960614MF.docx

Q.Please state your name and business address for the record.
A.My name is Madonna Faunce.  My business address is 472 West Washington Street, Boise, Idaho.
Q.By whom are you employed and in what capacity?
A.I have been employed by the Idaho Public Utilities Commission (IPUC) as an auditor since 1989.  I am licensed as a Certified Public Accountant in the State of Idaho.
Q.Are you the same Madonna Faunce that has previously presented prefiled testimony in this case?
A.Yes, I am.
Q.What is the purpose of your testimony?
A.The purpose of my testimony is to examine the impact of any new evidence presented in the reconsideration testimonies of Jeremiah J. Healy, Daniel M. Brown, or Randy K. Dearden that would affect my original testimony in Case UWI-W-95-2.
Q.Has any testimony been filed on reconsideration that would cause you to change any part of your testimony?
A.No, there has not been any reconsideration testimony filed that would change my original testimony.
Q.Can you explain why reconsideration testimony from United Water Idaho Inc.  (United Water) and City of Garden City, Idaho (Garden City) does not change your original testimony in
UWI-W-95-2?
A.Staff believes that the reconsideration testimony actually strengthens Staff’s original testimony.  Staff’s original testimony addressed the correct accounting for the purchased plant and stated that the plant was contributed.  Staff also contended that because the plant was contributed, the basic purchase price should be accounted for as an acquisition adjustment (premium).  Garden City witness Randy K.  Dearden in reconsideration testimony states that the expansions were funded by developer contribution of facilities with hook-on fees from new customers repaying the costs initially paid by developers and Garden City for oversized pipe construction.  This supports Staff’s contention that the facilities being purchased by United Water are 100% contributed by developers and hook-on fees.  Therefore, Staff believes the purchase price is a premium and that the premium should not be allowed in rate base since no quantifiable benefit for this premium has been demonstrated.  Staff believes that any improvement to water quality or pressure that might occur will come with an additional price tag attached and therefore, should not be considered as a benefit that would justify a premium.  This premise is reinforced by United Water witness Daniel M. Brown in his reconsideration testimony.  For example, on page 3, lines 8 through 14, he discusses the current evaluation and costs of correcting the water quality problem stating “The capital cost associated with treating a one million gallon per day source (approximately 700 gallons per minute) is estimated to range from $500,000 to $750,000.”  Mr. Brown also states on page 3, line 16, that they will not have a pilot program in operation for two years.
Q.Were other issues addressed in Staff’s original testimony?
A.Yes, Staff also addressed the fact that United Water had claimed 912 customers and Garden City had reported only 770 customers.  Garden City witness Randy K. Dearden in his testimony on page 5, lines 15 and 16, states “As of May 13, 1996 there were 863 actual metered customers.  Subsequent to that date, 9 more meters have been installed.”  United Water witness Jeremiah J. Healy in his testimony on page 1, line 20, agrees with Mr. Dearden by stating “.....872 customers are provided water service in the North State Area.”  Staff is satisfied with the final agreement on the 872 customer base.
Q.Are there any changes to consider related to the question of potential subsidies from existing United Water customers?
A.Yes.  In Staff’s original testimony, Staff found that if the sale was approved as proposed by United Water, existing United Water customers would subsidize the North State area and, therefore, be harmed by the purchase.  Six changes were discussed in United Water’s reconsideration testimony that would affect this analysis:  1) the number of customers; 2) a reduction of $51,450 in the purchase price due to a decrease in customer count; 3) the additional interconnection costs of approximately $47,500; 4) the change in the cost of water purchased from Garden City from $.45 to $.35 per 1000 gallons; 5) purchasing Garden City water only in the peak months, and 6) a phase-in of rates.  Taking these new changes into consideration, Staff’s reconsideration analysis on Exhibit No. 108 shows that without a new well to serve the North State area, the existing United Water customers will subsidize the North State area by as much as $63,000/year if the acquisition adjustment is allowed in rate base.  Therefore, Staff’s opposition in its original testimony to including the acquisition adjustment in rate base remains.
Q.Does Staff Exhibit No. 108 consider all the costs that will be associated with the North State area if the purchase is approved by the Commission?
A.No, as mentioned above, the $300,000 well proposed in the original testimony has not been shown in the analysis.  Including this well would add approximately $30,000 per year to the revenue requirement.  In addition no analysis has been presented for the cost of the study to correct the water quality problems in the North State area.  United Water witness Daniel M. Brown suggests in his reconsideration testimony that correcting the water quality problems could be expensive.  The North State area customers will use United Water’s system without contributing sufficient revenue towards the cost of operating the system or the rate of return on the assets in the system.  Staff believes that if United Water is allowed to purchase the North State area system and earn a rate of return on the premium, existing United Water customers will be subsidizing the North State system.
Q.If the Commission approves the purchase and allows the premium in rate base, does Staff have a proposal as to the accounting treatment of the North State system?
A.Yes, Staff believes that the North State area system should be accounted for in a manner that would allow all rate base, revenues and expenses, including allocated expenses, to be analyzed in a rate case.  This could be accomplished by using separate sub accounts.  Staff would also propose that if the North State area does not earn sufficient revenue to cover its revenue requirement that existing United Water customers be held harmless in future rate cases with shareholders bearing the risk for any North State area revenue deficiencies.
Q.Does this conclude your reconsideration testimony in this proceeding?
A.Yes, it does.