UWI122AN.docx

1 BOISE, IDAHO, MONDAY, JANUARY 22, 1996, 1:15 P. M.
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4 COMMISSIONER SMITH: Let's start our
5 hearing and I think, Mr. Woodbury, we were with you.
6 MR. WOODBURY: Thank you, Madam Chair.
7
8 JEREMIAH J. HEALY,
9 produced as a witness at the instance of United Water
10 Idaho, Inc., having been previously duly sworn, resumed
11 the stand and was further examined and testified as
12 follows:
13
14 CROSS-EXAMINATION
15
16 BY MR. WOODBURY: (Continued)
17 Q Mr. Healy, was it your testimony that you
18 haven't had any conversations with Millstream Area
19 customers regarding this exchange?
20 A That's correct.
21 Q Do you believe that maybe a fair assumption
22 that the only change the Millstream Area customers expect
23 as a result of the exchange is a decrease in the rate
24 they'll be paying?
25 A Well, let me clarify one point. I've had
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CSB REPORTING HEALY (X)
Wilder, Idaho 83676 United Water Idaho
1 no personal discussion. We have, obviously, notified our
2 Millstream customers. We notified them that we have
3 signed the agreement with Garden City, but I have had no
4 personal contact. To my knowledge, we haven't received
5 any inquiries at the Company, and as far as -- I'm sorry,
6 I lost my train of thought. The question was?
7 Q Well, the question was whether you believed
8 the customers have, that the only effect of the exchange
9 that they see, that they envision, will be just a
10 reduction in their cost of water. Is it reasonable to
11 believe that?
12 A I mean, that's certainly one effect they
13 will see.
14 Q And is that because the Company hasn't
15 taken any, made any effort to explain to these customers
16 that as a result of the exchange agreement, they will no
17 longer have the O&M programs of United Water, will no
18 longer have the water quality testing and monitoring,
19 will no longer have the conservation programs, the other
20 areas of expertise that the Company offers and that they
21 will be losing those services?
22 A We have not pointed that out to them
23 directly, no.
24 Q To whom does United Water owe a greater
25 obligation at this point in time, its existing customers,
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CSB REPORTING HEALY (X)
Wilder, Idaho 83676 United Water Idaho
1 the Millstream customers, or to the North State Area
2 customers?
3 A That's a good question. I think we owe,
4 obviously, our Millstream customers, we have a large
5 obligation to them to provide them with quality service
6 at reasonable rates, so we do have a substantial
7 obligation to our Millstream customers.
8 Q And does that obligation translate to
9 assuring that they have similar services as a part of the
10 exchange?
11 A No, I don't believe it does translate to
12 that. I believe that our relationship with Garden City
13 is such that United Water in several respects has
14 partnered up with the City of Garden City to help them
15 and we've offered to help them in the operation of their
16 system, to share expertise, but, no, we have not directly
17 addressed with our Garden City customers the implications
18 of their service being taken over by Garden City,
19 although I'm not clear that their service will degrade to
20 any great extent.
21 Q You were here this morning when I had an
22 exchange with Mr. Brown with respect to the change in
23 service that they might expect?
24 A Correct.
25 Q On page 9 of your testimony, you state that
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CSB REPORTING HEALY (X)
Wilder, Idaho 83676 United Water Idaho
1 integration of the North State Area into the United Water
2 system will not adversely impact any current customers,
3 and that is the way the Company has presented it, but my
4 question is, why should the standard be will not
5 adversely impact? You know, why shouldn't the Company be
6 coming in here explaining how existing customers will
7 significantly benefit from the acquisition?
8 A I'm not sure why that isn't the question.
9 I mean, that question has arisen in many issues of what
10 will the impact be on our existing customers and in this
11 case, we believe our existing customers will not be
12 harmed. I think in the general sense there is some
13 benefit to our existing customers.
14 Q Is the reason, though, that there isn't any
15 significant or substantial benefit because the price that
16 the Company has agreed to pay is the embedded cost of
17 its, of service to its existing customers?
18 A I'm not sure that I'm following.
19 Q Could you explain how in determining the
20 purchase price how was that derived, then?
21 A I can generally --
22 Q Is it a highly embedded cost --
23 COMMISSIONER SMITH: Mr. Woodbury.
24 MR. WOODBURY: I'm sorry.
25 COMMISSIONER SMITH: Thank you.
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CSB REPORTING HEALY (X)
Wilder, Idaho 83676 United Water Idaho
1 THE WITNESS: As I noted in my testimony,
2 there were many factors taken into account as we
3 negotiated that price. One of the factors we reviewed
4 was what is the United Water investment, T&D investment,
5 in our existing customers and we used that as a benchmark
6 in determining whether the price we were willing to pay
7 Garden City was reasonable and so if that's the question
8 whether we took that into account, the answer is yes.
9 Q BY MR. WOODBURY: And did the purchase
10 price fall within what range from the benchmark that you
11 used?
12 A It actually -- the benchmark we looked at
13 on United Water's books, we looked at our gross
14 transmission and distribution facility investment less
15 the accumulated depreciation, less contributions related
16 to that investment, and I do not have those numbers off
17 the top of my head, but I believe that we found that for
18 United Water that average was in the neighborhood of $900
19 per customer, so our thinking was that if we were able to
20 pay that number or less for the Garden City customers
21 that that would give some indication that it was a
22 prudent investment.
23 Q Based on 912 customers, what does the
24 $593,250 figure calculate to per customer or should I use
25 the net customer total?
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CSB REPORTING HEALY (X)
Wilder, Idaho 83676 United Water Idaho
1 A Over lunch I did some calculations. If we
2 were to use the 912 customers --
3 Q Which is what you used for calculating the
4 593,000?
5 A That is what was represented to us by
6 Garden City, the number of customers that were contained
7 in that area, and we looked at the gross investment we
8 were making, which in my opinion is 697,000, okay, that
9 is the purchase price that was agreed upon, this is one
10 way to look at it, the purchase price giving regard to
11 the fact that they also paid us something for our
12 Millstream assets, so if you use the 697 divided by the
13 912, that gives you a per customer cost of, I believe,
14 $764, which fell within our range of what we were willing
15 to pay for these assets.
16 Q Would the Company be looking at a
17 commensurate cost per customer reduction if the figure is
18 in fact 771 as opposed to 912?
19 A Right. We addressed that, I think, earlier
20 and although I'm not exactly certain, we would reduce our
21 purchase price, and as I believe I mentioned earlier, it
22 would probably start out along the lines of using that as
23 a benchmark, if we paid 764, if there are 141 less
24 customers, we would reduce our investment
25 proportionately.
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Wilder, Idaho 83676 United Water Idaho
1 Q You have a water purchase agreement as a
2 part of the exchange agreement and the price is $.47 per
3 1,000 gallons that you've agreed to purchase water from
4 Garden City. Could you -- are you aware of what Garden
5 City's cost of production is?
6 A In our -- actually, I'm not aware of what
7 their cost of production is, no.
8 Q The $.47 per 1,000 gallons, then, is based
9 upon an equivalent amount of what it would cost for
10 United Water to put in a supply well?
11 A I'm just trying to find here my contract.
12 I mean, assuming the 47 is correct, what --
13 Q I guess I'd refer you to your Production
14 Request No. 7.
15 A Okay, thank you.
16 Q Or Staff's production request to the
17 Company.
18 A Right, in looking at the actual agreement,
19 I believe we agreed to pay $.35 per 1,000 gallons for the
20 period October 1 to April 30 and then $.45 per 1,000
21 gallons during the summer season.
22 Q Then what is the $.47 per 1,000 in your
23 response to our Request No. 7, then?
24 A That, again, that was a figure that we
25 developed internally as we negotiated with the City of
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Wilder, Idaho 83676 United Water Idaho
1 Garden City on a rate to pay. Our assumption was that if
2 we could get the water for somewhere less than $.47 and
3 so we used that as a benchmark and I recall Garden City's
4 price being substantially, in our opinion substantially,
5 less than what we're paying, so when we balanced the two
6 figures, we came up with the rates that we agreed to pay
7 in the contract.
8 MR. WOODBURY: Madam Chair, Staff has no
9 further questions at this time.
10 COMMISSIONER SMITH: Thank you. Do we have
11 questions from the Commissioners?
12 COMMISSIONER HANSEN: No questions.
13 COMMISSIONER NELSON: I had one question.
14 Thank you.
15
16 EXAMINATION
17
18 BY COMMISSIONER NELSON:
19 Q Mr. Healy, before lunch, why, you were
20 talking about taking a tour of the neighborhood to try to
21 estimate water usage and I didn't ever hear what your
22 drive-through indicated as far as a use comparison to the
23 156 CCF for your own customers.
24 A Basically, as I mentioned, we had billing
25 documentation from Garden City that when I reviewed it
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CSB REPORTING HEALY (Com)
Wilder, Idaho 83676 United Water Idaho
1 had some consumptions that we found very hard to believe
2 and so that was the purpose. We drove through and
3 basically what we found when we drove between Pierce Park
4 and Gary Lane was a mixture of customers. There were
5 four-plexes in there, but by and large single family
6 homes with what I would consider average size lots, so my
7 conclusion is that we would expect the consumption of
8 those customers to be roughly average, roughly the same,
9 as our average residential customer.
10 Q Would the fact that maybe down in town
11 trees are more mature than out in that area make a
12 difference?
13 A That would certainly make a difference on
14 consumption, if your yard was largely shaded. My
15 recollection as we drove north from State is that many of
16 those subdivisions are relatively new and Garden City's
17 records indicate that those subdivisions were put in
18 from, say, the mid '70s, I believe, or late '70s through
19 a relatively recent period, but, yes, if a particular lot
20 had mature trees, that would impact their consumption.
21 COMMISSIONER NELSON: Okay, thank you.
22 COMMISSIONER SMITH: Do you have redirect,
23 Mr. Bergquist?
24 MR. BERGQUIST: I think I just have one
25 question, Mr. Healy.
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Wilder, Idaho 83676 United Water Idaho
1 REDIRECT EXAMINATION
2
3 BY MR. BERGQUIST:
4 Q Mr. Woodbury was asking you concerning your
5 testimony at the bottom of page 7 and the top of page 8,
6 comparing the rates between Garden City's annual bill and
7 United Water's annual bill and Exhibit 4. Do you have
8 that in front of you?
9 A Yes, I do.
10 Q As I understand, the Garden City bill is
11 based upon rates that Garden City does not have to pay
12 any taxes on, state income or federal income taxes?
13 A That's correct.
14 Q And how about United Water?
15 A United Water is subject to federal and
16 state income taxes.
17 Q So you show a difference there of 34
18 percent, do you have any idea as to what the comparable
19 might be if Garden City had to pay federal or state
20 income taxes? I mean, if it were grossed up to --
21 A Right, federal income taxes can get fairly
22 complex. I would think that their costs would be
23 certainly higher, although that's difficult to answer,
24 I'm not aware of how they set their rates, but I would
25 think if they were paying federal and state taxes their
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CSB REPORTING HEALY (Di)
Wilder, Idaho 83676 United Water Idaho
1 costs would certainly be higher and it could certainly be
2 in the range of, I would think, 15, 20, 30 percent, but
3 that would just be a guess.
4 MR. BERGQUIST: I believe that's all I
5 have. Thank you.
6 COMMISSIONER SMITH: Thank you for your
7 help, Mr. Healy.
8 THE WITNESS: You're welcome.
9 (The witness left the stand).
10 COMMISSIONER SMITH: Mr. Kline, we'll go to
11 you.
12 MR. KLINE: Thank you very much,
13 Madam Chairman.
14 COMMISSIONER SMITH: I assume that's all
15 your direct.
16 MR. BERGQUIST: Yes.
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CSB REPORTING HEALY (Di)
Wilder, Idaho 83676 United Water Idaho
1 DAVID PATTERSON,
2 produced as a witness at the instance of the Neighborhood
3 Associations, having been first duly sworn, was examined
4 and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. KLINE:
9 Q Would you please state your full name and
10 spell it for the record?
11 A Okay, my name is David Patterson, D-a-v-i-d
12 P-a-t-t-e-r-s-o-n.
13 Q And by whom are you employed,
14 Mr. Patterson?
15 A Parkview Bible Fellowship. I'm a pastor.
16 Q And today you're testifying on behalf of
17 the Neighborhood Associations or Homeowners Associations
18 that are identified in your testimony; is that correct?
19 A Yes, I am.
20 Q Mr. Patterson, sometime back we prefiled
21 some direct testimony with the Commission; is that
22 correct?
23 A Yes.
24 Q And at the same time, we also prefiled two
25 exhibits, Exhibit 301 and Exhibit 302; is that correct?
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CSB REPORTING PATTERSON (Di)
Wilder, Idaho 83676 Neighborhood Assns.
1 A Yes.
2 Q And do you have any additions or
3 corrections that you feel like you need to make to that
4 testimony?
5 A No.
6 Q Mr. Patterson, if I were to ask you the
7 same questions that are contained in your prefiled direct
8 testimony today, would your answers be the same?
9 A Yes.
10 MR. KLINE: With that, Madam Chairman, we
11 request that Mr. Patterson's testimony be spread on the
12 record and Exhibits 301 and 302 be marked.
13 COMMISSIONER SMITH: If there is no
14 objection, it is so ordered.
15 (The following prefiled testimony of
16 Mr. David Patterson is spread upon the record.)
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CSB REPORTING PATTERSON (Di)
Wilder, Idaho 83676 Neighborhood Assns.
1 Q Please state your name and address for the
2 record.
3 A My name is David Patterson. My address is
4 6480 West Outlook Dr., Boise, Idaho.
5 Q On whose behalf are you testifying in this
6 case?
7 A I am the president of the Coventry
8 Neighborhood Association. The Coventry Neighborhood
9 Association, the Gary Lane Meadows Homeowners
10 Association, and the Pierce Park Meadows Homeowners
11 Association have all intervened in this case. I am
12 testifying on behalf of all three associations (the
13 "Associations"). The homeowners that belong to the
14 Associations all reside in the proposed exchange area and
15 currently receive water service from the City of Garden
16 City, Idaho ("Garden City"). We will be directly
17 affected by the proposed service territory exchange
18 between United Water of Idaho ("UWI"), and Garden City.
19 Q How many current Garden City water
20 customers are represented by the Associations?
21 A Approximately 430 of the approximately 912
22 Garden City customers that will be affected by the
23 exchange are members of the Association. In addition,
24 each of the three Associations purchase water from Garden
25 City for irrigating lawns and landscape shrubbery in
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 common areas and parks located in the respective
2 neighborhoods.
3 Q Why have the Associations asked you testify
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 A When the residents of the area became aware
2 that rate increases in the 20% to 40% range could result
3 from the proposed exchange of water service territories,
4 they contacted the officers of their respective
5 Associations. As a result, I was drafted by the group to
6 participate in this case to convey the concerns of the
7 Associations and the residents of the neighborhood to the
8 Commission.
9 Q In addition to the neighborhood
10 Associations, are you aware of other area residents that
11 have expressed concerns about the proposed exchange?
12 A Yes, it is my understanding that the
13 Commission has received petitions, letters and phone
14 calls from residents of the area currently served by
15 Garden City expressing their opposition to the exchange.
16 I hope the Commissioners will carefully consider the
17 concerns expressed in those petitions and letters.
18 Q Please describe the water service currently
19 being provided by Garden City.
20 A The water currently provided by Garden City
21 contains substantial amounts of iron and other chemicals.
22 As a result it is often discolored and sometimes has an
23 objectionable odor. The iron in the water sometimes
24 causes discoloration of clothing, dishes, and other
25 things that come into contact with it. In addition,
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 water pressure on the system is marginal on many
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 Q Have the residents of the neighborhood
2 complained to Garden City about the poor quality of
3 water?
4 A From time to time we have. While it is
5 certainly inconvenient to deal with this poor quality of
6 water, the relatively low rates charged by Garden City
7 have made the problem at least tolerable. Most residents
8 have recognize the trade-off. We accept the
9 inconvenience of dealing with the water quality problems
10 in exchange for the lower water rates. However, if the
11 service territory exchange goes through as presently
12 proposed, we apparently will be required to accept the
13 same quality of water while paying substantially higher
14 rates for it.
15 Q Are the Associations opposed to the
16 proposed exchange of service areas between Garden City
17 and UWI?
18 A Not in principle. However, we do have
19 serious concerns about the terms and conditions of the
20 exchange and the effect of the exchange on the people
21 residing in the service area proposed to be transferred
22 from Garden City to UWI. We question whether the
23 exchange, as presently structured, is fair to us and is
24 truly in the public interest.
25 Q Why do the Associations feel that the
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 exchange as presently proposed, may not be in the public
2 interest?
3 A Looking at the proposed exchange from the
4 perspective of the people residing in my neighborhood it
5 appears that the effects of the exchange will be
6 predominantly negative. Our legal
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 counsel has advised us that the exchange agreement
2 between UWI and Garden City places no obligation on the
3 part of UWI to improve the quality of the water or the
4 water pressure beyond what we currently receive. In
5 fact, under the exchange agreement it is possible that
6 for as long as ten (10) years in the future UWI will
7 simply continue to buy water from Garden City. If that
8 occurs, we will continue to receive the same relatively
9 low quality water yet we will pay substantially higher
10 rates for the water we use. That does not appear to be
11 fair to us.
12 Q In addition to the water quality problems,
13 are there other aspects of the proposed exchange that are
14 of concern to the Associations?
15 A The residents of the area that the
16 Associations represent, are a diverse group of
17 individuals. We have many young families with small
18 children, as well as significant numbers of retired
19 persons on fixed incomes. Most of us have made a
20 significant investment in establishing nice lawns and
21 landscaping. We take pride in our homes. As a result,
22 substantial increases in water rates are of real concern.
23 It will be difficult for most neighborhood residents to
24 absorb a large water rate increase without cutting other
25 areas of our household budgets.
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 Q What about the public interest associated
2 with the resolution of the dispute between Garden City
3 and Boise City?
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 A I suppose that in some abstract sense, the
2 resolution of the dispute between the two cities will
3 provide some benefit to the residents of my neighborhood.
4 However, it seems to me in reading Mr. Booe's testimony
5 that most of UWI's emphasis has been placed on the
6 benefits of UWI's expanding its customer base and on the
7 "big picture" of resolving the dispute between Garden
8 City and Boise City. Not much attention has been paid to
9 addressing the financial effect that the service area
10 exchange will have on the residents of my neighborhood.
11 Q In his direct testimony on page 10, UWI
12 witness Booe discusses the notice that was given to
13 current Garden City customers regarding the proposed
14 service territory exchange. Do you think that Garden
15 City did a good job of explaining how the proposed
16 exchange would effect the people you represent?
17 A No. I have attached as Exhibit 301, a copy
18 of a public notice that was distributed by Garden City.
19 As you can see, the primary focus of the notice is the
20 resolution of the dispute between Garden City and Boise
21 City. I am not aware that any effort was made to notify
22 us that the exchange would substantially increase rates
23 to current Garden City customers and reduce rates to the
24 former UWI customers. The adverse financial effect on
25 neighborhood residents was not even disclosed until the
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 Commission issued its press releases following the
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 Q Have the Associations been able to estimate
2 the impact of the increased rates on neighborhood
3 residents?
4 A Obviously, individual water usage and
5 therefore monthly billings, will vary with individual
6 circumstances. However, it is apparent from the
7 information provided by the Commission Staff and UWI that
8 after the exchange, rates will be significantly higher.
9 As an example, I have attached Exhibit 302. Exhibit 302
10 shows how the increased water rates will effect the
11 Gambee family in Coventry Manor Subdivision. My own
12 family's personal water bill totalled $307 in 1995. A
13 30% to 40% annual increase in our water bill will
14 certainly be material for my family.
15 Q Do the Associations have a proposal to deal
16 with these problems?
17 A The Associations believe that if the
18 exchange is approved, the rates to be charged by UWI to
19 the residents of our neighborhood should be maintained at
20 their current level until UWI brings the water quality
21 and water pressure up to acceptable levels. Once they
22 have done that, we would propose that the rates be
23 gradually increased to allow residents a period of time
24 to adjust to the higher billings.
25 Q Does this complete your direct testimony?
A Yes, it does.
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UWI-W-95-1 Patterson, D. (Di)
January 5, 1996 Neighborhood Assns.
1 (The following proceedings were had in
2 open hearing.)
3 MR. KLINE: And with that, Mr. Patterson is
4 available for cross-examination.
5 COMMISSIONER SMITH: Mr. Bergquist, do you
6 have questions?
7 MR. BERGQUIST: Thank you.
8
9 CROSS-EXAMINATION
10
11 BY MR. BERGQUIST:
12 Q Mr. Patterson, how long have you resided in
13 that North State Area?
14 A About three years.
15 Q So I presume it was within the city limits
16 of Boise when you moved there?
17 A Yes.
18 Q Which is not the case of everybody out
19 there, is it?
20 A I think it isn't the case with everyone.
21 Q Do you have Exhibit 302 in front of you
22 there, Mr. Patterson?
23 A I will have to find it. I am not sure --
24 MR. KLINE: That's the Gambee letter.
25 Q BY MR. BERGQUIST: The Gambee letter.
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CSB REPORTING PATTERSON (X)
Wilder, Idaho 83676 Neighborhood Assns.
1 A Oh, okay, I'm sorry, that helps. Yes, I
2 do.
3 Q I recognize that you didn't do these
4 computations, the Gambees, I presume, did.
5 A Yes.
6 Q You notice in the second paragraph and the
7 following paragraphs they refer to a monthly charge of
8 $12.00?
9 A Yes.
10 Q Do you know whether or not that's correct?
11 A No, I do not.
12 Q Boise Water or United Water bills on a
13 bimonthly basis, so the $12.00 is for a two-month
14 period. If you break that down to one month, it would be
15 $6.00 rather than $12.00. I believe that's all I have.
16 Thank you, Mr. Patterson.
17 COMMISSIONER SMITH: Mr. Woodbury, do you
18 have questions?
19 MR. WOODBURY: Yes, I have a number, a
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Wilder, Idaho 83676 Neighborhood Assns.
1 CROSS-EXAMINATION
2
3 BY MR. WOODBURY:
4 Q Mr. Patterson, you're the president of the
5 Coventry Neighborhood Association?
6 A Yes, I am.
7 Q And do I understand that you're perhaps
8 better able to speak for your neighborhood association
9 than maybe the others, and I guess what I would ask is
10 what input did the other Neighborhood Associations have
11 into the preparation of the testimony? Did they have
12 homeowner association group meetings or did they have
13 officers in the association that met with you?
14 A We had several joint meetings of officers
15 from the various associations where we discussed these
16 issues together and the officers of the other
17 associations I know have had some communication with
18 their own people concerning these issues.
19 Q And with respect to Coventry itself, did
20 you have a neighborhood association meeting where
21 everybody got together to discuss this?
22 A No, we have not. What we have received is
23 individual contacts from people and just general
24 discussions with different people in the neighborhood,
25 but not formal meetings, per se.
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CSB REPORTING PATTERSON (X)
Wilder, Idaho 83676 Neighborhood Assns.
1 Q With respect to the concerns that you raise
2 on pages 2 and 3 regarding water quality, have you
3 attempted to raise these concerns with Garden City?
4 A Yes. There have been times when we have
5 definitely done that with some results that weren't very
6 helpful, at least as far as what was communicated to us
7 by them; in other words, it was usually in the form of
8 sharing concerns and asking some questions about why
9 these problems were occurring and so on and it seems that
10 the answers were very mixed and confusing.
11 Q Do I understand the testimony that you're
12 offering that the Neighborhood Associations are willing
13 to pay United Water rates at that point in time when
14 their water quality and pressure are improved to
15 acceptable levels?
16 A Yes, I think that is a reasonable
17 compromise that people would be willing to accept as far
18 as paying the higher rates.
19 Q And if -- there seems to be two, you know,
20 you have the water pressure problem and then you have the
21 water quality problem and as between the two of them, the
22 water quality, improvement in water quality, may be more
23 difficult for the Company to provide you, although I
24 think the testimony has indicated that Garden City itself
25 has plans to address the water pressure problem this
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CSB REPORTING PATTERSON (X)
Wilder, Idaho 83676 Neighborhood Assns.
1 year. If it appears reasonable that -- well, certainly,
2 United Water can address your water pressure problem, but
3 if they are not able to immediately address your water
4 quality problem or it appears that the water quality may
5 remain the same, do the Associations have a position as
6 to whether the exchange agreement should be approved?
7 A I would say that the Associations probably
8 would not be in favor of an exchange unless they could
9 see some definite improvement to be the result of that.
10 MR. WOODBURY: Madam Chair, I have no
11 further questions.
12 COMMISSIONER SMITH: Thank you,
13 Mr. Woodbury.
14 Questions from the Commission.
15 COMMISSIONER NELSON: I might ask a couple
16 of questions. Thank you.
17
18 EXAMINATION
19
20 BY COMMISSIONER NELSON:
21 Q Mr. Patterson, did you testify at the
22 Garden City hearing that they held?
23 A No, I wasn't aware of it.
24 Q I wasn't either, that's why I asked. In
25 the last few months, have you experienced low pressure
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Wilder, Idaho 83676 Neighborhood Assns.
1 problems?
2 A Yes, at times we definitely have had that
3 problem. If you're running your sprinkling system, it's
4 hard to get enough water out of your tap to do much of
5 anything, for example.
6 Q Okay, I noticed in your testimony you said
7 your bill for 1995 was $307. Do you recall what your
8 last bill was that maybe came about a week ago,
9 approximately?
10 A It seems to me that it was only $16.00 or
11 something like that.
12 Q Okay.
13 A It was pretty low.
14 COMMISSIONER NELSON: Okay, thank you.
15 That was all I had.
16
17 EXAMINATION
18
19 BY COMMISSIONER SMITH:
20 Q I guess, Mr. Patterson, I have a couple,
21 and first I'd like to explore the fact of whether or not
22 there was actually a Garden City hearing, because I read
23 the notice which you have appended to your testimony as
24 Exhibit 301 and it certainly isn't any invitation to come
25 at a certain time and place and talk about it.
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Wilder, Idaho 83676 Neighborhood Assns.
1 A No. That's been one of the concerns we've
2 had is that, to our knowledge, there was never an
3 opportunity for us to have input at all in this process.
4 We just sort of found out from that notice after the fact
5 that this was the situation and even that didn't give us
6 any real information as far as the impact on us.
7 Q So to your knowledge, did Garden City have
8 a meeting at which customers could come and speak?
9 A Not to my knowledge. I'm not aware of it
10 at all. I believe if we had known of such a thing, we
11 certainly would have sought to be represented.
12 Q You were here earlier today when Mr. Booe
13 testified, weren't you?
14 A Yes.
15 Q And as I recall his testimony, he said
16 there were two things that United Water would do
17 immediately: One was to immediately flush the system,
18 which they thought would give some improved water
19 quality; and the other was to connect to a reservoir
20 which they thought might help the pressure problems, and
21 I guess after hearing his statements in that regard, does
22 that give you any assurances or reassure you or change in
23 any way your position?
24 A I'm not sure as far as the flushing goes.
25 I know when we complained, a lot of people were
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Wilder, Idaho 83676 Neighborhood Assns.
1 complaining about the problems a year or two ago, there
2 was a lot of flushing done to try to address that. I
3 think things have improved, but I don't think that the
4 water quality is even yet real good, so I'm not sure if
5 that would change anything or not. Certainly, the backup
6 reservoir could be a plus for us.
7 Q In regard to having any more, I guess,
8 reassurance of how United Water, how seriously they
9 intended to take service to the area, did that in any
10 way, I guess, give you any reassurance on that point?
11 A Maybe I'm not understanding your question
12 exactly.
13 Q Did it allay any of your concerns at all?
14 A The earlier testimony?
15 Q Uh-huh.
16 A Not significantly, no. You know, I haven't
17 really seen anything real concrete that tells me yes,
18 this increase is worth it to us or of benefit to us or
19 will be in the near future.
20 COMMISSIONER SMITH: Okay, thank you.
21 COMMISSIONER NELSON: Madam Chair, could I
22 ask one additional question in regard to rates?
23 COMMISSIONER SMITH: Commissioner Nelson.
24
25
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Wilder, Idaho 83676 Neighborhood Assns.
1 EXAMINATION
2
3 BY COMMISSIONER NELSON:
4 Q Mr. Patterson, do you know if you pay the
5 same rate to Garden City that people who live inside the
6 city pay?
7 A No, I wouldn't know.
8 Q Have you ever received a notice of a
9 hearing for a rate increase or rate change?
10 A No.
11 Q Okay, would it surprise you to learn that
12 you pay 50 percent more than Garden City residents pay
13 for their water?
14 A It would surprise me to hear it was that
15 much more, yes.
16 COMMISSIONER NELSON: Thank you.
17 COMMISSIONER SMITH: Mr. Kline, do you have
18 any redirect?
19 MR. KLINE: No, I don't.
20 COMMISSIONER SMITH: Thank you for your
21 patience and your testimony, Mr. Patterson.
22 THE WITNESS: Thank you.
23 (The witness left the stand.)
24 MR. KLINE: Madam Chairman, Mr. Patterson
25 may want to stay a little while and listen, but if he
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CSB REPORTING PATTERSON (Com)
Wilder, Idaho 83676 Neighborhood Assns.
1 could take off or be excused at his own discretion, I
2 guess I'd appreciate that.
3 COMMISSIONER SMITH: Is there any objection
4 to Mr. Patterson being excused?
5 MR. BERGQUIST: No objection.
6 COMMISSIONER SMITH: He may be excused at
7 his convenience.
8 COMMISSIONER SMITH: Mr. Woodbury.
9 MR. WOODBURY: Thank you, Madam Chair.
10 Staff as its first witness would call Madonna Faunce.
11
12 MADONNA FAUNCE,
13 produced as a witness at the instance of the Staff,
14 having been first duly sworn, was examined and testified
15 as follows:
16
17 DIRECT EXAMINATION
18
19 BY MR. WOODBURY:
20 Q Ms. Faunce, will you please state your full
21 name and spell your last name for the record?
22 A Madonna Faunce, F-a-u-n-c-e.
23 Q And for whom do you work and in what
24 capacity?
25 A Idaho Public Utilities Commission as a
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Wilder, Idaho 83676 Staff
1 Staff auditor.
2 Q And in that capacity, did you have occasion
3 to prepare prefiled testimony in this case consisting of
4 23 pages and four exhibits, Exhibits 101 through 104?
5 A I did.
6 Q And have you had the opportunity to review
7 that testimony and those exhibits prior to this hearing?
8 A Yes.
9 Q And is it necessary to make any changes?
10 A No.
11 Q If I were to ask you the questions set
12 forth in your testimony, would your answers be the same?
13 A Yes.
14 MR. WOODBURY: Madam Chair, I'd ask that
15 the testimony be spread on the record, that the exhibits
16 be identified, and I'd present Ms. Faunce for
17 cross-examination.
18 COMMISSIONER SMITH: Thank you. Without
19 objection, the testimony will be spread upon the record
20 and Exhibits 101 through 104 will be identified.
21 (The following prefiled testimony of
22 Ms. Madonna Faunce is spread upon the record.)
23
24
25
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1 Q. Please state your name and business address
2 for the record.
3 A. My name is Madonna Faunce. My business
4 address is 472 West Washington Street, Boise, Idaho.
5 Q. By whom are you employed and in what
6 capacity?
7 A. I have been employed by the Idaho Public
8 Utilities Commission (IPUC) as an auditor since 1989. I
9 am licensed as a Certified Public Accountant in the State
10 of Idaho.
11 Q. Please give us a brief description of your
12 educational and professional background.
13 A. I received a B.A. degree in Accounting from
14 Boise State University in 1975 and an M.B.A. from Boise
15 State University in 1977. I have attended several
16 seminars since graduation in accounting, tax, law,
17 personnel, management and negotiation. I have also
18 attended a Training for Utility Management Analysts
19 seminar sponsored by NARUC in September of 1989.
20 Prior to working for the Idaho Public
21 Utilities Commission, I was employed by Grays Harbor
22 College as Assistant Dean for Administration. I was in
23 charge of all accounting, payroll, capital projects,
24 contracts, personnel and affirmative action. While at
25 the College, I also taught accounting and management.
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UWI-W-95-2 FAUNCE, M (Di)
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1 Before working for the College, I was Chief Operational
2 Officer, Treasurer and Controller in private industry.
3 Q. What is the purpose of your testimony?
4 A. I will address United Water Idaho, Inc.'s
5 (UWI, Company) proposed regulatory accounting treatment
6 for the Garden City North State Area. I will also
7 address the treatment of premiums and recommend that the
8 premium in this exchange not be allowed in rates in UWI's
9 next rate case, if the exchange is approved. Staff
10 witness Lobb will address the appropriateness of the
11 exchange.
12 Q. Why do you believe UWI's proposed regulatory
13 accounting treatment for the Garden City North State Area
14 needs to be addressed?
15 A. In its amended Application filed with the
16 Commission on October 10, 1995, the Company requests
17 authorization to include the amount to be paid to Garden
18 City in the Company's rate base. In support of the
19 Company's Application, Mr. Healy on page 7, lines 1-10 of
20 his direct testimony, states that the basis for rate base
21 consideration, in an arms-length transaction between two
22 parties for the sale/exchange of water facilities,
23 represents the cost of those assets first devoted to
24 utility service. Mr. Healy also states that the fact the
25 developers contributed portions of the water facility
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 assets has no bearing on the treatment to be afforded the
2 assets when they become the property of a regulated
3 utility. Staff disagrees with these assumptions.
4 Q. Why does Staff disagree with these
5 assumptions?
6 A. Staff disagrees with these assumptions
7 because of Commission adopted accounting standards for
8 utility plant. Of the several accounts included in rate
9 base, probably the most important from a regulatory and
10 utility's point of view is the plant account "Utility
11 Plant In Service." This is Account 101 as identified by
12 the Uniform System of Accounts for Class A Water
13 Utilities (USOA). Account 101 "Utility Plant In Service"
14 is the control account identifying the plant used to
15 produce utility service and is the summary account
16 appearing in a utility's balance sheet. The USOA
17 instructions pertinent to this account in Section A
18 state:
19 All amounts included in the accounts
for utility plant acquired as an
20 operating unit or system, shall be
stated at the cost incurred by the
21 person who first devoted the property
to utility service.
22
23 Q. Doesn't this support Mr. Healy's position on
24 page 7, lines 1-10 of his direct testimony when he states
25 that an arms-length transaction between two parties for
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 the sale/exchange of water facilities represents the cost
2 of those assets first devoted to utility service.
3 A. No. It should be noted that the accounting
4 specified in the USOA is original cost of the utility
5 plant. Definition 21 of the USOA identifies original
6 cost as "the cost of such property to the person first
7 devoting it to public service." There is no distinction
8 made as to the form of the organization that first
9 devotes the property to public service. Therefore, it
10 makes no difference if the property was first devoted to
11 public service by a regulated utility, municipality,
12 co-op, developer or some other organizational form. The
13 North State Area was devoted to utility service by Garden
14 City. The ratepayers of the North State Area have been
15 using this system since it was installed and will
16 continue to use the same system after it is sold.
17 Q. What is the appropriate regulatory
18 accounting for a purchased or exchanged system that has
19 previously been devoted to utility service?
20 A. The USOA instructions for the acquisition
21 cost of utility plant (Exhibit No. 101) applicable to
22 this case state:
23 1. The original cost of plant, estimated if
24 not known, shall be credited to Utility Plant Purchased
25 or Sold (Account 104) and concurrently charged to the
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 appropriate utility plant in service.
2 2. The requirements for accumulated
3 provision for depreciation applicable to the original
4 cost of the properties purchased shall be charged to
5 Account 104 and concurrently credited to the appropriate
6 account for accumulated depreciation.
7 3. The amount of contributions in aid of
8 construction applicable to the property acquired shall be
9 charged to Account 104 and concurrently credited to
10 Account 271 - Contributions in Aid of Construction
11 (CIAC).
12 4. The amount remaining in Account 104
13 shall then be closed to Account 114 - Utility Plant
14 Acquisition Adjustments.
15 5. The utility shall procure, if possible,
16 all existing records relating to the property acquired,
17 or certified copies thereof, and shall preserve such
18 records in conformity with regulations or practices
19 governing the preservation of records.
20 Q. In No. 5 above you state that the "utility
21 shall procure, if possible, all existing records relating
22 to the property acquired, or certified copies thereof."
23 What should a regulated utility do if they purchase
24 assets and the selling utility cannot or will not supply
25 all records relating to the property acquired?
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UWI-W-95-2 FAUNCE, M (Di)
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1 A. The purchasing regulated utility should
2 obtain current replacement value of the system or asset,
3 then take a price deflator to reduce the replacement
4 value for inflation to arrive at the original cost. If
5 the policy of the selling utility requires contributed
6 property, as in the case of Garden City requiring
7 developers to contribute the water system, or if it would
8 have been required to be contributed by the Commission,
9 CIAC should be calculated. After the cost has been
10 established and CIAC has been considered, depreciation
11 must be calculated from the time the system or asset was
12 first placed in service to the time of purchase.
13 Depreciation is added because theoretically, the
14 accumulated depreciation has already been collected from
15 utility customers through the cost of service treatment
16 for depreciation and the resulting revenue requirements
17 generated. Deducting accumulated depreciation from the
18 rate base prohibits the utility from earning a further
19 return on costs that have been recovered and also avoids
20 the confusion of attempting to equate net plant in
21 service with any measure of current "value" of the
22 property. Accumulated depreciation in original cost
23 jurisdictions is used to reduce the rate base for that
24 portion of plant investment and net salvage already
25 recouped through rates. The purchasing utility would
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 record the asset at the calculated original cost, CIAC as
2 calculated, and depreciation as calculated to arrive at
3 net book value. If the purchasing utility paid more or
4 less than the net book value, an acquisition adjustment
5 would be recorded.
6 Q. Is UWI experiencing any problem in
7 obtaining records on plant assets from Garden City?
8 A. Yes, UWI in response to Staff Production
9 Request No. 21 stated:
10 Garden City has indicated to United
Water that a significant amount of
11 their plant is donated by developers
and customers. The City participates
12 in projects which are oversized for
the benefit of the entire system
13 either by direct participation in
the project or by entering into
14 refundable agreements. Garden City
is attempting to collect information
15 with regard to the North State Area
to document developer donations and
16 municipal participation in the water
distribution system.
17
18 UWI has since indicated that Garden City
19 will not supply contribution records. It is Staff's
20 position that CIAC must be booked and absent reliable
21 information of the extent of Garden City's participation
22 in the North State Area, or any way to determine what is
23 significant, it must be assumed that the entire system
24 was contributed.
25 Q. Doesn't the requirement to use original cost
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 less depreciation, and to require the CIAC previously
2 associated with the purchased or exchanged system to be
3 booked by the purchaser, penalize the purchaser of a
4 utility system when inflation has increased the value of
5 the utility assets?
6 A. The rationale for what might seem to the
7 nonregulated industry accountant as an unusual
8 interpretation of cost, has its roots in utility
9 investment problems of the pre-1935 period. Then
10 properties were being sold at prices greater than those
11 paid for property when it initially was constructed or
12 acquired. As a result, sales could inflate property
13 prices and greatly enhance the rate base figures. The
14 important point is that this property already had been
15 devoted to the public service; it was supplying the
16 ratepayers with utility-type service (as in the North
17 State situation). Since no improvements were made,
18 service was not bettered and all that transpired was an
19 accounting entry. As a result of this type of rate base
20 "inflation" Congress passed the Public Utility Holding
21 Company Act as Title I of the Federal Power Act. This
22 legislation indicated that the property and plant in the
23 "Electric Plant In Service" account and its subaccounts
24 should reflect original cost and that original cost
25 should be identified as cost to the first owner placing
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 the property in public use. The Idaho Public Utilities
2 Commission has adopted the USOA (IDAPA 31.12.01.104)
3 which follows this accounting for all utilities, not just
4 the electric utilities. In answer to the question of the
5 relevance of this requirement in today's economy of
6 inflationary spiral, and plant that was devoted to public
7 service some years ago, one eminent authority on the
8 subject (Bonbright, Principles, pp 240) expressed his
9 views regarding the contention by a company that even
10 under an original-cost rule of ratemaking, it must be
11 permitted to enjoy a fair rate of return on the purchase
12 cost of $8 billion incurred by it rather than the cost to
13 the vendor company of $6 billion less $1 billion in
14 allowances for depreciation:
15 ...we think that this contention is
without merit and that the relevant
16 cost datum is the $5 billion depre-
ciated original cost. True, the $8
17 billion transfer price was also an
actual cost-in-fact, the only cost
18 actually incurred by the present
accounting company. But this cost
19 does not represent a contribution
of capital to the public service.
20 Instead, it represents a mere pur-
chase by the present company of
21 whatever legal interests in the
properties were possessed by the
22 vendor. Even under an original-cost
standard of rate control, investors
23 are not compensated for buying utility
enterprises from their previous owners
24 any more than they are compensated for
the prices at which they may have bought
25 public utility securities on the stock
market. Instead, they are compensated
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 for devoting capital to the public service.
The only capital so devoted was the
2 original $6 billion of which $1 billion
has already been recouped from revenues
3 earmarked as allowances for depreciation.
The present company's claim is therefore
4 merely a claim to be standing in the
vendor company's shoes. This conclusion
5 would be equally valid if the figures
were reversed and if the acquisition
6 cost were to fall $3 billion short of
the depreciated original costs.
7
8 Q. What is the Idaho Public Utilities
9 Commission's policy on contributed property?
10 A. In Case No. P-300-21, General Order
11 No. 174, dated August 27, 1987, the Commission adopted
12 Rulemaking For Class D Water Companies. This rule is now
13 IDAPA 31.36.01.103. In this rule the Commission states
14 "In issuing certificates for a small water company or in
15 setting rates for a small water company, it will be
16 presumed that the capital investment associated with the
17 system is contributed capital, i.e., that this capital
18 investment will be excluded from rate base." This Rule
19 specifically states that this contributed "capital
20 investment will be excluded from rate base." If original
21 cost is used and the capital investment was originally
22 contributed, it should still be treated as contributed
23 when the asset is purchased or exchanged. The ratepayers
24 should still be able to expect these capital investments
25 to be treated as contributed, and excluded from rate base.
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 In general practice the IPUC has presumed
2 that contributed property (especially water facilities
3 donated by developers) has been paid for by the
4 ratepayers who purchased the lots. To allow this
5 property to be sold at a higher cost and to add that
6 premium to rate base requires those ratepayers to pay for
7 the facilities twice while no additional contribution of
8 capital to public service has accrued. Therefore, when
9 UWI ignores booking the contribution as part of rate
10 base, as they have requested in their Application, they
11 are asking the North State customers to pay for the
12 facilities twice. If the contribution is booked as Staff
13 has requested, UWI will need to show an acquisition
14 premium for the price paid. If the Commission disallows
15 the acquisition premium in rate base, the North State
16 customers will not be required to pay for the contributed
17 property twice. The Commission has made exceptions and
18 allowed partial or complete recovery of an acquisition
19 premium when the purchasing company can prove and
20 quantify related benefits and if ratepayers are not
21 harmed.
22 Q. Has UWI provided and quantified related
23 benefits and proven that existing ratepayers are not
24 harmed?
25 A. No. The benefits as presented by UWI in its
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 filing for this case are not adequately quantified or
2 proven to hold existing ratepayers harmless. I believe
3 that many of the benefits, as presented in this case, are
4 actually social benefits or benefits to shareholders and
5 if the premium is allowed in rate base as filed, existing
6 ratepayers could be harmed. Mr. Booe in his direct
7 testimony on page 5, lines 8-17, states that allowing UWI
8 to make the acquisition of specific Garden City
9 facilities and allowing UWI to divest itself of specific
10 water facilities which are situated within Garden City
11 will resolve a service dispute of 20 years which has been
12 a source of community problems and confusion between
13 Garden City and Boise. This dispute appears to be
14 between Boise and Garden City as there is no reason why
15 United Water cannot serve within Garden City or Boise if
16 they have a certificate to serve the area. Mr. Booe also
17 states on page 11, lines 13-16, that the acquisition of
18 the North State Area will give UWI some level of control
19 with respect to the number of deep wells which may be
20 drilled within the area. It is Staff's understanding
21 that the Department of Water Resources has the ability to
22 control and protect aquifers within the State of Idaho.
23 Mr. Brown, on page 3, lines 9-12 of his
24 direct testimony, states that the North State Area is
25 relatively new and anticipates maintenance costs will be
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 minimal. Mr. Brown also states on page 4, lines 7-15 of
2 his direct testimony that pressure may be a problem, but
3 that Garden City has stated plans to make improvements in
4 its system in 1996. On page 3, lines 17-20, Mr. Brown
5 says the North State customers will continue to be served
6 from the same distribution system and Garden City supply
7 source. Therefore, system improvements by UWI do not
8 currently seem to be of major importance to the North
9 State ratepayers.
10 Q. If system improvements are not the major
11 motivator for allowing the premium in rate base how does
12 UWI rationalize the price paid for the system?
13 A. Mr. Healy, on page 5, lines 16-20 and page
14 6, lines 1-15, gives nine reasons considered in the
15 purchase price:
16 1. Increase in customer base by 530
17 2. North State within UWI's certificated
18 area
19 3. Incorporating a contiguous area
20 4. In-fill potential at minimal investment
21 5. Existing UWI transmission and
22 distribution cost per customer benchmark
23 6. Ages of the two systems and impact on
24 operations and maintenance
25
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 7. Accommodation of Memorandum of
2 Understanding (MOU) between Boise and
3 Garden City
4 8. Settle impact and service area issues
5 9. Arms-length discussions
6 I believe these reasons are more a benefit to the
7 shareholders than the North State ratepayers or the UWI
8 existing ratepayers. While increasing customer base by
9 530 (North State less Millstream) may be of benefit to
10 existing ratepayers, that benefit can only be realized if
11 some economy of scale occurs. In this case UWI has not
12 quantified any economies of scale. In this case as
13 filed, Staff currently finds no material benefits from
14 economies of scale. Mr. Brown in his direct testimony on
15 page 6, lines 5-9, voices Staff's concern when he states
16 that it would cost $300,000 to drill a new well to serve
17 the North State ratepayers, so it is beneficial to
18 purchase water from Garden City to serve the North State
19 ratepayers. In addition UWI is using a 912 customer base
20 for the North State Area system while in the answer to
21 Staff Production Request No. 6, Garden City supplied only
22 771 customers by meter size. So there is a very large
23 question as to how many customers are actually being
24 transferred.
25 Exhibit No. 102, Column A, line 8, shows if
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 water is purchased from Garden City and if 530 ratepayers
2 actually are added with the system, UWI will just earn
3 its revenue requirement. Column B, line 8, shows if only
4 388 (North State metered less Millstream) ratepayers are
5 added with the system, UWI will be underearning its
6 revenue requirement by $28,719. In Columns C and D,
7 lines 1c and 5a, a $300,000 well has been added to rate
8 base and the incremental operating expense has been
9 adjusted to show the incremental expense with the new
10 well instead of the water being purchased from Garden
11 City. On line 8, of Columns C and D, where Column C uses
12 the 530 ratepayers and Column D uses the 388 ratepayers,
13 UWI would be underearning their revenue requirement by
14 $24,870 and $60,682, respectively. In the case of UWI
15 underearning its revenue requirement in a rate case,
16 existing ratepayer rates would be increased to cover the
17 underearnings. Therefore, the conclusion can be made
18 that existing ratepayers are being put at risk of being
19 worse off if the acquisition adjustment is allowed to be
20 included in rates.
21 To date, in this Case No. UWI-W-95-2 Staff
22 believes United Water has not shown quantifiable benefits
23 to the ratepayers of either the exchanged system or
24 existing ratepayers that would justify allowing the
25 premium in rate base. I believe that existing United
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 Water ratepayers could be harmed while receiving little
2 or no benefits for the risk of additional customers and
3 the implied need for additional supply wells to serve
4 these new customers. No hook-up fees will be charged the
5 new customers to help defer the cost of new wells.
6 Therefore, if the rate base of the exchanged system is
7 allowed to be booked at UWI's out-of-pocket cost and the
8 new customers hasten the need for new wells without
9 helping to pay for the new wells, existing ratepayers
10 could very well be harmed.
11 Q. Have all the costs of serving the new load
12 been identified in Staff's Exhibit No. 102?
13 A. No. I have used the same costs that UWI
14 identified as operating costs. Exhibit No. 102,
15 lines 1-4, identifies the return on investment. In
16 lines 5-6, I identify the components of the revenue
17 requirement. The cost for the actual supply of water,
18 cost for billing, and ad valorem tax (property tax) on
19 rate base is shown on line 5a. Depreciation on
20 identified rate base is added on line 5b. The rate of
21 return is divided between interest (line 5c) and equity
22 (line 5d), and taxes (line 5e) are added for the return
23 on equity portion. This means that only the minimum
24 costs have been considered to arrive at the Total Revenue
25 Requirement.
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UWI-W-95-2 FAUNCE, M (Di)
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1 I believe there are other variable costs
2 and step fixed costs that have not been considered. The
3 variable cost that immediately comes to mind is the IPUC
4 assessment that is based on revenue. Based on the
5 current rate of .00231 and UWI's predicted revenue of
6 $159,000, approximately $367 of expense needs to be added
7 to the calculation. There is also the fact that Staff
8 used the ad valorem tax of .008 as identified by UWI in
9 Case No. EUW-W-94-1, while the ad valorem tax identified
10 and used in BOI-W-93-3 was .020685. The .020685 would
11 increase expenses by $9,271 without the well or $13,077
12 with a well. I believe there are additional variable
13 common overheads that have not been identified that would
14 increase by adding this many additional customers. I
15 also believe there are step fixed common overhead costs
16 that will increase. Step fixed overhead costs are those
17 fixed overhead costs that can only serve so many units
18 before additional fixed overhead costs will be incurred.
19 Q. Looking at the costs as calculated in
20 Exhibit No. 102 and without considering any other
21 variable or fixed overhead costs, will these new
22 customers contribute anything to cover common costs as
23 proposed?
24 A. No. Due to the high cost paid for these
25 facilities, if the premium is allowed in rate base, the
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 North State customers at best will just cover the cost of
2 water, billing, some ad valorem tax and return. Even
3 though the North State customers will take advantage of
4 UWI common overheads and may need to be connected to
5 UWI's distribution system which would include use of the
6 New Hidden Hollow reservoir to stabilize pressures, they
7 will not contribute towards these costs. Therefore,
8 existing facilities paid for by current customers will be
9 used to subsidize the North State customers.
10 Q. Will the sale of the Millstream assets
11 offset the under recovery of UWI's revenue requirement?
12 A. No, Exhibit No. 103 shows the sale of the
13 Millstream system assets valued at $104,431 (line 11)
14 would reduce the revenue requirement, grossed up for
15 taxes, by approximately $13,000 (line 15). The $13,000
16 does not offset the $25,000 to $61,000 revenue
17 requirement short fall that UWI might experience,
18 therefore, existing ratepayers would not be made whole.
19 While there may be some savings in maintenance between
20 the two systems, UWI has not quantified these savings nor
21 has maintenance cost been added to the calculations of
22 the revenue requirement associated with the North State
23 Area in Exhibit No. 102.
24 Q. Does Staff know of any cases where an
25 acquisition adjustment has been allowed in rate base?
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UWI-W-95-2 FAUNCE, M (Di)
01/05/96 Staff
1 A. Yes. Staff has researched prior United
2 Water (Boise Water) case history and found two cases
3 (U-1025-22, O.N. 10071; U-1025-49/U-1084-7, O.N. 19540)
4 that demonstrate the Commissions stand on booking the
5 acquisition premium. In the first case Boise Water was
6 allowed to keep half of the benefits from acquiring a
7 system at less than book value because of an agreement to
8 make improvements to the system. In the second case
9 Boise Water was allowed to collect a surcharge from the
10 acquired system customers to offset the premium. In the
11 second case there were many problems that required system
12 improvements. Staff does not find that the purchase of
13 the Garden City system has the problems associated with
14 the other two systems.
15 In addition Staff has researched other
16 utility cases that have current acquisition adjustments.
17 These cases include CUC-E-92-1/WWP-E-92-7, O.N. 24662;
18 PPL-E-91-2/UPL-E-91-4, O.N. 24077; GTE-T-93-2/
19 CTC-T-93-1, O.N. 25219; PPL-E-94-1/WWP-E-94-1, O.N.
20 25753, O.N. 25844. In all the cases Staff found the
21 company purchasing the asset or system was required to
22 book the asset or system at original cost less
23 accumulated depreciation, less contributions and with an
24 acquisition adjustment.
25 Q. Out of all these orders referenced, what
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UWI-W-95-2 FAUNCE, M (Di)
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1 can be called constant factors for consideration?
2 A. At a minimum the criteria set forth in Idaho
3 Code Section 61-328 for electric utilities has been applied
4 to various utilities requiring a finding that:
5 1. The public interest will not be adversely
6 affected;
7 2. The cost of and rates for supplying
8 service will not be increased by reason
9 of that transaction, and
10 3. The applicant has the bona fide intent
11 and financial ability to operate and
12 maintain said property in the public
13 service.
14 In all cases the Commission has found the public interest
15 review requires a finding of "no adverse effect" for
16 ratepayers. The Commission review has recognized the
17 broader public interest requirements, both present and
18 future. The Commission has allowed recovery of an
19 acquisition premium when the Company has established real
20 benefits. When an acquisition premium has been allowed,
21 the actual recovery is through economical efficiencies
22 and from the acquired customers holding existing
23 customers free of harm.
24 Q. Considering all the facts, does Staff have
25 a recommendation on how to handle the UWI exchange of the
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01/05/96 Staff
1 Garden City North State assets if the Commission approves
2 the exchange?
3 A. Staff recommends that UWI record the
4 exchanged plant on its books at original cost including
5 depreciation and CIAC. I also recommend that the
6 acquisition premium not be allowed in rate base in future
7 rate cases and that the premium be amortized to the
8 shareholders not the ratepayers. UWI has not made any
9 contribution of capital to the public service to offset
10 this premium. In addition these customers will be
11 receiving Garden City water through a middle man, UWI.
12 UWI cannot generate enough economic efficiencies to
13 recover the premium due to the high premium paid. To ask
14 the customers of the exchanged system to cover the
15 premium over the life of the assets places them and
16 existing UWI customers at risk of higher rates. Based on
17 the filing, I therefore, find no quantifiable benefit
18 from the premium to the exchanged system ratepayers and
19 as stated above, existing UWI customers will receive no
20 quantifiable benefits for the risk of additional
21 customers to the system.
22 Q. Would you allow any of this premium in rate
23 base given the facts in this case that you have described
24 if the Commission found social benefits that were not
25 quantifiable.
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1 A. Yes, that is possible. It is very obvious
2 that UWI has used many of the same calculations in
3 determining what to pay for this system as they would use
4 in determining the cost for a new subdivision
5 development. The one item that UWI did not consider is
6 the connection fee charged to new customers. In UWI's
7 Rules And Regulations, Connection Fees, Sheet No. 22,
8 paragraph 65, it states: "The purpose of such connection
9 fee(s) is to provide funds to the Company, which help
10 offset costs of providing source of supply facilities,
11 thus reducing the impact of the cost of those facilities
12 on existing customers." While Staff does not believe
13 that existing customers of an exchanged system should pay
14 a connection fee, Staff does believe it would be
15 reasonable to impute a connection fee to reduce the
16 premium. This would allow some of the premium to be
17 included in rate base for perceived but unquantifiable
18 benefits, allow existing customers to be held harmless
19 and allow the new customers to make some contribution to
20 the overhead costs that might benefit them. Assuming
21 UWI's calculation of 530 additional customers and that
22 these customers are without separate irrigation
23 facilities, the premium would be reduced by $636,000
24 ($1,200 for a 3/4 meter x 530 customers). See Exhibit
25 No. 104.
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1 Q. Are there any other conditions that would
2 allow UWI to recover some of the premium?
3 A. If UWI can show and quantify benefits that
4 will not place existing customers at risk the Commission
5 could allow some portion of the premium to be in rate
6 base and/or amortized to the regulated utility's
7 expenses. Staff believes it is the responsibility of UWI
8 to prove real benefits, to quantify those benefits and to
9 show how the premium is to be recovered while holding
10 existing ratepayers harmless.
11 Q. Does this conclude your testimony in this
12 proceeding?
13 A. Yes, it does.
14
15
16
17
18
19
20
21
22
23
24
25
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01/05/96 Staff
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Kline, do you have
4 questions?
5 MR. KLINE: I do have a couple of
6 questions.
7
8 CROSS-EXAMINATION
9
10 BY MR. KLINE:
11 Q Ms. Faunce, this morning the Boise Water --
12 I'm sorry, United Water witnesses indicated that in order
13 to bring the pressure up in the system they would be
14 spending approximately $47,500 for interconnecting the
15 existing system north of State Street with their system
16 and also another 10-$15,000 for some additional booster
17 pumps. Have you included any costs of that nature in the
18 cost of service analysis that you have presented here
19 today?
20 A No, I have not.
21 Q Would there be any, that you could
22 anticipate any, changes in your analysis if you were to
23 include those additional costs?
24 A I would anticipate that it would show that
25 the Company would be underearning on its rate of return.
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1 Q Now, I'd like to direct you to your
2 testimony on the bottom of page 21, top of page 22, and
3 are you there?
4 A I sure am.
5 Q Okay. There you discuss the Commission's
6 ability to consider unquantifiable social benefits as a
7 part of the analysis of the proposed exchange. Would
8 this consideration be part of the Commission's public
9 interest analysis, is that how you would see
10 consideration of those social benefits?
11 A Yes.
12 Q When the Commission is acting in its role
13 of considering the public interest of this exchange,
14 would it be proper for it to consider both detriments as
15 well as benefits?
16 A Yes, it would.
17 Q And in this instance, would you recommend
18 that the detriments with respect to the increase in rates
19 associated with the north of State Street customers be
20 considered as a part of the public interest analysis?
21 A I believe that you'd probably have to weigh
22 that with any benefits they might receive. I have not
23 made any analysis in that case, so I really couldn't say
24 whether it would be a detriment to them or not at this
25 time.
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1 Q When you looked at the various -- strike
2 that.
3 That's all the questions I have.
4 COMMISSIONER SMITH: Thank you, Mr. Kline.
5 Mr. Bergquist.
6
7 CROSS-EXAMINATION
8
9 BY MR. BERGQUIST:
10 Q Ms. Faunce, I think on page 3 of your
11 direct testimony, or in that area, you talk about the
12 Uniform System of Accounts and rely upon certain
13 procedures that are set forth in the Uniform System.
14 What is that, a NARUC set of rules, accounting rules?
15 A The Uniform System of Accounts has been
16 adopted by NARUC, yes, and this Commission in an order
17 has also adopted those rules.
18 Q And all public utilities, at least under
19 this Commission, are expected to abide by the Uniform
20 System of Accounts?
21 A That is correct.
22 Q Does that also apply to nonregulated
23 utilities, such as Garden City's system?
24 A No, it does not.
25 Q So whatever system Garden City may have
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1 had, if any, does not necessarily comply with the Uniform
2 System?
3 A No.
4 Q I'd like to have you refer to your
5 Exhibit 102. Do you have that in front of you?
6 A Yes, I do.
7 Q Would you just explain in a nutshell what
8 you purport to show by this exhibit, Mr. Faunce?
9 A Basically, what I'm showing is whether
10 United Water would earn their revenue requirement off of
11 this system.
12 Q Okay, and the system, you are speaking of
13 the North State system?
14 A Yes, I am, and I'm not talking about
15 maintenance in it or contributing to any of the existing
16 services that United Water might present to these
17 people. All I am saying is that they will pay the bare
18 minimum, which would be their revenue requirement, a very
19 few operating costs, basically water, some accounting
20 services and part of the property tax, not all of it.
21 Q On your columns A, B, C and D, those are
22 alternative methods of arriving at whether or not the
23 revenue requirement is met?
24 A Basically, I have tried to present the way
25 that I believe United Water has presented the case in
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Wilder, Idaho 83676 Staff
1 their application. I have presented it in Column B the
2 way Staff would like to see it presented. In Column C
3 I have used the same numbers that are in A, except I have
4 added the cost of a well, and Column D is exactly the
5 same as Staff's position in Column B, except, again, a
6 well has been added.
7 Q Let me direct you to your Column A. For
8 the investment, the plant in service, you've used, what,
9 roughly the price that United Water is paying for the
10 North State Area?
11 A Yes. That was taken from Mr. Healy's
12 testimony and that is the net book value of the
13 Millstream, plus the cash that is going to be paid.
14 Q Now, if you're trying to determine the
15 revenue requirement for the North State Area, wouldn't
16 you take into consideration the total amount of revenue
17 which the Company would derive from customers in that
18 North State Area?
19 A You're talking about the difference between
20 the 530 customers and the 900 and some other?
21 Q That's correct.
22 A Well, you've got to remember that the
23 customers in the Millstream are covering more costs than
24 just their plant. They're covering system costs and all
25 of the costs; therefore, you must consider that some of
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1 these customers are going to have to pick up those costs
2 that these other customers are going to be leaving.
3 That's why we subtract the number from the Millstream
4 from these, because the 300 customers from Millstream
5 have to be, cover the costs that the Millstream customers
6 are leaving uncovered.
7 Q Well, if you were trying to determine the
8 net revenue requirement, whether it was being met for
9 United Water's entire system, not just the North State
10 system, but the entire system, then would it not be
11 proper to make that adjustment for the net number of
12 customers which United Water would gain in this exchange?
13 A If you were trying to cover all of the
14 costs, the whole Company, you would just put everything
15 together. You wouldn't separate any of the customers
16 out.
17 Q I understand that you believe that it's
18 proper to only consider a portion of the revenue that is
19 being derived in the North State Area in determining
20 whether or not the revenue requirement is being met.
21 A I believe it is proper only to consider the
22 increase in customers, the new customers, compared to the
23 new plant.
24 Q If the total customers, the 912, were
25 considered, the figures in your line 8 would necessarily
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1 be much higher, would they not?
2 A They would be higher for this, but the
3 cost, then United Water would be underearning in their
4 overall system.
5 Q We're not considering the overall system in
6 this proceeding, though, are we?
7 A Well, I believe you have to, because if you
8 do not replace the customers lost and United Water is
9 underearning in the overall system, the remaining
10 existing customers would be worse off. We don't want to
11 leave the existing customers worse off.
12 Q The existing customers you're speaking of?
13 A All of United Water customers.
14 Q Not just Millstream, but all of them?
15 A That is correct.
16 MR. BERGQUIST: That's all I have. Thank
17 you, Ms. Faunce.
18 COMMISSIONER SMITH: Do we have questions
19 from the Commission?
20 COMMISSIONER HANSEN: No.
21 COMMISSIONER NELSON: I have no questions
22 for Ms. Faunce. Thank you.
23 COMMISSIONER SMITH: Well, I guess I do.
24
25
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1 EXAMINATION
2
3 BY COMMISSIONER SMITH:
4 Q Let me see if I can ask this in a way that
5 makes sense. On page 22 of your testimony on line 23,
6 you use the word "premium." What do you mean by that?
7 A The acquisition adjustment that I have
8 recommended that United Water show in their books for the
9 purchase of the system.
10 Q So when you say "the premium," what dollar
11 amount is that?
12 A According to my Exhibit 102, line 1e, it
13 would be $697,431.
14 Q That's the same number, I think, Mr. Healy
15 called his gross investment.
16 A That is correct.
17 Q And in your mind that's all premium?
18 A Yes, basically, because in a production
19 request, we asked for the amount of assets that had been
20 contributed. The reply to that was that Garden City
21 requires developers to contribute all of their system.
22 They do occasionally work out an escrow or contribute
23 some if they're oversized, but a significant portion
24 would have been contributed. Because we were unable to
25 determine what a significant portion was and Garden City
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Wilder, Idaho 83676 Staff
1 was unable to tell them how much had been contributed, we
2 felt or I felt it was appropriate that it all be
3 considered contributed property.
4 Q So it's just kind of like a
5 developer-provided system?
6 A That is correct.
7 Q Well, now, explain to me, I'm trying to
8 figure out, then, your calculation that you're describing
9 in your answer on this page --
10 A Yes.
11 Q -- that would reduce this premium by
12 636,000, what is your thought there?
13 A Well, my thought there is that if you work
14 back through an escrow account the way that United Water
15 does when they're setting up a developer system, you work
16 through those numbers and it comes out to approximately
17 the same amount as they are paying for this system or
18 what they have paid for this system, but the one thing
19 they hadn't considered when they set up the amount they
20 were willing to pay for this system using that method is
21 that the customer who hooks up after the system is
22 developed also pays a hook-up fee and that hook-up fee is
23 specifically designed to defray costs for wells and
24 system water and that's the big thing that would hurt the
25 existing customers is when a well goes in to serve these
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Wilder, Idaho 83676 Staff
1 customers, part of that cost of that well could fall on
2 existing customers, making them worse off.
3 Even though it's true that it would not
4 hurt them until a rate case, it could hasten the need for
5 a rate case, which would cause them to be hurt;
6 therefore, by assuming and reducing the premium by that
7 hook-up fee, it would help to make the existing customers
8 whole.
9 Q I think I'm worse off than before I asked
10 the question.
11 A Well, the idea is I believe the existing
12 customers would be hurt if they had to support a well for
13 these customers. The reason for a hook-up fee is to help
14 cover those costs so existing customers don't; therefore,
15 if you reduce the premium that was paid by an imputed
16 hook-up fee, you would help so that the existing
17 customers would not be hurt by the need for that well.
18 Q Okay, what effect would it have on United
19 Water to impute these as hook-up fees? I mean, you say
20 this would be then allowed in rate base?
21 A No. What I'm saying is that rate base
22 would be reduced. What I'm saying is if the Commission
23 has decided to allow the acquisition adjustment in rate
24 base, I believe it should be reduced by an amount to hold
25 the existing customers from harm.
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Wilder, Idaho 83676 Staff
1 Q So you're saying if we were to find that we
2 ought to approve the proposed exchange and if we were to
3 find that the amount paid was reasonable and ought to be
4 put into rate base at sometime in the future, but that it
5 was a legitimate expense and we would anticipate putting
6 it in that you believe it ought to be reduced by this
7 amount?
8 A Yes. If you want to hold existing
9 customers from harm, yes.
10 COMMISSIONER SMITH: I've got it now.
11 Redirect, Mr. Woodbury?
12 MR. WOODBURY: No questions. Thank you.
13 COMMISSIONER SMITH: Thank you for your
14 help.
15 (The witness left the stand.)
16 MR. WOODBURY: Staff would call Randy Lobb
17 for its second witness.
18
19
20
21
22
23
24
25
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1 RANDY LOBB,
2 produced as a witness at the instance of the Staff,
3 having been first duly sworn, was examined and testified
4 as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. WOODBURY:
9 Q Mr. Lobb, will you please state your name,
10 spell your last name for the record?
11 A My name is Randy Lobb. That's L-o-b-b.
12 Q And for whom do you work, sir, and in what
13 capacity?
14 A I'm employed by the Idaho Public Utilities
15 Commission as an engineering supervisor.
16 Q And in that capacity, did you have occasion
17 to prepare prefiled testimony in this case consisting of
18 12 pages and two exhibits, Exhibits 105 and 106?
19 A Yes.
20 Q And have you had the opportunity to review
21 that testimony and those exhibits prior to this hearing?
22 A Yes, I have.
23 Q And is it my understanding that you have a
24 change in your testimony on page 2, line 19?
25 A Yes.
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CSB REPORTING LOBB (Di)
Wilder, Idaho 83676 Staff
1 Q And it's my understanding that the nature
2 of the testimony is the word "should," the third word in
3 that line, should be "could"?
4 A That's correct.
5 Q And do you have any other changes that are
6 necessary?
7 A No, I do not.
8 Q And if I were to ask you the questions set
9 forth in your testimony as changed, would your answers he
10 be the same?
11 A Yes.
12 MR. WOODBURY: Madam Chair, I'd ask that
13 the testimony be spread and that the two exhibits be
14 identified, and I'd present Mr. Lobb for
15 cross-examination.
16 COMMISSIONER SMITH: Thank you. Without
17 objection, it is so ordered.
18 (The following prefiled testimony of
19 Mr. Randy Lobb is spread upon the record.)
20
21
22
23
24
25
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CSB REPORTING LOBB (Di)
Wilder, Idaho 83676 Staff
1 Q. Please state your name and business address
2 for the record.
3 A. My name is Randy Lobb and my business
4 address is 472 West Washington Street, Boise, Idaho.
5 Q. By whom are you employed?
6 A. I am employed by the Idaho Public Utilities
7 Commission as Engineering Supervisor.
8 Q. What is your educational and professional
9 background?
10 A. I received a Bachelor of Science Degree in
11 Agricultural Engineering from the University of Idaho in
12 1980 and worked for the Idaho Department of Water
13 Resources from June of 1980 to November of 1987. I
14 received my Idaho license as a registered professional
15 Civil Engineer in 1985 and began work at the Idaho Public
16 Utilities Commission in December of 1987. My duties at
17 the Commission include analysis of utility rate
18 applications, rate design, tariff analysis and customer
19 petitions.
20 Q. What is the purpose of your testimony?
21 A. The purpose of my testimony is to describe
22 the details of the proposed service area exchange between
23 United Water Idaho (UWI) and Garden City and explain its
24 effect on both the customers involved in the exchange and
25 existing UWI customers.
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UWI-W-95-2 LOBB, R (Di)
01/05/96 Staff
1 Q. Please summarize your testimony.
2 A. The proposed exchange between UWI and
3 Garden City boils down to a swap of supply and
4 distribution facilities used to serve 382 UWI customers
5 for distribution facilities used to serve 912 Garden City
6 customers at an up front capital cost to UWI of
7 approximately $700,000. As a result of the exchange, the
8 new UWI customers will see rate increases ranging from
9 22% to 50% while the new Garden City customers will see
10 rate decreases ranging from 35% to 68%. The primary
11 purpose for the exchange is to realign water service
12 boundaries so they more closely follow the incorporated
13 boundaries of Boise and Garden City. Although the
14 benefits to customers in the North State Area are
15 difficult to quantify, Staff supports the Company's
16 proposal to charge these customers the same rates charged
17 all other similar UWI customers should the exchange be
18 approved. Different rates for similar service within a
19 customer class could be considered discriminatory or
20 preferential and should not be allowed. This is
21 particularly true in conjunction with rates based on
22 average system cost.
23 While Staff is not opposed to the exchange
24 of service territories, we believe that the Company has
25 not justified recovery of the purchase price through
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UWI-W-95-2 LOBB, R (Di)
01/05/96 Staff
1 rates. Allowing UWI to recover this price in rates would
2 represent a double recovery of the water system costs.
3 Q. Please describe United Water's proposal.
4 A. UWI proposes to amend and revise its
5 Certificate of Convenience and Necessity by relinquishing
6 a portion of its existing service area known as the
7 Millstream Subdivision. The Millstream Subdivision,
8 located within the city limits and impact area of Garden
9 City consists of a single water supply well and
10 distribution facilities that serve 382 customers. These
11 facilities and the customers served would be exchanged
12 for Garden City distribution facilities and customers
13 currently served in an area referred to in this case as
14 the North State Area. The North State Area, as
15 represented, has 912 customers and is located outside the
16 Garden City limits and within the certificated area of
17 United Water. Under the exchange agreement, United Water
18 would convey to the City $593,250, the Millstream
19 facilities with a Net Book Value (NBV) of $104,000 and
20 all customers served by those facilities. In return, the
21 City would convey to United Water the North State Area
22 facilities with a depreciated installation cost of
23 $1,088,000 and all customers served by those facilities.
24 United Water also agrees to continue serving the North
25 State Area with water purchased from Garden City for a
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UWI-W-95-2 LOBB, R (Di)
01/05/96 Staff
1 period of at least two years and up to ten years.
2 Q. What effect will the service area exchange
3 have on the customer rates in the Millstream subdivision
4 and the North State Area?
5 A. The Millstream customers will become
6 customers of Garden City and I assume will be charged the
7 same rates as other Garden City customers within the city
8 limits. The monthly residential customer charge will
9 decrease from $6.00 to $1.95 and the commodity rate will
10 decrease from $0.809 to $0.524 per 100 cubic feet (CCF)
11 in the winter and from $1.011 to $0.524 per CCF in the
12 summer. This change represents potential monthly
13 decreases ranging from approximately 35% to 67.5%.
14 In the North State Area, the Company
15 proposes that the new customers be charged existing UWI
16 tariffed rates. For residential customers this results
17 in a monthly customer charge increase of $1.09 from $4.91
18 to $6 and a commodity increase of $0.136 per CCF in the
19 winter and $0.338 per CCF in the summer. These rate
20 changes result in increases ranging from approximately
21 22% to 50%. Staff Exhibit No. 105 shows a rate change
22 comparison for both customer groups at various levels of
23 consumption.
24 Q. If the exchange is approved, does Staff
25 support the proposed rates?
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UWI-W-95-2 LOBB, R (Di)
01/05/96 Staff
1 A. Yes. Staff supports the uniform application
2 of currently tariffed UWI rates to all similar Company
3 customers. To do otherwise could be considered
4 discriminatory because it would unfairly single out one
5 customer group within a customer class for special rate
6 treatment. Rather than establishing multiple rates
7 within the residential customer class based on numerous
8 site specific cost differences, United Water rates are
9 based on average system costs to set uniform rates for
10 all customers within the same class. The primary reason
11 for system averaging and uniform rates is to assure that
12 no single small group of customers is required to pay
13 extremely high site specific costs. While one customer
14 group may pay more than their actual cost of service at a
15 given point in time, that same group of customers may pay
16 less than their actual cost of service at another point
17 in time if the Company incurs unusually high costs to
18 serve them. The result of this pricing methodology is
19 the same rate for every residential customer regardless
20 of their particular cost or quality of service.
21 In addition, it should be noted that a
22 significant portion of the rate increase that will be
23 experienced by the North State Area customers occurs
24 because of the summer/winter commodity rate differential.
25 The seasonal differential of 25% is experienced by all
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1 UWI customers every May when the summer rate begins. If
2 the rate change is evaluated in this fashion, the
3 increase experienced by customers will be limited to 20%
4 for winter commodity and $1.09/mo increase in the
5 customer charge.
6 Q. The Company has proposed to serve the North
7 State Area with the same water supply and the same
8 distribution facilities that Garden City uses to serve
9 the area. Why should these customers pay more for the
10 same water supply and distribution facilities?
11 A. In addition to the need for uniform
12 application of rates as described above, these customers
13 will hopefully see some qualitative improvement in
14 service through increased pressure, improved fire flows
15 and better representation through the Company and Idaho
16 Public Utilities Commission than they had through Garden
17 City. The North State Area customers may also be able to
18 take advantage of a greater array of UWI resources in the
19 areas of engineering expertise, water conservation and
20 system maintenance. UWI has automated system monitoring
21 equipment, storage reservoirs and the ability to provide
22 supply from other areas. All of these capabilities
23 should put UWI in a better position than Garden City to
24 address any problems that currently exist or might occur
25 in the future.
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1 Obviously, service quality is a matter of
2 perception and higher rates do not necessarily mean
3 better service quality. Once the North State Area
4 residents become customers of UWI, they are required to
5 follow the rules and regulations of UWI and pay the
6 tariffed charges. While some improvement in service
7 quality may occur, the bottom line is that this exchange
8 was not proposed because of poor service quality in the
9 North State Area. It was initiated by the cities in
10 order to settle a boundary dispute. The rates of UWI
11 recover additional costs such as taxes, profit and some
12 additional system resources. Additional system resources
13 may result in improved service.
14 Q. What effect will the exchange have on
15 customers in the Millstream area?
16 A. Aside from the previously described rate
17 reductions, changes in service quality in the Millstream
18 area are difficult to predict. Just as service quality
19 does not necessarily improve with a rate increase, it
20 does not necessarily decline with a rate decrease. These
21 customers will also continue to be served by the same
22 facilities that have provided service in the past. To
23 the extent customers are currently satisfied with the
24 system pressure and water quality, I would expect
25 satisfied customers after the exchange particularly in
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01/05/96 Staff
1 conjunction with the rate decrease. To the extent UWI
2 capabilities exceed those of Garden City then some
3 decline in service quality might be expected in the
4 Millstream area just as some improvement might be
5 expected in the North State Area.
6 Q. What impact will the Company's exchange
7 proposal have on the existing customers of United Water?
8 A. Prior to a rate case, the effect of the
9 exchange on existing UWI customers will be minimal. Even
10 after a rate case, the effect on existing customers will
11 depend on whether or not the net revenue generated after
12 the exchange is sufficient to cover the revenue
13 requirement associated with exchange related costs. Staff
14 Exhibit No. 106, page 1 of 2, provides an analysis
15 showing the estimated return on Company investment
16 assuming that all of the proposed investment is allowed
17 in rate base, 530 new customers generate an average of
18 $300 per year and area water supply is purchased from
19 Garden City. The last line of the table (line 13) shows
20 that under these assumptions, the Company will come very
21 close to earning its authorized return on this investment
22 from these customers. Therefore, based on the
23 residential escrow analysis, existing customers would not
24 be expected to provide a significant subsidy in order to
25 recover exchange related costs. If the Company serves
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01/05/96 Staff
1 only 388 new customers as indicated in response to Staff
2 Production Request No. 6, UWI's return on investment will
3 be considerably less than authorized. Staff Exhibit No.
4 106, page 2 of 2, shows the estimated return on
5 investment using the same assumptions used on the first
6 page of the exhibit except number of new customers.
7 These analyses do not assume any additional
8 interconnection costs, new well construction or any
9 contribution to existing Company costs.
10 Q. Does Staff oppose the exchange as proposed
11 by UWI?
12 A. Yes. Staff is opposed to UWI's proposal to
13 allow the purchase price to be included in rate base and
14 recovered through rates. Staff's position is that all of
15 the North State Area facilities were contributed to
16 Garden City by developers and therefore, the facilities
17 have no net book value. In other words, the cost of
18 water facilities as contributed to the city by developers
19 was a cost associated with developing the residential
20 property and was recovered by the developer through the
21 sale of lots. Recovery of the payment through UWI rates
22 would constitute double recovery of those costs. The
23 testimony of Staff witness Madonna Faunce provides a
24 detailed analysis of Staff's proposed treatment of
25 exchange related costs.
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01/05/96 Staff
1 Q. Aside from the recovery of purchase costs,
2 does Staff oppose the proposed exchange?
3 A. No. While Staff does not believe there is
4 a single compelling reason for the exchange and it is
5 difficult to balance the interests of all impacted
6 customer groups, Staff believes that the proposed
7 exchange (absent purchase price recovery) could have some
8 benefit. Although customer rates will increase, Staff
9 believes that service quality in the North State Area
10 could improve and customers may see some benefit from
11 greater UWI resources. Moreover, the North State Area is
12 already certificated to United Water and the Company has
13 an obligation to serve. While service quality could
14 decline in the Millstream area without the resources of
15 UWI, there is no evidence that pressure or water quality
16 problems currently exist or that Garden City will provide
17 less than adequate service. Moreover, the Millstream
18 customers will be charged a significantly lower rate.
19 Finally, absent recovery of purchase price as proposed by
20 the Company, existing UWI customers should be no worse
21 off than they would be without the exchange.
22 From a technical perspective the exchange
23 will eliminate the competition for customers between UWI
24 and Garden City in the North State Area allowing more
25 efficient use of distribution facilities. The Company
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01/05/96 Staff
1 has also indicated that fire flows in the area will be
2 improved. Staff is somewhat concerned with the Company's
3 proposal to purchase water from Garden City over a two to
4 ten year period given the high iron content of the water
5 as indicated by the Company's response to Staff
6 Production Request No. 18. However, a new Company well
7 will increase the cost to serve the area and there is no
8 guarantee that a new well will result in lower iron
9 content.
10 Q. What would be the effect on customers if
11 the exchange does not take place?
12 A. Without the exchange, service would continue
13 in much the same way it has in the past. Millstream
14 customer would continue to be served by UWI with
15 oversight by the Commission. Service quality changes in
16 the North State Area would depend upon Garden City.
17 Company witness Brown states that Garden City has plans
18 to improve system pressure in the North State Area in
19 1996. I assume that the City would follow through with
20 those plans. Fire flow improvement may or may not occur
21 with service from Garden City. Competition between
22 Garden City and UWI in the North State Area would
23 probably continue but at a reduced pace because of
24 reduced growth in the area and the desire of both Boise
25 and Garden City to establish uniform city boundaries.
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01/05/96 Staff
1 Q. Does that conclude your testimony in this
2 proceeding?
3 A. Yes, it does.
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
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25
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1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Kline, do you have
4 questions?
5 MR. KLINE: Yes, I do.
6
7 CROSS-EXAMINATION
8
9 BY MR. KLINE:
10 Q Mr. Lobb, referring to that portion of your
11 testimony generally that you just made the correction to,
12 it's my -- you've testified that the Staff is opposed to
13 establishing a United Water rate that would apply only to
14 the North State customers that would be acquired under
15 the proposed exchange; is that correct?
16 A Yes.
17 Q In making that recommendation, are you
18 referring specifically to a permanent type of a
19 difference between the North State customers and other
20 United Water customers sort of in the nature of the
21 situation that Idaho Power has with the Camas Prairie
22 customers?
23 A I'm not really familiar with the Idaho
24 Power Camas Prairie situation, but I am referring to any
25 rate differential applied to a specific customer group,
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1 new customer group, in fact.
2 Q All right. Now, would you include within
3 that definition of special rate a temporary rate or a
4 phase-in type of a rate?
5 A Well, I think it would still represent a
6 specific differential to one particular customer group.
7 It wouldn't necessarily be cost based, particularly if
8 you included the acquisition premium as it's been
9 characterized. The revenue is needed to cover the
10 revenue that the Company is authorized to earn.
11 I think another issue, too, is one of the
12 reasons that you would not allow a lower rate, perhaps,
13 is the same reason that you would not allow a higher
14 rate. If in fact it is determined that significant costs
15 must be invested in the area to solve, say, for example,
16 the water quality problem, you wouldn't require those
17 customers to pay that entire cost all by themselves.
18 That would be spread among additional ratepayers,
19 perhaps. That's the mechanism that's used when you do
20 average system costs and average rates for all customers.
21 Q But isn't it true that on a regular basis
22 utility commissions when faced with a situation where a
23 utility has requested a very substantial rate increase
24 that for a period of time that additional increase is
25 phased in to avoid what we call rate shock?
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1 A Well, I suppose that rate shock could occur
2 here with the implementation of a 20 to 35, 40 percent
3 increase. On the other hand, the last United Water rate
4 case increased rates by about 23 percent. There wasn't a
5 phase-in offered for that. Another example is that every
6 year all customers experience a 25 percent increase in
7 the commodity rate in May; so, relatively speaking, I'm
8 not sure that it's any more significant than current
9 customers experience, current customers of United Water
10 experience, every May.
11 Q But current customers of United Water had
12 an opportunity to participate in the hearings that led up
13 to that, they know that their water comes from United
14 Water and that there will be that differential every
15 summer. In this instance, you've got a group of
16 customers that, really, without much in the way of notice
17 discovered that they were going to be included in a group
18 that's going to have its rates increased very
19 substantially. Don't you see a distinction between those
20 two situations?
21 A Certainly, if they weren't given an
22 opportunity to look at that, that would certainly be a
23 consideration. I don't know what the threshold would be
24 in terms of phasing in of rates or time periods or what
25 would be the target date to raise everybody's rate to
221
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1 current levels. Perhaps there should be some
2 consideration of that. I don't know what that would be.
3 Q Wouldn't that certainly be within the
4 Commission's discretion to review that as a part of its
5 public interest analysis in looking at whether this
6 exchange is in the public interest?
7 A Yes, I think they could look at that,
8 certainly. They would also have to look -- you basically
9 have three different customer groups here that you have
10 to look and see what their interests are and what is in
11 the public interest, and one of those is the existing
12 customer group and what the costs of acquiring the North
13 State customers are, how much revenue can be generated
14 from those customers, and whether or not there's any
15 deficiency and how the Company might try to recover that
16 deficiency. Without a rate increase, they couldn't be
17 able to recover it. How soon would it cause them, could
18 it cause them, to come in for a rate increase, so I think
19 you have to balance the interests of the North State
20 customers with those of both the Millstream customers and
21 the other existing customers that might be impacted.
22 Q When you do that balancing in your own
23 mind, do you come to the conclusion that the exchange
24 agreement itself is in the public interest?
25 A It's really unclear at this time whether
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1 it's in the public interest. I know that there are other
2 social benefits, perhaps. I'm not sure what the dollar
3 value is of resolving a conflict that's been occurring
4 for many years. There may be some service quality
5 improvements for some, perhaps. It's difficult to
6 speculate on exactly what the ultimate benefits will be
7 of this exchange, so I don't believe I've really answered
8 your question, but perhaps the answer is I'm not really
9 sure.
10 Q Is part of the uncertainty exacerbated or
11 made more difficult by the fact that we've had testimony
12 today about the uncertainty as to the customer numbers,
13 certain uncertainty about investment, we talked about
14 fire hydrants, are those some of the things that would
15 contribute to your uncertainty?
16 A If I'm looking at the public interest of
17 the existing customers or the benefit to existing
18 customers, if the Company can acquire these new customers
19 at a cost less than rates are designed to recover, then I
20 think it could be a benefit to existing customers of
21 United Water. If they're paying exactly what rates are
22 designed to recover, there's no benefit to existing
23 customers in my view. If they pay more, then existing
24 customers would be harmed, so to the extent that they pay
25 less than the average cost to serve an existing customer
223
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1 that rates are based upon, then there would be a benefit
2 and it would be in the public interest.
3 Q On page 8 of your testimony, you talk
4 about -- you address this question of a subsidy, and on
5 page 8, bottom of the page, line 22, you come to the
6 conclusion that, therefore, based on the residential
7 escrow analysis, existing customers would not be expected
8 to provide a significant subsidy. In light of the
9 testimony today about the uncertainty as to customer
10 counts and other uncertainties, are you still comfortable
11 with that conclusion in your testimony?
12 A That analysis excluded several, I think,
13 important costs, one of which is the additional cost of a
14 new well. Even though water costs are included in the
15 analysis, a new well would be more costly and would add
16 more costs. There are other interconnection costs that
17 were not included in that analysis. They would increase
18 the revenue requirement. The Company has indicated their
19 willingness to investigate and form a customer group. I
20 don't know if that would be additional costs or that
21 could be done under current rates, under current rate
22 structures.
23 In addition to that, there doesn't seem to
24 be a simple solution to the water quality problem. A new
25 well may be able to resolve that, it may not. Additional
224
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Wilder, Idaho 83676 Staff
1 costs could be incurred in that way, and to the extent
2 that my analysis shows that excluding those the Company
3 may be able to earn their authorized return, it becomes a
4 much more questionable analysis if you do include all
5 those extra costs.
6 Q And at this point in time we don't have the
7 necessary data to do an analysis including those costs,
8 do we?
9 A Well, it's an uncertainty at this point.
10 MR. KLINE: That's all I have.
11 COMMISSIONER SMITH: Mr. Kline, in your
12 questioning of Mr. Lobb, I wanted to confirm, were you
13 questioning the sufficiency of the Commission's notice in
14 this case?
15 MR. KLINE: I'm sorry, I was not and if I
16 gave the impression that the Commission's notice was
17 deficient, I didn't intend to do so. My concern was with
18 the fact that Garden City gave no notice to this group of
19 customers that we can find or any meaningful notice or
20 any meaningful opportunity for input and, therefore,
21 placed them in a position of all of a sudden having their
22 rates at jeopardy. That was my concern.
23 COMMISSIONER SMITH: Okay, because I would
24 note that the Gary Lane Homeowners Association petitioned
25 to intervene in September of this year and I notice
225
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Wilder, Idaho 83676 Staff
1 that your name appears on a notice of parties dated
2 December 1st.
3 MR. KLINE: Yes, that's correct.
4 COMMISSIONER SMITH: All right, thank you.
5 Questions, Mr. Bergquist.
6 MR. BERGQUIST: Thank you. Just a few
7 questions, Mr. Lobb.
8
9 CROSS-EXAMINATION
10
11 BY MR. BERGQUIST:
12 Q Directing your attention to your
13 Exhibit 106 which consists of two pages, the first
14 page -- and this is your analysis of the return on rate
15 base for a 10-year period?
16 A Yes.
17 Q On the first page, you show that for 530
18 customers, which is the net between 912 and 382, I think
19 it was, customers in Millstream.
20 A Yes.
21 Q Now, your analysis relates only to the
22 North State Area, does it not?
23 A It relates to the net transaction, the
24 exchange. That means the loss of customers and the gain
25 of customers.
226
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Wilder, Idaho 83676 Staff
1 Q But not for the entire system of United
2 Water?
3 A No, just for the exchange, the customers
4 and the facilities and the costs associated with
5 Millstream and the North State Area.
6 Q So you contend the 530 is the right figure
7 to use?
8 A Yes.
9 Q And likewise, on page 2, the 388 figure of
10 customers which would be the net between 771 and 382?
11 A Yes. The right number to use would
12 actually be a function of how many customers are in the
13 North State Area.
14 Q Let's see, you've been with the Commission
15 since '87, I think you said.
16 A Yes.
17 Q You've been familiar with Boise Water and
18 United Water during that period of time, have you not?
19 A Yes, I have.
20 Q You heard primarily Mr. Booe's testimony
21 today concerning water quality and pressure and I think
22 Mr. Brown, also, you heard their testimony?
23 A Yes, I did.
24 Q In your experience with the Commission,
25 have you noticed -- and I'm going to direct this as Boise
227
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Wilder, Idaho 83676 Staff
1 Water which is primarily what we're talking about here,
2 what is their experience in meeting water quality and
3 pressure problems in the past that you're aware of? Has
4 it been satisfactory?
5 A Generally, I would say it has. I know that
6 there are still some areas that have some water quality
7 problems at times and some areas that have pressure
8 problems at times. It's kind of a function of operating
9 a water system.
10 Q But to your knowledge, has Boise Water and
11 United Water addressed those problems and attempted to
12 work them out?
13 A I believe so.
14 MR. BERGQUIST: I believe that's all.
15 Thank you.
16 COMMISSIONER SMITH: Are there questions
17 from the Commission?
18 COMMISSIONER NELSON: I have a few. Thank
19 you.
20
21 EXAMINATION
22
23 BY COMMISSIONER NELSON:
24 Q Mr. Lobb, do you have any insight as to
25 what Garden City's motivation is to go through with this
228
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Wilder, Idaho 83676 Staff
1 sale?
2 A Well, I expect that it would be to meet the
3 terms of the agreement between the City of Boise to
4 realign the boundaries. I wouldn't really want to
5 speculate on what any other motive might be.
6 Q Thank you. Is the rate treatment that's
7 recommended here the same as what UWI is proposing in the
8 City of Eagle with their new customers?
9 A No. I believe the Company proposed a
10 phased-in rate for the Eagle area.
11 Q Do you recall why they are recommending
12 different treatments?
13 A I believe --
14 Q Maybe a better question is, what's your
15 opinion of that?
16 A I think they had discussed the issue and
17 the possibility of providing phased-in rates to the City
18 of Eagle at the time that they discussed moving into the
19 area or providing service to the area. I believe the
20 rate increase was somewhat larger. The existing rates
21 were actually lower than existing Garden City rates and
22 so it would have been a larger increase. Those are the
23 only two reasons that I can describe.
24 Q I don't recall, did you have a
25 recommendation in the certificate case out in Eagle?
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Wilder, Idaho 83676 Staff
1 A Yes. My recommendation was that the rates
2 be moved to existing United Water rates.
3 Q So you're consistent?
4 A Yes.
5 Q Have you taken a look at the water quality
6 reports for the City of Garden City?
7 A I believe in response to a production
8 request we received some water quality information that
9 was provided to United Water by Garden City, yes.
10 Q What was your opinion of the water quality
11 in Garden City, the reports that you saw?
12 A Well, I believe there were 10 wells listed
13 on the form and it seemed that the chemical composition
14 of the water varied across the board. A few wells had
15 higher iron and manganese content than other wells and it
16 looked like a couple of wells were considerably worse
17 than others.
18 Q Do you know if there's any particular well
19 that supplies the North State system or is it just a
20 general system?
21 A I'm not really sure exactly which well.
22 I've seen maps that indicate Well No. 5, so perhaps it
23 would be Well No. 5, but I'm not certain about that.
24 It's closer to the area of service, so you would expect
25 that most of the water would come from the nearest wells.
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Wilder, Idaho 83676 Staff
1 Q Do you know if there's any significant
2 difference between those reports and reports you may have
3 seen on the quality of United Water's wells or of their
4 water?
5 A I really don't recall looking at specific
6 wells or water quality in general, not in terms of the
7 numbers that are listed on this list supplied by Garden
8 City.
9 Q Did the Staff do any analysis of what would
10 happen if this application wasn't approved? Does Garden
11 City have an obligation to serve the customers in the
12 North State Area?
13 A I don't know what Garden City's obligations
14 are. I think it's pretty much up to them. They're
15 outside of their city limits right now. I know that the
16 area is already certificated to United Water, so they
17 would have an obligation to serve in the event that
18 Garden City decided not to.
19 Q It wasn't something Staff looked at,
20 though?
21 A We didn't do production requests or look at
22 the legal ramifications of city service.
23 COMMISSIONER NELSON: Okay, thank you.
24 Those are all my questions.
25
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Wilder, Idaho 83676 Staff
1 EXAMINATION
2
3 BY COMMISSIONER SMITH:
4 Q Mr. Lobb, in just trying to figure out what
5 the Staff position is in this case, I note in your
6 testimony you say you don't oppose --
7 A That's right.
8 Q -- but that you couldn't find any
9 substantial, verifiable benefits that would accrue to
10 United Water customers as a whole on the basis of the
11 exchange.
12 A Yes, I didn't find any compelling reason, I
13 think is the term I used in my testimony. I think it was
14 primarily a boundary exchange between the cities. The
15 cities made the decision that they wanted to resolve the
16 conflict and rectify the boundaries and a result of doing
17 that apparently is a requirement that Garden City get out
18 of Boise City's city limits and United Water provide
19 service instead. Perhaps in the long run all you can
20 really do is speculate on service quality in the future
21 and so I don't believe this agreement was reached to
22 resolve perceived service quality problems.
23 Q Do you see any compelling reason to deny
24 the application?
25 A I guess I have sympathy for the customers
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Wilder, Idaho 83676 Staff
1 in the North State Area. Put in their place, I would see
2 a compelling reason, probably, to deny the exchange. On
3 the other hand, you have to look at the people in the
4 Millstream area who are going to see a decline in rates.
5 They probably don't see any compelling reason not to, so
6 I don't see a compelling reason, actually, when all is
7 said and done, I don't see a compelling reason to reject
8 it. I don't see a compelling reason to accept it.
9 Q Well, and, of course, individual affected
10 customers usually do their analysis based on the personal
11 effect to themselves. If you're looking at it as a total
12 from the public interest view, you see no compelling
13 reason to deny it?
14 A I guess I would have to say one area that I
15 might point to and that is the payment of the premium,
16 the payment of the cost. I think there is a possibility
17 that paying too much could harm existing ratepayers and
18 the fact is it's been Staff's position that Garden City
19 doesn't really have an investment in this area and what
20 could be a benefit to existing customers by acquiring
21 low-cost new customers could actually wind up costing
22 existing ratepayers just because the price paid is too
23 high.
24 Q And, of course, in your past experience
25 with the Commission, you've probably recognized that we
233
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Wilder, Idaho 83676 Staff
1 don't feel bound at all by whatever number the Company is
2 proposing and may choose our own?
3 A Yes.
4 Q And that's separate and apart from deciding
5 whether or not the exchange is desirable?
6 A Yes.
7 COMMISSIONER SMITH: Redirect,
8 Mr. Woodbury.
9 MR. WOODBURY: I have no compelling reason
10 to ask any other questions.
11 COMMISSIONER SMITH: Thank you for your
12 help, Mr. Lobb.
13 (The witness left the stand.)
14 MR. WOODBURY: Staff would call as its
15 final witness Judy Stokes.
16
17
18
19
20
21
22
23
24
25
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Wilder, Idaho 83676 Staff
1 JUDY STOKES,
2 produced as a witness at the instance of the Staff,
3 having been first duly sworn, was examined and testified
4 as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. WOODBURY:
9 Q Ms. Stokes, will you please state your full
10 name, spell your last name?
11 A Judy Stokes, S-t-o-k-e-s.
12 Q And for whom do you work and in what
13 capacity?
14 A For the Idaho Public Utilities Commission
15 as a utilities compliance investigator.
16 Q And in that capacity, did you have occasion
17 to prepare prefiled testimony in this case consisting of
18 12 pages and -- no, six pages and one exhibit,
19 Exhibit 107?
20 A Yes.
21 Q And have you had the occasion to review
22 that testimony and that exhibit prior to this hearing?
23 A Yes, I have.
24 Q And is it necessary to make any changes?
25 A No.
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Wilder, Idaho 83676 Staff
1 Q If I were to ask you the questions set
2 forth in your testimony, then, would your answers be the
3 same?
4 A Yes.
5 MR. WOODBURY: Madam Chair, I'd ask that
6 the testimony be spread on the record, that the exhibit
7 be identified, and I'd present Ms. Stokes for
8 cross-examination.
9 COMMISSIONER SMITH: Without objection, it
10 is so ordered.
11 (The following prefiled testimony of
12 Ms. Judy Stokes is spread upon the record.)
13
14
15
16
17
18
19
20
21
22
23
24
25
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CSB REPORTING STOKES (Di)
Wilder, Idaho 83676 Staff
1 Q. Please state your name and business address
2 for the record.
3 A. My name is Judy Stokes. My business
4 address is 472 West Washington Street, Boise, Idaho.
5 Q. By whom are you employed and in what
6 capacity?
7 A. I am employed by the Idaho Public Utilities
8 Commission as a Utilities Compliance Investigator in the
9 Consumer Assistance Division.
10 Q. What is your educational background and
11 relevant employment history?
12 A. I attended the University of Idaho majoring
13 in education and psychology. I have taken several
14 continuing education classes and professional courses on
15 consumer affairs. I also attended the NARUC Regulatory
16 Studies Program at Michigan State University. I have
17 been employed by the Commission since August 1985, and
18 have been in my present position since March 1986.
19 Q. Have you previously testified before this
20 Commission?
21 A. Yes, I have.
22 Q. What is the purpose of your testimony?
23 A. The purpose of my testimony is to discuss
24 the oral and written comments received by the Consumer
25 Assistance Staff from the North State Area customers who
237
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01/05/96 Staff
1 presently receive water service from the City of Garden
2 City.
3 Q. Why was the Consumer Staff contacted when
4 the Commission has no regulatory authority over customers
5 of the City of Garden City?
6 A. The customers in the "North State Area" are
7 aware they will be affected by the Commission's decision
8 regarding approval of an exchange agreement between
9 Garden City and United Water Idaho.
10 Q. How many comments were received by the
11 Consumer Staff?
12 A. Over a four-month period (September through
13 December 1995), Staff was contacted by 46 individual
14 customers. Comments were received by mail, fax, and
15 telephone.
16 Q. Did the Commission Staff receive any
17 petitions?
18 A. Yes. A petition was hand-delivered with 109
19 signatures. The petitioners are protesting the transfer
20 of their water service from Garden City to United Water.
21 Sixteen petitioners are residents of the Coventry Manor
22 Subdivision; 93 are residents of the Glenbrier Park
23 Subdivision. A notation on the Coventry Manor petition
24 stated "still obtaining signatures from the 150 families
25 in this subdivision". However, additional signatures
238
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01/05/96 Staff
1 have not been received by the Commission. The Commission
2 also received a petition with twelve signatures from
3 residents of the Summerhill subdivision. The president
4 of the Northwest Boise Neighborhood Association wrote a
5 letter on behalf of the Association.
6 Q. Were most of the contacts from residential
7 customers?
8 A. Yes, although Staff did receive comments
9 from one business located in the affected area.
10 Q. How were the "North State Area" customers
11 notified of the proposed exchange agreement?
12 A. The exchange agreement between Garden City
13 and United Water Idaho was executed on July 20, 1995. On
14 September 7, 1995, the City of Garden City sent a public
15 notice to their customers in the area of impact.
16 Customers were advised that an exchange agreement had
17 been negotiated and ratified by the Garden City Council.
18 See Staff Exhibit No. 107.
19 Q. Describe the comments received by the Staff
20 from customers of Garden City Water.
21 A. The overwhelming majority, including those
22 who signed the petitions, said they are against the
23 agreement for an exchange of water service. Comments
24 expressed covered a variety of issues and concerns.
25 Elderly and retired residents stated they
239
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01/05/96 Staff
1 would be hurt financially due to their limited income.
2 Other customers felt that their interests and concerns
3 had been ignored in this process, and demanded a public
4 hearing to give them an opportunity to express their
5 opinion. They were concerned about the lack of
6 information to those affected.
7 Many stated that the proposal makes no
8 sense because they will continue to receive their water
9 from Garden City, but at an increased rate. In their
10 opinion, this serves only to benefit the utility provider
11 and not consumers. Some suggested that they pay Garden
12 City rates as long as Garden City is providing the water.
13 They objected to paying higher rates for the same water
14 service and quality.
15 Residents in homeowners associations stated
16 that their association fees would increase to pay for
17 watering the common areas. This would also cause a
18 financial hardship to maintain their lawns and landscapes
19 in order to avoid being in violation of association
20 rules.
21 A few commented on the poor quality of
22 Garden City water and its high magnesium and iron
23 content. Still, they preferred paying lower rates for
24 this "dirty water" and fear that United Water has the
25 same water quality problems but at a higher rate. Others
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UWI-W-95-2 STOKES, J(Di)
01/05/96 Staff
1 stated they were very happy with Garden City's water
2 quality and the good service they receive. Several
3 consumers stated they would like a guarantee from United
4 Water to provide clean water. One possible explanation
5 of contradictory statements concerning water quality are
6 that people are more tolerant of iron and manganese in
7 the water if the rates are lower or that not everyone
8 perceives this as a problem.
9 Several homeowners commented that they took
10 into account the cost of utilities to assure
11 affordability before they purchased their homes. The low
12 cost of water was a factor in the area that they chose.
13 In summary, residents of the North State
14 Area are pleased with their service and rates and do not
15 wish to change to United Water, especially if the rates
16 would increase significantly. They feel this proposal
17 makes no sense and can find no advantages to the
18 consumer.
19 Q. Did the Commission receive any comments
20 from the residents in the Millstream area?
21 A. No. These United Water customers will see
22 a significant decrease in rates if Garden City takes over
23 their water service.
24 Q. Does this conclude your testimony in this
25 proceeding?
241
UWI-W-95-2 STOKES, J(Di)
01/05/96 Staff
1 A. Yes, it does.
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01/05/96 Staff
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Do you have questions,
4 Mr. Kline?
5 MR. KLINE: Just a couple.
6
7 CROSS-EXAMINATION
8
9 BY MR. KLINE:
10 Q Ms. Stokes, since you filed your testimony,
11 has the Commission continued to receive inquiries from
12 affected customers in the North State Area?
13 A Yes.
14 Q And would you characterize those continued
15 inquiries as being opposed to the exchange?
16 A Yes. Their comments were the same as what
17 I have already received and noted in my testimony.
18 Q And still no complaints from the Millstream
19 Area customers?
20 A I have not heard from Millstream.
21 MR. KLINE: Thank you. That's all I have.
22 COMMISSIONER SMITH: Mr. Bergquist.
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CSB REPORTING STOKES (X)
Wilder, Idaho 83676 Staff
1 CROSS-EXAMINATION
2
3 BY MR. BERGQUIST:
4 Q Ms. Stokes, on page 5 of your testimony,
5 you state that in summary, the residents of North State
6 Area are pleased with their service and rates and do not
7 wish to change to United Water, especially if their rates
8 would increase. Is that a summarization that the
9 complaints that you have received primarily deal with
10 rate increases?
11 A Yes.
12 MR. BERGQUIST: I believe that's all.
13 Thank you.
14 COMMISSIONER SMITH: Do we have questions
15 from the Commissioners?
16 COMMISSIONER NELSON: Not for me. Thank
17 you.
18 COMMISSIONER HANSEN: No.
19 COMMISSIONER SMITH: Nor I. Thank you.
20 (The witness left the stand.)
21 COMMISSIONER SMITH: Let's take a 10-minute
22 break now and come back at 2:45.
23 (Recess.)
24 COMMISSIONER SMITH: Let's go back on the
25 record. Mr. Bergquist, I believe we're ready for your
244
CSB REPORTING STOKES (X)
Wilder, Idaho 83676 Staff
1 rebuttal.
2 MR. BERGQUIST: Thank you. I call
3 Mr. Healy. I have placed in front of everyone a proposed
4 Exhibit No. 5, Garden City Water System, Preliminary
5 Estimate of Value. This has been referred to several
6 times today, I think, as Production Request No. 2.
7
8 JEREMIAH J. HEALY,
9 produced as a rebuttal witness at the instance of United
10 Water Idaho, Inc., having been previously duly sworn,
11 resumed the stand and was further examined and testified
12 as follows:
13
14 DIRECT EXAMINATION
15
16 BY MR. BERGQUIST:
17 Q Would you state your name, sir?
18 A Jeremiah J. Healy.
19 Q And you have previously testified, have you
20 not?
21 A Yes, I have.
22 Q Have you prepared rebuttal testimony which
23 is marked direct testimony and filed that with the
24 Commission?
25 A I have.
245
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 Q So the seven pages of your rebuttal
2 testimony should be designated as rebuttal testimony.
3 Let me just ask a few questions. Do you have Exhibit 5
4 in front of you?
5 A Actually, I don't.
6 (Mr. Bergquist approached the
7 witness.)
8 Q BY MR. BERGQUIST: Would you state what
9 that exhibit is?
10 A That was a document provided to United
11 Water by the city's consulting engineer during the course
12 of the negotiations.
13 Q And is this the same exhibit that has been
14 referred to by, I think, Company witnesses today?
15 A Yes, it is.
16 Q Do you have any corrections or additions
17 other than that to your rebuttal testimony?
18 A No, I do not.
19 Q If I were to ask you those questions, would
20 your answers still be the same?
21 A Yes.
22 MR. BERGQUIST: May we have Mr. Healy's
23 rebuttal testimony spread on the record.
24 COMMISSIONER SMITH: Without objection, it
25 is so ordered.
246
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 MR. BERGQUIST: And identify Exhibit 5.
2 We'll offer that later, I guess.
3 COMMISSIONER SMITH: We'll mark what has
4 been identified as Exhibit 5.
5 (United Water Idaho, Inc. Exhibit
6 No. 5 was marked for identification.)
7 (The following prefiled rebuttal
8 testimony of Mr. Jeremiah Healy is spread upon the
9 record.)
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CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 Q Please state your name and business
2 address.
3 A Jeremiah J. Healy. My business address is
4 8248 West Victory Road, Boise, Idaho 83709.
5 Q Did you provide direct testimony in this
6 case?
7 A Yes.
8 Q Please summarize the rebuttal testimony you
9 are about to give and indicate the specific direct
10 testimony that you will be rebutting or discussing.
11 A In my rebuttal testimony, I will address
12 Idaho Public Utilities Commission staff comments with
13 regard to the regulatory accounting treatment of assets
14 UWI seeks to purchase from the City of Garden City and
15 the impact on existing and proposed customers, and
16 exhibits which address the same. I will also comment on
17 testimony regarding the quality of service provided by
18 UWI. I will comment on the testimony of IPUC staff
19 members, Madonna Faunce and Randy Lobb, as well as
20 intervenor David Patterson, representing several impacted
21 homeowner associations.
22 Q Please summarize the Company's position
23 with respect to the Service Area Exchange Agreement
24 (SAEA) between United Water Idaho and the City of Garden
25 City.
248
Healy, Reb
United Water Idaho Inc.
1 A United Water Idaho and the City of Garden
2 City negotiated in good faith for an exchange of water
3 system assets culminating in the signing of the Service
4 Area
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Healy, Reb
United Water Idaho Inc.
1 Exchange Agreement on July 20, 1995. Paragraph 15 in the
2 agreement specifically states the agreement is subject to
3 IPUC approval. In the event that approval is not
4 granted, the agreement shall be deemed null and void and
5 of no further effect. In applying to the IPUC through
6 the Company's original and amended applications, the
7 Company has asked the IPUC to:
8 1) consider and approve the SAEA between the
9 Company and the City of Garden City,
10 2) approve the revision of the Company's
11 certificated service area,
12 3) authorize the Company to bill it's newly
13 acquired customers under existing rate
14 schedules and,
15 4) authorize the Company to include the
16 consideration paid to Garden City in the
17 Company's rate base.
18 It is understood between United Water Idaho and Garden
19 City that unless the IPUC approves each item above, the
20 contract is null and void and the status quo will
21 prevail. The Company believes that when all the
22 ramifications of the Service Area Exchange Agreement are
23 weighed, it is in the long term best interest of all
24 parties involved for the IPUC to approve our request.
25 Significant ramifications are as follows:
250
Healy, Reb
United Water Idaho Inc.
1 * The intent of Memorandum of Understanding between
2 Boise City and Garden City is substantially fulfilled
3 with respect to paragraph 2.
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Healy, Reb
United Water Idaho Inc.
1 * Garden City agrees, in the Service Area Exchange
2 Agreement, that it will not extend its water system
3 outside its present area of impact, ending competition
4 between Garden City and UWI for service territory in
5 the northwest, part of UWI's system.
6 * The quality of water service in the North State area
7 will improve. Intervenor David Patterson, a resident
8 of the North State Area, describes current service
9 quality in his testimony on page 2, line 19: "The
10 water currently provided by Garden City contains
11 substantial amounts of iron and other chemicals. As a
12 result, it is often discolored and sometimes has an
13 objectionable odor. The iron in the water sometimes
14 causes discoloration of clothing, dishes, and other
15 things that comes into contact with it. In addition,
16 water pressure on the system is marginal on many
17 occasions."
18 As Company Witness Booe stated in his rebuttal
19 testimony, "Upon approval of the exchange, UWI will
20 perform an engineering and system evaluation to
21 determine what action can be taken to mitigate the
22 service deficiencies Mr. Patterson describes."
23 Company Witness Brown's rebuttal testimony describes
24 some of the alternatives that may be considered.
25 United Water is sensitive to concerns expressed by
252
Healy, Reb
United Water Idaho Inc.
1 North State Customers relative to higher water cost if
2 the exchange agreement is approved. The
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Healy, Reb
United Water Idaho Inc.
1 prospect of paying increased rates for the same
2 quality of service would be repugnant to all of us.
3 However, if the quality of service under United Water
4 does improve, homeowners could expect immediate
5 benefits such as improved pressure and water quality,
6 as well as long term benefits such as increased market
7 value of their property and easier resale. I would
8 imagine the quality of service Mr. Patterson describes
9 is not exactly a positive marketing feature when one
10 is selling his or her home.
11 * Existing UWI customers will not be asked to subsidize
12 the exchange. As mentioned in Staff Witness Lobb's
13 testimony, page 8, line 6: "Even after a rate case,
14 the effect on existing customers will depend on
15 whether or not the net revenue generated after the
16 exchange is sufficient to cover the revenue
17 requirement associated with exchange related costs.
18 Staff Exhibit No. 106, page 1 of 2, provides an
19 analysis showing the estimated return on Company
20 investment assuming that all of the prepaid investment
21 is allowed in the rate base, 530 new customers
22 generate an average of $300 per year and area water
23 supply is purchased from Garden City. The last line
24 of the table (line 13) shows that under these
25 assumptions, the Company will come very close to
254
Healy, Reb
United Water Idaho Inc.
1 earning its authorized return on this investment from
2 these customers. Therefore, based on the residential
3 escrow analysis, existing customers would
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Healy, Reb
United Water Idaho Inc.
1 not be expected to provide a significant subsidy in
2 order to recover exchange related costs."
3 Two additional facts are relevant in this discussion.
4 First, Mr. Lobb's Exhibit No. 106, page 1 of 2,
5 includes UWI's entire North State investment, but
6 includes only 530 of the 912 customer's represented by
7 Garden City to be served in this area. If all 912
8 customers are included, the return is substantially
9 improved. Second, there is a misconception among
10 staff that UWI will pay the City $593,000 regardless
11 of whether 912 customers or 771 customers (as
12 indicated in Production Request No. 6) are contained
13 in the North State area. The SAEA was premised on the
14 fact that Garden City actually serve 912 customers in
15 the North State Area. If Garden City actually has
16 less than 912 customers, UWI will proportionately
17 reduce our investment.
18 * North State customers will have an opportunity to
19 participate in decisions regarding their service
20 quality and rates. In Order 24109, Case No.
21 BOI-W-91-2, the PUC noted on page 3, item 10: The
22 water system operated by Garden City outside its
23 municipal boundaries is not subject to Commission
24 regulation. Customers may not appeal to this
25 Commission for assistance with quality of service
256
Healy, Reb
United Water Idaho Inc.
1 problems or complaints about rates, nor may these
2 customers vote in the municipal elections of Garden
3 City. The Garden City Council
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Healy, Reb
United Water Idaho Inc.
1 determines the rates and terms of service, yet these
2 customers do not have any ability to influence the
3 policies of the Council through the electoral process.
4 Mr Patterson indicates in his testimony on page 3
5 that: "From time to time, North State customers have
6 complained to Garden City about poor water quality."
7 The implication of his testimony seems to be that
8 these complaints go unrectified. Millstream
9 customers, on the other hand, will have water service
10 provided by the municipality in which they reside.
11 Presumably, the City of Garden City will be responsive
12 to their needs.
13 Q What is your impression of the testimony of
14 staff member Faunce?
15 A Staff Member Faunce ultimately concludes
16 that if the Commission approves the exchange: "Staff
17 recommends that UWI record the exchanged plant on its
18 books at original cost including depreciation and CIAC.
19 I also recommend that the acquisition premium not be
20 allowed in rate base in future rate cases and that the
21 premium be amortized to the shareholders not the
22 ratepayers."
23 I believe this recommendation, though perhaps in some
24 respects supported by technical accounting theory,
25 overlooks the broader ramifications of the Service Area
258
Healy, Reb
United Water Idaho Inc.
1 Exchange Agreement, as I have enumerated above. It is
2 true that Garden City's records, or lack thereof, make
3 what could be a cut and dried accounting situation more
4 challenging. Garden City was not about to give away
5 their water
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Healy, Reb
United Water Idaho Inc.
1 distribution system. There is no doubt the system has
2 value and that value was determined by arms length
3 negotiations between a willing buyer and a willing
4 seller. I do not know if North State customers paid for
5 the water distribution system when they bought their
6 homes; nor do I know what methodology is used by the City
7 to set their water rates, or what service costs are
8 included in their rates. I do know that North State
9 customers will receive better service at the same
10 reasonable rate United Water's current 55,000 customers
11 pay. North State customers will have access to both a
12 company that must provide adequate service to survive as
13 well as a Public Utility Commission that balances the
14 interest of the Company and the Customer. I also know
15 existing customers will not be asked to subsidize this
16 investment and that the community-at-large will benefit
17 from the Commission approval of the SAEA.
18 Q Does this conclude your rebuttal testimony?
19 A Yes.
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Healy, Reb
United Water Idaho Inc.
1 (The following proceedings were had in
2 open hearing.)
3 MR. BERGQUIST: Mr. Healy is available for
4 cross-examination.
5 COMMISSIONER SMITH: Mr. Kline, do you have
6 any questions?
7 MR. KLINE: I do.
8
9 CROSS-EXAMINATION
10
11 BY MR. KLINE:
12 Q Mr. Healy, have you discussed with Garden
13 City the mechanics for reopening the service area
14 exchange agreement?
15 A With regard to the number of customers, I
16 have.
17 Q Would it be your intention that would be
18 the only thing that would be on the table as far as the
19 contract reopening?
20 A Yes.
21 Q It was my understanding, at least from some
22 of the questions asked by Mr. Woodbury today, that there
23 might be some other issues with respect to investment
24 amounts, for example, the fire hydrants. Are those not
25 something that you'd have to address with Garden City if
261
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 you reopened the contract?
2 A No, I don't believe there's any reason to
3 readdress the hydrants in particular. We were aware that
4 we were going to receive the hydrants from Garden City
5 and, no, I don't see any reason why we would address that
6 issue any further.
7 Q Would it be your intention or Garden City's
8 intention to provide some public input after the contract
9 had been renegotiated; for example, actually notify the
10 current Garden City customers regarding the revised
11 contract?
12 A I don't know what their intention would
13 be. I would think that they would amend their notice and
14 advise the North State customers what has transpired.
15 Q And would you do something with the
16 Millstream customers?
17 A We would, yes.
18 MR. KLINE: That's all I have.
19 COMMISSIONER SMITH: Thank you.
20 Mr. Woodbury.
21 MR. WOODBURY: Thank you, Madam Chair.
22
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CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 CROSS-EXAMINATION
2
3 BY MR. WOODBURY:
4 Q Mr. Healy, with respect to the Company's
5 Exhibit No. 5, was it my understanding that essentially
6 in your prior testimony you indicated that the Company
7 does not have a lot of faith in what this exhibit
8 represents, is that what you said before?
9 A I think I said that we received this
10 document and that based on our discussions with Garden
11 City, I think we had a healthy sense of skepticism in the
12 sense that we began to look at several of their numbers.
13 Q Then may I ask, why is the Company offering
14 this exhibit?
15 A Well, in my opinion, it does help to
16 establish where the negotiations started. My
17 recollection in the negotiations, as Mr. Booe indicated,
18 started around $2 million. When we pressed them for
19 additional information, we received this document. I
20 have personally reviewed this document and I'm not saying
21 it's not without any merit at all. I'm saying that we --
22 it added to the negotiating process.
23 Q And so with respect to their initial
24 opening number of $2 million, what are the relevant
25 numbers for purpose of comparison from this exhibit?
263
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 A I think Garden City submitted this to us in
2 good faith. At that time in the negotiations, I believe
3 they had essentially halved their asking price for their
4 system supported by this document. Their contention is
5 that they had a system with a depreciated value of
6 approximately 1.1 million.
7 Q I can't remember, I don't think I got an
8 answer to the question from Mr. Booe, but who were the
9 engineering consultants used by Garden City in their
10 negotiation?
11 A A gentleman by the name of Patrick Doby,
12 and I believe it's Doby Engineering, attended the
13 negotiating sessions, at least the first several
14 sessions, with Garden City's director of public works.
15 Q Okay. On page 6, around line 16 of your
16 rebuttal testimony, you state that Staff's
17 recommendation, though perhaps in some respects supported
18 by technical accounting theory, overlooks the broader
19 ramifications. Could you please indicate in what way
20 Staff's recommendation is not supported by technical
21 accounting theory?
22 A Yeah, what I intended there, I mean, we are
23 caught in a situation where we're dealing with a
24 municipality that not being a regulated utility itself is
25 not -- I mean, Garden City's position in this case when
264
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 they came to negotiate is they have assets that they own
2 that they are willing to sell. The City of Garden City
3 doesn't put much credence in regulatory accounting
4 issues, although they understood that we, United Water,
5 being in the regulated arena perhaps had a different
6 perspective on that, so, you know, my recollection is, I
7 mean, we discussed several issues in those negotiations
8 relating to the fact that United Water would have some
9 challenges receiving rate base treatment of our
10 investment in these assets.
11 Q Could you please -- let's assume that
12 Garden City was a regulated utility and that the plant
13 that we're talking about here was contributed plant, how
14 would that alter the purchase price that was calculated
15 by, you know, the exchange agreement came out with?
16 A I think if Garden City was a regulated
17 utility, we perhaps would have been more cognizant of
18 issues, such as what their rate base, per se, was in this
19 area. I'm not sure that given the fact that these assets
20 were for sale, I'm not sure that we, that there would
21 have been a different result. I think United Water, if
22 we had assets for sale, we would approach it the same
23 way, that these assets have a value that's separate and
24 apart from a regulated value and we would probably try to
25 obtain the highest value.
265
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 Q Wasn't the payment, the price, calculated
2 under the exchange agreement to be paid to Garden City
3 for the North State facilities, wasn't that based not on
4 the cost of, the replacement cost of, the facilities or
5 any facility-based cost, but instead on the maximum
6 amount of revenue that could be generated from those
7 customers?
8 A No, it wasn't. You know, basically the
9 price was negotiated based on many factors, but in my
10 opinion, the price we paid is actually well supported by
11 the revenues generated by those 912 customers in the
12 North State Area.
13 Q But my question was, was the price, was the
14 calculated price, derived based upon the revenue
15 generated or was it based upon the value of the
16 facilities, the physical plant?
17 A There was a synthesis of many factors, so I
18 really can't point to one factor and say here's what we
19 looked at in offering a price, and I think I've described
20 in my testimony, we looked at many factors. We were
21 aware of the revenue that would be generated or what we
22 felt, an estimate of what we thought would be generated
23 and we certainly looked at whether that revenue would
24 support our investment.
25 Q And in response to a question of mine as to
266
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 whether under the revised customer number, whether the
2 revenue projections would still cover your investment,
3 your answer would be that the amount of your investment
4 would be recalculated based upon the number of customers?
5 A Correct, and --
6 Q That's what I understood.
7 A Okay.
8 Q Do you believe that it would be premature
9 for the Commission to consider the Company's application
10 prior to being provided with actual numbers?
11 A I guess my opinion would be that it
12 wouldn't necessarily be premature. I would want some
13 assurance that there would be some type of decrease in
14 our investment given -- and speaking on behalf of United
15 Water, I'm quite positive that United Water will not pay
16 the price stated in the contract and that's why we've had
17 discussions with both the mayor of Garden City, as well
18 as their director of public works, to make sure that they
19 understood that we would pay for the number of customers
20 we would receive, and my expectation would be that that
21 would probably be done on a prorated basis, so I believe
22 there's room to approve this service area exchange
23 agreement in principle or perhaps approve it on the
24 condition that some final numbers that are suitable to
25 the Commission are agreed upon.
267
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 Q When you state on page 4 that the
2 Commission should be -- oh, you don't state that, excuse
3 me. That's a better question for Mr. Booe.
4 Thank you, Mr. Healy. Madam Chair, I have
5 no further questions.
6 COMMISSIONER SMITH: Thank you,
7 Mr. Woodbury.
8 Do we have questions from the Commission?
9 COMMISSIONER NELSON: I might ask a couple
10 of questions.
11
12 EXAMINATION
13
14 BY COMMISSIONER NELSON:
15 Q Mr. Healy, if this application is approved
16 and you go forward and after consummation, why, you add a
17 customer, why, you're going to get a hook-up fee from
18 that customer, aren't you?
19 A That's correct.
20 Q Would that be $1,200, in that area?
21 A If they had -- if we were their only source
22 of water, yes, $1,200.
23 Q And if you added 900 customers, you'd get
24 a million and 80,000?
25 A If we were to add 900 customers in the
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CSB REPORTING HEALY (Com-Reb)
Wilder, Idaho 83676 United Water Idaho
1 North State Area, yes, we would, that sounds right.
2 Q And if the total -- if we took the numbers
3 on this exhibit and said the total value of the installed
4 system was 1,158,000, why, you'd have a net cost in there
5 of about $100,000 if you were to just start from
6 scratch.
7 A That would be correct.
8 Q Well, then why is it to the Company's
9 benefit or the ratepayer's benefit to pay this a little
10 better than half a million dollars for these customers at
11 this point?
12 A I think that there are several reasons. I
13 mean, with our current development policies, we don't add
14 customers at no cost. We do have a revenue requirement
15 contract we sign with developers that is intended to keep
16 the Company whole as development occurs so that we at
17 United Water rarely grow without investing in rate base,
18 without increasing our rate base. Our rates are intended
19 to cover that investment and to the extent that the North
20 State customers will be paying our existing rates like
21 our other customers, we will, in my opinion will, cover
22 our revenue requirement on our investment in that area
23 fairly comfortably.
24 Q So you disagree with Ms. Faunce's numbers
25 that show there would be a revenue deficiency?
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CSB REPORTING HEALY (Com-Reb)
Wilder, Idaho 83676 United Water Idaho
1 A I do disagree with that. I have an issue,
2 I guess, when you look at the total investment in the
3 North State Area, which I think we agree is the 670,000
4 customers [sic], it seems to me --
5 Q You mean dollars.
6 A Right, $670,000. I believe that it would
7 be -- 697, I stand corrected. I believe that we have to
8 look at the entire revenue generated from that group of
9 customers to determine if that investment is paying for
10 itself.
11 COMMISSIONER NELSON: Okay, thank you.
12 Those are my questions.
13 COMMISSIONER SMITH: Do you have redirect,
14 Mr. Bergquist?
15 MR. BERGQUIST: No redirect. Thank you.
16 COMMISSIONER SMITH: Thank you, Mr. Healy.
17 THE WITNESS: You're welcome.
18 (The witness left the stand.)
19 MR. BERGQUIST: I call Mr. Brown.
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CSB REPORTING HEALY (Com-Reb)
Wilder, Idaho 83676 United Water Idaho
1 DANIEL M. BROWN,
2 produced as a rebuttal witness at the instance of the
3 United Water Idaho, Inc., having been previously duly
4 sworn, resumed the stand and was further examined and
5 testified as follows:
6
7 DIRECT EXAMINATION
8
9 BY MR. BERGQUIST:
10 Q Mr. Brown, you have previously testified.
11 Have you prepared rebuttal testimony?
12 A Yes, I have.
13 Q Are there any changes or corrections to
14 that testimony?
15 A Yes. On page 1, line 15, I refer to
16 "Production Request No. 2" and that should be
17 "Production Request No. 15."
18 Q Other than that correction, if I were to
19 ask you the questions, would your answers be the same?
20 A Yes.
21 MR. BERGQUIST: We request that the
22 rebuttal testimony of Mr. Brown be spread on the record
23 and he is available for cross-examination.
24 COMMISSIONER SMITH: Without objection, it
25 is so ordered.
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CSB REPORTING BROWN (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 (The following prefiled rebuttal
2 testimony of Mr. Daniel Brown is spread upon the record.)
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Wilder, Idaho 83676 United Water Idaho
1 Q Please state your name and business
2 address.
3 A My name is Daniel Brown and my business
4 address is 8248 West Victory Road, Boise, Idaho, 83709.
5 Q Have you previously submitted direct
6 testimony in this case?
7 A Yes, I have.
8 Q What areas would you like to address
9 through this additional testimony?
10 A Most of my comments will be relative to
11 improvements in service which can be anticipated by the
12 North State customers following approval of the proposed
13 exchange.
14 Q Witness Patterson makes several comments in
15 his direct testimony regarding marginal pressure and
16 water quality. How will UWI approach the solution to
17 these problems?
18 A * I will first comment on pressure
19 improvements. Technically, improving the
20 pressure to the North State area is
21 straight forward. We would complete the
22 interconnections listed in Production
23 Request No. 15 and upgrade the booster
24 facilities used to pump water from the
25 Garden City system to the northwest UWI
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United Water Idaho Inc.
1 distribution system, constructed in 1995,
2 to carry the additional load of these
3 customers. This would tie the North State
4 customers fully into the UWI distribution
5 system and the new Hidden Hollow reservoir.
6 This action will stabilize operational
7 pressures and improve fire protection.
8 * Dealing with the water quality issue is
9 more complicated. The aquifer system
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1 in the northwest area of Boise is prone to
2 low capacity, low quality and, in some
3 cases, high temperature water. This makes
4 development of high quality sources of
5 supply very difficult. In a couple cases,
6 one in northwest Boise, we have seen
7 concentrations of manganese actually
8 increase over time. As one could expect,
9 continually adjusting operations in
10 response to changing source water
11 conditions is very challenging and our
12 final solution has not yet been identified.
13 However, as Witness Booe has discussed in
14 his rebuttal testimony, one of the
15 company's missions is "...to provide the
16 best possible water service to our
17 customers at the most economical rates."
18 We, therefore, see improving customer
19 service as a major part of our job.
20 Q How has the Company dealt with the types of
21 problems in the past?
22 A We have a strong record for responding to
23 customer service problems. A couple examples are the
24 pressure improvements to the downtown area of Boise and
25 water quality improvements in the Maple Hills area.
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United Water Idaho Inc.
1 Upgrading pressure to downtown required a full-scale
2 revision to the system operation, splitting the service
3 area into two pressure zones. The Maple Hill well is
4 another source where we saw increasing levels of
5 manganese over time. We tried various chemical
6 treatments to control it over a couple years, but to no
7 avail. We finally drilled the well deeper, into a higher
8 quality aquifer. This has solved the water quality
9 problem and the
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United Water Idaho Inc.
1 associated customer dissatisfaction. These represent two
2 major projects. On a lessor scale, we routinely replace
3 mains, flush lines and adjust operations in response to
4 customer requests. The replacement of a 2-inch water
5 main in East Washington several years ago is an example
6 of a project initiated specifically in response to a
7 customer's comment regarding low pressure during the
8 irrigation season.
9 Q What other comments do you have with
10 respect to the concerns expressed?
11 A As we develop the solution to the water
12 quality problems for the North State area, it should be
13 kept in mind that this solution will be of benefit to all
14 of the northwest Boise customers, not just those subject
15 to this exchange. One of the underlying reasons for the
16 proposed purchase of water from Garden City for the 2 to
17 10 year period is to provide time to develop and
18 implement these improvements to customer service.
19 Q Does this conclude your rebuttal testimony?
20 A Yes.
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Brown, Reb
United Water Idaho Inc.
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Kline, do you have
4 questions?
5 MR. KLINE: No questions, Madam Chairman.
6 COMMISSIONER SMITH: Mr. Woodbury.
7 MR. WOODBURY: Thank you, Madam Chair.
8
9 CROSS-EXAMINATION
10
11 BY MR. WOODBURY:
12 Q Mr. Brown, directing your attention to
13 page 1 of your rebuttal, starting about line 7, you speak
14 of improvements in service which can be anticipated
15 following the approval of the exchange. Would it be safe
16 to say from a facilities standpoint that the cost to the
17 Company of providing quality service to the North State
18 Area will include more than just the cost of acquiring
19 existing facilities?
20 A In some respects, yes.
21 Q With respect to your discussion of water
22 quality starting on page 1, about line 21, you state:
23 "The aquifer system in the northwest area of Boise is
24 prone to low capacity, low quality and, in some cases,
25 high temperature water. This makes development of high
278
CSB REPORTING BROWN (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 quality sources of supply very difficult." Does the
2 Company provide water service in that northwest area?
3 A Yes, we do.
4 Q And do you have customers in that area
5 experiencing, that experience water quality problems?
6 A We have in the, most notably in the, Lake
7 Harbor area there is one well that we are struggling
8 with.
9 Q What well is that? It's called the Swift
10 well?
11 A Swift Well No. 1, I believe.
12 Q How long have these customers been
13 experiencing water quality problems and what's the nature
14 of those problems?
15 A The best of my recollection, a couple of
16 years. Exactly how long, I don't recall, and it is
17 primarily due to manganese.
18 Q And how does that manifest?
19 A Oh, it's the staining sidewalks,
20 occasionally staining of clothing and laundry.
21 Q And is there a manganese problem in the
22 wells of Garden City?
23 A Somewhat. It appears that it is a relevant
24 number. Exactly where their water quality problems --
25 we've heard, primarily iron is what I've heard commented
279
CSB REPORTING BROWN (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 on, but some other wells do have a fairly high manganese
2 content.
3 Q I believe in a question to Mr. Lobb there
4 was an inquiry regarding his experience with United Water
5 and Boise Water in addressing water quality questions and
6 he said that the Company has generally been good about
7 addressing those and yet, if this is such an ongoing
8 problem in the Lake Harbor area, you know, that it's been
9 existing for two years, I guess, without remedy, what
10 assurance can you provide that the water quality problems
11 in the North State Area will be addressed on simply a
12 faster track?
13 A We in the Lake Harbor area and, as I
14 mentioned in my rebuttal testimony, the Maple Hills area,
15 we have been dealing with those problems over some time,
16 over these two years, looking at different chemical
17 treatments. Sequestering agents is a chemical treatment
18 to keep the iron in solution as opposed to staining
19 clothing and that sort of thing.
20 Q So you're going to pass out packages of
21 Rover to the North State Area customers?
22 A Well, that's just treatment after it's a
23 problem. For instance, with Maple Hills, we were
24 fortunate enough to find a way to drill the well deeper
25 and get into another water quality and dealt with that
280
CSB REPORTING BROWN (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 problem. North State, that area of town, we don't
2 believe -- we've drilled a test well in the general area
3 that went 1,000 feet and there was no other deeper water.
4 Q How deep is the Swift well?
5 A About 300 feet.
6 Q Three hundred feet? Has the Company -- I
7 mean, is this just a shallow part of the aquifer? Can
8 the Company dig a deeper well?
9 A Like I said, we have drilled in that part
10 of town 1,000 feet and there was no deeper aquifer, so
11 we've gone the direction of the sequestering agents.
12 There are other options that we are now focusing on. One
13 is called aquifer storage and recovery where you actually
14 take in the wintertime higher quality water and pump into
15 the ground and then pump it out later in the summertime
16 and you actually are producing a higher quality water
17 during the peak summer.
18 Q Is that an expensive process?
19 A Well, the operational costs, you pump the
20 water twice is basically all you're into, but in lieu of
21 the cost of actually removing the manganese from the
22 water, a filtration process, it's by far cheaper, so
23 those are -- and we've looked at the filtration process
24 as well. I mean, I don't want to say that we haven't
25 been working on it because we've been working diligently
281
CSB REPORTING BROWN (X-Reb)
Wilder, Idaho 83676 United Water Idaho
1 at the options that were available and going from the
2 most inexpensive to the customer toward what will be our
3 ultimate solution.
4 Q Is there a reason to believe that the
5 ultimate solution will occur within, prior to the next
6 two years?
7 A I believe that it will happen within the
8 next two years, yes.
9 Q And has the Company arrived at the solution
10 that it feels will address the problem?
11 A Not yet.
12 MR. WOODBURY: Not yet? Thank you,
13 Mr. Healy, I have no further questions or Mr. Brown, I'm
14 sorry.
15 COMMISSIONER SMITH: Do we have questions
16 from the Commission?
17 COMMISSIONER NELSON: I have one question.
18
19 EXAMINATION
20
21 BY COMMISSIONER NELSON:
22 Q We discussed this morning the difference in
23 quality between Garden City's water and your water. Were
24 you able to get me anything that you could quantify?
25 A Well, as far as quantifying, I wasn't able
282
CSB REPORTING BROWN (Com-Reb)
Wilder, Idaho 83676 United Water Idaho
1 to get anything from our system in that period of time.
2 I would just by looking at their numbers, I would say in
3 general, our water quality across the 60 odd wells that
4 we have fall into the ranges that we see here as far as
5 hardness, iron and manganese. We have high iron and
6 manganese like we just spoke of and ones are much better,
7 just as they have, so we're dealing, at least
8 generically, from the same aquifer system, so I would
9 tend to think that that would be expected.
10 Q So that if this application were approved
11 and after a two-year period or whatever period you were
12 to start supplying Garden City water to the North State
13 Area -- United Water to the North State Area rather than
14 Garden City water, would there be any change in the iron
15 and manganese content?
16 A I would certainly say that that's very high
17 on my mission list over the next two years to do that,
18 yes.
19 COMMISSIONER NELSON: Okay, thank you.
20 COMMISSIONER SMITH: Do you have redirect,
21 Mr. Bergquist?
22 MR. BERGQUIST: No redirect.
23 (The witness left the stand.)
24 MR. BERGQUIST: I call Mr. Booe.
25
283
CSB REPORTING BROWN (Com-Reb)
Wilder, Idaho 83676 United Water Idaho
1 WAYNE L. BOOE,
2 produced as a rebuttal witness at the instance of United
3 Water Idaho, Inc., having been previously duly sworn,
4 resumed the stand and was further examined and testified
5 as follows:
6
7 DIRECT EXAMINATION
8
9 BY MR. BERGQUIST:
10 Q Mr. Booe, you have prepared some rebuttal
11 testimony, have you not?
12 A Yes, I have.
13 Q I would like to ask you a few questions
14 supplemental to that. Earlier this morning, the question
15 of fire hydrants came up. Do you have any information
16 concerning the fire hydrants?
17 A Yes, I do. Through the negotiating
18 process, the subject of fire hydrants came up not once
19 but on more than one occasion and the question was
20 asked --
21 Q These are the fire hydrants in the North
22 State Area?
23 A In the North State Area, I'm sorry -- and
24 the question was asked what do we do with fire hydrants
25 and how do we maintain those, and we discussed that
284
CSB REPORTING BOOE (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 several times, and as a result of that, I discussed that
2 matter with the city in about July of 19, maybe June of
3 1995.
4 Q You say with the "city," what city?
5 A The City of Boise, I beg your pardon, and
6 we had a discussion and I asked them if they were willing
7 to take the hydrants if we negotiated that through this
8 process and they said yes. I had discussions with the
9 City of Boise, the mayor's office, the administrative
10 assistants as well as the public works department within
11 the past, oh, recent weeks and we've discussed it again
12 and they said yes, they were willing to take the
13 hydrants, but in a nutshell, the hydrants were always
14 planned to go to the City of Boise.
15 The maintenance as a result of caring for
16 those hydrants was always planned to go to the City of
17 Boise and the City of Boise is in agreement to that and
18 even though it was part of the negotiated process, it was
19 never a part of the negotiated price, the fire hydrants
20 which exist in Garden City.
21 Now, according to the working document
22 which we looked at, it appears as though there are 44
23 hydrants in that area. I can't verify that number. We
24 have gone through, we know there are fire hydrants there,
25 but if it's 44 or 54 or 34, I do not know because, again,
285
CSB REPORTING BOOE (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 it was not part of the negotiated price.
2 Q And the 44 figure appears on Exhibit 5,
3 does it not?
4 A That is correct.
5 Q There were further questions concerning the
6 Millstream area that if this exchange agreement is
7 approved indicating the quality of water might
8 deteriorate in the Millstream area. Do you have any
9 comment on that?
10 A Yes, I do. I would say that if this would
11 have occurred, perhaps, 10 years ago, then, perhaps,
12 there would be room to make those comments, that it would
13 follow that the water service and quality in Millstream
14 would deteriorate as a result of the new owner. Based
15 upon the association that we have with Garden City now
16 and based upon the harmony which is prevalent in that
17 community as a result of Mr. Ellis who is now the mayor
18 and as a result of Mr. Dearden who is now the director of
19 the public works, I would say that they're very committed
20 to their community and I would be very surprised if
21 Mr. Ellis or Mr. Dearden or any of the proactive city
22 council members in Garden City at present would stand for
23 water quality to be less than what it is at the present
24 time.
25 Q Now, getting to your prefiled rebuttal
286
CSB REPORTING BOOE (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 testimony, if I were to ask you those questions, would
2 the answers still be the same?
3 A Yes, they would.
4 MR. BERGQUIST: May we request that
5 Mr. Booe's rebuttal testimony be spread on the record and
6 he's available for cross-examination.
7 COMMISSIONER SMITH: If there's no
8 objection, we will spread the prefiled rebuttal testimony
9 of Mr. Booe as if it had been read.
10 (The following prefiled rebuttal
11 testimony of Mr. Wayne Booe is spread upon the record.)
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CSB REPORTING BOOE (Di-Reb)
Wilder, Idaho 83676 United Water Idaho
1 Q Please state your name and business
2 address.
3 A My name is Wayne L. Booe and my business
4 address is 8248 West Victory Road, Boise Idaho, 83709.
5 Q Have you previously submitted direct
6 testimony in this case?
7 A Yes, I have.
8 Q What areas would you like to address
9 through this additional testimony?
10 A I would like to offer comments relative to
11 the direct testimony of witnesses Patterson, Stokes and
12 Faunce. My comments related to witnesses Stokes and
13 Patterson are very similar, and so I will attempt to
14 respond with comments sufficient to address both
15 witnesses.
16 Q What comments do you have with respect to
17 the direct testimony of witnesses Stokes and Patterson?
18 A Witness Stokes, on page 2 of her testimony
19 addresses customer inquiries and concerns. On pages 3
20 and 4 of her testimony she discusses customer concerns
21 with respect to water service and quality. On page 4,
22 starting at line 1, of witness Patterson's testimony, he
23 states, "....the exchange agreement between UWI and
24 Garden City places no obligation on the part of UWI to
25 improve the quality of water or the water pressure beyond
288
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United Water Idaho Inc.
1 what we currently receive." We place great importance
2 upon customer service and water quality. I believe our
3 record speaks for itself. I wish to reemphasize our
4 pledge to our community to which I have previously
5 testified. We at United Water are pledged to provide the
6 best
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Booe, Reb
United Water Idaho Inc.
1 possible water service to our customers at the most
2 economical rates. Included in our pledge is the
3 assurance we will respond to our customers; we will
4 continue to participate in well-head protection programs;
5 we will continue to routinely monitor our sources of
6 supplies and maintain our facilities; we will continue to
7 test our water supply in our state certified laboratory
8 and/or the laboratories administered by the State of
9 Idaho; and we will continue in our efforts to meet the
10 mandated requirements of the Safe Drinking Water Act, as
11 administered by the State of Idaho and the U.S.
12 Environmental Protection Agency. I wish to assure
13 Mr. Patterson and the Commission, once the exchange is
14 approved, I will direct our engineering staff, our
15 hydrogeologists and our biologists to commence with an
16 engineering and systems evaluation. If the company fails
17 to respond as I have pledged, the customer(s) would have
18 the right to petition the Commission, the City of Boise
19 and probably the State Division of Environmental Quality
20 which would compel the company to respond in a positive
21 manner. Company witness Brown will discuss our proactive
22 plans, which are already underway, in greater detail
23 through his rebuttal testimony.
24 Q On page 2, line 1, of Witness Patterson's
25 direct testimony he states a number of customers which
290
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United Water Idaho Inc.
1 would be affected by the exchange, contacted their
2 respective associations to express their concerns. On
3 page 4, starting at line 12, of witness Stokes' testimony
4 she states 46 individuals had directed inquiries to her,
5 and that she had received a petition with 109 signatures
6 protesting the transfer of their water service. Will you
7 please comment with respect to this portion of their
8 testimony?
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United Water Idaho Inc.
1 A I hope no one believes we take our
2 customers for granted. This level of inquiries and
3 concerns causes me to realize how hard we will have to
4 work to convince these customers of our intention to
5 provide good, dependable service. Once the proposal is
6 approved by the Commission, we are willing to immediately
7 initiate a committee, comprised of representatives from
8 the various neighborhood associations and the company. I
9 envision the committee's participative mission to be one
10 which would promote harmony, understanding and of equal
11 importance, to consider and discuss perceived or real
12 system deficiencies and improvements. This type of
13 program has worked very well in the past, and I believe
14 the affected customers would find this program to be of
15 benefit to them.
16 Q What comments do you have with respect to
17 witness Faunce's direct testimony?
18 A First let me say, witness Healy has and
19 will continue to address accounting and financial
20 matters. From a technical point of view the testimony of
21 witness Faunce appears to be consistent with established
22 procedures. I believe the company's proposal as filed
23 merits special consideration by the Commission. In
24 reviewing the overall proposal it is easy to see these
25 are two utilities which are regulated by dissimilar
292
Booe, Reb
United Water Idaho Inc.
1 agencies. United Water is regulated by Idaho Public
2 Utilities Commission while Garden City is regulated by
3 City Council. Throughout several discussions we have
4 established the same rules, regulations and accounting
5 principals do not equally apply to both entities. For
6 example, United Water is required to comply with NARUC's
7 Uniform Systems of Accounts. Garden City is not. It
8 appears as though witness Faunce suggests that since both
9 entities have been providing water utility, they
10 likewise, have been regulated in identical fashion. In
11 my
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Booe, Reb
United Water Idaho Inc.
1 opinion the Commission should approve the contract which
2 has been agreed to by the company and Garden City. It is
3 my opinion, the Commission should be concerned with
4 respect to the exchange paying its own way, and according
5 to witness Healy it will. This is supported by witness
6 Lobb in his direct testimony, on page 8, starting at
7 line 8, where he states: "Prior to a rate case, the
8 effect of the exchange on existing UWI customers will be
9 minimal. Even after a rate case, the effect on existing
10 customers will depend on whether or not the net revenue
11 generated after the exchange is sufficient to cover the
12 revenue requirement associated with exchange related
13 costs." Witness Healy is willing to further discuss the
14 financial aspects and impacts of the exchange.
15 Q If the Commission does not approve the
16 documents which have been filed for approval, what will
17 be the company's position?
18 A I hope my response will not be construed as
19 negative, arrogant or threatening. It is not my intent.
20 We first became involved in discussions related to water
21 utility north of State Street because the Mayors of
22 Garden City and Boise asked us to participate. We were
23 not actively seeking an opportunity. We have since
24 negotiated with Garden City in good faith, in accordance
25 to the wishes of Boise City, and within the spirit of
294
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United Water Idaho Inc.
1 both cities agreements. Garden City has repeatedly said
2 they were not willing to transfer the system at zero
3 dollars. Frankly, since they are the owners of the
4 facilities, they have the right to establish the value.
5 The sales price they have agreed to is far less than
6 their original asking price of $2 million. After several
7 months and hours of discussions, I believe we have
8 achieved the best contract possible. By going forward we
9 will bring a long standing
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United Water Idaho Inc.
1 community dispute to an end. If the Commission chooses
2 not to allow the company to book its proposed investment
3 into rate base, as suggested by the testimonies of
4 witnesses Faunce and Lobb, I have no alternative but to
5 recommend we not pursue the exchange further.
6 Q Does this conclude your rebuttal testimony?
7 A Yes it does.
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1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Kline, do you have
4 questions?
5 MR. KLINE: No.
6 COMMISSIONER SMITH: Mr. Woodbury.
7 MR. WOODBURY: Just a few.
8
9 CROSS-EXAMINATION
10
11 BY MR. WOODBURY:
12 Q Mr. Booe, did United Water request Garden
13 City's participation in this hearing with respect to the
14 exchange agreement?
15 A We asked Garden City if they would come to
16 the hearing and participate, yes.
17 Q And how did they respond?
18 A They were reluctant, as I recall they were
19 reluctant, to file testimony. I was quite surprised that
20 there wasn't a representative here today from Garden
21 City, because they had told us as late as last week that
22 they would be here today.
23 Q Do I understand, then, from your rebuttal
24 on page 5 that if the Commission does not approve the
25 proposed investment amount into rate base, then you will
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1 recommend apparently to your board that it not pursue the
2 exchange further?
3 A Yes, sir.
4 Q Does that mean that the Company will not
5 engage in any further negotiations with Garden City in
6 order to give effect to the intent of the Memorandum of
7 Understanding?
8 A Sir, we are always willing to participate
9 in discussions with any group. The last discussions that
10 we had with Garden City, we were very close to an impasse
11 at that particular time. Now, if Garden City should want
12 to discuss this further, yes, we're always willing to
13 have those discussions.
14 Q If the Commission were to approve the
15 agreement as proposed, what further discussions need to
16 take place with Garden City and what adjustments will
17 there be to the exchange agreement?
18 A The discussions that would take place at
19 this point, we would do a certain amount of diligence
20 work, but the discussions would primarily center around
21 the number of customers and we would certainly verify
22 that and, as Mr. Healy has testified to, we would make an
23 adjustment. In fact, we have put them on notice that
24 that would happen.
25 We would go through and examine some
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1 facilities. The question was asked this morning, how do
2 you really know these facilities exist. Well, we know
3 for the most part they do, but that's something else that
4 we would go through in due diligence to see that what
5 they have represented to us is really there.
6 Q Would it be reasonable for this Commission
7 to defer any decision in this case until the Company
8 determines what is actually there and what the price
9 actually is and perhaps provide some further estimates on
10 associated exchange-related costs?
11 A I don't think that's unreasonable what
12 you're saying. If the Commission said, well, give us
13 some additional testimony related to the investment
14 that's going to be made there, I don't think that's
15 unreasonable at all.
16 MR. WOODBURY: Madam Chair, I have no
17 further questions.
18 COMMISSIONER SMITH: Thank you.
19 COMMISSIONER NELSON: No questions.
20 COMMISSIONER SMITH: I guess my one
21 question was asked, Mr. Booe, and I was just wondering if
22 this was so important to the cities of Boise and Garden
23 City, then why weren't they here to say so.
24 THE WITNESS: Well, I can't really speak
25 for Garden City. The City of Boise is represented here
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1 today. In fact, they have two people in the audience.
2 COMMISSIONER SMITH: I know, but they're
3 not talking.
4 Do you have redirect, Mr. Bergquist?
5 MR. BERGQUIST: No, I have no redirect.
6 COMMISSIONER SMITH: Thank you, and we
7 thank you for your help, Mr. Booe.
8 THE WITNESS: Thank you.
9 (The witness left the stand.)
10 MR. BERGQUIST: I do have a short closing
11 statement, though, that I would like to make.
12 COMMISSIONER SMITH: Is there anyone
13 besides Mr. Bergquist who would like to make a closing
14 statement?
15 MR. WOODBURY: No.
16 MR. KLINE: It depends on what his closing
17 statement says.
18 COMMISSIONER SMITH: No, no, he gets to say
19 the last closing statement.
20 MR. BERGQUIST: Basically, it's not a
21 closing statement. It's just something I want the
22 Commission to consider.
23 COMMISSIONER SMITH: Please proceed.
24 MR. BERGQUIST: Back in 1992, and there's
25 been reference generally to that case today, there was a
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1 Case BOI-W-91-2, and as Commissioners Smith and Nelson
2 will recognize, that dealt with a lot of the issues that
3 we've been dealing with in this case and I would like to
4 request that the Commission take official notice of its
5 Order No. 24109, dated January 24, 1992, in that case,
6 and particularly, I would direct the Commission's
7 attention to some of the findings that the Commission
8 made in that case. Generally, they are Findings No. 12
9 through 70 and just a couple of them I would like to read
10 for the purpose of the record.
11 Finding No. 12 states: "Commencing in the
12 1970s, Garden City began a policy of extending its
13 municipal water system into the area north of State
14 Street and south of Hill Road with the expectation it
15 would annex or at least provide water service to areas
16 between Pierce Park Road and Highway 55."
17 And in Finding No. 15 -- I might state
18 that, of course, Pierce Park is the eastern boundary of
19 this North State Area that we're dealing with in this
20 case. Finding No. 15 stated: "The expansion of Garden
21 City's water system into parts of the proposed service
22 territory," and, again, that's the North State Area,
23 "continued after the Boise City area of impact was
24 determined. The Garden City water system was
25 deliberately oversized to serve this area after the area
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1 of impact had been established."
2 Then the Commission ended with,
3 "Consequently, we cannot find that Garden City's
4 expansion was based on a reasonable expectation that it
5 would obtain any entitlement to serve the area."
6 Then paragraph Finding No. 17, "Although
7 the unincorporated area is within the proposed service
8 territory or within the City of Boise area of impact, the
9 two cities have agreed to discuss renegotiating their
10 area of impact agreements. These discussions, however,
11 are in very preliminary stage and at present, there is no
12 reason to believe the area of impact boundaries will
13 change."
14 It's now three years later, the areas of
15 impact boundaries have changed, which is what led up to
16 the exchange agreement that is at issue in this case, and
17 I would request that the Commission recognize that this
18 is not something that Boise Water or United Water just
19 dropped into or initiated for no reason, that there's
20 some pretty good history behind it.
21 COMMISSIONER SMITH: Okay, Mr. Bergquist,
22 we will take administrative official notice of
23 Order No. 24109 in that case.
24 MR. BERGQUIST: Thank you. With that, I'll
25 offer the exhibits.
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1 COMMISSIONER SMITH: All exhibits that have
2 been previously identified will now be admitted unless
3 there is objection.
4 (All exhibits previously marked for
5 identification were admitted into evidence.)
6 COMMISSIONER SMITH: Is there anything else
7 that needs to come before the Commission?
8 MR. BERGQUIST: I have nothing further.
9 COMMISSIONER SMITH: As you know, we've
10 scheduled a public hearing tonight at 7:00 p.m. in this
11 room. The record will remain open to take testimony at
12 that time from members of the public who wish to appear
13 and make a statement; otherwise, following that, we will
14 consider this matter to be, the record to be, closed and
15 the Commission will deliberate and issue its order as
16 quickly as we can.
17 Thank you all for your help in this
18 process. We're adjourned.
19 (The Hearing recessed at 3:30 p.m.)
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