the Company and the Staff position to a
neg at i ve $ 7 9 , 3 63 .
COMMISSIONER SMITH:I think I might have the
wrong numbers.It's 14 442 304?
THE WITNESS:Correct.
COMMISSIONER SMITH:Which is, what, another
500 000.
MR. WYATT:It's a neg at i ve .
855
HEDRI CK COURT REPORTING
O. BOX 578 , BOISE , ID 83701
HEALY (Di -Reb)
United Water
THE WITNESS:Correct.
COMMISSIONER SMITH:, got it.It's negative.
Thank you.Thanks.That answers it.
COMMISSIONER KJELLANDER:While we're just
clarifying numbers, if you could repeat agaln the grand total
what was that, 140 million what?
THE WITNESS:148,049.
COMMISSIONER KJELLANDER:Thank you.
THE WITNESS:And the grand total of the
differences on line 20 changes to 15,623,642.
COMMISSIONER KJELLANDER:Thank you.
THE WITNESS:I believe that is the principal
difference.
BY MR. MILLER:I s there a correct ion
page 47?
Thank you.Yes.On ine 15, the number
630,758 should be 1,945,796.
And I guess while I'm coming clean here, on my
Exhibi t No.1, revised page 1 of nine --
COMMISSIONER KJELLANDER:Is that Exhibit IS?
THE WITNESS:Exhibi t No.
COMMI S S IONER KJELLANDER:In your direct?
THE WITNESS:In my rebuttal.
COMMI S S lONER KJELLANDER:I only see an
Exhibi t 15.
856
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE , ID 83701
HEALY (Di-Reb)
United Water
In my rebuttal testimony.THE WITNESS:
I believe in connection with yourBY MR. MI LLER :
direct testimony we provided a revised
- -
a second revised
Exhibit 1 , 2 , and Is that what you're referring to?
In my rebuttal testimony, I introduced Exhibit
wi th a number of schedules.I also introduced revised versions
of schedules one , two, and three that were contained in my
direct testimony.
COMMISSIONER KJELLANDER:Okay.So you'
referring to your direct testimony then.
COMMISSIONER SMITH:Exhibi t
THE WITNESS:Well, actually, I I m referring to my
rebut tal and the revision of Exhibi ts 1, 2 , and 3 from my
direct to my rebuttal.
COMMISSIONER SMITH:It's his Exhibit
COMMISSIONER KJELLANDER:Okay.
So on Exhibi t No.1, revi sed page THE WITNESS:
of nine, which is a summary of rate base, in column D on
line 1 , the plant in service number should be 32 084 314.That
changes the number in Column E to 259,567 713.
Likewise, on line 9 , deferred charges, in
Column E, that number should be 1,945,796.
COMMISSIONER SMITH:That's what it is.
THE WITNESS:And, essentially, all that does
transfer 684 000 from the deferred debit number up into the
857
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID
HEALY (Di-Reb)
United Water83701
plant in serVlce number.
BY MR. MILLER:And the reason for that movement
or change is what, again?
The reason for that is essentially in Staff'
case, they had reclassed I believe it's 684,000 from plant in
service into miscellaneous deferred debits ~aving to do with
the gross-up of AFUDC.I was confused by that adjustment.
initially accepted it, then I changed my position and moved
back to plant, but obviously didn't get all my schedules in
sync.
Very good.Recognizing the semifluid nature of
some of the numbers that have been changed around , do you have
a couple, few , addi tional rebut tal exhibi ts?
Yes, I do.
m going to hand you now what we'll ask to be
marked as Exhibit 15 , Schedule 11.
(Uni ted Water Exhibi t No. 15, Schedul e 11
was marked for identification.
BY MR. MILLER:Could you identify the document
that I S been marked now as Exhibit 15 , Schedule II?
Yes.It is the Response the Company made to a
Staff Production Request regarding the lease disposal value of
vehicles that was used in determining our transportation
adj ustment.
And what is the relevance of this document in
858
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID 83701
HEALY (Di -Reb)
United Water
connection or taking into account the testimony of
Mr. English?
I f you go to the last page and on the bot tom hal f
of that page, there lS a Schedule 2005 disposal schedule , and
in the sixth column over from the left, it indicates a KBB
wholesale column.That , obviously, is Kelly Blue Book
wholesale.
The column following that, estimated wholesale
lS the Company fleet manager's adjustment based on his
experience of disposing of many leased vehicles and is in the
range that we claimed, and I believe subj ect to check , 10 to
20 percent our vehicles sell below Kelly Blue Book.
The next column over is the residual that needs
to be paid back to the leasing company per our arrangement wi
them.
And the next column over is the net value, the
net dollars that United Water Idaho will get on disposal of
these vehicles.
And the relevance of that is Mr. English
correctly stated that the Company supplied him with the
information of 53 -However, he ignored the fact that, first
of all, we made our adjustment from experience that, again,
wi thin the ten to 20 percent range, we do not sell these
vehicles for the Kelly Blue Book wholesale.He completely
ignored the fact that these vehicles have a residual value that
859
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID 83701
HEALY (Di-Reb)
United Water
must be paid back to the leasing company, and that Uni ted Water
ends up wi th the net.So either intentionally or by mistake, I
believe Mr. English misinterpreted the information that the
Company provided here in that the 31 442 number is the correct
number to use in determining the residual proceeds the Company
will realize on the disposal of vehicles.
And I apologize for the chicken scratch.
It's better than my handwriting.m going to
now hand to you what we III ask to be marked as Exhibit 15,
Schedule 12.
(Uni ted Water Exhibi t No. 15 , Schedule 12,
was marked for identification.
BY MR. MILLER:ve now handed you what has
been - - we've asked to have marked as Exhibi 15, Schedule 12.
Could you identify this document?
Yes.Staff witness Harms eliminated the
Company's investment or one-thirteenth of the Company'
investment in our new accounting system.She had asked for
documentation of the allocation procedure how costs were
allocated to United 'Water Idaho, and I had failed to provide
that to her and I apologize for that.Frankly, it slipped my
mind.
I was able yesterday to get this information that
shows that the cost of the new PeopleSoft system was allocated
to operating companies based on the number of work stations
860
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
HEALY (Di - Reb)
United Water
those companies possess, and the allocation to Uni ted Water
Idaho substantially agrees with the
- -
the capital expenditure
authorization that we provided Ms. Harms when she was resident
at our office.And, again , I do apologize for not providing
this at an earlier point.
And to your knowledge, was Schedule 12 prepared
by the Company in the ordinary course of business?
Yes , it was.These numbers were recorded on our
books in December of 2004, and these schedules, Exhibi t" 12 and
as well as Exhibit 13 as we'll see, support the investment that
was recorded to the books of United Water Idaho.
So this document isn't something that was
prepared for litigation; it's something prepared and used and
relied on by the Company in the ordinary course of its
business?
It's documentation.I mean , the Company
allocates many expenses from the corporate office based on
reasonable allocation procedures, and this is an example of how
the PeopleSoft investment was allocated to the various
operating companies.
MR. MI LLER :This will be Schedule 13.
(Uni ted Water Exhibi t No. 15, Schedule 13,
was marked for identification.
) .
BY MR. MILLER:ve now handed to you a document
which I've asked to be labeled as Exhibi 15, Schedule 13.
861
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
HEALY (Di-Reb)
United Water
Could you identify this document for us , please?
This document is related to Exhibit 12.Our
PeopleSoft proj ect was composed of two capi tal expendi ture
authorizations.The expenditure noted on -- and, I'm sorry,
have these backwards actually.The expenditure noted on
Schedule 12 for Idaho is $253,747.Then on Exhibi t 13, the
Idaho portion of the allocation is -- it shows -- it's on the
third page, and it starts with Company 043 in the first column
and if you'll note, Company 060 United Water Idaho , you'll see
the investment of $955 598.
MR . S TUT ZMAN :Where's that number?
THE WITNESS:It's on the third page of
Exhibi t 13.
COMMISSIONER SMITH:Exhibi t 15.
THE WITNESS:Yes , Exhibi t 15, Schedule 13, thank
The third company down , business unit 060, is Unitedyou.
Water Idaho , and the fourth column from the right shows
the $955,598.
And these numbers are essentially contained in
Mr. Rhead I s update to Exhibi
BY MR. MILLER:And the difference between the
number in Exhibit 13 and the number in Exhibit 12 is what, or
what is represented by it?
Just to clarify:Schedule 12 and Schedule 13.
The proj ect was done in two pieces.m not an
862
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
HEALY (Di-Reb)
United Water
IT expert, but one had to do wi th upgrading infrastructure that
was necessary to support the new financial system.So one
the 255,000, I believe, proj ect
- -
was our share of the
infrastructure upgrades.We're now
- -
we have a Web based
finance system , and the 900 and some thousand was our share of
the programming and customization of the actual financial
system.
So then these numbers roll up into Mr. Rhead'
schedule number --
Exhibit No.8, I believe.
Eight.Very good.
And then just one last addi tional I'll hand you
now what we'll ask to be marked as Exhibi 15, Schedule 14.
(United Water Exhibit No. 15 , Schedule 14
was marked for identification.
BY MR. MILLER:Could you identify for us what
has been marked as Exhibi 15, Schedule 14?
Yes.It's the Company's Response to a Staff
Production Request requesting information regarding the
50 percent increase in IT operations and support cost.And the
Company provided
- -
the Staff had also asked for copies of
contracts.
The Company in their initial Response did not
include those caples of the contract.They were subsequently
provided , and we are now providing copies again of all the
863
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
HEALY (Di -Reb)
United Water
contracts that are signed and in place and support the
Company's level of ongoing IT expenses of $156,140.
And how is this relevant
- -
this exhibit
relevant -- to the position of Staff versus the position of the
Company on this issue?
I believe Staff stayed with a test year number
due to the Company not providing the signed contracts to
support our increased number.
And so this , for a second time, provides those
documents?
Yes , it does.
I'll now hand you a document that we'll ask to be
marked as Exhibi 15, Schedule 15.
(United Water Exhibit No. 15, Schedule 15,
was marked for identification.
BY MR. MILLER:ve now handed you the last
which we've asked to be marked as Exhibi 15, Schedule 15.
Could you identify this document for us, please?
Yes.In the Company's adjustment for business
insurance, Staff wi tness English claimed that our numbers were
simply plan numbers and therefore not legitimate for including
in the revenue requirement in this case.And I believe he,
subj ect to check , he may have stated that we did not provide
copies of the actual policies.
And what we are attempting to amend here is that,
864
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
HEALY (Di-Reb)
United Water
to a large extent and in the case of business insurance,
virtually all the costs are known at the time our operating
plan proj ection is made so that the operating plan actually
represents an allocation of premiums to United Water Idaho that
are based on policies that are in effect, and , therefore, known
and measurabl e .
So that is the purpose of this document.
lists the many different types of coverage under liability,
automobile, worker's comp, and property insurance that the
Company has in force and supports our plan number.
I agree with Mr. English that in many cases plan
numbers are estimates by their very nature, educated estimates.
In this case , this estimate is supported by underlying policies
wi th premlum costs that are known and measurable.
Very good.
MR. MILLER:With that, Mr. Chairman , we'd ask
that the rebuttal testimony be spread on the record as if read,
the associated exhibits be marked, and the witness is available
for cross-examination.
COMMISSIONER KJELLANDER:And without 6bj ection
we will spread the testimony across the record as if read, and
admi t the associated exhibi ts
(The following rebuttal testimony of
Mr. Healy is spread upon the record.
865
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
HEALY (Di-Reb)
United Water
Please state your name and business address?
Jeremiah J. Healy, 8248 West Victory Road, Boise, Idaho 83709.
Are you the same Jeremiah J. Healy who sponsored direct testimony in this case?
Yes, I am.
What is the scope of your rebuttal testimony?
My rebuttal testimony will address the following:
an update to my original Exhibit No.2 that will include the Company
original overall rate request, the Idaho Public Utilities Commission
(IPUC) Staff overall position as proposed in their testimony and I will
indicate the Company s overall rebuttal position. I will also update my
original Exhibit No., which again reflects the Company s original rate
base position, IPUC Staff's position and the Company s rebuttal position
and I will update Exhibit No.3. showing the same comparison with
regard to operating expenses;
an update to the Company position regarding adjustments to individual
operating expense adjustments and I will address the operating expenses
that remain in dispute between the Company and Staff.
Please explain the organization of your adjustments.
Continuing the operating expense adjustment numbering scheme that I
employed in my original testimony and Staff Witness English referenced in his
direct testimony, I will address the following adjustments:
No.1 Payroll to Operations and Maintenance Expense,
No.401(k) Plan Company Matching Contribution
No.4 Pension Expense,
No.Payroll Overhead,
Healy, Rebuttal
United Water Idaho Inc.
866
No.Deferred Early Retirement Cost Amortization,
No.Deferred Enhanced Severance Program Amortization,
No.Purchased Water Expense,
No.Purchased Power Expense,
No.12 Amortization of Deferred Power
No.Water Quality Testing Expense,
No.17 Transportation Expense,
No.Uncollectibles Expense,
No.IPUC Annual Adjustment,
No.Rate Case Expense Amortization,
No.25 Relocation Expense Amortization,
No.26 Business Insurance,
No.27 Adjustment Dues, Eliminate Lobbying and Charitable Giving,
No.28 Information Technology,
No.30 Expenses Related to Customer Growth,
No.31 Expenses Related to Weather Normalization
No.Outside Expenses Legal
No.38 Depreciation Expense and
No.41 Payroll Taxes.
Have you introduced any new operating expense component that was not
included in your direct testimony?
Yes. As indicated in the rebuttal testimony of Company Witness Wyatt, the
Company is now proposing to adopt monthly billing in this proceeding after
several parties to the case recommended it. Company Witness Wyatt has
identified the additional annual expense associated with the conversion to
Healy, Rebuttal
United Water Idaho Inc.
867
monthly billing ($1,086,000) in his testimony. Should the Commission find
monthly billing to be a prudent and reasonable expense, the incremental
personnel expense, employee benefit expense, transportation expense and
customer billing, postage and collection expense associated with this change in
operations would have to be added to the Company revenue requirement. I have
included as Exhibit No 15, Schedule 1, the Company response to Staff
Production Request No. 38. This Response identifies in detail the expense items
that produce the incremental $1,086,000 of operating expense.
Please continue with the description of the scope of your rebuttal testimony.
As the third component of my rebuttal testimony I will address issues related to
rate base. Company Witnesses Peseau and Wyatt will discuss the impact of the
Staff's decision to utilize a thirteen-month average rate base. I have updated the
Company s rate base schedules to reflect the most recent information on plant in
service as provided through the Company s last update to Company Witness
Rhead's Exhibit No.8 (filed Wednesday April 27 as a continuing response to
Staff Production Request No.26, 2nd update). I will also discuss Staff's decision
to cut off capital spend included in rate base as of December 31, 2004.
What other specific rate base issues will you discuss?
I will address other issues as follows:
Staffs discrete plant in service adjustments and the Company s position
with respect to each adjustment
Staff's decision to remove deferred power expense from rate base
Staff's decision to remove deferred relocation expense from rate base
Staff's decision to remove Carriage Hill rate base elements using the
thirteen-month averaging technique
Healy, Rebuttal
United Water Idaho Inc.
868
Staff's calculation of Accumulated Deferred Income taxes
The Company s adj ustment to remove from rate base $175,000 of the
Arrowhead Canyon Reservoir project
Staff's adjustment to the equity gross-up of AFUDC
Please briefly discuss your revised summary Exhibit's No s. 2, 1 and 3.
Exhibit No.states the Company s overall rebuttal position in this case. As
indicated, the Company now seeks a $6,785,523 rate increase with a rate base of
$140,148 149 and a rate of return of 8.90%. Exhibit No.1 indicates the elements
of the Company s rebuttal rate base. Exhibit No.indicates the Company
rebuttal position with respect to operating expense adjustments.
Payroll Expense Charged to Operations and Maintenance
Please begin your discussion of the Company s rebuttal position with regard to
operating expenses.
Staff Witness English reduces the Company s adjustment to payroll expense by
$159,126 by the removal of the salary of the newly hired Public Affairs Manager
of $56,500; the removal from inclusion in rates of incentive pay of $135,607 and
third category that includes the updating of employee wage and salary
information and other minor issues that account for the balance of the difference,
a negative $32,095. These figures represent a gross pay total of $160,012 and a
net difference to operations expense of $119,869 when multiplied by the
Company s ratio of payroll to operations and maintenance expense of 74.64%.
The Company s revised rebuttal Exhibit No.3, Schedule 1, Page 1 of 34 shows
the details of the Company s rebuttal position of $3,348,453; this is $39,686
lower than our original position of $3,388,139.
Healy, Rebuttal
United Water Idaho Inc.
869
Please discuss initially the $32 905 reduction and what it represents.
Staff Witness English removes a total of $17,717 of pro forma wage increases
for non-union employees beyond the 3.3% actual increase or $10,525; removes
$4,238 of budgeted overtime pay above the test year level and removes the pro
forma wage for the Chief Operator beyond the actual wage, an adjustment of
954. In preparing my rebuttal testimony, I re-priced all positions at the current
known and measurable rates and derived a difference from my original pricing of
negative $49,812. This represents not only the reduction of the merit increase for
salaried from 6% to 3.3%, but also the fact that routinely when the Company
hires a new bargaining unit employee to replace an existing employee, savings
are realized because starting wages for entry level bargaining unit positions such
as meter reader and utility person are substantially lower than the employee
wage being replaced. The $49,812 actually increases the eliminations made by
Mr. English of$17,717 by $32,905.
Mr. English states in his direct testimony that he believes United Water
employees are paid a generous base salary. What is your reaction to his belief?
First of all, Mr. English makes an exaggerated claim that United Water Idaho
employees received an average base wage of $23.25 per hour in 2003 (English
Di, pg 9). Included in this calculation are both non.,exempt and exempt
employees. Exempt employees are not paid by the hour; they are paid an annual
salary and therefore should be excluded from his analysis. Based on the numbers
included in this rebuttal case for bargaining unit employees of United Water
Idaho, the 53 employees work 110,240 hours per year (2,080 X 53) for
$2,299,406 or an average of $20.86 cents per hour. Mr. English also incorrectly
states that United Water Meter Readers receive an average hourly wage of
Healy, Rebuttal
United Water Idaho Inc.
870
$16.68 per hour (English Di, pg 8) compared to the national average of $15.
per hour. He does, however, correct himself in his response to United Water
Production Request No.1 by indicating that the U.S. average wage is actually
$16.58 per hour, not the $15.58 per hour wage stated in his testimony. This
indicates United Water meter readers are paid right at the national average.
Based on the numbers included in the Company s rebuttal case and assuming
monthly meter reading is adopted, United Water Idaho s average meter reader
pay will be $15.63 in the near future, almost a dollar an hour less than the
national average.
How does United Water Idaho employee pay compare to the pay of other local
utilities such as Idaho Power?
Favorably. In Idaho Power Case IPC-O3-13, Mr. English's colleague IPUC
Staff Witness Alden Holmes testified in re-direct testimony, when addressing the
generosity of Idaho Power pay, that he had conducted a variety of comparisons
besides those used in his direct testimony. He states, "I compared the salaries to
the average salaries of Intermountain Gas and United Water Idaho and found that
Idaho Power salaries are substantially higher than those two companies (Holmes
Re-Di, Pg.1485, lines 13 through 16).
Public Affairs Manager
Do you agree with Witness English's removal from the Payroll to Operations
and Maintenance Expense Adjustment the Salary of the Public Affairs Manager?
No. Company Witness Wyatt discusses this issue in his rebuttal testimony. I
have incorporated the position of Public Affairs Manager into my testimony and
exhibits.
Healy, Rebuttal
United Water Idaho Inc.
871
Incentive Pay
Do you agree with Witness English's elimination of $135,607 of incentive pay
United Water seeks to include in payroll and thus in customer rates?
No. Mr. English cites five reasons for eliminating incentive pay as follows:
United Water Idaho already sufficiently compensates its employees with
generous base salaries and benefits,
Short Term Incentive Plan payments fluctuate from year to year and are not
known and measurable,
The objectives of the STIP are financial objectives aligned with the financial
performance of a Parent Company,
The STIP rewards an employee for merely doing a job they are already being
compensated for
Incentive Plans are self-funding, they only make sense if savings achieved
are greater than the amount of incentive payments made.
will address Witness s English's reasons in order. First, Mr. English'
characterization of United Water Idaho s employee pay as "generous" has
already been shown to be at least partially if not totally without credibility. He
was incorrect in his assertion that United Water s meter readers are overpaid,
and his own colleague suggested in the recent Idaho Power Rate Case that Idaho
Power employees are paid substantially more than United Water employees.
Also as stated is this case, incentive pay is only $134 207 of total payroll dollars
of $4,485,861, or less than 3%. This does not represent extravagant levels of
incentive pay and the dollars are spread through every level of the organization.
Second, incentive payments may fluctuate from year to year. However, many
Healy, Rebuttal
United Water Idaho Inc.
872
revenue requirement items do. Generally these items are normalized, such as
purchased water in this case. The incentive payments United Water Idaho
includes in this case are normalized. Third, of the eight employees who were
STIP participants, seven of them had 10% of their goals tied to the financial
performance of United Waters regulated business s as a whole; 30% was tied to
the financial performance of United Water Idaho and 60% were not tied to
overall financial performance. The other participant was 20%, 30% and 50%.
There is no linkage between the financial performance of Suez and the STIP
plan. There are several points I would like to make regarding this: Mr. English is
incorrect, the bulk of STIP goals are directly related to United Water Idaho
financial or non-financial objectives, not the financial goals of parent
Company. However, Mr. English seems to believe that financially oriented goals
are not in the best interest of the customer. With respect to the 30 % of each
STIP participant's goals that are concerned with the financial performance of
United Water Idaho, I believe there are clear benefits to the customers of United
Water Idaho. When department heads are held accountable for their budgets, the
customer benefits. When department heads are challenged to innovate and be
creative in their thinking to reduce costs or increase efficiency, this is in the best
interest of the customer. Also, with respect to the 60% of goals that are not tied
to financial performance, actual examples of goals in 2004 are as follows:
Strengthening of production facility security; improve quality of real property
records; investigate usage of a predictive dialer in place of 24-hour notice;
automation of customer overpayment refund process; document "on the job
training for purchasing, dispatch and cross-connection functions; improve
distribution facility security; develop plan to bring large meter testing in house;
Healy, Rebuttal
United Water Idaho Inc.
873
develop meaningful "key performance indicators" and create a monthly report of
same; streamline the billing processes for MJ' s and bulk water sales and improve
collection process; develop SOP's for new financial system; secure approvals
and control of surface water rights for CWTP; strengthen relationships with
community officials and leaders; develop and submit clean version of Rules and
Regulations in rate filing; develop employee wellness program. These are all
goals that mayor may not pay for themselves but will improve customer service.
Fourth, Mr. English believes that incentive payments compensate employees for
doing a job they are already paid to do. In fact, the prevalence in compensation
is to shift to a "total cash compensation policy , with less emphasis on base pay
and more emphasis on variable pay. United Water has shifted its compensation
philosophy from paying at the 75th percentile of the market place for base pay in
year 2000 to paying at the market median. According to Investor Owned Water
Utility Survey of 2004, an average of 81.3% of the positions surveyed which
represent like positions to United Water Idaho s STIP eligible positions,
participate in Short Term Incentive Programs. The minimum participation is
61.3% with a maximum participation of 100%. The purpose of STIP programs is
to put pay at risk and have employees achieve stretch goals. This does not
increase base pay and therefore does not increase benefit cost linked to base pay.
Also, STIP goals should not be designed to have employees perform their normal
jobs, but should be outside of their normal job descriptions. Fifth, Mr. English
states incentive plans should be self-funding. However, in many cases, employee
STIP goals are not intended to be self-funding but are linked to improving
service. Examples of non self-funding goals are security related goals or goals
that improve efficiency so as to delay the need for additional personnel.
Healy, Rebuttal
United Water Idaho Inc.
8 7
Company 401(K) Match
Please continue with Adjustment No.2, the Company 401(k) employee matching
contribution. Do you agree with Staff Witness English's elimination of the
$1,321 adjustment?
No. Mr. English disallows the pro forma adjustment because "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" (English Di, pg 14). However, Mr. English largely accepted a pro
forma payroll amount in adjustment No.1 but fails to use it in this adjustment
because it is an estimate. He also claims that the test year based calculation of
the contribution percentage is also an estimate. In my opinion, the application of
a contribution percentage based on actual test year employee participation rates,
applied to pro forma payroll based on pay rates to be in effect April 1, 2005
meets the definition of "known and measurable" in this proceeding. The details
of the Company s rebuttal position are indicated on revised rebuttal Exhibit No.
3, Schedule No., Page 2 of 34.
Pension Expense
Please describe the situation with regard to pension expense, your adjustment
No.
The Company included in its direct case pensIOn expense of $637,046, an
adjustment of $12,279 over the test year level. This adjustment was based upon
actuarial calculations performed in accord with Statement of Financial Account
Standards No. 87 (F AS 87) and is consistent with methodology used in the past
by the Company and accepted by this Commission. Staff Witness English has
Healy, Rebuttal
United Water Idaho Inc.
875
adjusted downward the pension expense to be recovered in rates by $474 592 to
$162,454. The Company disagrees with the logic employed by Mr. English and
Company Witness Degann, Executive Vice President of Aon Consulting, the
Company s actuary, in his rebuttal testimony, will address this issue in detail. I
have incorporated Witness Degann s recommendation into revised rebuttal
Exhibit 3, Schedule 1, Page
Payroll Overhead
Please discuss Adjustment No.6, Payroll Overheads and the Company s rebuttal
position.
The Company has adjusted this "credit to expense" item from its original
position of ($912,751) to a rebuttal position pro-forma credit of ($902,059), a
reduction to operating expense of $42 264 from the test year credit of $859,264.
This revised rebuttal position is shown on Exhibit 3, Schedule 1, page 6 of 34.
Staff has recommended a gross credit of $925,229. The Payroll Overhead is a
methodology to remove from operating expense a portion of employee benefits
costs and a portion of non-productive employee time (vacation, holiday and sick
time) and capitalize it or charge it to non operations and maintenance accounts
such as inter-company labor or labor charged to merchandising and jobbing
activities. The payroll overhead calculation is derived from the calculation of
company payroll and employee benefit cost along with an additive for non-work
days. The Staff accepted the Company s methodology and substituted their
numbers for pro forma payroll, payroll taxes, health insurance, workers
compensation insurance, pension expense and 401(k) matching contribution into
the equation. In my rebuttal I have updated the formula to reflect the Company
opinion of the correct level of pro forma payroll and employee benefit cost.
Healy, Rebuttal
United Water Idaho Inc.
876
Is the Staff's adjustment to the payroll overhead credit correct? Please explain.
No. The test year level of account 922-000 was a negative $859,795 as indicated
on my Exhibit No.3, Schedule 1, page 6 of 34 and also on my Exhibit indicating
the Company s rebuttal position. Like any other pro forma adjustment, the pro
forma level of payroll overhead credit should be compared to the test year level
of such credit to properly reflect the adjustment to the test year. Mr. English'
Exhibit No.08, Schedule 6, calculates a pro forma level of overhead credit of
$752,361 on line 6. However, on line 7 he compares this to an incorrect test year
expense credit of $711 883, not the $859,795 I refer to above. Had he compared
the pro forma level, $752,361 , to the correct level of test year expense, $859,759,
the adjustment would be $107,434. I do not understand why Mr. English
indicates on line 23 of Schedule 6 that Staff's adjustment to the Company
filing is only $12,478.
Deferred ERP and ESP Amortization
Do you agree with Staff Witness English's removal of the amortization expense
associated with the Company s deferred early retirement plan expenses (ERP)
and deferred enhanced severance package expenses (ESP) referred to in your
Adjustment No.7 and Adjustment No.
No, I do not. The rebuttal position of the Company remains the same as the
original position.
Please explain the removal by Staff Witness English of the Company
adjustment for recognition of the currently deferred costs associated with the
Company s Early Retirement Program (ERP) offered in 2000.
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United Water Idaho Inc.
877
Mr. English makes this adjustment for two stated reasons. First, the Company
hasn t proven that the benefits exceed the costs and second, the Company didn
follow established regulatory procedures.
Did Staff request the Company to provide an analysis of the savings associated
with the program?
Not exactly.In Staff's Production Request No. 180, Staff requested a
cost/benefit analysis. In all previous requests by Staff Witness English in the
area of pension, he had acknowledged and accepted the fact that the information
is provided on a Corporate-wide basis. All pension information requested had
been provided on a total basis without Idaho-specific detail.
Did the cost/benefit analysis provided to Staff show an overall benefit?
Yes.In fact, Staff stated that the analysis provided was prepared by the
Company s actuary and that the study clearly indicated that on a United
Waterworks level, there were significant savings, but on a United Water Idaho
(UWI) level the savings were not so clear, (English Di. 26).
Is it reasonable to assume that there were significant savings at the parent of
United Water Idaho (the parent of utilities alone) and United Water Idaho
incurred the costs without the savings like the balance of the other utilities in the
group?
Not in my opinion. Mr. English acknowledges that the actuary calculates costs
on a business unit basis and therefore costs recorded on United Water Idaho
books are not allocated from the corporate level but are those of United Water
Idaho, (English, Di. 16).
Staff performs calculations that determine the savings that United Water Idaho
has derived from this program. Do you agree with the method used?
Healy, Rebuttal
United Water Idaho Inc.
870
No. Staff simply took the combined salaries of the six employees that accepted
the offer ($252,527 annually) and concluded that the savings don t justify the
cost. This simplistic view is inaccurate and incomplete. There are savings
beyond the salaries that include employee benefits such as reduced healthcare
benefits, reduced pension and OPEB expense. According to the revised
calculation of payroll overheads that is shown on revised Exhibit 3, Schedule 1,
Pg. 6 of 34, the ratio of benefits expense to payroll expense is 63.03%. If I apply
this to the salary savings calculated by Mr. English, the total savings are not
$252 527 annually, they are $411 695, an increase in annual savings of
$159,168. The customers of United Water Idaho have benefited from the savings
from this program in this current rate case and will continue to benefit into the
future through the continued savings.Some examples of the savings are
certainly through a reduced employee complement and the associated salary and
benefits costs. Additionally, there are savings that result from these employees
being excluded from the development of pension and OPEB expense. The
customers have also benefited through these savings since the savings allowed
the Company to extend the time between rate increases.
Is this program the same as that approved by the IPUC in the Company s last rate
case?
Yes it is.
Has Staff made any judgment about the Commission s approval of the 1999
ERP?
Yes and I disagree with the conclusion.Staff has acknowledged the
Commission s approval of the prior ERP but takes no position and proceeds to
remove the current costs of the 2000 ERP because the clear savings of the
Healy, Rebuttal
United Water Idaho Inc.
879
program can t be clearly seen at United Water Idaho based on Witness English'
simplistic calculations. Companies like United Water Idaho pursue business
efficiencies that will provide future savings for customers through programs like
the ERP. If any company were to be denied recognition of the costs associated
with implementing cost saving programs there would be little incentive for
pursuit of such programs.The Company had no reason to believe that it
wouldn t receive reasonable recovery of these costs when just one year earlier
this Commission approved recovery of the costs of an identical program.
Turning now to Staff's second reason for removal of the expense, please address
the assertion that the Company didn t follow regulatory procedures.
Staff cites Commission action in an Idaho Power and an A vista proceeding as
confirmation of the practice that a company must seek approval of a significant
deferral , but continues by conceding that the circumstances surrounding the
events in the cases cited as being different from that of United Water (English
Di.28).
Staff further states that the Company did not seek, nor did the Commission grant,
approval of the deferral which is a procedure clearly established by precedent.
Do you agree with this statement?
No. Staff acknowledges that the Company sent a letter to the Commission
notifying it of the costs that were being deferred and the intent to seek recovery
in a future rate case. This procedure is consistent with the Company s actions
for the 1999 ERP costs and consistent with the Company s internal policy for
deferral of costs.The Commission has not previously objected to the
Company s practice nor does the Commission have a specific rule requiring
approval of a deferral.
Healy, Rebuttal
United Water Idaho Inc.
880
Purchased Water Expense
Moving on to Adjustment No.9, purchased water expense. Do you agree with
Staff Witness English's removal of $77,479 from the Company s pro forma level
of purchased water expenses of $195,316, dropping the normalized level of
expense to $117,837?
No. Company Witness Rhead discusses in his rebuttal testimony the unusual
nature of the 2005 water year and its impact on the Company. I have
incorporated into my operating expense adjustments Witness Rhead'
recommendation of a normalized level of purchased water expense: $185,484 as
indicated on his Exhibit No.16, Schedule 7. This represents a decrease of $9,832
from the Company s original filing, and an increase of $67,647 over Staff's
position. The Company rebuttal position is shown on revised Exhibit No.
Schedule 1 , Pg. 9 of 34.
Purchased Power Expense
Moving on to Adjustment No. 11 , purchased power expense, do you agree with
Witness Sterling and Witness English's downward adjustment of $260,042 from
the Company s original level of purchased power expense, $1 756,803?
No, I do not. First of all, the Company has updated its position to reflect Idaho
Power Company rates proposed to be in effect June , 2005 in Case No. IPC-
05-15. The rebuttal position of the Company is summarized on revised Exhibit 3,
Schedule 1 , Pg. 11 of 34. My understanding is that Idaho Power has requested a
consolidation of Case No. IPC-05-10, a 1.84% overall ongoing increase related
to the new Bennett Mountain facility. In Case No. IPC-05-, Idaho power has
requested an additional 4.45% increase in rates to Comply with Commission
Order No. 29601 in Case IPC..E-03-13. 2.25% of the 4.45% increase is proposed
Healy, Rebuttal
United Water Idaho Inc.
881
to be an ongoing increase in base rates; the remaining 2.20% will expire in one
year. The Company anticipates the Commission will issue its order in the Idaho
Power proceeding prior to the hearing dates in United Water s case and these
rates will be known and measurable in all respects. The Company s revised
rebuttal power expense is $1,826,432, an increase of $69,629 from our original
position. The $1,826,432 reflects re-priced test year usage for Schedule 7,
Schedule 9 (secondary service) and Schedule 19P (Marden treatment plant)
facilities, as well as all power necessary to run the raw water pump station that
supplies the Columbia Water Treatment Plant (CWTP) and the plant itself.
Why do you disagree with Staff's adjustment?
Staff Witness Sterling indicates in his testimony that he has removed the effects
of Idaho Power s PCA from both the test year and from current rates. United
Water Idaho, and I suspect all other Idaho Power customers, is acutely aware that
the PCA is an integral part of the price paid for power. The PCA represents an
expense to Idaho Power customers (including United Water) just as much as the
kWh rate, the demand charge, the base load capacity charge, customer service
charge or any other component of a power bill. United Water in this case is
attempting to build known and measurable Idaho Power rate s into its base rates
on a going forward basis, as well as recovering deferred power expense
calculated in accord with IPUC Order No. 28800 issued in case UWI-OO-
Upon approval of rates in this case, United Water will cease deferral of power
costs because our rates will then include current Idaho Power rates. For the
record, the Company does accept Mr. Sterling s adjustment downward of $3,640
related to updated figures the Company supplied with regard to the cost of
redundant power for CWTP.
Healy, Rebuttal
United Water Idaho Inc.
882
Please address Mr. Sterling s calculation of power expense for the CWTP and
the raw water pump station and why you disagree with it?
Witness Sterling reduces the Company s estimated power expense for these
facilities from $236,400 to $192,509, a reduction of $43,891. First, he again
removes the PCA from the kWh charge. As I have explained earlier, this is
incorrect. If Staff recommended that the PCA portion of all Idaho Power rates be
removed from the calculation of power expense, and that the Company be
allowed to recover the PCA portion of power expense through a customer
surcharge, the Company may consider it. However, Staff has not recommended
use of a surcharge mechanism to collect the PCA portion, of power rates. Mr.
Sterling s statement on page 32 of his testimony that he reduced the Company
$0.045 per kWh price to $0.0368 per kWh by removing the PCA is not logical
nor is it fair to the Company to deny recovery of the PCA component of power
rtaes in its revenue requirement.
Deferred Power Expense Amortization
Please comment on Witness Sterling s position regarding your adjustment No.
12 for deferred power expense amortization of $516,667.
Mr. Sterling recommends that the total amount to be recovered should be
reduced from $1,550,000 to $1 034,098 and the amortization period extended
from the three-year period proposed by the Company to four years, thus reducing
the proposed amortization expense by $258,142 and implying the Company
should write off approximately $515,902 of deferred expense without recovery.
He proposes that the Company be allowed to recover only costs deferred
between May 2001 and May 2003 inclusive, an amount of $1,034 098 (Sterling
Di. Pg.4 7), rather than the actual amount deferred in accordance with
Healy, Rebuttal
United Water Idaho Inc.
883
Commission Order No. 28800 from May 2001 until the Company s next rate
case award, or effectively through June 2005.
What basis does Mr. Sterling use for this assertion?
Witness Sterling has interpreted the Commission s Order to conclude that the
Commission did not intend to permit deferral of power costs due to poor water
conditions but was only intended to "provide temporary relief from the
extremely high power costs resulting from the short-term energy crises" (Sterling
Di. Pg. 46).
Are there any statements in Order No. 28800 that support Mr. Sterling
assertion?
No. A copy of the Order is included as Exhibit No. 15, Schedule 2. The Order
recites that the Company requested a deferral of PCA costs "ordered by the
Commission in Cases IPC-Ol- 7 and IPC-Ol-ll and any subsequent PCA rate
increase or related surcharge that may be authorized prior to the Company s next
general rate case" (Order Pg.l and 2). Also, the ordering paragraph of the Order
provides, "The Commission does hereby approve establishment of a deferral
account for incremental cost related to recent and future PCA related increases in
Idaho Power Company electric power rates beginning May 1 2001" (Order
Pg.4). The Order does not limit the deferral nor does it specify that the Company
be only authorized to defer increased costs if they are associated with certain
events. In good faith reliance on the plain language of Order No. 28800, the
Company has been deferring on its books and records excess PCA costs with the
legitimate expectation, that the Commission would allow amortization of these
costs. These costs were actually incurred and paid by the Company to provide
water service to its customers. Whether the PCA costs resulted from an energy
Healy, Rebuttal
United Water Idaho Inc.
8 8!~
CrISIS or poor stream flows is irrelevant. The expectation of permitted
amortization is one of the factors that enabled the Company to extend the time
period between general rate cases as opposed to United Water s recent sequence
of cases.
Was there any subsequent Commission Order modifying the original Accounting
Order?
No.
Mr. Sterling also proposes that the reduced deferral amount be amortized over a
period of four years. Do you believe this is appropriate?
No. The Company has filed five cases in the last twelve years, or an average of a
case every 2.4 years. In light of this fact, a thirty-six month amortization period
seems appropriate. Mr. Sterling considers only the period between our current
case and the immediately prior case. Second, he offers no support for "his belief'
that the amortization period should stretch over a period at least as long as the
time over which the deferral was accumulated (Sterling Di. Pg. 47).
To summarize, what is the Company s rebuttal position with respect to the total
amount of deferred power expense to be amortized and the amortization period?
The Company s position is that through the month of April 2005, the Company
has deferred power expense on its books amounting to $1,456,596. This does not
include a carrying charge. The Company has incurred an average deferral of
$6,348 over the last four months and will use this average as a reasonable yet
conservative estimate of the deferral to be recognized in May and June of 2005.
Thus, the Company is requesting a recovery of total deferred power of
$1,469,292. As stated above, the Company believes a three-year amortization
period is appropriate. The annual amortization expense included in the
Healy, Rebuttal
United Water Idaho Inc.
885
Company s rebuttal case is $489,764. This is $26,903 lower than our original
position and $231,239 more than Staff's position. The details of this adjustment
are shown on rebuttal Exhibit No.3, Schedule 1, Page 12 of 34.
Water Quality Testing
Do you agree with Mr. English's disallowance of $14,340 from the Company
pro forma level of water quality testing expense of $86,010, your Adjustment
No.14?
I partially agree. I agree with his adjustments for Nitrites of ($978; from $1,100
to $122) based on the fact the testing is required on a nine year cycle; I agree
with his adjustment for Fe/Mn ($262: from $1,000 to $738); I agree with his
elimination of $3,500 for miscellaneous testing since the Company was not able
to provide a 10 year history of this expense. However, I disagree with his
adjustment to the LT2ESWTR testing expense. Mr. English believes that
because the Company will be required to expend $12,000 annually over the next
two years (a total of $24 000) to comply with this mandated testing requirement,
the Company should only be able to recover 1/5 of the annual level of expense or
$2,400 annually rather than $12,000. His rationale is that the Company will only
perform this testing for two years, and after that the Company will make a
windfall by over-collecting for water quality testing expense. While this may be
true wtth regard to the specific test in question, it fails to provide for the ever
increasing number of test required, the increasing sophistication of the testing
and the increasing number of contaminants to be tested for, and their associated
costs. I believe a fair adjustment is to propose a compromise between the two
positions by reducing the Company s original pro form testing expense by the
sum of the three adjustments Mr. English makes that the Company does not
Healy, Rebuttal
United Water Idaho Inc.
086
contest ($978 + $262 + $3,500), $4 740, but retain the $12 000 annual
LT2ESWTR testing costs. The details of this rebuttal adjustment are shown on
rebuttal Exhibit 3, Schedule 1 , page 14 of 34.
Transportation Expense
Do you agree with the adjustment Staff Witness English made to transportation
expense, your Adjustment No. 17, whereby he removes $18,661 from your pro
forma expense amount of $406,265, reducing transportation expense to
$387,404? Please explain.
Actually, I believe Staff erred in their calculation of this adjustment and I
propose to correct the error. Staff Witness English states correctly that the
Company suggested Staff remove the Mechanic position salary and benefits from
this calculation as the Company had inadvertently included it twice. This
amounts to $72,879. Mr. English also states that, in his opinion, the Company
understated the lease disposal proceeds to be realized from the sale of lease
disposals by $21,858 (his estimate of proceeds $53,300, the Company estimate
$31,442). Thus, it appears Staff intended to remove a gross amount from the
transportation "pot" of $94 737. When the transportation to O&M ratio of
68.69% is applied to the $94 737, an adjustment to operating expense of $65,075
is derived. Staff, however, appears to have removed only $18,861.
Will the Company rebuttal position incorporate this $65,075 downward
adjustment to transportation expense? Please explain.
No. While I obviously agree with the removal of the Mechanic payroll and
benefits expense, I do not agree with Mr. English's determination of the disposal
proceeds to be realized on the sale of the vehicles. The Company s experience
has shown that Company vehicles typically sell for 15 to 20% less than Kelly
Healy, Rebuttal
United Water Idaho Inc.
887
Blue Book trade-in values. There are several reasons for this, chief among them:
Company vehicles are not equipped with the types of options that non-utility
buyers typically want and secondly, the vehicles sustain excessive wear and tear
on their interiors and exteriors in the conduct of utility work. Mr. English stated
to me that he intended to come to the Company yard on Victory Road to inspect
the vehicles in question but he never did. I recommend in rebuttal only the net
adjustment of $50,204 ($72,879 times 68.69%) for the Mechanic payroll and
benefits, reducing the Company costs to $356,061. The details of this rebuttal
adjustment can be seen at Exhibit No.3, Schedule 1, Pg. 17 of 34.
Customer Postage and Outside Collection Expense
With respect to your adjustments No. 18 and No. 19 for customer postage and
outside collection expense, do you agree with Witness English's downward
adjustment of $1 618 and $30,015 to these two items, respectively? Please
explain.
No. The Staff agreed in their response to Company Production requests No.6 and
No.7 that the Company positions were acceptable to them and their downward
adjustments were withdrawn.
Uncollectibles Expense
With respect to your Adjustment No. 22 for uncollectibles expense, do you agree
with Staff Witness English's downward adjustment of $5,529 from the
Company s pro forma expense of $131 045 to $125,516? Please explain.
No. The Company recognized the test year level of bad debt expense was high
due to some unusually high bills written off in the test year. Consequently, a four
fiscal year average was intentionally used to mitigate the pro forma expense
from a test year level of $162 706 to a pro forma level of $131 045, a reduction
Healy, Rebuttal
United Water Idaho Inc.
88G
of $31,661. The trend over the four years indicates a low but increasing
percentage of bad-debt expense expressed as a percentage of annual revenue:
37% in fiscal 2001 , 0.35% in fiscal 2002, 0.42% in fiscal 2003 and 0.52% in
fiscal 2004. A four-year average composed of years ending in July 2004, 2003,
2002 and 2001 was also intentionally utilized so that it would encompass the
period after the Company s last rate increase (September 2000) and reflect the
fact that bad debt expense naturally tends to increase after a rate increase. The
uncollectibles ratio for the year ended July 2000 was 0.34%, the lowest of all
five periods. Mr. English states he is concerned with the Company s use of a
four-year average of uncollectibles characterizing the choice of the four year
average to be both arbitrary and purposefully chosen to eliminate consideration
of prior years where the bad debt expense ratio was "significantly" lower. As
explained above, the Company s use of a four-year average was not arbitrary
and, in view of the trend information provided, he is correct that it was intended
to eliminate prior years data that is not representative of the more recent trend.
Also, Mr. English utilized a five-year period composed of years ending in
December 2000, 2001, 2002 and 2003, however, his fifth "year" is the nine-
month period ending September, 2004. The Company questions why Staff did
not specify in their Audit Request No. 81, the response to which forms the basis
of Mr. English's adjustment, that the ten year history be prepared on a fiscal year
basis so as to be comparable to data the Company used. Use of a partial calendar
year ending in September of 2004 could certajnly bias the data downward as the
bad debts from larger summer bills tend to be written off late in a calendar year
since they are not incurred until the months of latter July, August and September
of the calendar year. Indeed, the bad debt ratio for the nine months ended
Healy, Rebuttal
United Water Idaho Inc.
88
September 2004 was 0.431 %. For the entire calendar year it was 0.446%. Thus,
the Company maintains its original position and disagrees with Mr. English'
reduction of uncollectibles expense of $5,529.
IPUC Regulatory Assessment
Do you agree with Staff Witness English's reduction of the your Adjustment No.
23, the pro forma level of lPUC regulatory fee assessment expense from $75,823
to $72,347, a reduction of $3,476? Please explain.
No, but I do appreciate Staff Witness English's reasonable proposal that should
the Company adopt a rebuttal position using the actual known and measurable
2005 actual assessment rate, Staff is willing to accept and incorporate the actual
assessment into the revenue requirement. The actual assessment rate as
communicated to the Company on April 20, 2005 by David Hattaway,
Administrator, lPUC, is 0.2562 %. When applied to pro forma revenue of
$31,540,460, the result is $80,807. This results in a change from the Company
original position of $4,984 and an increase over Staff's position of $8,460. The
details of this adjustment are shown on Exhibit 3, Schedule 1 , Pg. 23 of 34.
Rate Case Expense Amortization
With regard to your Adjustment No. 24, amortization of deferred rate case
expense, do you agree with Staff Witness English's disallowance of $12,500 of
rate case expense related to the Company s public information campaign and do
you agree with his extension of the amortization period three years to five years?
The result of these adjustments is a reduction of $35,167 to the Company
original level of pro forma amortization expense from $81 667 to $46,500.
I will not contest the reduction of one half of the expenses due to the sharing of
the costs of the public information campaign, however, the total Steele and
Healy, Rebuttal
United Water Idaho Inc.
890
Associates billings are $17,065, not the estimated $25,000, so the appropriate
reduction is $8,533. I do not agree with the length of the amortization period and
I also have an update to total deferred rate case expense.
Please elaborate.
The Company now expects to incur $305,000 in total deferred rate case expense
(Exhibit 15, Schedule 3). The participation in this case by Staff and the other
parties, the substantial discovery conducted, and the significant adjustments to
the Company s case were all more intensive than anticipated based on the
Company s prior rate case experience. All this has caused substantial additional
effort to be expended by consultants and by our attorney. I reduce the $305,000
by the sharing of public information campaign expense of $8,533 to arrive at
total estimated recoverable rate case expense of $296,467. This is detailed on
Exhibit 15, Schedule 3 showing actual costs incurred to date and estimated costs
to complete the case. Staff Witness English is of the opinion that because the
Commission found a five-year amortization of deferred rate case expense
reasonable in Idaho Power s recent case (Case IPC-03-13), then this is not
only reasonable for United Water Idaho but consistent with the Idaho Power
Order as well. The amortization treatment given Idaho Power s deferred rate
case expense has no particular relevance in determining a reasonable
amortization period for United Water s deferred expense. United Water s recent
filing history is a more appropriate gauge and is as follows: beginning with Case
BOI-90-1 filed in March 1990, United filed its next case (BOI-93-l) 34
months later; (BOI-93-3) followed eleven months later; (UWI-96-
followed thirty months later; (UWI-97-6) followed seventeen months later;
(UWI-OO-Ol) followed twenty six months later and the present case followed
Healy, Rebuttal
United Water Idaho Inc.
891
fifty-seven months later. The average period between these cases was twenty-
nine months. The three""year amortization period used by the Company is more
realistic and conservative based on the actual experience of United Water Idaho.
The correct amount of annual amortization expense in this case is $98,822. This
rebuttal adjustment is shown on Exhibit No.3, Schedule 1, Pg. 24 of 34.
Deferred Relocation Expense Amortization
Please describe Staff Witness English's treatment of Adjustment No. 25,
amortization of deferred relocation expense.
The Company requested $27,165, an increase of $1,477 over the test year
expense of $25,688. Mr. English has recommended that the Company not be
authorized to recoup any of this expense because Mr. English believes that
$130,093 is too much to pay to relocate, from Southern California to Boise, a
highly skilled employee. He also believes that the employment pool in Boise is
large enough that the Company could have filled the position locally, or
promoted from within.
Do you agree?
No. I believe that given the population growth taking place in the Treasure
Valley, there are many companies that relocate employees to the Boise area on a
routine basis. I believe that local companies assist many of these new employees
with relocation expenses to attempt to avoid the risk of loosing valuable
experience. Relocation policies, similar to United Water s, are in place to
encourage, rather than discourage, the employee to relocate. The Company
contacted two local companies regarding their relocation policies that preferred
their names not be disclosed, and following is a comparison of the attributes of
their policies compared to United Water s. Company A and Company B
Healy, Rebuttal
United Water Idaho Inc.
892
provided the relocation policy information with the understanding that no
disclosure of proprietary information other than the following table would be
made:
Attribute UWID Company A Company B
Duplicate Living Expenses Yes Yes Yes
Extraordinary Living Expenses Yes Yes Yes
Spousal Aid Yes Yes
House Finding Allowance Yes Yes Yes
Return Home Allowance Yes Yes
Moving Household Effects Yes Yes Yes
Misc. Moving Expenses Yes Yes Yes
Home Relocation Assistance Yes Yes Yes
Equity Advance Yes Yes
Dual Mortgage/Rental Expense Yes Yes Yes
Mtg. Interest Differential Yes Yes
Personal Tax Liability Allowance Yes
The letters "NM" stand for not mentioned.
Excepting the Personal Tax Liability Allowance, both companies have very
similar relocation policies to that of United Water Idaho. The Company currently
has two long-term, highly qualified and experienced employees on board who
have relocated to Boise after working for United Water at other locations:
General Manager Greg Wyatt (1999) and Coordinator of Planning and Rates
Healy, Rebuttal
United Water Idaho Inc.
Of) 3
Jeremiah Healy (1994). All of the movIng expenses associated with the
relocations of the named employees as well as those of the Company s prior
President, William Linam (1996), were allowed in rates through an amortization
provision in cases UWI-97-6 and UWI-OO-l. The average relocation
expense incurred by these three individuals, when adjusted by 2.5% annual
inflation up to 2003, the year Mr. Vandegriff relocated to Boise, is $66,000. The
only difference with regard to Mr. V andegriff' s relocation expense level is that
he happened to live in a high cost of living area, which escalates residence
selling and other related costs incurred by the Company. The Company agrees
with Mr. English that Mr. Vandergriff's relocation expenses are high relative to
the other examples cited, however, the correct answer is not to throw out the
entire deferred expense. In light of the higher than normal level of relocation
expense the Company proposes to share the relocation expense of Mr.
Vandegrift with the shareholders absorbing $50,093 of the $130,093, and
leaving $80,000 to be amortized over five years or $16,000 annually. The
Company disagrees with the assertion made by Mr. English that the Company
could have found a design-build project manager experienced in the construction
of water treatment plants in the local labor market. In fact the CWTP is the only
water treatment plant of its kind in all of Idaho and the probability of finding a
qualified candidate for this highly sophisticated and technical role within the
Boise area is small. Mr. English provides no support for his assertion other than
conjecture. The Company acted prudently in its decision to bring the experience
of Mr. Vandegriff to Boise to guide the CWTP project. Details of this
adjustment are shown on revised Exhibit 3, Schedule 1, Pg. 25 of 34.
Business Insurance
Healy, Rebuttal
United Water Idaho Inc.
89L~
Do you agree with Staff Witness English's treatment of Adjustment No. 26,
Business Insurance, in which he reduces the Company s pro forma expense from
$1,083,300 to $899,036, an adjustment of $184,264? Please explain.
No I do not. Mr. English disallows a major portion of business Insurance
expense due to his belief that the expense is not known and measurable and is
based on estimates and therefore speculative. The amounts in the Company
operating plan that Mr. English refers to as estimates are based on actual policy
premium costs that were provided to Staff in the Company s response to Audit
Request No. 50. The attachments to that audit request contained each type of
insurance in effect for the Company for each of the last three years. The response
further contained a summary of the insurance with its limits of liability,
deductible, the supplier of the coverage, the policy period and the costs.
Attached to that summary was the actual policy declaration page for each policy
detailing the premium for each (See Healy Exhibit 15, Schedule 4).
Are these policies specific to United Water Idaho?
No, however in the Company s response to Staff's Production Request No. 173,
the Company supplied the explanation requested by Staff that illustrated how the
amounts charged to United Water Idaho are derived along with an example of
each allocation.
Are the policies that were included with the Response to Staff Audit Request No.
50 current policies?
Yes. Most of the policies were renewed during 2004 and reflect current costs for
2005 and 2006 and therefore are not speculative or estimates. To summarize, the
Company s rebuttal position is that the proper level of business Insurance
expense to be reflected in the revenue requirement is $1 083,300.
Healy, Rebuttal
United Water Idaho Inc.
895
Elimination of Charitable Giving, Lobbying and Country Club Dues
The Company had eliminated from the test year charitable contributions,
lobbying related expenses and Country Club dues of $14,005. However, Mr.
English goes on to remove an additional $17,433 related to scholarships
($3,800), Christmas Party and Summer Picnic expenses ($11 833) and additional
lobbying expense ($1,800). Do you agree with Staff Witness English's treatment
of Adjustment No. 27? Please explain.
First, the error Mr. English claims the Company made in computing the lobbying
expense portion of the NA WC dues is in fact not an error at all. In a letter from
the NA WC dated February 13, 2004 and attached in the Company files to the
membership invoice, the NA WC clearly states for income tax purposes, the
percent of nondeductible dues attributable to lobbying expenses for 2004 has
been estimated to be 18% (see Healy Exhibit 15, Schedule 5). The 27% Mr.
English refers to is in fact related to the 2003 NA WC lobbying estimate. With
regard to the very small amount of total operating expense the Company spent on
water-related scholarships and employee events during the test year, Mr. English
claims it is not appropriate to recover these costs from customers. United Water
Idaho, in recent history (the last 15 years), has never had these types of expenses
removed in a rate case. The Company is very frugal in it's spending on both
scholarships and employee events and believes these expenses are reasonable
and should be recovered in rates. They contribute to United Water s position in
the community as a respected corporate citizen and emphasize the messages that
the Company wishes to communicate to its customers, such as conservation and
wise water use. In addition, Company employee events help in maintaining good
employee morale, which fosters the delivery of good quality customer service.
Healy, Rebuttal
United Water Idaho Inc.
396
The Company s rebuttal position is to respectfully disagree with Staff's position
and restore the $17,433 to operating expenses.
Information Technology Expense
What is your reaction to Staff Witness English's treatment of your Adjustment
No. 28, corporate and local information technology expense in which he reduces
the Company s pro forma level of expense from $156,140 back to the test-year
level of $105,094, a reduction of $51 046?
I disagree with Staff Witness English's position. He claims that the Company
adjustment is not supported by contracts or agreements and that the increase is
largely due to the conversion of the financial system software and that this
conversion is not a recurring expense.
Do you agree with his reasoning?
No. The Company fully explained, in detail, each component of the expense and
what was driving the increase in each area. Admittedly, the Company neglected
to attach the contacts, but the costs are fully supported by those contracts and
agreements, which have subsequently been supplied to Staff (see Healy Exhibit
15, Schedule 6).
Is Mr. English correct in his conclusion that the IT costs are non-recurring?
No he is not. While the Company s conversion of its financial system can be
considered a nonrecurring event in the short term, the expenses associated with
continuing operation certainly are recurring. The Company s response explained
the need for continuing and new hardware support and maintenance, data
communications lines, vendor supplied application support, hosting fees,
licensing fees and Oracle database maintenance. These are annual expenses
associated with the ongoing operation of the finance and accounting system and
Healy, Rebuttal
United Water Idaho Inc.
,897
certainly recurring in nature. The Company s rebuttal position is therefore the
same as it's original position, $156,140 included in the revenue requirement.
Customer Growth Related Variable Expenses
Do you agree with Staff Witness English's position with regard to Adjustment
No. 30, the reflection of additional variable expense associated with customer
growth? Mr. English reduces the Company s $73,022 pro forma adjustment by
$16,480 to $56,542? Please explain.
I have re-worked the adjustment (see revised Exhibit No.3, Schedule No.1, Pg.
30 of 34) utilizing a combination of Company rebuttal positions and Staff
positions. I have revised power expense to the Company rebuttal position; for
chemical expense I accepted Staff's position; for transportation expense I
reduced it to the Company rebuttal position; for business insurance I have
included the Company s rebuttal position and for T & D excluding payroll I have
left Mr. English's number unchanged. This produces a variable cost ratio of
12.76%. When this ratio is applied to Witness Gradilone s growth revenue of
$749,828, the result is a $95,645 increase in variable costs due to growth, an
increase of $39,103 from Staffs position and $22,623 over the Company
original position.
Weather Normalization Adjustment to Variable Expenses
Do you agree with Staff Witness English's position with regard to Adjustment.
No. 31, the impact of Mr. Gradilone s weather normalization and its impact on
variable expense like power and chemicals? Mr. English increases the
Company s pro forma credit to expense from $8,792 to $10,860, all. increase of
$1,888?
Healy, Rebuttal
United Water Idaho Inc.
898
I do not disagree with the methodology, only the result. I have recalculated the
Company rebuttal position using Staff's chemical expense and the Company
power expense and applied the ratio (6.86%) to Mr. Gradilone s weather
normalization revenue adjustment (negative $184 354) to produce a credit to
expense of $12,641. This credit is $1,781 more than Staff calculated and $3,849
more than the Company s original adjustment. Please see revised Exhibit No.
Schedule 1, Pg. 31 of 34.
Outside Legal Expenses
Do you agree with Staff Witness English's position with regard to Adjustment.
No. 32, outside services legal expense, where he decreases the Company
original pro forma expense from $54,000 to $36,355, a decrease of $17 ,745?
No. I do not think the methodology used by Mr. English to determine pro forma
legal expense is correct.Mr. English reviews the test year legal expense spend
and then eliminates items he characterizes as "extraordinary and unusual"
$11 046. He also finds in the test year a modest amount of expense related to the
Company s intervention in Idaho s Power s recent case, a total of $8,374 and
decides to amortize that amount over five years, thus eliminating another $6,699
from test year expense. The Company, through years of actual experience, knows
that each year various matters will arise in the routine course of business that
require the services of outside counsel to resolve. These matters range from
assistance in collecting past due accounts to contract review to minor regulatory
assistance. Although Mr. English is correct that a particular legal issue and the
costs of resolving it may not recur it is both illogical and inequitable to claim an
underlying level of legal expenses will not recur. The Company s original
Healy, Rebuttal
United Water Idaho Inc.
899
position of $54,000 represents a fair and normal level of expense and thus our
rebuttal position is the same as our original position.
Depreciation Expense
Do you agree with Staff's calculation of depreciation expense of $5,845,188,
representing a reduction of $541,321 from the Company s original position of
$6,386,509? Depreciation expense is Adjustment No. 37. Please explain.
No. Obviously the depreciation calculations of the Staff and the Company vary
significantly based on Staff's use of the thirteen-month average of test year adds
and the fact they only allowed one-thirteenth of pro forma adds, other than
CWTP investments. The Company has made several adjustments to depreciation
expense on rebuttal: first, we have trued-up plant investment through the March
2005 forecast as discussed by Witness Rhead. I have incorporated this updated
information into my rebuttal calculation of depreciation expense. I have also
reduced plant $175,000 for an investment in the Arrow Head Canyon project that
is recorded on the books and records of the Company in plant in service,
however, the Company has not at this time paid the developer our share of the
costs. I have also accepted Staffs adjustment to rate base of $258,772 of AFUDC
calculated on the membrane order that was canceled and incorporated its impact
on depreciation expense.. I have accepted as well Staff's adjustment to plant in
service of $684,962 for AFUDC gross up. The Company s pro-forma
depreciation calculation in rebuttal is $6,372,848. This represents a $13,661
decrease from our original position and a $527,660 increase over Staff's
position. This is shown on revised Exhibit No.3, Schedule 2, Pg. 1 of 4.
Healy, Rebuttal
United Water Idaho Inc.
900
Have you reflected Staff Witness Harm s recommended change in the
depreciable life of the membranes from the life the Company proposed, 7 -years,
to the la-year life Ms. Harms recommends?
No. Staff Witness harms bases her recommendation on hearsay. She claims she
overheard a CDM representative say that the membrane filters are lasting ten
years in many plants. The Company objects to the use of hearsay evidence and
relies on the seven-year warranty of the membrane manufacturer.
Aggregate Payroll Taxes
Do you agree with Staff's calculation of aggregate payroll taxes (FICA, SUT A
and FUTA of $335,848 representing a $16,423 reduction from the Company
original position of $352 271? The aggregate payroll tax adjustment
Adjustment No. 41.
No, I don t. The Company has re-priced labor to reflect the most current known
and measurable information. Base on this re-pricing, I have re-computed payroll
taxes. The aggregate total is now $348,317. This is $3,900 less than the
Company s original position and $12,469 more than Staff's position. This
rebuttal adjustment is contained on Exhibit No.3, Schedule 3, Pgs 2-
Rate Base
Please continue with your rebuttal testimony regarding rate base. Do you agree
with the methodology Staff has utilized to calculate United Water Idaho s rate
base in general? Please explain.
No I do not. As indicated in the rebuttal testimony of Witness Peseau and
Witness Wyatt, the Company disagrees with Staffs use of thirteen month
averaging of the test year and the fact that, other than investment related to the
Healy, Rebuttal
United Water Idaho Inc.
901
Columbia Water Treatment Plant, Staff has only allowed the Company to earn a
return on one-thirteenth of pro forma investment. The difference in methodology
makes it difficult to compare the Company s rebuttal rate base position with the
Staff's position. I will provide an overview of the impact of Staffs approach,
then I will address discrete adjustments Staff has made to rate base and the
Company s position with respect thereto.
Please continue with the overview.
Following is a summary of the elements of rate base and the numerical position
of the Company and Staff:
Company Staff Difference
Plant in Service $259,567,713 $242 557,781 ($17,009,932)
Accum Depr, etc ($ 60,180,731) ($ 57,087,076) $ 3,093,655
Advances ($ 6,365,357) ($ 6,876,446)511,089)
CIAC ($ 43,009,699) ($ 43,202,977) 193,278)
UPAA 600,762 600,762
ADFIT ($ 13,938,270) ($ 14 521 667) 583,397)
Pre-1971 ITC 13,257) ($071)328)
945,796 $922,564 )Deferred Chg.023,232
Work. Capital 045,126 $045,126
Grand Total $140,904A43 ~124,524A07 1.$ 16,380,0361
Obviously, plant in service accounts for the bulk of the difference. Following is a
synopsis of the individual adjustments that make up the plant in service
difference:
Plant in Service Adjustment Description
Impact of 13 Month Average on Test Year Proper ($ 6,345,675)
Healy, Rebuttal
United Water Idaho Inc.
90~
Impact of 13 Month Average on Pro Forma Plant ($ 8,791 833)
Impact of 13 Month Average on Carriage Hill Adj $ 494,009
Impact of 13 Month Average on Pro Forma Retirements $604,367
Columbia Water Treatment Plant Group 440,277)
175,000
533,084)
677,452)
644,700)
29,697)
684,962)
135,630)
Company Arrowhead Canyon Adjustment
Staff AFUDC Adj. on Membranes: Company Accepts
Staff Adjustment: CWTP oversize land & building
Staff Adjustment: Initial Butte Used & Useful
Staff Adjustment: IMAP Used & Useful
Staff Adjustment: Ground Water Recharge
Staff Adjustment: AFUDC Gross Up:
Staff Adjustment: Capitalized Incentive Pay
The first two bullets, lines 14 and 15, amounting to $15,137,508 of lost
investment that is used and useful and currently providing service to customers
have a devastating impact on the Company s case.
Please address the remaining bullets regarding plant in service.
The bullets on lines 25 and 1 are a product of the thirteen-month average
methodology. I believe that the Commission intended that Carriage Hill be
completely removed from the books and records of the Company so I disagree
with Staff's one-thirteenth removal (line 2). The retirement discrepancy (line 3)
is also a product of the averaging methodology and serves to allow the Company
to earn a return on plant that is no longer providing service to customers. The
bullet on line 4 represents additional investment in the Columbia Water
Treatment Plant that is included in the Company s rebuttal case as a refinement
Healy, Rebuttal 903 United Water Idaho Inc.
of actual investment. Line 5 represents investment in the Arrowhead Canyon
project that is recorded as plant on the Company s books but is offset by a
payable to the developer as final special facility contract details are finalized.
Line 6 represents Staff's $258 772 adjustment to plant in service regarding
excess AFUDC that the Company applied to membrane investment that was
eventually repaid or written off. The Company accepts this adjustment. Lines 7
through 10 represent adjustments to plant in service made by Staff that the
Company disagrees with. Company Witness Rhead addresses these four
adjustments in his rebuttal testimony. The Company disagrees with Staff's
adjustment on line 11 to plant in service of $684 962 representing the gross up
for income taxes of the equity portion of AFUDC. The Company disagrees with
the adjustment on line 12 Staff makes to eliminate capitalized incentive pay from
plant in service ($135,630).
Staff Witness Stockton is of the opinion that the Company is not correctly
calculating its AFUDC rate applied to construction work in progress in its
association with the gross-up of the equity portion of the rate. Do you have any
comment?
Yes I do. As stated by Witness Stockton, AFUDC recognizes capital costs
associated with financing construction before it is placed in service and
compensates the Company for the debt and equity costs before the asset is fully
in service where it will then earn a return and depreciation expense during its
service life.
Is there authority and guidance for the application of AFUDC?
Yes. This authority and guidance resides in the National Association of
Regulatory Utility Commissioners (NARUC) chart of accounts and in the
Healy, Rebuttal
United Water Idaho Inc.
004
Financial Accounting Standards Board Statements (FAS) 71 (Accounting for
Certain Types of Regulation) and 109 (Accounting for Income Taxes).
Specifically, F AS-09 requires: "recognition of a deferred tax liability for the tax
benefits that flow through to customers when temporary differences originate
and for the equity component of the allowance for funds used during
construction" emphasis added.
Does Staff disagree with the equity gross-up and its application to capital
projects?
No. Staff appears to recognize the need and requirement of the AFUDC gross-up
and its inclusion as part of FAS-109, but believes that inclusion of the gross-up
in the AFUDC calculation overstates the asset value and ultimately, rate base
and concludes that the depreciation expense calculated on the higher asset value
is where an adjustment is warranted.
Rather than the theories set forth in numerous pages of testimony and other
written guidance, can any of this theory be tested?
I believe so. I have prepared rebuttal Exhibit 15, Schedule 10, in an attempt to
show the effect of the gross-up on the earnings and return on equity, both
measures used in ratemaking and deficiency calculations. This exhibit shows
how the Company s return on equity is calculated including and excluding the
gross-up component. It illustrates that without the gross-up, the Company does
not have the opportunity to earn its authorized return and because of this, a
deficiency is created.
Is there any other demonstration that can be made?
I believe that the depreciation of the plant that represents the AFUDC gross-up
would be offset by lower tax expense because the tax liability related to the
Healy, Rebuttal
United Water Idaho Inc.
C) 0
temporary difference would already have been recognized at the time the
AFUDC was recorded. This being said, there would be no impact either positive
or negative to the customer or the Company, which is the intent of F AS-09 that
was designed to be neutral when the accounting is concluded.
Please comment on Staff's recommendation that the Commission order the
Company to analyze and restate all prior balances since the adoption of FAS-
109.
Obviously the Company does not agree with Staff's assertion that it was and is
recording this gross-up incorrectly and certainly does not agree that even if the
Commission were to agree with Staff that it should be ordered to retroactively
restate the past ten years of plant balances. The effort involved in such an
undertaking is extremely large and would require a review of every asset, record
of retirements, adjustments to deferred and current taxes, the depreciation
reserve and other items. Staff's calculated estimate from May 2000 to the present
only amounts to a rate base adjustment of $7,067 which includes the significant
addition of the Columbia Treatment Plant additions. Certainly there is no
material impact warranting such an effort.
With respect to other utilities under its jurisdiction, has the Commission
previously considered whether it is appropriate to gross-up the equity component
of AFUDC for income taxes?
Yes. In a Washington Water Power case, U-1008-209, parties disputed the the
proper amount of AFUDC to be allowed for a failed construction project. The
Commission resolved that dispute then recognized that the allowed amount
should be grossed up for taxes. The Commission said: "Finally, the amortization
that we approve must be grossed-up to take into account marginal income tax
Healy, Rebuttal
United Water Idaho Inc.
qQ6
rates. After applying the revenue-to-income multiplier, the total amount of
amortization that we authorize for Skagit/Hanford is $8,575,000". Order No.
19411.
Are there any Idaho statutes bearing on this issue?
Yes. Idaho Code 61-502A provides in part: "when construction work in progress
is excluded from rate base, the Commission must allow a just, fair and
reasonable allowance for funds used during construction or similar to be
accumulated, computed in accordance with generally accepted accounting
principles . By statute an allowance for funds used during construction is
mandatory, and the allowance must be "just, fair and reasonable" and it must "
computed in accordance with generally accepted accounting principals . As I
have discussed, the adjustment Staff Witness Stockton proposes meets neither of
those standards.
Why do you disagree with Staff's elimination of the $135,630 in capitalized
incentive pay?
For the reasons stated in my rebuttal testimony regarding incentive pay, the
Company believes incentive pay is a reasonable way to motivate employees to
perform at a high level. Because the Company believes in the legitimacy of
incentive pay, and because it is reasonable to capitalize a portion of incentive
pay, the Company disagrees with the removal of five years worth of capitalized
incentive pay from plant in service.
Staff Witness Stockton claims on page 4 of her testimony that AFUDC was
improperly charged on water rights. She recommends that $94 918 be removed
from plant in service and that her adjustment is incorporated into Staff Exhibit
No. 101. Do you agree with her assertion? Please explain.
Healy, Rebuttal
United Water Idaho Inc.
90,
No I do not. First, Staff Exhibit No. 101 has to do with Staff's elimination from
plant in service of the component of AFUDC associated with the gross-up of the
equity portion for income taxes. I believe Staff Witness Stockton mentions this
potential $94 918 adjustment but Staff failed to actually reflect the adjustment in
their case. That being said, I disagree with Witness Stockton s blanket statement
that it is improper to charge AFUDC to all water right related projects.
Purchasing a water right may be a simple process in which case the newly
acquired water right may provide service to customers very shortly after it was
purchased. In this case, I agree that AFUDC would be inappropriate. However,
the Initial Butte water right is an example of a water right purchase that the
Company did accrue AFUDC on, and appropriately so. Funds were expended to
purchase the Initial Butte water right under which water was diverted from the
Snake River. After the Company purchased the water right, application was
made to the Idaho Department of water resources to change the point of
diversion to the Boise river. This process took several months time and until the
water right was officially transferred, the asset was very similar in nature to
CWIP. The funds were expended, the water right took time to perfect, and it was
a legitimate application of AFUDC. Witness Stockton is mistaken, this has
nothing to do with concepts of used and useful or plant held for future use. Once
Initial Butte was perfected and the Company was able to use the water right
asset, it was placed in service and the application of AFUDC was stopped.
Accumulated Depreciation, UP AA & PHFU Amortization
Do you agree with Staff's calculation of the balances of Accumulated
Depreciation Accumulated Reserve for Depreciation of CIAC, Accumulated
Amortization of Plant Held for Future Use and Accumulated Amortization of
Healy, Rebuttal
United Water Idaho Inc.
908
Utility Plant Acquisition Adjustments which reduce the Company s original
aggregated balance from $60,180,731 to $57,131,443. Please explain.
No I do not. The driver of the large difference here is Staff's use of the thirteen-
month average approach. I disagree with this approach for the primary reasons
stated in Witness Peseau s rebuttal testimony: first, the use of the average is not
consistent with the pro forma revenue and expense figures Staff has used in the
case and second, the average methodology produces a result that denies the
Company the ability to earn it's authorized rate of return. The Company s case is
consistent in it's matching of pro forma revenue, expense and rate base. The
Company pro formed the aggregate accumulated balances of the four
components mentioned above consistently with the other elements of the case.
Advances for Construction
Do you agree with Staff's calculation of Advances for Construction, $6,876,446,
an increase of $511 089 over the Company s balance of $6,365,357? Please
explain.
No. For the same reasons mentioned above for Accumulated Depreciation, I
disagree with the use of the thirteen-month averaging methodology and the way
it creates a mismatch in this case between revenue, expenses and investment. In
addition, the Staff calculation does not reflect the full removal of Carriage Hill
nor does it reduce the balance of outstanding advances for refunds that have been
paid in the pro forma period.
Contributions in Aid of Construction
Do you agree with Staff's calculation of CIAC of $44 202 977 or $193,278 more
than the Company s calculation of $43,909,699? Please explain.
Healy, Rebuttal
United Water Idaho Inc.
909,
No. For the same reasons mentioned above for Advances for Construction, I
disagree with the use of the thirteen-month averaging methodology and the way
it creates a mismatch in this case between revenue, expenses and investment
addition, the Staff calculation does not reflect the full removal of Carriage Hill
as directed in the Commission Order.
Accumulated Federal Deferred Income Taxes
Please describe Staff's adjustment to Accumulated Federal Deferred Income
Taxes (AFDIT).
Staff increases the recorded balance of AFDIT at July 31, 2004 of $11 144 389
by $3,377,2799 to a pro forma balance of $14 521 668. This adjustment is wrong
because Staff applies an incorrect tax depreciation rate to the utility plant
additions it is recommending in this case. As a result, Staff has significantly
overstated the adjustment to AFDIT.
Please explain the error made by Staff in their calculation of tax depreciation.
Staff applied the special Bonus tax depreciation rate of 51 % to both the 2004 and
2005 utility plant additions it is recommending in this case. The Internal
Revenue Service (IRS) Code requires that the Bonus rate can only be applied to
additions made by December 31, 2004 (see Exhibit 15, Schedule 9) since the
Bonus rate is no longer in effect in 2005. This error is significant because the
incorrect tax depreciation rate is applied to $19,707,594 of plant additions
related to CWTP, which is largely a 2005 addition. The applicable IRS tax
depreciation rate in 2005 for this plant is 2%. By using the Bonus rate of 51 %
for 2005 additions, Staff has overstated by $4 571 082 the amount of tax
depreciation that is then compared to book depreciation. As a result the
Healy, Rebuttal
United Water Idaho Inc.
910
difference between tax and book depreciation is overstated by $4,571,082
ADFIT is overstated by $1,599,879, and rate base is understated by the same
amount.
Does the Company agree with the Staff's calculation of book depreciation in this
case?
No, it does not since the Staff substitutes the actual book amounts with an
average amount. However, for the purposes of illustrating the correction to
Staff's adjustment to AFDIT, I have used Staff's recommended book
depreciation expense.
Have you prepared an exhibit showing a corrected calculation of the Company
tax depreciation based on the amount of plant additions recommended by Staff in
this case?
Yes. I have prepared Exhibit 15, Schedule 7 illustrating the calculation of tax
depreciation using 2004 rates for 2004 plant additions and 2005 rates for 2005
plant additions. If the Commission adopts the Staff average rate base, the
corrected amount of tax depreciation as shown on Exhibit 15, Schedule 8 is
$10,974,257. If the Commission also adopts Staff's calculation of book
depreciation expense, the corrected ADFIT is increased by $1,777,400 to
$12 921 789.
Have you prepared an exhibit showing a corrected calculation of the Company
AFDIT based on the corrected tax depreciation amount and the Company
proposed plant additions?
Yes. As explained in detail in the Company s rebuttal testimony, Staff's average
rate base is not proper ratemaking for United Water Idaho. Exhibit 15, Schedule
Healy, Rebuttal
United Water Idaho Inc.
911
9 shows the correct tax depreciation of $14 355,365, ADFIT is increased by
$2,793,881 to $13,938,270.
Pre 1971 Deferred ITC
With regard to Witness Stockton s ITC adjustment of $1,071 to pre-1971
deferred lTC, do you agree it?
No I do not. She utilizes the thirteen-month average methodology and the
Company has consistently disagreed with its use in all rate base applications and
we disagree with its use here as well.
Deferred Charges
Do you agree with the adjustments made by Staff to reduce by $1 008,460 the
deferred debit balance of $2,031 692 the Company included in rate base? Please
explain.
No, I have several adjustments that I disagree with and one adjustment I agree
with. First, the Company has updated its position with regard to deferred debits
to a balance of 630,758. The components of this balance are as follows:
Power Expense $1,469,292
Rate Case Expense 296,467
Relocation Cost 80,000
Tank Painting 77,162
Deferred Rent 18,998
Terra Grande (agree with Staff)877
Grand Total 945 796
Healy, Rebuttal
United Water Idaho Inc.
912
Staff has recommended the disallowance of the balances of deferred power
expense and deferred relocation expense. Staff has allowed deferred rate case
expense of $232,500, which the Company has now updated to $296,467. Staff
has allowed deferred tank painting at $77,162, deferred rents at $18,998 and
deferred cost associated with Terra Grande at $3,877 and the Company agrees
with these balances.
Please discuss the two areas of disagreement, deferred power expense and
deferred relocation expense.
The Staff objects to the inclusion of deferred power expense because, Staff
Witness English states in his testimony (English Di., Pg. 32, line 17 to 22),
the Company was awarded a carrying charge on the deferred balance . In fact,
the Commission Accounting Order No. 28800 approving the deferral of excess
power cost did not award the Company a carrying charge and Witness English
admits this fact in his response to Company Production Request No. 11. The fact
is that the Company has spent and deferred, through April 2005, $1,456,596 in
deferred power. The Company reasonably and conservatively expects to incur an
additional $12,696 of deferred power expense by June 30, 2005. As in the case
of deferred tank painting expense or working capital, the $1,469,292 total pro
forma deferred power balance represents funds expended by the Company to
provide service to customers. The deferral Order provided reasonable assurance
to the Company that these costs would be recovered in the future. It is also
prudent to allow the Company to earn a return on these funds as compensation
for their use. With respect to deferred relocation expense, Staff Witness English
believes the Company should not recover any of the expense it incurred to
Healy, Rebuttal
United Water Idaho Inc.
913
relocate an employee to Boise because the costs were excessive. The Company
has reasonably rebutted his recommendation previously by sharing the expense
with shareholders, reducing the balance to a level in line with the costs of prior
employee relocation expense deferrals that have been recovered in rates as well
as included in rate base in prior Commission orders. It is prudent to treat the
deferred relocation expense balance in question in the same way.
Income Tax: Production Credit
Please address Staff Witness Stockton s income tax calculation and her credit
adjustment to income tax expense as a result of her application of the production
credit from the American Jobs Creation Act of 2004.
Staff Witness Stockton uses a "proxy" to estimate the impact of the production
credit on the federal income tax return of United Water Idaho. Witness Stockton
uses a conservative "proxy" because the IRS has yet to provide guidance to the
utility companies as to how to calculate the production credit. Witness Stockton
stretches the concept of "known and measurable" to it's outer limits by guessing
the intent of the IRS. Should the Commission believe it reasonable to "insure
customers are not overcharged", as Witness Stockton seeks to accomplish, it
could direct the Company to monitor the impact of the production credit in
future rate years when the calculation of the credit will actually be known and
measurable. The Company could be directed to adopt accounting procedures, if
necessary, to track the benefit of the production credit and have this information
ready should the Commission desire to review it.
Does this conclude your rebuttal testimony?
Healy, Rebuttal
United Water Idaho Inc.
91/~
Yes.
Healy, Rebuttal
United Water Idaho Inc.
915
(The following proceedings were had in
open hearing.
(United Water Exhibit No. 15, Schedules
through 15, were admi t ted into evidence.
COMMI S S IONER KJELLANDER:And we're ready then
for cross , and why don't we move to Mr. Strickling.
MR. STRICKLING:No questions.
COMMISSIONER KJELLANDER:Mr. Eddie.
MR. EDDIE:I have no questions, and
Mr. Purdy informed me that he also had no questions.
COMMI S S lONER KJELLANDER:Okay.Thank you.
Let's move now to - - let's move to the Attorney
General representing the Staff.
MR . WALKER:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. WALKER:
Mr. Healy, regarding the purchased power expense
that's found on your rebuttal testimony pages 16 and 17 --
Yes , sir.
- -
you testified that the Company has updated its
position to reflect Idaho Power 'rates proposed to be effective
June 1 , 2005, from Case Nos. IPC-10 and 5-14.Is that
correct?
916
HEDRICK COURT REPORTING
O. BOX 578, BOISE, ID 83701
HEALY (X-Reb)
United Water
Tha t 's correct.
Are you aware that the Commission has not yet
approved any of these rates for Idaho Power that you use in
your calculation?
I am aware of that, and I would suggest that
the Commission does not approve those rates , that the fallback
would be my direct testimony that does not include Idaho
Power I S proposal to freeze the PCA and include the Bennett
Mountain and the income tax adj ustment Yes, I'm well aware of
that.
Have you included the current or the proposed PCA
in your computation of the expected purchased power costs?
Absolutely.
Do you know , has Uni ted Water or any other
utility ever received Commission approval to include PCA costs
in its base rates?
I have never been involved wi th a Uni ted Water
case where we were not allowed to collect Idaho Power PCA in
the base rates.As far as I know , when Idaho Power sends the
power bill to United Water , the PCA portion of the bill , the
kilowatt charge , is included in the price of that power and
and - - and Uni ted Water has no discretion since we need to keep
our power up and running to serve our customers.We pay the
rates, including the PCA rate and including the energy
efficiency rider and other aspects of Idaho Power's rates that
917
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID 83701
HEALY (X-Reb)
United Water
change from time to time.
In my experience in the last five cases, we have
come in and used the latest known and measurable PCA
information , and frankly, that's what led to the Company to
move for an -- a Deferral Order after the Decision in our 2000
case when the energy crisis occurred.We were
- -
we were
seriously undercollecting power expense, and the Commission
recognized that and authorized us to create a deferred
accounting mechanism to gather those expenses for consideration
in this case.
Okay.That's - - that brings us to the next point
then.Is it your position then that the Commission's already
authorized recovery of those amounts?
No, that's not my posi tion.
Okay.
The Company has
Isn't it true that the Commission specifically
reserved judgment on recovery of those amounts in Order 28800
yes" or "no"
As is the Commission -- I believe I'm entitled to
answer the question.The Commission certainly qualifies their
Order that this will be reviewed during this rate case.
Okay.That answers my question.
If we move on to the information technology
expense and some of the addi tional exhibi ts, and also referring
918
HEDRI CK COURT REPORTING
O. BOX 578 , BOISE , ID 83701 HEALY (X-Reb)
United Water
to your rebuttal testimony on page 32 , now , these contracts
related to the information technology, were they provided to
Staff prior to its filing its direct testimony?
I don't believe they were.
And you stated that you provided them along wi
your rebuttal testimony.Is that correct?
No, I believe I stated that we supplemented the
Response, my recollection is, to the Production Request to
provide those contracts.
On page 32, ine 15 through 17 , was your
testimony that you provided those along with your rebuttal?
, I'm sorry.Yes, it is.
And do you know , were those actually provided
with your rebuttal?
No, they weren't , and that's why I provided them
today.That was mistaken.
And that's what we got today?
That'correct.
SO Staff hasn't had an opportunity to reVlew
those agreement s or contracts prior to today?
Similar to many documents we received yesterday,
no, they would be reviewing them for the first time today.
And wi th regard to the information on PeopleSoft
has Staff had a chance to look at any of that information or
review it prlor to today?
919
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
HEALY (X-Reb)
United Water
That's an entirely different matter.Ms. Harms,
Ms. Stockton , other Staff auditors who came to the Company
actually saw this used and useful asset.They saw the capi tal
expenditure authorizations that Mr. Wyatt and other executives
had signed authorizing that capital , and there was merely a
question of allocation procedures.And, frankly, Staff has, to
my knowledge, not made a
- -
an issue of any of the allocation
procedures in any item in this case, so I don't know why the
allocation procedure would be an issue in this case.
This is an allocation between United Water Idaho
and its parent companies, or related companies.Is that what
it is?
Correct.
And you don't understand how that's an issue In a
rate case?
Our case is full of allocated cost, and I don'
believe it's been brought up as an issue in any
- -
any of those
other issues where costs are allocated , be it business
lnsurance
The Staff did ask for , in Production Requests
some documentation of how allocations were done, and we
provided information on that.And they apparently had no
difficulty with that.
On page 25 of your rebuttal , you testify
regarding the regulatory assessment from the Commission.
920
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID 83701
HEALY (X-Reb)
United Water
that correct?
Yes.
And do you know what the actual 2005 annual
assessment for United Water is?
I believe it's .2562 percent.
Is that the actual assessment or is that the
assessment rate?
That's the rate.
Do you know what the dollar amount was?
No.In past cases , we have always applied the
rate to the adj usted revenue.That's been our practice in the
last three or four cases, at least.We're looking
forward-looking in this case.To base it on the 2004 revenues
would not be an improper match of revenues and expense.
If we go to page 37 and 38, you refer to a plant
in service adjustment , and this has to do with Columbia water
treatment plant.You testify a increase in rate base of
440 277 that's just referred to as additional investment in
Columbia water treatment plant.Is that correct?
MR. MILLER:Where are you?Wha t page?
THE WITNESS:Yes, on line
BY MR. WALKER:I s there any support ing
documentation for this number or calculation anywhere in the
record?
It I S included in' wi tness Rhead' s Exhibi t
921
HEDRICK COURT REPORTING
O. BOX 578 , BOISE , ID 83701
HEALY (X-Reb)
Uni ted Water
Do you know when - - when thi s was ever provided
to Staff for audi tor analysis , the support for this number?
I don't recall
- -
Staff didn't ask for support
for that number , but , you know , the invoices are in hand and
our understanding was that the Staff's intent was to allow the
investment in Columbia
- -
the Columbia water treatment plant
family of proj ects.
Okay.ve got one
- -
one final point here and
that's - - this would be regarding page 49 on your rebuttal.
This is about the American Jobs Creation Act.
Yes.
Now , isn't it true that Uni ted Water will be
eligible for some tax credit through this Act?
As I understand the Act from reading
PricewaterhouseCoopers' white paper on this subj ect, the Act is
still quite uncertain in how it will be technically carried out
on a tax return.There are limitations and special rules
having to do with affiliated groups.There are limi tations
having to do wi th wages paid by companies.There are concerns
that if the IRS does not promulgate rules that are very well
defined, that there could be abuse of this credit.
, what I suggested in my rebuttal testimony
the Company - - or , the Commission could easily require the
Company to keep accounting records that would reflect the
benefit that United Water Idaho actually receives from the
922
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
HEALY (X-Reb)
United Water
production credit, and that could be handled at another time.
One other statement that I'd like to make:
understand from the article that the intent of Congress in
creating this tax credit
- -
and Ms. Stockton referred to this
yesterday - - was to incenti vi ze companies to invest in the
United States.And in PricewaterhouseCoopers' article, they
discuss that applies to utilities, as well as any other
company.
Ms. Stockton had made the statement that
utilities are somehow different because customers pay the
income taxes.I would submi t customers pay the income taxes
for nonregulated companies as well.
So the Commission , I believe, will have a
decision to make on how to handle this
- -
the production
credit, and we would abide by that , by their Decision
obviously.I think it's premature to assume that the benefit
should go to the customer.So, no, I di sagree .
So I guess they will be eligible for a tax credit
then in some amount , but some amount greater than zero?
- -
you know , not being a tax expert but
understanding that taxes are
- -
can get extremely complex , I'
not going to agree wi th that.Technically, the Act is in
effect for --
So you don't know if they will be eligible or
Is that what you're saying?not.
923
HEDRI CK COURT REPORTING
O. BOX 578 , BOISE, ID 83701
HEALY (X-Reb)
United Water
I don't know , when all is said and done , whether
United Water Idaho will benefit from a tax credit due to this,
and that's why I suggested that we simply track it and then
we'll know for sure.
That's fine.
MR . WALKER:Nothing further , Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you, Mr. Walker.
I think we're ready for questions from members of
the Commission , begin with Commissioner Smith.
COMMISSIONER SMITH:Just a couple.
EXAMINATION
BY COMMISSIONER SMITH:
On page 16 and 17 of your rebuttal testimony, you
discuss the purchased power expense?
Yes.
And it's my understanding that the Company'
proposal is to reflect , assuming it's approved, the Bennett
Mountain request of Idaho Power and the tax increase request?
Right.
On the top of page 17 , you note that 2.2 percent
of the tax case will expire in one year?
Correct.
Wha t happens then?Do your rates go down?
924
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
HEALY ( Com - Reb )
United Water
It's, to me, a similar issue of
- -
I mean , we
could discuss this issue in the context of ERISA versus FAS
on pension.
Well, we don't have time for that.So my next
question would be, if I recall right
- -
and you can correct me;
I may have remembered this wrong
- -
Uni ted Water had rate cases
in 1993, was it , in 1997
, 96 , 9 7 , and 2 0 0 0 .
Okay.And in some of those years, which I don'
have the PCA years, you're aware that the PCA can sometime be a
credi t as opposed to a surcharge?
m aware that it can go down from the previous
I believe it's always a positive number.year.
Okay.Well that belief incorrect.
Well can
- -
assume
- -
Let change statement.there was
over collection from one year due to assumptions made that
turned out not to be correct , yes , there could be a credi t in
the following year to fix that.
There could al so be a credi t if Idaho Power'
power supply costs, because of an abundant hydro year, are
lower than the costs that are factored in its base rates?
Okay.accept t hat.
Okay.was wondering,in any of those
925
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID 83701
HEALY ( Com - Reb )
United Water
years when the PCA was actually a credit, did United Water ask
for a deferral account to accumulate credits for its customers?
Actually, in the Deferral Order
- -
the answer to
t ha t " no.
In the Deferral Order that we received in the
year 2000 we were ready, because the logic appeared to us that
should the PCA dip below the base rate that the Commission
authorized, that we would actually remove those dollars from
the deferral.
So there would be an offset?
So there would be an offset , yes.Tha t did not
happen, but
No.
But we would have been credi ted the deferral.
Okay.
Yes.
Thank you.
COMMISSIONER HANSEN:That answered my questions.
COMMISSIONER KJELLANDER:Let's move now to
redirect.
926
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID
HEALY ( Com - Reb )
United Water83701
REDIRECT EXAMINATION
BY MR. MILLER:
Wi th respect to the PCA deferral issue, you'
attached to your schedule
- -
your Exhibit 15 a Schedule 2
which is the actual Commission Order authorizing the deferral.
Is that correct?
That is correct, yes.
And toward the bottom of page 1 there is a
paragraph that describes the Company's request, and the Order
recites that United requests that the period commencing
May 1 , 2001, and/or further requests that deferral be approved
for any additional increases in Idaho Power Company rates that
may be ordered by the Commission in Cases 01-7 and 01-11 and
any subsequent PCA rate increase or related surcharge that may
be authorized prior to the next - - Company s next general rate
case.
Is that a fair summary of what you thought the
Company was requesting?
Yes.
And I believe Mr. Sterling acknowledged yesterday
that Slnce that time, from a computational point of view , the
Company has properly recorded its PCA-related expenses in an
account for deferral?
That's correct.
927
HEDRICK COURT REPORTING
O. BOX 578, BO IS E , I D
HEALY (DiReb)
United Water83701
And as you have just acknowledged to
Commissioner Smith, the way the deferral was set up to work was
that any benefit that flowed through the PCA also flowed
through the deferral to the Company s customers?
That would have been our intention if the PCA
dropped below the rate that the Commission had allowed in our
2000 case.
And as the PCA fluctuated year to year, if it was
less in year X as opposed to year Y, the amount of the deferral
reflected that as well?
Certainly.
Right?
I mean, as witness Sterling indicated, in the
years of the energy crisis, the PCA was well above what had
been established in base rates.In the two or three later
years, the difference was not as big, but it was still several
hundred thousand dollars different than what had been
established in our base rates.
And did the Company have any reason to bel ieve
think that somehow this deferral was limited only to market
crisis costs, not to bad weather costs?
- -
you know , in reading the Order, I recognl
the Commission has the discretion to make a determination on
how these costs will be handled.I can't find any place in the
Order that
- -
that put me on notice that we could be at risk at
928
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE, ID
HEALY (DiReb)
United Water83701
losing part of the deferral, the part that was related to poor
water conditions as opposed to the energy crisis conditions.
If the deferral had been limited on its face to
market crisis conditions, when those conditions lapsed, if that
was an explicit limitation , the Company obviously or likely
would have appl ied for another deferral for bad water costs,
but there was no reason to do that because there was no
indication that the deferral was limited in that way, was
there?
Well , that
- -
you know , I don't know the answer
to that question.It would
- -
you know , as Commissioner Smi
has said, for
- -
for a number of years, the Company looked
the PCA adjustments as just some years they were bad news and
some years they were good news wi th regard to our power cost.
I don't know that we would have com~ in and asked for another
deferral order, but again , reading the plain language of the
deferral order in place, it didn't seem that we needed to come
in and ask for another deferral order.
Just a final question on the American Jobs
Production Tax Credit or deduction , whatever it is:At thi s
point in time, is any adj ustment in connection wi th potential
credits or deductions known or measurable, in your opinion?
I think in the realm of known and measurable,
falls on the far out end of your reaching to consider that a
known and measurable.That's my oplnlon.
929
HEDRICK COURT REPORTING
O. BOX 578, BOISE, ID
HEALY (DiReb)
United Water83701
And the Company has offered to, in the event any
credits or deductions do materialize, to account for those and
to provide that information to the Commission for its
consideration when and if that becomes a reality?
We - - we've recommended we'd be happy to do that,
and then the Commission would have time to
- -
to make a
decision on how they re golng to handle the production
credi t --
All right.
-- for all utilities.
And the question of whether benefits should flow
through or not flow through is not really before the Commission
at this time and to be decided at that time?
Yes.
All right.
MR. MILLER:Those are all the redirect questions
I have, Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you, Mr. Miller.
(The wi tness was excused.
COMMI S S IONER KJELLANDER:I believe we're ready
then for your next rebuttal witness.
MR. MI LLER :We'd call Gregory Wyatt.
COMMI S S IONER KJELLANDER:And while we're at a
short little lull in the activity, why don't we go to
Mr. Eddie.I believe your witness has arrived.
930
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
HEALY (DiReb)
Uni ted Water83701
MR. EDDIE:Yes, he has, and if we can take a
short break , he'd be ready to go on , maybe five or ten minutes.
COMMISSIONER KJELLANDER:Why don't we take that
approach then and we'll let Mr. Wyatt wait for a few moments,
and we'll get Mr. Eddie's witness up.We'll take a break of
about five minutes then.
(Recess.
COMMISSIONER KJELLANDER:Okay, we'll go back on
the record.And before we broke, we were ready for Mr. Eddie
to call hi s wi tness
MR. EDDIE:Idaho Rivers United will callYes.
Don Woj cik.
931
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID
HEALY (DiReb)
Uni ted Water83701
DON WOJCIK
produced as a witness at the instance of Idaho Rivers United
being first duly sworn, was examined and testified as follows:
DIRECT EXAMINATION
BY MR. EDDIE:
Okay.Mr. Woj cik , will you state your name and
spell your last name for the record?
Okay.My name is Don Woj cik, and the last name
is spelled W-
And how are you employed?Will you please
describe your work?
Yes.I am a water policy analyst and technical
researcher wi th Western Resource Advocates, a nonprof i t law and
environmental pol icy center in Boulder , Colorado.
Okay.And in that capacity, you analyze and
reVlew water rates and water policy for utilities around the
West?
Yeah , I focus strictly on urban water supply
systems in the interior Mountain West of the Uni ted States,
primarily encompassing everything west of Colorado and east of
California, and looking at urban water efficiency as the target
of policies, programs, pricing, and other components to that;
and the primary focus of the position is to do comparative
932
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID
WOJCIK (Di)
IRU83701
analyses across cities to see which cities are doing what and
which providers are experiencing benef i ts from these programs,
policies.
Okay.And you had occaSlon to prefile written
direct testimony in this case consisting of 18 pages?
Yes, I believe.
And related to that testimony, there were a
number of exhibits, No. 401 through No. 408?
Yes.
Do you have any changes or corrections you 'd like
to make to that prefiled testimony?
Yes, I bel ieve there are two changes I'd ike to
state for the record.The first one falls on page 3, line
and 2 0 .
m sorry, I missed theCOMMISSIONER SMITH:
page.
THE WITNESS:Page 3 of the testimony, lines
and 20.And on that page and in those lines I stated that the
most increased revenues would come from increased fixed
charges, while actually most of the increase comes from the
commodi ty charge increases.This does not change the effect of
the rest of my testimony on the fixed charges , as my intention
of that initial comment in the testimony was referring to the
percentage increase of the fixed charges relative to the
percentage increase of the commodi ty charges, 36 percent versus
933
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID
WOJCIK (Di)
IRU83701
1 7 percent, respectively.
There is one other change youBY MR. EDDIE:
wanted to make?
There I S one on page 8, line 21Yes, I' m s a r ry .
and that is strictly inserting the word "outdoor.Let's see.
Line 21 , inserting the word assessing average outdoor customer
use patterns.
MR . MI LLER :What line is that?
THE WITNESS:m sorry?
MR . MI LLER :What line number?
THE WITNESS:, line number 21 where it starts
assessing average outdoor customer use patterns.
Q .Okay.I f I were to ask you theBY MR. EDDIE:
same questions as are expressed in your prefiled testimony
today, would your answers be the same wi th those corrections
being noted?
Yes.
Mr. Chairman , I'd move that theMR. EDDIE:
direct testimony of Don Woj cik be spread upon the record as
read, and that Exhibits 401 through 408 be marked as such.
COMMISSIONER KJELLANDER:Thank you, Mr. Eddi e .
Without obj ection , we will spread the testimony
across the record as if read, and admit the associated
exhibi t s
(The following prefiled direct testimony
934
HEDRI CK COURT REPORTING
O. BOX 578, BOISE, ID
WOJCIK (Di)
IRU83701
of Mr. Woj cik is spread upon the record.
935
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID
WOJCIK (Di)
IRU83701
PLEASE STATE YOUR NAME, BUSINESS ADDRESS AND POSITION
WITH THE WESTERN RESOURCE ADVOCATES.
My name is Don Wojcik. My business address is Western Resource Advocates
WRA"), 2260 Baseline Road, Suite 200, Boulder, Colorado 80302. WRA is a non-
profit environmental law and policy organization dedicated to restoring and protecting
the natural environment of the Interior American West. I am employed as a water policy
analyst and technical researcher for WRA's Water Program.
PLEASE DESCRIBE YOUR EDUCATION, BUSINESS EXPERIENCE AND
RESPONSIBILITIES.
In 1995 , I attained a Master of Public Affairs degree with a concentration in
environmental policy and natural resource management from Indiana University s School
of Public and Environmental Affairs. Prior to that, in 1991 , I attained a Bachelor of
Science degree in Civil and Environmental Engineering from the University
Wisconsin College of Engineering.
I have been employed as a water policy analyst and technical researcher with
WRA since August 2002. In thisposition, my primary responsibility is to collect, assess
and compare data on urban water use efficiency in cities across the interior American
West. In this position, I have co-authored various urban water efficiency reports
including: Smart Water: A Comparative Study of Urban Water Use Efficiency Across
the Southwest " as well as two comparative analysis reports on water rate structures in
Colorado and Utah. The executive summaries of these three (3) reports are provided
herewith as Exhibit 401-403; the full copies can be downloaded at the WRA website
fhttp://www.westemresourceadvocates.org/water/1
Wojcik, Di. 1
Idaho Rivers.United
936
P~or to working with WRA, I have nearly six years experience as a natural
resource planner for the Boulder County Parks and Open Space Department in Boulder
Colorado. I also have two years experience working as an environmental research
assistant for the Center for Urban Policy and the Environment in Indianapolis, Indiana.
Prior to my career in natural resource issues, for two years I worked as a Civil Engineer II
for the Village of Bolingbrook, Illinois in suburban Chicago.
ON WHOSE BEHALF ARE YOU TESTIFYING?
I am testifying on behalf of Idaho Rivers United.
PLEASE SUMMARIZE YOUR TESTIMONY.
United Water Idaho s ("UWI") proposed rate changes seek to recover additional
revenues through increased bi-monthly fixed charges, as well as through commodity
charge increases (i.volumetric rate increases). I recommend the Commission direct
UWI to modify its rate structure to a design that more effectively encourages efficient
water use by sending appropriate price signals to customers. This includes the adoption
of an increasing block rate design of at least three blocks during summer months: an
initial lower-cost block for the first volume of use (to cover indoor residential use for the
average household), and a minimum of two additional blocks to discourage excessive
outdoor watering and to assign current and future water development costs more fairly.
I also recommend the Commission direct UWI to expand its suite of conservation
programs in order to (a) provide customers additional options to avoid the financial
impact of UWI' s requested rate increases, and (b) enhance UWI's ability to avoid future
acquisitions of high-cost supply resources by reducing municipal demands. As a matter
of fairness to ratepayers faced with water bill increases of up to 22%, additional utility-
Wojcik, Di. 2
Idaho Rivers United937
guided and utility-incented conservation opportunities should be offered to mitigate the
impacts of such an increase. An expanded conservation program would also help UWI
avoid expensive supply-side resource acquisitions in the future. UWI's 12-year old
Conservation Plan must be updated as part of this effort.
I. Modified Rate Structure
DO YOU BELIEVE UWI'S PROPOSED RATE CHANGES COULD BE
ALTERED TO BETTER ENCOURAGE CUSTOMERS TO USE WATER
EFFICIENTLY? PLEASE EXPLAIN.
Yes, I believe the rate structure could be improved to encourage efficient use of
water. UWI's Application proposes to maintain its seasonal rate structure, with a 36%
increase in bi-monthly fixed charges to all customers, as well as a 17% increase in
commodity charges (per consumption volume). These fixed and commodity charge
increases amount to a 22% increase in the average residential water bill. (Later in this
testimony I address the proposal made by UWI and the Community Action Partnership
Association of Idaho to adopt an initial lower-cost 3 CCF consumption block.)
The existing rate structure fails to proportionately assign the increasing utility
costs and future water development costs to the high-volume users who place the highest
strain on the water supply system.
First, UWI is seeking to gather most of its revenue increases via the bi-monthly
fixed service charge (36% increase) instead of the commodity charges. This type of
across the board" rate increase approach can be seen as a penalty to average or low-
volume users, and particularly to customers who have voluntarily made efforts to
conserve. High fixed charges may further weaken a customer s incentive to conserve
Wojcik, Di. 3
Idaho Rivers United
938
since a larger percentage of their bill cannot be changed regardless of whether they waste
water or conserve water.
Mo~e importantly, UWI's seasonal rate structure only provides a limited , and
rather blunt, conservation price signal when moving from winter to summer. However
within each summer season, UWI's rate structure does not provide a price incentive for
conservation because the unit price is constant regardless of the amount of water
consumption in each billing period. ,To put it another way, on a day-to-day basis during
the summer months, UWI's current rate structure essentially functions as a uniform rate
structure. As a result, this rate structure does not effectively promote efficient water use
during the period of peak use. An increasing block rate structure would send stronger
pricing signals to customers to promote more efficient use.
WHY DO YOU PROPOSE MODIFYING THE UWI SUMMER RATE
STRUCTURE INTO AN INCREASING BLOCK RATE STRUCTURE WITH
MULTIPLE TIERS/BLOCKS?
In general, of the various types of water rate structures, the increasing block rate
structure sends the strongest message of conservation. Not only can it be designed to
curb high volume use and penalize wasteful water users, but it can also reward customers
for being efficient.
The'most significant effects and biggest benefits of increasing block rate
structures occur in summer months, when discretionary outdoor water use dominates the
demand on urban water supplies. The Direct Testimony of Frank Gradilone (Exhibit 6
Schedule 3, page 6) shows that about 76% ofUWI's total nonnalized annual
939
Wojcik, Di. 4
Idaho River~ United
consumption is used in the summer months. Outdoor water use is and will be the
primary driving force behind UWI's need to expand its supply.
These system expansions, supply procurements, and infrastructure upgrades will
translate to higher utility costs, which inevitably will be passed on to UWI customers.
To minimize, delay, or possibly avoid some of these future costs, a stronger conservation
message should be sent to customers now.
To promote efficiency, water rate structures must communicate the true value of
water. Only if the price of water reflects the economic value of water will customers
know whether it is "worth it" to conserve water. The true economic value of water not
only includes the utility's operation and maintenance costs (including billing and
metering), but also includes the costs to procure and develop additional water supplies to
meet growing demands, as well as the social and environmental "opportunity costs" of
losing other benefits of the water in order to develop and consume the water (e.
ecological and recreation values of rivers, local/community economies, values of river
flows for diluting pollutants, etc.). Failing to integrate all of these direct and indirect
costs into a water rate structure is equivalent to subsidizing the cost of water.
An increasing block rate structure charges higher unit prices to customers who use
more water, and lower unit prices to customers who use less. In other words, the unit
prices reflect the strain or demand a customer (and customers like him or her) place on
the water supply system. This design is fundamentally fair, as customers are charged on
the basis of the costs they impose on the utility. Because high-volume users expedite the
need for infrastructure upgrades and new supply procurement, these relatively few high-
volume customers are more expensive for the utility to serve. It would be unfair to pass
940
Woj cik, Di. 5
Idaho Rivers United
on the costs generated by these relatively few customers to those who use more modest
amounts.
In summary, along with other conservation and efficiency programs, increasing
block rate structures can help stretch, existing water supplies further and avoid much of
the cost, delay, and controversy that result from large new water development projects.
designed appropriately, increasing block rates:
Provide water at low prices for basic and essential needs, so all customers can
afford it;
Reward efficient customers with lower unit rates for water;
Send a strong price signal to high-volume and inefficient customers to encourage
more efficient use;
Fairly assign water supply and development costs proportionately to the
customers who place the highest burden on the supply system and the natural
supply sources;
Do all of the above while still maintaining a stable flow of revenue for the utility
to cover its increasing costs.
For an increasing block rate structure to send an effective conservation message to
all customers (low-volume and high-volume), enough blocks need to be established to
cover the full volume range. I recommend a minimum of three blocks, with additional
blocks being added depending on UWI customer use patterns and volumes. The
commodity charges for these blocks need to increase at a percentage that instills a notable
price signal" to the customers.
HOW MUCH USAGE SHOULD BE PRICED AT THE FIRST, LOW-PRICED
BLOCK?
The first, lower-priced block should be equivalent to the average indoor
residential usage per customer. While I support the Stipulation between UWI and the
Community Action Partnership Association of Idaho in concept, I recommend that the
Woj cik, Di. 6
Idaho Rivers United
941
initial block be increased to a volume that equals the average total indoor use per billing
period for a residential UWI account (i., not just toilets and showers). The proposed 3
CCF indoor volume block over a two-month billing period (2 244 gallons) is very low
relative to the average indoor water needs for a residential customer over the same
period. According to Attachment A to the Stipulation, this 3 CCF amount is slightly in
excess of average toilet and shower use during a bill period.
However, most families (low~income or not) use much more than 3 CCF indoors
over a two-month period, even when they re being efficient with their use. Many cities
with increasing block rates set their first block to accommodate all indoor use
(determined by the city s average winter consumption per residential account per month).
In most cities, this volume typically falls somewhere between 3 000 and 7 000 per month
000-000 gallons bi-monthly). Widely-used studies on water usage (i.e. from the
American Water Works Association Research Foundation studies and other water ,use
documentation) reveal that the average American uses roughly 69 gallons per capita per
day indoors. This amounts to roughly 4,140 gallons bi-monthly, per person. With an
average U.S. indoor occupancy of2.6 people per household, roughly 10 750 gallons are
used bi-monthly per household account, substantially more than the 2 244 gallons set by
the proposed 3 CCF block. This figure corroborates with the general range of 6 000-
000 gallons bi-monthly that were reported in cities that I have assessed. The bill
frequency data provided by UWI (Exhibit 404) also confirm this range is appropriate, as
43% ofUWI winter-time bills are for less than 10 CCF (7 480 gallons bi-monthly).
Lastly, as it relates to choosing a volume for this "subsistence" use level, I
disagree with an assumption in Attachment A of the Stipulation with respect to the
Wojcik, Di. 7
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942
proposed 3 CCF consumption block, that "(iJt is reasonable to assume that low-income
users would be in this low water consumption group. . . .Based on average indoor
water needs for the average residential household, I find no reason to believe that the
10o/60fUWI customers using the least amount of water correlates to UWI's low-income
customers. It is more likely that this very low use customer group is more correlated to
single-occupant households than low-income households. Low-income households with
family sizes greater than one or two will have a very difficult time staying within this
. "
subsist~nce" level. Furthermore, and equally important, it is likely that low-income
customers are residing in older, less-updated housing stock that do not have ULF toilets
low-flow showerheads, or high-efficiency clothes washers. Protection of low-income
11 'customers therefore is another strong policy basis for increasing the "subsistence" indoor
volume above 3 CCF.
WHAT USAGE LEVELS WOULD BE PRICED AT HIGHER RATE BLOCKS?
There is no one single way to set ~he second, third, or fourth block volumes.
Many design options and strategies exist for setting up an effective increasing block rate
structure. However, to provide a suggested answer to this question, my explanation will
use a hypothetical three-block rate structure as an example. Other options exist (e.
different volume threshold strategies, additional blocks).
I would suggest that the secondblock include a volume of water that would
sufficient to allow average, efficient outdoor use in Boise. This can be done by carefully
assessing average customer use patterns in summer months. Alternatively, the second
22" block volume can be set by calculating an allocation of water that would sustain an
efficiently-watered average landscaped yard in UWI's service area (using
Wojcik, Di. 8
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943
evapotranspiration data for common vegetation choice( s) and average lot size or irrigable
area per customer).
Arty water use that exceeds this second block volume threshold would fall into the
third block, which could be set at the point where the customer starts using indoor and
outdoor water that exceeds the average needs ofUWI customers. Therefore, this is the
point where the strongest conservation price signal should be sent (assuming a three-
block structure).
However, once again, there is no "magic number" for setting block volumes and
prices. Additional blocks can be used to encourage efficient use within the range of
average outdoor water use. Or, as in some cities, an additional "penalty block" is used to
reach customers who use very excessive volumes of water (well above the average indoor
and outdoor volume thresholds).
ARE YOU CONCERNED THAT CUSTOMERS WILL NOT KNOW AT
WHICH POINT IN THE MONTH THEIR USAGE HAS MOVED INTO A HIGHER
RATE B LOCK?
This is frequently raised as a concern with respect to tiered rates. However, many
water providers throughout the interior West have recently instituted increasing block
rate structures. In the Front Range of Colorado, nine of 12 large urban water providers in
a recent sampling are using increasing block rates. 'In a similar recent effort in Utah
eight of 12 apply increasing block rate structures. See Exhibits 402 & 403; full reports
available at thttp://www.westernresourceadvocates.org/water/).
Customers in these cities have "learned"the charging mechanisms, monitored
water use via bills, and adjusted their use ,accordingly. Also, as with any rate structure
Wojcik, Di. 9
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944
, 23
change, the corresponding utility holds the responsibility of preparing customers for the
chan~e via appropriate public relations work in the months that precede the change.
Customers typically become much more attentive to their water use when a new
rate structure is enacted. In most cases, customers monitor and learn their use patterns by
viewing their billing statements on a monthly basis. Thus, with any rate structure
change, a clear and explanatory billing statement is vital. Most cities with increasing
block rates send bills that clearly define the blocks and indicate where an individual's use
is with respect to the blockvolumes.
If a customer s use extends slightly into the next block, only the volume of use in
that higher block is billed at the higher block rate. Therefore, this customer s resulting
water bill will only be increased by a small amount (by the gallon or CCF amount billed
at the higher block price). Unless the commodity charge increases from block to block
are excessive, the true "price signal" of an increasing block rate structure only becomes
strong or noticeable when a customer s water use extends well into the higher block(s).
DO YOU RECOMMEND UWI ADOPT A MORE FREQUENT BILLING
CYCLE?
Yes. Bi-monthly billing cycles can be counter-productive to water conservation
efforts. As mentioned above, customers interested in conservation or saving money adjust
their home water use on an incremental basis, in response to the consumption reported in
each billing statement. This practice is particularly common during the summer irrigation
months, when urban water use peaks. With a bi-monthly billing cycle, the summer could
be half over by the time customers are notified of their recent consumption quantities.
This may preclude many customers from making more efficient water use decisions
945
Wojcik, Di. 10
Idaho Rivers United
earlier in the summer during the high water.;.use months. Therefore, I recommend that
UWI switch to a monthly billing process. While I recognize this will increase billing
costs, monthly billing is a reasonable and common practice across various utilities.
The bottom line, however, is that customers need to be able to better track their
usage over shorter periods of time than bi-monthly billing alloWs. Advanced meters that
allow for automated meter reading (AMR) can also provide customers with up-to-the-
minute water usage information via remote electronic monitoring devices placed inside
their homes. The City of Aurora, Colorado (suburban Denver) recently implemented a
rebate program for these in-home usage monitors, which sell for about $55. Other cities
have also considered this measure. An investigation into AMR in UWI's service territory
may be warranted as an alternative, or in addition to, more frequent billing.
II. Conservation Programs
PLEASE OUTLINE THE COMPONENTS .OF A SUCCESSFUL UTILITY
CONSERVATION PROGRAM:
For a conservation program to be effective, four types of policies, incentives, or
practices need to be in place:
Water pricing incentives (via an increasing block rate);
Rebate and retrofit incentives for indoor water saving appliances/fixtures
landscaping, and irrigation system controllers and sensors;
Regulations (e., plumbing, landsc~pirig, and water-waste code); and
Education
Two principles should guide these types of programs. First, it is very important
for a utility to send a consistent message of efficiency. To achieve this consistency, all
attributes that affect customer end use should send a similar message that promotes
conservation, including the rate structure, conservation incentive programs, development
Wojcik, Di. 11
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946
, 12
and water use regulations, and education programs. Second, and more importantly, water
customers are human. Therefore, every customer possesses his/her own unique
behavior/action "trigger Some respond solely to pricing, or perhaps other monetary
incentives: Others may not be reachable except through regulatory controls. Yet, for
others, all it may take is an education effort to affect their water use behavior.
DO YOU BELIEVE UWI'S CONSERVATION PROGRAM OFFERS A
REASONABLE RANGE OF OPPORTUNITIES FOR CUSTOMERS TO LOWER
THEIR USAGE, AND THEREFORE MAINTAIN OR LOWER THEIR BILLS?
PLEASE EXPLAIN.
No. In practice, UWI's current program only employs one of the four program
components I listed above: education. Based on UWI's 1993 conservation plaJ;l and
infonnation provided in this case, UWI's conservation program is insubstantial compared
to most other large interior West cities (e., Denver, Albuquerque, Santa Fe, EI Paso
Salt Lake City, Tucson, Las Vegas, Colorado Springs, and Boulder). UWI's response
Staffs Production Request Number 43, including a summary ofUWI's 1993
conservation plan, is attached hereto as Exhibit 405. UWI's response to IRU's Production
Request Number 5, which outlines the UWI's recent resource planning efforts , is attached
hereto as Exhibit 406.
The education component ofUWI's water conservation program can be
considered commendable and acceptable in terms of comprehensiveness (via website
classes, etc.). However, since customers must be rather self-motivated to seek education
on water conservation, these programs only tend to tap a small percentage of customers.
Bill flyers, m~dia campaigns, and other widespread education efforts certainly "reach"
Wojcik, Di. 12
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947
more customers, but the resulting water savings from such efforts is not easily
documented or proven. Indeed, it is inherently difficult to measure the effectiveness of
education program in actually achieving water savings.
UWI does have a water conservation kit program as well as a water audit
program, which technically falls under the category of customer education~ However
based on the very low participation rates of these programs, it appears that program
, 7 promotion is not nearly adequate and/or the customers are not sufficiently aware of any
incentives to participate. UWI's response to Idaho Rivers United's Production Request
Number 2 is attached hereto as Exhibit 407. According to that response, only 23 Indoor
Conservation Kits, 29 Outdoor Conservation Kits, and 55 Precipitation Kits were
distributed in 2003, with similar results in 2004 (prior years were not tracked). It is
likely that in most cases the same customer requested the indoor and outdoor kits
simultaneously. Thus, in 2003 and 2004, only 0.06% ofUWI's 75 400 customers
14 . benefited from the indoor/outdoor conservation kit program (or, this translates to 0.07%
ofUWI's 65 210 residential accounts if these kits were only distributed to residential
customers). Relative to water use by all customers, the resulting water savings from
these programs is statistically negligible.
UWI's voluntary water audit program is also realizing low participation numbers.
As provided in response to production reqllests, only 311 water audits were performed
from 2000 through 2004. Exhibit 408 (UWI's response to Idaho Rivers United'
Production Request Number 3). This amounts to a participation rate of 0.4% ofUWI's
400 customers over this five-year period (or, 0.5% ofUWI's 65 210 residential
23'customers). All in all, these extremely low participation numbers clearly indicate that
Woj cik, Di. 13
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948
UWI customers are not being adequately reached by the audit and conservation kit
programs.
ARE THERE ADDITIONAL CONSERVATION PROGRAMS UWI COULD
WP LEMENT?
Yes. Some examples of other programs and policies not utilized by UWI are:
Ultra low-flush toilet rebate program
High-efficiency clothes washer rebate program
Landscape rebate program (i., for replacing turf with Xeriscaping, or installing
low-water use trees/shrubs)
Irrigation controller rebate program
Soil moisture sensor rebate (for irrigation system)
Evapotranspiration controller rebate (for irrigation system)
Water use monitoring meter rebate program
Large water user audit program (voluntary or mandatory for high-volume Cll
customers)
Large water user savings incentives (e., water bill credits in return for efficiency
upgrades on high-volume Cll accounts)
Water-wise landscaping ordinance for new development (would necessitate City
of Boise involvement)
Water-wise building codes and plumbing codes that exceed the requirements of
the 1992 Energy Policy Act
The starting point for consideration of such pro grams would be an update and
renewal ofUWI's 1993 conservation plan. I recommend the Commission direct UWI
draft a new conservation plan (including a cost comparison between supply versus
demand-side resources) and submit the plan for the Commission s review as soon as
possible.
949
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ARE THERE ANY BARRIERS TO UWI INSTITUTING THESE PROGRAMS?
Yes. The most obvious barrier is that UWI (as an investor-owned utility) can
only lobhy for regulatory changes, such as landscaping codes. Relative to other city-
owned utilities, UWI is at somewhat of a disadvantage in forming a conservation
program that includes municipal regulatory controls on land use and development.
In addition, UWI does not have a dedicated source of funds for conservation
programs, such as a tariff rider collecting a small percentage of revenues each month.
UWI's renewed conservation plan should include an analysis of how best to cover
conservation program costs.
ARE THE CONSERVATION PROGRAMS YOU OUTLINED ABOVE COST
EFFECTIVE?
In general, yes. There is always a risk that programs can be mismanaged, or
under-advertised and simply not reach consumers. But the very nature of water supply
and water use in the West informs us that conservation is an economically appropriate
investment. Unlike electricity supplies, which ,can be expanded, water supplies are finite.
Given th~ finite nature of water in the semi-arid and arid interior West, the cost of
developing and supplying this finite resource will continue to increase as demands
increase. Burgeoning urban populations in our interior West cities combined with
predictable drought cycles will continue to pressure water utilities to seek new supply
sources as long as our current per capita demands persist.
However, water conservation, and subsequent demand reduction, can playa
22,significant role in offering a solution to this finite resource problem. With urban
population growth and drought cycles being virtually inevitable in most interior West
950
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. 18
urban centers, aggressive conservation efforts can serve as an alternative and more cost-
effective source for meeting the demands brought by new growth. In fact, just as
traditional procurement and development of new water ~upplies will undoubtedly
~ increase over time as more of the finite resource is tapped, the cost of water conservation
will likely decrease due to improved technology, more water-wise policies, and an
improved public awareness.
Various, municipal water utilities around the region have reported that
conservation efforts are becoming notably more cost-effective than traditional supply
development options, when compared in dollars per acre-foot. The time and costs of
environmental pennitting, infrastructure expansion, and other displaced economies (e.
recreation, tourism, etc.) are only a few of the attributes to the increasing costs of water
supply development. Unfortunately, a lack of conservation program monitoring and a
relatively short history of water conservation implementation, has yielded a significant
data gap" in the water supply industry. Unlike with traditional supply options, accurate
and reliable cost-effectiveness data for water conservation options is rather limited.
However, more and more water utilities that see the potential water savings and
subsequent cost savings brought by active conservation are beginning to implement and
closely-monitor a wide variety of conservation measures.
The City of Albuquerque is a good example of cities that are actively utilizing a
comprehensive conservation program as a primary and cost-effective future supply
source. Although Albuquerque is experiencing steady population growth, it has managed
to address the water needs of most of this growth via demand reduction per capita. From
1995 to 2004, the City reduced its system-wide per capita demand by 28% and has set a
Wojcik, Di. 16
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951
target to reach 40% reduction by 2014. In 1995, Albuquerque consumed over 125 000
acre-feet of water. Ten years later in 2004, the city consumed roughly 110 000 acre-feet
of water. Over this same period oftim~, Albuquerque s growth yielded roughly 25 000
new water accounts (from approximately 135 000 accounts to nearly 160 000 accounts).
Albuquerque s wide-reaching conservation program and water-wise development
standards played a vital role in this effort, which included indoor and outdoor rebate
programs and incentives, education efforts, and aggressive media campaigns. During
this 10-year time period when Albuquerque s conservation program took hold, the
program accounts for the installation of more than 48 500 ultra-low-flow toilets, 6 146
high-efficiency washing machines, 9 964 low-flow showerheads, 643 high-efficiency
dishwashers; and 271 hot water recirculation systems. . Albuquerque utility staff
conducted 9 733 residential water use audits up to mid-2004.
WHAT IS YOUR RECOMMENDATION TO THE COMMISSION?
I recommend the Commission find that UWI should implement a variety of
modifications to its water rate structure, conservation program, billing, and long-range
planning. Instead of raising rates across the board as proposed (increases in bi-monthly
fixed charge and winter and summer commodity charges), I recommend the Commission
order UWI to do the following:
(1) Modify water rate structure to an effective increasing block rate structure, with a
minimum of three blocks/tiers and block prices that reward for conservation and
charge notably higher commodity rates for high-volume use.
(2) Set an initial low-volume indoor block at the average indoor use volume for
residential customers. Ideally, this block price should be set at or below cost to
provide a reward incentive for low-volume or conserving customers.
952
Wojcik, Di. 17
Idaho Rivers United
(3) Institute monthly billing to give customers more frequent opportunities to monitor
water use and make appropriate adjustments from month to month.
(4) Develop and submit for Commission approval an updated and comprehensive
conservation plan as soon as possible following this case. This plan should
. include a cost comparison between supply versus demand resources, and also
analyze means of funding additional further conservation program costs.
(5) Implement the new conservation plan to effectively encourage efficient water use
by all customers and provide incentives and opportunities for customers to
mitigate the financial impacts of increased water rates. Work with the City of
Boise Planning and Development Services Department and the Boise City
Council to consider a water""wise landscaping ordinance for new development and
establish a higher level of water-efficiency in the Boise plumbi~g code.
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes
Woj cik, Di. 18
Idaho Rivers United
953
(The following proceedings were had in
open hearing.
(Idaho Rivers Uni ted Exhibi t Nos. 401
through 408, having been premarked for identification, were
admi t ted into evidence.
Thank you.And Mr. Woj cik is openMR. EDDIE:
for cross-examination.
COMMISSIONER KJELLANDER:Thank you.Let's start
wi th Mr. Strickl ing.
MR. STRICKLING:Thank you , Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. STRI CKLING :
Mr. Wojcik --
COMMISSIONER KJELLANDER:We're going to need
your microphone.
MR. STRICKLING:There we go.Thank you,
Mr. Cha i rman .
Mr. Woj cik, you indicate inBY MR. STRI CKLING :
your testimony that you're recommending water wise landscaping
ordinances and water wise building codes and plumbing codes be
assessed and perhaps passed by the Ci ty involved in this case.
Are you aware of
- -
do you have model ordinances?
Are you aware of sites that would have those that we could
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provide to the Company and the Ci ty?
Yes, and that is one of the reasons for the
recommendation.It's based on researching and assessing other
ordinances and policies in other cities and other communities
for indoor use via the plumbing codes , and also, more
importantly, for outdoor use, and that's the landscaping
ordinances.And there are several popping up around the
Interior West.
There is
- -
for example, the State of Colorado
has a model landscaping ordinance that they promote to their
municipalities within Colorado that I s accessible via the
Department of Local Affairs.I could provide that information
afterwards if need be.It's the Web si te information.
There are other cities throughout the region, a
few in the Sal t Lake Metro area.The primary water provider in
the Salt Lake Metro area, Jordan Valley Water Conservancy
District, has a model landscaping ordinance.
Many of these focus more on commercial use, but
more and more are getting into residential use via municipal
ordinances in place.
What are those ordinances geared towards, what
type of landscaping?
There are different -- it varles from city to
city that use these.Some of theme have - - there's usually
three components.One is just basic soil preparation for new
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WOJCIK (X)
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development.Other ones get into the vegetation type, the
species selection to be more xeric or more native landscaping,
as opposed to nonnative, water-loving vegetation such as
bl uegrass And the other components get into irrigation
systems, efficient irrigation of the landscape regardless of
the vegetation choice.And there's different levels of these.
Some promote all three and some only tackle one of those three
And I think that answers.And al so, once againcomponents.
commercial and more and more into residential sectors.
Okay.And in your testimony, you talk about some
of the barriers to Uni ted Water insti tuting programs, and one
of them is that they own the water system and the City
doesn'
Right.
water entity
city?
Yes, definitely, and given the situation as you
Do you think it's critical for a municipal or a
to be involved in the land use planning of a
mentioned with United Water and the City of Boise being two
distinct or separate organizations or entities, it would be a
little more challenging in this case, but there are ways to set
up some type of coordination or liaisons between the two,
because land use decisions directly affect water use, so that
lS an important connection to make.
Okay.And in the passage of conservation
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IRU83701
programs al so, et cetera, et cetera?
Yes, and that would be primarily more on the
shoulders of the Utility, as opposed to a City ordinance, for
example.
Thank you.
MR. STRICKLING:I have no further questions.
COMMISSIONER KJELLANDER:Thank you.
Mr. Purdy.
I have just one.MR . PURDY:
CROSS - EXAMINATION
BY MR. PURDY:
Mr. Woj ik, from the perspect i ve of Uni ted
Water's low- income customers, and assuming that their level of
usage is relatively low , does shifting utility cost recovery to
a fixed charge or a customer charge , in effect, unfairly
penal i ze those low- income , low-usage customers?
I think it would be
- -
I'd have to qual i fy the
response with that in assuming that you re talking about low
water use customers, because I don t know the correlation of
low income versus low water use.In fact, I disagree wi th some
of those correlations in previous testimony.
But putting the fixed charges on low volume
customers , that does put a -- it's basically allocating costs
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WOJCIK (X)
IRU
across all customers, and those that are uslng less or are more
efficient or are conserving are technically being penalized
with the higher fixed charge that's spread across all
customers, if that makes sense.
Would you agree with me or
- -
and if you don'
have the background in this area , then please say so
- -
but
low- income customers typically don't have, for instance , large
landscapes that they water, large lawns or gardens that they
Would you agree with that?water?
I don't have any documentation or proof of that,
but I would guess from anecdotal experience the higher volume
water users are not necessarily correlated to low- income users.
In other words, those wi th larger lots, wi th larger
landscaping, more water use , particularly discretionary water
use being outdoor use, does not necessarily correlate to
low- income customers.
That's all I have.Thank you.MR . PURDY:
COMMISSIONER KJELLANDER:Thank you.Let's move
now to is it Mr. Stutzman?
MR. STUTZMAN No questions, Mr. Chairman.Yes.
Okay.And let's moveCOMMISSIONER KJELLANDER:
to Mr. Miller now.
MR. MI LLER :No questions.Thank you.
COMMI S S IONER KJELLANDER:Do we have any
questions from members of the Commission?None., one.
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Commissioner Smith.
EXAMINATION
BY COMMISSIONER SMITH:
I looked at your Exhibit 404 which was used
previously in this hearing, and I thought I had
- -
there was
some breakthrough if I looked at residential and there was a
Jump between six percent and 12 percent in summer usage , that
would be a good break for an initial block, but then I noticed
that that's because it jumps from five ccf to ten , correct, and
if those other numbers were there, we would just see it as
gradual incline?
m sorry, I don t have the exhibi t in front of
me at the moment.
Oh.404.
404.Okay.
You see there on the summer residential use?
Yes.
It goes from six to 12?
Yes.
But that's just because you jumped from five to
Right?ten.
Yes, I bel ieve so.
So there aren't any real or natural break
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IRU83701
points in terms of consumption?
There's no clear break point , no.No.
Okay.Thank you.
COMM IS S lONER KJELLANDER:Ready now for redirect.
MR. EDDIE:I have no redirect.
COMMISSIONER KJELLANDER:Thank you.
MR. EDDIE:May Mr. Woj c ik be excused?
COMM IS S lONER KJELLANDER:Yes.
(The wi tness was excused.
COMMISSIONER KJELLANDER:Okay.All right, let'
return now to the remaining rebuttal witnesses for United
Water , and I believe we were ready to call Mr. Wyatt.
GREGORY P. WYATT
produced as a rebuttal witness at the instance of United Water
having been previously duly sworn , resumed the stand and was
further examined and testified as follows:
DIRECT EXAMINATION
BY MR. MILLER:
Sir, would you state your name , please?
Gregory P. Wyatt.
You're the same Gregory Wyatt that previously
submitted direct testimony and provided direct testimony in
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HEDRI CK COURT REPORTINGP. O. BOX 578 , BOISE , ID 83701
WYATT (Di -Reb)
United Water
thi s case?
That's correct.
Did you also have occasion to prefile wi th the
Commission certain written rebuttal testimony consisting of
26 pages and not accompanied by any exhibits?
Yes, I did.Tha t 's correct.
And are there any addi tions or corrections that
need to be made to your written rebuttal testimony?
Yes, there are.
I would direct your attention to page 2 , to begin
with , and beginning with line 16, it reads "Company's final
recommendation of a revenue increase of 6, 785,523 . "That
number should be "607 040.
On line 17 , the "21.51" percent figure should now
read 1 7 . 7
- -
excuse me - "1 7 . 7 8" percent.
And putting aside minor adjustments, can youQ .
explain the reason for the changes in those numbers?
Certainly.Most significantly, it has to do
those updated numbers have to do with the Stipulation reached
between the Company and Staff wi th regard to the cost of
capi tal, as well as some other minor adj ustments that have been
agreed to between Staff and the Company.
Very good.Do you have any additional changes?
I do.
On page 3, ine 6, the figure there,
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HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE, ID 83701
WYATT (Di-Reb)
United Water
"140,652 083 II figure should be "140 148 049.
And it should then read II an increase of almost
42 percent II rather than "more than.
All right.Any additional?
I have another correction on page 15 of my
rebuttal on line There was an omission in the transcript on
line It should read "can be attributed to higher summer
rates and the implementation of dual irrigation systems.
And I have one final correct ion on page 25,
line Right at the beginning of that line it says "that is
in. Strike the word II is II and insert the words "i t be.
And that's all of my correct ions.
Very good.Having in mind those correct ions , if
I asked you the questions that are set forth in your written
rebuttal testimony, would your answers be the same today as
they are written in your rebuttal testimony?
Yes , they would.
And are those answers true and correct, to the
best of your knowledge?
Yes, they are.
MR. MILLER:Wi th that , we would ask that the
testimony - - rebuttal testimony
- -
of Mr. Wyatt be spread on
the record as if read, and Mr. Wyatt would be available for
cross -examination.
COMMISSIONER KJELLANDER:Thank you.Wi thout
962
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
WYATT (Di-Reb)
United Water
obj ection, we'll spread the rebuttal testimony of Mr. Wyatt
across the record.
(The following prefiled rebuttal testimony
of Mr. Wyatt is spread upon the record.
963
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WYATT (Di-Reb)
Uni ted Water
Please state your name.
Gregory P. Wyatt.
Are you the same Gregory P. Wyatt who previously filed direct
testimony in this case?
Yes, I am.
What is the purpose of your rebuttal testimony?
My rebuttal testimony summarizes the Company s overall objection to
the Staff's use of a 13-month averaged rate base in this case. I will
also provide an overview summary of the other rebuttal witnesses
offered by the Company in this case and I will respond to certain
issues expressed by Staff witnesses Lobb, Sterling, English and Idaho
River s United witness Wojcik. More specifically, Iwill:
Contrast Staff's recommended revenue requirement in this case
with the Company final proposed revenue requirement and
summarize the Company s view that adopting a 13-month
averaging of rate base denies the Company the opportunity to earn
the return the Commission may authorize in this case.
Respond to Mr. Sterling s and Mr. Wojcik'discussion and
proposal regarding United Water adopting monthly billing.
Respond to Mr. Wojcik's recommendations regarding United
Water s conservation efforts.
964
Wyatt, Re
United Water Idaho Inc.
Respond to Mr. English's recommendation to remove payroll and
associated costs related to the Company s recently hired Public
Affairs Manager.
What else is included in your rebuttal testimony?
I will comment on the written consumer comments received by the
Commission regarding the filing of this case. In addition, I will
respond to Staff Witness Cooper s comments regarding the
Company s proposed tariff changes and proposed miscellaneous
charges.
Company Rebuttal Case
What is Staff's ultimate recommendation in this case?
Staff recommends an overall revenue increase of $570 837 or a 1.8%
increase over current rates, (Harms Di. Pg. 3). This contrasts to the
Company s final recommendation of a revenue increase of $6 785 523
or a 21.51 % increase over current rates, (Healy Re. Exhibit No.2).
What is the Company s view of the Staff's ultimate recommendation?
The Company believes Staff's recommendation is seriously flawed
and grossly insufficient primarily due to Staff's use of a I3-month
average rate base methodology. The Company strongly believes that
Staff's recommendation denies the Company the opportunity to earn
the return the Commission may authorize in this case. The primary
driver of this case is the recovery of investments made by the
Company since its last case in utility plant that provides service to the
965
Wyatt, Re
United Water Idaho Inc.
public. In Case No. UWI-OO-l the Company s approved rate base
was $98 862 937. The Company s per books rate base as of July 31
2004 was $113 575 180, an increase of almost 15%. With the post-test
year addition of Columbia Water Treatment Plant and other facilities,
the Company s final recommended rate base in this case is
$140 652 083, an increase of more than 42% over the 2000 rate base.
With only a few limited exceptions, Staff does not contend any of this
investment is not used and useful in service to the public. In light of
this, Staff's recommendation , on its face, is unreasonable and punitive.
It is also impossible to contend, and Staff does not suggest, that
customer growth since the last case has produced revenue sufficient to
cover this investment to the extent that only a 1.8% increase is
necessary.
How does Staff manage to arrive at this seemingly illogical result?
Primarily, by changing the ratemaking rules. In each of United
Water s four previous rate cases since 1993 the Commission has
employed a year-end rate base methodology adjusted for known and
measurable pro-forma additions. In this present case however Staff
proposes changing to a 13-month average method for computing rate
base. As admitted by witness Harms, solely due a change in
methodology, Staff's proposed rate base is approximately $12 million
less than the May 31 , 2005 pro-forma rate base filed by the Company
966
Wyatt, Re
United Water Idaho Inc.
and reduces the revenue requirement by about $2 million (Harms Di.
Pg. 7-8).
As a result of Staff changing to a 13-month average rate base
methodology, what happens to the rate base investments the Company
has made that are not included by Staff in this case?
These water plant investments that are in service and providing
benefits to customers will not be included in the earnings base, for no
good reason other than a change in regulatory methodology. Twelve
million dollars of investment actually made in plant that is used and
useful is effectively vaporized in this case, simply by changing the
ratemaking rules.
Did the Company have any way of knowing that the ratemaking rules
might change in this case? Please explain.
No. The Company first learned of Staff's proposed change upon
reading Staff testimony. In several conferences with Staff, both before
filing our case and after, this was never suggested.
Did the Company understand the Commission s decisions in the
recently completed Idaho Power Company and Avista rate cases to
mandate use of an average year methodology for all utilities?
No. In those Orders the Commission expressed concern about possible
mismatches of revenue and expenses with investments and the
Commission advised Companies that appropriate adjustments should
be made to guard against such mismatches. United Water has
967 Wyatt, Re
United Water Idaho Inc.
attempted to comply with that directive in this case. Neither Order
however, expressed the intent to use the average year methodology for
all utilities in all cases.
Does the Company provide further evidence on this issue in its rebuttal
case?
Yes. Dr. Dennis Peseau, the Company s expert consultant, provides
extensive testimony. Dr. Peseau demonstrates that the change in
methodology denies the Company the opportunity to earn a reasonable
return on capital actually invested and may actually be confiscatory.
He further demonstrates that Staff's attempt to apply the 13-month
average methodology while purporting to match revenues and
expenses is plagued by inconsistencies and mismatches of
investments, revenues and expenses. As a result, he recommends that
the Commission not adopt Staff's proposed change in methodology.
Please provide an overview of the other issues addressed in the
Company s rebuttal case.
Mr. Jeremiah Healy addresses adjustments to results of operations
proposed by Staff witness English and demonstrates that many of the
adjustments proposed by Mr. English are not supported by sound logic
or consistent application of ratemaking principles. Mr. Healy also
responds to expense and rate base adjustments proposed by witness
Sterling. Company witness Scott Rhead further responds to
adjustments proposed by Witness Sterling. The Company s expert
968 Wyatt, Re
United Water Idaho Inc.
consultant Pauline Ahem addresses the cost of capital
recommendations of Staff witnesses Carlock and Hall, demonstrating
that Staff's recommendation regarding cost of equity is unreasonably
low. The Company s consultant Mr. David Degann, an expert in
pension accounting, addresses Mr. English's adjustments with respect
to pension expense.
Monthly Billin2
Please summarize the testimony of Witness Sterling regarding monthly
billing.
Witness Sterling proposes that before any consideration be given to
changing United Water s current rate design, the Commission first
decide whether the practice of bi-monthly billing should be continued
(Sterling Di. Pg. 59-60). He goes on to state that monthly billing could
relieve at least some of the burden of extremely high summer bills for
many customers, (Sterling Di. Pg. 60), and that the more current price
signal sent by monthly billing would provide customers with just as
strong of a conservation message as with bi-monthly billing, (Sterling
Di. Pg. 61). Finally, witness Sterling notes that the Company
estimated operating cost of implementing monthly billing would be
086 000 per year, which would require an increase in the
Company s annual revenue requirement of approximately 3.4%
(Sterling Di. Pg. 61).
969 Wyatt, Re
United Water Idaho Inc.
Please summarize the testimony of Witnesses Wojcik regarding
monthly billing.
Witness Wojcik claims that bi-monthly billing cycles can be counter-
productive to water conservation efforts (Wojcik Di. Pg. 10), but
offers no supporting evidence for this claim. Mr. Wojcik recommends
that United Water switch to a monthly billing process because he
believes customers need to be able to better track their usage over
shorter periods of time than bi-monthly billing allows (Wojcik Di.
Pg.ll).
Was there any other testimony submitted that touched on the issue of
monthly payments of customer bills?
Yes. Witness Teri Ottens, of Community Action Partnership
Association of Idaho (CAP AI) made a recommendation relating to
monthly payments. Witness Ottens stated that
, "
CAP AI believes that
the Commission should consider a level or monthly pay program in the
future as another tool to assist low-income seniors , disabled and
families with their budgeting on water usage costs , (Ottens Di Pg.
11).
What is United Water s position on converting from bi-monthly to
monthly billing?
The Company agrees with witnesses Sterling, Wojcik, and Ottens that
monthly billing would send customers a more current price signal
970
Wyatt, Re
United Water Idaho Inc.
which may enable them to more effectively manage their water use
and that the corresponding monthly payments would enable customers
especially low income customers, to better budget for their water
usage costs.
Does United Water have a recommendation for the Commission in this
case with regard to converting to monthly billing?
Yes. United Water recommends the Commission approve the
following:
United Water convert from bi-monthly billing to monthly billing
for all customers as quickly as possible, but not later than six
months , after implementation of new rates in this case.
Authorize cost recovery in this case through inclusion in revenue
requirement of the anticipated $1 086 000 increased annual
operating costs associated with monthly billing.
What makes up the $1 086 000 increase in annual operating cost
associated with monthly billing?
Primarily the costs include increases in personnel for meter reading
and customer service, increased billing, postage, and collection costs,
and other related operating cost increases. Witness Healy explains
these costs in more detail in his Rebuttal Testimony.
Why should the Commission approve the conversion from bi-monthly
to monthly billing?
971
Wyatt, Re
United Water Idaho Inc.
There are several reasons. First, as other witnesses have testified, a
monthly billing regime will provide a timelier price signal to
customers than bi-monthly billing, especially during the high water use
summer months. A monthly bill, received closer to the consumption
period may afford customers the opportunity to adjust their water
usage patterns so as to,conserve water and lower their bills for water
service. Secondly, bi-monthly billing, combined with the current 25%
higher summer commodity rate, results in customers receiving bills
that can be difficult to budget for and pay, especially low-income
customers. For example, in 2004 the average residential bi-monthly
bill was about $52, and during the summer it can be well over $100.
With monthly billing, the customer s average bill would be cut in half
to approximately $26, and summer monthly bills would likewise be
more manageable. A smaller monthly bill would relieve some of the
burden of high summertime water cost for many customers.
addition, a smaller monthly bill should enable customers to more
adequately budget for their water service needs, and will enable lower
income customers to more readily pay for the water service they use.
What other ways can customers benefit by the change to monthly
meter reading and billing?
Monthly meter reading and billing creates a more useful water usage
history since there are twelve reading periods instead of six. This
history can enable a more accurate estimated monthly bill whenever an
972
Wyatt, Re
United Water Idaho Inc.
actual meter reading cannot be obtained. In addition, meter readers
will find customer leaks, high water usage, stopped meters, etc. more
readil y because they will visit customer sites twice as often. This
should reduce the number and severity of these kinds of customer
billing problems. Lastly, monthly billing provides the company with
twice as many opportunities to communicate to customers via bill
messages and inserts.
On what frequency do the other major utilities in United Water
service territory bill their customers?
All the major utilities in this area, including Idaho Power
Intermountain Gas , and Qwest, bill customers on a monthly basis.
Has United Water considered the options of either reading meters bi-
monthly and billing monthly or reading meters and billing monthly
only during the summer period as an alternate to year-round monthly
billing?
Yes. Staff's Production Requests No. 38 & 39 inquired about the
feasibility of those two options. With regard to the concept of reading
and billing monthly only during the summer, United Water strongly
opposes this option and believes that, while it might be a somewhat
lower cost option than full monthly reading and billing, it creates
significant major challenges including the following:
Temporary staffing would have to be hired, trained and then
dismissed every six months.
973
Wyatt, Re
United Water Idaho Inc.
Investments in equipment, purchased specifically for this purpose,
would then be idled for six months of each year. Examples are
vehicles , meter reading equipment, communications equipment
computer equipment, tools, and etc.
Billing protocols would have to be changed seasonally with the
associated cost of programming to accommodate monthly billing
(i.e. hillo parameters in reading and billing, schedules, due dates
past due processing).
Vendors would have to accommodate the seasonal fluctuation from
approximately 38 500 bills per month to 77 000 bills per month.
This option would cause significant customer confusion and would
require repeated customer communications regarding the billing
frequency and process.
United Water is also strongly opposed to the option of reading meters
on a bi-monthly basis but billing customers monthly in the summer
for example by billing half of the consumption each month or
estimating one month then adjusting to an actual read the next month.
United Water is not in favor of this scenario for the following reasons:
It would require a major change in the billing system software to
handle reading and calculating consumption but holding half for
later billing. It would require a significant capital investment if at
all possible.
974 Wyatt, Re
United Water Idaho Inc.
Billing, postage, and collections costs would double for half of the
year.
Temporary staffing would have to be hired, trained and dismissed
seasonally.
With all bills being estimated one month and actually read the
next, large numbers of accounts would require review and the
number of adjusted bills would likely skyrocket resulting in a huge
increase in customer calls and billing adjustments.
This option would likely cause significant customer confusion and
would require repeated customer communications regarding the
billing process.
If the Commission decides United Water should convert to monthly
billing what does United Water recommend be done about the
proposed bi-monthly 3ccf residential summer rate block proposed in
the low-income help program Stipulation dated March 23, 2005
between United Water and CAPAI?
If the Commission orders United Water to convert to monthly billing
the 3ccf residential summer rate block cannot readily be divided in
half for billing purposes. United Water therefore recommends that the
first block be set at 2ccf on a monthly billing basis. Since the 2ccf on
a monthly basis is greater than 3ccf on a bi-monthly basis, it is
expected that CAP AI would embrace the increased volume to be
priced at the lower first tier rate as proposed in the Stipulation.
975
Wyatt, Re
United Water Idaho Inc.
Conservation
Please summarize the testimony and recommendations of Witnesses
Wojcik regarding United Water s conservation programs.
Witness Wojcik states that an effective conservation program must
include four components: water pricing incentives (via an increasing
rate block), rebate and retrofit incentives, regulations (e., plumbing,
landscaping, and water-waste code), and education (Wojcik Di Pg 11).
Although he considers the education component of United Water
conservation program to be commendable and acceptable in terms of
its comprehensiveness , he does not believe the balance of the
Company s program and efforts are adequate in the remaining three
areas he cites (Wojcik Di Pg. 12-13). He offers eleven (11) examples
of other programs and policies that United Water could implement
(Wojcik Di Pg. 14), however he recognizes there are barriers to
implementation, including the fact that United Water, as an investor-
owned utility, can only advocate for regulation changes , such as
landscaping codes, and that the Company cannot establish municipal
regulatory controls on land use and development. He also
acknowledges that United Water does not have a dedicated source of
funds for conservation programs , such as a tariff rider (Wojcik Di Pg.
15). Witness Wojcik goes on to posit that the conservation programs
he outlines are cost effective (Wojcik Di Pg. 15), but beyond a review
976
Wyatt, Re
United Water Idaho Inc.
of Albuquerque s efforts (Pg 15-16), he does not offer significant data
to substantiate that claim. In fact he states:
Unfortunately, a lack of conservation program monitoring and a
relatively short history of water conservation implementations, has
yielded a significant "data gap" in the water supply industry. Unlike
with traditional supply options accurate and reliable cost-
effectiveness data for water conservation options is rather limited.
(Wojcik Di Pg. 16, Lines 12-15).
Witness Wojcik ultimately recommends that United Water develop
and submit for Commission approval an updated and comprehensive
conservation plan that includes a cost comparison between supply
versus demand resources, and that analyzes a means of funding
additional conservation costs. In addition, Wojcik recommends that
United Water implement the new plan, and work with the City of
Boise to consider a water-wise landscaping ordinance for new
development and establish a higher level of water efficiency in the
Boise plumbing code, (Wojcik Di Pg.18).
Do you agree with Mr. Wojcik's contention that United Water
conservation plan and efforts do not offer a reasonable range of
opportunities for customers to lower their usage, and therefore
maintain or lower their bills? Please explain.
No. As outlined in my Direct Testimony (Wyatt Di Pgs. 13-15),
United Water offers a variety of educational, product, and service
oriented water conservation programs to its customers. Although I
agree that recent customer response to certain portions of the
977 Wyatt , Re
United Water Idaho Inc.
Company s program has not been as high as we would like, i.
conservation kits and water audits, it is true that average residential
summer water usage has continued to decline over the years. As
shown by Company witness Gradilone s direct Testimony, Exhibit 6
Schedule 3, Page 6 of 25, average residential summer consumption has
declined from an historical high of 146 000 gallons in 1986-87 to the
current level of 115 000 gallons, or a decrease of more than 21
Certainly a portion of this decline may be weather related and some
can be attributed to the implementation of dual irrigation systems in
new development areas, but a portion must also be attributable to
water conservation efforts which were not actively promoted prior to
the late 1980'
Of the eleven (11) examples of other programs and policies that
United Water could implement proposed by Witness Wojcik, has
United Water reviewed any of these for implementation in the past?
Please explain.
Yes, at least four of the eleven were reviewed in the 1993 Water
Conservation Plan analysis prepared for United Water by Montgomery
Watson. They include the toilet rebate program, landscape retrofit
program, large landscape water audits (large water user audit
program), and low water use landscape ordinance.
Did the 1993 Plan recommend implementation of these four programs,
and If not, why not?
978
Wyatt, Re
United Water Idaho Inc.
, they were determined not to be feasible for United Water and the
Boise market based on the cost/benefit analysis conducted at the time
and United Water s limited ability to influence local land use
ordinances.
In his testimony Mr. Wojcik also refers to a rebate program for in-
home water usage monitors recently offered by the City of Aurora
Colorado , (Wojcik Di Pg. 11 , Lines 5-9), and then lists a water use
monitoring meter rebate program as one of the eleven (11)
conservation program options. Is it currently possible for United
Water to implement such a meter-monitoring device and rebate
program similar to the one in Aurora, Colorado? Please explain.
No. In response to United Water s First Production Request to Idaho
Rivers United, Request No.9, which asked if the Aurora device was
compatible with the United Water system at the same cost, Mr. Wojcik
replied
, "
The type of in-home usage monitoring device implemented in
Aurora, Colorado, would not be compatible with UWI's system unless
and until automated meter reading systems were implemented.
Do you agree with Mr. Wojcik's suggestion that the initial summer
block be increased by approximately three times the proposed 3ccf bi-
monthly quantity, (Wojcik, Pg. 7 , Lines 16-17)? Please explain.
No. The initial summer block, as agreed to in the Stipulation with
CAP AI, was not intended to equate to an average household use level
as offered by Witness Wojcik. On the contrary, the 3ccf bi-monthly
979
Wyatt, Re
United Water Idaho Inc.
quantity was proposed as a "life line" or "subsistence" level of
consumption in order to help primarily low income users, and was
never intended to accommodate all or average household usage. In
addition, if the Commission agrees that United Water should move to
monthly meter reading and billing, I have already stated in my rebuttal
testimony that the Company would accept a 2ccf quantity on a
monthly basis which is 33% higher than the amount stipulated to with
CAP AI on a bi-monthly basis.
Did Mr. Wojcik, or anyone else from Idaho Rivers United, participate
in the Commission sponsored "low-income assistance" workshop held
on February 23 2005 out of which the came the Stipulation referred to
in Mr. Wojcik's testimony, (Wojcik, Pg. 6, Line 27)?
No. Although the workshop was adequately noticed by the
Commission and also reported ahead of time in the Idaho Statesman
neither Mr. Wojcik nor anyone else from Idaho Rivers United attended
the workshop.
What is United Water s position regarding Mr. Wojcik'
recommendation that the Company develop and submit for
Commission approval an updated and comprehensive conservation
plan as soon as possible following this case, and that the plan should
include a cost comparison between supply versus demand resources
and also analyze means of funding additional further conservation
program costs, (Wojcik Di Pg. 18, Lines 3-6)?
980
Wyatt, Re
United Water Idaho Inc.
Basically United Water is in agreement with the recommendation.
The Company believes it should undertake the task of procuring an
outside consulting firm to assist in developing a new comprehensive
conservation plan, with the final plan and recommendations being
submitted to the Commission for review. It is unclear whether the
various conservation options identified by witness Wojcik are the most
appropriate, and the Company would like to see an analysis of the
viability and cost vs. benefits related to a wide range of conservation
options for its customers. The Company is, however, unsure how long
the consultant procurement process will take and is similarly unsure
how long such a comprehensive study will take. Therefore, the
Company recommends the Commission allow it the opportunity to
identify and interview potential consulting firms to determine timing
before establishing a deadline for the study completion.
What is United Water s position regarding establishing a means of
funding for its conservation study and eventual programs.
United Water believes the cost of obtaining an updated and
comprehensive conservation plan will be substantial and requests that
the Commission allow deferral for consideration of recovery in a
future rate case of all costs associated with the updated plan.
addition, United Water believes it is very likely that implementation of
new conservation measures and programs will result in significant
increases in ongoing operating costs. Therefore, the Company
981
Wyatt, Re
United Water Idaho Inc.
recommends that the study assess the likely costs associated with its
conservation programs and efforts and assess how best to cover
conservation program costs.
Is United Water aware of any other utilities that have an authorized
means of cost recovery related to conservation programs? Please
identify.
Yes. Idaho Power has an Energy Efficiency Rider, Schedule 91
which is applicable to all retail customers. According to Schedule 91
the energy efficiency rider is designed to fund Idaho Power
expenditures for the analysis and implementation of energy
conservation programs.
What is United Water s position regarding Witness Wojcik'
recommendation that the Company work with the City of Boise to
consider a water-wise landscaping ordinance for new development and
establish a higher level of water-efficiency in the Boise plumbing
code.
Although the Company can discuss land use issues with the City of
Boise, it is unsure what influence it may have in this area. The
Company believes that these two components along with others should
be considered inside the proposed comprehensive conservation plan
study that has already been recommended.
982
Wyatt, Re
United Water Idaho Inc.
Public Affairs Mana~
On what basis does Mr. English recommend eliminating the salary of
the Company s recently hired Public Affairs Manager?
First Mr. English claimed in his direct testimony (Page 11 line 19
through Page 12 , line 1) that at the time of filing his direct testimony
the position was vacant and that Staff did not know with certainty the
position would be filled, nor did Staff know the exact salary to be paid.
In fairness to Mr. English, he did acknowledge in response to the
Company s First Production Request No., that the Company
response to Staff Production Request Number 198, 1st update
indicating the position had a committed candidate and a known and
measurable salary of $56 500, was received late in their testimony
preparation but not included. However, the successful candidate did in
fact start his employ at United Water on Monday, April 18, 2005. This
leaves the second reason for the elimination of the expense, Mr.
English states
, "
Staff believes the duties of the position would include
that associated with corporate image and lobbying , (English Di
, pg
12). Mr. English incorrectly concluded from Company witness Healy
direct testimony and job advertisements in local newspapers that the
duties of the Public Affairs Manager are concerned exclusively with
lobbying and corporate image and thus should be eliminated. Neither
Mr. Healy s testimony nor the newspaper ads mentioned lobbying.
Wyatt, Re
United Water Idaho Inc.
983
Neither did Mr. English ever request a copy of the position description
for the Public Affairs Manager from the Company.
What are the primary responsibilities of the recently hired Public
Affairs Manager?
The responsibilities and duties cover three broad areas: media and
public relations , community relations and governmental relations. The
Public Affairs Manager is also responsible to supervise and direct the
Outreach and Education Coordinator, whose job includes all of United
Water s water conservation programs and educational activities.
Since you stated that governmental relations is one of the areas of
responsibility for the Public Affairs Manager, is Mr. English correct in
stating that
, "
a major portion of this position s responsibility will be
lobbying." (English Di Pg. 12 , Lines 20-21)? Please explain.
No. The major portion of the position s responsibilities will be media
public, and community relations, with only a small portion associated
with governmental relations. However, it must be recognized that
within the term "governmental relations" we mean relations with local
city and county officials as well as governmental regulatory entities
such as Idaho Department of Environmental Quality and Idaho
Department of Water Resources. All of these governmental entities
have both direct and indirect impacts on United Water s production
transmission and distribution of water to its customers, and the Public
Affairs Manager s responsibilities in communicating and maintaining
984
Wyatt, Re
United Water Idaho Inc.
effective relations with these kinds of governmental entities is integral
to those same activities.
What other activities will the Public Affairs Manager be involved with
that will directly affect customers?
Additional duties will include creating and managing the Company
communications with customers via bill messages, bill inserts
consumer confidence reports , paid media advertising regarding
company operational activities such as system flushing and water
conservation, any customer surveys the Company may perform, and
the like.
Can you cite an example of the type of local city and community relations
work the Public Affairs Manager position might be involved with in
the direct testimony of any party to this case?
Yes. In response to the question if there are any barriers to United
Water instituting some of the conservation programs he recommends
Witness Wojcik on behalf of Idaho River s United states
, "
The most
obvious barrier is that UWI (as an investor-owned utility) can only
lobby for regulatory changes, such as landscaping codes" (Wojcik Di.
Pg 15 ). United Water believes that the Public Affairs Manager
position will provide the Company with a resource to work with local
city officials and other community groups for changes that will benefit
our customers such as changes to landscaping codes.
985
Wyatt, Re
United Water Idaho Inc.
It would appear obvious that with the very real possibilities of United
Water moving to monthly billing and undertaking new and expanded
conservation efforts the Company s obligation and need to
communicate effectively with customers, the media, and governmental
entities will increase. The newly hired Public Affairs Manager will be
integral to filling this need.
What do you recommend the Commission do regarding Mr. English'
disallowance of salary and other costs related to the Company
recently hired Public Affairs Manager?
I recommend the Commission reject Mr. English's adjustment and
allow full recovery in revenue requirement of the Public Affairs
Manager position annual salary of $56 500 and all associated payroll
and benefits costs.
Customer Comments
Have you reviewed the comments submitted by customers regarding
the filing of this case?
Yes , I have read each of the written comments submitted by
customers.
Do you agree with Staff witness Carol J. Cooper s summarization of
those written comments?
Generally yes, and I'd like to point out one additional issue. Although
customers did express their concern with issues including the amount
of the increase and their ability to afford it, new growth, summer rates
986
Wyatt, Re
United Water Idaho Inc.
and the customer charge, there was virtually no dissatisfaction
expressed regarding the quality of water or service received from
United Water. In fact only 2 customers even noted anything about
water quality: one concerning "brown water" and another who disliked
the chlorine added for disinfection purposes. As evidenced by the lack
of comments, it is clear United Water s customers are satisfied with
the quality of water and service provided by the Company.
Revised Tariff
Please address Staff Witness Cooper s comment that no Company
witness sponsored the proposed tariff changes and her
recommendation that the changes made to the Water Main Extension
Agreement regarding "Umbrella Excess Liability" coverage be denied
because this substantive change to the Company s Rules and
Regulations was not explained.
Staff Witness Cooper is correct that no Company Witness sponsored
the proposed tariff revisions. This was an administrative error and the
Company now designates Witness Wyatt as the sponsor of all
proposed tariff changes. With regard to the change from $2 000 000 to
000 000 made to the Water Main Extension Agreement provision
regarding "Umbrella Excess Liability" coverage, the Company regrets
this was not highlighted in testimony. In fact, Company Water Main
Extension Agreements in use since late 1999 specify the higher
coverage be in place and the Company requires proof from contractors
987
Wyatt, Re
United Water Idaho Inc.
that is in place as was our practice with the Company s contractor for
main extension installations, Owyhee Construction, prior to the change
to labor and materials in lieu of cash as a result of Commission Order
No. 26898 where the Company was directed to permit subdivision
developers to provide labor and materials in lieu of cash. Upon
reviewing Company files , I have found that the Company sought to
revise this provision in August of 1999 when updating its Water Main
Extension Agreement to comply with Commission Order No. 26898.
have also found in Company files Rules and Regulations pages that
refer to the higher insurance limit signed by the Company President at
the time, William C. Linam. Apparently the Company began
implementing the higher limit in 1999 even though the Commission
never authorized it. This is regrettable.
Have developers or contractors complained about the higher policy
limits or notice period?
, upon internal inquiry I have not found a single instance in which
developers or contractors have complained about the higher insurance
limit. In addition, the higher insurance limit serves to provide an
increased level of protection to both customers and the Company from
contractor and developer fault. Similarly, the Company s proposal to
change the provision requiring a sixty-day (60-day) notice for
cancellation or material change in coverage to thirty days (30 days)
988 Wyatt, Re
United Water Idaho Inc.
merely adds to the protection of the Company and customers. Finally,
no developers or contractors have objected to the changes in this case.
What do you propose the Commission do regarding these two changes
to the Company s tariff?
I recommend the Commission approve these two changes because they
serve to provide added protection to both the Company and customers.
Miscellaneous Service Char2es
What is your position with regard to Witness Cooper
recommendations regarding the Company s proposed changes to
Miscellaneous Service Charges , (Cooper, Pg. 7, Line 1 to Pg. 8, line
17)?
The Company agrees with Witness Cooper s recommendation to
increase the returned check charge from $15 to $20. At this time, the
Company accepts Witness Cooper s other recommendations that the
charges for reconnection of service, after hours reconnection fee, and
premise visits to collect payment of bills remain at their current levels.
Does this conclude your testimony?
Yes.
989
Wyatt, Re
United Water Idaho Inc.
(The following proceedings were had in
open hearing.
COMMISSIONER KJELLANDER:And is it Mr. Walker?
No questions, Mr. Chairman.MR. WALKER:
COMMI S S lONER KJELLANDER:Mr. Purdy.
Yes, Mr. Chairman.Thank you.MR . PURDY:
CROS S - EXAMINA T I ON
BY MR. PURDY:
Mr. Wyatt, I want to ask you about the Agreement
that United Water entered into with Community Action
Partnership Association.Now , this Agreement obviously was
executed after the Company had pref iled its direct case.
that true?
Yes, that's right.
As I read through your rebuttal testimony, this
might seem ike a minor point, but I didn't see anywhere where
you specifically embrace it or adopt it, aside from the fact
that, of course, it's attached to a Stipulation.Should we
read into that any lack of support for the Agreement?
No, none whatsoever.
Okay.
I would just offer that , yes, my attorney did
sign it under the full authority of the Company and myself.
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HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID
WYATT (X-Reb)
United Water83701
Okay.Now , the Agreement itself, ofThank you.
course, we've heard testimony previously that I guess the
genesls for that was a February 23 , 2005, public workshop
conducted here , in fact, in this very room?
Yes, I believe that's where the public workshop
was held.
And you were in attendance at that workshop, were
you not?
I was.
Q. As was myself and Teri Ottens?
Yes.
And, in fact, Mr. Lobb and
- -
Randy Lobb - - and
other members of the Commission Staff were there as well?
Right , and a customer as well.
Right, and one member of the public.
Now , following that workshop, was there
essentially a negotiation process that ensued between Community
Action and United Water that led to this ultimate Agreement?
Yes, there was.There were numerous times when
Ms. Ottens and I spoke, both on the phone and through e-mail
and the discussions that we had really related to conceptual
designs related to the Stipulation Agreement and a
back-and-forth discussion on how it should be structured, what
it should include , what levels should be established , and how
the process could work.
991
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
So what you're saying is that the two parties
essentially fine-tuned the details of the Agreement?
I think that's a fair representation.
Okay.Was it your understanding based on
representations made by members of Staff at the public workshop
conducted on February 23rd that it was Staff's intention to
essentially not weigh in on the Agreement one way or the other
at that time?
Your recollection may be better than mlne.
don't have a specific recollection to that way, but I don'
have a recollection that would counter that either.
Okay.And , in fact, in the negotiation process
that followed the workshop, as far as United Water was
concerned, that was open to anyone who was interested in
participating, was it not?
Certainly, it was, as far as we were concerned.
Okay.I just want to talk a little bit now about
the respective components of the Agreement, starting with the
ini tial block rate design.And you indicated in your rebuttal
testimony that United Water proposed
- -
because it proposed
moving to a monthly billing cycle, you needed to tweak that up
to two ccf per month, and you characterize that
- -
and correct
me if I'm wrong - - as essentially a subsistence level of
consumpt ion.Is that right?
I think I use the word subsistence" and
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HEDRICK COURT REPORTING
P. o. BOX 578 , BOISE, ID
WYATT (X-Reb)
United Water83701
"lifeline.
And lifeline, okay.And, in fact, do you recall
in Ms. Ottens' testimony that the amount of two ccf
essentially, based on data I believe taken from the Department
of Environmental Quality, is the amount of water necessary
basically just to flush toilets and to bathe?
I remember her testimony along that line.
Do you have any reason to dispute that?
No, I don'
All right.Then , when we use the word
subsistence" wi th respect to this block rate, could you agree
with me that perhaps two ccf is not truly a subsistence level
of consumpt ion?In other words, one must do another than
simply flush a toilet and shower occasionally in order to have
a meaningful existence?In other words, you've got to have
potable drinking water , you have to do some dishes, some
occasional cleaning, that sort of thing?
Well , I'm not sure what the defini tion of
subsistence"really lS,nor do want even hazard a guess
however the level three ccf on a bimonthly basis two ccf
on a monthly ba si s was derived based upon data that did
procure from the Department of Environmental Quality's Web
site, especially the Department of Water Resources' Web site,
and it was intended as a start point in the program.I t was
intended as a way to begin to enable low- income customers
993
HEDRICK COURT REPORTINGP. O. BOX 578, BOISE , ID
WYATT (X-Reb)
United Water83701
have some level of reduction on those levels of their
consumpt ion.It was also factored in as part of a three-prong
approach in the Stipulation itself.It was not the entire
Stipulation Agreement.
I understand that and I appreciate what you'
My point is simply that isn't it possible that theresaYlng.
might be quite a buffer between two ccf per month and what
actually takes for a person to exist and to live a heal thy
life?
You know , I don't know that I know that for a
fact, so I'm not going to necessarily say that I can tell you
that I would agree.It is certainly a low volume of water , and
it is also
- -
if the Stipulation were to be agreed to amongst
all the parties and the Commission to approve it, it would be
available to all customers, low income or otherwise.
Correct.And, again, that level is based on
simply toilet flushing and showering.Correct?
I believe that's the data I used.
Thank you.Now , in testimony provided by
Mr. Sterling, Mr. Lobb, and also Mr. Wojcik , questions were
raised as to whether two ccf a month is an adequate initial
block.m not attempting to suggest that the Agreement
reached between my client and United Water should somehow be
stricken , but I'm just curious why -- whether United Water has
any resistance to increasing that block amount if not now, at
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HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
some point in the future?If you do have resistance, why?
I think Ms. Ottens actually phrased it pretty
well yesterday, when because of the discussions that we did
have together, this is a proposal for a start of a program.
It's unclear at this point whether that program will be
approved by this Commission.It would be I think wise for us
to, if it were to be approved by this Commission , to give a
little time and history and some actual data to be gathered
about the effects of and the impacts and the value and the
benefits to customers of the program.But I don't believe
ever said to Ms. at tens , nor would I say here , that we would
shut the door on ever considering a change in that number.
Fair enough.Let's talk brieflyThank you.
about the Uni ted Water Shares proposal.My first question
when the Company filed its direct case, it, I guess you could
say, opened the door to negotiations or the idea of discussions
regarding the needs of low- income customers.Is that true?
Yes.
When you made that statement in your direct
testimony, were you aware that the Communi ty Action Partnership
Association of Idaho had previously represented low-income
customers in the Idaho Power and Avista general rate cases?
, I was not aware of that.
Okay.Now , the Uni ted Water Shares program
purely voluntary with respect to ratepayer funding.Is that
995
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
true?
Yes.
Funding of the program as opposed to costs of
running the program?
If you re referring to contributions from
customers to help support the funds for the program for
low- income users.Is that correct?
Yes.
Is that what you're asking?
Yes.
Then , yes.
And the eligibility determination for the program
will be handled solely by the Community Action Partnership and
its constituent agencles.Correct?
I believe that's the proposal, yes.
And Uni ted Water has agreed to pay a ten percent
administrative fee.Has - - to Community Action for that
function.Has United Water requested recovery of that fee in
this rate case?
No, we have not.
Okay.
Nor have we requested recovery of the estimated
proj ection of $12 000 for customer communications regarding
getting the word out about the opportunity for low-income
customers to avail themselves of this program should it be
996
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID
WYATT (X-Reb)
United Water83701
, 19
approved by this Commission.
Thank you.That was my next question.
Moving on to the conservation kit and
conservation information aspects of the Agreement, I think it'
been established that Community Action will assist in the
distribution of these kits and information to low-income
customers who they come into direct contact wi th.Correct?
that your understanding?
That I s the understanding of that portion of the
Stipulation, yes.
What , just for those who might not know , what is
a conservation ki t
Well , the
- -
the current ones that we have been
historically uslng, there are indoor water saver kits which are
comprised of information and a package with low-flow shower
heads , faucet restrictors, I believe they include toilet dams
and I believe they also include some dye tablets that a
customer can use to try to identify leakage in their toilet.
So it actually is a give to a customer of devices that they can
install or have installed in their home for inside water use so
as to be able to lower their inside, indoor , water use.
There's also a kit which we just call it the
outdoor water kit, if you will , the outdoor user water kit.
also has a package of information on water saving ideas, tips
and information related to lowering a customer's water use out
997
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
of doors.It includes a -- I think it's a rain gauge kind of a
thing you can place in your yard to see how much water is being
placed on your yard by sprinklers.
And there's also a device that can be attached to
an outside hose spigot.Not all customers have automatic
sprinkler systems.Some customers still set a hose out and
irrigate that way and sprinkle that way, and this device goes
on their outside hose bib and it has a timer on it so that a
customer , when he or she wishes to water their lawn using a
hose, they can set that timer, and then if they want to go do
the dishes or cook or watch a ball game , they don't have to
think about comlng back to change the water setting.It will
turn itself off on time and it won't just run and run and run.
So it aids customers in the way they can manage their water use
out doors as well.
Are these kits currently otherwise available
Uni t ed Water customers?
They are currently available to United Water
customers now.
So the attempt with respect to this Agreement
to I guess reach a greater market , that being the low- income
customers of the Company?
Seeking to expand the distribution of those kits
and seeking to target the distribution of those ki ts in this
particular instance to lower- income customers.
998
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
WYATT (X-Reb)
United Water
And, in addi t ion to the se ki t s, there wi 11 be
literature provided about ways to conserve water as well?
Yes , in the kits already exist water-saving tips,
ideas, information about water use.
Okay.And Community Action has agreed to perform
the function of distributing these kits and information free of
charge without compensation.Is that right?
The Stipulation , as I recall it , states that
Community Action Partnership would distribute them.I don'
know about the rest of your question.I assume you're correct.
You have no reason to bel ieve --
I have no reason to believe any different.
All right.The issue of deferred billing was
brought up, and Ms. Ottens testified yesterday that when she
suggested the idea of a monthly billing, she was unaware of the
magnitude of costs and consequent rate increase that that might
result in; and I believe it's fair to say that her testimony
was that she would perhaps prefer a deferred billing kind of
So I want to ask you what the Company's posi tionarrangement.
is wi th respect to that kind of a mechanism.
And just so you know what I have in mind, I'm not
talking about eliminating the summer rate differential , and I'
not talking about a pure level pay based on your prior year I
consumption.m talking about perhaps allowing an additional
amount of time to pay a certain portion of that summer bill to
999
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
sort of ease the strain financially on customers.
Does the Company support or have a posi tion on
that kind of a proposal?
I believe that the Company already offers to
customers who have difficulty paying their bills deferred
payment arrangements.A customer who is having difficulty
paYlng a bill can call the Company's office and talk to any one
of our customer service representatives and enter into what is
called a - - what we call a deferred payment arrangement.As a
matter of fact , deferred payment arrangements are the
- -
the
number one kind of call we get in our office.Cus tomers are
already looking for a way to pay their bill on a more frequent
basis or on a stepped basis.And many customers do take
advantage of that deferred payment arrangements process that we
do provide currently.
What type of deferral do you offer under this
arrangement?
m not sure that I can g l ve you the exact
specifics related to the particular process.Our customer
service department can quote them much more clearly than I can
remember them.But the gist of it is that a customer who'
having difficulty paying their bill can avoid a termination of
water service by entering into a deferred payment arrangement
wi th the Company, we log that in , and then on a periodic basis
over the next several periods - - that's where I'm unclear , I
1000
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
don t know the number of periods
- -
over the next several
periods of time, whether that's months or bimonthly billing,
m not sure, they can then make a smaller payment to keep
their bill more current even though it may not be fully paid,
and thus they don't suffer a delinquent turnoff of their water
service.
Do you know if it's discretionary on the
Company I S part to offer this type of deferred arrangement?
I don't believe it's discretionary.
All right.Getting back , I forgot to ask you one
question about the conservation kits and dissemination of the
information.Do you see that as having a system-wide
benefit?
To the extent that the customers that recel
them are distributed throughout our system evenly or even
unevenl y, ye s .
To the extent you reduce consumption of water
whether it's for low lncome or any other customer, you I guess
defer at least the acquisi tion of higher-priced addi tional,
resources; supply?
Certainly that's one of the benef i ts of lowered
Throughout our entire system, we have needs forwa ter use.
additions of sources of supply from time to time.
Certainly.Now , I just want to touch briefly on
Ms. Ottens' testimony yesterday.Were you here for that
1001
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
testimony?
I was.
And do you recall cross-examination from Staff
Counsel regarding whether the Uni ted Water Shares program might
potentially not be cost effective , or something to that effect?
I remember a line of questioning along that line.
Okay.And, similarly, do you recall questions
from Commissioner Hansen regarding the effect that implementing
a lower-priced ini tial block would require that you spread the
lost revenue over the entire year , including the summer months?
Do you recall that?
Yes, I do.
And then on redirect, I asked Ms. Ot tens about
what the impact to ratepayers would be of these whether you
want to call them issues or concerns.Now , my intention was
not to be flippant to anyone, but to simply provide a context
to what the consequences of this would be , so let's take them
one at a time.
First, regarding the Uni ted Water Shares program
my question is , based on your personal experience , what is your
opinion as to the likelihood that this program will not be cost
effective; and by that, I mean it will actually lose money,
will cost ratepayers more than the benefits it produces?
m not quite sure I understand what you'
getting at, but I'll try to answer it this way:The allocation
1002
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
WYATT (X-Reb)
Uni ted Water
of the quote/unquote lost revenue across the rest of the rates,
both summer and winter , as I recall , amounted to about
$104 000.
Excuse me.I was asking you, first , about United
Water Shares.If we can do this one at a time.
Could you restate your question then?
Sure.The Company has proposed contributing
$10,000 for the year 2005 , and then on top of that will have to
provide bill stuffers and pay an administrative fee.Is that
right?
Yes , that's correct.
But the $10,000 comes directly from shareholders,
not ratepayers?
That I S right.
So the total ratepayer
- -
assumlng that somehow
you were able to recover this I guess in a future rate case,
the total exposure to ratepayers in terms of cost of
implementing this program the first year is the $12 000 for
bill stuffers and then the ten percent administrative fee.
True?
If the Company was filing for those costs in
rates, the answer would be yes.Given that the Company is not
filing for those costs in this case, the effect on ratepayers
is zero.
Okay.And so assuming a worst-case scenario , and
1003
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
that is that not a single customer contributes a single penny
toward this program, and assuming then that in the future you
applied for recovery of these costs, the total risk to
ratepayers is in the neighborhood of $12 000 plus 10 percent?
That's been the proposal for estimated costs of
communicating the program during the first year.
Okay.And the reason I asked yesterday, you
know , how that compared to your total revenue requirement
simply to 'point out, you know , is there really much of a risk
to ratepayers in implementing this program?
That's a value judgment that is related
- -
really
is reserved I think for the Commission.If you want to just
simply make a division of $12 000 grossed up for taxes, divided
by 77 000 customers, and figure out what the cost per customer
on an annualized basis is, it's a small number.
Would you consider it de minimis , basically?
Well , every dollar that a ratepayer has to pay to
them is not necessarily de minimis , but whether or not it would
be calculable in the rounding of the rate , I'm not sure.
All right.Would you agree that the potential up
side of this program is that to the extent ratepayers are able
to stay current on their bills , the Company avoids
disconnection costs and bad debt write-off?
I think that would be to be determined.I m not
unaware that there is some history in some situations where
1004
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
WYATT (X-Reb)
United Water
tha t can be shown.
I think that the intent of Uni ted Water in
entering into this kind of a proposal was primarily for the
benefit of the low-income customers and recognizing that we had
made a significant rate filing at this point in time, and
understanding that it does affect customers negatively when
rates are raised.
I understand what your stated motive is.
just pointing out that to the extent that there might be a
perceived down side, there's also a perceived system-wide
benefit as well.Isn't that true?
I would not dispute with you on that.
All right.And then finally regarding the
initial block rate , it was pointed out that this will result
a revenue requirement deficiency or lost revenue, if you will
of roughly $100,000.Given that the - - well , isn't it true
that the Company I s proposed total revenue requirement
roughly $37 million?
Adjusted for the numbers I just read through my
rebuttal, I think it's about 36, 35, but yes , in that range.
Give or take a few million.And so spreading
by spreading this lost $100,000 of revenue out over the entire
12 months of the year , can you
- -
can you even calculate what
upward effect that would have on the summer rate or on the
typical summer bill?
1005
HEDRICK COURT REPORTING
O. BOX 578, BOISE, ID 83701
WYATT (X-Reb)
United Water
I can't, in my head, tell you what that's going
to do to a summer rate , no.YouIt's pretty much basic math.
take the 104 000, you spread it out over 77 000 accounts, and
you come up wi th about a dollar and a quarter per year , per
customer , rounded.And so it -- it's a pretty small , although
each dollar is important to ratepayers, especially low- income
But I believe the potential benefit to low-incomeratepayers.
users of having not only a subsistence level , lifeline level of
water on their bill lower than the normal summer rate, as well
as having information provided to them through kits and
information in the kits, as well as the United Water Shares
program where the corporation is willing to make its donation
and encourage customers to do so , far outweighs that cost.
All right.
Mr. Chair , that's all I have.MR . PURDY:Thank
you.
COMMISSIONER KJELLANDER:Thank you.Mr. Eddie.
MR. EDDIE:I have just a few questions.
CROSS - EXAMINATION
BY MR.EDDIE:
Mr.Wyatt
issue with many part s Mr.Woj cik' s direct testimony, but you
your rebuttal testimony, you take
do agree that the Company
- -
the Company agrees to , if ordered,
1006
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
prepare a comprehensive conservation plan and submi t that plan
to the Commission at some point after this case?
Yes.
The outstanding issue is the timing.Woul d you
agree it would be feasible to prepare that plan and submit it
to the Commission in time so that new conservation options
programs are available to customers in the summer 2006?
As I said in my rebuttal testimony, I was unclear
on how much time that might take.I still would like to have
opportunity to speak with different potential consultants or
providers before that kind of a time frame is locked in.
However , I would think that we would want to , as a business,
yeah, especially want to try to get a program in place or
started, maybe not completed, but get some things started for
the irrigation summer season of 2006.
Okay.Would you agree thatThank you.
information that would specify the average amount of wintertime
use per customer within each meter size category is information
that's readily available to the Company, just specifying the
average use per customer in the wintertime within each?
I believe the information is available.I don'
know if it's readily available.
If the Commission were to decide to implement a
block rate structure with that number being the cutoff point
for the first block , could that information be provided to the
1007
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WYATT (X-Reb)
United Water
Commission?
Which number?
The average wintertime use per customer in each,
either size category.
I believe that it could.
In Dr. Peseau' s testimony - - you don't need to
refer to it
- -
he basically says that addi tional issues would
need to be studied by the Company before it could agree to
implement an inverted block rate structure.Do you recall
that, generally?
Yes.
Would Uni ted Water support that kind of
investigation to put flesh on the bones or however you want to
say it, further investigate the implementation of an inverted
block rate structure?
I bel ieve we've proposed a form of inverted block
rate structure in this case.Again, I'm not sure what analysis
and study Dr. Peseau was referring to since I'm not a cost of
service analyst or specialist , so I don't know what that would
requlre.
23, lines 17 through 20 of his testimony,At page
I'll read to you:
Before I could endorse an inverted block rate
design for United Water , I would need to have the benefit of
considerable consumption , elasticity, billing, and other
1008
HEDRI CK COURT REPORTING
O. BOX 578 , BOISE , ID 83701
WYATT (X-Reb)
Uni ted Water
information upon which to base inverted block rates.This
information is not available at this time.
That type of information.Would you support an
investigation to determine that type of information?
I would support developing information to derive
rates in any fashion this Commission directs me to.
Okay.My last question is in regard to in the
Stipulation with Community Action Partnership, it provided for
first a three ccf b~monthly period initial block , and then in
your rebuttal testimony you proposed to increase that slightly
to two ccf.Is it my understanding that increase is contingent
upon the Commission approving monthly billing?
Yes, it is.
Why is it contingent on the move to monthly
billing?
Because the three ccf figure was contingent upon
the Stipulation, and the move to monthly - - or , the proposal to
move to monthly billing was related to - - or , excuse me.The
three ccf was not divisible evenly by two, and so I made the
proposal that should this Commission approve monthly billing
proposal, then the ccf rate could be two ccf per month , an
increase of 33 percent.
I understand that three ccf is not easily
divisible , but I'm still failing to see the logic behind tying
those two together.Why not just go to four ccf for the
1009
HEDRI CK COURT REPORTING
O. BOX 578 , BOISE , ID 83701
WYATT (X-Reb)
United Water
bimonthly period?It has no different impact on the Company'
revenues, does it, whether the number is two ccf per month or
four ccf bimonthly?
It would lncrease the amount of quote/unquote
lost revenue that would have to be spread across the rates
winter/summer rates -- for all customers, and that's a decision
this Commission would have to review or decide.
Breaking the year into different increments
resul ts in more lost revenue?I don't follow that.
If you increase the amount of first block
consumption from , let's use it on a monthly basis, from one and
a half ccf to two, the $104 000 number we talked about before
would increase, and so you would be increasing the cost impact
to all other customers.
I understand that.But the difference in lost
revenues between the block being at two ccf is no different
from having it at four ccf bimonthly?
Tha t 's correct.
Okay.And just coming back to the investigation
of further block rates briefly, a question from Mr. Purdy
characterized the three ccf or four ccf amount as sort of an
initial effort perhaps not tied to - - well , it's an initial
start of the program which may evolve.Would you support an
investigation into evolving the program beyond that amount?
I believe I've already stated that if the program
1010
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WYATT (X-Reb)
United Water
were to be approved, we would be interested in seeing the data
that was generated by virtue of that program and that we would
look at it.
MR. EDDIE:Thank you.
COMMISSIONER KJELLANDER:Let's move to
Mr. Strickl ing
Thank you, Mr. Cha i rman .Just aMR. STRICKLING:
couple questions on a different area.
CROS S - EXAMINA T I ON
BY MR. STRI CKLING :
Going to the 14.7 miles of maln line replacement,
were those all Company funded?
Yes.
Okay.And then was Owyhee Construction the
primary contractor on all those then?
Yes, they would have been.
Okay.What is the process that you chose Owyhee
Construction?Do they bid on proj ects or how is that done?
The process used for that is through virtue of a
contract and a negotiated process on renewals of that contract.
Okay.And do they -- you review -- is it yearly
renewal then?
It has had an intermittent time period of
1011
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (X-Reb)
United Water83701
renewal.
What steps do you take to make sure that you
getting the low
- -
if they don't bid on it , what steps do you
take to ensure that you're getting the lowest price on the
construction?
The Company has, I bel ieve, nlne approved
contractors for installation of water mains for use by
developers on developer proj ects.Sometimes those developments
are in new ground.Sometimes those developments have costs
incurred with them that involve getting into already developed
areas.
The Company has a significant body of data which
shows the varlOUS costs charged by those
- -
a variety of
contractors in installation of water facili ties.We make
comparisons with those and we use that significantly as a basis
to assess the competitiveness of our annual contract -- or
excuse me - - our contract wi th Owyhee Construction.
And you use those to negotiate the contract
itself.Is that what you're stating here?
That and other data.
Okay.
MR. STRICKLING:All right , I have no further
questions.
COMMISSIONER KJELLANDER:Thank you.
Are there quest ions from members of the
1012
HEDRICK COURT REPORTING
O. BOX 578 , BOISE, ID
WYATT (X-Reb)
United Water83701
Commission?Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
I guess based on your discussion with Mr. Purdy,
ve got a couple of questions I'd like to ask you.
Are you aware of whether customers represent ing
the middle income class or higher in~ome class participated in
this assistance
- -
low- income assistance program workshop?
As I stated before, there was only one customer
that I -- that attended the workshop, and I do not know that
person's economic status, so I would have to say I don't think
so.
Okay.Was the low- income class customers
represented at that?
I bel ieve CAPAI represented them.
Do you think there should have been some effort
made so that the other class of income customers should have
known about this conference or workshop, or been represented
there?
We surely would have welcomed it.It was
advertised in the Idaho Statesman.So I believe notice was
given and all had opportunity to attend if they wished.
So has United Water provided any literature to
1013
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
WYATT (Com-Reb)
United Water83701
your customers about this proposed Agreement that you've signed
on with?I mean , does the other customers know that you'
signed on to an Agreement like this that might be approved?
, we have not, simply because it's not been
approved.
Okay.But you didn'
- -
you haven't notified
your customers that you've had discussions and as a company
agree to this or -- and bring it before the Commission?
They're not aware of that?
No, I would say they're not.
I guess just a last question:I mean , do you
think that it really is insignificant that you sign on to
Agreement like this when, say, the majority of your customers
are not even aware of the workshop or the talks that have gone
on?
Well , I think the customers had the opportuni
to have an awareness of it and they certainly had an
opportunity to attend, although you are correct that there was
not a large representation there.Only one customer showed up.
I believe that the intent of the low-income
program which was first proposed in my direct testimony, is
available on the Commission I s Web site
- -
not everybody has
access to the Web, I understand that
- -
is a proposal , and
it -- in my view , it would be -- it might be premature for us
to have communications with all of our customers about a
1014
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WYATT (Com-Reb)
United Water
proposal that may or may not be approved by this Commission.
Do you at times though put stuffers in your
billings about different suggestions or proposals or things
tha t you, as a company, are looking at?
Generally, we put stuffers in about proposals
regarding rate filings.
Tha t maybe haven't been approved?
Tha t 's correct.
But this you didn't think would merit that then.
Right?
We did not put a notice in the customers' bills
about this particular aspect of the rate case, no, we not.
COMMISSIONER KJELLANDER:Thank you.That's all
I have.
Commissioner Smith.COMMISSIONER KJELLANDER:
Thank you.COMMISSIONER SMITH:
EXAMINATION
BY COMMISSIONER SMITH:
I guess I just want to spend a few minutes
thinking about rate design philosophy, and it seems to me that
I recall that when we implemented the summer rate and in
subsequent cases, there are
- -
there are a group of customers
who believe it's very unfair to have to pay more for every
1015
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID
WYATT (Com-Reb)
United Water83701
single ccf used in the summer because there's some usage that
you can't avoid summer or winter and it's there year-round.
Does the Company gets those kind of inquiries also?
We're aware of them.
So it seems to me that initial block rate is not
necessarily to help low-income people; it's to recognize that
there's some usage that continues year-round that'
unavoidable?
I think that's a fair statement, sure.
And if you believe that, as Mr. Woj cik testified,
that there is no correlation between water used and your income
level, that makes even more sense to me.
So I guess having said that, I'm looking at the
Ottens/United Water Agreement , and maybe I don't understand it.
Is that going to be a rate design implemented for all customers
or lS that something a customer will have to request?
It would be a rate design that would be
implemented for all customers.
Okay.All right.Good.
My other questions had to do with the monthly
billing concept, and it seemed to me that in the past, the
Company has resisted changing from bimonthly to monthly.Was
that correct?
m not sure that I know the history on that.
Okay.And so I guess I don't have a clear idea
1016
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID
WYATT (Com-Reb)
United Water83701
of how it works.So if we could do a hypothetical where we
assume that I am your customer, and say in July I get my $300
bimonthly bill , and then I call the Company and say I can only
pay $150, what happens to me?
Well, you're getting me out of my area of
expertise.
Oh, mine too.Mine too.
I'll try.
We 11 , I d i dn 't t hi nk i t was Dr. Pes e au', so
I m the best you can get.Right?
Yeah.
There are lots of Commission Rules with regard to
how that's handled , and I'm not sure that I'm keen on all of
them.
Okay.
I believe that what we would ask the customer to
do is, you know , pay what they could at the time and enter into
a payment arrangement, and I don t know the time frame over
which that payment arrangement might extend.
Or whether there is
- -
you recalled your deferred
payment arrangement.Is that the same as the payment
arrangement you're describing now?
Yes.m using the same term interchangeably.
And we don't know if there I s a minimum percentage
or minimum dollar amount that would be asked for?
1017
HEDRICK COURT REPORTING
O. BOX 578, BOISE , ID
WYATT (Com-Reb)
United Water83701
I do not know that , no, I don'm sorry.
Thank you.What if I just send in half of the
$150 and I don't call anyone?What happens to me?
Then , upon proper - - well , wi th the proper
passage of time and according to the Commission's Rules for
notice to the customer, we would make notice to the customer
that their bill was in arrears, delinquent, and there'
numerous steps that we must go through both contact wise before
shutof f could be pursued.
And it I S always kind of been my impression that
the passage of that time and the implementation of those kind
of procedures would bring me to August, where I could then send
you another $150 and be current and not
- -
and not cause the
Company to incur the addi tional expense to go to monthly
billing.Does that make sense?
m not sure
So by defaul t a customer creates their own
monthly billing by just sending half and then sending half , but
the way the time works, you never really get shut off?
There are customers, I'm told by our folks in
customer service, who know how to work the system, if you will.
We also have customers who prepay, and who pay monthly even
though they receive a bimonthly bill.They aren't the maj ori ty
of the customers , but there are some customers who have figured
out inside the rules of how the process works how to just avoid
1018
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID
WYATT (Com-Reb)
United Water83701
having their service terminated, that's correct.
So they re, in essence, creating their own budget
pay opt ion?
m not so sure I would call it a budget pay
option.I would classify it as a termination avoidance option.
So what's your attitude or the Company's attitude
about budget pay options?
You really want me to answer that?
I wouldn't ask if I didn'Yes.
I understand.Let me ask you if by "budget pay
options," maybe what do you mean by that?
You can define it however you like.Q .
Okay.The Company believes and did request of
this Commission an opportunity to introduce a budget bill,
level pay type of a program I believe it was last year , in
which , on a voluntary basis, customers could slgn up for and
receive a monthly bill year-round and pay a monthly bill , which
would be based on a historical , levelized amount of usage or
cost at current rates , what have you.Meter readings would
occur on a normal schedule.We certainly supported it when we
filed it and we support it now.
And so I guess that's where I came back to my
thinking about you wanted money to do that.Right?
We requested the Commission to allow us to
recover the - - what we believed would be the start-up costs for
1019
HEDRICK COURT REPORTING
O. BOX 5 7 8 , BO I S E , I D
WYATT (Com-Reb)
Uni ted Water83701
that , yes.
I forgot how much they were.
I bel ieve it was in the range
- -
and thi s was
assuming that a full 15 percent of our
- -
it was not a start -
cost.It was an annual cost, I stand corrected , assuming a
full 15 percent of our customers took advantage of this
voluntary program.We had calculated I believe at that time a
cost in the range of 75 , $78,000 sticks in my mind on an
annualized basis what that would cost for I believe some
additional , you know , postage , mailing costs related to that
monthly process , as well as collection processing costs and
some other costs that I don t recall what they were , but they
were all rolled in there.Mr. Healy, I believe, made those
calculations.
Okay.Well , and I think that I s where my thought
processes took me to the fact of why should we spend $78,000
when people can do it themselves?
I think it's because most people do not and do
not - - do not take advantage of the system , if you will.
Well, as long as you're operat ing in the Rules
lS that taking advantage?
I would say that it's not, but I would say that
believe it's in the best interest of all customers that the
vast majority of customers pay their bills in a timely fashion.
I agree, and I was going to ask what
- -
how would
1020
HEDRI CK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
WYATT (Com-Reb)
Uni ted Water
you characterize the size of the problem the Company has with
slow pay or uncollectibles?
We send out thousands of notices every month to
customers who are coming up on the delinquent shutoff list
thousands every week in some cases.That's a cost the
customers have to carry.We then go through a process of
notification which involves mailing and also a personal visit
by a Company representative if you get to the end of the line,
so to speak.Ultimately to actually terminating service, we do
not terminate that many customers over all , but there's a
significant cost involved in getting to that point that drives
costs for all customers.
So do you think if we implemented something like
the budget pay option you described , we could subtract some of
those costs from the cost of implementation or the annual cost
because you would have some savings there?
I think that there would be some savings there.
m not certain that we - - I'm not certain whether we did or
did not put that calculation into the filing that we made last
I don't know.year.
If the Commission decides to approve the
Agreement that United Water has with the Intervenors CAPAI , I
think is your acronym
Communi ty Action Partnership, right.
And there's something else on the end.
1021
HEDRI CK COURT REPORTINGP. O. BOX 578, BOISE , ID
WYATT (Com-Reb)
United Water83701
Association of Idaho.
-- what if we chose a different initial block,
does the Company have an obj ection to that?
I think that I would reserve my judgment until
saw what that was.
Okay.Do you want to glve me a number on which
you would gag?
All of it.
Okay.That clears that up.
I would certainly gag on that one.
That's as close as you're going to get.Okay.
ve already proposed in my rebuttal testimony
that the Company would accept a two ccf monthly level.
Right.When is the CompanyI understand that.
proposing these rates be effective?When's our target date?
I think it depends.I t may depend on how you
calculate it.I believe it's June 30th or July 1st.
Okay.Seems like I had one more question , but
ve forgotten it.Thank you.
I '11 be he re .
COMMI S S lONER KJELLANDER:Let's - - do you have
much redirect?
I ha ve none.MR. MILLER:
COMMI S S lONER KJELLANDER:, well, then , let'
go to you.
1022
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID 83701
WYATT (Com-Reb)
United Water
No redirect.MR. MILLER:Thank you very much.
COMMISSIONER KJELLANDER:, thank you,
Mr. Miller.
(The wi tness was excused.
COMMISSIONER KJELLANDER:And I guess what we'll
do is we'll break for a 45-minute lunch break for the
Commissioners since we have a Decision Meeting at 1: 30 , I
believe, and then that should last all of 30 to 40 seconds , but
we'll give you a little longer lunch if you'd like, and you can
stay out until , oh , 1: 35.So we'll break for lunch.
(Noon recess.
COMMISSIONER KJELLANDER:All right, we'll go
back on the record, and, Mr. Miller, I believe we're ready for
you to call your last rebuttal witness.
MR. MILLER:Thank you very much , Mr. Chairman.
DENNI S E. PESEAU,
produced as a rebuttal witness at the instance of United Water,
having been previously duly sworn , resumed the stand and was
further examined and testified as follows:
DIRECT EXAMINATION
BY MR. MI LLER :
Please state your name and spell your last name
1023
HEDRICK COURT REPORTING
O. BOX 578 , BO IS E , I D 83701
PESEAU (Di -Reb)
United Water
for the record , please.
Dennis E. Peseau.Last name is spelled
And , Doctor , are you the same Dennis Peseau who
testified previously in this case?
Yes.
And in addition to your direct testimony, did you
also have occasion to prefile with the Commission certain
rebuttal testimony consisting of 27 pages and accompanied by
one exhibi t
Tha t 's correct.
Are there any additions or corrections that need
to be made to your written rebuttal testimony?
No.
Any addi tions or corrections that need to be made
to your rebut tal exhibi
No.
If I asked you the questions that are contained
In your written rebuttal testimony, would your answers today be
the same as they are there wri t ten?
Yes , they would.
And are those answers true and correct, to the
best of your knowledge and belief?
They are.
MR. MI LLER :Mr. Chairman, we'd ask that the
1024
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
PESEAU (Di-Reb)
Uni ted Water
direct testimony of Dr. Peseau be spread on the record - - or
probably the rebuttal testimony be spread on the record as
read, and the exhibi t be marked.
COMMI S S lONER KJELLANDER:Thank you, Mr. Miller.
And wi thout obj ection , we will spread the testimony, the
rebuttal t~stimony, of Dr. Peseau across the record as if rea~,
and mark and admi t Exhibi t 1 7 .
(The following prefiled rebuttal testimony
of Mr. Peseau is spread upon the record.
1025
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
PESEAU (Di -Reb)
United Water
Please state your name and business address.
My name is Dennis E. Peseau. My business address is Suite 250, 1500
Liberty Street, S., Salem, Oregon 97302.
By whom and in what capacity are you employed?
I am President of Utility Resources , Inc. My firm consults on a
number of economic, financial and engineering matters for various
private and public entities.
On whose behalf are you testifying in this proceeding?
I am testifying on behalf of United Water Idaho Inc.
Are you the same Dennis E. Peseau who prefiled direct testimony in
these proceedings?
Yes.
What is the purpose of your testimony?
As a follow-up to my direct testimony, I will address rate design issues
discussed by Staff witness Sterling and Idaho Rivers United Witness
Wojcik. Additionally, United Water has asked me to analyze and
critique Staff's proposal to employ a 13-month average rate base.
will discuss the rate base issue first, followed by a discussion of rate
design issues.
Please describe the Staff proposal to employ a 13-month average rate
base, as you understand it.
Staff calculates a rate base by averaging the monthly balances from
July 31 2003 through July 31 , 2004 for Plant in Service, Customer
1026 D. Peseau , Re -
United Water Idaho Inc.
Advances and Contributions in Aid of Construction. Except for
investment associated with the Columbia Water Treatment Plant
(CWTP) post-test year investments , through December 31 2004, are
treated as if it occurred in the last month of the test year, and in
consequence, that investment is included in rate base at 1/13 of the
amount actually invested. (See Harms, Di. Pg 6).
In contrast, how did the Company calculate its proposed rate base?
The Company employed an end of period or year end rate base using
the twelve-month period ended July 31 2004. Normalizing and
annualizing adjustments were made to the test period and known and
measurable adjustments to revenue, operating expense and rate base
through May 31 , 2005. (See Healy, Di. Pg 2). In addition, as
described in the testimony of Company Witness Wyatt at pp. 10-, an
adjustment was made to reflect the impact on revenue and expense of
post test year plant additions, and to match revenue, expense and rate
base, in accordance with the policy stated by the Commission in Idaho
Power.
Is the year end methodology proposed by the Company consistent with
prior Commission orders with respect to United Water and its
predecessor, Boise Water Corporation?
Yes. I have reviewed the previous four rate orders for United
Water/Boise Water, commencing in 1993 with Case No. BOI-93-
Order No. 25062. (See also, Case Nos. BOI-93-, Order No.
1027 D. Peseau , Re - 2
United Water Idaho Inc.
25640; UWI-97-, Order No. 27617 and Case No. UWI-OO-
Order No. 28585). The year-end with pro-forma adjustments method
proposed by the Company in this case is identical, in all material
respects , to the method proposed by the Company, and accepted by the
Commission in these previous cases.
Is the effect of Staff's proposed change in rate making methodology
material?
Very much so. According to Staff witness Harms, the 13-Month
Average rate base is approximately $12 million lower that the Rate
Base filed by the Company. Solely due to the difference in rate base,
Staff's revenue requirement is approximately $2 million lower than the
Company s. A $12 million reduction in rate base, compared to the
Company s total rate base of $140 million represents a 9% reduction
solely from a change in rate making methodology.
What conclusions have you reached with regard to Staff's position to
change from the policy of an end of period rate base to a thirteen-
month average rate base for the Company in these proceedings?
I conclude that:
Staff has erred in its conclusion that United Water Idaho
did not normalize revenues completely to May 31 , 2005
and so did not cause a "mismatch of expenses and
revenues" as Staff alleges.
The Company s rate base, expense and revenues treatment
in its filing are consistent, while Staff's are not;
1028 D. Peseau , Re - 3
United Water Idaho Inc.
There is a fundamental test used below that the
Commission can use to distinguish between when to apply
the thirteen month average rate base method it uses for the
electric utilities, and the year end rate base method it has
used for some time for the more capital intensive United
Water Idaho.
Because Staff's case is so inconsistent , and unless the
Commission continues with the methodology it used in the
four previous United Water Idaho rate cases, there will
result an absolute inability for United Water Idaho to earn
its allowed rate of return, and shareholder property will be
confiscated.
United Water Idaho Matches, but Staff Mismatches Revenues and Expenses
What is the issue with respect to the matching of revenues and
expenses in this case?
Staff alleges in this case that the Company s filing, although entirely
consistent with and nearly identical in method to its previous three rate
case filings, does not match normalized revenues with normalized
expenses. The issue here is whether or not it is necessary in the case
of United Water to change from its established end of period rate base
method to,a thirteen-month average method proposed by Staff in order
to match revenues and expenses.
I argue that in at least two respects, the year-end or end-of-
period rate base method is more appropriate for a water utility with the
Company s characteristics. I say this knowing that for some time the
Commission has endorsed and approved the thirteen-month average
rate base period for the electrics Idaho Power and A vista, which it
regulates.
1029 D. Peseau , Re - 4
United Water Idaho Inc.
What is the first reason it is appropriate to allow United Water to
establish rates based upon an end-of-period rate base?
The first reason is for accuracy and ease of application. For a water
utility that has its investment, and therefore rate base growing as
quickly as the Company, it is far easier to annualize revenues to end of
period, than to reverse the numerous expense and rate base entries.
the recent Idaho Power rate case No. IPC-03-, I testified:
How should this mismatch be corrected?
There are basically two alternative remedies available. The
first would be to reverse the annualizing entries and
properly match test year averages on both sides of the
ledger. The second alternative is to annualize revenues in
the same manner as rate base and expenses.
Do you have a preference between these two alternatives?
On the whole, I think annualizing revenues to 2003 year-
end levels is the preferable course for two reasons. First, it
is much simpler to annualize revenues than to back out
Idaho Power s annualizing adjustments from numerous cost
and rate base categories. Moreover, annualizing revenues
produces a more forward-looking result than reversing the
expense and rate base annualizations.
I recognize, however, that when faced with a similar
mismatch problem in the last Idaho Power rate case, the
Commission ordered a reversal of the improper
annualization of expenses. Order No. 25880, pp. 3-4. In
theory this course of action is equally acceptable, but it
poses a greater risk of computational errors just because of
the number of adjustments required. Consequently, I
continue to recommend annualizing earnings instead.
(Peseau direct, Case No. IPC-03-, Pages 5-
Has, in fact, Staff failed to properly match its proposed thirteen-month
expense and rate base estimates with corresponding revenues?
Yes. This can be demonstrated by determining that Staff used
essentially the same level of annualized revenues, those for the period
1030 D. Peseau , Re - 5
United Water Idaho Inc.
ending May 31 2005 that are contained in the Company s filing. In
following its suggestion to use the thirteen-month average rate base
Staff should also have reduced the May 31 , 2005 annualized revenues
in the Company s filing back to the actual test year revenues centered
at January, 2004. But Staff did not. The test year revenues used by
Staff are actually the very same test year revenues developed by the
Company for its end of period method, with one very small exception.
On Company Exhibit 8 , Page 2 of 2, proposed test year revenues are
$31 534 832. To verify that Staff's case calculates annualized
revenues identically to the end of period May31 , 2005 calculated by
the Company, I refer to Staff Exhibit 126. On this exhibit (column (6),
line (12)) appears the same annualized revenue levels of $31
534 832.2 In other words, Staff mismatches rate base and expenses on
a thirteen-month average basis, with a higher level of revenues
calculated on a forward annualized period May 31 , 2005. Thus there
is a gross mismatch.
Contrastingly, the Company s filing is consistent, in that it
matches the higher level of end of period May 31, 2005 revenues with
its end of period expenses and rate base. Staff, on the other hand
mismatches these components by using the smaller than actual rate
base, its thirteen month average, with the higher level of end of period
These May 31 , 2005 annualized revenues are derived by adjusting twelve-month ending July 31, 2004
revenues for South County, weather normalization and growth through May 31 , 2005.
This figure is adjusted by $5,628 for Carriage Hill on Staff Exhibit 111, Page 2 of 2.
1031 D. Peseau, Re - 6
United Water Idaho Inc.
revenues. This is a mismatch that eventually guarantees an under
recovery of revenues sufficient to earn the allowed rate of return.
Again, in my opinion, the most appropriate means by which to most
accurately match the Company s expenses and revenues is to use the
end of period rate base.
For purposes of consistency between the rate base treatment of the
local electrics , and United Water should the Commission require
United Water to use a thirteen-month average rate base?
, there are significant and peculiar differences here that, in my
opinion, argue strongly for allowing United Water to continue with its
end of period rate base method. This second reason is argued below.
Does not Staff argue that the Commission has recently changed
policies regarding rate base treatment?
Yes. Staff Witness Mr. Lobb, on Pages 6-9, suggests that because the
Commission approved the thirteen-month average rate base methods
filed by Idaho Power and A vista, that consistency requires this policy
be extended to United Water.
Did the Commission orders in those cases mandate use of an average
test year for all utilities?
Not as I understand them. Order Numbers 29505 (IPCo) and 29602
(A VU) advised utilities that when proposing post-test year additions to
rate base a corresponding revenue and expense adjustment should be
made. United Water has attempted to comply with that directive in
1032 D. Peseau , Re - 7
United Water Idaho Inc.
this case. Neither order, however, advised utilities that an average test
year must be presented.
Have Order Numbers 29505 and 29602 created some level of
uncertainty among companies regulated by the Idaho Commission.
I believe so. Neither Order identified the calculations used to produce
the proxy adjustment and the IPCo Order indicated that the proxy was
not intended as precedent for use in future cases.
Are the Idaho Power and Avista cases distinguishable in other ways?
Yes. In each case the utility, as part of its initial Application, proposed
use of an average test year, which was, with some modifications
accepted without dispute in each case. In both cases the question of
average versus year-end test year was not a debated issue. Neither
case reflects a conscious policy decision to require an average test year
in all cases for all utilities.
Are there examples of instances in which the Commission has
simultaneously used an average rate base for some companies and a
year-end rate base for others, depending on the circumstances of each
company?
Yes. In Case BOI-93-, filed in December of 1993 and decided in
August of 1994, the Commission employed a year-end test year for
Boise Water. At about the same time the Commission in Case No.
IPC-94-5 (filed in June of 1994, decided in February of 1995)
employed an average rate base for Idaho Power Company.
1033 D. Peseau, Re - 8
United Water Idaho Inc.
Do you agree that requiring United Water to use a thirteen-month
average rate base in setting rates would place the Company in a
position consistent with Idaho Power and A vista?
No. First let me acknowledge that in some if not many circumstances
normalizing and annualizing accounting adjustments can be made that
make the thirteen-month average rate base and year-end rate base
nearly financially equivalent. But such is not the case for United
Water.
Why?
The key determinants of whether use of a thirteen-month average rate
base and a year-end rate base will produce rates that generate revenues
sufficient to keep the utility financially whole for the first year or so
after those rates go in effect are 1) capital intensity and 2) growth in
rate base per customer.
That is, once rates are set in these proceedings, for
example, if each new customer added to the system requires greater
(less) than the average investment per customer then rates charged
each new customer will cause a return shortfall (excess) on average
investment. In the 1990s, many electric utilities , including Idaho
Power, were able to freeze and even reduce existing rates despite
significant annual rates of customer and rate base growth, with no
adverse financial consequences. In fact, some utilities were able to
earn returns in excess of allowed returns and agreed to share these
10311-D. Peseau, Re - 9
United Water Idaho Inc.
excess returns with ratepayers. The reason that this was possible was
because new customers were able to be served with incremental
investment or rate base of less than system average rate base per
customer. At fixed rates therefore, these new customers cost less than
system average rate base cost to serve and provide higher than average
revenue margins than set in the prior rate case.
In such cases where the rate base additions to serve a
growing customer base is below or equal to average cost, the
application of either a thirteen month average or year-end rate base
should be nearly financially equivalent. But for capital intensive
utilities that incur above average rate base costs to serve new
customers, the thirteen-month average rate base is far less likely to
produce rates that generate revenues necessary to produce the allowed
returns. This is true simply because a thirteen-month rate base is not
as current or "forward-looking" as the year-end rate base adjusted for
rate base additions.
Under what such capital intensive and growth category does United
Water service fall?
The Company definitely qualifies as a capital intensive utility that
must make higher than average cost incremental rate base additions to
meet its growing load.
The technical term is that the marginal cost to service new customers is less than the average cost to serve,
and existing rates are matched to average, not marginal costs.
1035 D. Peseau , Re - 10
United Water Idaho Inc.
Do you have evidence that recent customer and usage growth
experienced by the Company has been met with higher than average
rate base costs per customer?
Yes. This is shown in the following table. This table simply
calculates the percentage changes in rate base costs per customer (in
two different ways). As shown, rate base cost per customer has grown
recently by over 20%, while customer or usage growth has been
approximately 2% or less.
Do the high rates of growth in rate base cost per customer reflect the
large cost increment resulting from the Columbia plant addition?
Yes, and Staff has, in my opinion acted responsibly in incorporating
the Columbia plant in rate base for the entire test year. But my point
here is that the recent large rate base additions, and those planned in
the coming years will be at incremental costs higher than rates in
place. Under these circumstances, a forward looking end of period
rate base calculation will do much more to reduce (but will not
eliminate) the Company s earnings attrition than will a thirteen-month
average rate base calculation.
Are there other factual circumstances that United Water faces that
compound this earnings attrition and revenue shortfall?
Yes. Not only is the Company experiencing incremental investment
that is higher than average, it also is adding customers whose revenues
or bills are below system average. I understand that this decrease in
1036 D. Peseau , Re -
United Water Idaho Inc.
revenue per new or growth customer is due largely to a high
percentage of such customers taking service in areas where alternative
sources of irrigation water are available and thus only use United
Water service for domestic purposes. This phenomenon only
accentuates revenue shortfall between rate cases.
United Water Idaho
Change in Rate Base per Billing Unit
Test Year
Ending July Pro Forma
31 ,2004 Year Ending Percent
Item Adjusted May 31 , 20005 Chan
Rate Base( 1)$113,575,180 $140,148,149 23.400
Commodity Use (CCF) (2)20,407 679 20,671 823 29%
Rate Base per CCF $5.$6.21.72%
Bills Rendered (3)440,686 450,336 190/0
Rate Base Per Bill Rendered $257.$311.20.760
Source:
(1) Exhibit No., Page 1 of 9. (revised)
(2) Exhibit 6, Schedule 3, Pages 7, 13 and 22.
(3) Exhibit 6, Schedule 3, Pages 9 and 22.
What conclusions do you draw from this?
I conclude that Commission consistency does not and should not
require the same rate base evaluation methods between the electric and
water utilities that it regulates.
In fact, I conclude that consistency, defined as equal
opportunities to earn the allowed rates of return granted, actually
requires maintaining the long-time end of period method used for
1037 D. Peseau , Re - 12
United Water Idaho Inc.
United Water. I am not at all persuaded by Staff's proposal to make
all utilities fit into a thirteen-month average rate base valuation.
Has the Commission in the past relied on analysis similar to yours, as
discussed above?
Yes, in 1993, when the Commission abandoned use of an average test
year in Order No. 25640 the Commission said:
According to Staff, Boise Water s rate base would be $1 163 281
lower if calculated based on a 13-month average as opposed to
year end. While it might be advantageous to ratepayers to have a
lower rate base, no party challenges Boise Water s proposal to
utilize a year end rate base. Boise Water s customer base and its
investment in plant are both growing rapidly. A year-end
calculation of rate base for a utility experiencing rapid growth is, in
this case, a more accurate reflection of that utility s investment in
plant. In light of the foregoing and the absence of objection, we
find that a year-end calculation of rate base for Boise Water is fair
just and reasonable.
Will the use of Staff's thirteen-month average rate base cause United
Water to suffer rates of return attrition from the very first year rates are
in effect?
Yes.4 This earnings attrition or rate of return shortfall is shown in my
rebuttal Exhibit 17.
What does Exhibit 17 show?
This conclusion is reached even assuming that Staff corrects its revenue mismatch by deducting $752,289
from its normalized revenue estimate.
1038
D. Peseau , Re - 13
United Water Idaho Inc.
Exhibit 17 compares the actual or realized rates of return under Staff's
proposed thirteen month average rate base to the fair or allowed rate of
return that it proposes. The right-most column of the exhibit
summarizes the total rate of return on equity and overall rate of return
that result from Staff's changing from the present year-end method to
the thirteen-month average rate base method. Staff's proposal ensures
an overall rate of return shortfall of 88 basis points, the difference
between the proposed 8.10% overall rate of return and the 7.22% rate
of return that results solely from not including the ending rate base
investment.
Thus, according to this exhibit, Staff's proposal, and the
high marginal cost of serving new customers virtually assures that
United Water will suffer earnings deficiencies from the time that new
rates go into effect.
In your opinion would such an earnings shortfall constitute a denial of
shareholders of an opportunity to earn a fair rate of return
commensurate with investments with commensurate risks?
Yes. In my efforts over the years to estimate fair rates of return for
utilities, I have relied upon the financial interpretations of certain key
court decisions in evaluating the reasonableness of rate making
adjustments. Three key decisions are the Bluefield (Blue field Water
Works v. Public Servo Comm n, 2672 U.S. (1922)), Hope (Federal Power
Commission v. Hope Natural Gas, 320 U.S. 591 (1944)) and more recent
1039 D. Peseau , Re -
United Water Idaho Inc.
Duquesne (Duquesne Light Co. v. Barasch, 488 U.S. 299 (l989))cases
My interpretation has always been that irrespective of the method or
actual estimate for the fair rate of return, a check of reasonableness is
always that the sum of the rate case decisions allow for, or even ensure
the opportunity for the utility to earn the fair rate of return determined
in the case.
In your opinion does Staff's proposed thirteen-month average rate base
method allow United Water the opportunity to earn its allowed return?
, as I have explained, Exhibit 17 shows that Staff's thirteen-month
average rate base causes actual returns to be below the fair or allowed
return. This in my opinion results in a denial of fair earnings and a
confiscation of shareholder property
Turning now to the Staff recommendation to allow in rate base 1/13 of
post test year investment, what is the practical effect of this proposal?
It means , obviously, that the Company is denied a return on up to 92%
of post test year investment in plant that is devoted to public service
during the rate period.
To the extent the proposal is aimed at solving a perceived problem of
mis-matched revenue and expense, does it make sense?
It does not. It cannot conceivably be true that the revenue producing
or expense reducing effects of new investment are of such a magnitude
that 92% of the investment should be disallowed.
1040 D. Peseau , Re - 15
United Water Idaho Inc.
Is the end result of the Staff proposal out of proportion with the end
result of adjustments recently made by the Commission in other cases
to take into account revenue producing, expense reducing effects?
Yes it is. In the recently concluded A vista rate case, the Commission
with some reluctance, employed a variant of a proxy approach
developed in the preceding Idaho Power Company rate case. (See
Order No. 29602 , pgs 16-17). This resulted in approximately 12% of
post test year investment being excluded. Without debating the merits
of the adjustment methodology in A vista it is obvious that Staff's
proposal in this case produces an end result totally disproportionate to
the end result believed to be reasonable by the Commission in A vista.
Rate Design and Cost of Service Issues
Are there numerous differences in the cost of service and rate design
issues proposed by you and by Staff witness Sterling?
No. In fact, there is really only one significant difference between the
rate design proposal I offer on behalf of United Water Idaho and that
proposed by Mr. Sterling. That difference is in the level at which to
set the bimonthly customer charge. I propose a bimonthly customer
charge of $19.86 while Mr. Sterling proposes to keep in place the
present bimonthly customer charge of $14.57. I argue this issue
below.
1041 D. Peseau , Re - 16
United Water Idaho Inc.
Is there a significant difference in your cost of service analysis on
seasonal commodity cost differences and the seasonal rate design
proposed by you and Mr. Sterling?
, in fact there is no difference that I can determine. In my direct
testimony, I explained that for the first time we were able in this case
to incorporate an actual seasonal cost of service study to set
parameters for seasonal rate differences. That is, the seasonal rate
design I propose and Mr. Sterling endorses is based on seasonal cost
differences. In this regard Mr. Sterling indicates:
Q. Do you believe that the 25 percent summer/winter rate
differential should be maintained?
A. Yes, I do. By having a commodity rate that is 25 percent
higher in the summer than in the winter, customer are sent a strong
conservation signal that helps to lessen United Water s peak
summertime demands. Furthermore, I agree with United Water
witness Peseau s conclusion from his cost of service study that
there is a substantial difference in commodity costs of service
between the winter and summer.Q. Do you believe that the summer/winter commodity rate
differential should be increased to more than 25 percent?
A. No, I do not ....
(Sterling, Direct, Page 58 , Lines 12-25)
I point out the agreement between Staff and Company on the seasonal
rate design issue because both Mr. Sterling and Idaho Rivers United
(IRU) witness Mr. Wojcik go on to discuss possible inverted rate
alternatives to the present seasonal rate design structure. And, while I
strongly believe that, given the initial consumption block design
agreed to between Company and Community Action Partnership
Association of Idaho (CAPAI), and the discussion in rebuttal by Mr.
1042
D. Peseau , Re - 17
United Water Idaho Inc.
Wyatt agreeing to Staff's proposal to move toward monthly billing,
additional rate inversion should be avoided. Additionally, I do not see
the need at this time to follow Mr. Sterling s proposal to begin a
separate docket to review other rate designs until such time as the
present one is evaluated. Any consideration of new, alternative rate
design proposals, perhaps including inverted rates, could be postponed
to a the next general rate case, provided parties express their interests
and undertake discovery early in the process. Inverted rates should not
be attempted in the present proceedings.
Level of Customer Charges
In light of the potential move to a monthly billing cycle, what is your
recommendation with regard to the appropriate level of customer
charges?
I disagree with Mr. Sterling s suggestion that there is any economic
justification for limiting or restraining customer costs to the narrow
definition of "direct costs" of meter reading and billing. The only
other cost categories included in my customer cost of service study are
the direct costs of meters and services. I cannot think of any cost more
directly related to individual customers than those of their own meter
and service line. These two items can serve the individual and only
the individual customer and are the most direct cost imaginable.
Placing these direct and individual customer costs on the
commodity rate in the name of conservation only ensures that these
1043 D. Peseau , Re - 18
United Water Idaho Inc.
fixed costs will not be recovered by the Company between rate cases
and will be made to be subsidized by customers whose consumption
cannot be shifted (have "inelastic" demand) after subsequent rate cases
attempt to distribute these revenue shortfalls.
What is the problem you see in keeping customer charges far below
actual costs of service?
While I do not favor moving customer charges to full cost of service at
this time, I nevertheless recommend that they be raised to some degree
in every rate case. Absent this, United Water Idaho and the
Commission will be facing significant revenue shortfall and rate equity
problems.
Please explain the revenue shortfall problem.
Both the Staff and IRU discuss keeping customer charges below costs
in order to facilitate conservation. I am absolutely in support of
facilitating any and all conservation that results from rate design based
on costs. This is precisely how so-called "economic efficiency" and
responsible consumption are promoted.
The problem is that collecting the capital costs of physical
fixed customer meters and service lines outside a customer charge by
spreading it as if they were volumetric or commodity costs cannot be
argued to promote economic levels of conservation. This is best done
within the seasonalization of the commodity costs that is contained in
my cost of service study.
1044
D. Peseau , Re - 19
United Water Idaho Inc.
In the context of proper rate design and the recovery of
allowed revenue requirement for United Water
, "
forced" or excessive
levels of conservation do nothing but leave capital costs and therefore
allowed rates of return unrecovered. Taken as a fixed customer
charge, meter and billing costs , both expenses and capital, afford some
level of revenue stability for this extremely capital cost intensive water
utility company.
Has not the Commission recently decided to omit certain fixed costs
from the monthly customer charges of both Idaho Power and Avista?
Yes. However, there is a long history and rationale for this costing
method in the electric utility industry. The proportionately larger
share of variable costs for electric utilities as a percentage of total cost
of service, and the common practice of laying off of some customer-
related costs to the transmission and even generation functions has
allowed for historically lower monthly customer charges.
But for a utility as capital intensive as United Water, the
subsidizing of the cost of dedicated meters and service lines in usage
sensitive commodity rates will lead to revenue shortfalls for Company.
Can the revenue shortfalls caused by a highly subsidized customer
charge be lessened by more frequent rate cases?
Yes. In this instance, however, more frequent rate cases result in the
customer charge subsidy being transferred from United Water
shareholders to other customers. Not only do more frequent rate cases
1045 D. Peseau , Re -
United Water Idaho Inc.
involve higher administrative costs for the Company, the Commission
and others, but are likely to result in more inequitable rates among
customers, over time.
Why does significant under-recovery of customer charges cause
inequities among rates of customers?
The costs of meters and service lines benefit none other than the
specific customer for whom the meter and service is installed. Staff's
limiting of customer charges reflective only of meter reading, billing
and customer accounting results in 65% of customer-specific costs
being shifted to the usage-sensitive commodity rate. Consequently,
those in a position to invest in devices to reduce water consumption
avoid paying their reasonable share of their own meters and service
lines.
Isn t this type of pricing good for conservation?
No. As valuable and socially responsible that the conserving of our
water is, equitable pricing requires that conservation be induced
primarily through rates that reflect costs, in this case commodity costs.
My seasonal commodity rate differentiation accomplishes this.
Further and additional adding on of fixed customer costs to commodity
rates is merely punitive to some degree.
Does the raising of monthly or bimonthly customer charges closer to
actual costs "blunt price signals
1046 D. Peseau , Re - 21
United Water Idaho Inc.
No. All the economic benefits attained through pricing are based on
the theory that rates bring about optimal levels of consumption of a
commodity, water or otherwise, by pricing according to costs. The
seasonal rates I propose are based primarily on seasonal commodity
cost differences and are adequate for inducing conservation.
Do the seasonal commodity rates proposed by you in Exhibit 14
already contain a considerable amount of customer costs not collected
by the $19.86 proposed bimonthly customer charge?
Yes. In my direct testimony and my Exhibit No. 14, Schedule Page
1 of 2, the implied full cost of service charge would be approximately
$22., which I do not propose.
Would the enactment of monthly rather than bimonthly billing of
customers provide an opportunity to raise the current customer charge?
I believe that it would. Obviously, the commodity portion of a
monthly bill will be approximately one-half of the bimonthly amount.
While the annual amount billed should be same, movement to monthly
billing should make the customer charge more acceptable. The
monthly customer charge under my rate design would be
approximately $9.93.
Please summarize your position on the appropriate level of customer
charge to set in these proceedings.
An increase in the existing customer charge is necessary to maintain
some level of revenue stability for the capital intensive nature of the
1047 D. Peseau , Re - 22
United Water Idaho Inc.
Company s water service. A monthly customer charge of $9., while
significantly below the monthly fixed costs of serving customer, is a
move in the right direction.
Furthermore, this level of customer charge would lessen the
inequities of cross subsidies in rates for customers who do not pay a
fair portion of their specific meter and service line costs.
Alternative Inverted Rates
What is the purpose of your discussing the issue here of an inverted
block rate design?
As I referred to in the introduction, while Staff Witness Sterling agrees
with the level and seasonal design of my proposed rates, he does go on
to indicate that, while not recommending an inverted block rate design
in this case, he offers discussion on same in the event that the
Commission should wish to consider it (Direct, Page 62, Lines 2-11).
Do you believe that an inverted rate design for United Water is
preferable to your proposed seasonal rate design?
No. Before I could endorse an inverted block rate design for United
Water I would need to have the benefit of considerable consumption
elasticity, billing and other information upon which to base inverted
block rates. This information is not available at this time.
Secondly, implementing multi-block inverted rates may
add considerable confusion for customers. I agree with Mr. Sterling
assessment (Direct, Page 58, Lines 2-10) that:
1048 D. Peseau , Re - 23
United Water Idaho Inc.
Any time a new rate design is implemented
however, there is a period - sometimes a very lengthy one
- during which customers must learn and become aware of
the new rate design. Moreover, even more time is required
for customers to adjust their usage patterns before the
objectives of a new rate design can be achieved. I believe
the decision of whether to implement a new rate design
should be based on an evaluation of whether the advantages
of a new rate design outweigh the tradeoffs.
With study, can new rate designs be adequately evaluated at some
point?
Yes, although the process can be involved. Given the lack of specific
proposals that could be evaluated in these proceeding, and the cost of
administering proceedings on inverted blocks, I recommend that any
such interest be expressed early in the next general rate case.
Do you have comments on the testimony of Mr. Wojcik who testifies
on behalf of Idaho Rivers United?
Only briefly. Mr. Wojcik proposes significant rate design changes
including multiple block inverted rates. However, the justification for
most of the proposals contains no Company or Idaho-specific data.
For the reasons cited by Mr. Sterling and me, these general rate design
suggestions referred to by Mr. Wojcik should be studied thoroughly
for applicability to the Company and its customers before being given
any serious consideration.
1049 D. Peseau , Re -
United Water Idaho Inc.
Do you agree with Mr. Wojcik's suggestion that the initial summer
block be increased by approximately three times the proposed 3CCF
bimonthly quantity? (Wojcik, pg. 7 , lines 16-17)?
No. This proposal is intended to discount usage of water equal to the
average indoor consumption per customer. In my opinion this is an
excessive discount and has no cost or rate design benefit over the
smaller proposed 3 CCF discount. A more prudent policy would be to
begin with the smaller initial block, study customer responses and
assess the acceptability at a later date.
Does the larger initial block proposed by Mr. Wojcik blunt an
appropriate summer price signal?
Yes. This larger initial summer block in effect shields the customer
from facing the consequences of the higher cost summer consumption.
After all , all consumption in the summer contributes to summer peak
and the need for additional supply at higher marginal costs, regardless
of whether the consumption is for inside or outside uses.
Has Company Witness Mr. Wyatt agreed to a higher than 3 CCF initial
minimum block in his rebuttal testimony?
Yes. It is my understanding that in agreeing to transition to a monthly
billing cycle, Mr. Wyatt accepts as a monthly minimum block a 2CCF
quantity. This has the effect of increasing the original bimonthly block
by 33%, from 3 CCF to 4 CCF.
1050
D. Peseau , Re - 25
United Water Idaho Inc.
Mr. Wojcik acknowledged on page 7, lines 5-6 of his
testimony that the original 3 CCF was slightly higher that average
toilet and shower usage. The 4 CCF initial block would provide a
significantly higher cushion in this initial block.
Do you have any additional comments on the testimony of Mr.
Wojcik?
I have just two comments. One, one Pages 3 and 4 of his testimony,
Mr. Wojcik suggests that higher customer charges may weaken
customers' incentives to conserve because they are unavoidable. This
is true only in a social engineering sense, as the optimal level of
conservation is never attained by adding inappropriate charges to
commodity rates, but rather by properly designing commodity rates.
Two, Mr. Wocjik makes a common, but mistaken
assumption that high-volume water users place the "highest strain on
the water supply system" (Direct, Page 3 , Lines 16-18). This is simply
not true; all water users, whether large or small , who consume during
system peak equally "strain" the system and drive the need for
additional plant and equipment to serve these system peaks. This
usage issue is better understood in terms of usage load factors as in the
electric and natural gas industries. For example, a large, high load
factor user may contribute little to system peak and therefore not be
contributing disproportionately to higher seasonal costs.
Does this conclude your testimony?
1051 D. Peseau , Re - 26
United Water Idaho Inc.
Yes.
1052 D. Peseau , Re - 27
United Water Idaho Inc.
(The following proceedings were had in
open hearing.
(Uni ted Water Exhibi t No.1 7 , having been
premarked for identification, was admitted into evidence.
COMMI S S lONER KJELLANDER:And I believe he I s then
ready for cross, so we will move to Mr. Stutzman.
MR. STUTZMAN Thank you, Mr. Cha i rman .
CROSS-EXAMINATION
BY MR. STUTZMAN
Good afternoon , Dr. Peseau.
Good aft e rnoon .
At page 2 of your rebuttal testimony, you note
the Company makes an adj ustment to the test year to reflect the
impact on revenue and expense of posttest year additions.
you see that testimony?
What line is that, sir?
Lines 13 through 17 , I believe.
Tha ti s correct.
And the revenue year adjustment you're referring
to is the one described by Mr. Wyatt at pages 10 through 13 of
his direct testimony.Is that right?
Not referring to him.m referring to Staff
Exhibit 126 and Company Exhibit 8 , page 2 of two, specifically.
1053
HEDRI CK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
PESEAU (X-Reb)
United Water
Well, if you look at line 13 on page 2, isn'
that a reference to Company witness Wyatt" s testimony at
pages 10 through 13?
Yes.
And isn't it true that the Company made that
adjustment to revenue to address the impact of including the
Columbia treatment plant in rate base?
Tha t may have been a reason.The reason given by
Mr. Gradilone who made the adjustment and that adjustment ,being
adopted by Mr. Sterling was to adjust for the number of
customers added to the system after July 31, 2004 , through
May 31 , 2005, times the revenue per customer.The calculation
was the same in Mr. Sterling I s testimony as it was In
Mr. Gradilone' s , and they used completely different rate base
figures.That calculation has nothing to do quanti tati vely
with capital additions.
Okay.You'Thank you for that clarification.
right.The increase or the adjustment itself is made to
recognize the addition of customers that might be added through
May of 2005; May 31, 2005.Right?
Yes.The Company was at tempt ing to add all
revenues that would be realized through the end of May 2005,
because their case contained additions to rate base through the
same period.
Okay.In fact , isn't the Company proposing to
1054
HEDRICK COURT REPORTING'
O. BOX 578, BOISE , ID 83701
PESEAU (X-Reb)
United Water
include more than 80 posttest year plant additions in rate base
In addition to the Columbia treatment plant?
Yes.As explained in the testimony of Mr. Lobb,
that's been the case since 1993 where some - - there have been
adjustments as high as 100 and as low as 50 or 60 , but it was
perfectly consistent with prior cases.
Would you agree that the other 80 plus plant
addi t ions can be expected to have revenue produc ing or expense
reducing effects?
Certainly in order to meet loads , which is the
driver for revenues , you have to make capital additions, so
indirectly, certainly, plant addi tions contribute to the
ability to sell the product to customers, and therefore drive
revenues.
Okay.Thank you.
MR. STUTZMAN May I hand out an exhibi
COMMISSIONER KJELLANDER:Wi thout obj ection.
MR. STUTZMAN Thank you.And I think thi s
should be marked as Exhibi t No. 137.
(Staff Exhibit No. 137 was marked for
identification.
BY MR. STUTZMAN Dr. Peseau , did you testify in
the last Avista rate case?
I did.
That was Case Nos. AVU-04-1 and AVU-04-
1055
HEDRI CK COURT REPORTING
O. BOX 578, BOISE , ID 83701
PESEAU (X-Reb)
United Water
That I s what
You'been
Exhibit No.137 and I'll
it says at the bottom , yes.
handed what's been marked as Staff
represent to you that is pages 922
through 926 from the final transcript in the Avista case.
you recognize that as part of your testimony?
Not yet, but I could very quickly.
Okay.Take your time.
It's several pages.I'll take your word for
and then maybe read what I need to.
your name?
case?
Is it identified at the bottom of each page with
Yes.
Okay.Upon whose behalf did you testify in that
That would have been Potlatch Corporation.
And did you testify about a mismatch that
resulted from Avista including posttest year investment in rate
base?
Yes.
I'd like to direct your attention to page 925,
ines 3 through Was it your testimony in that case that
utilities generally do not make additional investments or
increase their expenses unless they can generate additional
revenues and prof its, ei ther by serving addi t ional customers or
by cutting costs or increasing margins?
1056
HEDRI CK COURT REPORTING
O. BOX 578, BOI SE , ID 83701
PESEAU (X-Reb)
United Water
Yes.
And then continuing on , lines 7 and 8, you
testified that the projected expenditures Avista has identified
must be presumed to generate additional revenues or other
benefits that would offset their costs in whole or in part.
that your testimony?
Yes,lS.
there shouldn t we make the same
presumption about all of the posttest year plant investment
that Uni ted Water wants to make in this case?
That's one way of doing it.As I testified in
this case and in the Idaho Power case, the easiest adj ustment
is to bring revenues forward to the end of the period,
including all - - therefore , there wouldn't be post year
adj ustments.They would all be made simultaneously as of
May 31 , 2005 , and you wouldn't need to do that.
Q. Okay.Let me direct your attention to page 923
ines 3 through Did you testify that adding known and
measurable changes to a test year base case must be used with
extreme caution because of the high potential for abuse?
Yes.
And continuing on , isn't that because in a rate
case , the Utility has every incentive to identify changes that
increase the revenue requirement but no incentive at all to
find revenue enhancing changes?
1057
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701 PESEAU (X-Reb)
Uni ted Water
That's right.Again , that's the reason I prefer
in that case and it has been done
- -
in this case, there's no
need to do that.We've already brought revenues forward.
In this case, it's important to note that Avista
filed a 13-month -- or , a 13-month average rate base, and
therefore , the adj ustment wi th revenues and expenses is
exceedingly difficult for someone outside the Company's realm.
Do you recall how many posttest year plant
investments Avista proposed to include in its test year?
The answer is as many as it wanted.I think
there were two or three maj or proposal s
Okay.Isn't is it true , Dr. Peseau , that some of
13'the rate base reduction that Staff recommends is from cutting
off posttest year investments at December 31 , 2004 , rather than
allowing all investments made through May 31st of this year?
That's true, there were two sources of rate base
reduct ion:Those that were made prior to December 31 , 2004
which were allowed in at one-thirteenth , and all additions
post-January
And , again, directing your attention to your
Avista testimony at page 923, lines 20 and 21 , would you agree
that there must be some limit on the time interval between the
test year and pro forma adjustments?
Yes.On an average rate base you have to do that
in order to match revenues wi th the various monthly rate base
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United Water
averages.
Thank you.That's all I have.
COMMISSIONER KJELLANDER:Let's move to
Mr. Eddie.
MR. EDDIE:Very briefly.
CROSS - EXAMINATION
BY MR. EDDIE:
Dr. Peseau , page 42 of your testimony, lines
through 19, you dispute that higher customer charges could mute
price signal associated wi th seasonal rates.Do you recall
that?
m sorry.
The page reference is page 42.m sorry, that
was your direct testimony.Let's see if I have the rebuttal.
I believe the same principle is made
- -
principle
comment is made in your rebuttal testimony that higher customer
charges , in your opinion , do not mute a conservation signal
sent by a seasonal rate.Is that right?
That's right , and I'm speaking in an economic
sense.
MR. EDDIE:May I approach?
COMMISSIONER KJELLANDER:Wi thout obj ection.
(Idaho Rivers United Exhibit No. 409 was
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HEDRICK COURT REPORTING
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PESEAU (X-Reb)
United Water
marked for identification.
BY MR. EDDIE:What I've handed you is marked
Exhibit 409.It's simply intended to be an illustration of the
change in a example bill , a hypothetical bill , for 30 ccf to a
residential customer.Subject to check, would you agree 30 ccf
is wi thin the normal range of usage for a residential
customer?
I bel ieve it's higher than average, but it'
reasonable.
And obviously subj ect to check
- -
we could get
out our calculators - - but that these calculations appear to be
a correct rendering of the differences between current rates
and proposed rates in the Application?
I '11 take it subj ect to check.I don't have a
calculator.They look reasonable.
Putting aside economic theory about recovery of
fixed costs through fixed charges, can you understand how
may be frustrating to a customer if their bill is going up by
$11.53 but nearly half of that is essentially beyond their
control because it's fixed?
Yes, I can understand that.
Okay.
MR. EDDIE:Nothing further.I just move that
Exhibit 409 be admitted.
COMMISSIONER KJELLANDER:Okay.And without
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PESEAU (X-Reb)
Uni ted Water
objection , we will admit Exhibit 409.
MR. EDDIE:Thank you.
(Idaho Rivers Uni ted Exhibi t No.4 0 9 was
admi t ted into evidence.
COMMI S S lONER KJELLANDER:Move now to
Mr. Strickl ing.
MR. STRI CKLING :No quest ions.
COMMISSIONER KJELLANDER:Mr. Campbe 11 .
MR . CAMPBELL:No questions, Mr. Chairman.
COMMI S S lONER KJELLANDER:And are there questions
from members of the Commission?No questions.
Any redirect , Mr. Miller?
MR. MI LLER :Just a few , if you don't mind.
REDIRECT EXAMINATION
BY MR. MILLER:
Were you in the hearing room this morning when
Mr. Lobb testified?
Yes, I was.
We presented to him an Exhibi t No. 18.Do you
have copy that exhibi t
Yes do.
And in general terms, what does the exhibi
purport to show?
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MR. STUTZMAN Mr. Chairman , I'm going to obj ect.
This is beyond the scope of the cross-examination.m not
sure if it was brought up in anyone's questioning.
COMMISSIONER KJELLANDER:Mr. Miller.
MR. MILLER:Technically, it is beyond the scope
of the cross
- -
direct scope of the cross-examination.
intention though was to ask just two questions in order to make
sure there's no misunderstanding regarding the import of the
exhibi t
COMMI S S lONER KJELLANDER:Mr. Stut zman.
MR. STUTZMAN:Well , Mr. Chairman , given the
leniency that we'd normally afford in our hearing it's probably
appropriate to allow that testimony in , but wanted to note my
obj ection for right now.
COMMISSIONER KJELLANDER:Okay, we'll go ahead
and allow the questions and we'll move forward.However , I do
note the obj ection and if it should wander off path , I
certainly would be willing to entertain that obj ection agaln.
BY MR. MILLER:The question I think before you
lS what does it purport to show.
COMMISSIONER KJELLANDER:Before you move
forward, just a question on the exhibit, and does that exhibit
duplicate some previously-numbered exhibit?Did you say
Exhibi t 18?
MR. MILLER:I believe that's what it's labeled,
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Uni ted Water
lS it not?How about if we relabel it 18A?
COMMISSIONER KJELLANDER:Let's make sure we need
to do that before we move forward.Just a moment.
(Whereupon , United Water Exhibit
originally marked as No. 18 consisting of four pages was
remarked as Exhibi t No. 18A.
COMMISSIONER KJELLANDER:As you were starting
off , were you referring to Mr. Lobb?Were you referring to an
exhibit from Mr. Lobb or were you referring to his testimony?
COMMISSIONER SMITH:, it's thi s one.
MR. MILLER:An exhibi t that was handed to
Mr. Lobb thi s morning.
COMMISSIONER KJELLANDER:Okay.I know his name
was mentioned.Okay, so we'll refer to it as 18A.Thank you.
MR. MI LLER :Very good.
THE WITNESS:I think I can recall the question.
Referring to the first page is I think all we
need to do.As discussed this morning, those exhibi ts, those
three pages, show the relationship between variable costs that
is O&M expense to revenues , and since the Utility's revenues
reflect only its costs, it's a ratio of variable cost to total
The percentages there shown , if we take one mlnus thosecost.
percentages, we would have the percentage of fixed cost,
40 percent for Idaho Power , 30 percent for fixed cost ratio for
PacifiCorp, and 65 percent fixed cost ratio for United Water
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PESEAU (Di-Reb)
Uni ted Water
showing that it'more highly fixed cost capi tal intensl ve.
BY MR.MILLER:And rebuttal testimony,your
you point out that capi tal intensi ty cri teria cons ider
in determining and deciding whether to employ an average rate
base or year-end rate base?
Well , as Mr. Lobb pointed out this morning, most
utilities , especially electric and moreso water , are capital
intensive.That's not the only cri terion , but it's an
important one.And the degree of capi tal i~tensi ty, coupled
wi th the degree of growth in rate base cost per customer , are
the two that I suggest should be held in tandem to evaluate
tha t
All right.Let me turn your attention to
Exhibi t 1 7 which accompanied your rebut tal testimony, and
just want to be sure that everyone understands clearly what
thi s exhibi t shows.
Shall I explain it?
Please.
Okay.
MR . S TUT ZMAN :Again , Mr. Chairman , I think we'
beyond the scope of the cross.
COMMISSIONER KJELLANDER:Sustained.Sustained.
MR. MILLER:All right.
BY MR. MILLER:Now, Mr. Stutzman asked you a
number of questions wi th respect to the matching of revenues
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PESEAU (Di-Reb)
Uni ted Water
and rate base?
Tha t 's correct.
In your professional opinion , has the Company
appropriately matched revenue with rate base additions?
Yes, it has, and it's in this case and the prior
cases , and I think that's been acknowledged.
And exactly how does the Company accomplish
that?
Mr. Sterling has Exhibit No. 126, which is a copy
also of the revenue estimate that Mr. Gradilone produced I
think it was yesterday - - I've lost track
- -
and what
Exhibit 126 shows is actual adjusted revenues year ended
July 31 , 2004.Both Staff and Company agree on that level of
revenue at current rates.That's important.
The revenues at current rates of July 31 , 2004
are then adjusted for the number of customers that are added
between July and December 31 , 2004 , as one adjustment.The
number of customers times the average revenue per customer
produces addi tional revenues expected.
Mr. Gradilone and Mr. Sterling then each
calculate the number of customers added from January 1 , 2005
to May 31, 2005 , mul tiply those number of customers times the
average revenue per customer for a second adj ustment upward to
the revenue level to get a final May 31, 2005, appropriate
level of revenue at current rates.
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United Water
And those additional customers aren't just
customers that are somehow connected to the Columbia water
treatment plant?
No, there's no single - - capi tal is added to meet
load growth , but there's no direct correspondence between the
amount customers pay.It's an overall revenue requirement.
So it's all customers added?
Yes.
All right.And in your professional opinion
does this adjustment successfully meet the Commission's request
and requirement that companies attempt to match revenue and
expense and rate base adjustments resulting from posttest year
rate base additions?
Absolutely.
In contrast , can you explain how Staff , in its
application of
- -
attempted application of the 13 -month average
rate base , treats revenue and whether it correctly matches
revenue and rate base?
MR . S TUT ZMAN :Again , Mr. Chairman , I think we'
beyond any question that was conducted on cross.
MR. MILLER:We were clearly in the area of
mismatching of revenue in rate base.This is clearly wi thin
the scope and would be prejudicial not to allow us to explore
this.
MR. STUTZMAN Well, and I believe Staff's case
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is on the record now and is contained in its testimony, and I'
not sure what having Dr. Peseau tell the Commission what
Staff's case is is particularly relevant.
MR. MILLER:It just seems to me that this lssue
of matching has been made to be such a big issue in this case,
and Dr. Peseau has explained how the Company has correctly done
it, that he ought to be able to explain how the Staff has
incorrectly done it.
COMMISSIONER KJELLANDER:Mr. Miller, the purpose
of redirect , as I understand it, is to allow you the
opportuni ty to, in essence , use your wi tness to counteract some
of the questioning that was done during cross.Whose
questioning is this tied to?
MR. MI LLER :It's tied to Mr. Stutzman's effort
to show - - or , I believe to show
- -
a mismatch of revenue and
expense in the Company case , and clearly encompassed wi thin
that would be the matching of revenue in rate base within the
Staff's case.And I think it would be certainly appropriate
for Mister
- -
Dr. Peseau to be able to point out on the one
hand , the Company's method is correct; on the other hand, the
Staff , who insists on mismatching ,is incorrect.
Okay.Well , if you can keep it tied to that line
and that direction and to questioning that was brought up
during the cross, then we'll allow it.
MR. MILLER:I '11 do my best.
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THE WITNESS:I think that this can be fairly
simply demonstrated from page 6 of my rebuttal testimony.
lines 8 through 13, I indicate that both exhibits of
Mr. Sterling and of Mr. Gradilone contain the same level of
revenues of 31 534 832 at current rates.Mr. Gradilone uses
that number because he's added two components of growth to get
a full level of revenues May 31 , 2005.Mr. Sterling does not
propose, nor does Staff propose, allowing rate base addi tions
to that period, so they should not have added Mr. Gradilone I s
two growth components to the number I indicated from
Exhibi t 126.The fact that they didn't remove that, they have
a mismatch , excessive revenues over their rate base they want
applied in this case.
BY MR. MILLER:And does that have the effect of
in effect, overstating the revenues of the Company and
decreasing the revenue increase inappropriately?
There is less of a revenue requirement increase
necessary because of that to get to Staff I s recommended revenue
requirement.
Right.
MR. MILLER:I promised and I kept my promlse.
COMMISSIONER KJELLANDER:Okay.
MR. MI LLER :Those are all the questions we had.
COMMISSIONER KJELLANDER:Thank you, Mr. Miller.
(The wi tness was excused.
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PESEAU (Di -Reb)
United Water
COMMISSIONER KJELLANDER:I think that brings us
to the close of the Company I s rebuttal , and I think that brings
us relatively close to the end of the development of this
record , so let me ask if there are any other matters that need
to come before this Commission.Mr. Stutzman.
MR. STUTZMAN I would just, to make sure that
all of the Staff exhibits that have been identified are
admitted on the record, I'd like to make that motion at this
point.
COMMISSIONER KJELLANDER:And without objection
and I believe the Rules of Procedure for the Commission , in
essence, give us the ability of the Commission that even if we
forget to say something about that, they automatically get
admi t ted.
(Staff Exhibit Nos. 133 through 137 were
admi t ted into evidence.
(Uni ted Water Exhibi t No. 18A was admi t ted
into evidence.
COMMISSIONER KJELLANDER:I s there anything el
that needs to come before the Commission?Mr. Miller.
MR. MILLER:Just one brief item , Mr. Chairman.
I discussed wi th Staff and wi th the court reporter the fact
that the Company would like to submit a posthearing brief , and
we recognize the time that the Commission has to deliberate.
The court reporter advises that a transcript could be prepared
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In such time that we could submit our brief within two weeks of
today, which I believe and hope would give the Commission
adequate time to consider it as part of its deliberations.
don't intend to burden the Commission wi th a hugely lengthy
brief, but as the Commission is aware, there are some issues in
this case that are important to the Company.So just advising
our desire to be able to submit a written brief within two
weeks.
COMMI S S lONER KJELLANDER:Okay.Anyone else want
to weigh in on the issue of briefs?Mr. Stut zman.
MR . S TUT ZMAN :Well , you know , I guess it's a
matter of one in , all in , so we have no objection.If there'
going to be posthearing briefs, we I 11 file a brief.
COMMISSIONER KJELLANDER:And simultaneous
filings?
MR. STUTZMAN Yes.
COMMISSIONER KJELLANDER:And what was that
target date?
MR. MI LLER :Two weeks from today.
COMMISSIONER KJELLANDER:Okay.Anything el se
posthearing briefs?
Is there anything else that needs to come before
the Commission?Mr. Campbe 11 .
MR . CAMPBELL:Yes , Mr. Chairman.I was
- -
I was
assured last night when I attempted to testify as a public
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witness that I would be given the opportunity to testify today,
and I would like to exercise that opportunity.
COMMISSIONER KJELLANDER:To testify?
MR . CAMPBELL:Yes.
COMMISSIONER KJELLANDER:Well , let's go through
that a bit.Mr. Miller.Is there any obj ection to this?
MR. MILLER:There would be, Mr. Chairman.The
Commission's Scheduling Order in this case entered
January 31st, it is qui te clear wi th respect to the deadlines
for submission of evidence and exhibi ts, requiring the
prefiling of testimony and the presubmission of exhibits by
Ap r i 1 6, 2 0 0 5 .The record is clear and undisputed that
Intervenor Campbell did not file testimony and exhibits by
April 6, 2005, or at any time thereafter.There is no
provision in the Commission Rules for oral testimony and
on-the-spot introduction of exhibits in contravention of the
requirements of the Commission's Scheduling Order.
It would additionally be prejudicial in that the
purpose of the prefiling requirement obviously is to give all
the parties notice of the party's - - the sponsoring party'
position so that there can be adequate time for preparation.
So to permit oral testimony now would violate the Commission'
Schedul ing Order , be an insul t to those who compl ied wi th the
Order , and be prej udicial.
COMMI S S lONER KJELLANDER:Thank you,
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Mr. Miller.
MR. CAMPBELL:Mr. Chairman , I can respond to
that , if necessary.
COMMISSIONER KJELLANDER:Gi ve me a moment to
collect a thought.Certainly will allow you an opportuni ty to
respond.
And I guess I'm ready to hear your response.
MR . CAMPBELL:Very well.Thank you.
First of all , I found nothing in the Commission'
Scheduling Order which required
- -
specifically required
prefiling of testimony or exhibits.In fact, the Rules of
Evidence that the Commission has adopted Under 261 allows that
all other evidence may be admitted if it is a type generally
relied upon by prudent persons in the conduct of their affairs.
Furthermore, as to exhibi ts , Rule 267
subparagraph 3, specifically states exhibits offered as part of
a party's direct case, except exhibits offered on redirect
examination, must be timely filed.
My testimony will not go to the direct case.
will respond to responses from the Applicant on
cross-examination to clarify that their positions on certain
issues is not , in fact , correct.
COMMISSIONER KJELLANDER:Mr. Campbell , I'm golng
to stop you there.You were here for cross-examination , and at
that point if these exhibits were relevant to that cross,
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that's when they should have been introduced , as was done by
all of the other parties to this case , and that's the procedure
tha t we operate under.And quite honestly, as I do stop you at
that point , what Mr. Miller outlined is very clearly the
practice and procedure in the Rules and procedure of this
Commission.
So, I think we could go back and forth and
perhaps maybe quibble wi th an interpretation of Rules and
procedure that have been on the books for many years within
this Commission; or what we could do is look at allowing all
the parties, if they would like , to make a closing statement,
at which time though they would not be allowed to enter any
exhibits because that would be outside of the normal Rules and
procedures of this Commission and the way it operates.
So how about if we take an opportuni ty to allow
the parties to have a closing statement; and in the future, for
anyone who might be looking at this transcript down the road,
this Commission has Rules and procedures for a reason, and I
think that they were very clearly articulated by Mr. Miller in
his comments in relationship to your request to testify at this
point in the hearing., not belaboring that point any
further , why don't we look at the opportuni ty for closing
statements, not to introduce exhibits, but closing statements.
And if you would like to begin with that, we could do so.
MR. CAMPBELL:Mr. Chairman , that's one approach.
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I would ike to make a record though for purposes of my
posi tion if I may.I think that's allowed under the Rules.
And from the standpoint of Rule 267.03, it specifically says
that:Otherwise, exhibi ts must be distributed or made
available to all parties long enough before their introduction
into evidence to allow the parties a reasonable opportunity to
review them and to prepare to examine their substance.
, in fact, provided those exhibits to all the
parties in this proceeding after lunch the day before
yesterday, and from the standpoint of complying wi th this
provision of the Rule , I think I have done so.
I respect the Commission and its Rules.
obviously have to abide by the ruling of the Chairman and the
Commission.I can make an offer of proof wi th regard to the
documents if I'm allowed to, and would like to do so.
COMMISSIONER KJELLANDER:Mr. Campbell, what
we're golng to do , as a Commission , is take a short recess and
just look over a few things, take your comments under
advisement, and then we will return and hopefully be able to
offer a few more thoughts.
MR . CAMPBELL:Thank you.
(Recess.
COMMISSIONER KJELLANDER:All right, thank you
for allowing us that opportunity.We'll go back on the record.
Mr. Campbell , I want to thank you for giving the
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Commission agaln another opportunity to look at its Rules of
Procedure.
MR . CAMPBELL:You're welcome.
COMMISSIONER KJELLANDER:And the argument again
that Mr. Miller made included in it a discussion of how he
viewed this as being prej udicial , and at this point in the
hearing, especially given the Rules of Procedure that the
Commission operates under , and as I look at the Rules and as
also look at the Orders that were issued throughout this case
and when the time lines and deadlines were, if we were to stray
away from that, I think we do create a problem wi th the record
if it should ever end up at the Supreme Court , and it would be
my extreme desire not to do that in this case or any other
And while your interpretation of our Rules I think iscase.
interesting and also again thank you for bringing your
interpretation to the table on those , it simply doesn't comport
wi th the way the Commission has operated in this hearing or any
prevlous hearing.
And so the only thing that I believe we could
allow at this point would be to allow you the same opportunity
for posthearing briefs, but also to allow a closing statement;
but in that closing statement, I think we have to also
recognize that everyone else will be afforded an opportunity
for a closing statement.And for everyone who might choose to
offer one, it is not an opportunity to interject new evidence
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or new exhibi ts into the record.That is not the intent for
closing statements at this point.
So wi th that, I will allow for some closing
statements, and if you would like to go first, that's fine.
MR . CAMPBELL:That would be fine.
COMMISSIONER KJELLANDER:Okay.So let's do
this.
MR . CAMPBELL:All right.Thank you very much
Mr. Cha i rman .
For purposes of the record , as you point out, I
would like to note that I am the only member of the public
at-large that has participated in this proceeding.I am doing
so on my own time, away from a very busy law practice, and I'
doing so to provide additional input to the Commission in the
interest of the public and the public welfare, the public
interest; not necessarily, although in part , my own financial
interest is involved, but I am one of the beneficiaries of the
fact that I selected a subdivision wi th nonpotable irrigation
water, and as a consequence, I don't have to have the
addi tional maj or impact because of using Uni ted Water'
suppl ies
And I don't want to belabor these points , but
again, just for purposes of maintaining the record for my
purposes as a citizen and as a customer of United Water, I
would like to repeat that I was assured last night by two
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members of the Commission , by the Chairman at the time,
Chairman Hansen , that I would be afforded an opportunity to
testify, and on that basis, I did not make statements on the
record last night when I sought to testify as a public witness.
Now I'm being told that I will not be able to testify, and
respect that Decision and I obviously have to live with that
Decision.
But with regard to the Commission's procedure --
and I understand your position , I'm just making a record -- I
see nothing in the January 31, 2005, Notice of Scheduling and
Notice of Hearing that mandates that prepared testimony has to
be filed by every participant.I see that if it is prepared
testimony, it must be filed.
I also note that Rule 231 of the Commission
indicates under subsection one prepared testimony may be
requi red.
And it goes on to say:Order , Notice or Rule may
require parties -- a party or parties to submit prepared
testimony and exhibi ts to be presented at hearing.
Now , I am not a practitioner before the Public
Utilities Commission , that has been obvious through my stumbles
and falls flat on my face in this procedure; however, I think
for the Commission to construe its Rules in this context where
I am offering particular information and a perspective that no
one else is offering, particularly where I was assured last
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night that if I did not testify as a public wi tness, I could
testify because I was an Intervenor today, that the Commission
is misconstruing the plain language of the Commission I s Rules.
Having said that, T'll move on to the substance of my comments.
COMMISSIONER KJELLANDER:Excuse me.Before you
move past that point, I believe that Commissioner Hansen would
like to respond to at least the beginning piece of that.And
wi th that , I'll yield to Commissioner Hansen.
COMMISSIONER HANSEN:Thank you, Mr. Cha i rman .
If you will recall on how
- -
my recollection of
our conversation last night is that I did tell you that
- -
explained that I didn't think the public hearing was the proper
place for you to testify where you were
- -
had an intervening
status and was a party to this case, and I did tell you that
you would have the opportunity to testify today, but I also
cautioned and warned you that there would probably be
objections, I said, both submitting your exhibits as well as
testifying.I said you may just get started and there could be
an obj ection and there may
- -
but I said you will get the
chance to try.And so when you say, "promi sed " I promi sed you
the opportunity, and I also made you aware that if there could
be a obj ection and you may not get to present your exhibi t
you may not get to present your testimony.
Thank you , Mr. Hansen.MR . CAMPBELL:I respect
your characterization of the discussion.I did have it placed
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on the record.To the extent that it I S on the record , that
will reflect what actually was said.
Turning to the substance of my comments to avoid
this procedural discomfiture, I would like to -- I would like
to provide the Commission with a perspective that is unique to
these proceedings.
I am a native of Boise , I've lived in this valley
my entire life except for my experience going to college and
law school , and I have been a customer of United Water or its
predecessor company since 1979.I was raised in Canyon County
for a good part of my younger life, but I have been here using
the water from United Water since 1979.And from a small water
company, it has expanded and changed hands at least once or
twice, and I have seen through the ownership of four homes in
this valley the consistent , repeti ti ve efforts since the
acquisition by major corporations of United Water to not only
lncrease rates , but perhaps increase service.
Because of my legal practice where I specialize
in water resource work, water quali ty, real estate work, I'
had occasion to be involved wi th Uni ted Water and its
predecessor companies where they have
- -
and this responds
directly to some of the positions taken by United Water
where they routinely resisted the efforts of nonprofit,
user-owned canal companies or i~rigation districts that were
attempting to provide the mechanism for installation of
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nonpotable water supplies to landowners wi thin those districts,
homeowners, so they would not have to use the more expensive,
more preclous, groundwater resources that
- -
the potable water
that is drinkable
- -
for lawn irrigation.
And nonwi thstanding Mr. Rhead' s comments, Uni ted
Water has resisted that until they saw that it was no longer
politically feasible to resist it; that , in fact, the counties
and the cities recognized that there was no way that they would
be able to continue to develop groundwater resources because
they destroyed the surface water recharge to the aquifers by
not putting in surface water nonpotable irrigation systems,
that the aquifer would continue to decline.So the counties
and the cities adopted these programs.
Notwi thstanding that fact, Uni ted Water , in its
proceedings in the lMAP proceeding, which I was involved with
asserted that the expansion of nonpotable irrigation supplies
in its proj ected service area would be less than . 015 percent
of the total consumption , yet in this proceeding, they take the
posi tion for the test year
- -
the procedure, as I understand
it, and perhaps I'm wrong -- for their justification of their
rate increase that 75 percent of their test year customers use
nonpotable irrigation.
Additionally, they have taken the position that
they do not use and cannot use the addi t ional water, that
basically twice as much water under their existing water rights
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for their existing system , yet before the Department of Water
Resources , they have asserted that additional 150 cubic feet
per second is necessary for future growth.
I would submit , as a lifelong Idaho resident and
a user of Uni ted Water's system for in excess of 25 years, and
having experienced pressurized irrigation system versus
nonpressurized irrigation system
- -
one of the houses I lived
in was in Lakewood
- -
that it is far superior to utilize not
just from a customer standpoint , not just from a cost
standpoint, not just from a capi tal plant standpoint, but from
a public resource standpoint , for the Commission to seriously
look at the deliberate inconsistencies with regard to United
Water's representations to it with respect to the water rights
issues and the water delivery issues.
Frankly, I am
- -
I am amazed that a publicly
regulated company can take such inconsistent
- -
dramatically
inconsistent - - positions before the two primary State agencies
that regulate its activities , argue one position on one hand
and, going to another forum , argue exactly the opposite
position.
I could go on about the other comments made by
Mr. Rhead in his testimony, but I don t want to belabor the
kind opportunity the Commission has provided to me for
addressing some of the issues that I feel are very significant.
And wi th that, I would close my argument.
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COMMISSIONER KJELLANDER:Thank you
Mr. Campbe 11 .
Are there other closing arguments that need to be
made at this point?
Mr. Miller.
MR. MILLER:Only by way of brief response and
not for the purpose of arguing our case, which we will do in
our brief.
I always hate to interrupt parties or Counsel
during their oral statements or closing arguments.I trust,
however , the Commission will recognize those portions of
Mr. Campbell's statements that are supported by this record and
those that are not supported by this record.More
particularly, other than his assertions in oral statement
there is no evidence in the record of precisely United Water I
posi tions in the IMAP , or at least we would ask the Commission
to consider what is and isn t supported by the record in this
case.
COMMISSIONER KJELLANDER:Other closing
statements from other parties?
If not then , just for clarification then , we have
the posthearing briefs which are due two weeks from today.
MR. MILLER:Or if you want to make it two weeks
from tomorrow , that would be fine.
COMMISSIONER KJELLANDER:Two weeks from today.
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And is there anything else that needs to come
before the Commission at this time?Mr. Eddie.
MR. EDDIE:There would be no reply brief?
COMMISSIONER KJELLANDER:There's been no request
for a reply brief.There will be simultaneous filings.
MR. EDDIE:Thank you.
COMMISSIONER KJELLANDER:Okay.At this point
then, there being nothing further to come before the
Commission , we will wai t the arrival of the posthearing briefs
and then the Commission will do its best to review the record
and render a Decision as soon as is reasonable.So, again
thank you for your participation , and we are adj ourned.
(The hearing concluded at 2: 37 p. m. )
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AUTHENT I CAT I ON
This is to certify that the foregoing
Vol umes I through VI are true and correct transcripts to the
best of my ability of the proceedings held 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-, commencing Tuesday, March 24 , 2005,
through Thursday, March 26 , 2005 , at the Commission Hearing
Room , 472 West Washington , Boise, Idaho, and the originals
thereof for the file of the Commission.
Accuracy of all prefiled testimony as
originally submitted to this Reporter and incorporated herein
at the direction of the Commission is the sole responsibility
of the submitting parties.
,,"IU'..,'1,
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WENDY J. MURRAY ry Publicin and for the ate of Idaho,
residing at Meridian , Idaho.
My Commission expires 2 -2008.
Idaho CSR No. 475
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