960621.docx

Q.Please state your name and business address for the record.
A. My name is Donald M. Oliason.  My business address is 472 West Washington Street in Boise, Idaho.
Q.  By whom are you employed and in what capacity?
A.  I have been employed by the Idaho Public Utilities Commission as an electrical engineer since January 1990.
Q.  Please describe your educational background and engineering experience.
A.  I received Bachelor of Science degrees in Civil and Electrical Engineering from the University of Idaho and I am a registered Electrical Engineer in the states of Washington and Idaho.  In addition to my work with the Public Utilities Commission, I have had 24 years of experience in various engineering and operating positions with an electric, water and natural gas utility.
Q. What is the purpose of your testimony?
A.United Water Idaho Inc. (UWI; Company) proposes to purchase the water system owned by Warm Springs Mesa, Inc. (WSM; Mesa).  The purpose of my testimony is to discuss the proposed change in ownership with regard to engineering and operations, and its effect on WSM and UWI customers.
Q.Are you sponsoring any exhibits?
A.Yes.  I am sponsoring the following exhibits:
Exhibit No. 102:  One-line diagram showing WSM’s backbone water system.
Exhibit No. 103:  Rate comparison between existing rates of UWI and WSM.
Exhibit No. 104:  Proposed method for allocating Well No. 3 investment.
Q.Please describe the WSM water system and give some idea of how its operation may change with new ownership.
A.There are three wells near the west entrance to the Mesa adjacent to Highway 21 as shown in Exhibit No. 102.  UWI lists the total capacity of the three wells at 950 gallons per minute (gpm).  WSM indicates the total capacity is 1195 gpm.  Whichever number is correct does not make a difference in my testimony.  
The wells pump water about halfway up the hill to the Toluka booster station which has a boosting capability of 600 gpm.  It pumps water further up the hill to the 629,000 gallon Boulder Heights reservoir.  The Toluka booster station and the Boulder Heights reservoir jointly serve most of the WSM customers.    Near the reservoir is the Boulder Heights booster station which draws water from the reservoir to serve customers at the highest elevation known as Boulder Heights.  It has a capacity of 300 gpm.
The water system is well designed and UWI does not plan to change the configuration.  However, UWI advises that it will install remote sensing devices at the wells, booster stations and the reservoir and will telemeter necessary operating information into the Company’s central operating facility.  UWI will then be able to tell immediately, 24 hours a day, if anything is wrong with the water system and dispatch personnel to take care of the problem.  Absent this remote sensing, UWI would have to depend on a customer to report low pressure or a water outage, as is the case now.
Q.Do the three WSM wells have enough capacity to handle foreseeable customer growth?
A.My answer is based on the assumption that peak demand will average 1.7 gpm per customer for this size of water system and that the Toluka Booster Station capacity will be increased as necessary.  The average peak demand of 1.7 gpm per customer is an estimate taken from engineering graph curves for a water system of about 300 customers and it is the same peak demand I used in WSM's last rate case.  
Mr. Paul Wise rates the three wells at 1,195 gpm (Well No. 1 = 125 gpm, Well No. 2 = 400 gpm and Well No. 3 = 670 gpm).  UWI rates the three wells at 950 gpm.  
UWI estimates that future growth will add 215 new customers to the 325 existing for a total of 540 ultimate customers.  Peak demand for 540 customers is estimated to be 540 x 1.7 = 918 gpm which is within UWI’s lower capacity estimate of 950 gpm.
Q.Do you expect WSM customers to pay higher or lower rates with UWI water service?
A.I expect them to pay about the same under UWI as they pay now with WSM.  Exhibit No. 103 shows a comparison of rates for the two companies.  As you can see, UWI billings are slightly lower, except for the small users who will see slight increases.  
Q.UWI does not plan to connect its water system to the WSM system for at least five years.  Is this reasonable?
A.Yes.  There is not an operational need at the present time to justify the expense of interconnecting WSM to the UWI system.  As development takes place along Highway 21 I think it will become advantageous to one or both water systems to interconnect sometime in the future.
Q.For accounting purposes UWI proposes to merge the WSM system into one UWI operation.  Is this reasonable?
A.Yes.  The rates are almost identical so the relationship between rates and revenue requirement per customer is almost the same for each company.  It should be noted however that Well No. 3 is not currently in the WSM rate base.
Staff witness Madonna Faunce recommends that UWI use sub-accounts to keep track of capital investment and expenses associated with the merged operation and I agree with her proposal.
Q.Do you consider UWI's proposal reasonable to not collect hook-up fees until the systems are interconnected?
A.No.  I recommend that all aspects of UWI’s tariffs, including hook-up fees be implemented when UWI assumes ownership.  
The hook-up fees of UWI were established for the purpose of supporting new water sources wherever needed in any part of the UWI system and the amount collected reduces the rate base.  If these fees are to be collected everywhere in the UWI system except the WSM area, it would seemingly conflict with the statutory prohibition against unreasonable discrimination and preference.  Furthermore, the fees not collected in the WSM area would result in UWI's rate base being higher than it otherwise would be and all customers would end up paying for the non-collection through their rates.  UWI states that there are 65 lots currently under construction on the Mesa and a total of 215 developable lots.  If hook-up fees are not collected for the next 65 lots, UWI would be foregoing collection of $30,225      (65 x $465).  Despite the contention that sufficient supply exists (with Well No. 3) for approximately 160 additional customers (United Water Response to Staff Production Request No. 3), UWI has presented no justification for a waiver of hook-up fees.  The common identity of seller and developer could lead a reasonable person to question whether the stated purchase price, $550,000, is perhaps understated.
In a similar situation in case EUW-W-94-1, the Commission granted UWI a certificated service area near Eagle, Idaho which is currently not interconnected with the Company's larger water system and approved as requested, the collection of existing UWI hook-up fees.
Q.Will your recommendation on hook-up fees affect the sale of this water system?
A.Not necessarily, but as the Purchase and Sale Agreement is structured it could.  The Purchase and Sale Agreement is conditioned on the Commission’s approval.  Either party can opt out of the Agreement if any portion of the Commission’s ruling is substantially inconsistent with the Agreement.  Not collecting the hook-up fees for the next 65 lots would save the developer $30,225.
Q.What advantages and disadvantages do you see associated with this acquisition?
A.All small regulated water companies have difficulty raising money for system improvements because their revenues are often too small to satisfy bankers who require extra security.  Any significant improvement, such as a replacement well, causes a major crisis.
Mr. Paul Wise, in his testimony, states that he has experienced difficulty in maintaining the water system and in obtaining adequate financing.  On the other hand, UWI has the financial ability to borrow money, or to raise money in the financial market (bonds and stock) which is a significant advantage.  In addition, UWI has a staff with the experience to handle water system operations involving engineering, hydrology, water quality, treatment and testing, utility accounting and customer service.  I do not see any disadvantages for WSM customers as a result of UWI becoming owner/operator
and/or disadvantages for UWI customers as long as the tariffs are applied uniformly, including hook-up fees.  
Q.Are there any issues in this case relating to rate base?
A.Staff witness Madonna Faunce discusses the rate base issue in more detail.  From an engineering perspective the status of WSM Well No. 3 merits some discussion in regard to the “used and useful” criteria used in rate base determination.  UWI reports its average rate base per customer as $1,346.  WSM’s average rate base, which does not include Well No. 3, is about $1,332 per customer (for 325 customers).  If one includes the Well No. 3 investment, WSM’s average rate base becomes $1,692 per customer.
In rate case WSM-W-93-2, Commission Staff argued that Well No. 3 was not needed for existing customers so the investment should be the responsibility of the developer, Mr. Paul Wise, who, it was presumed, would recover the well cost through the sale of lots.  The Commission did not rule on this issue because the Idaho Division of Environmental Quality (DEQ) had not yet issued a permit for commercial operation of the well and it was therefore not ready for evaluation by this Commission as “used and useful.”
UWI’s traditional method of recovering “source” (wells and storage) investment is to collect a hook-up charge from new customers.  By proposing not to collect hook-up fees in the WSM area, Well No. 3 becomes a special case where its investment is to be recovered through rates from all customers instead of hook-up fees from new customers.
Q.If a rate case were held today what would be your position regarding Well No. 3?
A.If the applicant could demonstrate that Well No. 3 is “used and useful” I would support its inclusion in rate base as long as hook-up fees are to be collected.
Q.If a rate case were held today what would be your position regarding Well No. 3?
A.If the Applicant could demonstrate that Well No. 3 is “used and useful” I would support its inclusion in rate base as long as hook-up fees are to be collected.
If hook-up fees are not to be collected, I would develop a reasonable method for allocating Well No. 3 investment between existing customers and future customers and I would propose to rate base only the amount allocated to existing customers.  The exact method of allocation would take more study to determine; however, Exhibit No. 104 is an example of a method that might be used.
Q. What do you recommend regarding the investment in Well No. 3?
A. I recommend the question of rate basing and the question of “used and useful” be postponed until the next rate case.
If the Commission approves hook-up fees for the WSM area I would recommend they be assigned to reduce the investment in Well No. 3.             
Q.UWI proposes to spend $16,000 on remote monitoring of wells, booster stations and the reservoir, and proposes to spend another $37,000 on modification of meter boxes and electrical wiring for safety reasons.  It requests these expenditures be allowed in rate base.  Is this a reasonable request?
A.It is reasonable in regard to the $16,000 for monitoring, as I consider this to be an important item to improve service.  In regard to the $37,000 for modification of meter boxes and electrical wiring, I believe the plant and equipment should be brought up to reasonable construction standards, and unsafe conditions should be corrected immediately.  I suggest that UWI scrutinize this work consistent with the uniform system of accounts because some of this work may be chargeable to maintenance instead of capital.
Q.Are there any other improvements UWI will need to make to the WSM water system?
A.Yes, although it isn’t clear when the investment will need to be made.  The Toluka Booster Station has a capacity of 600 gpm which can serve about 350 customers.  This provides for a growth of about 25 customers so I would estimate that the booster capacity will have to be increased within three to five years.  This kind of investment would normally be offset by UWI’s connection fees.
Q. Does that conclude your testimony?
A.Yes, it does.