20150522UWI to Staff 1-14.pdf

(20E) 343-7s00
(208) 336-69t:2 (Fax)
McDevitt & Miller LLP
Lavyem
420 West Bannock Street
P.O. Box 2564-83701
Boise,Idaho 83702
Chas. F. McDevitt
DeanJ. (oe) Miller
Celeste K. Miller
Via llaad Delivery
JeanJewell, Secretary
Idaho Public Utilities Commission
472W. Washington St.
Boise, Idaho 83720
Re: Case No. IJWI-W-15-02
Deat Ms.Jewell:
Enclosed for filing please find three (3)
Saffs First Ptoduction Requests No's 1
Kindly rehrtn a file stamped copy to me.
DJlut/tt
Encl.
May 22,2075
copies of United Water Idaho's Response to Commission
through 14.
Very Truly Yours,
McDevitt & MillerLLP
Dean J. Miller (ISB No. 1968)
Chas. F. McDevitt (ISB No. 835)
Celeste K. Miller (ISB No. 2590)
McDEVITT & MILLER LLP
420 West Bannock Street
P.O. Box 2564-83701
Boise, D 83702
Tel: [phone]
Fax: [phone]
j oe@,mcdevitt-miller.com
chas(Dmcdevitt-mil ler. com
[e-mail]
Attorney for United Water ldaho Inc.
Douglas K. Strickling (ISB No. 3230)
BOISE CITY ATTORNEY'S OFFICE
P.O. Box 500-83701
150 North Capitol Boulevard
Boise,Idaho 83702
Tel: [phone]
Fax: [phone]
dstrickl in g@ cityofboise. org
Attorneyfor City of Boise
IN THE MATTER OF THE JOINT
APPLICATION OF UNITED WATER
IDAHO INC., AND THE CITY OF BOISE,
IDAHO FOR APPROVAL OF AN
AGREEMENT FOR REPLACEMENT AND
OPERATION OF FIRE HYDRANTS AND
RELATED RATE MAKING TREATMENT
FILE
Case No. [IWI-W-15-02
TJNITED WATER IDAHO'S RESPONSE
TO FIRST PRODUCTION REQUEST OF
THE COMMISSION STAFF
COPY
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
United Water Idaho lnc., ("United Water") by and through its undersigned attomeys,
hereby submits its Responses to the Commission Staffs First Production Request No's 1 through
14.
I]MTED WATER IDAHO'S RESPONSE TO FIRST PRODUCTION REQUEST OF THE COMMISSION
STAFF. l
DATED ttris{ra-day of May,2015
UNITED WATER IDAHO INC.
Attorneyfor United Water Idaho Inc.
LINITED WATER IDAHO'S RESPONSE TO IIRST PRODUCTION REQUEST OF TTTE COMMTSSTON
STATT'.2
CERTTFICATE OF SERVICE
I hereby certifi/ that on tt. .!f,tr#V of May, 2Ol5,I caused to be served, via the
method(s) indicated below, true and correct copies of the foregoing document, upon:
Jean Jewell, Secretary
Idaho Public Utilities Commission
47 2 W est Washington Street
P.O. Box 83720
Boise,lD 83720-0074
ijewell@puc. state.id.us
Brandon Karpen
Deputy Attorney General
Idaho Public Utilities Commission
P.O. Box 83720
Boise, Idaho 83720-0074
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
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UNTTED WATER IDAHO'S RESPONSE TO FIRST PRODUCTTON REQUEST OF THE COMMTSSTON
STAFF- 3
UNITED WATER IDAHO ING.
CASE UWI-W.I5.02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 1:
Please provide an investment and expense estimate by year for each of the next 40
years associated with the proposed transfer of hydrant ownership to United Water.
Please clarify whether the estimates include or do not include inflation.
RESPONSE NO. 1:
The investment and expense estimates can be found in the Company's response to
Request No. 2. The estimates do not include inflation.
UNITED WATER IDAHO !NC.
CASE UWI.W.15.O2
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness; Greg Wyatt
REQUEST NO. 2:
Please provide an annual revenue requirement calculation for the life of the hydrants
from the date of the first replacement until the last replacement has reached the end of
its useful life (80 years), Please include documentation supporting the components of
revenue requirements including deferred taxes (tax and book depreciation over the life
of the project). Please also include the original electronic format, with calculations and
formulas intact.
RESPONSE NO. 2:
The enclosed file titled "Response No 2.xlsx" includes information and calculations
which provide the Company's estimate of an annual revenue requirement for the life of
the hydrants through the requested 8O-year timeline. The investments, expense, etc.
estimates in this file do not include inflation. The Company believes this file is also
responsive to Production Request No. 1, No. 5, No. 7, and No. 11.
Based on the Company's assumptions and calculations, the total revenue requirement
for a customer would be just under $1,050 over the 80 year life.
The Company has assumed an annual investment in fire hydrants of $765,000 for an
average of 168 hydrants per year for the 40 years.
The Company's estimate for annual operation and maintenance (O&M) expense was
based on the average of the last two calendar year's (2013 &2014) direct costs for
materials, labor, fringe benefits, and transportation expenses incurred by the Company
in operating and maintaining the hydrants it owns outside of the City of Boise. From this
average a cost per hydrant was calculated. lt was also assumed that those hydrants
would be, on average, 20 years old (half-way between new and 40 years end of life).
That average cost per hydrant was then extrapolated back for years 19 through 1, and
fonruard for years 21 through 40, Those costs were then applied to the cumulative
number of Boise City hydrants expected to have been transferred to the Company in
each year over the 40 year life, assuming an average of 168 hydrants added per year.
It was also assumed that no O&M costs will be incurred on the brand new hydrants
installed in year '1, and that O&M costs would begin in year 2.
UNITED WATER IDAHO INC.
CASE UWI-W.15.02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 3:
What benefit will United Water customers realize if the proposal is approved?
RESPONSE NO. 3:
As reflected in Mr. Oldemeyer's filed testimony (page 7, lines 17-21), if the proposal is
approved, United Water customers will benefit from having the oversight and
maintenance of the hydrants managed by United Water which has demonstrated water
distribution system (including hydrants) operating and maintenance experience and
expertise. For many years United Water has owned and operated a fleet of over 1,000
fire hydrants in its service area outside the City of Boise. lntegrating the hydrants into
United Water's system will allow the Company to integrate the operation and
maintenance of those hydrants into its tracking systems (GlS & work management),
contract preparation and bid processes, and current industry practices and standards to
ensure operational efficiency,
United Water has the financial, technical, and operational resources to ensure that fire
hydrants are maintained, repaired, and/or replaced more quickly without the delay of
coordinating those efforts with City of Boise personnel . As reflected in Boise City's
response to Staffs First Production Request No. 5, The City of Boise uses on-duty
firemen to perform inspection and maintenance, while United Water uses trained and
certified water distribution system operators to perform hydrant maintenance.
The proposed change in fire hydrant operation and maintenance responsibility is not
easily correlated to a direct one-to-one cost, service, or quality benefit, at least not from
a customer perspective, such as is the case when an old under-sized water main is
replaced with a new larger pipe with greaterflow capabilities, etc. However, water
customers would benefit over time through enhanced overallfire protection system
integrity stemming from United Water's expertise, and technical and financial resources,
and ability to respond promptly to and resolve fire hydrant problems. All customers
benefit from being connected to a domestic water system that is capable of delivering
safe and dependable service, including fire protection.
UNITED WATER IDAHO INC.
cAsE uwt-w-15-02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO.4:
What consequence will United Water customers suffer if the proposal is not approved?
RESPONSE NO.4:
It is impossible for United Water to speculate about resulting consequences stemming
from operations of fire hydrants which are not under or within United Water's control,
such as would be the case if the proposal is not approved and if fire hydrants remained
within ownership by the City of Boise. However, the Agreement that the City of Boise
and United Water entered into anticipates operational improvements and efficiencies as
described in the Company's response to Request No. 3. lf the proposal is not
approved, those improvements and efficiencies will not occur.
UNITED WATER IDAHO INC.
CASE UWI.W.15.O2
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 5:
ln addition to the estimate provided on page 5, lines 6-10 of Greg Wyatt's testimony,
please estimate the impact on customer rates for each successive year over the 40-
year transition period.
RESPONSE NO. 5:
The estimated impact on customer rates can be found in the Company's response to
Request No. 2.
UNITED WATER IDAHO INC.
CASE UWI.W.15-02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
neouesr no. e:
Please explain why the hydrant ownership transfer is proposed on a newly installed
basis instead of an immediate transfer of all existing City-owned hydrants.
RESPONSE NO. 6:
When the City of Boise first approached United Water they proposed the concept of
immediately transferring all City-owned hydrants to United Water. United Water
determined that the immediate transfer of all hydrants was not in the best interest of the
Company or its customers. This determination was based on the unknown amount of
potential risk and liability associated with a set of assets (hydrants) of undetermined
condition, quality, or age. A contributing consideration was the associated operations
and maintenance (O&M) costs. The Company determined that it was in the best
interest of customers to not take on the full O&M costs immediately, but to grow into
those costs over time, thereby spreading rate impacts to customers over the longer time
horizon.
Based on that recognition, the City of Boise and United Water continued to negotiate
and finally agreed to the transfer on a newly installed basis. This insures that United
Water takes responsibility only for new facilities that have been installed and inspected
in accordance with the Company's requirements and industry standards. This
significantly reduces the risk and potential liability to United Water and its customers
related to these assets. lt also enables the full O&M costs to be incurred more slowly
and over a longer period of time, which is beneficial to customers.
UNITED WATER IDAHO INC.
CASE UWI.W.15.O2
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 7:
Costs associated with Boise City ownership of fire hydrants are paid through taxes, and
taxes are assessed on the basis of property value. Costs associated with United Water
ownership of fire hydrants are generally recovered through customer charges, which
vary based on meter size. Because cost recovery would be much different under
United Water ownership than under Boise City ownership, please discuss the impacts
and equity on bills for the following types of customers:
a. a large multi-story office building with little or no outdoor water use,
b. a large volume customer in which usage is exclusively or primarily for lawn
and landscape watering,
c. an average residential customer,
d. a large commercial or industrial customer with little or no outdoor water use.
RESPONSE NO. 7:
The current Application requests approval of the Agreement between the parties and
certain associated accounting treatments with regard to inclusion of fire hydrant
investments in the Company's revenue requirement in the future. How those
investments get transferred into rates and the impacts on different types of customers
depends on future rate setting approaches proposed by the Company and/or others,
and future Commission decisions.
The Company doesn't disagree with the premise in this Request that costs associated
with hydrants should generally be recovered through customer charges, based on meter
size. However, in the Company's current tariff, a significant portion of cost of service
study fixed costs related to fire protection are not included in the tariff customer
charges, but are allocated to the volumetric rate. Therefore, how the costs associated
with United Water's ownership of the hydrants will be allocated to different customers in
the future is unknown.
The Company has provided its best estimate of how these costs will impact revenue
requirement and the effect on customer rates in its response to Request No. 2.
Even assuming the current relationship between customer and volumetric is maintained
United Water cannot estimate the rate impact for the types of customers identified in
this Request's sub-parts a, b, c, and d, because different customers can often have
different meter sizes and can use different volumes of water independent of their
customer classification as suggested in this Request's sub-parts a, b, c, and d.
UNITED WATER IDAHO INC.
CASE UWI.W.15-02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 8:
For those customers who would realize a substantial change in their bill due to transfer
of hydrant ownership, would any of them realize a corresponding change in the level or
quality of fire protection? Please explain.
RESPONSE NO. 8:
As stated in the Company's response to Request No. 7, the rate impact on different
types of customers is unknown at this point and it is not known whether any of those
changes would be considered "substantial". lt is United Water's view that the level or
quality of fire protection provided to any customer does not hinge on the customer
classification, meter size, or volume of water used, but is dependent upon a variety of
physical water system conditions including sources of supply and pumping capacity,
main sizes, water storage tank capacities, and of course fire hydrants themselves.
Both the City of Boise in response to its Request No. 5, and United Water in response
to its Request No. 3 believe that operational improvements and efficiencies will accrue
to all customers over time by approval of this Application resulting in the transfer of the
hydrants from Boise to United Water.
UNITED WATER IDAHO INC.
CASE UWI.W.I5.O2
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness. Greg Wyatt
REQUEST NO. 9:
Please provide documentation that supports a 40-year depreciable life for the hydrants
UWI is planning to replace under this Application. Please also provide the depreciation
life for hydrants UWI currently owns and maintains. lf these two amounts are different,
please provide supporting documentation as to the reason for the difference.
RESPONSE NO. 9:
United Water currently depreciates the fire hydrants it owns and maintains over a 40
year life, or at2.5o/o. lf the current Application is approved, the Company expects to
depreciate the hydrants it is planning to replace under this Application at the same 40
year life rate.
The 40 year depreciation life applied to United Water's currently owned fire hydrants
has been in place since at least 1998. The Company was not able to locate any
documentation related to its adoption of the 40-year life rate for depreciating its fire
hydrant assets.
UNITED WATER IDAHO INC.
CASE UW!-W-15-02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 1O:
Please provide documentation that supports the tax election UWI plans for the hydrants
it is planning to replace under this Application. Please also provide the tax depreciation
for hydrants UWI currently owns and maintains. lf these two amounts are different,
please provide supporting documentation as to the reason for the difference.
RESPONSE NO. 1O:
United Water ldaho currently uses a 25-year, straight-line, half-year convention tax
depreciation method for fire hydrant assets. Please see the attached email
documentation from Mr. Dave Durante, Manager Tax & Forecasting, with the United
Water M&S Company in support of this response.
Wyatt, Greg
From:
Sent:
To:
Subject:
Thanks Jerry.
Wyatt, Greg
Wednesday, May 20,2015 3:05 PM
jerry.healy@ u nitedwater.com
FW: Production Request #3-0
From: Healy, Jerry
Sent: Wednesday, May 20, 2015 3:00 PM
To: Wyatt, Greg
Subject: FW: Production Request #10
From: Durante, Dave
Sent: Wednesday, May 20, 2015 2:58 PM
To: Healy, Jerry
Subject: RE: Production Request #10
Jerry,
The tax depreciation method we currently use for hydrants (and all other public utility property) is 25 year, straight line,
half year convention. The depreciation method used in the future will be the same unless there is change in the tax
regulations.
Dave
From: Healy, Jerry
Sent: Wednesday, May 20, 2015 4:50 PM
To: Durante, Dave
Subject: FW: Production Request #10
Dave: regarding our conversation this morning, attached is an interrogatory from ldaho PUC Staff that I need your input
on. UWID is planning to invest $765k per year for the next 40 years in hydrants. ln the first sentence, Staff wants to
know what the Company's tax election will be regarding these hydrants. I believe the choices are 1.) 2OA% declining
balance method, 2l tSOYo declining balance method or 3) straight line method. You indicated straight line depreciation
in the conversation we had this morning, correct?
ln the second line Staff wants to know the election the Company uses for hydrants currently on our books, which I
assume is also straight line. lf there is a difference in the election, lwill need information regarding why. Thanks foryour
assistance, Jerry
From: Wyatt, Greg
Sent: Wednesday, May 20,2015 2:31 PM
To: Healy, Jerry
Subject: Production Request #10
Here is the Request.
UNITED WATER IDAHO INC.
CASE UWI.W.I5.O2
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 11:
Please provide the costs to operate and maintain the hydrants UWI is planning to
replace, operate and maintain under this Application. Please provide within your
response the documentation used to calculate this amount.
RESPONSE NO. 1 1:
The costs estimated (along with associated documentation) to be associated with
operating and maintaining the hydrants United Water is planning to replace is included
in its response to Request No. 2.
UNITED WATER IDAHO INC.
CASE UWI.W.15-02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 12:
Please provide a list of hydrants requiring replacement under this Application and all
documentation of costs (including salvage value and/or cost to replace) that supports
the $765,000 capital investment contained within this Application.
RESPONSE NO. 12:
United Water does not have access to the City of Boise's fire hydrant replacement list.
The documentation supporting the $765,000 average annual investment in hydrants
contained in this Application is included in the enclosed Excelfiles titled "MJ Summary -
Boise City Hydrant2013-2014.xlsx" and "Hydrant Annual CapEx Estimate.xlsx".
Per the Agreement between the City of Boise and United Water that is the subject of
this Application, "All old hydrants along with pipe, pipefittings and valves no longer in
use shall remain the property of Boise and shall be hauled by Boise or the replacement
contractor to a location designated by Boise." (See Agreement Section I (b)
"Replacement of ldentified Existing Hydrants."). Accordingly, there will be no salvage
value to United Water resulting from the hydrant replacements.
UNITED WATER IDAHO INC.
CASE UWI-W.15.02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NQ. 13:
Please provide the supporting documentation including calculations contained in original
electronic format of the $1.45 per customer and $.24 per bill calculations with formulas
intact.
RESP9NSE NO. 13:
The calculations of the $1.45 per customer and $.24 per bill are attached and enclosed
in the Excel file titled "Rev Req per Cust - Hydrants.xlsx".
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UNITED WATER IDAHO INC.
CASE UWI-W.15.02
FIRST PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Greg Wyatt
REQUEST NO. 1A:
Please provide any financial analyses prepared by United Water and/or any related
companies related to the Application. Please include within your response electronic
files with formulas intact.
RESPONSE NO. 14:
The financial analysis prepared by United Water (and/or others) have been provided in
response to the previous Requests No's. 1 - 13. There is no additional financial
analysis.