20060724Vol I Technical 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 SERVICE
THE STATE OF IDAHO
CASE NO. UWI-W-06-
BEFORE
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COMMISSIONER MARSHA SMITH (Presiding)
COMMISSIONER DENNIS HANSEN
PLACE:Commission Hearing Room
472 West Washington
Boise , Idaho
DATE:July 12 , 2006
VOLUME I - Pages 1 - 57
CSB REpORTING
Constance S. Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] * [phone]
Email csb(illspro.net
For the Staff:Weldon Stutzman, Esq.
and Donovan Walker, Esq.
Deputies Attorney General
472 West Washington
Boise , Idaho 83720-0074
For United Water Idaho:McDEVI TT & MI LLER LLP
by Dean J. Miller, Esq.
Post Office Box 2564Boise, Idaho 83701
CSB REPORTING
Wilder , ID 83676
APPEARANCES
WITNESS EXAMINATION BY
Mr. Miller (Direct)
Prefiled Supp. Direct
Commissioner Hansen
Commissioner Smith
Commissioner Hansen
Mr. Miller (Redirect)
Testimony
PAGE
Gregory P. Wyatt
(United Water)
Randy Lobb(Staff)
CSB REPORTING
Wilder , ID 83676
Mr. Stutzman (Direct)
Prefiled Direct Testimony
Commissioner Smith
INDEX
NUMBER DESCRIPTION PAGE
FOR THE STAFF:
101 - Settlement Stipulation in Case
No. UWI-W-06-Premarked
Admitted
CSB REPORTING
Wilder , Idaho 83676 EXHIBITS
BOISE , IDAHO, WEDNESDAY , JULY 12 2006 9:30 A. M.
COMMISSIONER SMITH:Good morning, ladies
and gentlemen.This is the time and place set for a
hearing in Idaho Public Utilities Commission Case
No. UWI-06-2, further identified in the matter of the
application of United Water Idaho Inc. for authority to
increase its rates and charges for water service in the
State of Idaho.We wish to temporarily excuse President
Kjellander this morning who had another commitment that
came up at the last minute that he had to attend to.
With that, we'll take the appearances of the
parties, beginning with Applicant.
MR. MILLER:Thank you, Madam Chairman.
Good morning, Dean J. Miller of the firm McDevitt &
Miller on behalf of the Applicant United Water Idaho, and
also with me this morning is Mr. Gregory Wyatt, the
general manager of the Company.
COMMISSIONER SMITH:Thank you , and for
the Staff?
MR. STUTZMAN:Thank you, Madam Chairman.
Weldon Stutzman and Donovan Walker , Deputies Attorney
General , on behalf of the Commission Staff, and with us
this morning is Randy Lobb of the Staff.
CSB REPORTING
Wilder, Idaho
COLLOQUY
COMMISSIONER SMITH:Are there any
preliminary matters that need to come before the
Commission before we take the testimony of the witnesses?
MR. STUTZMAN Just one, Madam Chairman.
We thought it would be a good idea to have a copy of the
settlement stipulation that we will be talking about this
morning be made a part of the record and I've had it
marked as Exhibit 101 and if there is no obj ection,
would ask that it be admitted to this record.
COMMISSIONER SMITH:Hearing no obj ection
it is so ordered.
(Staff Exhibit No. 101 was admitted into
evidence.
COMMISSIONER SMITH:Then we will begin
wi th your witnesses, Mr. Miller.
MR. MILLER:Thank you, Madam Chairman.
The Applicant would call Gregory Wyatt.
COMMISSIONER SMITH:We'll be off the
record.
(Off the record discussion.
CSB REPORTING
Wilder Idaho COLLOQUY
GREGORY P. WYATT
produced as a witness at the instance of United Water
Idaho Inc., having been first duly sworn , was examined
and testified as follows:
BY MR.MILLER:
DIRECT EXAMINATION
Sir, would you state your name, please?
Gregory P. Wyatt.
And what is your occupation?
General manager of United Water Idaho.
Did you previously have occasion to submit
to the Commission written prefiled supplemental direct
CSB REPORTING
Wilder , Idaho
testimony consisting of nine pages?
Yes, I did.
Are there any additions or corrections
that need to be made to your written prefiled
supplemental direct testimony?
No.
If I asked you the questions that are set
forth in the written pref iled supplemental direct, would
your answers today be the same as they are written
Yes they would.
there?
WYATT (Di)
Uni ted Water Idaho Inc.
And are your answers true and correct to
the best of your knowledge?
CSB REPORTING
Wilder Idaho
Yes, they are.
MR. MILLER:Madam Chairman , we would
request that the supplemental direct testimony of Gregory
P. Wyatt be spread on the record as if read in full and
would tender the witness for cross-examination.
COMMISSIONER SMITH:Thank you, Mr.
Miller.
(The following prefiled supplemental
direct testimony of Mr. Gregory P. Wyatt is spread upon
the record.
WYATT (Di)United Water Idaho Inc.
address.
Please state your name and business
Gregory P. Wyatt, 8248 W. Victory Rd,
Boise Idaho.
What is your occupation?
Water Idaho Inc.
I am the General Manager of United
United Water " or the "Company
Are you the same Gregory P. Wyatt who
previously filed Direct Written Testimony on February 10,
Yes I am.
2006 in this matter?
What is the purpose of your
Supplemental Testimony?
I want to express United Water'
support for the Settlement Stipulation signed by
Commission Staff and United Water , dated and filed May
22 I 2006, and urge the Commission to approve the
Settlement Stipulation without material change or
Could you briefly describe the key
condi tion.
features of the Settlement Stipulation?
Yes. In the Settlement Stipulation
the parties have agreed that:
The Company s allowed revenues
should be increased by $3.633 million , which is an
Wyatt, SuppDi
United Water Idaho Inc.
approximate 10.98% increase over current rates
- -
The $3.633 million increase should
be implemented by tariffs that increase the rates and
charges (except incidental service charges) to all
customers by a uniform percentage increase and that the
increase apply equally to the Company I s customer charge
and volume charge
Wyatt, SuppDi
United Water Idaho Inc.
- -
Upon Commission approval of the
Settlement Stipulation , United Water will dismiss with
prej udice its pending Supreme Court Appeal of the
Commission s final orders in Case No. UWI-04-04i
- -
The Commission's final Order should
approve various accounting methods for the Idaho Power
Company PCA and certain deferral items
- -
Rates implementing the increase may
go into effect by August 1,2006.
To put the Settlement Stipulation in
appropriate context, could you please describe the
Company s initial Application in this case?
Yes. On February 10, 2006 the Company
filed its initial Application requesting a revenue
increase of approximately $5.922 million , or an overall
increase of 17.91%.I believe this case can be viewed,
in many respects, as a continuation of Case No.
There , the Commission determined thatUWI-04-04.
Uni ted Water should follow the 13 -month average
methodology for rate base calculation, rather than the
year-end methodology previously employed.This resulted
in approximately $13 million of investment being excluded
from rate base.Wi th the passage of time that investment
became eligible for rate base inclusion under the
13 -month average methodology.A predictable consequence
Wyatt, SuppDi
United Water Idaho Inc.
of the change in methodology was that a follow-up case
would be necessary to obtain recovery of the investment
excl uded by the change in methodology.
Thus, following the Commission '
directive, the Company filed this case using the 13-month
average methodology with a split test year consisting of
6 -month actual and 6 -month proj ected data.
Wyatt , SuppDi
Uni ted Water Idaho Inc.
Did the Commission I s final orders in
Case No.UWI-04-04 require other changes in rate making
methods that made this filing necessary?
Yes. In Case UWI-04-04 the
Commission determined that the accrual method of
accounting for pension expense should not be used for
rate making purposes.In the intervening time, the
Company has been required to make, and soon will have to
make I significant cash contributions to the United Water
pension.In the original Application , the Company sought
recognition of this expense under the Commission required
cash method.
Were there other features of the
Company s initial application designed to streamline
processing of the case and eliminate contentious issues?
Yes.In Case No. UWI-04-04 the
Company and Staff stipulated to the appropriate return on
equi ty and cost of debt.In its Application United Water
proposed to carry forward the results of that stipulation
for use in this case, thus eliminating the need for cost
of capital witnesses.Staff agreed with that proposal.
Additionally, because the Company '
operating expenses and revenues were thoroughly reviewed
in Case No. UWI-04-04, the Application proposed only a
limited number of adjustments to operating expense,
Wyatt, SuppDi
Uni ted Water Idaho Inc.
concentrating on items that represented material
adjustments since the last case.
Finally, the Application did not propose
any adjustments to rate base for post-test year known and
measurable additions, a topic that was a source of
contention in Case No. UWI-04-04.
Please describe acti vi ties in this
case after the initial filing.
Wyatt, SuppDi
United Water Idaho Inc.
Staff conducted a thorough audit of
the Application, assigning a team of 6 auditors and
engineers to the audit proj ect .Two of the auditors
spent a week at the corporate headquarters in New Jersey
examining corporate documents.They al so reviewed
internal processes and procedures regarding inter-company
transactions.The Company cooperated fully in the Staff
investigation , responding to 107 informal written audit
requests and 53 formal discovery requests.
As time passed, did the Company
acquire actual financial data in place of the proj ected
6-month data contained in the initial Application and did
this lead to a willingness to accept less than the rate
request contained in the Application?
The proj ected test year endedYes.
Apri 1 30, 2006 and the proj ected data was converted to
actual early in May 2006. As a result of this and other
adj ustments that became apparent during the Staff audit,
the Company was prepared to make adjustments to it'
filing reducing the requested percentage to 14.91% from
17.91%, for a revised revenue increase of $4.93 million.
The Company provided to Staff the revised rate case
exhibits Nos. 3, 4 , and 11 showing the revised request
prior to settlement discussions.
After the activity you have
Wyatt, SuppDi
United Water Idaho Inc.
described, did the Company and Staff meet to discuss
possible settlement?
Yes, representatives of the Company
and Staff met for most of the day on May 15, 2006.There
are no other parties in the case.At that meeting an
agreement on the basic settlement terms was reached.
Then , over the next few
Wyatt , SuppDi
United Water Idaho Inc.
days, the written Settlement Stipulation was finalized
and ultimately filed on May 22 , 2006.
Turning to the specific elements of
the Settlement Stipulation, please discuss the
recommended revenue increase of $3.633 million.
This figure represents an amount both
parties believe reasonable after each party had an
adequate opportunity to evaluate the merits of issues
that were in dispute.While the parties did not attempt
to resolve each issue on an item by item basis, the
overall increase reflects each party s informed judgment
regarding the likely outcome if the case were fully
litigated.
Additionally, as discussed above, the
maj ori ty of the increase is not subj ect to dispute but,
rather , is the inevitable consequence of implementing the
decisions made in Case No. UWI-04-04. As recited in the
Stipulation " . . most of the additional revenue
requirement results from including in rate base proj ect
costs and expenses that were not included in rates in the
Company s last rate case, Case No. UWI-O4-04, and their
incl usion here is consistent with the Commission'
decision in that case.The Company estimates that more
than 75% of the settlement amount can be attributed to
compliance with orders from Case No. UWI-04-, while
Wyatt, SuppDi
Uni ted Water Idaho Inc.
the remaining amount can be attributed to increases in
investments and operating costs since the prior case.
The agreed increase of $3.633 million
also represents a significant concession from the
Company I S original request of $5.92 million and its
revised increase request of $4.93 million.
Wyatt, SuppDi
Uni ted Water Idaho Inc.
Is not a 10.98% increase a somewhat
significant increase for the company s customers?
On a percentage basis it may appear
so, although , I would note that in dollar terms it is
about a $3.00 per month increase for an average
residential customer.
Additionally, as noted above, the
maj ori ty of the increase is the inevitable result of
changes in rate making practices required by final orders
in Case No. UWI-04-04. Most of the increase is due to
the inclusion in rate base of investments excluded in
Case No. UWI-04-04 resulting from the change to the
13 -month methodology from the year end methodology.
Please discuss the proposal for a
uniform percentage increase.
In Case No. UWI-04-04, the issue of
cost of service and rate design was extensively debated.
After an opportunity for full consideration, the
Commission settled upon a rate design it believed best
served the public interest.Because rate design and cost
of service had so recently been reviewed at the time of
filing this case , the Company also filed a Motion
allowing the Company to dispense with the normal
requirement that a cost of service study accompany the
filing. The Commission granted that Motion.(See Order
Wyatt, SuppDi
Uni ted Water Idaho Inc.
No. 29988, dated March 3, 2006).
A uniform percentage increase also
preserves the rate relationships the Commission found to
be reasonable in Case No. UWI-04-04.
Has the Commission in the past been
reluctant to order increases to the customer charge
contained in the Company tariffs?
A review of Commission Orders from
the last three United Water rate cases (UWI-97-
UWI-OO-, and UWI-04-4) shows that the Commission
Wyatt, SuppDi United Water Idaho Inc.
approved across the board" increases in two of the
three.Only in Case No. UWI -W- 04 -4 did the Commission
apply the rate increase primarily to the volumetric
components of the tariff.However, given the unique
nature of this case , a uniform percentage increase
applied to all rate elements will preserve the
relationship between the customer charge and volume
charge the Commission recently found to be reasonable.
And, as the Company has argued in previous cases a rate
design that seeks to recover " too much" of the allowed
revenue requirement through volume charges serves to
exacerbate the real risk of revenue instability and
under-recovery of the allowed return.The rate design
proposal in this case is a modest step in the direction
of enabling revenue stability for the Company, while
still providing a significant conservation message via
the 25% higher summer rate.
Is the rate design proposal a
material term of the Settlement Stipulation from the
Company s point of view?
Yes. While the Company recognizes
that each term of the Settlement Stipulation is not
precedental and approval of it does not commit the
Commission to a course of action in the future , an equal
distribution to both the volume and customer charge in
Wyatt, SuppDi United Water Idaho Inc.
this case was a material consideration in the Company '
willingness to enter into the Settlement Stipulation.
Why, in conj unction with this case,
is the Company willing to dismiss its Supreme Court
appeal from Case No. UWI-04-04?
While our legal counsel believes the
appeal has legal merit, the Company understands that the
pendency of an appeal can be a source of friction between
the
Wyatt, SuppDi
United Water Idaho Inc.
Company, the Commission and Commission Staff. And , if the
Settlement Stipulation is approved, the Company believes
it's allowed revenues will be sufficient to provide a
reasonable opportunity to earn its allowed return on a
prospective basis.Dismissal of the appeal will also
eliminate further litigation costs for both the Company
and the Commission.
You mentioned that the Settlement
Stipulation also contains agreements between the Company
and Staff on certain accounting items.Please explain.
In sub-clauses a-c of paragraph 6 of
the Settlement Stipulation , agreements regarding
accounting methods for the Idaho Power PCA and certain
deferrals are set forth.None of these items affect the
revenue increase award in this case.Rather, they
reflect agreement on how these accounting issues will be
handled on a prospective basis, and specific regulatory
approval is necessary to support the accounting entries
that will be made.They thus eliminate the potential for
disagreements on accounting methods in subsequent cases.
The Company requests these methods be approved in the
Commission I s final order.
A final term of the Settlement
Stipulation is that rates would go into effect by August
Is this a material term of the Settlement1, 2006.
Wyatt , SuppDi
Uni ted Water Idaho Inc.
Stipulation from the Company s point of view?
Yes it is.I understand that under
the statutory suspension period the Commission would
otherwise have until September 12 , 2006 to make the rates
effective.Al though it is possible the Company would
have received an ultimate rate award greater than the
agreed settlement amount if the case was fully litigated,
receiving an amount certain earlier than legally required
was a material factor in the
Wyatt, SuppDi
United Water Idaho Inc.
Company s agreement to accept an increase of $3.633
million rather than pursue through hearing the full
amount of it's revised request.
Do you believe the Settlement
Stipulation represents a fair resolution of this case?
Settlement discussions wereYes.
only undertaken after Staff conducted a thorough audit of
the Application. The Settlement Stipulation is the result
of arms-length negotiations between two sophisticated
parties, each of whom had access to all relevant facts.
The end result is rates that are fair, just and
reasonable in my opinion.
Do you have any concluding remarks
regarding the settlement process?
During the settlement processYes.
the Company experienced a willingness by Staff to address
issues in a straightforward, professional manner. The
Company is very appreciative of these efforts by Staff.
Does that conclude your testimony?
Yes it does.
Wyatt, SuppDi
Uni ted Water Idaho Inc.
open hearing.
(The following proceedings were had in
COMMISSIONER SMITH:Are there any
questions, Mr. Stutzman?
MR. STUTZMAN:No questions.
COMMISSIONER SMITH:Do we have questions
from the Commission?
COMMISSIONER HANSEN:ve got one.
COMMISSIONER SMITH:Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
Mr. Wyatt, I just want to ask you one
On page 9 of your testimony, the answer you
gave to the second to the last question there starting on
CSB REPORTING
Wilder , Idaho
line 10 and you said that you appreciated the willingness
by the Staff to address issues in a straightforward and
professional manner and I just wondered, isn't that
always the case with the Staff?
It's been my experience that that is the
Okay so I wanted to clarify, this isn '
question.
No, I was just simply marking it out.
case.
unusual?
WYATT (Com)
United Water Idaho Inc.
COMMISSIONER HANSEN:Thank you.Tha ti
all I have.
EXAMINATION
BY COMMISSIONER SMITH:
I guess, Mr. Wyatt, since the Company
rate case is usually the opportunity that the Commission
gets the opportunity to hear from the Company, I guess
wanted to just give you an open-ended opportunity to say
anything that you think we should know about your
operations in this state, good, bad or indifferent.
How much time do I have?
All day.
I won t take all day.Madam Chairman and
Commissioner Hansen , I do appreciate the opportunity to
speak before you.Not having thought about the
opportuni ty to speak only about the business, but now
that you presented me with that opportunity, it does give
me pause to think about certain challenges that we
experience and it might be just worth having your
awareness of.
Certainly, the ratemaking process is one
which consumes time and effort, and as I stated in the
last paragraph , we were very pleased to be able to reach
CSB REPORTING
Wilder , Idaho
WYATT (Com)
United Water Idaho Inc.
settlement on this case for it does afford us the
opportuni ty to keep ratemaking costs low for customers
and it also affords the opportunity to focus on the
continued operations of running the business, so again, I
applaud the Staff for its willingness to participate in
settlement discussions and allowing us to have more time
in our process for regular business day-to-day
activities.
We're serving in excess of 80,000
customers now with approximately 91, 92 employees and so
our resources are quite busy.We I re experiencing
significant growth, as much of this valley is, and the
growth that we are experiencing, although it does put a
challenge on our human capital , our human resources, it'
also beginning to put, I would say, pressures on water
resources and source of supply considerations.
Certainly, we were very pleased to have the construction
of the Columbia water treatment plant and the potential
for expanding that in the future however, that's not the
only area of the system where growth is being
experienced.
That plant is in the southeast portion of
our system and although we experience growth there , we
also still experience growth in the northwest portion of
the system and the southwest portion of the system quite
CSB REPORTING
Wilder , Idaho
WYATT (Com)
United Water Idaho Inc.
significantly, so we will continue to have investments in
infrastructure, source of supply and even now we'
seeing more investment requirements in the treatment
characteristics of our business simply because of more
stringent requirements of the Safe Drinking Water Act,
particularly with arsenic and radon or, excuse me, with
arsenic and uranium, so we will be seeing some
investments there that we re going to be having to make
in existing facilities in order to meet regulatory
requirements from the EPA and the Safe Drinking Water
Act.
The growth challenges continue to, as I
said, challenge everyone and it gives us opportunity to
seek to expand our facilities as well so as to take
advantage of economies of scale.I would say that at
this point one of the areas of concern in our business
which we have expressed in the past and likely will be
expressing in the future would be with regard to issues
of bimonthly versus monthly billing.ve had that
issue come up in the past.We did not take the
opportunity in this case to address it simply because we
were seeking to keep this case relatively issue free of
more contentious issues, but I do believe it is one that
we should address going forward and the associated
customer service aspects of budget billing and those
CSB REPORTING
Wilder, Idaho
WYATT (Com)
Uni ted Water Idaho Inc.
kinds of things to enable our customers to handle the
water bills as the costs inevitably go up over time.
In addition to that, it appears to me that
even though we ve requested an across-the-board increase
on this request and the cost of service study was
submitted in the last case and extensively reviewed and
debated, I believe that the relationship between the
customer charge and the volumetric charge is certainly a
concern for us and I think even for our customers,
certainly, but from a standpoint of customers' abilities
to pay and our ability to maintain revenue stability and
viability as more and more of our customers are receiving
domestic water from United Water and irrigation water
from irrigation facilities, non-potable irrigation
facilities, it puts the mix of customers in a unique
light, and it also challenges us from a revenue stability
standpoint during periods of lower water use than normal
or than is historical.
We're continuing to see a significant
downward trend line in the consumption per customer
numbers.This is a good thing, but it's also somewhat
unsettling from a revenue stability standpoint.
Certainly, it is a by-product of factors such as the
25 percent change in rates winter to summer.It I S also a
reaction to, I think, the conservation messaging and the
CSB REPORTING
Wilder, Idaho
WYATT (Com)United Water Idaho Inc.
conservation mentality that our general population has
more and more of.In addition , I think it's also a
function of the alternate irrigation , the non-potable
irrigation , capacities that are available to more and
more of the growth customers and even on a retrofit basis
on existing customers and existing neighborhoods.
What we find is that that puts pressure on
our ability to achieve our authorized rate of return and
achieve our authorized revenue requirement simply by
virtue of the fact that, I guess the simplest way I can
put it is that our downside potential on revenues is
probably in the 1.5 to $2 million a year basis when
there's, I'll call it, a wetter or cooler summer
whereas, the upside potential may only be, even in the
hottest times, a half million dollars or possibly
three-quarters, so there is an imbalance in my view in
the offset, so to the extent that we might be looking to
make some creative proposals in the future to the
Commission, I think that we would just simply like to
communicate that point that we're beginning to look at
that and think there s some room for discussion on that
in the future.
Okay, thank you, Mr. Wyatt.I think that
does give us food for thought and it is kind of a
conundrum that you want people to reduce their per capita
CSB REPORTING
Wilder , Idaho
WYATT (Com)
Uni ted Water Idaho Inc.
consumption of water, but you don't want them to be
punished for that by paying more for what they do use.
Well, it puts the utility in an
interesting predicament when it's encouraged to convince
users to use less and less of the only product it
sells.
Okay.Would it be your suggestion, then,
that these - - mostly what I wrote down, the billing
monthly versus bimonthly, the relationship between the
customer charge and the volumetric charge and how you
design rates in a climate where people are reducing their
per capita consumption are what I would categorize as
rate design kind of issues as opposed to maybe revenue
requirement kind of issues.Is there any benefit
exploring some sort of process resolving these issues
outside of a time when we are increasing revenue?
Certainly, I think that there is
opportunity for both discussion and potential resolution
of issues of this nature outside of a ratemaking process,
yes, and I would suggest that it's - - as I look across
regulatory results in other jurisdictions and continue to
learn and look for different ways to manage those issues,
we see lots of different examples of how other utilities
possibly in other locations, and I am not suggesting that
Idaho should be like somebody else, but sometimes they
CSB REPORTING
Wilder, Idaho
WYATT (Com)
United Water Idaho Inc.
can be instructive, employ techniques utilizing, you
know , a range of para-structures or balancing accounts,
revenue reconciliation kind of methodologies, et cetera,
so I would suggest that there might be a way to look
all those aspects or as many as we can find that are
reasonable and then work towards seeing if there s an
opportunity for solution there.
I would encourage theCOMMISSIONER SMITH:
Company and the Staff to explore those and not let the
issues ferment until they re really hot.
THE WITNESS:Contentious.
Yeah.Anything else?COMMISSIONER SMITH:
COMMISSIONER HANSEN:I just have one
more.
COMMISSIONER SMITH:Commissioner
Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
Mr. Wyatt, in your comments you were
talking about the irrigation of the lawns and so forth
and I guess the question I have is do you find that most
of the developers now as they re developing the new
subdi visions that you are bringing water to the homes, do
CSB REPORTING
Wilder , Idaho
WYATT (Com)
United Water Idaho Inc.
you find that most of those are developing their own
non-treated water irrigation systems from the water
rights that were on that property and they're just
putting in their own pressurized irrigation systems and
not really using the treated water that you people
provide?
That is what we're finding, and if I could
just add a little bit of information on that.In the mid
90s, and I think it was maybe '95,'96 time frame, both
the City of Boise and Ada County, and I'm not sure which
one came first, but both of them enacted ordinances that
required new development on previously irrigated lands,
farm lands if you will, if they re developing on those
lands, then they are required to put in, the developer
required to put in , a dual water system , meaning a
domestic water system, potable water system , for the home
and then what we call an alternate irrigation system or
non-potable irrigation system for lawns, gardens,
shrubberies, landscaping, and what we're finding is in
about 75 percent of our new growth customers, we
seeing that they are recipients of the alternate
irrigation and it is a good thing.
We certainly agree, and I agree, that it
makes broad sense to not put treated water on lawns if
there s an alternative.In certain areas of our system
CSB REPORTING
Wilder, Idaho
WYATT (Com)
United Water Idaho Inc.
that alternative does not exist, both for existing
customers and for some new customers i. e., foothills
development typically is not previously farm land or
irrigated and there s no water rights available or
irrigation company or irrigation district or what have
you available to provide that irrigation water for them,
so those kinds of developments still rely upon United
Water for all water use if they re within our service
terri tory or if they re requesting service from us
however, in lots of areas, again in the southwest area of
the system, the southeast area of the Boise area reach,
we find that that's the predominant situation, that
alternate irrigation is available and that's what is
being developed, so those realities do exist.That
certainly helps to drive down the consumption per
customer average that we're seeing in our data.
I guess just a follow-up question.
area that I'm familiar with is in the northwest section,
but it's called Castlebury and I know United Water serves
that area and I guess I'm just kind of curious because,
ike, those homes are on acre lots and yet, they have
their irrigation system and so I guess my question is,
isn't it fairly difficult to recover your costs if all
that you are providing those homeowners is just their
domestic water for their use in their home, which would
CSB REPORTING
Wilder , Idaho
WYATT (Com)
United Water Idaho Inc.
probably be very little, and I guess I'm just kind of
curious on a case like that where the infrastructure
would probably be quite great, I mean it's a big area,
several, maybe 100 acres or more, I'm just wondering, are
the other customers really in the end subsidizing the
cost, the capital cost, to really put that kind of
service into the people where they re really only using
very little water?
I m not sure that I would characterize it
as subsidizing the cost.What we see is certainly all of
the development costs, the mains, the services, the fire
hydrants that are required to service that subdivision,
whether it's one-acre lots or one-quarter acre lots or
100-foot lots, even tighter density, is all paid for and
installed by the developer and contributed to the
utility.The investments that we make in what we call
backbone plant, source of supply, treatment, storage,
pumping, those sorts of costs to provide the source of
supply certainly does get spread across the entire base
of customers.
I think what we see is that we see the
variance in how much customers who have alternate
irrigation pay simply because they have that alternate
irrigation and they re not paying for high volumes of
water and so the revenue stream is a lower revenue
CSB REPORTING
Wilder, Idaho
WYATT (Com)
Uni ted Water Idaho Inc.
On a gallon per gallon basis, I believestream.
everybody pays their fair share, but as new source of
supply, new backbone plant is required to serve customers
in the system wherever they are, those costs are going to
be borne by all customers, and let me also say that new
source of supply, new infrastructure is not only
necessary to support growth , we need to replace
infrastructure for existing customers as well, existing
sources of supply.If we had no growth from today
forward , not one new customer ever connected to United
Water, we would still need to invest in replacement
source of supply, wells and so forth because of the
general decline of well capacity, pump capacity, motor
capacity and those kinds of things on the existing
systems and the need to invest in additional storage
and/or treatment as regulatory requirements demand.
COMMISSIONER HANSEN:Thank you.
COMMISSIONER SMITH:Thank you, Mr. Wyatt.
Do you have any redirect, Mr. Miller?
MR. MILLER:I might just ask one question
along the lines that we ve been discussing.
CSB REPORTING
Wilder , Idaho
WYATT (Com)
Uni ted Water Idaho Inc.
REDIRECT EXAMINATION
BY MR. MILLER:
Mr. Wyatt, in the previous United Water
case, the Commission required the Company to prepare and
submi t a new conservation plan.I wonder if you could
just update the Commission on the progress for compliance
with that requirement.
Yes, I'd be happy to.You re correct that
we were - - out of the last case was the action to move
towards renewing and updating our existing conservation
plan and we had, we submitted request for proposals and
then bids for that plan.Earlier this year, we were
successful in obtaining a consulting firm to assist us
wi th that plan , a gas/water company, consultant, excuse
me, out of California is the firm.We did submit an
update as is required to the Commission in April giving a
status update at that time, but since that time we
also had workshops with the consultant as well as with
representatives from the Commission Staff and Idaho
Rivers United as well participating in workshops
reviewing, oh , maybe 100 different possible
conservation-type measures and then we rate them, we rank
them, we assess their viability for potential in this
area and for the cl ient base that we have here, the
CSB REPORTING
Wilder, Idaho
WYATT (Di)
Uni ted Water Idaho Inc.
customer base that we have here, and we re in the process
of - - that maybe 100 plus type of items was whittled down
to something in the range of 17 to 25 conservation-type
actions or measures that the Company might consider or
might be able to take in accordance with those plans and
we have a second workshop set up for early August, I
don 't remember the exact date, in which we will be coming
back together to again review the more whittled-down list
as we 'll continue to pare down and strengthen the list of
conservation actions or measures that we would put into
the final plan which is slated to be delivered to this
Commission near the end of this year.
MR. MILLER:Thank you.That's all I had,
Madam Chairman.
COMMISSIONER SMITH:Thank you.Mr. Wyatt
is excused.
(The witness left the stand.
COMMISSIONER SMITH:Does that conclude
your witnesses, Mr. Miller?
MR. MILLER:The Applicant rests.
COMMISSIONER SMITH:Mr. S t u t zman .
MR. STUTZMAN:Thank you, Madam Chair.
The Staff calls Randy Lobb, please.
CSB REPORTING
Wilder, Idaho
WYATT (Di)
Uni ted Water Idaho Inc.
RANDY LOBB,
produced as a witness at the instance of the Staff,
having been first duly sworn, was examined and testified
as follows:
DIRECT EXAMINATION
Good morning.
Good morning.
Would you please state your name for the
My name is Randy Lobb.
And how are you employed?
I am the administrator of the utilities
division at the Idaho Public Utilities Commission.
CSB REPORTING
Wilder, Idaho
In that capacity, did you prepare and
prefile direct testimony in this case dated June 16,
Yes, I did.
Does that consist of approximately
Yes.
Do you have any changes or correct ions to
your prefiled testimony?
BY MR. STUTZMAN:
record?
2006?
pages?
LOBB (Di)Staff
I do have some corrections all of which
On 1 ine 16.03" should be "16.20,are on page 10.
$16.20."72" should be "80Additionally on line
so it would be "80."300 ccf" should beOn line 10,
3 ccf.$1.1981" should be "2110," andOn line 11
then again on 1 ine 12,300 ccf" should be "3 ccf" and
that concludes the corrections.
All right, thank you.wi th those changes,
if I were to ask you the same questions as contained in
your written testimony, would your answers be the same as
prepared in the testimony?
Yes, they would.
MR. STUTZMAN:Madam Chair , I I d ask that
the testimony of Randy Lobb be spread on the record as if
read.
COMMISSIONER SMITH:If there I s no
obj ect ion , it is so ordered.
(The following prefiled direct testimony
of Mr. Randy Lobb is spread upon the record.
CSB REPORTING
Wilder , Idaho
LOBB (Di)Staff
Please state your name and business
address for the record.
My name is Randy Lobb and my business
address is 472 West Washington Street, Boise, Idaho.
By whom are you employed?
I am employed by the Idaho Public
Utilities Commission as Utilities Division Administrator.
What is your educational and
professional background?
I received a Bachelor of Science
Degree in Agricultural Engineering from the Uni versi ty of
Idaho in 1980 and worked for the Idaho Department of
Water Resources from June of 1980 to November of 1987.
received my Idaho license as a registered professional
Civil Engineer in 1985 and began work at the Idaho Public
utilities Commission in December of 1987.My duties at
the Commission currently include case management and
oversight of all technical Staff assigned to Commission
filings.I have conducted analysis of utility rate
applications, rate design, tariff analysis and customer
petitions.I have testified in numerous proceedings
before the Commission including cases dealing with rate
structure, cost of service, power supply, line
extensions, regulatory policy and facility acquisitions.
What is the purpose of your testimony
in this case?
CASE NO. UWI-06-
06/16/06
(Di)
STAFF
LOBB , R.
The purpose of my testimony is to
describe the process leading to the filed Stipulation
(the Proposed Settlement) signed by the two parties in
this case and to explain the rationale for Staff'
support.
Please summarize your testimony.
Based on Staff's review of United
Water Idaho I s (United Water Company) rate case filing, a
comprehensi ve audit of Company test year results of
operations and consideration of outstanding rate case
issues, Staff believes that the proposed Settlement
agreed to by Staff and the Company is in the public
interest and should be approved by the Commission.The
Company originally proposed an annual revenue increase
$5.92 million for an overall increase of 17.91%.The
proposed Settlement specifies an annual revenue
requirement increase of $3.63 million for an overall
increase of 10.98%.
The primary consideration of the
Commission Staff in leading to the Stipulation on revenue
requirement was a belief that settlement would eliminate
the risk of higher revenue requirement and result in a
smaller rate increase than could be achieved through
hearing based on the Staff case.Staff concluded based
on its evaluation of the Company's filing that much of
CASE NO. UWI -W- 06-
06/16/06
(Di)
STAFF
LOBB , R
the requested increase was due to compliance with the
prior Commission order issued in the most recent United
Water rate case or associated with
CASE NO. UWI -W- 06-
06/16/06 LOBB , R.(Di)
STAFF
undisputed known and measurable test year adj ustments.
After additional audit and investigation, Staff also
concluded that the potential for additional , justifiable
revenue requirement reducing adjustments was limited
given the exhaustive Staff review conducted in the last
general rate case completed less than one year ago.
The Stipulation
What are the key components of the
proposed Settlement Stipulation?
The key components include:1 )
recommending an annual revenue requirement increase of
$3.63 million or 10.98% 2) agreement on a uniform
percentage increase in all customer charges and
volumetric rate components and 3) dismissal of the
appeal from Case No UWI-W-04-4, Supreme Court Docket No.
32431.
The Stipulation also specifies
amortization of several additional deferred expenses
including $79,000 in power expenses, $150,000 in tank
painting expenses and rate case expenses for this case
and the Company s last rate case.Finally, the parties
agreed to continued use of the Stipulation approved by
the Commission in Case No. UWI-04-4 for the cost of
debt methodology and return on equity.
Revenue Requirement
CASE NO. UWI -W- 06-
06/16/06 LOBB , R.(Di)
STAFF
How did Staff identify revenue
requirement issues
CASE NO. UWI -W- 06-
06/16/06 LOBB R. (Di)
STAFF
and determine that settlement should be considered in
this case?
Staff identified issues in this case
by reviewing the Company's rate case filing, conducting a
comprehensive audit of Company test year results of
operations and reexamining issues, recommendations and
Commission Orders associated with the Company s last
general rate case , Case No. UWI-04-
Staff determined that nearly 50% of the
requested $5.91 million increase was directly due to
Company compliance with the Commission order in the last
Uni ted Water rate case with respect to the calculation of
rate base and pension expenses.In May 2006 , the Company
updated its budgeted investments and expenses to reflect
those actually booked in the test year.The Company al
reconfigured its pension plan to further reduce annual
expenses.The update resulted in a new requested
increase of $4.9 million or 14.86%.
Compliance with prior Commission orders
wi th respect to rate base and pensions now represented
nearly 60% of the requested increase.
In addition to authorized increases due to
rate base and pensions, Staff also identified undisputed
proforma adj ustments for items such as salaries , taxes
and additional investment.
the Company
Finally Staff did not dispute
CASE NO. UWI-06-06/16/06 LOBB , R.(Di)
STAFF
proposed continued use of the cost of debt methodology
and return on equity approved by the Commission in the
last rate case.Consequently, the remaining requested
increase and the underlying rate base and expenses, most
of which were reviewed at length by Staff and approved by
the Commission in the rate case completed in July of
2005, left limited potential for additional revenue
requirement adj ustment in this case.
What is meant by authorized increases
due to rate base and pensions?
The authorized increase due to rate
base results from application of the 13 -month average to
determine test year rate base.The Company simply
incorporated prior investment for the entire test year in
this case that was only partially incorporated in the
test year used in the last rate case due to the 13 -month
averaging methodology.
The authorized increase due to pensions
resulted from using the ERISA method , approved by the
Commission in the last case , to calculate test year
penslon expense in this case.
Please explain the overall rate of
return as agreed to by the parties as part of the
stipulated revenue requirement.
The parties agreed in this case to
CASE NO. UWI -W- 06-
06/16/06 LOBB , R (Di)
STAFF
accept the overall rate of return methodology included in
the
CASE NO. UWI -W- 06-
06/16/06
LOBB , R. (Di)
STAFF
Stipulation approved in Case No. UWI-04-4, Order No.
That Stipulation specified a return on equity of29838.
10.3% and a compromise method of calculating the cost of
debt.These agreements remain reasonable for adoption in
this case.The difference in the overall rate of return
filed by United Water in this case and authorized in
Order No. 29838 is the change in capital structure.The
equity ratio increased by 2% to 48% due to an equity
infusion from the parent company, retirement of the
minori ty interest preferred stock and retained earnings.
The 48% equity ratio is reasonable for this case in
current markets.All of these components may be issues
in the Company s next rate case.
Was the Staff able to identify any
addi tional adj ustments to the Company s requested
increase?
Yes.Staff initially identified
nearly 20 potential issues with annual revenue
requirement impacts ranging from $5,500 to $869,000 for
each issue.Some of the issues such as a back cast of
plant in service dates, purchased water expense, power
supply costs, leased water revenue and an early incentive
payment paid by United Water in conjunction with
construction of the Columbia water treatment plant were a
continuation of issues raised in the last rate case.The
CASE NO. UWI-06-
06/16/06 LOBB , R.(Di)
STAFF
remaining issues new to this case included imputation
affiliate revenue, miscellaneous
CASE NO. UWI -W- 06-
06/16/06
LOBB , R (Di)
STAFF
expense adj ustments and weather normalization.
What approach did Staff take in
evaluating settlement options and identifying a
reasonable revenue requirement?
Staff's overall approach in
evaluating the merits of settlement was to determine
which al ternati ve , settlement or hearing, would most
ikely result in the best deal for ratepayers based on
Staff's case.Staff began by evaluating each of the
issues identified and placing them in one of three
categories:1) firm revenue requi remen t reduct ions, 2
revenue requirement reductions that were less certain
wi th respect to acceptance in total by the Commission at
hearing and 3) revenue requirement adj ustments that had a
high degree of uncertainty with respect to acceptance by
the Commission at hearing.
Staff determined that the first
category of adjustments reduced revenue requirement by
approximately $527 000 from the adjusted request of $4.
million to $4.4 million.The second category of
adjustments could reduce the request by another $154 000
to approximately $4.24 million.Finally, the third
category of adj ustments, the most speculative, could
reduce the overall request by an additional $962 000 to
$3.28 million or 9.9%.
CASE NO. UWI-06-
06/16/06 LOBB , R.(Di)
STAFF
How did Staff arrive at the $3.
million revenue requirement increase agreed to in the
CASE NO. UWI-06-06/16/06
Stipulation?
(Di)
STAFF
LOBB , R.
Based on the nature of the
expense/rate base increases driving the Company s request
and the potential adjustments identified by Staff , the
best-case outcome through hearing would be an increase in
revenue requirement of approximately $3.28 million or
9% .Staff believed that the worst-case scenario could
be in excess of $4.24 million or 12.82%.
Through negotiation and compromise,
Staff and the Company agreed to a revenue requirement
increase of $3.63 million or 10.98%.Staff determined
that the negotiated increase, incorporating nearly 70% of
the uncertain revenue requirement adjustments identified
in categories 2 and 3, was a reasonable outcome.
Staff also believed that the
Company s agreement to dismiss its appeal from Case No.
UWI-04-, Supreme Court Docket No. 32431 provided
additional value to the Stipulation.The dismissal
eliminates costly and time-consuming litigation and
removes the potential for modification of test year rate
base calculations and associated rate impacts.
Please explain the amortization of
addi tional deferred power supply, tank painting and rate
case expenses as included in the Stipulation.
The additional deferred power supply
expense of $79 000 subject to amortization reflects
actual costs
CASE NO. UWI -W- 06-
06/16/06
(Di)
STAFF
LOBB , R
incurred by the Company for higher power supply costs due
to the PCA.Recovery of these deferred costs was
approved by the Commission in the last rate case.
Tank painting costs of $150,000 in
this case were included for amortization over 20 years
consistent with the Commission decision to allow similar
treatment of tank painting expenses in the last rate
case.
The additional rate case expense
subj ect to amortization is a compromise amount that
allows costs incurred by the Company as part of the last
rate case and rate case expenses incurred for this rate
case to be amortized over a four-year period.The
additional expenses from the last rate case were as yet
unquantified when the Commission previously approved
recovery of such expenses.The Company maintained that
an additional $199 000 was incurred and deferred for
recovery from the last rate case. The Staff analysis used
$250,000 as the amount included for recovery (the
$199,000 and amortization of approximately $50,000 in
rate case expenses from this case) .
Why did Staff agree to a uniform
lncrease in all rate components including customer
charges?
Staff originally opposed 'any increase
CASE NO. UWI-06-
06/16/06
(Di)
STAFF
LOBB , R.
in the customer charge but agreed to the uniform increase
to further reduce the overall revenue requirement agreed
to in the Stipulation.Staff notes that other than
rounding to
CASE NO. UWI -W- 06-
06/16/06
LOBB , R (Di)
STAFF
the nearest 10 cents, customer charges have not increased
since the year 2000.
What will rates be if the Commission
approves the Stipulation?
For customers served by a % inch
meter, which includes the majority of United Water
customers, the customer charge will increase from $14.
bi-monthly to $16.20 bi-monthly resulting in a monthly
increase of 80 cents.The winter commodity rate and
summer commodity rate for the first 3 ccf (100 cubic
feet) bimonthly will increase from $1.0912 per ccf to
$1.2110 per ccf.The summer commodity rate for all water
use above 3 ccf bi-monthly will increase from $1.3641 per
ccf to $1.5139 per ccf.
Does this conclude your testimony in
this proceeding?
Yes, it does.
CASE NO. UWI -W- 06-
06/16/06 (Di)
STAFF
LOBB, R.
(The following proceedings were had in
open hearing.
MR. STUTZMAN:Mr. Lobb is available for
cross-examination.
MR. MILLER:We have no questions.
COMMISSIONER SMITH:No questions?
Questions from the Commission?
COMMISSIONER HANSEN:No.
EXAMINATION
BY COMMISSIONER SMITH:
Well , I guess, Mr. Lobb, kind of the same
question I asked Mr. Wyatt , are there issues with regard
to this utility providing service in this state that you
think the Commission ought to be aware of that weren't
previously covered in your prefiled testimony?
I think Mr. Wyatt touched on many of the
issues that the Staff is concerned about, primarily the
cost of growth , and I think it I S interesting that we
require contributions for the distribution that directly
serves new growth.According to Mr. Wyatt, 75 percent of
the new customers have separate irrigation systems and
yet, cost of growth is still considered to be the biggest
issue with respect to increasing rates, so I think it'
CSB REPORTING
Wilder , Idaho
LOBB (Com)
Staff
important to really look at cost of service and determine
how much of the rate pressure is caused by replacement of
existing plant, how much of the rate pressure is caused
by new growth and why.I shudder to think what the cost
of new growth would be if all of the new customers were
using treated irrigation water, so I think it's important
to identify how much of the costs are being paid for by
new customers, how much are being incurred to serve new
customers and what the breakdown actually is.
The issue with respect to rate design is
not new , how much revenue is provided by a new customer
that has a separate irrigation system, it doesn t cover
the revenue requirement to serve that customer, those are
issues that are a concern of all utilities and we
looked at it in terms of maybe we should have a revenue
requirement per customer and so much revenues provided.
Maybe that's a way to go.There are certainly
trade-offs.That means you just have a high customer
charge and you don t recover costs associated from the
sale of the commodity.
It I S an important issue that we have to
address and I think we will continue to look at rate
design issues and who pays and how much , whether they pay
through a customer charge to recover cost of service or
whether those costs are reasonably collected through the
CSB REPORTING
Wilder, Idaho
LOBB (Com)Staff
commodi ty.
And I hate to add to work load because it
seems like we have plenty to do, is this something that
you think will happen between the Staff and the Company
without the Commission officially or formally opening a
case or will it require some sort of official case
insisting in order to get the problem worked out?The
way things go, it seems that the most pressing things
with deadlines get taken care of first and other things
are done as they can be given the time constraints.
I suspect that's the case here.We'
kind of a reactive agency.We react to the filings of
the companies and to the extent they make a filing to
change rates , we would address those issues at that time
and I suspect that given the growth history and what we
expect to be continued growth that the Company will be in
more general rate cases in the future and that is the
time, I think , we will real closely look at monthly
billing, rate design changes, impacts of separate
irrigation systems on revenue and that sort of thing.
certainly think about those issues in between rate cases,
but absent a filing, I don t expect that we will formally
address those issues outside of a rate case.
Would you be opposed to doing it on an
informal basis if the Company wanted to?
CSB REPORTING
Wilder, Idaho
LOBB ( Com)Staff
No, not at all.If they re interested , we
would certainly sit down and discuss in a workshop format
or something like that what the possible alternatives
might be.
COMMISSIONER SMITH:Thank you.
Is there any redirect , Mr. Stutzman?
MR. STUTZMAN:, I don Thank you.
COMMISSIONER SMITH:Thank you for your
he 1 P , Mr. Lobb.
(The witness left the stand.
MR. STUTZMAN:That concludes the Staff'
case.
COMMISSIONER SMITH:Thank you.I s there
any desire for extensive briefing?
MR. STUTZMAN:I don't think so.
COMMISSIONER SMITH:Determining that
briefs are not necessary in this case, we will adj ourn
this hearing until I think it's 7: 30 this evening when we
have our public -- sorry, 7:00 p.m., 7:00 p.m. this
evening a public hearing in this room is scheduled to
take comments from members of the public, so with that,
we I re adj ourned until 7: 00 p. m. this evening.
MR. MILLER:Thank you, Madam Chairman.
(The Hearing recessed at 10:10 a.
CSB REPORTING
Wilder, Idaho
LOBB (Com)Staff
(Q) (j2)
..,:'" ,
WELDON B STUTZMAN (ISB 3283)
DONOVANE. WALKER (ISB 5921)
DEPUTY ATTORNEYS GENERAL
IDAHO PUBLIC UTILITIES COMMISSIONPO BOX 83720
~, ;
BOISE, ill 83720-0074
Telephone: [phone]
[phone]
Fax: [phone]
Ernail: weldon.stutzrnan~puc.idaho. gov
donovan. walker~puc.idaho .gov
, "..;
I!; '~C'
; ! "-', .-' "', ,; ,,' ,~, .. ,
Attorneys For Commission Staff
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 SERVICE IN
THE STATE OF IDAHO SETTLEMENT STIPULATION
CASE NO. UWI-O6-
This Stipulation (Stipulation) is entered into by and among United Water Idaho Inc
(United Water; Company), and the Staff of the Idaho Public Utilities Commission (Staff). There
are no intervening parties in the case.
INTRODUCTION
1. The Parties agree the Stipulation represents a fair, just and reasonable
compromise of the issues raised in United Water s Application for an increase in water service
rates, and the Stipulation is in the public interest. The Parties believe the Stipulation and its
acceptance by the Idaho Public Utilities Commission (Commission) represents a reasonable
resolution of the several issues identified in this matter. The Parties, therefore, recommend that
the Commission, in accordance with Rule of Procedure (RP) 274, approve the Stipulation and all
of its tenns and conditions without material change or condition.
BACKGROUND
2. On February 10, 2006, United Water filed an Application seeking authority to
increase the Company s rates an average of 17.91 %. If approved, the Company s revenues
SETTLEMENT STIPULA nON
would increase approximately $5.9 million annually. United Water proposed that the rate
increase be spread equally among all custorner groups. The Company requested that new rates
become effective on March 13 , 2006.
3. A petition to intervene in this proceeding was filed by Boise Residents Against
Commercial Exploitation (BRACE). However, BRACE subsequently withdrew its petition on
May 1 , 2006. No other petitions to intervene were filed in the case.
4. On March 29; 2006, the Commission issued a Notice of Scheduling and Notice of
Hearing establishing the procedural schedule, including a technical hearing to convene on July
, 2006. Following brief conversations the week before, the Parties met on May 15 , 2006 to
engage in settlement discussions in accordance with RP 272 with a view toward resolving the
issues in this case.
5. Based upon the settlement discussions, as a compromise of the positions in this
case, and for other consideration as set forth below, the Parties agree to the following tenus:
TERMS OF THE STIPULATION
6. Settlement of Disputed Issues; Revenue Requirement. The settlement is reached
as a fair resolution to several disputed issues between the parties, recognizing that neither party
was likely to prevail on every issue at hearing. The settlement results in a revenue increase that
is reasonable, but without resolving specific issues which were in dispute between the Company
and Staff. Regarding United Water s revenue requirement, the Parties agree that United Water
should be allowed to implement revised tariff schedules designed to recover $3.633 million in
additional annual revenue from customer rates and charges, which is an overall increase of
10.98%. In detenuining the $3.633 million additional revenue requirement, the Parties discussed
and debated the relative merits of the several disputed issues, and agree that most of the
additional revenue requirement results from including in rate base project costs and expense
updates that were not included in rates in the Company s last rate case, Case No. UWI-04-
and their inclusion here is consistent with the Commission s decisions in that case. In addition
the Partie~ agree that (a) until ordered to the contrary by the Commission, the Company will
continue its current method to account for Idaho Power PCA costs. United Water may amortize
over three years the approximate current balance of $79 000, and both parties agree that further
deferral will reflect the PCA rate effective as of June 1 , 2006; (b) United Water may continue to
amortize deferrals for power expense, rate case expense, relocation expense, tank painting
SETTLEMENT STIPULATION
expense, water quality testing expense and several other minor amortizations approved in Order
No. 29838 issued in Case No. UWI-04-, and may begin to amortize new deferred tank
painting expense of $150 000 related to Federal Reservoir over a 20 year period; (c) the
Company may amortize over a four year period deferred rate case expense related to Case No.
UWI-04-4 which was not addressed by Commission Order No. 29838 and deferred rate case
expenses for this case, UWI-06-2; (d) the Stipulation approved by the Commission in Case
No. UWI-04-4 regarding the cost of debt and return on equity for United Water is appropriate
for use in this case.
7. Rate Spread and Rate Design. The Parties agree that the $3.633 million revenue
requirement increase should be recovered by implementing tariffs which increase the rates and
charges (except incidental service charges) for all customers by a unifonn percentage amount of
approximately 10.98%. The unifonn percentage increase shall apply equally to the customer
charge and volume charge as contained in United Water s tariffs.
8. Upon execution of this Stipulation, the Parties will file a motion to suspend the
briefing schedule in the appeal from Case No. UWI-04-, Suprerne Court Docket No. 32431.
Upon entry of an order approving the settlement, the Company will promptly file appropriate
, pleadings to dismiss with prejudice the appeal, with each party to bear its own costs.
9. The Parties agree that the Stipulation represents a compromise of the positions of
the Parties in this case. As provided in RP 272, other than any testimony filed in support of the
approval of this Stipulation, and except to the extent necessary for a Party to explain before the
Commission its own statements and positions with respect to the Stipulation, all statements made
and positions taken in negotiations relating to this Stipulation shall be confidential and will not
be admissible in evidence in this or any other proceeding.
10. The Parties submit this Stipulation to the Commission and recommend approval
in its entirety pursuant to RP 274. The Parties shall support this Stipulation before the
Commission, and no Party shall appeal a Commission Order approving the Stipulation or an
issue resolved by the Stipulation. If this Stipulation is challenged by any person not a party to
the Stipulation, the Parties to this Stipulation reserve the right to file testimony, cross-examine
witnesses and put on such case as they deem appropriate to respond fully to the issues presented
including the right to raise issues that are incorporated in the settlements embodied in this
SETTLEMENT STIPULATION
Stipulation. Notwithstanding this reservation of rights, the Parties to this Stipulation agree that
they will continue to support the Commission s adoption of the tenns of this Stipulation.
11. If the Commission rejects any part or all of this Stipulation, or imposes any
additional material conditions on approval of this Stipulation, each Party reserves the right, upon
written notice to the Commission and the other Parties to this proceeding, within 14 days ofthe
date of such action by the Commission, to withdraw from this Stipulation, and each Party shall
be entitled to seek reconsideration of the Com:mission s Order, file testimony as it chooses
cross-examine witnesses, and do all other things necessary to put on such case as it deems
appropriate. In such case, the Parties immediately will request the prompt reconvening of a
prehearing conference for purposes of establishing a procedural schedule for the completion of
the case. The Parties agree to cooperate in development of a schedule that concludes the
proceeding on the earliest possible date, taking into account the needs of the Parties in
participating in hearings and preparing briefs. .
12. The Parties agree that this Stipulation is in the public interest and that all of its
tenns and conditions are fair, just and reasonable. The Parties agree to use their best efforts to
obtain Commission approval of the Stipulation in order to have new rates implemented by
August 1 , 2006.
13. No Party shall be bound, benefited or prejudiced by any position asserted in the
negotiation of this Stipulation, except to the extent expressly stated herein, nor shall this
Stipulation be construed as a waiver of the rights of any Party unless such rights are expressly
waived herein. Execution of this Stipulation shall not be deemed to constitute an
acknowledgement by any Party of the validity or invalidity of any particular method, theory or
principle of regulation or cost recovery. No Party shall be deemed to have agreed that any
method, theory or principle of regulation or cost recovery employed in arriving at this Stipulation
is appropriate for resolving any issues in any other proceeding in the future. No findings of fact
or conclusion of law other than those stated herein shall be deemed to be implicit in this
Stipulation.
14. The obligations of the Parties under this Stipulation are subject to the
Commission s approval of this Stipulation in accordance with its tenns and conditions.
15. This Stipulation may be executed in counterparts and each signed counterpart
shall constitute an original document.
SETTLEMENT STIPULATION
Respectfully submitted this ;Z day of May 2006.
Idaho Public Utilities Commission McDevitt & Miller, LLP
\Ji~Dean J. Miller
Attorneys for United Water Idaho Inc.
Weldon B. Stutzman
Donovan E. Walker
Deputy Attorneys General
Attorneys for Commission Staff
bls/N:UWI. W-O6-Stipulation - ws
SETTLEMENT STIPULATION