42498PUC.docx

1 BOISE, IDAHO, FRIDAY, APRIL 24, 1998, 8:35 A.M.
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4 COMMISSIONER NELSON: Good morning. We'll
5 take up again in Commission Case UWI-W-97-6. When we
6 recessed last evening, I believe that Mr. Miller was
7 doing his reexamination of Mr. Brown.
8 MR. MILLER: Yes. Thank you, Mr. Chairman,
9 and also thank you for the evening recess last night. I
10 think it enabled us to devise a method to very quickly or
11 efficiently get through the issues that Mr. Brown is
12 testifying regarding.
13 In that regard, we have put up here a map
14 that we have marked as Exhibit 31, and we will provide
15 reduced copies for the record shortly.
16 (United Water Idaho Inc. Exhibit
17 No. 31 was marked for identification.)
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840
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 DANIEL BROWN,
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 REDIRECT EXAMINATION
8
9 BY MR. MILLER:
10 Q So with that, Mr. Brown, good morning.
11 A Good morning.
12 Q Could you identify for the Commission what
13 we have put up and marked as Exhibit No. 31?
14 A This is a distribution system map of United
15 Water Idaho. Its last update was April 8th, 1998, and
16 what it shows is essentially the distribution mains of
17 United Water Idaho, location of wells and other major
18 facilities such as water tanks and booster stations.
19 Q And using Exhibit No. 31, could you explain
20 for the Commission some of the supply and design
21 constraints that exist in the Boise Water system? And
22 perhaps if you want to go to the map, you could point
23 that out more easily.
24 A Okay. Thank you. There are three areas
25 that I'd like to discuss regarding the operation and
841
CSB REPORTING BROWN (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 limitations of the water system and supply for United
2 Water Idaho. One is development of source of supply for
3 the system, one is the distribution system limitations,
4 and one and the last is the issue of importing water from
5 one -- importing and exporting water from one service
6 level to another.
7 What you see -- one of the elements of what
8 you see on this map are green dots scattered throughout
9 this distribution system. These are wells that have been
10 developed over the last, say, thirty to forty years.
11 One of the benefits generally that the
12 United Water system has had over time is that wells or
13 source of supply can be added in the immediate area of
14 demand, so as for instance in the area between Ustick
15 Road, Chinden, Cloverdale, and Five Mile, you can see
16 that there's four wells within that basic square mile
17 area -- or one to two square mile area that serve the
18 customers located there. We look -- it's similar
19 basically throughout the system.
20 We have found, however, that there are two
21 areas where this is not the case. One is in southeast
22 Boise in the area of Columbia Village, Oregon Trail
23 subdivision east of the freeway. We have found that
24 since the early 1990s that this area has -- the aquifer
25 in this area is not adequate to support the continued
842
CSB REPORTING BROWN (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 development in the area.
2 The other area we've discovered is in the
3 area from, for instance, Collister Road west to Horseshoe
4 Bend Road and between State Street and Hill Road. This
5 is an area where we are not able to drill additional
6 wells to serve the source -- or to serve the demand in
7 that area.
8 If we're going to have -- if you're going
9 to have development in those areas, there's really only
10 one solution or basically potentially two solutions. One
11 is to add -- find another source of supply, for instance,
12 we're talking about in southeast Boise, the future
13 Columbia water treatment plant, and that is the long-term
14 solution that we see for demand in the Columbia Bench
15 area.
16 The interim solution to that was to bring
17 water in through the southeast Boise water supply project
18 from the wells south of the airport and generally in the
19 vicinity of Pleasant Valley Road.
20 If we can't develop the source in the area
21 of demand, then we have to bring it in from some other
22 means. What we have seen in northwest Boise and again
23 the area between Collister and Horseshoe Bend Road, we do
24 not have adequate supply to serve these customers, so we
25 need to bring it in from another location.
843
CSB REPORTING BROWN (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 What we have -- what we have experienced is
2 that the distribution system in the area from the central
3 part of town west to the subject northwest area has
4 limitations on its ability to transmit the water
5 adequately to the Hidden Hollow Reservoir, so in periods
6 of demand, the head losses are such that we cannot fill
7 the Hidden Hollow Reservoir.
8 The alternative that we saw was to let's
9 develop source of supply in this area, and what we did
10 was we drilled a test well and attempted to develop a
11 well in the Gary Lane/State Street area. We found that
12 the aquifer was not capable of supporting a production
13 well at that site. We knew that wells in the vicinity of
14 Island Woods subdivision, the Floating Feather well,
15 which is located on Floating Feather Road west of Eagle
16 Road, and the Redwood Creek well at the Redwood Creek
17 subdivision were good sources of supply. They were
18 strong -- the aquifer was strong in that area, so we
19 felt, well, let's explore in the area of Horseshoe Bend
20 Road and State Street.
21 We drove a test well there and found a
22 potential for additional source of supply was extremely
23 limited, so we feel that somewhere between this last test
24 well at Horseshoe Bend Road and State Street and Island
25 Woods and our Floating Feather well, there's some
844
CSB REPORTING BROWN (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 boundary between good sources of supply and poor sources
2 of supply or inadequate sources of supply.
3 On the basis that the distribution system
4 from the central part of town west to this area is
5 inadequate, then what is another alternative? The other
6 alternative is to tie into this existing known source of
7 supply with known water quality to bring water back into
8 this area. We would not have the limitation of the
9 distribution system on being able to fill this Hidden
10 Hollow Reservoir. And, in fact, through experience, in
11 recent experience, this system has proven its ability to
12 fill this reservoir, so we feel that this solution has
13 been very effective.
14 Another -- and to talk about the discussion
15 regarding the expansion of the Marden water treatment
16 plant along Warm Springs Avenue and the river here,
17 simply the fact that we have increased supply in this
18 area doesn't mean that it can beneficially impact the
19 area out here simply because of the losses in the
20 distribution system in this area.
21 The third point is the import-export
22 capability of the distribution system. We talk about in
23 my rebuttal exhibit -- I don't recall the number -- where
24 we talk about the source of supply deficiencies.
25 Q Seventeen.
845
CSB REPORTING BROWN (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 A Exhibit 17. We see deficiencies in the
2 range of 6 million gallons per day, 6 to 7 million
3 gallons per day. That is basically the limitation that
4 these points of intertie can handle. When we get to a
5 deficiency greater than that, we cannot get the water
6 into the main service level. We simply have not the
7 capability to do that, so we will get into a point where
8 regardless of the fact that we have water in the Gowen
9 area to -- perhaps to try to force this direction, the
10 system just can't transmit that much water or more water
11 than the 6 to 7 million gallons a day amount.
12 What we wanted to clarify or to point out
13 basically is regardless of the strength of the supply in
14 the main body of the main service level, our ability to
15 transmit it out to this area of demand is deficient.
16 That's why bringing in water in from the west offsets
17 that and we can actually fill this reservoir more
18 efficiently. We have -- similarly speaking, although we
19 have more supply, for instance, if we did start down in
20 Oregon Trail in an emergency condition, we may not be
21 able to get the water into the area simply because of the
22 limitations of the import into the main service level.
23 MR. MILLER: All right. Thank you very
24 much for those clarifications, and that's all the
25 questions we had.
846
CSB REPORTING BROWN (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 COMMISSIONER NELSON: Thank you. Do we
2 need to mark Exhibit 31? You're going to distribute that
3 shortly.
4 MR. MILLER: We would ask that Exhibit 31
5 be marked and we would provide duplicate copies of a
6 suitable size for the record.
7 COMMISSIONER NELSON: Okay. Mr. Brown,
8 thank you for your testimony.
9 MR. MILLER: Call William Linam.
10
11 WILLIAM C. LINAM,
12 produced as a rebuttal witness at the instance of United
13 Water Idaho Inc., having been previously duly sworn,
14 resumed the stand and was further examined and testified
15 as follows:
16
17 DIRECT EXAMINATION
18
19 BY MR. MILLER:
20 Q Sir, could you state your name, please?
21 A William C. Linam.
22 Q And are you the same William C. Linam that
23 previously offered direct testimony in this case?
24 A Yes, I am.
25 Q Subsequent to that, did you have occasion
847
CSB REPORTING LINAM (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 to prefile written rebuttal testimony consisting of forty
2 pages of text?
3 A Yes, I did.
4 Q And did any exhibits accompany that
5 testimony?
6 A Yes. There are three exhibits attached to
7 that testimony.
8 Q That would be Exhibits 14, 15, and 16?
9 A That is correct.
10 Q Are there any additions or corrections that
11 need to be made to your written prefiled testimony?
12 A Yes, there are.
13 Q Could you direct us to those, please?
14 A Page 38, line 16 should read 43 rather than
15 42.
16 Q And the reason for that change?
17 A It was a typographical error. Same page,
18 line 18 should read 26 rather than 25, and that reflects
19 the difference in those two numbers there.
20 Page 37, line 10 should read 20 rather than
21 70. And page 11, line 6 should read 534,935 rather than
22 533,088. And line 11 -- page 11, line 22 should read
23 6,865 rather than 11,007. And on that same line, it
24 should read 177,672 rather than 673,530, and the reason
25 for that is I picked up the depreciation through November
848
CSB REPORTING LINAM (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 rather than through July, which was the end of the test
2 year.
3 Q Any other additions or corrections?
4 A No.
5 Q If I asked you the questions that are set
6 forth in your written prefiled testimony, would your
7 answers today be the same?
8 A Yes, they would.
9 Q To the best of your knowledge, are the
10 answers set forth in your written prefiled testimony true
11 and correct?
12 A Yes, they are.
13 MR. MILLER: Mr. Chairman, we would ask
14 that the written prefiled rebuttal testimony of Mr. Linam
15 be spread on the record as if read and the accompanying
16 exhibits be marked.
17 COMMISSIONER NELSON: Without objection,
18 we'll spread the testimony of Mr. Linam and mark
19 Exhibits 14, 15, and 16.
20 (The following prefiled rebuttal
21 testimony of William C. Linam is spread upon the record.)
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849
CSB REPORTING LINAM (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 Q Please state your name and business address
2 for the record.
3 A My name is William C. Linam and my business
4 address is 8248 W. Victory Road, Boise, Idaho.
5 Q Are you the same William C. Linam who
6 entered direct testimony in this case?
7 A Yes, I am.
8 Q What is the purpose of your testimony?
9 A The purpose is to offer rebuttal testimony
10 concerning issues raised by Staff Witnesses Randy Lobb
11 and Robert E. Smith, and Intervenors Thomas Michael Power
12 and Sharon Ullman.
13 Q Would you summarize the issues you intend
14 to address?
15 A Yes: Inclusion of the investments for
16 Island Woods, Redwood Creek/Floating Feather, the
17 Northwest Pipeline, and Garden City in rate base; the
18 issues raised by Staff and various intervenors concerning
19 the Boise River Diversion and the cost of growth; the
20 assertions concerning re-investment of the proceeds from
21 the sale of a United Waterworks subsidiary in New Mexico;
22 Management Fees, capitalized overheads from the United
23 Water Management and Services Inc. (UWM&S), leased
24 vehicles, UWID Salaries; rate comparisons; and legal
25 fees.
850
Linam, Reb 1
United Water Idaho Inc.
1 Staff Witness Lobb
2 Island Woods
3 Q On page 6 of Mr. Lobb's testimony, lines 3,
4 4, and 5, he recommends that $73,400 of rate base be
5 disallowed for Island Woods. Would you comment on this
6 recommendation?
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851
Linam, Reb 1A
United Water Idaho Inc.
1 A Yes. Mr. Lobb calculates (Staff Exhibit
2 No. 103) that the revenues from the existing customers in
3 Island Woods only support an investment of $187,351. I
4 have prepared Exhibit No. 14 using the same methodology
5 as Mr. Lobb. Column 2 of this Exhibit is a duplication of
6 Mr. Lobb's Exhibit No. 103. Column 3 is a comparison
7 using Mr. Lobb's methodology, but using the number of
8 existing customers as of March 20, 1998 and the revenue
9 from those customers based upon actual consumption for
10 typical customers in the Island Woods area and the
11 current rates for UWID. This revenue results in a
12 supported investment of $230,800 compared to Mr. Lobb's
13 $187,351. Column 4 compares the results using 100
14 customers at current rates and supports an investment of
15 $256,400. Column 5 compares this current customer count
16 at the proposed UWID rates. Column 6 compares the same
17 customer count that Mr. Lobb used in his calculation and
18 projecting the rates requested in this case. I believe
19 these comparisons, along with the rationale in my direct
20 testimony, support the inclusion of the full requested
21 amount of $260,751 in rate base.
22 Q Why did you use a projected number of
23 customers at 100?
24 A I project that there will be at least 100
25 customers before the year-end 1998.
852
Linam, Reb 2
United Water Idaho Inc.
1 Q What makes you believe that your projection
2 of 100 customers by year-end 1998 is reasonable?
3 A In addition to the 90 existing customers, a
4 survey of the Island Woods area shows an additional seven
5 homes currently under construction that are not included
6 in the 90 customer figure. This analysis only deals with
7 growth during
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853
Linam, Reb 2A
United Water Idaho Inc.
1 1998. Clearly, in 1999 more customers will be added
2 which will support additional investment during the
3 period the rates being requested will be in effect
4 Q Why did you use a revenue figure of $491
5 per customer, versus Mr. Lobb's $435 per customer?
6 A The $491 per customer is the anticipated
7 annual revenue based upon the consumption history of
8 existing customers in Island Woods priced at the current
9 UWID tariff rates.
10 Redwood Creek/Floating Feather
11 Q Could you give a brief description of the
12 Redwood Creek/Floating Feather development?
13 A Yes. This is the area noted as Section A
14 on my original Exhibit No. 2.
15 Q In Staff Exhibit No. 104, Mr. Lobb
16 similarly recommends disallowance of $824,250 for what he
17 calls Redwood Creek. Have you prepared an exhibit
18 similar to the one you prepared for Island Woods?
19 A Yes. I have prepared Exhibit 15.
20 Q Do you agree with Mr. Lobb's recommended
21 disallowance?
22 A No, I don't. The $890,269 of requested
23 investment on Mr. Lobb's Exhibit 104 involves the
24 investment at both Redwood Creek and Floating Feather.
25 There are actually 45 existing customers included in this
854
Linam, Reb 3
United Water Idaho Inc.
1 filed case, not 27 as used on Mr. Lobb's Exhibit 104.
2 Therefore, using Mr. Lobb's methodology, the first year
3 build-out number of customers, and revenue based on
4 actual consumption, the supported investment is $98,600
5 not $66,019. As of March 20, 1998, there were 52
6 existing customers being served by these facilities.
7 Revenue from these
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855
Linam, Reb 3A
United Water Idaho Inc.
1 customers supports an investment of $114,000 using actual
2 consumption from the customers in this area. With a
3 moderate growth projection in the number of customers and
4 an increase in rates, the supported investment is
5 considerably more. These comparisons support an
6 investment up to $179,600 using the above methodology.
7 Q Why do you consider a projection up to 70
8 customers to be a moderate projection?
9 A Currently, there are 52 existing customers,
10 3 under construction, and 7 additional building permits.
11 A projection up to 70 customers by year-end 1998 seems
12 conservative.
13 Q Why did you use a revenue of $409 per
14 customer as opposed to Mr. Lobb's $452 per customer?
15 A When we double-checked the expected
16 revenue, we felt Mr. Lobb's number was overstated based
17 upon the consumption history of the existing customers in
18 the Redwood Creek/Floating Feather area.
19 Q Do you agree with this methodology for
20 supporting the investment in the Redwood Creek/Floating
21 Feather area?
22 A No, I do not. The water available at
23 Redwood Creek/Floating Feather is needed to supply the
24 customer demand in the UWID main service level. As
25 outlined in my direct testimony (page 12 line 20 through
856
Linam, Reb 4
United Water Idaho Inc.
1 page 13 line 20) this entire investment is linked to all
2 the customers of UWID, provides service to all the
3 customers of UWID and is, therefore, used and useful to
4 all the customers of UWID. Since the water is needed to
5 serve the demand and is now available to
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857
Linam, Reb 4A
United Water Idaho Inc.
1 the customers, the entire $890,269 should be recognized
2 in rate base. Mr. Lobb contends in his testimony on page
3 10 lines 17-25 that the Company could have drilled a well
4 for $300,000 per 1 MGD, and therefore a $600,000 well
5 could have eliminated the expenditure of $940,000 for the
6 construction of the pipeline to connect the Redwood
7 Creek/Floating Feather area to the main UWID system.
8 This would have, in his opinion, eliminated the need for
9 the infrastructure at Redwood Creek/Floating Feather and
10 the $940,000 for the pipeline.
11 Q Do you agree with Staff's contention?
12 A No, I do not. If they ever existed, the
13 days are gone when the Company had an option to drill a
14 well almost anywhere. This is due to several factors,
15 not the least of which is that oftentimes the water just
16 isn't there. This was proven by our attempt to drill a
17 well in the State Street area where the quantity of
18 water just wasn't available. Other factors that prevent
19 drilling a well almost anywhere are water quality and
20 water rights issues. Even if water is available in
21 certain locations, the quality may not be suitable for
22 customer usage. Although Mr. Lobb contends that with a
23 $600,000 investment the Company could have eliminated
24 $1.8 million of investment, (made up of $940,000 for the
25 Northwest pipeline and $890,00 for Redwood Creek/Floating
858
Linam, Reb 5
United Water Idaho Inc.
1 Feather) he did not consider any investment for a
2 pipeline necessary to connect this well to the system.
3 This pipeline to connect a well to the distribution
4 system was estimated at $650,000 for the State Street
5 Well that was test drilled in 1997. Mr. Lobb did not
6 propose adding this $600,000 (plus the cost of the
7 connecting pipeline) to the rate base.
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859
Linam, Reb 5A
United Water Idaho Inc.
1 Q Please explain why the investment in the
2 Redwood Creek/Floating Feather infrastructure and the
3 Northwest Pipeline is necessary and prudent.
4 A As pointed out in my direct testimony, in
5 Mr. Brown's rebuttal testimony, and further supported by
6 Mr. Lobb's testimony, the main service level is deficient
7 in supply by approximately 6 MGD to serve the needs of
8 our customers. We had identified this need and in UWID's
9 1997 Capital Budget had approved an expenditure of
10 $980,000 to drill a well in the State Street area and
11 install a connecting pipeline to make this well useful.
12 Test drilling in the State Street area resulted in the
13 discovery that both the water quantity and quality
14 necessary to serve our customers were not available.
15 This hampered the Company's ability to fill our Hidden
16 Hollow Reservoir in the summer and fall of 1997, a year
17 which was a fairly low consumption year for water usage.
18 Therefore, we were faced with the necessity to locate,
19 develop, and deliver water to the Hidden Hollow Reservoir
20 area to help prevent service problems to our customers.
21 This had to be accomplished before peak usage in 1998.
22 The only means of accomplishing this task was to connect
23 a known good quality water source to the Hidden Hollow
24 Reservoir. As pointed out in direct testimony, this also
25 eliminated a planned expenditure of $980,000 that was
860
Linam, Reb 6
United Water Idaho Inc.
1 designed to accomplish this same task. Based on these
2 factors alone, the expenditure in Redwood Creek/Floating
3 Feather and the connecting pipeline were prudent
4 expenditures and should be included in rate base.
5 Q Mr. Lobb points out in his testimony, page
6 11 lines 3-19, that the current UWID supply deficiency is
7 as low as it has been in the past five years. Do you
8 agree
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861
Linam, Reb 6A
United Water Idaho Inc.
1 that this is an adequate reason not to plan and develop
2 the source of supply necessary to serve the customers?
3 A No. First, I don't believe this is an
4 accurate statement even using Mr. Lobb's Exhibit 107 and
5 Mr. Brown's rebuttal testimony shows the stated 6 MGD
6 deficiency for 1997. More importantly, Staff's
7 recommendations on this issue implies an unacceptably
8 risky method of planning for future water supply. As
9 explained by Company witness Brown, the Company must plan
10 carefully to avoid curtailment of customer usage during
11 periods of peak use. To supply customers, the Company
12 must have the source and the ability to deliver to the
13 point of use. This is what the Redwood Creek/Floating
14 Feather facilities and connecting pipeline help us
15 accomplish.
16 Q Mr. Lobb comments, page 11 lines 20-24,
17 that future growth in the Eagle area may require the
18 entire capacity of the wells in this area and this
19 capacity may not be available for the main service level.
20 Do you agree that this could happen?
21 A I agree that the consumption in the Eagle
22 area will increase. As that occurs, additional capacity
23 may have to be added in that area. Since we haven't been
24 able to identify a new source in the Hidden Hollow area,
25 water will continue to be piped from other locations.
862
Linam, Reb 7
United Water Idaho Inc.
1 The Redwood Creek/Floating Feather area is the most
2 feasible area from which to pipe the water. Most of the
3 well sources we have are probably used in a different
4 location today than they were when first developed. With
5 the wide variation in usage in summer and winter, water
6 is used in different locations constantly. We still need
7 to have all our sources tied together to offer the best
8 means of supplying the customers. During periods
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863
Linam, Reb 7A
United Water Idaho Inc.
1 when all sources are not necessary to supply demand, the
2 Company needs the ability to use the best quality and/or
3 most economical sources. When supply is not fully being
4 utilized in one location, and is needed in another
5 location, it should be used in the location needed. When
6 needs shift, the Company must find other ways of serving
7 the customers. This is why customer service planning is
8 dynamic instead of static, and it emphasizes the
9 desirability and even the necessity of a completely
10 intertied system.
11 Q Please address Mr. Lobb's contention that
12 another reason to disallow the investment in Redwood
13 Creek/Floating Feather and the connecting pipeline is
14 that it might be necessary to sell this water to the City
15 of Eagle.
16 A Staff bases this possibility on the
17 conditions of the contract between the City of Eagle and
18 UWID which states, "United Water agrees to provide the
19 City additional water and supplemental fire flows..."
20 However, the facts relating to this issue show that
21 Mr. Lobb's speculation is unfounded.
22 First of all, the City of Eagle has an adequate
23 source of water to supply their needs and is planning for
24 additional source development to cover their future
25 needs. Second, as for the obligation of UWID to supply
864
Linam, Reb 8
United Water Idaho Inc.
1 additional water, the entire sentence reads as follows:
2 "United Water agrees to provide the City additional
3 water and supplemental fire flows as hereinafter set
4 forth." The contract as a whole creates specific
5 obligations to supply fire flows. Regardless of whether
6 or not UWID were to sell any water to the City of Eagle
7 at some unknown time in the future, this doesn't reduce
8 or relieve the well-documented
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865
Linam, Reb 8A
United Water Idaho Inc.
1 necessity of making more water available in the Hidden
2 Hollow area to serve our customers needs.
3 Q A further point by Mr. Lobb is that
4 construction of this pipeline eliminates, in part, the
5 requirement that distribution facilities be contributed
6 by developers as part of the line extension rules. Would
7 you comment on this point?
8 A Yes. First I would classify this pipeline
9 as a transmission main rather than a distribution main.
10 This type of main is necessary to serve the overall needs
11 of all the customers. In addition, there are times when,
12 even if it were certain that over time developers would
13 contribute to such a main, the Company does not have the
14 luxury to wait for such a contribution. Often it is
15 necessary for the cost of a transmission main to be
16 spread over the entire customer base to enhance overall
17 service to the customers. Such was the case with the
18 transmission main to the 6 MG reservoir located in Hulls
19 Gulch, the transmission main connecting our water
20 treatment plant to the distribution system, most
21 connecting mains from other wells to the system, and the
22 recent 24-inch pipeline in Southeast Boise.
23 If the Commission believes that developers will
24 unfairly benefit from this installation, it could
25 authorize the Company to collect a connection fee from
866
Linam, Reb 9
United Water Idaho Inc.
1 the developers to reimburse the customers. However, this
2 could have the adverse effect of preventing new customers
3 from receiving service and, therefore, reducing the
4 customer base which would share the cost.
5 Northwest Pipeline
6 Q On page 15 lines 8-25 of his testimony,
7 Mr. Lobb summarizes his opposition to cost recovery for
8 the Northwest pipeline project. Would you comment
9 please?
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867
Linam, Reb 9A
United Water Idaho Inc.
1 A Yes. Mr. Lobb seems to object because the
2 installation of this pipeline makes the infrastructure at
3 Redwood Creek/Floating Feather used and useful, it
4 provides reservoir backup and emergency fire protection
5 to the City of Eagle, and it will make lower cost service
6 available to a large undeveloped area. First, the
7 pipeline was installed due to the need to serve all of
8 the customers. This is supported by the data in Mr.
9 Brown's testimony and the fact that a different project
10 was budgeted and pursued until it was shown this project
11 could not be developed to serve the needs of the
12 customer. Second, the customers of UWID benefited from
13 the agreement to supply reservoir backup and emergency
14 fire protection to the City of Eagle by gaining the use
15 of a $360,000 main installation which was paid for by
16 others. Third, while arguably the installation of this
17 pipeline may make lower cost service available to an
18 undeveloped area, I believe with the demonstrated need
19 for this project, this possibility should not make the
20 project unreasonable or unnecessary.
21 Garden City
22 Q Mr. Lobb recommends (page 7 lines 1-3) that
23 $673,530 be disallowed from rate base in connection with
24 the exchange of customers between UWID and Garden City.
25 Do you agree with this recommendation?
868
Linam, Reb 10
United Water Idaho Inc.
1 A No, I do not. I have two problems with
2 this recommendation. First, in the Final Order on
3 Reconsideration issued in Case No. UWI-W-95-2, the
4 Company was directed to make a calculation in the next
5 general rate filing to show how the revenue would support
6 the investment. The Company has performed this
7 calculation and demonstrated that the proper analysis
8 shows that the revenue
9
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25
869
Linam, Reb 10A
United Water Idaho Inc.
1 supports the exchange and any related additional
2 investment. Second, Mr. Lobb is incorrectly recommending
3 eliminating $673,530 which includes the cash paid by UWID
4 to Garden City, the investment made by UWID to install a
5 new main connection to improve service, and the book
6 value of infrastructure UWID transferred to Garden City
7 in this exchange. Actually, the increase in rate base
8 due to this exchange is $534,935, which represents the
9 cash paid in the transaction less the depreciation that
10 has been recorded since the transaction. Again, I do not
11 believe this was the spirit of the order in case
12 UWI-W-95-2. If the Commission's intent was to eliminate
13 the investment based upon what Mr. Lobb is recommending,
14 they could have done so in Case No. UWI-W-95-2, as Mr.
15 Lobb made the same recommendation in that case. Had that
16 been done, the Company would have terminated the trade
17 and it would not be necessary to show how the revenue
18 supports the investment.
19 Q In Staff Exhibit No. 105 and on pages 7, 8,
20 9, and 10 of Mr. Lobb's testimony, he explains why he
21 thinks that, although his analysis shows that the
22 revenues support the investment in the Garden City
23 exchange, the revenues support very little expense or
24 investment for water supply needed to serve the North
25 State area. Do you agree with his analysis?
870
Linam, Reb 11
United Water Idaho Inc.
1 A No, I do not. First, I believe he has used
2 the wrong customer count. UWID gave Garden City $95,866
3 of existing infrastructure, $541,800 in cash and made an
4 investment of $46,871 to acquire 893 customers. This
5 amount, less depreciation of $6,865, equates to a rate
6 base of $177,672. Since that exchange, 34 additional
7 customers have been added to the infrastructure received
8 without any
9
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25
871
Linam, Reb 11A
United Water Idaho Inc.
1 additional capital cost except for a meter at each
2 location, bringing the customer count to 927. Therefore,
3 any analysis of what the revenue will support should
4 include the customer count of 927. In my Exhibit 16, I
5 have started with Mr. Lobb's Exhibit No. 105 (Column 2).
6 I have then calculated the additional supported
7 investment for several different conditions with the only
8 variations from Staff's analysis being revenue per
9 customer or revenue per customer and customer count.
10 Column 3 shows that with the actual customer count of 927
11 and the existing phased rates for these customers, the
12 revenues will support an investment of $1,568,000 or
13 almost $1,000,000 of additional investment. At the full
14 current rates for UWID, the additional investment
15 supported is over $1,380,000 (Column 4). Even with the
16 net difference in the customer count and revenue based on
17 consumption, the additional investment supported is over
18 $500,000 at current UWID rates. Therefore, the revenues
19 from this customer exchange not only support the current
20 investment at current rates, but support any necessary
21 investment for additional source that may be necessary as
22 a result of the added customers.
23 Q Staff Witness Smith also addresses the
24 Garden City exchange. Please comment.
25 A He testifies that if it is demonstrated
872
Linam, Reb 12
United Water Idaho Inc.
1 that inclusion of the adjustment does not impose
2 additional incremental cost to the consumer, it may be
3 allowed, speaking of the investment in the exchange.
4 However, he goes further and asserts that it is obvious
5 that the consumer will be penalized should the Commission
6 allow the Company to earn a return on the Acquisition
7 Cost Premium. My analysis, as
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873
Linam, Reb 12A
United Water Idaho Inc.
1 described above, demonstrates, following Mr. Smith's
2 logic, that the consumers are not penalized and that the
3 inclusion would not impose additional incremental cost
4 Water Quality Expenditures
5 Q Mr. Lobb states that the Company has not
6 specified a standard for aesthetic water quality, nor has
7 it indicated how it will measure if its projects have
8 been successful. Would you comment on this please?
9 A Mr. Lobb testified that the Company has
10 requested revenue of $346,494 in this case as a result of
11 attempting to improve the water quality or in effect to
12 improve the service to the customers. This results from
13 a request for rate recognition for capital expenditures
14 of $2,615,150. Mr. Lobb has focused on only one aspect
15 of the cost of service to our customers. From my
16 perspective, 100% of our revenue requirement is a result
17 of supplying or improving service to our customers. Part
18 of the revenue requirement is a result of the basic
19 ability to serve, such as the ability to provide the
20 volume of water necessary to serve, the mains and
21 services necessary, other base items, and all the base
22 operating costs to operate these facilities. Another
23 part of the revenue requirement is generated by required
24 EPA and State Division of Environmental Quality standards
25 such as those set for inorganic chemicals; organic
874
Linam, Reb 13
United Water Idaho Inc.
1 chemicals, including synthetic organic compounds and
2 volatile organic compounds; microbiological contaminants,
3 including bacteria and viruses; disinfection by-products;
4 and radionuclides. A third part of the revenue
5 requirement is generated as a result of the necessity of
6 supplying a
7
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13
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875
Linam, Reb 13A
United Water Idaho Inc.
1 quality of water that is aesthetically acceptable to the
2 customers. Therefore, 100% of the revenue requirement is
3 a result of providing adequate service.
4 As to the exact standard that the Company should
5 adopt in the aesthetic area, the simplest answer would be
6 that the Company adopt the Safe Drinking Water Secondary
7 Standards. However, such an approach would not always
8 give the customers the best value added for the
9 additional cost. Economy and efficiency must be
10 considerations and the Company has attempted to achieve
11 those by replacing some sources of supply which greatly
12 exceeded the secondary standards and by sequestering the
13 iron and manganese in others. The measurement of success
14 will be the end product to the customers. If we are
15 successful in reducing customer complaints concerning
16 aesthetic water quality, then we will have accomplished
17 our goal.
18 Q Mr. Lobb has outlined the Capital Cost and
19 Annual Expense (Revenue Requirement) associated with
20 quality improvements on Exhibit 113. He further
21 testifies that the only project on this exhibit that he
22 opposes in this case is the Northwest Pipeline. Would
23 you comment on this statement?
24 A Yes. Although there would certainly be
25 some aesthetic water quality benefit from the Gary Lane
876
Linam, Reb 14
United Water Idaho Inc.
1 Well, the North State Interconnector, the Northwest
2 Pipeline, and the Eagle Water Supply, the basic reason
3 for these projects is to supply the source or volume
4 necessary and the ability to deliver the volume to the
5 location of the customer usage. Therefore, the revenue
6 requirements for these projects ($245,292 from Mr. Lobb's
7 total of $346,494) are more closely associated with the
8 base revenue requirement I previously discussed.
9
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15
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21
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877
Linam, Reb 14A
United Water Idaho Inc.
1 Although Mr. Lobb states that the only project on
2 his Exhibit 113 that he opposes is the Northwest
3 Pipeline, he not only recommends eliminating the $940,000
4 for this pipeline from rate base but also the $759,000
5 for the Eagle Water Supply, which is included in the
6 $824,250 he recommends disallowing for Redwood Creek
7 (Exhibit 104).
8 Randy Lobb/Thomas Power
9 Boise River Diversion/Cost of Growth
10 Q In regard to the Boise River diversion and
11 pipeline project located in Southeast Boise, Mr. Lobb
12 states, "The Company admits that the water treatment
13 plant requiring these facilities will not be constructed
14 until the year 2005, but insists that the cost savings
15 associated with constructing the project now justifies
16 its inclusion in rates." (Emphasis added.) I believe
17 Mr. Power basically contends the same. Is this your
18 testimony concerning requesting inclusion in rates?
19 A No. My direct testimony, on pages 11 and
20 12, is that the major reason for constructing the project
21 at this time was our belief that if it were not
22 constructed in the window of opportunity that was open,
23 we would have been unable to obtain a diversion permit
24 and/or permission to construct the pipeline in the
25 Highway 21 cut at a later date. The cost savings were a
878
Linam, Reb 15
United Water Idaho Inc.
1 secondary benefit.
2 Q How is source of supply developed or added
3 to a water system?
4 A In a system like UWID, it will depend upon
5 whether we are developing a well supply or a surface
6 supply. We have some wells that produce only 300 GPM and
7 some that may produce 3,000 GPM. Therefore, a well
8 supply might be
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879
Linam, Reb 15A
United Water Idaho Inc.
1 developed between 300 and 3,000 GPM. If the Company is
2 developing a surface supply, it might be in increments of
3 several million gallons per day. At Marden, we built the
4 first phase at 8 MGD (5,500 GPM) with expansion
5 capability to 16 MGD (11,000 GPM). For example, 1 GPM,
6 or 1,440 gallons of water per day per customer is a
7 reasonable design standard in Boise, Idaho, but I
8 certainly would not propose to develop source of supply
9 in 1 GPM increments. It is reasonable to have some
10 supply capacity over and above the absolute maximum day
11 demand on a water system. Due to potential equipment
12 failure, the Company should be capable of producing more
13 than maximum day capacity if all units are in operation.
14 The design year, or the year the Company must project the
15 demands, will depend on the length of time to develop a
16 new source of supply. For example, it is not unusual for
17 it to take two years from the starting point until a new
18 well is in production. Therefore, if the Company is
19 planning a new well today it may need to already have
20 enough supply to serve for the next two years.
21 Developing a surface supply will require a much longer
22 period. A time frame of five to seven years is not
23 unreasonable from initial conception to placing a surface
24 supply in service. Planning properly to meet system
25 demands must recognize that as greater demands are placed
880
Linam, Reb 16
United Water Idaho Inc.
1 on a water system and, if source does not keep up with
2 the increase in demands, service to existing customers
3 will deteriorate and curtailment of service becomes
4 possible. It therefore seems appropriate that existing
5 customers share in the cost of planning and development
6 within a reasonable time frame.
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881
Linam, Reb 16A
United Water Idaho Inc.
1 Q Let's discuss Mr. Power's testimony
2 concerning the cost of growth. Although Mr. Power
3 recognizes other factors that have placed upward pressure
4 on rates, he contends that meeting the water demand of
5 the constantly expanding population of residences and
6 businesses has been one of the primary causes of the
7 increase in costs. What has been the result of the
8 Company's and Commission's efforts to address this
9 problem?
10 A The Commission issued an order in May 1997
11 which requires that new development contribute the cost
12 of the distribution mains and services, and the Company's
13 cost in serving this new development will be the cost of
14 source, storage, pumping, and metering. This results in
15 the new customers bearing the additional cost of
16 providing service over what the revenues from these
17 customers will support.
18 Q Have there been proposals before this
19 Commission for new development to pay for more than the
20 cost of the distribution mains and services?
21 A Yes. In case BOI-W-93-3, a recommendation
22 was made for hook-up fees to range from $0 (for new
23 customers being served by a well supply) to $2,740 (for
24 customers served from a surface supply). Since new
25 development was already paying for a portion of the
882
Linam, Reb 17
United Water Idaho Inc.
1 distribution system to serve the new development, this
2 could result in new development paying for more than the
3 cost of the distribution mains and services.
4 Q Did Mr. Power make a recommendation
5 concerning cost to serve new development in case
6 BOI-W-93-3?
7
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883
Linam, Reb 17A
United Water Idaho Inc.
1 A Yes, in response to the question, "What is
2 your recommendation with respect to the hook-up charge?"
3 He said, "I agree that it ought to be raised to the level
4 that fully funds the incremental capital costs of adding
5 a new customer to the system that are not covered in the
6 current rates." The Commission issued an order for a
7 hook-up fee for those customers with dual irrigation of
8 $465 and for those without dual irrigation of $1,200.
9 The Building Contractors of Southwest Idaho appealed this
10 decision to the courts, and the Idaho Supreme Court
11 overruled the decision to increase the fees in a
12 discriminatory manner.
13 Q What do you understand as to what the Idaho
14 Supreme Court is saying in their decision on this issue?
15 A I understand Mr. Power's testimony to be
16 that existing customers have a vested interest in source
17 and other facilities. In my opinion, the Court is saying
18 that an existing customer does not possess any such
19 vested rights to an earlier developed source of supply
20 over those of a customer added later. For example, if a
21 company has 100 customers and $10,000 in cost of source
22 of supply, and it grows to 200 customers but the source
23 of supply cost grows to $100,000, it cannot be contended
24 that the source cost for the first 100 customers is $100
25 per customer and the cost for the second 100 is $900 per
884
Linam, Reb 18
United Water Idaho Inc.
1 customer ($100,000-$10,000). The Court seems to be
2 saying the source cost for all 200 customers is
3 $100,000/200 or $500 per customer. Mr. Power is again
4 recommending that the new customer be charged on an
5 incremental basis which was rejected by the Idaho Supreme
6 Court. I believe this adds additional support to my
7 position that
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885
Linam, Reb 18A
United Water Idaho Inc.
1 existing customers share in the cost of planning and
2 development of necessary facilities within a reasonable
3 time frame.
4 Q Mr. Power refers to geographic-based rates
5 on page 12 of his testimony. What is your understanding
6 of geographic-based rates?
7 A One view would be the rates in McCall,
8 Idaho versus rates in Boise, Idaho could be a type of
9 geographic-based rates. Within the same company, you
10 could have the rates on Main Street different from the
11 rates on Orchard Street. Again within the same company,
12 for instance, Idaho Power, you could have rates in
13 Boise, Idaho that are different than in McCall, Idaho,
14 for the same basic service.
15 Q In your experience, have you seen a
16 movement toward geographic-based rates?
17 A No. In my experience, I have seen a
18 movement away from geographic-based rates and toward
19 regionalization of rates, also called uniform rates or
20 single tariff pricing. For example in Pennsylvania,
21 Florida, and Indiana, I am aware that non-contiguous
22 service areas with different costs of service have moved
23 to uniform rates; and I have not seen companies moving
24 towards geographic-based rates within one service area.
25 Staff Witness Smith
886
Linam, Reb 19
United Water Idaho Inc.
1 New Mexico Sale Proceeds
2 Q In Mr. Smith's Testimony, page 7 line 12
3 through page 8 line 7, he charges that UWID has made
4 expenditures of capital and acquisition of properties
5 which were not necessary or reasonable due to a desire to
6 reinvest approximately $67,000,000 from the sale of a
7 subsidiary in New Mexico. He further states that the
8 staff made adjustments to the Company's rate base as a
9 result of the Staff's
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887
Linam, Reb 19A
United Water Idaho Inc.
1 belief that the Company had a desire to reinvest this
2 capital. Please address these contentions.
3 A Mr. Smith mentioned these concerns during
4 the audit process. Essentially, my response was and
5 still is as follows:
6 A subsidiary was sold in New Mexico in 1995; and
7 by reinvesting the proceeds in like property, the Federal
8 Income Tax on the gain of the sale will be deferred. The
9 subsidiary sold was owned by United Waterworks and
10 therefore the reinvestment must be made by United
11 Waterworks. The sale in New Mexico was an asset sale and
12 therefore the reinvestment must be in assets. The IRS
13 rules require that the reinvestment be made within two
14 years of the sale of the assets. United Waterworks has
15 gone through this process several times before. There is
16 a provision in the IRS rules that allows for a request of
17 an extension to the two-year reinvestment period. We
18 have made such requests in the past and have been granted
19 extensions for as much as four years after the sale of
20 assets. We have not had a request for an extension
21 denied. We have no reason to believe such a request
22 would be denied.
23 UWID was not part of the consolidated tax group
24 for United Waterworks until 1997, so as such was not
25 eligible for the reinvestment program prior to 1997.
888
Linam, Reb 20
United Water Idaho Inc.
1 Therefore, during the budgeting process in which the
2 decisions concerning most of the expenditures for which
3 recovery is requested in this case, were made, the funds
4 invested by UWID did not qualify as a reinvestment. The
5 one acquisition Mr. Smith referred to in our verbal
6 discussion was our negotiation with South County Water.
7 This negotiation is for a stock purchase not an asset
8
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889
Linam, Reb 20A
United Water Idaho Inc.
1 purchase, so it would not qualify for the reinvestment
2 program. United Waterworks' utility subsidiaries have
3 made capital investments which qualify as reinvestments
4 of approximately $30,000,000 in 1996 and 1997, and
5 project an additional $30,000,000 in 1998. The
6 reinvestment of the $67,000,000 proceeds from the sale is
7 not going to be difficult to achieve. In 1995, United
8 Waterworks projected the capital requirements for 1997.
9 In 1996, when the 1997 capital budget was being proposed,
10 the company established a goal of reducing the 1997
11 capital expenditures by 10% from the projection made in
12 1995.
13 As can be seen, there is no motivation to do what
14 Mr. Smith claims. During the period when Mr. Smith
15 claims the Company was making decisions to increase
16 capital spending there was internal pressure to do just
17 the opposite, reduce capital spending. I was directly
18 involved in the capital planning process for UWID and can
19 state that a desire to reinvest capital from the sale of
20 property had no bearing whatsoever on any decision to
21 spend capital or make any particular acquisition.
22 Management and Service Fees
23 Q Mr. Smith has recommended eliminating the
24 test year adjustment to United Water Management and
25 Services Company (UWM&S) cost. In addition, at various
890
Linam, Reb 21
United Water Idaho Inc.
1 places in his testimony Mr. Smith has expressed concerns
2 about the relationship between UWM&S and UWID. Please
3 comment.
4 A Mr. Healy will address the specific
5 adjustments to the test year expense. However, to
6 address Mr. Smith's general concerns, I would like to
7 describe the history of the relationship between UWID &
8 UWM&S. Since 1974, all of the
9
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891
Linam, Reb 21A
United Water Idaho Inc.
1 operating utility subsidiaries of United Water Resources
2 (and the former General Waterworks Corporation),
3 including United Water Idaho, have contracted in writing
4 with United Water Management and Services Inc. (formerly
5 General Waterworks Management and Service Company) for
6 the provision of various corporate services. These
7 Agreements set forth in writing the pre-existing
8 relationships between the utilities and the Management
9 Company, which were designed to take advantage of
10 economies of scale in the provision of common services to
11 smaller operating units by a central service group.
12 These relationships avoided inefficiencies and
13 duplication that resulted from each operating unit
14 performing these functions individually. The services
15 provided, including accounting, engineering, data
16 processing, treasury, regulatory, central purchasing and
17 other functions, are spelled out in the Agreement. After
18 the 1994 merger with United Water Resources, United Water
19 Management and Services Inc. assumed the contractual
20 rights and obligations of the former General Waterworks
21 Management and Service Company under the Agreement, and
22 GWM&S was merged into UWM&S. In those jurisdictions
23 where required by statute, the Agreement has been filed
24 and has received the necessary approvals. In addition,
25 the Agreement and the relationship between the affiliated
892
Linam, Reb 22
United Water Idaho Inc.
1 companies have been examined in well over one hundred
2 utility rate cases since the Agreement was signed. In
3 the vast majority of these cases, the management charge
4 to the utilities pursuant to the Agreement has been
5 approved with only minor adjustments.
6 Q Has this relationship been examined in
7 regulatory audits?
8
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893
Linam, Reb 22A
United Water Idaho Inc.
1 A Yes, it has been the subject of seven
2 separate studies. First, at the request of the Arkansas
3 Public Service Commission, the Idaho Public Utility
4 Commission and the Pennsylvania Public Utility
5 Commission, the firm of Ernest and Ernest in April 1978
6 submitted its Report and Review of the services provided
7 to the operating companies. The auditors were
8 commissioned to examine the types of services rendered,
9 the need for the services, the effectiveness, efficiency
10 and pricing of the services and the reasonableness of the
11 allocation of costs to the utilities. The major
12 conclusions of Ernst and Ernst were that:
13 (1) the overall benefits received by the
14 operating companies exceeded the costs
15 charged out;
16 (2) management company costs are controlled and
17 incurred prudently; and
18 (3) management company costs should be a
19 reasonable and allowable expense in a rate
20 case.
21 In July of 1981, Ernst and Whinney (the same
22 auditing firm, renamed), submitted a follow-up report.
23 Ernst and Whinney reached the same conclusions: the
24 benefits received by the utilities exceed the costs,
25 management company costs are incurred prudently and
894
Linam, Reb 23
United Water Idaho Inc.
1 efficiently, and therefore the management charges should
2 be a recoverable expense in a rate case.
3 Q Please describe the other studies.
4 A In June of 1988, the auditing firm of
5 Doherty and Company submitted its Final Report to the
6 Pennsylvania Utility Commission on its Comprehensive
7
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895
Linam, Reb 23A
United Water Idaho Inc.
1 Management and Operations Study, for the Pennsylvania
2 subsidiaries of General Waterworks Corporation.
3 Doherty and Company found that the structure of
4 the Management Company and the services provided were in
5 the best interest of the operating utilities. This
6 report included findings that
7 (1) the management company professional and
8 staff support served technically unique and
9 specialized functions;
10 (2) the management company approach provides
11 sound economies since operating companies
12 pay only for the services they require and
13 they need not maintain their own support
14 staff; and
15 (3) the cost of management company services are
16 less expensive than contracting out for the
17 same services.
18 The Report made one recommendation: that the
19 Company conduct a survey of billing rates of Chief
20 Executive Officers at comparable companies.
21 Q Please continue.
22 A In May 1992, the consulting firm of
23 Baryenbruch and Company submitted to the Virginia
24 Corporation Commission its comparison of GWM&S's cost of
25 services with the cost of outside providers. This was
896
Linam, Reb 24
United Water Idaho Inc.
1 submitted as evidence in a rate proceeding involving
2 Virginia Suburban Water Company (VSWC), a Virginia
3 utility subsidiary of United Water Corporation.
4 The following conclusions were reported by
5 Baryenbruch and Company:
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897
Linam, Reb 24A
United Water Idaho Inc.
1 * GWM&S' hourly rates are below those of
2 outside providers of similar services.
3 * The services performed by GWM&S are vital
4 and could not be procured on the outside
5 without careful oversight on the part of
6 VSWC.
7 * Considerable efficiencies accrue to VSWC by
8 using GWM&S due to its specialization in
9 the water industry and the large number of
10 water companies that it serves. There is
11 little possibility that outside providers
12 could supply the same quality expert
13 service with as few total hours. GWM&S can
14 do this because of economies of scale,
15 which allows it to allocate the cost of
16 providing services over a number of
17 subsidiaries.
18 * GWM&S makes no profit through it cost
19 allocation and hourly billing rate process.
20 It is allocating only those costs it has
21 incurred in providing services to operating
22 companies such as VSWC.
23 * Again in 1995, the Pennsylvania Public
24 Utility Commission (PAPUC) commissioned a;
25 statutory management audit of United Water
898
Linam, Reb 25
United Water Idaho Inc.
1 Pennsylvania.
2 Vista Consulting, who performed the audit on behalf of
3 the PAPUC found that:
4
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899
Linam, Reb 25A
United Water Idaho Inc.
1 * The degree of local autonomy given to
2 utilities contrasts favorably with
3 structures and arrangements existing in
4 other large investor owned water companies.
5 This gives flexibility to the affiliated
6 utilities.
7 * Direct billing and cost allocation
8 methodologies and procedures used by United
9 Water Management and Services are among the
10 most thorough and systematic in the
11 industry.
12 * Hourly rates of Management and Services
13 employees are reasonable.
14 A The auditors made one recommendation: due
15 to the extensive detail provided in the United Water
16 Management and Services' bills, more useful summaries of
17 management company services could be provided to local
18 utility managers to help them in analyzing the bills.
19 They recommended that the Company take advantage of the
20 Company-wide Information Technology initiative to
21 establish a policy in which the utility would receive
22 monthly summaries of charges to accompany the monthly
23 bills.
24 Q Have other jurisdictions commissioned such
25 studies?
900
Linam, Reb 26
United Water Idaho Inc.
1 A Another statutory Management Audit was
2 performed for United Water New Jersey, again by Vista
3 Consulting, Inc. at the request of the New Jersey Board
4 of Public Utilities. The Final Report was submitted
5 January 3, 1997 after a period of investigation and
6 analysis that lasted almost one year. This also was a
7 comprehensive audit that covered a broad scope of study
8 objectives, including an
9
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901
Linam, Reb 26A
United Water Idaho Inc.
1 evaluation of United Water New Jersey's relationship with
2 affiliated companies. As stated by the auditors, their
3 investigation in this part of the Report in large part
4 sought to determine whether the interests of United Water
5 New Jersey's customers are compromised by the affiliated
6 company relationships. The nature, efficiency,
7 cost-effectiveness and fairness of cost allocations and
8 direct billings were examined with respect to United
9 Water Management and Services centralized services. The
10 auditors noted that prior to the 1994 merger, the
11 services provided by United Water Management and Services
12 were provided by the utility itself, or outside vendors,
13 and that shortly after the merger, many of the employees
14 and executives of United Water New Jersey were
15 transferred to United Water Management and Services.
16 This was done to avoid duplication of service functions
17 performed by United Water Management and Services and
18 United Water New Jersey, and to replace certain employees
19 lost due to the merger.
20 With respect to the recently established
21 relationship between United Water New Jersey and United
22 Water Management and Services, the auditors found that
23 the advantages of United Water Management and Services
24 centralized services to most of United Water Resources
25 affiliates are considerable and include: (1) increased
902
Linam, Reb 27
United Water Idaho Inc.
1 efficiencies; (2) access to greater technology;
2 (3) access to technical know-how and expert assistance;
3 (4) enhanced purchasing power; and (5) economies from
4 sharing of support personnel. In addition, the auditors
5 concluded that the relationship between United Water
6 Management and Services and its affiliates allows for a
7 fair degree of flexibility to the utilities with respect
8 to services received from the service
9
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11
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15
16
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19
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22
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25
903
Linam, Reb 27A
United Water Idaho Inc.
1 Company, including the freedom to perform some of the
2 activities in-house or contract them out. This helps
3 ensure that strategy and policy decisions truly reflect
4 the needs of the utility affiliates.
5 The auditors found that since the relationship
6 between UWM&S and UWNJ was recently established and
7 involved some transfer of personnel, the overall impact
8 was not easily discernible in the study period. However,
9 the auditors found that direct billing and cost
10 allocation methodologies used by UWM&S are among the most
11 thorough and systematic in the industry. The processes
12 provide for accurate billing and subsequent tracking of
13 billed services, and management processes to manage and
14 control M&S costs to affiliates are comprehensive and
15 logical. The auditors reported their expectation of
16 increasing future benefits to UWM&S resulting from the
17 Agreement with UWM&S.
18 Vista Consulting also found that United Water New
19 Jersey could take advantage of the Company-wide
20 Information Technology initiative to enhance the
21 information contained in UWM&S billings, and recommended
22 that more useful billing summaries be provided within the
23 capabilities of the planned IT environment.
24 Most recently, on March 4, 1997, the accounting
25 firm of Deloitte and Touche L.L.P. submitted their
904
Linam, Reb 28
United Water Idaho Inc.
1 Inter-company Salary Allocation Study, performed for
2 United Water New York at the request of the New York
3 Public Service Commission. The scope of this study was
4 to "perform an objective comprehensive intercompany
5 salary allocation study with the goal of ensuring that
6 all subsidiaries and affiliates are allocated salaries
7 and associated office
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22
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25
905
Linam, Reb 28A
United Water Idaho Inc.
1 costs in a fair, equitable and easily tracked and
2 auditable manner." Deloitte and Touche reviewed the
3 affiliate relationships and organizational structure, the
4 services provided, the rationale for costs incurred and
5 their allocations, potential for cross subsidization,
6 safeguards to protect utility customers from potentially
7 inappropriate charges, treatment of overheads, procedures
8 for reporting time and other costs, allocation
9 methodologies, internal billing methods and procedures,
10 and statutes, rules and regulations governing affiliate
11 transactions. The auditors interviewed accounting and
12 management personnel and analyzed budgets and operating
13 plans and internal audit reports. Deloitte and Touche
14 found that "the allocation methodology and procedures
15 used by UWM&S to charge its costs to affiliated companies
16 appears reasonable and consistent with cost allocation
17 principles and generally accepted accounting principles."
18 The auditors made no recommendations for change.
19 Q Please summarize this portion of your
20 testimony.
21 A In summary, considerable time and expense
22 on the part of Company personnel, outside auditors and
23 regulatory Commission Audit Staff's have been devoted
24 over the last twenty years to the study of the impact of
25 the UWM&S Agreement with its utility affiliates. These
906
Linam, Reb 29
United Water Idaho Inc.
1 detailed studies have generally involved groups of
2 individuals on the audit teams and substantially more
3 time and effort than is generally available to Staff
4 auditors in the rate case process. The time constraints
5 that govern these types of regulatory audits are not as
6 onerous as those imposed on rate proceedings, nor are
7 they imposed by statute. Also, the audit procedure is
8 not quasi-judicial and adversary as is the rate process.
9 All this
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16
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21
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23
24
25
907
Linam, Reb 29A
United Water Idaho Inc.
1 leads to a freer flow of information in the audit process
2 and more time to analyze it and therefore, a stronger
3 audit result. In the framework of seven such audits, the
4 management charges, procedures and allocations have been
5 generally approved, and even praised, with few minor
6 recommendations for change.
7 Mr. Smith's expressed difficulty at times in
8 following the audit trail is not due to the relationship
9 between United Water Idaho and United Water Management
10 and Services Inc., but rather an unavoidable by-product
11 of the long overdue Information Technology initiative.
12 Mr. Smith himself admits that such a significant change
13 in data processing procedures would normally result in a
14 short-term slight decline in productivity as the Company
15 adjusts to the new financial reporting system. However,
16 the general allegations and suspicions expressed in
17 witness Smith's testimony regarding the benefits of the
18 Management Agreement, generated in the course of an
19 examination and evaluation with considerable time
20 constraints, cannot stand against the repeated favorable
21 conclusions generated by seven careful,
22 resource-intensive audits generated by independent
23 outside consulting and auditing firms.
24 Q Staff Witness Smith suggests that charges
25 from one UWM&S employee are excessive and just another
908
Linam, Reb 30
United Water Idaho Inc.
1 example of his assertion that the UWM&S charges are
2 unreasonable. Do you agree with Mr. Smith's statement?
3 A No I do not. When asked for supporting
4 data for this statement, Mr. Smith responded to Company
5 Interrogatory No 31 that he erred when citing the amount
6 of $66,500 for a four month period. This employee did
7 have charges of $33,250 over this four month period. The
8 charges for this employee represent time for
9
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25
909
Linam, Reb 30A
United Water Idaho Inc.
1 this rate case preparation for a period of time
2 immediately prior to filing the case, which is usually
3 the most intense effort.
4 Capitalized Management Company Overheads
5 Q Mr. Smith, page 13 line 23 through page 14
6 line 15, proposes to eliminate gross plant of $812,098
7 less accumulated depreciation of $24,363 for a net
8 reduction in rate base of $787,735 for capitalized
9 overhead costs from the M&S Company. Please comment.
10 A It appears that Mr. Smith has based this
11 adjustment solely on his suspicions and unsupported
12 allegations that UWM&S costs are not justified. UWID has
13 incurred these capitalized overhead costs for the entire
14 28 years that I have been employed by UWID, UWM&S, or
15 other subsidiaries of United Waterworks. The employees
16 of UWM&S keep track of their time spent on various
17 activities on time sheets. Time that is related to
18 operations is expensed and charged to the operating
19 company that benefited from the employee's effort.
20 However, the allocation of the capitalized cost of
21 employee time spent on construction projects to the
22 various operating companies presents numerous issues
23 which relate to the fairness and the timing of the
24 allocation of those charges. Since engineering time
25 spent on strategic planning, engineering studies, and
910
Linam, Reb 31
United Water Idaho Inc.
1 preliminary design can predate commencement of
2 construction by many years, the allocation system was
3 designed so that all capitalized overhead costs incurred
4 in a given year are billed out to the operating
5 subsidiaries the same year. The allocation system is
6 based upon the premise that it is reasonable to assume
7 that the amount of engineering time required by a project
8 is proportional to the cost of the
9
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11
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13
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15
16
17
18
19
20
21
22
23
24
25
911
Linam, Reb 31A
United Water Idaho Inc.
1 construction project. Therefore, it is reasonable to
2 allocate capitalized overheads in proportion to
3 construction costs.
4 Another factor is that much of the work performed
5 is generic in nature and applicable to many, or even all,
6 of the operating companies. For example, other operating
7 subsidiaries besides the Company are required by the
8 Surface Water Treatment Rule of the Safe Drinking Water
9 Act to upgrade water treatment plants. It would be
10 unfair to charge the company which is first in time the
11 full amount of the cost of preliminary studies and design
12 work which are generic in nature and could then be used
13 by other companies. The current allocation system has
14 the effect of equalizing such charges and fairly
15 allocating them to all of the companies that benefit.
16 The current system also tends to smooth out the
17 short-term shifts in engineering effort between
18 companies.
19 Q Has the construction overhead allocation
20 methodology been independently investigated in a
21 regulatory context?
22 A Yes. Further support for the
23 reasonableness of the Company's methodology can be found
24 in the management audits previously described.
25 Specifically, the 1981 Ernst & Whinney report contained
912
Linam, Reb 32
United Water Idaho Inc.
1 an evaluation of the reasonableness of construction
2 overheads charged to capital projects from the district,
3 region, and GMC (currently UWM&S) levels. Six operating
4 subsidiaries were analyzed and, as stated in the Report,
5 "in each case examined, the costs charged by the Company
6 were less than the suggested fee for an A/E
7 (Architect/Engineering) firm." The Report went on to
8 conclude that the "construction overhead costs
9
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15
16
17
18
19
20
21
22
23
24
25
913
Linam, Reb 32A
United Water Idaho Inc.
1 applied to the capital projects compare favorably with
2 costs recommended by various professional societies in
3 the three states examined in detail."
4 The UWM&S in-house engineering staff continually
5 gains knowledge that has future applicability to other
6 subsidiaries. This results in the provision of high
7 quality engineering service at a relatively low price.
8 Therefore, the Company's methodology is fair and
9 reasonable and meets the "fair dealing at a fair price
10 standard" of the Idaho Public Utilities Commission.
11 I would note that Witness Smith appears to be
12 eliminating overheads from rate base which the Commission
13 has previously approved as part of the Company's revenue
14 requirement in Case No. UWI-W-96-3. In this case the
15 Company's revenue requirement was based upon its actual
16 rate base as of December 31, 1995. Mr. Smith's
17 adjustment of $812,098 goes back to July 1994.
18 Incidentally, in that case Staff had not objected to the
19 capitalized overheads.
20 Leased Vehicles
21 Q From page 15 through page 20, Mr. Smith
22 discusses his recommendation concerning leased vehicles
23 versus owned vehicles. His recommended adjustment of
24 $119,536 is due to his belief that the customers of UWID
25 are being harmed due to the Company's decision to lease
914
Linam, Reb 33
United Water Idaho Inc.
1 vehicles. Do you agree that the UWID customers are being
2 harmed by this decision to lease?
3 A No, I do not. In Mr. Smith's testimony, he
4 bases his opinion on several different factors such as a
5 change in the ratio of the transportation cost to direct
6 payroll, his analysis of residual value of a vehicle at
7 the end of the lease, speculation
8
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14
15
16
17
18
19
20
21
22
23
24
25
915
Linam, Reb 33A
United Water Idaho Inc.
1 based on the Manufacturer's Suggested Retail Price, the
2 Kelly Blue Book Official Guide of used car prices on the
3 Internet, and the National Association of Automobile
4 Dealers (NADA) Used Car Buyers Guide. Mr. Healy will
5 address these specifics in his rebuttal testimony, as
6 well as the previously submitted cost benefit analysis.
7 Mr. Healy and I also performed an alternative analysis to
8 supplement these previous analyses. Although, Mr. Healy
9 will discuss the details of this analysis, the bottom
10 line is that leasing is more economical.
11 Q Have you compared the values in column 3 of
12 Mr. Healy's Exhibit 24 to what the vehicle could be
13 purchased for locally?
14 A Yes, despite Mr. Smith's claim that the
15 vehicles could be purchased locally for the same price
16 that the leasing company can obtain vehicles, we have
17 found that the amount in column 3, on the ones we have
18 checked, is approximately 5% lower than what we could
19 have purchased the vehicle for locally. Logic would
20 dictate that since the leasing company is purchasing
21 vehicles in far greater quantities than UWID alone it
22 ought to be able to obtain better deals.
23 Q But you didn't adjust the amount of the
24 required investment in your revenue requirement for owned
25 vehicles did you?
916
Linam, Reb 34
United Water Idaho Inc.
1 A No, we did not. Again, we wanted to remove
2 as many variables or points of argument as possible.
3 Q If the difference in revenue requirements
4 between leasing and purchasing are close to the same, why
5 wouldn't you just purchase the vehicles, recover the
6 costs as part of your capital investment and eliminate
7 this controversy before the IPUC?
8
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917
Linam, Reb 34A
United Water Idaho Inc.
1 A The purpose of preparing the various lease
2 versus buy analyses was to show that the customers are
3 not harmed by our decision to lease, which we have done.
4 I would note that the alternative analysis that we
5 prepared shows that leasing costs are approximately 8%
6 less than owning. However, there are several additional
7 reasons why I believe we should continue to lease, even
8 if the difference in costs are insignificant or equal. I
9 believe there are some benefits to leasing that do not
10 have an immediate or apparent benefit to the customer.
11 If the customers are not harmed by a particular way of
12 conducting business, to be as uniform as possible
13 throughout all the subsidiary companies I believe will
14 result in less administrative effort which will flow
15 through to the customers. Mr. Smith appears to have
16 overlooked this point in the equation. In addition, our
17 company has a goal of reaching the point where capital
18 needs are supplied by internally generated funds. Since
19 there is constant competition for capital dollars,
20 eliminating a need for capital dollars (where it doesn't
21 harm the customers) allows the available capital dollars
22 to be utilized in areas where there are no alternatives
23 and on projects that will improve service to the
24 customers.
25 Q Did your alternative analysis result in any
918
Linam, Reb 35
United Water Idaho Inc.
1 proposal in regard to leasing cost recovery requested in
2 this case?
3 A Yes. Although the analysis proves that the
4 customers are not being harmed by the decision to lease,
5 the analysis also pointed out that although the basis of
6 value to the Company would be 0 (based on the
7 assumptions), the vehicles would have some value if sold
8 at the end of the five-year ownership or lease
9 arrangement. The Company would benefit by receiving the
10 proceeds from the
11
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20
21
22
23
24
25
919
Linam, Reb 35A
United Water Idaho Inc.
1 sale of these vehicles. However, during the test year, no
2 vehicles were sold and there hasn't been enough
3 experience to show any proceeds from the sales to the
4 Company. Since our own leasing agent has projected that
5 they will receive 20% more from the sale of these
6 vehicles, than the depreciated values at the end of the
7 lease and since the lease payments depend upon the
8 depreciated values at the end of the lease, we would
9 recommend that in order to reflect these additional
10 proceeds an adjustment in this case should be made which
11 Mr. Healy reflects in his rebuttal testimony.
12 Q You analysis appears to assume that at the
13 end of a lease term you can extend the lease. Mr. Smith
14 seems to indicate that a decision concerning when to replace
15 a vehicle is made by headquarters in New Jersey. If
16 headquarters won't let you extend the lease then your
17 analysis in not valid, is it?
18 A The decision of whether to extend the
19 vehicle lease in made at UWID, not at headquarters in
20 New Jersey.
21 Sharon Ullman
22 UWID Salaries
23 Q Ms. Ullman contends that some UWID salaries
24 are unreasonably high and some of the benefits the
25 company grants employees are overly generous. For
920
Linam, Reb 36
United Water Idaho Inc.
1 example, she contends that you are overpaid when compared
2 to your predecessor Mr. Booe. Do you have any comments?
3 A Yes, I certainly disagree with Ms. Ullman
4 and believe that I am reasonably compensated for my
5 background, expertise, and responsibilities. Further,
6 although I do not agree with her comparison, when the
7 fact is taken into
8
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16
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18
19
20
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22
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24
25
921
Linam, Reb 36A
United Water Idaho Inc.
1 consideration that only 85% of my compensation is charged
2 to UWID, this results in a final cost to UWID for my
3 services as being less than the total compensation.
4 Q Please discuss the low-cost-of-living
5 environment referred to in Ms. Ullman's testimony.
6 A I moved from Pennsylvania to New Jersey in
7 1995 and from New Jersey to Idaho in 1997. My
8 experiences are that property taxes are approximately 50%
9 more in Idaho and state income taxes in Idaho are more
10 than double Pennsylvania's. New Jersey property taxes
11 were approximately 70% more than Idaho. However, my
12 state income taxes in Idaho will be approximately 20%
13 more than New Jersey. There is no sales tax on either
14 clothing or food in New Jersey or Pennsylvania and
15 gasoline in Idaho is approximately 20% more than in New
16 Jersey. Again, salaries are not based on cost of living;
17 but if Ms. Ullman wants to use this factor as a means of
18 comparison, my experience does not support her claim.
19 Q Ms. Ullman also claims that the wages paid
20 to meter readers are seemingly over generous. Would you
21 comment on this please?
22 A Yes. If Ms. Ullman thinks our meter
23 readers are overpaid, I suggest she accompany one of them
24 on their route for a few days and then see what she
25 thinks. They must, on average, walk approximately seven
922
Linam, Reb 37
United Water Idaho Inc.
1 miles, often in inclement weather, and read over 400
2 meters per day with less than 0.5% error and must do so
3 day after day. Our meter reading salary compares with
4 the meter reading salaries of other major utilities. In
5 addition, when comparing our
6
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12
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21
22
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25
923
Linam, Reb 37A
United Water Idaho Inc.
1 meter readers' salaries to letter carrier salaries, we
2 are within the range of what letter carriers are paid;
3 however, our meter readers probably read over 100 more
4 meters per day than a letter carrier visits homes on an
5 average day. A second factor in discussing salaries for
6 a labor force is that it is not appropriate to select one
7 classification of a bargaining unit and talk about that
8 salary alone. Labor, through a bargaining unit, is
9 negotiated as a package. The very nature of the process
10 and the bargaining unit itself tend to compress salaries
11 rather than dealing with those salaries on an individual
12 basis.
13 Q Ms. Ullman interprets the data on her
14 Exhibit 402 to say that 15% of the UWID employees are
15 eligible for a performance bonus. Is this interpretation
16 correct?
17 A No. The data lists 15% of the exempt
18 employees as eligible for a performance incentive, not
19 15% of all employees.
20 Q Ms. Ullman raises the issue of required
21 hours of work for exempt and non-union non-exempt
22 employees in that they are required to only work 37.5
23 hours per week rather than 40 hours per week. Would you
24 comment?
25 A Yes. Of the 43 employees in the exempt and
924
Linam, Reb 38
United Water Idaho Inc.
1 non-union non-exempt category, 17 of them are non-exempt
2 and therefore paid by the hour; so if they work 37.5
3 hours, they get paid for 37.5 hours. This leaves 26
4 exempt employees who are only "required" to work 37.5
5 hours per week. There are few, if any, of these
6 employees who only work 37.5 hours per week. We ask a
7 lot of these exempt employees and they give a lot. I
8 doubt if any of these employees works less than 45 hours
9 per week on average and many will average 50 hours or
10 more per week.
11
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17
18
19
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21
22
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24
25
925
Linam, Reb 38A
United Water Idaho Inc.
1 Q Is this one of the reasons the Company has
2 what Ms. Ullman classifies as a "discriminating vacation
3 policy" for exempt employees?
4 A Yes, this is one of the reasons, but the
5 main reason is that we want to attract and keep good
6 people. This is one of the things we believe is
7 necessary to accomplish this goal.
8 Rate Comparisons
9 Q Ms. Ullman makes a comparison between the
10 rates charged by UWID, Capital Water, South County,
11 Meridian, and Nampa and notes that UWID's rates range
12 from 36.4% to 100% higher. Do you have any comments on
13 this rate comparison?
14 A Yes. Rates are not set based on
15 comparisons, but by an analysis of the cost to serve.
16 This is the process we are going through with the
17 Commission, the Staff, the Company, and the intervenors
18 spending hundreds of hours preparing, auditing, and
19 debating the issues. If we set rates by comparison,
20 there would be no need for a Utility Commission, a
21 Commission Staff, company rate specialists, rate
22 attorneys, etc. One clerk could then set rates for all
23 of the investor-owned utilities in Idaho in a couple of
24 weeks each year. However, we might still need plenty of
25 litigation attorneys since Ms. Ullman might want the
926
Linam, Reb 39
United Water Idaho Inc.
1 rates set by comparison to Nampa as outlined in her
2 Exhibit 410 and the Company might want to set rates as
3 compared to McCall which is more than double UWID rates
4 plus charge a $4,400 connection fee. I would further
5 point out that we don't have any information as to what
6 subsidies the Nampa water department may have received
7 which would lower the rates below the true cost to serve.
8
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12
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14
15
16
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25
927
Linam, Reb 39A
United Water Idaho Inc.
1 Legal Fees
2 Q During your business career, have you
3 employed or caused to be employed attorneys for various
4 purposes so that you would be aware of the range of fees
5 charged by competent counsel?
6 A Yes, I have; and in my opinion, the fees
7 charged by McDevitt and Miller are within that range and
8 specifically find that the per hour charges are
9 reasonable for the Boise, Idaho, area.
10 Q Does this conclude your rebuttal testimony?
11 A Yes it does.
12
13
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22
23
24
25
928
Linam, Reb 40
United Water Idaho Inc.
1 (The following proceedings were had in
2 open hearing.)
3 MR. MILLER: Mr. Linam's available for
4 cross-examination.
5 COMMISSIONER NELSON: Thank you.
6 Mr. Fothergill, do you have questions?
7 MR. FOTHERGILL: Yeah, I do have a question
8 or two.
9
10 CROSS-EXAMINATION
11
12 BY MR. FOTHERGILL:
13 Q On page 15 of your rebuttal testimony on I
14 think it's line 12 -- beginning on line 12, you say, "I
15 believe Mr. Power basically contends the same," which is
16 that the project now justifies inclusion in the rates,
17 and that's the river diversion project. You were here
18 when Mr. Power testified yesterday, were you not,
19 Mr. Linam?
20 A I was here, yes.
21 Q And you heard the Chairman's
22 cross-examination of him, did you not?
23 A Yes, I did.
24 Q You cannot still believe that Mr. Power
25 recommends that this project be included in rates, can
929
CSB REPORTING LINAM (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 you?
2 A I don't believe that was the testimony
3 here.
4 Q Well, that's what it says, "I believe that
5 Mr. Power basically contends the same," and that is that
6 the project now justifies its inclusion in rates.
7 A If you will move up a couple of lines above
8 that, I believe what I was saying was that Mr. Power was
9 saying that the reason that the Company made that
10 investment was because it justified -- was justified
11 because of a savings in costs for the future. I don't
12 believe that was my testimony.
13 I believe my testimony was that we made
14 that investment because it was our belief that that was
15 the window of opportunity that we had to make it and the
16 potential savings from doing that at this point in time
17 were a secondary benefit rather than the primary reason
18 why that investment was made. That was what the intent
19 of the testimony here was to say. It was not intending
20 to say that Mr. Power agreed that this should be included
21 in rates.
22 Q Thank you. You do know, do you not,
23 Mr. Linam, that the Idaho Public Utilities laws clearly
24 and definitively, a rare thing, say that no project, no
25 property shall be included in the rate base unless it is
930
CSB REPORTING LINAM (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 used and useful except in extreme emergencies? You agree
2 with that, do you not?
3 A I don't know that I agree with that in the
4 context in which you put it. I think there's some
5 question and on the advice of counsel that this is a
6 potential situation where this could be included in
7 rates.
8 Q Would you say it's an extreme emergency?
9 A I'd say in the context of the period of
10 time frame in which you have to design and plan for a
11 water system, the potential for not being able to meet
12 your commitment and your requirement to serve within a
13 reasonable time frame would constitute an extreme
14 emergency.
15 Q And you're suggesting further down in your
16 testimony five to seven years as a reasonable planning
17 period, are you not?
18 A I am suggesting that five to seven years is
19 a reasonable planning period. I believe that this is in
20 the same generation of period of service to customers.
21 If we were talking about forty years away, we would not
22 be in the same generation for that group of customers,
23 but within a five- to seven-year time frame, we're
24 certainly in that generation of customers.
25 Q So from now on, may we assume this is a
931
CSB REPORTING LINAM (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 good business judgment and a good business decision in
2 your opinion; is it not?
3 A Yes, that's correct.
4 Q So may we assume from now on that any
5 project that the Company considers a good business
6 decision should be rate based even though it's not used
7 and useful at this time?
8 A I don't think you can draw that conclusion
9 from what we've presented here today in this case.
10 MR. FOTHERGILL: I have no further
11 questions on this issue. Thank you.
12 COMMISSIONER NELSON: Thank you,
13 Mr. Fothergill.
14 Ms. Ullman.
15 MS. ULLMAN: Yes, I do have a number of
16 questions for this witness.
17
18 CROSS-EXAMINATION
19
20 BY MS. ULLMAN:
21 Q Mr. Linam, as the president of United
22 Water, are you able to tell me whether anything can be
23 done at the individual household level for water quality
24 problems? Can a water treatment device be provided to a
25 homeowner at the individual house level to fix some of
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1 the problems we've heard about, taste and discoloration?
2 A I don't know exactly what you mean by can
3 it be provided. Is there a potential for in-home
4 treatment devices? There are certainly devices on the
5 market that do some treatment on site as opposed to
6 treatment at a central point.
7 Q And would providing those devices to the
8 relatively small number of customers who have water
9 quality problems be more expensive or less expensive than
10 if the Company tries to treat those problems on a grander
11 scale, for example, at the individual well level?
12 A I have not made that analysis.
13 Q Okay. Will you please remind us -- you
14 testified a couple of days ago -- what your current
15 salary is?
16 A Yes. It's one twenty-four.
17 Q Okay. And I provided an Exhibit No. 419
18 which stated the amount of your January 1998 management
19 incentive. Was that $28,660?
20 MR. HILL: Mr. Chairman, we have to object
21 to this. Haven't we been through this already?
22 MS. ULLMAN: Mr. Chairman, I thought since
23 I was cut off in this line of questioning, it might serve
24 to remind the Commission the direction we were heading at
25 the time I was cut off on this line on Wednesday.
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1 MR. MILLER: Not to be double-teaming, but
2 I think it is beyond the scope of his rebuttal testimony.
3 COMMISSIONER NELSON: Why don't you give me
4 just a minute here.
5 MS. ULLMAN: Mr. Linam does specifically
6 refer to the --
7 COMMISSIONER NELSON: Ms. Ullman, just a
8 second, please.
9 MS. ULLMAN: I'm sorry.
10 COMMISSIONER NELSON: Mr. Linam does
11 address -- at least skirts around his salary on page 36
12 and 37 of his rebuttal. I agree that this material was
13 covered in the direct, so if you could ask -- if you feel
14 that you were cut off, why, ask questions that were not
15 asked in the direct, why, I'd appreciate it.
16 Q BY MS. ULLMAN: Okay. Mr. Linam, are you
17 expecting to receive a management incentive in, for
18 example, January of 1999?
19 A That would be my desire, yes.
20 Q And is there a set amount for that
21 management incentive at this point in time?
22 A No, there is not.
23 Q Can you please tell us what you did in
24 order to receive the $28,660 management incentive?
25 A I met certain performance goals that was
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1 outlined by the Company to -- in order to receive some
2 incentive pay.
3 Q What were those performance goals?
4 A Operating within a -- within a plan to
5 achieve certain results, participating with the Company
6 in meeting certain goals in the area of earnings per
7 share in the area of expansion of the business, the
8 overall goals of the Company. I don't recall each and
9 every one of those at this point in time, but based on
10 meeting the judgment of my supervisor and the impact that
11 I had on meeting those goals, this incentive was awarded.
12 Q Are those goals something you do in
13 addition to your basic job as the president of United
14 Water Idaho?
15 MR. MILLER: Pardon me, Mr. Chairman. Not
16 to interrupt, but again, I think the Chair has indicated
17 that -- well, the questions are clearly beyond the scope
18 of the rebuttal testimony and to my recollection are not
19 areas in which Mrs. Ullman was in some manner cut off or
20 precluded from examining him before, so we'd object that
21 this is improper cross-examination at this point.
22 COMMISSIONER NELSON: I do think the
23 questions on future salary are beyond the scope.
24 MS. ULLMAN: Okay. I will withdraw the
25 question.
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1 Q BY MS. ULLMAN: Mr. Linam, you wrote -- you
2 stated in your rebuttal testimony that salaries are not
3 based on cost of living. Would you agree that the most
4 reasonable comparable salary for which the Commission can
5 judge whether your salary is too high, too low, or just
6 right would be that of your predecessor, Mr. Booe?
7 A No, I would not.
8 Q Can you please elaborate on why not?
9 A I think that the reasonable -- the
10 reasonableness of a salary can be judged based on a
11 person's experience, a person's education, a person's
12 responsibilities. It can be judged based on some
13 comparable salaries in the area.
14 I believe I testified earlier that I have
15 reviewed some salary areas from 10-K that I looked at on
16 the internet. I noted that from another utility here in
17 the City of Boise that my salary was in the 60 to 65
18 percent range of the lowest salary that was listed in the
19 10-K.
20 I believe that it can be judged by looking
21 at other salaries among other private businesses in the
22 area because you compete with all areas, not with just
23 other utilities, and I noted that my salary was from 40
24 to 60 percent of the salary that was the lowest salary
25 that was listed in the 10-K for executive positions in
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1 those that I reviewed.
2 Q Can you give the names of some of the
3 companies that you reviewed?
4 A Yes, I can. Idaho Power, Boise Cascade,
5 Trus Joist.
6 Q And have you ever been offered a job at any
7 of these?
8 A No, I have not.
9 Q When you moved from Pennsylvania to New
10 Jersey in 1995, was your salary increased?
11 A Yes, it was.
12 Q By how much?
13 A I don't recall. Four or five thousand
14 dollars.
15 Q When you moved from New Jersey to Boise,
16 and as you said on Wednesday, in New Jersey, you were in
17 the greater -- the metropolitan New York area, was your
18 salary decreased?
19 A No, it was not.
20 Q You discuss in your testimony wages paid to
21 meter readers. Are you familiar with the -- with United
22 Water in Hoboken, New Jersey and United Water in Jersey
23 City, New Jersey?
24 A Yes, I am.
25 Q Can you please tell me what the process is
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1 in Hoboken, New Jersey for meter reading?
2 A I said I was familiar with them. I
3 don't -- I can't give you the process. I haven't worked
4 in those operations.
5 MS. ULLMAN: Okay. With the permission of
6 the Chairman, I have some information off the internet
7 from United Water about their Hoboken, New Jersey
8 company.
9 Q BY MS. ULLMAN: I would also ask the same
10 question, do you know what is done in Jersey City, New
11 Jersey about meter reading, how meters are read?
12 A The two you asked me about were Hoboken and
13 Jersey City, right?
14 Q Yes.
15 A No, I am not.
16 MS. ULLMAN: Again, with the permission of
17 the Chairman, I have some exhibits. They have been
18 prepared -- or they are off the internet from United
19 Water's own internet site which discuss meter reading in
20 both of those locations.
21 COMMISSIONER NELSON: These relate to wages
22 paid?
23 MS. ULLMAN: As a matter of fact, they
24 are. I'll read you the relevant statements.
25 COMMISSIONER NELSON: Why don't I allow you
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1 to introduce it, and then you can ask your question.
2 MR. MILLER: And perhaps the courtesy of
3 allowing the parties to see them would be appropriate
4 too.
5 COMMISSIONER NELSON: Do you want this
6 marked as Exhibit 423 and 424?
7 MS. ULLMAN: I think we're up to 425.
8 Q BY MS. ULLMAN: Mr. Linam --
9 COMMISSIONER NELSON: Which one do you want
10 marked?
11 MS. ULLMAN: The Hoboken I guess we'll call
12 425 and Jersey City 426.
13 (Intervenor Sharon Ullman Exhibit
14 Nos. 425 and 426 were marked for identification.)
15 Q BY MS. ULLMAN: I believe I marked on the
16 original so it shows through on the copy a line that
17 says, "United Water also contributed its own unique brand
18 of cost savings through an advanced automatic
19 meter-reading system." Has that kind of system been
20 considered in Boise, Idaho?
21 A Yes, it has.
22 Q And can you please tell me why it hasn't
23 been implemented?
24 A It's been a period of time since that
25 system was implemented, but as I recall, the cost benefit
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1 analysis did not show that that would be cost effective.
2 Q And how long ago was that considered?
3 A I don't recall the exact date. Five years
4 maybe.
5 Q Okay. Although in Hoboken it specifically
6 says, "United Water also contributed its own unique brand
7 of cost savings," so it was a savings there but it's not
8 a savings here?
9 A You have to judge whether a system that you
10 are proposing to institute is effective in the area in
11 which you're going to use it. This meter-reading system,
12 this automated meter-reading system, it's very capital
13 intensive, so there's a large capital cost involved
14 initially whenever you make that investment.
15 I believe this is the system that was
16 discussed in The Statesman a couple of days ago under
17 consideration by Idaho Power, and they were talking about
18 some areas of savings that they believe that they could
19 achieve. And this is just from memory from reading the
20 article, but they were talking in the areas of when it
21 was costing them five or six dollars a read to read a
22 meter, then it was going to be cost effective for them.
23 I cannot tell you what the dollar amount
24 of -- what it would cost to read a meter before it would
25 be cost effective to do that at this point in time, but
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1 if you get up to five or six dollars in your cost to read
2 a meter, then there's a lot of things that are going to
3 be much more cost effective than they are in the range of
4 where we are in cost to read a meter at this point in
5 time.
6 At some point in time it may be cost
7 effective to do exactly what they're doing in Hoboken
8 here in Boise, Idaho, but the last time that it was
9 reviewed, it was not cost effective and we have not
10 chosen to do that type of a reading system.
11 Q Okay. Let's move on to Exhibit 426 on
12 Jersey City, New Jersey. The very last line on the first
13 page states, "Meter reading has been subcontracted to the
14 local power utility." Has that been considered in the
15 Boise, Idaho area?
16 A Not to my knowledge.
17 Q You have stated that there are advantages
18 to being part of this group of water companies. Is there
19 communication among these various water companies?
20 A Yes, there are.
21 Q And do you look at the other water
22 companies for potential ways of saving money for your
23 customers?
24 A Yes, we do.
25 Q In your testimony on page 22 starting with
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1 line 5, you state, "These agreements set forth in writing
2 the preexisting relationships between the utilities and
3 the management company, which were designed to take
4 advantage of economies of scale in the provision of
5 common services to smaller operating units by a central
6 service group." So you agree that a larger company is
7 capable of more efficiently and cost effectively
8 providing water to its customers?
9 A I agree that there are some economies of
10 scale and I agree that there's some cost effectiveness in
11 sharing of certain services.
12 Q Then can you please explain why United
13 Water Idaho, the largest of the companies that I showed
14 water costs for in my direct testimony, is actually the
15 most expensive of those water providers when it is also
16 the largest?
17 A Would you restate that, please?
18 Q Yes. In my direct testimony, I provided a
19 comparison which I believe you did discuss in your
20 rebuttal testimony. You said that it wasn't fair to --
21 or wasn't reasonable to compare water rates among
22 different water providers, but you have also said that
23 there is an economy of scale that can be realized by
24 operating as a larger organization. And what I'm asking
25 is why these smaller water companies are providing the
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1 same product for a lower cost in this area.
2 A I believe if you will read the answer to
3 that question that you refer to on page 39, that's
4 exactly the answer that I would give. That's what we've
5 been doing here for the last three days is investigating
6 these costs and determining what the costs should be, and
7 you'd have to look at the cost of serving the customers
8 within a given system on the cost to serve those
9 customers, and a rate comparison is not a means of doing
10 that.
11 Q Doesn't, though, perhaps the fact that
12 United Water is supplying the same product at a higher
13 cost suggest that United Water is not as efficiently run
14 as the smaller companies and smaller water providers?
15 A It doesn't suggest that at all. You keep
16 referring to something as the same service. I'm not sure
17 that the service is the same. When the power was out
18 yesterday, we continued to supply a service to all of our
19 customers. A couple years ago when the power was out, we
20 had no outages. Other companies in the area I'm aware of
21 did have some outages and were not supplying water
22 service to their customers, so I would not agree that the
23 service is the same at all.
24 Q You said a few years ago. Is that still
25 the case today?
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1 A To my understanding.
2 Q How many attorneys have you employed or
3 caused to be employed in the Boise, Idaho area over the
4 last few years?
5 A I believe that answer was provided on an
6 interrogatory. I don't have that in front of me.
7 Q I'd like to know how many you personally
8 have employed or caused to be employed in the Boise,
9 Idaho area.
10 MR. HILL: Can we have a reference to that
11 production request?
12 COMMISSIONER NELSON: Ms. Ullman, did you
13 have a reference? Were you asking him about his personal
14 business?
15 MS. ULLMAN: In Mr. Linam's rebuttal
16 testimony, there is a question which states, "During your
17 business career, have you employed or caused to be
18 employed attorneys for various purposes so that you would
19 be aware of the range of fees charged by competent
20 counsel?" And he stated, "Yes, I have," and continues,
21 so I just would like to know how many of those were in
22 the Boise, Idaho area recently.
23 THE WITNESS: The ones that I have
24 personally been involved with in the past few months in
25 the Boise, Idaho area is two or three.
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1 Q BY MS. ULLMAN: Okay. So you haven't
2 actually employed a large number of attorneys in the
3 Boise area?
4 A That is correct.
5 Q So you don't actually have a large number
6 of attorneys from which to make comparisons between the
7 fees charged by those various attorneys; is that correct?
8 A In the Boise area?
9 Q Uh-huh.
10 A Then that would be correct unless you
11 characterize two or three as large.
12 Q And did you employ attorneys or cause to be
13 employed attorneys in the New Jersey area where you
14 previously worked?
15 A In the various areas in which I've worked
16 in the past, yes, I have.
17 Q Okay. And is it a correct assumption on my
18 part that legal fees were higher in the New Jersey area
19 than they are in Boise, Idaho?
20 A Maybe I should clarify something. I lived
21 in New Jersey. My office was in New Jersey. The areas
22 of operation that I had were in Pennsylvania, in
23 Delaware, in Arkansas, in Missouri, in Illinois and
24 various other states, so I did not employ a lot of
25 attorneys in New Jersey. The attorneys that I was
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1 referring to were in the area that I had operational
2 responsibility.
3 Q And for the record, can you please state
4 how much United Water Idaho is paying Mr. Miller for his
5 services?
6 A Mr. Miller's rate to United Water Idaho is
7 $140 an hour.
8 Q And will United Water Idaho also be charged
9 for Mr. Hill's time as well?
10 A Yes, they will.
11 Q And do you know what the rate is for
12 Mr. Hill's time?
13 A I do not recall.
14 Q Would it be possible to provide that to the
15 Commission at some later date with the permission of the
16 Commission?
17 MR. HILL: We can provide it now if you'd
18 like.
19 COMMISSIONER NELSON: I think if you were
20 to give an answer affirmatively or negatively, that would
21 suffice.
22 THE WITNESS: Yes, I can.
23 MR. HILL: I'm sorry. I didn't hear that.
24 THE WITNESS: I can supply the answer at a
25 later date.
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1 Q BY MS. ULLMAN: And one more thing I guess
2 I'd like clarified. You said that it's not fair to
3 compare your whole salary to that of Mr. Booe's salary
4 because you only spend 85 percent of your time working on
5 United Water Idaho; is that correct?
6 A That's correct.
7 Q Which would amount to a requirement of
8 something under 32 hours a week?
9 A That is not correct.
10 Q You are specifically required to work 37
11 and a half hours a week, correct?
12 A I'm required to work to get the job done.
13 MS. ULLMAN: Thank you. That will be all.
14 COMMISSIONER NELSON: Thank you,
15 Ms. Ullman.
16 Mr. Woodbury.
17 MR. WOODBURY: Thank you, Mr. Chairman.
18
19 CROSS-EXAMINATION
20
21 BY MR. WOODBURY:
22 Q Mr. Linam, how are you this morning?
23 A Very good.
24 Q The third day. I guess we'll start at the
25 beginning of your rebuttal and sort of work through that
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1 and try to tie in some of the areas that we can continued
2 from your direct testimony.
3 You start on page 2 with a discussion of
4 essentially a disagreement with the Staff's analysis that
5 results in disallowance of Island Woods and Redwood Creek
6 acquisition of costs; is that correct?
7 A Page 2 I believe deals primarily with
8 Island Woods?
9 Q Yes, starting there, and then moving into
10 page 3 with a discussion of Redwood Creek and Floating
11 Feather.
12 A That is correct, yes.
13 Q And the Company in this case is proposing
14 to utilize future customer numbers and revenue to justify
15 acquisition costs; is that correct?
16 A The Company in this case is proposing that
17 it is not good design practice and appropriate to design
18 water systems on a one-customer basis. Therefore, we're
19 saying that there's a period of time in which you should
20 be allowed to design for the immediate future, and this
21 is what I have set forth on Exhibit --
22 Q Fourteen?
23 A -- 14, I believe, dealing with Island
24 Woods, that this is a very conservative point in time in
25 which you'll be serving customers, and if you're
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1 designing a source of supply, you would not do it on a
2 one-customer basis, and it's my contention that you
3 should look at what would be there at least in the
4 immediate future.
5 Q Mr. Linam, the Company didn't -- the
6 Company didn't design Island Woods or Redwood Creek.
7 They acquired those developed areas; isn't that correct?
8 A That is correct, yes.
9 Q Okay.
10 A Let me rephrase that. That's partially
11 correct. We acquired Island Woods. We did do some
12 construction work in Redwood Creek/Floating Feather after
13 the acquisition.
14 Q Okay. But I don't misinterpret you,
15 though, your argument in that you are asking the
16 Commission to consider projected customers in their
17 decision as to whether or not to allow the Company to
18 rate base.
19 A That is correct.
20 Q And are you aware of whether the Company
21 has attempted to forecast future customers in prior rate
22 base cases for general rate cases?
23 A I have no knowledge of that.
24 Q But while asking the Commission to consider
25 those future customers and projecting that those
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1 customers will in fact be there, the Company is not
2 asking -- or is not pro forma -- making a pro forma
3 adjustment to either its customer numbers or revenue
4 numbers in this case, is it?
5 A I believe that is correct.
6 Q You would agree, Mr. Linam, that the
7 numbers that Staff used in its analysis were the numbers
8 that were used within the Company's test year, the ones
9 provided in Mr. Gradilone's exhibits?
10 A The number of customers?
11 Q Yes.
12 A Yes, I would.
13 Q In the redirect early this morning, there
14 was some discussion of both the southeast Boise water
15 supply project and the Northwest Pipeline, and I think
16 that Mr. Brown characterized the southeast Boise water
17 supply project as an interim solution for bringing water
18 to that area.
19 I think earlier in our -- in your direct
20 testimony, we were discussing the southeast Boise water
21 supply project and the case where that came -- where it
22 was presented to the Commission for approval, and that
23 was the Boise Water 95-1 case, and you indicated that you
24 would review those orders. And the question that I had
25 posed in the direct case was whether the Company or
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1 actually anybody had discussed at the time whether the
2 Company had represented to the Commission that this was a
3 supply that was limited in time as far as utility of the
4 pipeline.
5 And in reviewing those orders -- rather, in
6 reviewing the Company's application, was there any
7 representation or even mention of that in the
8 Commission's orders?
9 A Actually, I reviewed the order. I did not
10 review the application.
11 Q And did the Commission make any mention in
12 its orders that this was a limited time for --
13 A There was no mention in the order of
14 anything being on a limited time. I believe the response
15 that Mr. Brown gave about an interim solution, it is an
16 interim solution due to the fact that the project that
17 we're discussing in the southeast Boise area is not going
18 to be capable of serving the ultimate supply for that
19 area, so it could be nothing but an interim solution if
20 it's not going to serve the total requirements for an
21 infinite period of time, I guess.
22 Q Okay. But the Company's proposing
23 actually -- or is indicating to the Commission that it
24 might have less utility than that because of growth in
25 the Raptor well area, the collector area, which basically
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1 puts water into that pipeline; isn't that correct?
2 And you said that five to seven years you
3 think that growth will essentially require the use of the
4 waters that are supplied in that area.
5 A I don't recall saying that the total amount
6 of water from the Raptor area would be used by growth in
7 that area within a five- or seven-year period. I thought
8 the testimony was that the total use in that area
9 would -- in order to supply the total use in that area
10 would require the addition of some additional supply, and
11 that would be in the form of the Columbia Bench water
12 treatment plant.
13 Q If I might I guess draw your attention to
14 your direct testimony, page 8, in discussing the
15 potential sources of supply in southeast Boise, you
16 indicate in your discussion of the southeast Boise water
17 supply project that it was a supply limited by capacity
18 and time, and you're talking about it only being able to
19 provide 10 million gallons per day, which would seem to
20 indicate also, you know, that, yes, there is perhaps a
21 need for the east Boise River diversion if growth
22 continues as projected in that area.
23 But you also state that it's projected that
24 construction of new residential development within the
25 next four to seven years will require the water from this
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1 well field to serve the new development, and I guess I
2 would like some clarification as to what the Company is
3 intending by this testimony. It seems to me that what
4 you're saying is that the growth in the well field area
5 will require the waters, and those waters would not be
6 coming through the -- then not be available to the
7 southeast Boise water supply project.
8 A Okay. The exact water that's in the Raptor
9 well -- the Raptor area wells that are there at this
10 point in time may not be available to go to that area
11 over a long period of time, but that does not preclude
12 additional development of source of supply in those areas
13 so that the transmission facilities can still add to part
14 of the supply for that area.
15 I believe we were projecting in a period of
16 time that there was something like 22 million gallons
17 that would be required in that area over time. Also, in
18 the five- to seven-year period, I believe that the
19 projection is over the 10 million gallon capacity of that
20 transmission main, so that was the context of that
21 comment.
22 Q And I guess I wanted some comparison in how
23 the Company is viewing its options with respect to its
24 supply pipelines, you know, because it did appear in the
25 southeast Boise, you were saying that supply would dry
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1 up, but in the Northwest Pipeline, you're saying with the
2 growth in the Eagle area, the Company will just put in
3 more wells.
4 A I believe that's basically what I said in
5 both areas.
6 Q Okay. Then I appreciate that
7 clarification. Then your testimony, then, would be that
8 the wells in the southeast Boise area or in the Raptor
9 well area would be alternative supplies to the waters
10 that will be provided in the new treatment facility?
11 A I don't believe that was my testimony. I
12 thought that I said that it's going to take more than one
13 method of supply to supply the area in southeast Boise
14 area. I believe it's going to take surface water
15 treatment plant, I believe that it's going to take well
16 water supply, and I believe that it's going to take a
17 potential aquifer storage and recovery project in that
18 area, assuming that we can get that approved through the
19 Idaho regulators. I believe that that's the potential
20 for serving that southeast Boise area.
21 Q Yeah, I misspoke. When I said alternative,
22 I should have perhaps said supplemental, and you would
23 agree with that?
24 A I believe that would be a better
25 characterization.
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1 Q Okay. In your discussion of Hidden Hollow
2 Reservoir and the Northwest Pipeline starting on page 5,
3 I believe, I believe the Company's -- I believe that you
4 state that 1997 was a fairly low consumption year for
5 water usage?
6 A Peak day usage, yes, that's correct.
7 Q Would you agree, subject to check, that
8 except for '94, '97 peak day consumption per customer was
9 the highest since 1993?
10 A I don't believe that to be the case.
11 Q Okay. Are you able to direct me to where
12 you could show that the situation is otherwise?
13 A No, I'm not.
14 Q And in meeting the main system supply level
15 deficiency, the Company does import water from other
16 service levels, doesn't it?
17 A We do transfer water between service
18 levels, yes.
19 Q There was some discussion yesterday with
20 respect to a water purchase agreement with Garden City.
21 A Yes, there was.
22 Q And you would agree with Mr. Brown's
23 statements with respect to the Company's contractual
24 rights and whether or not it attempted to obtain specific
25 performance?
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1 A I don't recall the exact testimony of
2 Mr. Brown in that area. I will say that in reviewing
3 some data that Mr. Healy had, that United Water Idaho
4 purchased substantial quantities of water from Garden
5 City in 1997. I believe in the month of August, it
6 averaged over 2 million gallons a day. I believe the
7 contractual basis is in that general vicinity, so as I
8 recall, Mr. Brown said to his knowledge there was no
9 plan -- discussion about bringing suit against Garden
10 City for lack of performance, and I would agree with
11 that, yes.
12 Q Could you show me -- well, southeast Boise,
13 we agree, is a groundwater management area, still is?
14 A That is correct.
15 Q Is the west main service level area a
16 groundwater management area?
17 A No, it is not.
18 Q There aren't any other groundwater
19 management areas within your service area, are there?
20 A Not at this current time, no. There's a
21 study going on of the entire system -- entire valley
22 concerning groundwater, but to my knowledge, the only
23 area that's been designated as a groundwater management
24 area is the southeast Boise area.
25 I believe Mr. Brown testified this morning
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1 that we've been unable to find adequate sources of water
2 in the geographic area that he described, so without a
3 groundwater management area, if you can't find the water
4 there, it's really immaterial as to whether there's a
5 management area or not.
6 Q It's my understanding that Swift well No. 3
7 was put into service in July -- July 28th, I believe, of
8 last year?
9 A I assume those dates are --
10 Q Well, in July of last year?
11 A That sounds correct.
12 Q Can you indicate on this Company's
13 Exhibit 31 exactly where the Swift well No. 3 is, do you
14 know? And when you're up there, if you could also show
15 us where the Veterans well is located.
16 A The Swift well No. 3 is located in the same
17 vicinity as Swift No. 1 and Swift No. 2, which would be
18 on north -- north of the Boise River west of Collister
19 Road, succinctly in the Lake Harbor area. Veterans is
20 again northeast of -- I guess of the river, succinctly
21 along 36th Street along the Boise River.
22 Q And when did the Veterans well come on
23 line? Was it in '95?
24 A I don't know.
25 Q Okay. Would you accept -- let me see.
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1 Would you accept that under the Company's Exhibit No. 17
2 that the Veterans well shows first-year capacity in 1995?
3 A Yes.
4 Q And could you also perhaps demonstrate
5 where the United Water system's connection with Garden
6 City is on your map?
7 A Can I get a little help here?
8 (Mr. Brown approached the witness.)
9 THE WITNESS: Yes. Connection to Garden
10 City is located on State Street just to the west of
11 Pierce Park Avenue.
12 Q BY MR. WOODBURY: It's my understanding
13 that the Bali Hai and the Joplin wells are part of the
14 Company's supply.
15 A Yes, they are.
16 Q And do you know whether those wells were
17 pumped in 1997?
18 A I know that Bali Hai well was not pumped in
19 1997. I do not know about Joplin well.
20 Q In your discussion regarding curtailment --
21 customer curtailment on page 7, you state that the
22 Company must plan carefully to avoid curtailment of
23 customer usage during periods of peak use. And we've had
24 quite a lot of discussion in the past two days with
25 respect to peak day demands and the Company's calculated
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1 deficiency and the need to essentially address this
2 concern.
3 Could you explain to me what -- and we also
4 had -- there was some discussion regarding use of
5 conservation and that conservation in the past where the
6 Company has asked customers for alternate-day sprinkling
7 has been quite effective, and we've talked about the
8 Marden plant coming on next year, 8 million gallons per
9 day.
10 What's wrong with conservation measures to
11 bridge a short-term supply deficiency?
12 A There's nothing wrong with conservation
13 measures to bridge short-term supply deficiencies. I
14 don't think we're talking about short-term supply
15 deficiencies in our discussion here today.
16 I believe that the capacity that we've
17 entered in our testimony is about 82 million gallons a
18 day. Our projected peak -- potential peak day is about
19 85 million gallons, so we're at 3 million gallons short
20 in supply of what our projected peak is at current day's
21 usage.
22 After bringing Marden Street on the line,
23 we will be projecting that our capacity will be around 90
24 million gallons. By the time we bring that on line, our
25 peak day usage could be 87 million gallons. You know,
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1 we're talking 3 million gallons difference. There's no
2 design criteria in the world that would say that 3
3 million gallons of supply greater than your demand is
4 excessive.
5 We have several service levels that we're
6 supplying here, we have various wells in those service
7 levels, and we have the water treatment plant in the main
8 part of the service level. You should be able to supply
9 those service levels. You have to plan on a contingency
10 plan. With 74 wells in service, there's going to be
11 times when some of those wells are out of service. It's
12 the nature of the beast. They're mechanical, and there's
13 going to be times when they're out of service.
14 Having a 3 million gallon surplus, if you
15 want to call it a surplus, is really not a surplus. All
16 it takes is one well sometimes. Maybe in some of the
17 smaller wells, you could have two wells that would go out
18 and you're right back down to the level that customers
19 are using.
20 We can do a lot of design, we can do a lot
21 of theory, but, you know, the real proof of whether
22 someone is getting enough water or not is we've got an
23 actual situation here. We've got the actual situation
24 where in 1997 we were not able to fill the reservoir at
25 Hidden Hollow. We had water in the Redwood Creek and the
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1 Floating Feather area that is needed to serve our
2 customers and provide benefit to our customers, so that
3 is what was done in order to provide service for our
4 customers.
5 There's nothing wrong with asking customers
6 in emergency situations to assist in holding down peak
7 days. Curtailment, we should not be the one that is
8 curtailing a customer's use because we can't supply the
9 water. If we ask them to cut back and they've done that,
10 and I'm sure we'll have to do that again, that is a
11 proper thing to do. But we should not -- our customers
12 should not have to not have water because we can't supply
13 it.
14 Q But it's not unreasonable to ask a customer
15 to conserve water, at least provide them the opportunity
16 to do that when the option is significantly increased
17 rates for bringing on new supply. I mean, wouldn't the
18 customer -- wouldn't you think that your customer would
19 want that choice?
20 A I think we have done that. I think in your
21 discussions with Mr. Brown yesterday, you talked about
22 1994 being a peak year and you talked about also asking
23 customers to do some alternate-day sprinkling, do some
24 conservation during that point in time. I thought that
25 we talked about that they did that, so we're making
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1 projections off of periods of time whenever people did do
2 some conservation efforts.
3 From the first of May until the end of
4 September every year, I believe we're sending signals to
5 customers that we should be doing conservation in the
6 summer months by the price differential, the price
7 signals that we are sending them, so I believe that we
8 are doing that.
9 Q Thank you, Mr. Linam. I have a question
10 regarding the contract between the City of Eagle and
11 United Water Idaho. There's a supply contract where
12 United Water agrees to provide the city additional water
13 and supplemental fire flows, and I think you address that
14 on page 8.
15 And then you go on to say that the city has
16 an adequate source of water to supply their needs. Isn't
17 United Water one of the city's sources at this time?
18 A No, we are not.
19 Q Could you describe to me, then, the
20 adequate supply that the City of Eagle has?
21 A Yes. The City of Eagle has two wells which
22 supplies their domestic needs. Their intent is to add
23 another well to take care of any future needs that they
24 have.
25 Q And are the two wells that the city has the
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1 ones at Lexington Hills?
2 A As I was saying, they intend to add another
3 well to take care of their future needs. They do have
4 some concerns about fire flows and about fire
5 pressures -- pressures and fire flows, so we entered
6 into an agreement with the City of Eagle to provide that
7 fire flow on an emergency basis, for which the customers
8 of United Water also received a benefit because we get to
9 use a $360,000 main at no cost to our customers.
10 Q The contract --
11 A I believe there's a question there that I
12 didn't answer that you asked.
13 Q I'm sorry. I can't think of a question
14 that's unanswered.
15 Contracts are crafted by -- generally by
16 lawyers and the words are supposed to mean something.
17 And it appears in looking at the contracts that United
18 Water has with the city, it extends beyond supplemental
19 fire flows or fire flows. It uses the term "additional
20 water" and "supplemental fire flows," and so it's my
21 thought that additional water must mean something to the
22 parties. And is it unreasonable to view that as a --
23 that the city is relying on United Water as a source of
24 supply?
25 A I can't find my contract right here at the
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1 moment. I believe the contract says fire flow -- water
2 and fire flow as herein described, some such words to
3 that effect. The "herein described" does not talk about
4 anything but fire flows. That's what my attorneys tell
5 me. That's what we believe. That's what's been
6 communicated to the City of Eagle. It's my understanding
7 that's what the City of Eagle understands.
8 And it's our understanding that we only are
9 committed to supply fire flows in an emergency -- water
10 in an emergency situation, as you would supply to any
11 sister utility. If you had the water and everything they
12 had broke down, if you had it, you would give it to them
13 or sell it to them so that they could supply their
14 needs.
15 And you're exactly right. Attorneys
16 disagree on things, and I think that's the reason we have
17 more than one. But our attorneys tell me that we only
18 have to supply the fire flow.
19 COMMISSIONER SMITH: One lawyer couldn't
20 make a living.
21 THE WITNESS: That's my understanding. Two
22 can make a living anywhere, but one can't make a living
23 no matter where they're at.
24 Q BY MR. WOODBURY: Moving to your rebuttal
25 testimony on page 9 --
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1 COMMISSIONER NELSON: Mr. Woodbury, why
2 don't we take a break here for a few minutes.
3 MR. WOODBURY: All right.
4 (Recess taken.)
5 COMMISSIONER NELSON: Okay. Let's go back
6 on the record. Mr. Woodbury.
7 MR. WOODBURY: Thank you, Mr. Chairman.
8 Q BY MR. WOODBURY: Mr. Linam, before we
9 leave the Eagle area, I have one more question. If the
10 Northwest Pipeline will provide 2 million gallons per day
11 and the capacity of the Floating Feather well is just
12 over 2 million gallons, why are the other approximately
13 $500,000 of Redwood Creek facilities needed by United
14 Water's customers in the main service level?
15 A I think the answer to that is basically the
16 same as I've been giving on all of the other systems.
17 You need to have your system tied in. You need to have
18 your supply or capacity that you have available to
19 deliver that water to wherever it's needed within the
20 system. If you have one well go down, you need to be
21 able to back that up from other wells. If you have well
22 supply, you have needs to serve the benefits of the
23 customers. You need to be able to deliver that water
24 where they want to use it, and that's why it is needed.
25 Q With respect to the Garden City exchange or
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1 North State area, would you accept, subject to check,
2 that the number of customers the Company used in
3 determining test year revenue was 898 as represented in
4 Gradilone's Exhibit Number 8, schedule 3, page 29 and 30?
5 A I suppose I would, yes.
6 Q Isn't it true that before the exchange, the
7 Company had 382 millstream customers supporting a net
8 rate base of $95,000?
9 A We had -- could you give me the number
10 again, please?
11 Q 382 millstream customers supporting a net
12 rate base of $95,000.
13 A I would agree that we had 382 customers. I
14 would agree that we had a rate base in that area of
15 $95,000.
16 Q And then after the exchange, the Company
17 had 898 customers supporting a rate base of $673,530?
18 A Could you repeat that, please?
19 Q 898 customers supporting a rate base of
20 $673,530.
21 A And the 898 was --
22 Q North State area customers.
23 A Then I believe I would agree with that,
24 yes.
25 Q I'm sorry. I think the number is actually
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1 516,000 -- 516 customers. That's the number.
2 A No. I believe I can agree that there's 898
3 customers.
4 Q Okay. But you lost 382, so the net would
5 be 516?
6 A Under the premise you asked the question, I
7 believe the number of customers is 898.
8 Q Thank you. With respect to -- part of this
9 case is the water quality case that was folded in. The
10 Company issued a status report as to what it had
11 accomplished on November 21st, and that was the 96-6
12 water quality case?
13 A Yes.
14 Q And it stated that it was the Company's
15 intention to initiate an aquifer storage recovery project
16 and that the Company intended to apply to DEQ by February
17 of '98. Do you know whether the Company did make that
18 application?
19 A I do know, and we have not made that
20 application yet. In the investigation of the things that
21 we had to supply in order to make the application, we
22 determined we do not have all the information. As I said
23 earlier, this is a new process and there's going to be a
24 lot of information that we're going to need to provide
25 and that the regulators need and should have.
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1 We could have made the application, but it
2 would have been rejected because we didn't have enough
3 information, so we're putting together the information
4 now and we now expect to make the formal application
5 around July. We've been putting together that
6 information since the fall and we just don't have it all
7 gathered yet.
8 Q The Company also represented that with
9 respect to water quality, it put together a general
10 information notice and post that on its website in 1998.
11 Do you know whether the Company has accomplished that?
12 A We put together the notice. We've
13 delivered that to customers. In fact, I believe we used
14 that as a bill stuffer and sent it to all the customers.
15 At least I know I received one at my house. And it is
16 not on the website yet, but it's still our intention to
17 put that on the website.
18 Q And the Company also discussed a customer
19 confidence report which it said would be available for
20 delivery by April 1st of '98. And has the Company met
21 that deadline?
22 A No, we have not. We do have the template
23 for that put together. We are trying to get a mass
24 printing of that along with the other companies within
25 the United Waterworks family so that we can save some
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1 cost on that. We've got the template put together, we're
2 putting the information to the template, and then are
3 going to try to have that mass printed, so, no, we have
4 not met that deadline.
5 Q Okay. On page 33 in a discussion of I
6 guess capitalized management Company overheads, you state
7 that the Company intends to -- that what the Company has
8 done with the M&S company satisfies the fair dealing at a
9 fair price standard of the Commission. And I'm not
10 familiar with that standard, and so I'm wondering to what
11 you're referring. This is on page 33.
12 MR. MILLER: Lines 6 and 7.
13 THE WITNESS: I found the reference. I
14 have to assume from your question that the Commission
15 does not have such a written standard, but it's been my
16 experience that most commissions expect fair dealings at
17 a fair price, and that's the context of this statement.
18 Q BY MR. WOODBURY: With respect to your
19 discussion of leased vehicles on page 33, did you happen
20 to review the Commission's Order No. 26671 and United
21 Water Case 96-3?
22 A I believe I did, yes.
23 Q And in that case, the Commission addresses
24 leased vehicles on pages 5 and 6 in its findings, and
25 then Commissioner Hansen provides -- addresses it
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1 separately in his dissent in paragraph 2.
2 A Could you give me the reference again,
3 please, the order number -- or case number?
4 Q The Commission findings are located on
5 page 5 and 6.
6 A Excuse me. Was that 96-1?
7 Q Order No. 26671.
8 A Okay.
9 Q And the Commission's findings with respect
10 to in the area of leased vehicle expense start on page --
11 around the middle of page 5 to the middle of page 6.
12 A Okay.
13 Q And Commissioner Hansen's dissent should
14 also be attached, and it would be the second paragraph to
15 his dissent immediately -- it would be page 11 to the
16 order.
17 A Okay.
18 Q Have you had the opportunity to review that
19 language?
20 A Yes.
21 Q And have you also had the occasion to
22 review Mr. Healy's rebuttal language on cost benefit
23 analysis?
24 A Yes.
25 Q And would you characterize the Commission's
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1 order language as Mr. Healy does in his rebuttal, or do
2 you think that is perhaps subject to a different
3 interpretation, one that maybe the Commission was
4 encouraging the Company to come in with a better cost
5 benefit analysis or a more thorough one in its next
6 filing addressing leased vehicle expense?
7 A It seems like there's several questions
8 there. I would agree that any time anyone writes an
9 order, that it could be subject to different
10 interpretations.
11 I believe, following the lead of counsel
12 from yesterday, the worst thing in the world -- I believe
13 he said one of the worst things in the world a counsel
14 could do was tell the Commission what they said.
15 Probably the thing worse than that would be one of the
16 Company officials to tell the Commission what they said.
17 I do believe that the Commission has said
18 certain things about the -- and my interpretation of that
19 would be that -- "Neither are we disposed to deny
20 recovery of these deficiencies in the Company's cost
21 benefit analysis, the nature of which we find presents
22 inconsistency and raises doubts, but which we also find
23 to be otherwise non-critical from the standpoint of
24 whether the Company should be allowed to recover a
25 reasonable level of vehicle expense," so I believe that I
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1 would interpret from that -- that would be my
2 interpretation that the Commission is saying that we
3 should be able to recover a reasonable amount of vehicle
4 expense.
5 As far as whether they're telling us to
6 supply an additional or a better cost benefit analysis, I
7 don't know that I would agree that that's what they're
8 saying. I will say that we have supplied supplemental
9 and additional cost benefit analysis in this case, and I
10 believe both the original and the supplemental cost
11 benefit analysis that we provided show that there is a
12 benefit to the customers to the leasing process that we
13 incur.
14 (Commissioner Nelson leaves the
15 Hearing Room.)
16 Q BY MR. WOODBURY: Mr. Linam, before we
17 leave, there's one other area that I would like to
18 discuss with you, and it was something that we also had
19 set over, and that was the mandate, the governmental
20 mandate with respect to the Company's decision to move
21 forward with the southeast Boise River diversion.
22 And you indicated that -- well, we had
23 agreed to set this over to this time, and would you agree
24 that there is no specific document, letter, or whatever,
25 that the Company can point to from the Idaho Department
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1 of Transportation indicating this ultimatum?
2 A I would agree that the only written
3 document that we have from the Idaho Department of
4 Transportation is the permit which said that this line
5 construction will be done prior to paving of the roadway.
6 MR. WOODBURY: Substitute Chairwoman.
7 COMMISSIONER SMITH: Mr. Woodbury.
8 MR. WOODBURY: Staff has no further
9 questions of Mr. Linam, and I thank him for his presence.
10 COMMISSIONER SMITH: Thank you. Do we have
11 questions from the Commissioners?
12 Commissioner Hansen.
13 COMMISSIONER HANSEN: Thank you.
14
15 EXAMINATION
16
17 BY COMMISSIONER HANSEN:
18 Q I guess I have just a couple or three
19 questions I'd like to ask. Some of the complaints that I
20 receive from the customers that call me is they're
21 concerned about the high rates they pay for the poor
22 quality of water they receive. In fact, I had one
23 customer tell me they really objected to paying what they
24 call, quote, "Cadillac rates for Chevrolet quality."
25 And I guess I just wonder, do you agree
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1 with that kind of complaint, that people shouldn't have
2 to pay a high rate for water that may have a color to it,
3 may stain their dishes, their clothes, their bathroom
4 facilities, that kind of stuff, that may also have an
5 odor to it? Do you believe that people should have to
6 pay a high rate for that kind of water?
7 (Commissioner Nelson returns to the
8 Hearing Room.)
9 THE WITNESS: Obviously, I believe that the
10 rate should be set on the cost of providing service to
11 those customers. I believe that we should provide good
12 quality water to our customers. I believe that that's
13 what we have been working on diligently to improve the
14 quality of our water.
15 I believe that we've testified that in this
16 area, there is a lot of iron and manganese in the ground
17 and in the groundwater, and so, unfortunately, even
18 though the supply is there, there's times whenever you
19 are going to pick up some discoloration because of the
20 nature that -- that water is going to extract that from
21 the ground.
22 I believe that's the reason that we've
23 insisted on not using Swift well No. 1, which we've been
24 cross-examined about here in the last couple of days,
25 because our customers have emphatically told us that that
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1 water is not acceptable in the form of the color and the
2 clarity. Although it's safe to drink, it's still not a
3 quality of water that they want. And before they had no
4 water, we've said we would use that in an absolute
5 emergency, so we would use that in an absolute emergency,
6 but I believe that we should be doing the things that we
7 need to be doing to assure our customers that they have
8 good quality water.
9 I guess I believe that they are paying the
10 rates that are established based on the investment and
11 the cost of providing that service, and we have to have a
12 balance between that cost and that water -- how much we
13 clean up the water. If we're having something that's
14 constantly causing problems, naturally we've got to
15 resolve that and we have to make the investment to clean
16 up that quality, but I think we have that balance because
17 people do react negatively to increased rates and we have
18 to balance the amount of money that we spend against how
19 much we can improve the quality of our water.
20 That's sort of a long-winded answer, but I
21 believe we should provide good quality water, and it's
22 our endeavor and our practice and that's what we're
23 working diligently to do, but I believe the rates are set
24 based on the cost of providing that service.
25 Q BY COMMISSIONER HANSEN: But, sir, I
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1 believe my question is if you have customers that are
2 receiving a quality of water that has an odor to it, that
3 stains, that causes damage to their appliances and
4 fixtures and so forth, clothing and that, should they pay
5 the same rate as a customer that has a good quality of
6 water? That's the question I want answered, not what
7 you're doing or trying to prevent. I want to know
8 whether or not they should pay the same rate.
9 A I guess I believe that the rates within the
10 geographic area should be uniform. And although it's an
11 uncomfortable position whenever you do have occasional
12 staining or occasional discolored water, I guess I think
13 the rates should be uniform.
14 Q So during the summer months, do you bring
15 certain wells on line that you are aware of that are
16 going to cause people these kind of problems?
17 A There are certain wells that we have in the
18 system that exceed the recommended levels, the standards
19 for the agents that cause discoloration, that being iron
20 and manganese. During the summer months, it is necessary
21 to use those wells in order to provide the volume of
22 water that our customers demand, so we do bring those
23 wells on line. We treat those wells with sequestering
24 agents to try to minimize any effect that that would
25 have, but, yes, we do bring those on line.
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1 Q So during the summer months, you are aware
2 that you are decreasing the quality of water for certain
3 areas of your system for certain customers? You are
4 aware that you're going to have customers with the
5 different elements because you've brought these certain
6 wells on, so you could identify areas where you're going
7 to have these problems; is that correct?
8 A It's partially correct. We have more
9 problems in some areas than we do in other areas, but we
10 haven't been able to pinpoint and say the problems that
11 we have are all attributable to these wells because even
12 in areas where we have water from wells that does not
13 exceed the recommended standards on iron and manganese,
14 you still will have a discolored water situation there
15 occasionally in some of those areas. You have some
16 cast-iron mains in the system and you have water in
17 contact with that. Even in the system, you generate
18 somewhat of an extraction of iron particles from some of
19 the cast-iron mains, so occasionally we even have them in
20 areas where we would not attribute it to the level of
21 iron and manganese in the well water.
22 Q On page 14 of your rebuttal testimony, you
23 state the necessity of supplying a quality of water
24 acceptable to the customer. Then from our previous
25 discussion here, would you agree that especially during
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1 the summer months that you are supplying water that is
2 not acceptable to many customers?
3 A Again, I believe you have to hit that
4 balance between what is acceptable. If we spent the
5 capital investment that is required to totally eliminate
6 that, I think it would drastically change the rates, and
7 then it may not be acceptable in the form of price even
8 though the water was improved somewhat, so I think you
9 have to have that balance and I think that's what we're
10 trying to achieve here.
11 Q I know you haven't maybe been here with
12 this area this long, but to your knowledge, would you say
13 that you could have areas that you serve that for the
14 past three to five years witnessed this water quality
15 problem as far as odor, color, stain every summer, that
16 you've got certain areas that are definitely going to
17 have that quality of water every summer?
18 A We certainly had the area where we were
19 using Swift No. 1 and that was a problem every summer in
20 the past except for 1997 because we didn't use that well
21 in 1997. I know that the Bali Hai well is also high in
22 iron and manganese, although it was not used 1997.
23 I assume that there may be an area, because
24 we do bring those other wells on line to supply the need
25 that may not be the same quality well, that is not the
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1 same quality that they have in the wintertime.
2 Q Do you think that people would rather
3 conserve than have you bring these wells on?
4 A That's my personal opinion?
5 Q Yes.
6 A I do not.
7 Q So the Company hasn't really ever given
8 people that choice or ever looked at that avenue of
9 advertising or given the people -- making them aware that
10 if they would conserve, you wouldn't have to bring on
11 those wells that create this kind of problem; is that
12 right?
13 A It's been my experience in the utilities
14 over the past years, I don't think you can conserve that
15 much. I don't think we could achieve that level of
16 conservation where we wouldn't have to bring those wells
17 on line.
18 Q I'm just kind of curious. How does your
19 Company handle a customer's complaint who complains about
20 water, color, stain, odor, that kind of thing? How does
21 your Company handle that complaint?
22 A There's been a change in the way that we've
23 handled those complaints. In the past before, I don't
24 know, late last year, that complaint went to people in
25 our production department and those people were in and
979
CSB REPORTING LINAM (Com)
Wilder, Idaho 83676 United Water Idaho Inc.
1 out working throughout the system, so sometimes the
2 customer didn't reach a live person. They would reach a
3 voice mail.
4 We made the change so that all of our
5 customer calls go through our customer service department
6 so that we have a live person on the line whenever they
7 call in. If they can respond to that customer on line --
8 for example, if we know that there's been -- that we
9 might be flushing in an area that might cause some
10 discoloration because we're trying to sweep out any
11 deposits that are in the main, they can sometimes handle
12 that call right on the line. If not, then we get one of
13 our people to go out and investigate the complaint, and
14 if we can flush the system, flush their service, whatever
15 we can do to clear that up, we do that. If they have --
16 sometimes we do have a staining problem, we provide a
17 material that most of the time can remove that and do
18 whatever we can on site to resolve the customer's
19 problem.
20 Q One last question. When you bring one of
21 these wells on that could have an effect on water quality
22 in a certain area, do you notify the customers in advance
23 that their water quality will probably change so they're
24 aware of it so that they don't necessarily ruin some
25 clothes or some things that could be of value because
980
CSB REPORTING LINAM (Com)
Wilder, Idaho 83676 United Water Idaho Inc.
1 they know they're going to have this problem because you
2 brought the well on?
3 A I don't think it's that cut and dried that
4 because we bring the well on line that they're definitely
5 going to have an immediate problem or have some
6 problems. But the short answer to your question is I
7 don't believe we are doing that type of notification.
8 COMMISSIONER HANSEN: Thank you. That's
9 all I have.
10 COMMISSIONER NELSON: Thank you.
11 Redirect, Mr. Miller -- or Mr. Hill, I
12 guess.
13 MR. MILLER: No redirect, Mr. Chairman.
14 Thank you very much.
15 COMMISSIONER NELSON: Okay. Mr. Linam,
16 thank you very much for your testimony.
17 MR. MILLER: Call Jeremiah Healy.
18
19
20
21
22
23
24
25
981
CSB REPORTING LINAM (Com)
Wilder, Idaho 83676 United Water Idaho Inc.
1 JEREMIAH J. HEALY,
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 MR. MILLER: If we could have just one
8 moment to get organized.
9 (Pause in proceedings.)
10
11 DIRECT EXAMINATION
12
13 BY MR. MILLER:
14 Q Sir, would you state your name, please?
15 A Jeremiah J. Healy.
16 Q And are you the same Mr. Healy that
17 previously provided direct testimony in this case?
18 A Yes, I am.
19 Q Subsequent to that, did you have occasion
20 to prepare and prefile certain written rebuttal testimony
21 consisting of 32 pages?
22 A I did.
23 Q And did any exhibits accompany your
24 rebuttal testimony?
25 A Exhibits No. 20 through No. 30.
982
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 Q Directing your attention to your Exhibit
2 No. 24 --
3 A Yes.
4 Q -- subsequent to the time you filed your
5 rebuttal testimony on April 13th, did you prepare and
6 distribute to the Commission and the parties a corrected
7 Exhibit No. 24?
8 A I believe so, yes.
9 MR. MILLER: Can I just confirm,
10 Mr. Chairman, that that's reached the Commissioners?
11 COMMISSIONER NELSON: I don't believe we
12 got one. I haven't seen it.
13 COMMISSIONER NELSON: Mr. Woodbury, did you
14 get one?
15 THE WITNESS: I believe Mr. Linam has one.
16 COMMISSIONER NELSON: Let's go off the
17 record a second.
18 (Off the record.)
19 COMMISSIONER NELSON: Okay. We'll go back
20 on the record.
21 Q BY MR. MILLER: Mr. Healy, we'll come back
22 and take care of amended Exhibit 24 in a moment. But
23 putting that aside, are there any additions or
24 corrections that need to be made to your rebuttal
25 testimony?
983
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 A Just a couple. I believe I previously
2 mentioned that Exhibit 20, page 2 of 5, was incorrectly
3 labeled Exhibit 10, page 2 of 5, and I believe I've
4 previously corrected that.
5 Also on page 3 of my rebuttal testimony on
6 line 3, I'd like to correct that. The entire sentence
7 reads, "Exhibit 20 incorporates adjustments discussed in
8 Company witness Linam's, Brown's and Hanley's as well as
9 myself," and what it should read is "Hanley's rebuttal
10 testimony as well as my own."
11 On page 12, line 13, that third word is
12 meant to be "on approximately." There's actually two
13 words there.
14 On page 8, line 16, it should read "does
15 not include the total cost of owning."
16 And those are the corrections I have.
17 Q All right. Very good. I think we have now
18 distributed corrected Exhibit 24. And just by way of
19 introduction, could you explain what the exhibit purports
20 to demonstrate and the reasons for the filing of the
21 corrected exhibit?
22 A Yes. As I refer in my testimony, the
23 exhibit is intended to compare the cost of leasing 35 of
24 our vehicles to the cost of owning those same 35
25 vehicles. In my rebuttal testimony, the original exhibit
984
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 had an error that actually Staff witness Smith brought to
2 my attention, and so we've corrected that error on the
3 revised exhibit.
4 MR. MILLER: Very good. Mr. Chairman, I
5 have just a very few questions that need to be covered,
6 and I can do those quite quickly.
7 COMMISSIONER NELSON: All right.
8 Q BY MR. MILLER: Mr. Healy, at the very
9 start of the case, Ms. Ullman introduced some information
10 in the nature of salary surveys. Over the course of the
11 last few days, have you had an opportunity to do any
12 additional investigation with respect to salary surveys
13 in Idaho?
14 A I was able to look at the information that
15 Ms. Ullman presented, and I'm sorry, I don't have the
16 exhibit citation. It was the occupational employment and
17 wages Idaho '96, '97, Table 1, and I believe she
18 highlighted Job Code 95002, which are treatment plant
19 operators, as well as Job Code 58014, meter readers,
20 utilities.
21 And in reviewing that particular salary
22 survey, I did find that I believe there's more relevant
23 information included in that survey than perhaps was
24 presented by Ms. Ullman. If I'm not mistaken, that
25 Table 1 represents a statewide average of salaries for
985
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 these positions, and I noticed that in the survey, the
2 Idaho Department of Labor was good enough to break the
3 information down by region, one of those regions being
4 the Boise City MSA, which I believe refers to the Boise
5 metropolitan area, and I did find that there were some
6 significant differences between the information when it
7 was viewed by region.
8 Q Mr. Healy, I've distributed to the
9 Commission and the parties, and we'll shortly distribute
10 to the court reporter, extracts from the survey that
11 you've been discussing.
12 MR. MILLER: And, Mr. Chairman, we would
13 ask that that be marked as Exhibit No. 2 -- pardon me --
14 32.
15 COMMISSIONER NELSON: Thank you.
16 (United Water Idaho Inc. Exhibit
17 No. 32 was marked for identification.)
18 Q BY MR. MILLER: And based on your review of
19 the information contained in Exhibit 32, I believe you've
20 been indicating that the exhibit contains information
21 which you believe to be more relevant than that in the
22 extracts provided by Ms. Ullman.
23 A Yes. In my opinion, specifically Table 12,
24 which discusses the Boise City MSA as it's referred to, I
25 believe would be quite a bit more significant if we're
986
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 discussing employment and compensation for employment in
2 the greater Boise area.
3 I'm sorry. It is Table 14. Did I say
4 Table 12? I think Table 12 was perhaps southwestern
5 Idaho. Table 14 is Boise. Excuse me.
6 Q Is there anything else that should be
7 called to the Commission's attention in this exhibit?
8 A You know, simply that I believe that this
9 would be much more relevant data. I have had an
10 opportunity to crunch some numbers, so to speak, and for
11 instance, on Job Code 58014, which I believe is the meter
12 reader position, I notice that the Boise metro area has
13 about an 11 percent higher wage rate than the state of
14 Idaho. And with respect to the other position, it's
15 about 7 percent higher, not to mention that I believe
16 this data is at least three years old and perhaps four
17 years old.
18 When United Water Idaho participates in
19 these surveys, the data is usually a year old by the time
20 it gets put together, so I would suggest that perhaps
21 we'd have to up this data by three to four years' worth
22 of inflationary price increases. And then we'd also want
23 to keep in mind that -- and particularly with regard to
24 treatment plant operators and pump -- I believe what we
25 refer to as system operators, that United Water Idaho's
987
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 employees may have training and certification that is
2 over and above I believe any other water system in the
3 state of Idaho either by requirement or by the Company's
4 desire to have highly trained employees.
5 Q And based on your experience, do the
6 averages contained in surveys such as this constitute
7 conclusive proof as to the reasonableness of any
8 particular salary?
9 A I would be -- I would personally be quite
10 wary of this information. I believe that Mr. Linam in
11 his rebuttal has referred to the fact that the Company
12 from time to time checks with other utility companies in
13 the Boise area. And to the best of my knowledge, other
14 large utility companies in the Boise area have wages for
15 similar position to ours that are fairly compatible, some
16 cases higher, some cases lower, generally very compatible
17 with the wages we pay our employees.
18 And Mr. Linam also compared I believe our
19 meter readers to postal service employees and found that
20 that was a fair indicator that by that standard, our
21 meter readers also appeared to be reasonably compensated.
22 Q All right. Going on to another topic,
23 during the discussion yesterday, it was my impression
24 that there may be some lingering confusion in the ad
25 valorem taxation area, so first, could you clarify for
988
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 the Commission the method by which you have calculated
2 that adjustment, the method by which Mr. Smith has
3 calculated the adjustment, and whether the two are
4 consistent or inconsistent?
5 A Yes. What I'd like to clarify is that when
6 the Company initially filed its case, the Company was
7 aware of the latest appraisal dated in August '97 of our
8 property, that being 65,899,778. The Company used the
9 infamous nine-year trend to try and predict what would be
10 an appropriate value to estimate for the rate year.
11 The Company in its direct case used an
12 average levy rate from November of 1996 because at the
13 time the case was filed, we were not aware what the
14 average levy rate would be on the bill we received in
15 November of '97.
16 During the course of Mr. Smith's audit in
17 discussions with this, Mr. Smith inquired or I may have
18 volunteered, I can't remember, but it came up that we
19 have the new levy rate. Mr. Smith said may I please have
20 a copy of that. We discussed how that would be most
21 appropriately adjusted in his direct testimony and my
22 rebuttal. We agreed that his direct testimony would be
23 fine.
24 I believe that Mr. Smith applied the lower
25 average levy rate to the Company's projected appraised
989
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 rate and reduced our ad valorem taxes by I believe in the
2 range of $19,000. That $19,000 was part of the agreement
3 I believe that witness Smith and I had on an issue that
4 didn't need to be -- at least with respect to that area,
5 did not need to be reexamined between the Staff and the
6 Company. We were in complete agreement that we'd use the
7 latest information.
8 Q And would you contrast that methodology
9 with the one proposed by Ms. Ullman?
10 A Well, I think the only confusion is that
11 intervenor Ullman, I believe she's taking issue with the
12 way perhaps that I predicted the appraised value
13 increase. She's taking issue with the fact that -- with
14 the average levy rate I've applied to it, but I just want
15 to clarify. I don't see any room for taking issue with
16 either what the actual appraised value was or what the
17 most current levy rate to apply to whatever appraised
18 value you judge to be correct. And we can argue about
19 how you would project those, but there shouldn't be any
20 confusion about whether the most recent information's
21 been used.
22 Q Very good. Now, in that area, the Company
23 has explained its efforts to manage its ad valorem tax
24 cost for the benefit of its customers by appealing the
25 State Tax Commission to keep that appraisal as low as
990
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 possible. If the Company adopted a recommendation
2 similar to Ms. Ullman's that tends to estimate the
3 lower -- or project the lowest possible tax liability,
4 what would be the effect on the Company's incentive to do
5 what it's done in the past?
6 A I believe the Company in many areas makes
7 efforts to control costs, and this is just another
8 example of that. My concern would be that in the last
9 two years, the Company has been quite successful in
10 appealing the appraised value. And as I've previously
11 stated, the timing of that adjustment in the last --
12 well, the last two rate cases has nicely corresponded
13 with the rate filing and so forth, so that was able to be
14 immediately recognized.
15 I feel like the Company's put forth a
16 reasonable estimation of the '98 expected ad valorem tax
17 situation. I think the Company's demonstrated very sound
18 practices in trying to manage the ad valorem issue. And
19 as Ms. Ullman has stated, it is an issue that's gotten
20 some attention.
21 My hope would be that the Commission would
22 recognize that we are putting forth some serious effort
23 there and would simply not penalize us for that effort
24 but would allow a fair level of ad valorem in this case
25 knowing that the Company's committed to trying to achieve
991
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 the lowest ad valorem tax possible to pass on to our
2 customers.
3 Q Very good. Just a couple of last points.
4 There was some discussion particularly I think with
5 Commissioner Nelson and Mr. Smith yesterday with respect
6 to the issue of capitalized overheads.
7 A Yes.
8 Q Could you summarize for the Commission the
9 Company's position with respect to the capitalized
10 overheads adjustments?
11 A I just wanted to be clear -- there was at
12 least a little confusion in my mind -- that these
13 corporate overheads that are capitalized apply to
14 projects in the United Water service area or under the
15 United Water Idaho operations. There are engineering
16 costs that are incurred through the M&S company on behalf
17 of the customers of United Water Idaho. I just wanted to
18 clarify that point.
19 Q That they're not projects somewhere else
20 or --
21 A Overheads related to a project in Hoboken
22 or Delaware or wherever, it will not be applied to
23 projects in Idaho. These overheads are applied to local
24 projects because local projects benefit from the
25 engineering services provided by the M&S company.
992
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 Q And those are the overheads that Mr. Smith
2 has proposed eliminating in full?
3 A Correct.
4 Q Just one last point. I don't think there's
5 any confusion in this area, but I'll just mention it
6 anyway. Could you summarize again the Company's request
7 with respect to the Idaho Power surcharge adjustment?
8 A Well, I believe on the stand the other day,
9 I indicated that we had submitted an amended Exhibit 5,
10 schedule 1, page 7, amended to attempt to assess the
11 impact of that surcharge if it were to be approved on our
12 power costs. And just subsequent to that in consultation
13 with our major account consultant from Idaho Power, she
14 has informed me that the impact is actually going to be
15 higher due to the tariffs that the Company operates under
16 than I estimated here.
17 My only -- I'd just like to reiterate that
18 I believe this is a -- to the extent this is a known and
19 measurable change, I would like to have an opportunity to
20 supply the calculation that applies the actual impact of
21 this on us to the Commission for their consideration in
22 the revenue requirement part of this case.
23 Q That will be after the Commission has
24 either approved or disapproved the --
25 A Certainly.
993
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 Q -- Idaho Power surcharge, we will then
2 provide a calculation?
3 A Certainly.
4 Q Very good. Just one final topic, if I
5 could. There has been some discussion of the Company's
6 conservation program, and is the Company's conservation
7 program in general operated by people who report to you?
8 A Yes.
9 Q Based on that, could you provide the
10 Commission some additional background on the purpose,
11 intent, and effects of the conservation program?
12 A Sure. To briefly summarize, I believe the
13 purpose of the program is to attempt to control -- one of
14 the purposes of the program is to attempt to control our
15 peaking situation here in our service areas. As everyone
16 is aware, that's approximately a 4 to 1 ratio.
17 The Company has several aspects of its
18 conservation program that I believe attempt to address
19 that. The number one -- or one of the major ways is
20 through our residential water audit program where the
21 Company hires two employees during the summer that under
22 the guidance of our customer resource leader do
23 approximately five to six hundred audits on residential
24 properties that either the customer has expressed a
25 desire for an audit or the Company has contacted because
994
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 they're in an area where they use a lot of water, and our
2 goal there is to educate the customer on efficient use of
3 water.
4 I believe Mr. Linam referred that our
5 purpose is not necessarily to tell the customer how much
6 water to use. We would like the customer to use it as
7 wisely as possible. If the water is running down the
8 street, there is no benefit to the customer. That is
9 creating a higher peak than there needs to be. So
10 through that program, we reach many customers, many who
11 ask us how do we cope with your summer rates. We try to
12 ensure that they're watering wisely.
13 The program also consists of several
14 programs tailored for schoolchildren in the area, I
15 believe from third grade up through junior high school.
16 We do this in consortium with a number of other civic and
17 other companies where we try and educate these children
18 into wise water use and our hope being that they carry
19 that message home. In fact, I've heard from customers
20 that they're sick of their kids telling them to turn the
21 water off while they're brushing their teeth, but that
22 tells me that that's working also.
23 And, obviously, our unaccounted for water
24 program is part of that. I believe that our unaccounted
25 for water rate is about 5 percent, which my understanding
995
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 is that's outstandingly low unaccounted for water
2 situation.
3 Plumbing code changes in '93 or '94,
4 federal plumbing code changes, obviously I believe are
5 having an impact with all the new construction in the
6 area.
7 We believe -- our website, all this
8 information is available on our website. We invite
9 customers to contact us via E-mail to discuss their
10 concerns. We partner with the City of Boise, among
11 others, to bring in experts. We are not plant experts.
12 We're not turf experts. We're water experts. We invite
13 our customers to come to these classes and hear from the
14 experts how much water does it take to maintain a lawn to
15 encourage them to use just enough, not more than they
16 need, and perhaps not less than they need.
17 MR. MILLER: All right. Very good. Thank
18 you, Mr. Healy.
19 Have I done the request of the testimony be
20 spread?
21 COMMISSIONER NELSON: I don't think so.
22 MR. MILLER: Mr. Chairman, we would move
23 that the rebuttal testimony of Mr. Healy be spread on the
24 record as if read and the exhibits be marked.
25 COMMISSIONER NELSON: Without objection,
996
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 we'd order Mr. Healy's testimony spread and mark
2 Exhibits 20 through 30.
3 MR. MILLER: And 32.
4 COMMISSIONER NELSON: Yes, and Exhibit 32.
5 (The following prefiled rebuttal
6 testimony of Jeremiah J. Healy is spread upon the
7 record.)
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
997
CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 Q Please state your name and business
2 address.
3 A Jeremiah J. Healy, 8248 W. Victory Road,
4 Boise, Idaho, 83709.
5 Q Are you the same Jeremiah J. Healy who
6 sponsored direct testimony in this case?
7 A Yes, I am.
8 Q What is the scope of your rebuttal
9 testimony?
10 A My rebuttal testimony will address the
11 following items:
12 1. UWID's decision to remove from this case a new
13 employee (locator) along with all attendant
14 cost and replace with an outside contract.
15 2. Response to Staff Witness Smith's discussion
16 on residual values of leased vehicles, as well
17 as a response to the methodology he employs to
18 reduce the level of leased vehicle expense.
19 3. Response to Staff Witness Smith's discussion
20 regarding the magnitude of charges made to UWID
21 by affiliated companies.
22 4. Response to Staff Witness Smith's adjustment in
23 which he eliminates from expense 19.72% of the
24 Company's FICA tax adjustment.
25 5. Response to Staff Witness Smith's and
998
Healy, Reb 1
United Water Idaho Inc.
1 Intervenor Ullman's adjustment to rate case
2 expense allowance.
3 6. Response to Staff Witness Smith's adjustment
4 relating to the Company's customer growth
5 expense adjustment.
6 7. Response to Staff Witness Smith's adjustment to
7 management and service fees expensed.
8
9 /
10
11 /
12
13 /
14
15
16
17
18
19
20
21
22
23
24
25
999
Healy, Reb 1A
United Water Idaho Inc.
1 8. Response to Staff Witness Smith's removal of
2 $78,432 from rate base for what he considers an
3 improper AFUDC calculation methodology.
4 9. Response to Staff Witness Smith's adjustment of
5 depreciation expense allowance on Information
6 Technology and Master Plan related assets.
7 10. Response to Intervenor Ullman's assertions
8 regarding the unreasonableness of some wages
9 and benefits.
10 11. Response to Intervenor Ullman's adjustment to
11 Ad Valorem tax expense.
12 12. Impact of Micron reuse/efficiency program.
13 13. Adjustment for participation in Idaho Cross
14 Industry Salary and Benefits Survey.
15 14. Response to Staff Witness Smith's concern
16 regarding the quality of the test year data.
17 Q Have you prepared an Exhibit summarizing
18 the Company's position on rebuttal.
19 A Yes. Exhibit 20, consisting of five pages
20 summarizes the Company's position. Page 1 of 5 restates
21 Company rate base downward from $84,200,741 as originally
22 filed to $84,144,467. Page 2 of 5 indicates revenue and
23 operating expense adjustments the company has either
24 agreed to or updated. Page 3 of 5 continues the results
25 of operating changes and restates the revenue adjustment
1000
Healy, Reb 2
United Water Idaho Inc.
1 as $3,134,039 or 14.27% Page 4 of 5 calculates income
2 taxes and page 5 of 5
3
4 /
5
6 /
7
8 /
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1001
Healy, Reb 2A
United Water Idaho Inc.
1 calculates the necessary rate increase as well as proofs
2 the calculation. Exhibit 20 incorporates adjustments
3 discussed in Company witness Linam's, Brown's and
4 Hanley's rebuttal testimony as well as my own.
5 Removal of Employee and Associated Expenses/Contract
6 Cost.
7 Q Please explain the Company's adjustment to
8 reflect the removal of a new employee and attendant cost
9 reflected in the case at present and the replacement of
10 this function with contract expense.
11 A At the time the Company filed this case,
12 its plan was to hire an additional union employee as a
13 "locator" to provide assistance in handling the
14 ever-increasing load of facility locate inquiries. It
15 was contemplated this new employee would be employed
16 prior to hearings in this matter. Consequently, the
17 labor, benefit and transportation cost associated with
18 the new employee were reflected in the case. Before
19 hiring the employee, the Company researched the
20 feasibility of allowing an outside contractor to provide
21 locate services. The Company recently decided that the
22 Contractor option was the most favorable.
23 Q What are the ramifications of this decision
24 on the Company's claimed expenses?
25 A In the long run, utilizing a contractor
1002
Healy, Reb 3
United Water Idaho Inc.
1 will be the least expensive option for our customers.
2 The immediate impact on this case is illustrated on
3 Exhibit 21. Labor & payroll tax cost, variable benefit
4 cost and vehicle cost for this
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1003
Healy, Reb 3A
United Water Idaho Inc.
1 employee total $58,304. Contract cost is estimated to be
2 $58,240 based on the historical level of locate requests.
3 Because of ratemaking protocol, the Company applied the
4 overall labor to O&M percentage to this position,
5 reducing the O&M impact to $45,227, and allocating the
6 balance to capital. Historically, the locator function
7 expenses virtually all time so that in future cases the
8 full expense impact of the employee would be felt.
9 Q Does this decision actually raise the
10 revenue requirement in the instant case?
11 A Yes, by $13,013. However, the long-term
12 benefit to the customer is clear.
13 Residual values/Lease expense reduction methodology
14 Q Is vehicle leasing being introduced for the
15 first time in this case?
16 A No. The issue was originally introduced in
17 Case No. BOI-W-93-3, Order No. 24560, when the Commission
18 authorized a level of leasing expense. Then, in Case
19 No. UWI-W-96-3, Order No. 26671, the issue was fully
20 litigated. The Commission considered many of the same
21 arguments that Staff Witness Smith is using in the
22 current case, as well as the cost benefit analysis that
23 was provided in my rebuttal testimony, and ultimately
24 granted the Company a total lease expense of $218,920 of
25 the requested $241,090 in that case. The reduction in
1004
Healy, Reb 4
United Water Idaho Inc.
1 expense was due to the Commissions adjustment to offset
2 the anticipated reduction in vehicle maintenance expense
3 against the leasing expense.
4
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1005
Healy, Reb 4A
United Water Idaho Inc.
1 Q Mr. Smith states in his testimony that the
2 Commissions Order in Case No. UWI-96-3 directed the
3 Company to provide in its exhibits and testimony in this
4 case any hard evidence that proved the benefits of
5 leasing over ownership. Do you agree with Mr. Smith on
6 this point?
7 A No, I do not. Although a utility bears the
8 burden of proof with regard to its cost of service the
9 Commission's Order contained no such language or
10 directive. As a matter of fact Mr. Smith in response to
11 the Company's Interrogatory No. 29 concedes that there
12 was no such language in the Commission's Order in Case
13 No. UWI-96-3.
14 Q On page 17 of his testimony, Mr. Smith
15 claims that the cost/benefit analysis that was provided
16 to him in this case is flawed and superficial and is no
17 more convincing than similar information provided in the
18 Company's last case. Do you agree with Mr. Smith's
19 claims?
20 A No, I do not. First, I would note that
21 although Mr. Smith indicates that he was unconvinced of
22 the benefits of leasing by the information that was
23 provided in Case. No. UWI-96-3 apparently, the Commission
24 was convinced since they allowed the Company's claim
25 adjusted for the anticipated maintenance expense savings.
1006
Healy, Reb 5
United Water Idaho Inc.
1 This analysis has been presented and accepted by the
2 majority of the states United Water operates in and was
3 most recently accepted by the Commissions in Delaware and
4 Pennsylvania both of which were fully litigated cases.
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1007
Healy, Reb 5A
United Water Idaho Inc.
1 Second, I believe that the Cost/Benefit analyses
2 provided in my rebuttal testimony in Case No. UWI-96-3
3 and in response to a staff data request in this
4 proceeding are well thought out and comprehensive. For
5 instance the cost/benefit analysis provided in response
6 to Staff Interrogatory No. 82 (Exhibit No. 22) compares
7 leasing a vehicle for three years with owning a vehicle
8 for three years, as well as a five year comparison. This
9 was done to put the two different programs on a equal
10 footing and eliminate maintenance costs as a variable
11 since we would keep an owned vehicle for the same period
12 of time that we would lease the vehicle. This analysis
13 also assigned values to the loaner vehicles that were
14 provided and maintained by American Leasing Corporation
15 and were being used as fleet vehicles. This analysis
16 also considered the costs of administering an ownership
17 program since a portion of the annual lease payments go
18 towards administration of that program. Incidentally,
19 Mr. Smith fails to consider the ownership administration
20 costs in his analysis. In an effort to eliminate another
21 variable this analysis also assumed that the salvage
22 value of an owned vehicle would be equal to the
23 unamortized balance of a leased vehicle. However, the
24 leasing program took into consideration that American
25 Leasing Corporation, primarily due to its used car
1008
Healy, Reb 6
United Water Idaho Inc.
1 expertise and disposal network, was able to dispose of
2 the vehicles and return to the Company about 20 percent
3 over the unamortized balance which was based on
4 experience with the
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1009
Healy, Reb 6A
United Water Idaho Inc.
1 Company's affiliates. This analysis as well as my
2 rebuttal testimony (see Exhibit No. 23) also referred to
3 a number of other benefits of the leasing program, which
4 were not quantified for purposes of the analysis.
5 Q Mr. Smith claims that the vehicles residual
6 values used in the analyses are artificially low and
7 adjusted to favor leasing. Do you agree with this claim?
8 A No, I do not. However, I do agree that in
9 the Company's direct case I failed to flow back to the
10 benefit of the customer the anticipated disposal premium
11 expected to be obtained. The Company has not experienced
12 any flowback as of the current date because no leased
13 vehicles have been completely disposed of. With regard
14 to Staff Witness Smith's assertion that pick ups and
15 light trucks retain 60% of their value after 3 years, I
16 believe he is incorrect. His assertion is not based on
17 utility vehicles with extremely hard service lives.
18 Again, this was covered in the Company's last proceeding.
19 Q Is the methodology utilized by Staff
20 Witness Smith in the instant case, reducing the Company's
21 proposed level of lease expense from $286,800 to $171,402
22 or $115,398 (40.24%) reasonable?
23 A Absolutely not.
24 Q What is your objection to the methodology
25 employed by Staff Witness Smith in reducing the expense
allowance for leased vehicles?
1010
Healy, Reb 7
United Water Idaho Inc.
1 A I believe Mr. Smith has made a fundamental
2 error in equating how owned vehicles impact the Company's
3 revenue requirement as opposed to how leased vehicles do.
4 Mr. Smith seems to rely on the fact that the Company's
5 transportation overhead rate has increased from 6.5% to
6 11.5% from 1994 to 1997 as proof positive that leasing is
7 more expensive than vehicle ownership. In truth, this
8 analysis is like comparing apples and oranges. In 1994
9 the Company leased a small percentage of its fleet.
10 Thus, the expense impact to the customer was dominated by
11 owned vehicles with low depreciation allowances. As
12 leased vehicles have replaced owned vehicles, and as
13 lease payments have replaced depreciation allowances, the
14 impact on operating expense has gone up. However,
15 Mr. Smith totally ignores the other side of this
16 equation, the fact that owned vehicles also require a
17 return on rate base and the associated income tax impact.
18 In other words, the 11.5% overhead rate includes all cost
19 associated with vehicle leasing. The 6.5% rate, on the
20 other hand, does not include the total cost of owning
21 because it does not include a component for return on
22 investment or income taxes as a result of the return. In
23 summary on this point, Mr. Smith is using as the basis of
24 his adjustment an erroneous measure.
25 Q Has the Company prepared any additional
analysis that attempts to clarify this issue?
1011
Healy, Reb 8
United Water Idaho Inc.
1 A Yes, as Company Witness Linam states in his
2 testimony, we performed an analysis (See Exhibit 24)
3 utilizing the lease information from 35 of our leased
4 vehicles. We utilized the value of the vehicle (column
5 3), the annual lease amount (column 5) and the term of
6 the lease (column 11). I made the following assumptions
7 for purposes of this Exhibit to remove variables:
8 > All leases/purchases begin at time "0"
9 > Vehicles evaluated over a five-year life
10 > Basis of value to UWID at the end of the lease
11 or ownership period is reduced to zero. For
12 owned vehicles, this assumes a five-year
13 straight-line depreciation. For leased
14 vehicles, the residual value of the vehicle was
15 paid down to zero through the lease, or the
16 remaining amount that was owed by UWID for the
17 vehicle at the end of five-year leases was added
18 back to the total lease payments over the five
19 year period.
20 > Remove operating cost from consideration because
21 operating cost will be the same whether leased
22 or owned
23 > Residual value removed from consideration because it
24 has been reduced to zero. All proceeds go to UWID at the
25 end of the five years.
1012
Healy, Reb 9
United Water Idaho Inc.
1 Therefore, on the 35 vehicles leased, based upon
2 the terms of the lease, the annual lease dollars are
3 shown in columns 6, 7, 8, 9, and 10.
4
5 /
6
7 /
8
9 /
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1013
Healy, Reb 9A
United Water Idaho Inc.
1 The total lease cost of these 35 vehicles over the five
2 years would be $983,225. By the lease terms, seven of
3 the vehicles' residual value would not be reduced to zero
4 by the end of the five years. Therefore, the remaining
5 amount that UWID would owe for these seven vehicles
6 ($25,000) was added back to the lease cost for a total of
7 $1,008,225, for an average lease cost of $201,645 per
8 year. I then calculated the annual revenue requirement
9 for owning the vehicles for the five years at $1,093,884
10 for an average of $218,777 per year. This simplified
11 analysis is yet additional proof that the customers of
12 UWID are not being harmed by the decision to lease
13 vehicles.
14 Q I note in column 3 you show the value of
15 the vehicles at $724,131 and the local purchase price at
16 $760,338. Why the difference?
17 A The lease amounts in column 5 include sales
18 tax and the value in column 3 does not. The Total
19 Purchase Price in column 4 includes the sales tax that
20 would have to be paid if we purchased the vehicle.
21 Q I note in column 11 that the lease terms
22 vary from as low as 24 months to as much as 60 months but
23 yet you have used a five-year period to compare your
24 costs. Can you explain?
25 A Yes. Let's look at vehicle no. 9 which has
1014
Healy, Reb 10
United Water Idaho Inc.
1 a 24-month lease. At the end of the 24-month period we
2 would evaluate the condition of the vehicle and then
3 decide to either extend the lease or return the vehicle
4 to American leasing for disposal. If the vehicle sells
5 for the depreciated value of the
6
7 /
8
9 /
10
11 /
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1015
Healy, Reb 10A
United Water Idaho Inc.
1 vehicle, there is no further obligation to UWID on the
2 vehicle. If it sells for less than the depreciated
3 value, we owe the leasing company the difference. If it
4 sells for more than the depreciated value, which has been
5 the experience with our affiliates, we receive the
6 difference from the leasing company.
7 If the lease is extended, year three (column 8)
8 the lease amount would be the same but in year 4 (column
9 9) the lease amount would be less because the depreciated
10 value would reach zero in year 4. There would be no
11 lease cost in year 5 because the vehicle is essentially
12 owned by UWID once the depreciated value reaches zero.
13 Q If you don't extend the lease, doesn't that
14 affect your analysis?
15 A I don't think so. If we determine a
16 vehicle should not be retained after three years of a
17 lease, it also should not be retained if we owned that
18 vehicle so I think the effect under ownership or leasing
19 would be the same.
20 Q I note in your ownership analysis you added
21 $30,000 for what you termed Lease Loaners. Why?
22 A With our current lease arrangement, UWID
23 currently has two vehicles furnished by the leasing
24 agent, which we utilize in our fleet, at no additional
25 cost to the company. Without the lease arrangement the
1016
Healy, Reb 11
United Water Idaho Inc.
1 Company would have to purchase two additional vehicles.
2 I therefore added a conservative amount for the purchase
3 of these two vehicles. I
4
5 /
6
7 /
8
9 /
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1017
Healy, Reb 11A
United Water Idaho Inc.
1 would also point out that American Leasing pays the
2 maintenance cost on these vehicles.
3 Q In Mr. Linam's rebuttal testimony, he
4 agreed that you would be making an adjustment to
5 requested expense recovery based on expected lease
6 residual values flowing back to the Company. What is the
7 amount of this adjustment?
8 A The amount of the adjustment is a $21,400
9 reduction to the level of transportation expense
10 requested initially in this case. Our leasing Company
11 has projected they will get 20% more for our vehicles
12 than the residual value utilized in calculating the lease
13 payment. We have 43 leased vehicles reflected in this
14 proceeding with an average lease term of approximately
15 3.5 years. This means the Company would terminate the
16 lease on approximately twelve vehicles per year.
17 Assuming a recovery of $1,783 per vehicle over the
18 residual value, this calculates to $21,400.
19 Magnitude of affiliated charges
20 Q On page 5 of Staff Witness Smith's
21 testimony, starting at line 9, he is asked about the
22 magnitude of the charges made to UWID by affiliated
23 companies under the United Water Resources umbrella. His
24 response refers to the answer given to IPUC Staff
25 Production Request # 71, in
1018
Healy, Reb 12
United Water Idaho Inc.
1 which charges amounting to $7.2 million, $4.8 million and
2 $4.0 million for fiscal years ended June, 1995, 1996 and
3 1997, respectively, were enumerated. Witness Smith goes
4 on to say that if spent locally, these dollars would
5 stimulate "the local Boise economy." What is your
6 reaction to this line of thought?
7 A Although the amounts indicated for the
8 respective years are substantial, I believe these numbers
9 can be misleading when presented in this context. The
10 fiscal year ended June, 1995 is a good illustration of my
11 point. A close look at the data request answer reveals
12 that almost $3.2 million of the $7.2 million represents
13 interest expense paid by UWID's parent that is simply
14 reimbursed. Another $2.2 million represents
15 reimbursement for Federal Income tax payments. Almost
16 $400,000 is employee payroll deductions along with UWID
17 matching funds to be contributed to the employee's 401-K
18 plan accounts. Payments to the 401-K plan used to be
19 processed locally but it was found to be more efficient
20 to bundle all the funds together so that the trustee
21 received only one payment, rather than payments from each
22 reporting unit. Another $546,000 is reimbursement for
23 group health, life insurance and long term disability
24 plans. At the time, these plans were administered
25 centrally, however, as of January, 1998 about 40% of
1019
Healy, Reb 13
United Water Idaho Inc.
1 UWID's health care dollars are sent to an Idaho provider.
2 The balance of the funds represents payment for United
3 Water Management and Services fees, business insurance,
4 corporate
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1020
Healy, Reb 13A
United Water Idaho Inc.
1 construction overheads, pension and post retirement
2 benefit cost, and like expenses.
3 Q What about staff's comments regarding
4 stimulation of the local economy?
5 A UWID has an annual payroll of over
6 $4,000,000 that is paid to local employees who live and
7 work and spend their incomes in Treasure Valley. The
8 Company pays over $1,000,000 annually in Ada County
9 property taxes. We collect and remit to the City of
10 Boise about $600,000 annually in franchise tax payments.
11 UWID pays several millions of dollars annually to local
12 suppliers, contractors and various vendors for both O&M
13 and capital items. I believe that UWID is representative
14 of many types of entities that have strong local presence
15 in the communities they serve despite their non-local
16 corporate ownership or affiliations. Through our Company
17 Stock Purchase Program, UWID's customers are able to and
18 invited to invest in United Water Resources as a way of
19 owning a stake in their local water utility while
20 balancing their risk by owning shares in a geographically
21 diversified entity.
22 FICA tax expense
23 Q Please comment on Mr. Smith's adjustment
24 "K", reducing the level of FICA expense reflected in the
25 expense stream.
1021
Healy, Reb 14
United Water Idaho Inc.
1 A Staff has duplicated an adjustment that the
2 Company has already made. Adjustment No. 22 (Exhibit 5,
3 Schedule 1, Page 23) noted in my direct testimony,
4 accomplishes the same result as Mr. Smith's proposed
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1022
Healy, Reb 14A
United Water Idaho Inc.
1 adjustment. The Company, in adjustment No. 22, has
2 reflected all payroll overheads that should follow
3 capitalized labor and increased the credit to A&G expense
4 that occurs when labor is charged to a non O&M line.
5 Actual O&M lines for various expenses are charged with
6 the full cost of these items. The reduction to the
7 expense total is achieved by crediting the overhead
8 credit accounts. To allow Mr. Smith's adjustment would
9 duplicate a credit adjustment already reflected in our
10 case.
11 Rate case expense
12 Q Please comment on Staff Witness Smith's
13 adjustment to rate case expense.
14 A First, let me state that I do agree with
15 Witness Smith's five year amortization period for
16 amortization of deferred cost related to the Connection
17 Fee and Water Quality matters. He is reasonable in
18 asserting that due to the non-recurring nature of these
19 cases, five years is appropriate.
20 I do not agree that the Company's level of rate
21 case expense estimated to be incurred for the instant
22 case is unreasonable or that it should be shared by the
23 stockholders of the Company. As Staff Witness Smith
24 indicated in his response to Company Interrogatory
25 No. 34, when asked to cite the Commission rule that
1023
Healy, Reb 15
United Water Idaho Inc.
1 prescribes this treatment, his answer was "There is no
2 rule." As noted in the response to Ullman Production
3 Request No. 14, the Company incurred over $343,000 in
4
5 /
6
7 /
8
9 /
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1024
Healy, Reb 15A
United Water Idaho Inc.
1 preparing and presenting its last general rate filing.
2 These expenditures were legitimate payments to outside
3 consultants for services provided, payments for services
4 performed by the M&S Company, Intervenor funding as
5 ordered and a few miscellaneous costs. These costs were
6 incurred in late 1993 into mid-1994. The Company has
7 estimated a significantly lower total cost, $300,000, for
8 the instant case, without adjustment for cost increases
9 that have taken place in the intervening four year
10 period.
11 Q How has UWID been able to lower the
12 estimated cost?
13 A We are trying to be as cost effective as
14 possible in the instant case. For example, in this case
15 I was able to do more than in past cases which reduces
16 the deferred cost accumulation.
17 Q Doesn't this give credence to Staff Witness
18 Smith's assertion that, because your labor and benefit
19 cost is already included in the Company's O&M
20 projections, your rate costs are double counted?
21 A No. The reason is that the cost of my time
22 related to rate case functions is not included in the
23 deferred rate case cost, it is only reflected in the
24 Company's O&M expense. Id like to add that contrary to
25 what Intervenor Ullman seems to suggest in her testimony
1025
Healy, Reb 16
United Water Idaho Inc.
1 that UWID employees are only required to work 7.5 hours a
2 day, I, as well as many of my colleagues, put in many
3 long days at certain times of the year. In other words,
4 only through delegation and long hours, am I able to
5 carry out my normal
6
7 /
8
9 /
10
11 /
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1026
Healy, Reb 16A
United Water Idaho Inc.
1 duties as well as work on the rate case. I would add that
2 I have also received assistance from UWM&S personnel in
3 completing rate case tasks.
4 Q Has the Company supported its estimate of
5 rate case expense?
6 A Yes. In response to Sharon Ullman's First
7 Production Request No. 14, the Company provided a
8 breakdown of the estimate, based on the Company's
9 experience in its last rate case. In addition, in
10 response to Staff's Third Production Request No. 76, the
11 company provided copies of actual invoices, bills and
12 contracts supporting the actual costs received to date in
13 the rate case. As noted, the claimed cost of this case,
14 in which the bifurcated rate structure case is included,
15 is less than the last rate case even before adjusting for
16 salary increases. After receiving this information,
17 neither Staff nor Intervenor Ullman requested more
18 information. Also, they didn't include in their
19 testimony any analysis or reasoning supporting their
20 conclusion that rate case expense is too high. In short,
21 the Company has demonstrated that the claimed expense of
22 this case is reasonable by reference to its last case and
23 verified its claim with supporting documentation
24 Neither Staff nor Intervenor Ullman have presented any
25 affirmative evidence to the contrary.
1027
Healy, Reb 17
United Water Idaho Inc.
1 Q Please comment on Staff Witness Smith's
2 recommended disallowance of one-half of rate case
3 expense.
4
5 /
6
7 /
8
9 /
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1028
Healy, Reb 17A
United Water Idaho Inc.
1 A Contrary to Staff's position, the Company
2 has supported its level of rate case expense. Mr. Smith,
3 with no basis other than unsupported allegations, halves
4 the Company's request.
5 Q Will you please address assertions made by
6 Intervenor Ullman?
7 A Intervenor Ullman raises several points I
8 take issue with. She asserts on page 5, lines 10 to 13,
9 that "There are local employees who could have attended
10 this meeting (referring to the pre-hearing conference) in
11 Mr. Gennari's stead". I'd like to point out that I did
12 attend the pre hearing conference along with Mr. Miller
13 and Mr. Gennari. I noted that the IPUC staff had four
14 representatives at that conference. This is not
15 excessive, but rather a reflection of the fact that both
16 the Staff and the Company understand that important
17 matters will be addressed at this hearing and consider it
18 necessary to attend.
19 Q Intervenor Ullman suggests that, due to the
20 significant inequity between the $50,000 intervenor
21 funding level and the Company's $300,000 cost to prepare
22 and present this case, the Commission consider
23 disallowing a portion of the Company's cost. What is
24 your opinion of this?
25 A There is no logic to Ms. Ullman's
1029
Healy, Reb 18
United Water Idaho Inc.
1 suggestion. The Company understands the valuable role
2 intervenors can play in rate proceedings by introducing
3 different perspectives and so forth. However, the fact
4 remains that it is Company personnel that do all the
5 necessary analysis work, research, response to data
6 requests, preparation of exhibits and so forth. There is
7
8 /
9
10 /
11
12 /
13
14
15
16
17
18
19
20
21
22
23
24
25
1030
Healy, Reb 18A
United Water Idaho Inc.
1 little correlation between the level of cost incurred by
2 intervenors, who address selected issues, and by the
3 Company, which is responsible for the entire case.
4 Q Intervenor Ullman asserts that since
5 customers pay the Company a return on the deferred
6 portion of rate expenses "ad infinitum", the Company has
7 a strong incentive to file often and spend freely.
8 Please comment.
9 A I believe this assertion is unfounded.
10 First, deferred rate case costs are amortized over an
11 appropriate period of time and then expire and cease to
12 be a part of the Company's revenue stream either through
13 rate base and/or expense recognition. Contrary to Ms.
14 Ullman's assertion, the Company has not requested rate
15 base treatment of unamortized current rate case expense,
16 it merely seeks to recover its legitimate cost. Frankly,
17 Ms. Ullman's statement that UWID spends as much as it can
18 on each case is not only without foundation but it is
19 offensive to the hard working employees of the Company
20 and also make very little sense since the costs are
21 incurred currently but are recovered over an extended
22 time period.
23 Customer growth expense
24 Q Do you agree with Staff Witness Smith's
25 adjustment "M", described on page 25, line 12 of his
1031
Healy, Reb 19
United Water Idaho Inc.
1 testimony, to the Company's customer growth and weather
2 normalization adjustments?
3
4 /
5
6 /
7
8 /
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1032
Healy, Reb 19A
United Water Idaho Inc.
1 A I do not disagree with Staff Witness Smith
2 except for one point. Witness Smith has substituted his
3 level of transportation expense on line 3, column B, of
4 exhibit 121, thus lowering the ratio of growth related
5 expenses to revenue. The calculation of this adjustment
6 can not be made until a level of transportation expense
7 is decided.
8 Management and service fees
9 Q Staff Witness Smith, on page 26 of his
10 testimony beginning at line 9 (column "N" of Exhibit
11 No. 115), reverses the Company's proposed $80,078
12 increase to the test year level of Management and Service
13 fees. What is your opinion of this adjustment?
14 A There is no support for it other than the
15 vague concerns and allegations expressed at various
16 places in his testimony. These concerns and allegations
17 are addressed in the rebuttal of witness Linam. Mr.
18 Smith identifies no cost or charge that is unreasonable,
19 excessive, or imprudent. The amount of Mr. Smith's
20 adjustment is simply the amount by which the Company has
21 adjusted the test year level of expense, and it is not
22 the product of any logic, reasoning or calculation.
23 Q As a benchmark, how does the level of
24 management and service fees requested in this case
25 compare to historical levels?
1033
Healy, Reb 20
United Water Idaho Inc.
1 A I reviewed data submitted in UWID's Annual
2 Report to the IPUC from 1991 through 1996, as well as
3 test year and rate year data submitted in this case. The
4 results of this analysis are shown on Exhibit 25. Actual
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1034
Healy, Reb 20A
United Water Idaho Inc.
1 Management and Service Fees as a percentage of total O&M
2 cost averaged 10.73% for the period 1991 through 1996,
3 inclusive. The test year data presented is this case
4 indicates a 9.97% ratio. The rate year data indicates a
5 10.18% rate, over one half-percent less than the
6 historical average, which is certainly within the range
7 of reasonableness.
8 Equity gross up component of AFUDC
9 Q Staff Witness Smith disallows $78,432 from
10 rate base that represents the "equity gross-up" additive
11 utilized in the Company's AFUDC calculation since
12 January, 1995. Do you agree with this adjustment?
13 A Not entirely. As directed by the Uniform
14 System of Accounts, the Company's policy is to compute
15 AFUDC on eligible construction projects as a recognition
16 of the economic cost of temporarily unproductive capital
17 based on an approximation of the return that would have
18 been available had the funds been included as a component
19 of rate base. The 12.11% rate reflects the gross-up of
20 the equity portion of the return on rate base authorized
21 by the IPUC in the last case. Statement of Financial
22 Accounting Standards No. 109, Accounting for Income Taxes
23 (SFAS 109) provides the rationale for this gross-up. The
24 Company defers Federal Income Taxes under the liability
25 method in accordance with SFAS 109. Under this method,
1035
Healy, Reb 21
United Water Idaho Inc.
1 deferred income taxes are provided for all differences
2 between financial statement and tax basis of assets and
3 liabilities. Additional deferred income taxes and
4 offsetting regulatory assets or
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1036
Healy, Reb 21A
United Water Idaho Inc.
1 liabilities are recorded to recognize that income taxes
2 will be recoverable or refundable through future
3 revenues. In compliance with SFAS 109, the company has a
4 tax timing difference that is recoverable through future
5 revenues. We record a regulatory asset and offset it with
6 an associated deferred tax liability. The Company has
7 already reflected, through Witness Gennari's exhibits, an
8 adjustment to rate base via the deferred tax calculation.
9 Q Staff Witness Smith asserts in the response
10 to Company Interrogatory No. 27 that FAS 109 does not
11 require the equity gross up of AFUDC. What is your
12 response to this assertion?
13 A I have attached as Exhibit 26 a copy of
14 "Statement of Financial Accounting Standards No. 109,
15 Accounting for Income Taxes" published by the Financial
16 Accounting Standards Board. Page 11, paragraph 29,
17 (Page 2 of 5 on Exhibit 26) discusses the applicability
18 of FAS 109 to regulated enterprises states "Specifically,
19 this Statement: b. Requires recognition of a deferred tax
20 liability (2) for the equity component of the allowance
21 for funds during construction". I specifically also
22 refer to pages 91, 92, and 93 that discuss AFUDC.
23 Paragraph 253 on page 92 says (Page 4 of 5, Exhibit 26),
24 "The following example illustrates recognition of an
25 asset for the probable future revenue to recover future
1037
Healy, Reb 22
United Water Idaho Inc.
1 income taxes related to the deferred tax liability for
2 the equity component of the
3
4 /
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12
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15
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19
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21
22
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1038
Healy, Reb 22A
United Water Idaho Inc.
1 allowance for funds used during construction". I believe
2 this paragraph describes the procedure UWID utilizes.
3 Q Has the Company properly reflected the
4 AFUDC equity gross up in this case?
5 A No. The Company erred in the presentation
6 of this in the filing. Our filing includes $80,857 in
7 plant in service representing the AFUDC equity gross up.
8 We should have completely offset this investment with
9 deferred tax of $80,857, making this essentially rate
10 base neutral. However, we inadvertently tax effected the
11 $80,857 and used the amount $26,104 as an offset,
12 effectively overstating rate base by $54,753. Staff
13 Witness Smith removes only the plant in service without a
14 reduction in the deferred tax provision.
15 Depreciation expense allowance for Information Technology
16 (IT) and master plan
17 Q Staff Witness Smith discusses on page 26 of
18 his direct testimony (adjustment "O" on Exhibit No. 115)
19 the Company's proposal to utilize a ten-year depreciable
20 life for investment in IT assets and the engineering
21 study known as the Master Plan. His opinion, with regard
22 to both assets, is that a twenty-year life is more
23 appropriate, effectively cutting in half the Company's
24 depreciation allowance. What is your reaction to
25 Mr. Smith's proposed adjustment?
1039
Healy, Reb 23
United Water Idaho Inc.
1 A I would like to address these two assets
2 separately. First, I'd like to address the investment in
3 Information Technology. The Company is well aware of the
4 impact of a short depreciable life on revenue
5 requirement. We recognized early on in the process of
6 assembling this filing that the 20% depreciation rate
7 that the Company is authorized to use for "Computer
8 Equipment" may not be reasonable for assets of this
9 nature. Before proposing a ten-year life, I did some
10 inquiry into this issue to determine how other
11 jurisdictions were viewing it.
12 Q And what was the result of your inquiry?
13 A I found a jurisdiction that was right on
14 point as far as thoroughly reviewing the issue at hand.
15 United Water Pennsylvania Inc. filed a case before the
16 Pennsylvania Public Utility Commission, which rendered a
17 decision in January, 1998. In that case, the Company
18 proposed a 16.46% depreciation rate for IT assets. The
19 Office of Consumer Advocate opposed, recommending a rate
20 of 6.67%. The Pennsylvania PUC agreed with United Water
21 Pennsylvania's position, (see Exhibit 27), stating at
22 page 26 (Page 2 of 4):
23 "We agree with the Company's position on
this issue. It appears that the OCA's proposal
24 and, therefore, the ALJ's recommendation,
regarding the post-1995 computer additions is
25 driven primarily by the anticipated magnitude of
1040
Healy, Reb 24
United Water Idaho Inc.
1 those additions and not upon any realistic
assessment of probable service lives. As the
2 Company points out, the recommended 15 year
average service life for new
3 equipment...effectively implies that components
of computer additions at issue will continue to
4 provide service for 20 to 25 years."(Id., pp.
23-26.)
5
6
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8
9 /
10
11 /
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1041
Healy, Reb 24A
United Water Idaho Inc.
1 This we view as clearly unreasonable given
the nature of the equipment and the undeniable
2 fact that it is subject to rapid changes in
technology. We doubt very much that the OCA's
3 proposal would result in the full recovery of the
Company's investment in the property at issue.
4 While depreciation study results are a
useful tool, the actual assignment of service
5 lives and the application of depreciation rates
must also be guided by realistic assumptions. We
6 find the Company's use of a ten-year average
service life and a 16.45% depreciation rate to be
7 appropriate, given the rapidly evolving nature of
computer equipment.
8
9 Q Do you have any additional points on this
10 issue you would like to make?
11 A Yes. Clearly, the Company does not have
12 the benefit of a depreciation study in this case.
13 However, I believe that the Company has been conservative
14 yet realistic in proposing a 10% depreciation rate.
15 Staff Witness Smith is overlooking the fact that the
16 equipment replaced was depreciated over 5 years. Despite
17 the fact that Company witness Linam refers to a replaced
18 asset that was a "20+ year old main frame that was
19 essentially obsolete", we have to keep in mind that the
20 original investment in that system was added to,
21 upgraded, retired and modified during the course of those
22 20+ years. The salient question is whether the estimated
23 useful life of the property is appropriate to be applied
24 to current and projected investments to be placed in this
25 plant account. Both computer hardware, as well as
1042
Healy, Reb 25
United Water Idaho Inc.
1 software, are in a continual state of evolution. New
2 computer products and services, with increased
3 capabilities, are rendering current property obsolete as
4 we speak. To
5
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11
12
13
14
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1043
Healy, Reb 25A
United Water Idaho Inc.
1 suggest a twenty-year depreciation period is clearly
2 unreasonable and based on flawed logic.
3 Q What is your response to a twenty year life
4 on the Master Plan asset?
5 A Again, I believe this is an unrealistic
6 approach. Although this master engineering and
7 operations plan is intended to provide guidance to the
8 Company for many years, the plan contemplates a five year
9 update cycle to keep it fresh and responsive to the
10 dynamic growth in the Company's service area. A ten-year
11 depreciable life is reasonable.
12 Key aspects of operations can change substantially
13 over a ten-year period. For instance ten years ago UWID
14 did not anticipate the designation of the Southeast Boise
15 Groundwater Management Area and the impact it would have
16 on serving southeast Boise. The river intake and future
17 Columbia WTP were, as a result, not forecast in 1987.
18 The conclusions of the Treasure Valley Hydrologic Study
19 could, potentially, have a similar impact in the next ten
20 years. Therefore, the effective life of the master plan
21 should not be extended beyond ten years.
22 Wage and benefit expense
23 Q Intervenor Ullman, starting at page 3,
24 line 4 of her testimony, makes some observations
25 regarding some unreasonably high salaries and overly
1044
Healy, Reb 26
United Water Idaho Inc.
1 generous benefits provided by UWID. Do you have any
2 comment on these observations?
3
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9
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11
12
13
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1045
Healy, Reb 26A
United Water Idaho Inc.
1 A Company Witness Linam addresses these
2 issues in his rebuttal testimony. However, I need to
3 clarify one statement Ms. Ullman makes that "Mr. Healy
4 refused to verbally provide the value of the most recent
5 bonus received by Mr. Linam".
6 Q Is this statement accurate?
7 A Hardly. On the day that her testimony was
8 due, Friday, March 6th, Ms. Ullman called the Company
9 with three areas of inquiry. I was able to accommodate
10 her first two request in full but was unable to get to
11 the information I needed to fully answer her third
12 question on short notice. She subsequently asked the
13 same question in interrogatory form and the Company fully
14 answered. I object to the connotation of the word
15 "refused" as Ms. Ullman has used it.
16 Ad Valorem tax expense
17 Q Please explain your objection to Intervenor
18 Ullman's proposed adjustment to ad valorem expense.
19 A My objection is that Ms. Ullman manipulates
20 data to obtain results that produce a lower revenue
21 requirement but ignore fairness to the Company. In
22 estimating the 1998 appraised value, I utilized nine
23 years of appraised value increases to average out a 7.17%
24 historical average increase. I could have used six years
25 of data and averaged a 9.17% increase or I could have
1046
Healy, Reb 27
United Water Idaho Inc.
1 used the last two years, as Ms. Ullman suggests is
2 proper, and come up with a lower number. I must point
3 out, had Ms. Ullman
4
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10
11
12
13
14
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16
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1047
Healy, Reb 27A
United Water Idaho Inc.
1 trended the increases for 1995 (4.079%) and 1996 (6.274%)
2 the suggested 1997 increase would be 53.81% higher than
3 the 1996 increase, or 9.65%. My approach is reasonable
4 in light of the fact that the appraised value
5 consistently increases. Obviously, we are both trying to
6 make an educated assessment as to what the future holds.
7 I believe my methodology is fair in light of the
8 circumstances. I have attached, as Exhibit 28, a copy of
9 the workpaper I used that indicates a nine-year history
10 of appraisal increases and decreases.
11 Q What about Ms. Ullman's point that the
12 average levy rate the Company has used is too high?
13 A Again, in light of all the circumstances
14 the Company's approach is fair. When this case was
15 originally filed in November, 1997, I utilized the latest
16 available average levy data. As time passed and a new,
17 lower average levy became known due to issuance of the
18 latest property tax bills, the Company advised Staff
19 Witness Smith of this fact so he could make the necessary
20 adjustment. Again, I'm not pretending to know that Ms.
21 Ullman's forecast of next years average levy is
22 erroneous, I'm simply stating that the approach I've
23 utilized is reasonable.
24 Q The adjustment to test year ad valorem
25 expense, $242,499, or 24.42% over the test year level of
1048
Healy, Reb 28
United Water Idaho Inc.
1 $992,904, seems very high. Please comment.
2 A The adjustment does appear to be quite
3 high, however, there is an accounting aberration in the
4 test year that distorts ad valorem expense.
5
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7
8 /
9
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11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1049
Healy, Reb 28A
United Water Idaho Inc.
1 The Company adjusted the monthly expense accrual for
2 ad valorem taxes in late 1996 as a result of the success
3 of our appeal. Essentially, the accrual was stopped in
4 November and December 1996 as the Company had accrued a
5 sufficient level of expense for 1996 over the first ten
6 months of the year. Because the test year spanned the
7 twelve month period ended June, 1997, effectively the
8 test year reflects only 10 months of expense
9 (July-October 1996 and January-June 1997). The actual
10 ad valorem bills for 1996 and 1997 are $1,084,534 and
11 $1,135,046, respectively, as indicated in the response to
12 Intervenor Ullman's production request number twenty
13 seven. Thus, the rate case adjustment is $100,357 higher
14 than the actual 1997 tax bill.
15 Q. Does the Company have a record of pursuing
16 fairness and equity with regard to its property tax
17 appraisals?
18 A I believe the Company has done a good job
19 in representing its customers and owners on property tax
20 issues. The last two years the Company has filed
21 successful appeals of the Idaho State Tax Commission's
22 initial determination of our appraised value. In both
23 instances the lower appraisals and subsequent lower tax
24 bills were passed on to our customers as soon as
25 possible.
1050
Healy, Reb 29
United Water Idaho Inc.
1 (Testimony stricken, page 29,
2 lines 20-22, and page 30, lines 1-25.)
3
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5
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7
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9
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11
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13
14 /
15
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17
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19
20 /
21
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23
24 /
25
1051
Healy, Reb 29A
United Water Idaho Inc.
1 /
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22
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24
25 /
1052
Healy, Reb 30
United Water Idaho Inc.
1 /
2
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24
25 /
1053
Healy, Reb 30A
United Water Idaho Inc.
1 Adjustment for Salary and Benefits Survey Participation
2 Q In Order No. 27449, Case No. UWI-W-97-6,
3 the Commission indicated it expected the Company to make
4 an adjustment to reflect removal from its revenue request
5 of the expense incurred due to its participation in the
6 Western Management Group salary and benefits survey. Has
7 this adjustment been calculated?
8 A Yes and there is no impact. When I
9 investigated the level of test year expense associated
10 with the Company's participation in the survey, I found
11 that the billing was paid in July, 1997 and thus outside
12 the test year. The Company did not participate in the
13 survey the prior year. See Exhibit No. 30, which
14 indicates the billing and the general ledger timing of
15 the expense.
16 Quality of Test Year Data
17 Q Staff Witness Smith makes the assertion in
18 his testimony, starting at page 3, line 22, that due to a
19 change in the Company's accounting system, it raises the
20 question of the quality of the test year data used in
21 this case. What is your opinion of this assertion?
22 A I do not agree with Mr. Smith. At the time
23 that the cutover to the new activity based accounting
24 system, Company personnel ensured that all
25
1054
Healy, Reb 31
United Water Idaho Inc.
1 prior data was correctly and accurately converted. All
2 financial statements produced using the old system were
3 compared to the converted data in the new system to
4 assure integrity. As Mr. Smith points out in his
5 testimony, the Company is audited regularly by external
6 accounting firms to verify the accuracy and quality of
7 accounting transactions and to ensure that financial
8 statements are presented fairly. Therefore, there is no
9 basis for questioning the quality of test year data.
10 Q Does this conclude your rebuttal testimony?
11 A Yes.
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1055
Healy, Reb 32
United Water Idaho Inc.
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER NELSON: Mr. Fothergill.
4 MR. FOTHERGILL: No questions.
5 COMMISSIONER NELSON: Ms. Ullman.
6 MS. ULLMAN: Thank you. I have a number of
7 questions.
8
9 CROSS-EXAMINATION
10
11 BY MS. ULLMAN:
12 Q Mr. Healy, you just stated that with regard
13 to ad valorem taxes, you used a nine-year trend in
14 determining the appraised value. Did you actually mean
15 trend or did you mean average?
16 A I meant average. Pardon me.
17 Q Okay. If we were looking at a trend, for
18 example, on your Exhibit No. 28 from your rebuttal
19 testimony, starting with the reporting year of 1990, the
20 percent difference increase in appraised value from '90
21 to '91, and I will round for simplicity's sake, was 15
22 percent, from '91 to '92 was 12 percent, from '92 to '93
23 was 9 percent, '93 to '94 was 8 percent, '94 to '95 was 4
24 percent, and then only actually that percent change
25 increase between '95 and '96 to 6 percent; is that
1056
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 correct?
2 A Those are -- yes.
3 Q So if we were looking at the trend, the
4 percent difference really has mostly been going down over
5 the '90s as far as the change in increase? Is that
6 mixing too many increases and decreases in one sentence?
7 A Well, I see it going up three times and I
8 see it going down four times.
9 Q Not the appraised value. The percent
10 change in appraised value.
11 A That's what I was referring to, yes. I see
12 it going -- from '89 to '90, I see it going up. From '90
13 to '91, I see it going up. From '95 to '96, I see it
14 going up, the percent change. The other four years I see
15 it going down.
16 Q And if you start with the data from the
17 change between '90 and '91, the 15 percent --
18 A Yes.
19 Q -- it has for several years now generally
20 been going down, correct?
21 A It went down for one, two, three, four
22 years in a row, and then it went up last year.
23 Q Now, you've talked about fairness to the
24 Company. The actual ad valorem tax bill the Company will
25 have to pay is the product of two numbers, the Idaho
1057
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 market value and the average levy, correct?
2 A Yes.
3 Q And you have insisted for this case on
4 increasing the Idaho market value but not changing -- not
5 projecting a change in the levy despite the fact that the
6 levy for a number of years has been going downward,
7 correct?
8 A That's what I proposed, yes.
9 Q Okay. Are you familiar with the
10 legislation now in law which is currently -- or popularly
11 referred to as the 3 percent budget cap?
12 A Yes.
13 Q Are you aware that that legislation, that
14 law became effective in tax year 1995?
15 A I believe that's correct, yes.
16 Q Would you agree that that would have some
17 impact on the amount of ad valorem tax the Company would
18 be having to pay for the years from 1995 through 1997,
19 1998?
20 A Not being a property tax expert, I would
21 hope that it would have some downward impact, but our
22 experience has been otherwise. That's why we felt it
23 necessary to appeal several times in a row and, not to
24 mention, take the State Tax Commission to court.
25 Q But you were actually appealing market
1058
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 value of your own -- of the Company's property. You
2 weren't appealing what the budgets that were being set by
3 the taxing districts were.
4 A That's correct.
5 MS. ULLMAN: Okay. With your permission,
6 Mr. Chairman, I have a couple of exhibits, a copy of the
7 3 percent budget cap law just for the record, as well as
8 some notes, which I suppose I could read verbally, but
9 since there are a lot of numbers, I felt it would be
10 better if I made a copy of my notes.
11 COMMISSIONER NELSON: All right. I think
12 we could take official notice of the state law, but if
13 you want to introduce it.
14 (Ms. Ullman distributing documents.)
15 COMMISSIONER NELSON: We'll mark Idaho Code
16 63-802 as Exhibit 427 and a copy of notes on ad valorem
17 adjustments as 428.
18 (Intervenor Sharon Ullman Exhibit
19 Nos. 427 and 428 were marked for identification.)
20 Q BY MS. ULLMAN: All right. Mr. Healy,
21 since this tax change took effect for tax year 1995,
22 would you not consider the data available from 1995 to
23 the present to be a better indicator of what the future
24 holds than going back to years prior to that law being in
25 effect?
1059
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 A Not necessarily, Ms. Ullman, and let me
2 tell you why. The Company's tax bill is more impacted by
3 our appraised value than by our levy rate. That is why
4 we choose to attack the appraised value determination
5 rather than go to the county and discuss the application
6 of levy rates. We're quite comfortable that there's a
7 lot of pressure on local governments to keep taxes
8 reasonable and legislative mandate that they do so.
9 What we see is increasing tax bills for
10 United Water Idaho year after year, so we tend to --
11 we've chosen to apply our resources to where we see the
12 problem is, and that is in the appraisal process.
13 Q Certainly, Mr. Healy, from the Company's
14 perspective as far as which one of these numbers to
15 attempt to attack, that makes sense, but as far as
16 projecting out into the future, as you discussed, the
17 Commission takes known and measurable quantities when
18 they are in fact known and measurable. If not, then
19 there must be some speculation, some educated guesses
20 applied to the data, correct?
21 A Yes.
22 Q And you have actually chosen one out of the
23 two factors to change; is that correct?
24 A Yes.
25 Q Okay. And then I guess I have another
1060
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 suggestion which I guess I would like your opinion.
2 Instead of trying to argue how much the levy is going to
3 go down, if at all, and how much the market value is
4 going to go up, if at all, what if we simply look at the
5 tax bills themselves? And that is what I've attempted to
6 do if you will look at -- I didn't get which one of these
7 you marked which exhibit -- the ad valorem adjustments
8 note.
9 COMMISSIONER NELSON: 428 is the ad
10 valorem.
11 Q BY MS. ULLMAN: Exhibit 428. I just chose,
12 since I have the data from 1993 to '97, using all of that
13 data for your average. I also did a two-year average.
14 You could use a three-year, you could use a one-year, but
15 in all four of those cases which I have calculated, there
16 would be an additional adjustment downward in the amount
17 of tax the Company will actually have to pay for the tax
18 year 1998, an adjustment. Wouldn't that be more fair to
19 use the actual tax bill rather than debating which
20 direction and how much each of these two factors will be
21 going up and down?
22 A I don't necessarily agree with that. I'm
23 privy to what our capital requirements are in the coming
24 year. I'm privy to the fact that we're expanding the
25 Marden Street treatment plant. I'm familiar with the way
1061
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 that the State Tax Commission appraises our property on
2 cost basis as one of their major items, so in my
3 consideration of what the proper methodology would be
4 here, I understand how certain investments will impact
5 the State Tax Commission's appraisal. We could
6 probably -- I mean, looking at the tax bills is certainly
7 relevant, and what I see is a tax bill that increases
8 every year.
9 Q Mr. Healy, have I questioned that the tax
10 bill for 1998 will increase?
11 A You've questioned by the amount that it
12 will increase, yes.
13 Q Yes, exactly, and that is the question, is
14 it not, that we need to determine how much that tax bill
15 will increase, how much the tax bill will actually be in
16 order to establish a number that is fair to not only just
17 the Company but to the ratepayers as well?
18 A Precisely.
19 Q Okay. And you seem to have some expertise
20 as far as the Idaho market value, but you claim ignorance
21 with regard to the levy.
22 A I'm not sure, ma'am, I said ignorance.
23 Q Okay. As far as the levy, you don't know
24 where it's going; is that correct?
25 A I think as I mentioned in my testimony the
1062
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 other day, my guess would be that it will decrease a
2 bit. My personal opinion is that the levies are being
3 crunched in a diminishing -- that the amount of decrease
4 has gotten smaller and smaller and smaller as the
5 property taxes have been squeezed about as far as they
6 can be squeezed. I believe I admitted that it may go
7 down a bit.
8 Q But you've made no effort to figure out
9 what that adjustment might be in order to figure out a
10 fair number -- you know, to determine what a fair number
11 would be as far as fairness to both the Company and the
12 ratepayers. May I ask why not?
13 MR. MILLER: To some point, these questions
14 are becoming argumentative and repetitive, it seems like.
15 MS. ULLMAN: Mr. Chairman, I'll withdraw
16 the question.
17 COMMISSIONER NELSON: Sure.
18 Q BY MS. ULLMAN: Do you see the Exhibit 428,
19 the two calculations for your average percent change and
20 the two-year average percent change, as reasonable
21 methods by which a case can also be made, a case like you
22 have made for the numbers you have used?
23 A You know, I just got these. I haven't had
24 a chance to check the arithmetic. Assuming everything
25 were correct, you could argue that this would be a proper
1063
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 way to do it. But without a chance to run the numbers
2 and check all the math, there are many methods this could
3 be done.
4 Q Okay. Moving on to another subject, you
5 heard the question that I asked of Mr. Linam and I
6 wondered -- I saw some discussion taking place. Are you,
7 as an accounting person for the Company, familiar with
8 the salary being paid to Mr. Hill?
9 A Mr. Hill, Mr. Walton Hill?
10 Q Yes.
11 A No, I'm not.
12 Q Okay. Are you familiar with the cost that
13 is being incurred by the Company to bring representatives
14 from New Jersey as far as the air fare, hotel, and other
15 expenses such as meals?
16 A I haven't seen the bills. I will see the
17 bills, so, sure, I'll be familiar with that.
18 Q Okay. Would you agree that it costs more
19 to bring people here from New Jersey than if those people
20 were here in Boise already?
21 A I would assume that would be true, yes.
22 Q I would like to draw your attention, I
23 think, to your testimony, page 18 starting with line 14,
24 where it discusses the contrast I had made between the
25 $50,000 intervenor funding level and the Company's
1064
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 $300,000 cost. I would also like to draw your attention
2 to Exhibit No. 5, schedule 1, and I need to ask for a
3 clarification.
4 On Wednesday, you testified that the
5 $300,000 projected rate case expense for this case
6 included the $50,000 worth of intervenor funding?
7 A Yes.
8 Q But in this breakdown, it appears that
9 expenses not including that $50,000 add up to $300,000.
10 A That 300,000 is an estimate that includes
11 intervenor funding, frankly, at a level of 25,000. It's
12 not itemized there. That was my error. With the 25,000
13 intervenor funding, I would stick by the estimate of
14 300,000 in rate case expense.
15 Q Okay. Again, I guess I'm confused. If you
16 take the amounts detailed here, the UWM&S rate department
17 personnel of 170, the UWM&S legal counsel of 15,000,
18 outside consultants of 65,000, and outside legal counsel
19 of 50,000, that already adds up to 300,000. Am I -- I
20 don't see anything as far as intervenor funding. Am I
21 missing something?
22 A No. As I indicated, I'll stick by the
23 three hundred as the estimate. The itemization of
24 estimate, I was incorrect in not breaking out intervenor
25 funding. If I had an opportunity to restate that, I
1065
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 would drop the amount of M&S and include the intervenor
2 funding.
3 Q Okay. The UWM&S rate department personnel
4 and legal counsel, can you tell me where they are
5 located?
6 A In the corporate office.
7 Q Where in the --
8 A New Jersey.
9 Q In New Jersey?
10 A Uh-huh.
11 Q And in discussing whether the rate case
12 expense is reasonable or not, could you -- if you have
13 any specific knowledge, could you attempt to contrast the
14 salaries paid to the UWM&S employees at corporate
15 headquarters in New Jersey versus salaries paid in Boise,
16 Idaho?
17 A Well, actually, I could do that quite --
18 well, somewhat directly. I worked in Boise, Idaho. I
19 moved to Philadelphia in 1994. I was offered a position
20 in New Jersey in 19 -- actually, I moved to Philadelphia
21 in '93. In '94, I was offered a position in New Jersey.
22 I don't remember the exact numbers, but I don't recall
23 there being a substantial increase offered to me to
24 relocate to New Jersey.
25 Q In talking about the salaries of United
1066
CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 Water employees, there was a comparison made to letter
2 carriers, postal service employees, but wouldn't it be
3 equally valid to compare the skills and ability of a
4 United Water meter reader to, say, for example, a
5 McDonald's employee who has the risks of hot oil,
6 standing on their feet all day serving customers, angry
7 customers and so on? Would there not be a similar skill
8 level needed to do that as there is to walk from meter to
9 meter and read meters?
10 A Not in my opinion.
11 Q But you do believe that a letter carrier is
12 a reasonable comparison to a meter reader?
13 A Mr. Linam made that comparison just by way
14 of a validity check. To me, the best way is to compare
15 with similar companies that have people in similar
16 positions, and the information I have in that area shows
17 that our employees are paid commensurate with what the
18 market pays people of that skill level. I'm not aware of
19 any employees that do french fries at McDonald's that
20 make that kind of money, but I'm not an expert in
21 assessing the market trends that set those wages either.
22 Q What kind of background does the Company
23 require for a meter reader?
24 A I am not totally familiar with the
25 requirements of that meter reader position.
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1 Q How about level of education required?
2 A I don't have that off the top of my head.
3 Q Do you know how long it takes to train
4 somebody to become a meter reader?
5 A To become -- I have some knowledge there.
6 I would say it takes probably up to a year to get
7 somebody as efficient as we'd like them to be in reading
8 meters.
9 Q So over the course of the first year
10 they're employed, they increase in efficiency; is that
11 correct?
12 A Yes.
13 MR. MILLER: Pardon me, Ms. Ullman.
14 Mr. Chairman, I wonder if it's appropriate
15 at this point to suggest that these questions are
16 immaterial with respect to the overall amount of rate
17 increase that will or won't occur in the case. They're
18 absolutely infinitesimally small.
19 I know the Commission has questions. We're
20 getting short on the amount of time. Should there be
21 some materiality limitation on questions is what I guess
22 I'm asking.
23 MS. ULLMAN: Mr. Chairman, I'd be willing
24 to withdraw that question.
25 COMMISSIONER NELSON: Well, thank you. I
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1 would appreciate it if you'd stick to Mr. Healy's
2 testimony and your questions concerning his testimony.
3 Q BY MS. ULLMAN: Mr. Healy, you provided two
4 tables from the 1995 occupational employment and wages
5 publication of the state. The Boise City metropolitan
6 statistical area data is apparently no longer being
7 maintained for the more recent report which I used.
8 But drawing your attention to the two pages
9 from Table 14 that you just provided, if you look at the
10 wages, the average wage of the meter readers for
11 utilities of $13.42, subject to a check on my
12 calculation, would that not still be 36.3 percent lower
13 than United Water is paying its meter readers?
14 A I guess if you wanted to compare three- or
15 four-year-old data with today's data, I would agree that
16 your statistical analysis is correct.
17 Q Actually, the data I have, would that not
18 be out of date now? Do I understand that all United
19 Water employees received a salary increase in April, or
20 was that only specific employees?
21 A Actually, this year I believe it applied to
22 all or virtually all employees.
23 Q So I am also using somewhat out-of-date
24 data for the Company, correct, the information supplied
25 to me in response to a production request, which is now
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1 marked Exhibit 420?
2 A Did you refer to a meter reading rate of
3 18.84 an hour?
4 Q 18.29 an hour.
5 A Okay. That sounds like it may be the rate
6 that was in effect prior to April 1st of '98.
7 Q Okay. Making the same type of comparison
8 for a treatment plant operator between the data that was
9 originally supplied to me by the Company of $19.55 an
10 hour to the average wages on Table 14 which you just
11 supplied, the average wage of $12.61 an hour, is United
12 Water not paying 55 percent more than that, again given
13 the adjustment for the couple of years difference?
14 A Well, I'd say that that's an adjustment
15 that is quite pertinent in this case. As I've already
16 stated, I'm not aware of the training requirements that
17 other companies do or do not put on their employees in
18 these types of positions. I am aware of some of the
19 training requirements that United Water imposes on their
20 employees, so I guess I don't like comparisons of
21 three-year-old data to current data.
22 MR. MILLER: Mr. Chairman, I'm going to
23 renew my objection as to materiality and waste of time.
24 MS. ULLMAN: Okay. Mr. Chairman, I'll --
25 MR. MILLER: There's a $4 difference
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1 between the wage for four employees. That's $16 a month,
2 $192 a year. We're spending all sorts of time over $192
3 a year.
4 MS. ULLMAN: Mr. Chairman, I'm willing to
5 withdraw the question. I think the point has been made.
6 I have only one last line of questioning.
7 COMMISSIONER NELSON: Thank you.
8 Q BY MS. ULLMAN: Mr. Healy, referring to
9 page 27 of your rebuttal testimony starting with line 2,
10 you stated, "However, I need to clarify one statement
11 Ms. Ullman makes that 'Mr. Healy refused to verbally
12 provide the value of the most recent bonus received by
13 Mr. Linam'."
14 And then a question is asked of you, "Is
15 this statement accurate?"
16 You replied, "Hardly. On the day her
17 testimony was due, Friday, March 6th, Ms. Ullman called
18 the Company with three areas of inquiry. I was able to
19 accommodate her first two requests in full but was unable
20 to get to the information I needed to fully answer her
21 third question on short notice. She subsequently asked
22 the same question in interrogatory form and the Company
23 fully answered. I object to the connotation of the word
24 'refused' as Ms. Ullman has used it."
25 Mr. Healy, did you not tell me that you
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1 referred the question to your attorney and were told to
2 deny access to that information to me at that time?
3 A I don't recall saying that.
4 Q Mr. Healy, are you aware that in the state
5 of Idaho it is possible to tape-record a telephone
6 conversation with the permission or the approval of only
7 one of the two parties of that telephone conversation?
8 A I can't say as I was aware of that, and I
9 guess I'd reiterate I didn't say that I didn't say it. I
10 just said I don't recall saying it.
11 Q Okay. But you are -- let me -- do you
12 realize that it makes a person very suspicious when
13 information is not provided in response to a question?
14 A I guess, Ms. Ullman, my position on that is
15 I don't know of any time in this case when the Company
16 missed any deadline with respect to any data request or
17 interrogatories from the Staff or intervenors. I recall
18 the day that you called. I recall my efforts to answer
19 your questions. I recall it being on the day your
20 rebuttal testimony was due. I recall being quite busy.
21 I recall accommodating several of your requests.
22 I don't recall telling you, although I'll
23 admit I may have asked -- I may have tried to get ahold
24 of Mr. Miller to see if I was under compulsion to answer
25 that question. When he clarified that that was an
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1 appropriate area to respond, we responded in your
2 interrogatory. So sometimes if you ask a question and
3 you don't get an immediate answer, the Company -- I try
4 and use prudence. I thought that was an area where
5 perhaps -- and I'm telling you I don't recall -- perhaps
6 I consulted Mr. Miller and perhaps he clarified it the
7 next day.
8 Q But you object to the connotation of the
9 word "refused" as I used it, but you did deny the
10 information to me at the time, correct?
11 A At that specific moment, I did not provide
12 the information you requested.
13 Q Okay. And the reason given had nothing to
14 do with the ability to find the information but rather
15 that the attorney did not want that information to be
16 revealed; is that correct?
17 A I took time to inquire as to that. You
18 know, it occurs to me I'll be more careful if you're
19 insinuating that our conversations are taped in the
20 future. But I did take the time perhaps to either run
21 that question by Mr. Linam, run it by Mr. Miller, and if
22 one of them was not available at my beck and call, it may
23 have taken me -- I was not able to respond to that
24 question the very day it was asked.
25 Q Mr. Healy, did you not refer me to later on
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1 when we got to the hearing, if I wanted to ask the
2 question, I believe you -- would you agree that you did
3 not tell me that you would get me the information as soon
4 as possible, for example -- I believe this was a
5 Friday -- the following Monday?
6 A I don't recall.
7 MS. ULLMAN: Okay. That will be all, thank
8 you.
9 COMMISSIONER NELSON: Thank you,
10 Ms. Ullman.
11 Mr. Woodbury.
12 MR. WOODBURY: Thank you, Mr. Chairman.
13
14 CROSS-EXAMINATION
15
16 BY MR. WOODBURY:
17 Q Good morning, Mr. Healy.
18 A Good morning.
19 Q I have some questions in a couple of
20 areas. I'm eliminating areas as we get into this.
21 Referring to your rebuttal testimony on
22 page 3, there is some discussion regarding removal of the
23 locator employee.
24 A Yes.
25 Q And substitution of a contract employee in
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1 its stead.
2 A Yes.
3 Q And you said that this was a recent
4 decision of the Company. I mean, it occurred after you
5 filed your direct testimony.
6 A Correct.
7 Q So when did this decision take place?
8 A I became aware of it between the time that
9 I filed my direct testimony and between the time I filed
10 my rebuttal.
11 Q Okay.
12 A So it occurred either late in the fourth
13 quarter of '97 or early in 1998.
14 Q Are locator requests seasonal in nature
15 generally? Do most of them come about during the
16 construction season or are they --
17 A I'm not in that area, but I've heard
18 discussion that the construction doesn't really slow down
19 much anymore in the wintertime, so I believe that
20 location requests are fairly consistent all year long.
21 Q And is the Company at a situation that the
22 number of requests that are coming in are just greater
23 than can be performed by your locator, Stan Mooney?
24 A I think that's the case.
25 Q Okay. And I note from looking at the
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1 Company's original work papers provided to Staff,
2 tab B-1, that Mr. Mooney, effective April 1, 1998, has a
3 base compensation of $40,934. Would you accept that
4 subject to check?
5 A Yes.
6 Q And the Company is asking -- the Company
7 here is estimating a contract cost of $58,240. Is that
8 per year?
9 A Yes.
10 Q And you state that that is based on a
11 historical level of locator requests, and are we talking
12 about the test year period, or which historical level are
13 we speaking of?
14 A I think generally, historical level being
15 recent information. The exact number is an operations
16 matter that I don't recall off the top of my head,
17 although I've seen a letter where the level was discussed
18 and these options were evaluated.
19 Q And would it be the Company's intention to
20 use this contract person only for the overflow that
21 Mr. Mooney is unable to do?
22 A My understanding is that the location
23 function has become much more complex, so the way I
24 understand it, the Company will use the contractor to do
25 the simpler locates that we're confident that they can
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1 handle and use the expertise of our locator to do the
2 more complex locates.
3 Q And you state that in the long run, you
4 would agree that the $58,240 on an annual basis is
5 perhaps more expensive than the Company's cost of an
6 employee for that period?
7 A No, I wouldn't agree.
8 Q Because you have more than $18,000 worth of
9 benefits above the base?
10 A That is -- I believe I have a rebuttal
11 exhibit that discusses --
12 Q You'd be making -- okay. What exhibit is
13 that?
14 You'd be taking out that car, the locator
15 car, also?
16 A Yes. Yes, there was a leased vehicle that
17 was in the original case for the locator that's been
18 removed. I believe it's Exhibit No. 21.
19 Q So when you state that in the long run, the
20 contractor will be the least expensive option, you're not
21 saying that the locator is the least expensive option
22 right now?
23 A Actually, we are saying that. In the
24 context of this case -- and you were correct when you
25 indicated that the salary for the position, the base
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1 salary is about $40,900. The Company also provides
2 benefits to that employee such as health care and
3 long-term disability and group term life and so forth.
4 The Company pays payroll taxes with regard to that
5 employee and so forth. The Company would have to provide
6 that employee a vehicle. If you total all those costs
7 up, they actually come up higher than the 58,240.
8 In the ratemaking protocol that I used in
9 this case, and on reflection perhaps incorrectly, the
10 locator does locate, that's all their job is, and that's
11 a function that we expense, so 100 percent of that
12 $41,000 annual wage plus all benefits will be expensed.
13 In the presentation in the case, I applied
14 the O&M -- the percentage of the overall company labor
15 that is capitalized against this. And again, if I had to
16 do it again, I wouldn't have presented it that way. But
17 the Company feels that in the future in direct
18 comparison, the cost of the contractor, even though it
19 appears marginally lower, our experience is that this
20 makes sense because the contractor frankly doesn't call
21 in sick and the contractor doesn't need vacation and so
22 forth, so we're not paying any benefits, we're not having
23 any lost time here.
24 Q Would the Company be -- is the Company
25 assessing the rest of its payroll to determine whether
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1 there's a cost benefit to contracting with them or like
2 secretarial pools?
3 A The Company has a number of services that
4 are contracted. Mr. Miller, for instance, is contracted.
5 Q Oh, I forgot about Mr. Miller.
6 A We believe that we have the proper blend of
7 employees and contract services.
8 Q I'm not -- I didn't mean to infer that the
9 Company should be doing that. I don't like it when it's
10 done.
11 I'd like to move on now to a discussion of
12 your Exhibit 22. And, unfortunately, that's also the
13 discussion of residual values and lease expense. Maybe
14 we can work through this quickly.
15 Exhibit 22 is the Company's essentially
16 cost benefit analysis. It purports to demonstrate the
17 benefits of leasing versus ownership; is that correct?
18 A That's one of the analyses that we've done,
19 yes.
20 Q Okay. And would you agree that the
21 methodology that's employed in this exhibit is
22 essentially the methodology that was presented to the
23 Commission in United Water's 96-3 case?
24 A Yes.
25 Q And this is the same methodology that you
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1 state has been presented and accepted by the majority of
2 states that United Water operates in, and you state that
3 on page 5?
4 A Yeah, that's my belief, yes.
5 Q Is that your belief based upon your
6 investigation?
7 A Through contacts in the M&S company,
8 through discussions with our rate personnel who routinely
9 present this type of information in other jurisdictions,
10 that's what I've been told.
11 Q When you use the term "presented," are you
12 talking about -- are you speaking of -- or when you use
13 the term "accepted," are you speaking of that in the same
14 context of your analysis of the Commission's Order 26671
15 where you believe that the Commission was convinced that
16 the Company's cost benefit analysis was correct?
17 A Could you direct me to where that is in my
18 testimony, please?
19 Q Page 5, question, Smith claims that the
20 cost benefit analysis that was provided to him in this
21 case is flawed and superficial and is no more convincing
22 than the similar information provided in 96-3. Your
23 answer was, apparently, the Commission was convinced
24 since they allowed the Company's claim, da-da-da, you
25 know, with adjustment.
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1 A Yeah. I guess my experience in looking at
2 items like this -- I mean, some items are very clear
3 what's been decided, some are not so clear, so I kind of
4 go to a level two analysis, which would be to look at the
5 revenue requirement that the Company put forth in our
6 make-whole case and compare that to the revenue
7 requirement that was allowed.
8 And, frankly, when I do that analysis, I
9 see a 92 percent allowance, so perhaps -- I believe, as
10 Mr. Linam said, I don't -- I don't pretend to know
11 exactly, and, frankly, I find this order a little -- I'm
12 not able to understand exactly what they were thinking,
13 so I to go that level two analysis and see that we
14 received 92 percent of the revenue requirement we asked
15 for.
16 Q Okay. You're a numbers person?
17 A I am a numbers person.
18 Q You indicate that the analysis was most
19 recently presented in Delaware and Pennsylvania, and did
20 you review the respective commissions' decisions in those
21 states?
22 A Actually, that information came to me via
23 our rate department, and I did not review those
24 decisions.
25 Q And do you know whether the Company's cost
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1 benefit analysis was contested in those states?
2 A Personally, I'm not sure if or to what
3 level. I believe that these cases were litigated. I
4 don't know to the extent that that particular issue was
5 an issue, frankly.
6 Q If I could refer you to your Exhibit 22
7 starting at page 6, and if you could just I guess accept
8 some of my calculations subject to check, would you agree
9 that that percentage of residual value to the original
10 cost for the '96 Ford Supercab 4 by 4 on page 6 after
11 three years is 32.8 percent? For purpose of comparison,
12 wouldn't we be using the figures the purchase price of
13 22,884 and the residual value of 7,500 shown on that
14 page?
15 A Not exactly. And the reason I say that is
16 if you look down several lines, there is the resale 20
17 percent above the unamortized balance and, in my opinion,
18 that is also residual.
19 Q Excuse me. Where is that?
20 A If we're looking in the top half of page 6
21 of 9 there in the lease analysis, the second line above
22 the line that separates that page says "resale 20 percent
23 above unamortized balance." And in our lease program,
24 there is a residual set, and then at the termination of
25 the lease, there is an additional residual that is
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1 received.
2 Q Okay. Would you agree, though, that the --
3 that $7,500 represents 32.8 percent of the purchase
4 price?
5 A That appears to be correct, yes.
6 Q And I'm talking ownership.
7 A I'm sorry. Are we on the top half of the
8 page or the bottom half?
9 Q Bottom half.
10 A We're on the bottom half of the page?
11 Q Yes.
12 A Okay.
13 Q And moving to page 7, similar calculation.
14 The residual percent for a 1997 Ford Contour after three
15 years is 35.7 percent?
16 A Correct.
17 Q Would you accept that?
18 A Yes, I would.
19 Q On page 8 of 9 of your Exhibit 22, a 1997
20 Ford F800 convertible cab and chassis, that after five
21 years, the percentage of residual value would be 18.6
22 percent. Would you accept that?
23 A I'm sorry. What page are we on now?
24 Q Page 8 of 9, Exhibit 22, just the very next
25 page.
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1 A 18 percent, yes, I'd accept that.
2 Q And finally on page 9 of Exhibit 22, the
3 assumed residual percentage of original cost after three
4 years for a 1997 Ford Taurus would be 36 percent. Would
5 you accept that?
6 A I'm sorry. On page 9 of 9?
7 Q Page 9 of 9, comparable calculation.
8 A Yes.
9 Q Are you familiar with Mr. Smith's Exhibit
10 No. 119?
11 A I am.
12 Q That shows United Water's actual historical
13 vehicle retirements. How do you reconcile the
14 assumptions in Exhibit 22 regarding residual values where
15 the Company's actual experience indicates on average the
16 Company has kept its vehicles for six years and recovered
17 over 30 percent of the original cost upon disposal?
18 A I have a couple issues with Exhibit 119,
19 and I'd like to kind of state my concerns about that.
20 The first would be that I don't know that
21 it's appropriate to compare the residuals received on
22 pickups, whether they be half-ton or three-quarter-ton or
23 one-ton, and equipment of that nature with residuals that
24 apply to heavy equipment like backhoes and dump trucks,
25 so in my analysis, I removed those items from Mr. Smith's
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1 schedule because I believe they fall into a different
2 class of equipment.
3 And I believe we had a discussion perhaps
4 yesterday that the information provided to Mr. Smith on
5 this schedule -- I believe this was an interrogatory
6 answer provided by the Company -- compares the purchase
7 price of the vehicle to the gross proceeds that were
8 received in fact I think in all cases. I could be wrong
9 on the first three where there's a small cost removed.
10 And my problem with that is that the
11 Company did incur disposal effort, although, obviously,
12 it wasn't recorded as cost removed, and that disposal
13 effort consists of the time and effort it takes Company
14 personnel to prepare these vehicles for disposal, and I
15 estimate that that runs at about $400 per vehicle by the
16 time the logos are removed and antennas are removed and
17 holes are plugged and so forth. And so when I adjusted
18 the schedule for those types of adjustments, I got
19 under -- I got right around a 25 percent overall
20 residual.
21 Q The Company did present analysis with
22 respect to three of the line items on Exhibit No. 119,
23 page 2 of 2. Did you take -- are you the one that did
24 that analysis?
25 A Essentially, yes.
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1 Q And did you make similar calculations for
2 the remaining vehicles on that page?
3 A I checked many of them, yes. I'd like to
4 indicate that the three I did the analysis on were three
5 that were randomly selected. I went back, I pulled the
6 investment work order, I got the specs on the vehicles.
7 And I say that because the three that I chose all
8 happened to have -- the lowest residual was 27 and they
9 went up to 34 percent, so I tried to pick three that I
10 felt were representative residuals.
11 Q But what you had represented as being the
12 pattern or what your calculations demonstrated, did you
13 find that in looking at the other vehicles that your
14 conclusion would be supported by that?
15 A Actually, yes, I would agree with that
16 statement, my overall conclusion being that I believe the
17 NADA guide is a very poor indicator of the residual value
18 of our vehicles.
19 Q Have you ever borrowed money personally to
20 purchase a used vehicle?
21 A I believe I might have for my children.
22 Q And did you, the dealer, or the lender
23 refer to any authoritative source publication to
24 determine value?
25 A I assume they did.
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1 Q And what authoritative publication would
2 that have been?
3 A Oh, typically, if I'm buying a vehicle on
4 behalf of my kids or in conjunction with my kids, I look
5 at all kinds of information. I can't say as I've ever
6 looked at the NADA guide, but I look at other comparable
7 vehicles in the paper and so forth, I look in the things
8 you pick up in supermarkets, try and get a feel for what
9 a reasonable price is.
10 Q And did the dealer or lender refer to any
11 guide or did they do an analysis similar to yours?
12 A My experience would tell me they probably
13 use something like an NADA guide.
14 Q Looking at your Exhibit No. 24 corrected,
15 do you have that?
16 A I am getting there. Bear with me one
17 second.
18 Q That was that loose page that Mr. Miller
19 distributed earlier.
20 COMMISSIONER NELSON: Mr. Woodbury, let's
21 go off the record a second here.
22 (Off the record.)
23 COMMISSIONER NELSON: Let's press on.
24 THE WITNESS: I guess I would like to ask
25 counsel to provide me that exhibit. I can't seem to
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1 locate it.
2 (Document provided to witness.)
3 THE WITNESS: Thank you.
4 Q BY MR. WOODBURY: Are you familiar with
5 that exhibit?
6 A I am.
7 Q Is it correct to say that this comparison
8 assumes that in either case, leased or owned, the Company
9 would retain all the vehicles for a full five-year term
10 and at the end of that period would own outright all of
11 the vehicles with zero book value?
12 A I believe that's correct.
13 Q In calculating the revenue requirement for
14 the ownership scenario, you used the beginning net asset
15 value in each year; is that correct?
16 A It is.
17 Q And you added to this amount the net value
18 of an additional $30,000 investment for loaners; is that
19 correct?
20 A That's correct.
21 Q And in a given year, isn't the average
22 capital investment equal to the beginning net investment
23 plus the ending net investment divided by two?
24 A You know, I'd submit that in this case that
25 there are many investments that that methodology is not
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1 being used, but as a general rule, you know, I've done
2 that from time to time, yes.
3 Q Wouldn't you agree that that might be a
4 more correct way to make this comparison?
5 A I guess it depends what assumptions you
6 want to make when you make your analysis. I can't say
7 neither one would be incorrect. It would depend on the
8 assumptions that are made.
9 Q Would you agree that your comparison
10 presented in your exhibit completely ignores the residual
11 values upon disposal of the assets?
12 A This particular exhibit was intended to do
13 that, yes.
14 Q Page 11 of your rebuttal testimony at
15 line 3, you indicate that if a leased vehicle sells for
16 more than the depreciated value, the Company will receive
17 the difference.
18 A Correct.
19 Q And at page 12, line 7, you calculate an
20 adjustment to assume a 20 percent premium over the
21 lease's depreciated value. What effective residual value
22 was assumed by this adjustment?
23 A Essentially a 40 percent residual in three
24 years. The average -- the 35 vehicles we looked at here
25 had about a 3.6 year average life, so I reduced it to
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1 about 32 percent.
2 Q Does the Company's case assume that all the
3 leases will be terminated at the end of the initial lease
4 period?
5 A No.
6 Q It doesn't?
7 A Does the Company's case --
8 Q Yes.
9 A -- assume that?
10 Q Does your cost benefit analysis assume
11 that?
12 A Which one?
13 Q Exhibit No. 20, page 3 of 5, column L.
14 A And the question -- I'm sorry. The
15 question again was?
16 Q Does the Company's case in calculating that
17 adjustment, the $21,400, does the Company's case assume
18 that all of the leases will be terminated at the end of
19 the initial lease period?
20 A I think with respect to this group, that is
21 the assumption I made here.
22 Q Would it be then correct to say that the
23 Company's case does not consider any benefit for
24 extending vehicle lease terms beyond the initial term to
25 more closely approximate the period of time the Company
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CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 historically kept vehicles?
2 A I think it's hard to compare historically
3 how long we kept vehicles with how long we'll keep them
4 under the lease program.
5 Q I believe I'll leave that subject.
6 I have a question regarding page 23 of your
7 rebuttal. There's a discussion regarding depreciation
8 expense allowance for information technology.
9 A Yes.
10 Q And the Company proposed a 10-year
11 depreciation rate and the Staff proposed a 20-year.
12 Regarding the information technology, is all of this cost
13 strictly electronic computer equipment?
14 A No.
15 Q Is there some cost associated with
16 telephone and carrier equipment -- telephone carrier
17 equipment?
18 A Telephone carrier equipment? I'm not sure
19 what -- I guess if that relates to the ability of our
20 wide area network and so forth, yes, there is some of
21 that in there.
22 Q And doesn't much of the associated cost
23 include consulting fees and programming costs to design a
24 wide area network, numerous local area networks, and put
25 in place a new accounting system utilizing people
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CSB REPORTING HEALY (X-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 software?
2 A Generally, those are the nature of costs
3 that are in our investment.
4 Q And based on your prior experience,
5 wouldn't you expect most of these initial start-up costs
6 to have a life expectancy much greater than the
7 electronic computer equipment itself?
8 A Yeah, I would say that is my experience,
9 and that is why the Company depreciates the hardware over
10 five years, and investments related to information
11 technology that aren't hardware, we're proposing ten
12 years.
13 MR. WOODBURY: Okay. Thank you, Mr. Healy.
14 Mr. Chairman, Staff has no further
15 questions.
16 COMMISSIONER NELSON: Thank you,
17 Mr. Woodbury.
18 Commissioner Smith, any questions?
19
20 EXAMINATION
21
22 BY COMMISSIONER SMITH:
23 Q Just one easy question. When you buy power
24 from Idaho Power Company, do you know what schedule you
25 purchase from or do you have your own schedule?
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CSB REPORTING HEALY (Com)
Wilder, Idaho 83676 United Water Idaho Inc.
1 A No. Well, I'm assuming we're on the -- the
2 bulk of our power is purchased under Schedule 9, and I
3 think in terms of kilowatt-hours, 75 percent or perhaps a
4 little more than that, and the rest is purchased under
5 Tariff 7.
6 COMMISSIONER SMITH: Thank you.
7 COMMISSIONER NELSON: Thank you.
8 Redirect, Mr. Miller.
9 MR. MILLER: Just a couple of areas, if I
10 could very briefly.
11
12 REDIRECT EXAMINATION
13
14 BY MR. MILLER:
15 Q You indicated that regardless of the
16 underlying intent of the prior order with respect to
17 leasing expense, the Commission approved a level at 92
18 percent of the Company's requested amount for approval.
19 A Correct.
20 Q And in round numbers, what was the level of
21 expense approved in that case?
22 A I believe of the 241 requested, about 219
23 in rounds numbers was approved.
24 Q And in this case, Staff is recommending a
25 disallowance of what percent in round numbers?
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CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 A I believe it's in the area of 40 percent.
2 Q And the level -- and in round numbers, the
3 level of expense requested in this case is what?
4 A In the direct case, it was 286. Through
5 the Staff's audit -- or updating in the Staff's audit, we
6 eliminated two leases. Also, I recognized that I
7 theoretically should flow back some residuals that the
8 Company will be receiving at the termination of leases,
9 and I believe it's down in the 255 range right now.
10 Q In light of the fact that the Commission
11 approved in rough terms a similar level of expense in the
12 last case, do you consider the Staff's proposed reduction
13 of a similar expense by 40 percent to be fair or
14 reasonable to the Company?
15 A No, I don't.
16 Q Then just one last thing. During the
17 course of the preparation for this case, the Company
18 responded to production requests from Staff and
19 intervenors; is that correct?
20 A Yes.
21 Q And in round numbers, do you know how many
22 responses or requests you responded to?
23 A You know, I think the Staff might have had
24 somewhere in the seventies and intervenor Ullman up
25 around thirty, so a hundred, perhaps a few more than
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CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 that.
2 Q And with the exception of the one
3 disagreement -- or disagreement with respect to whether
4 or not one item was confidential, did any other -- any
5 party ever come to the Commission in the course of this
6 case and complain that United either hadn't responded or
7 that it had responded incompletely?
8 A Not to my knowledge.
9 Q In fact, the discovery process in this case
10 was completed without controversy; is that true?
11 A As far as I saw, it was.
12 Q And did the Company have a strategy of
13 being cooperative during the discovery phase in order to
14 avoid disputes and facilitate a smooth processing of the
15 case?
16 A I believe we did.
17 MR. MILLER: Thank you, Mr. Chairman.
18 That's all I had.
19 COMMISSIONER NELSON: Thank you,
20 Mr. Miller.
21 Mr. Healy, thank you for your testimony.
22 (The witness left the stand.)
23 COMMISSIONER NELSON: That would appear to
24 bring us to the end of the technical portion of this
25 case. Do the parties wish -- are there any additional
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CSB REPORTING HEALY (Di-Reb)
Wilder, Idaho 83676 United Water Idaho Inc.
1 matters or do the parties wish briefing?
2 Mr. Miller.
3 MR. MILLER: Just one very small matter. A
4 request has been made to supply Mr. Hill's hourly rate
5 for legal services, and we can now inform the Commission
6 that that is $138 an hour.
7 COMMISSIONER NELSON: All right. Thank
8 you.
9 MS. ULLMAN: Mr. Chairman, if I might just
10 make one comment. I don't know if it's appropriate for
11 not, but the Company was exceedingly cooperative as far
12 as responding to production requests and Mr. Healy as
13 well in those last-minute requests. The only point I was
14 making was that on the request that they did not want to
15 respond to, the management incentive as well as the
16 salary survey, that just naturally human nature is to
17 become suspicious when they do not respond as they had on
18 all the other requests. It was not to imply that the
19 Company was not cooperative. They have been exceedingly
20 cooperative.
21 COMMISSIONER NELSON: All right. Thank
22 you.
23 On the nature of -- on the matter of
24 briefing, is there any request for briefing?
25 MR. MILLER: Thank you, Mr. Chairman.
1096
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 First let me express the Company's appreciation for the
2 Commission's obviously thoughtful and careful attention
3 to our presentation. And as a result of that, on the
4 whole, we don't feel a need to burden you with a
5 recapitulation either in writing or orally.
6 There is, though, the one issue that we do
7 think would benefit from the opportunity for post-hearing
8 briefs just by the nature of the issue itself, and that's
9 the question of the appropriate capital structure to be
10 employed by the Commission. And we believe that a short
11 15 -- 10- to 15-page brief on that could be submitted in
12 14 days and we would request that opportunity. And, of
13 course, if any party desires a reply, that would be
14 appropriate. We wouldn't see the need for a response to
15 the reply.
16 COMMISSIONER NELSON: All right.
17 Comments?
18 MR. WOODBURY: No. Staff appreciates the
19 opportunity to file a responsive brief.
20 COMMISSIONER NELSON: All right. In that
21 case, we would allow the Company 14 days to file a brief
22 on their proposed capital structure. And how much time
23 would you need to reply, Mr. Woodbury?
24 MR. WOODBURY: Seven days starting the day
25 after we receive it.
1097
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Wilder, Idaho 83676
1 COMMISSIONER NELSON: So two weeks from
2 today you'll have a brief to us?
3 MR. MILLER: Yes, Mr. Chairman.
4 COMMISSIONER NELSON: And the following
5 Friday you'll have a response?
6 MR. WOODBURY: That would be fine.
7 COMMISSIONER NELSON: Any comments from my
8 colleagues?
9 MS. ULLMAN: Mr. Chairman, would it also be
10 possible to ask for permission to file a one-page brief,
11 no longer than one page, regarding salary comparisons
12 between New Jersey and Boise and the level of
13 appropriateness of salaries in Boise, Idaho?
14 COMMISSIONER NELSON: All right. I'll
15 allow that.
16 MS. ULLMAN: And I will restrict it to one
17 page. Thank you.
18 COMMISSIONER NELSON: And if the Company
19 wants to file a response, why, they would have a week to
20 do that. With that, why -- Mr. Miller.
21 MR. MILLER: Just one final item. There is
22 the lingering question that we've attempted to put before
23 the Commission with respect to the Commission's decision
24 as to when rates should become effective, whether they
25 should be implemented following this phase or at some
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CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 other time. Of course, the Company's position on that
2 is --
3 COMMISSIONER NELSON: Clear.
4 MR. MILLER: -- well-known, clear. In
5 fact, I guess I'm getting the impression the Commission
6 intends to make its decision on that issue as part of its
7 overall decision-making process, but just I guess for the
8 record want to indicate that that motion is still before
9 the Commission and ready for consideration and decision.
10 COMMISSIONER NELSON: All right. Thank
11 you.
12 I'd like to thank all the parties for their
13 diligence during this wearing three days and would just
14 say that we will advise the parties at the earliest
15 possible time. Thank you.
16 MR. MILLER: Thank you, Mr. Chairman.
17 (All exhibits previously marked for
18 identification were admitted into evidence.)
19 (The Hearing concluded at 12:10 p.m.)
20
21
22
23
24
25
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Wilder, Idaho 83676
1 AUTHENTICATION
2
3
4 This is to certify that the foregoing
5 proceedings held in the matter of the application of
6 United Water Idaho Inc. for authority to revise and
7 increase rates charged for water service, continuing at
8 1:20 p.m. on Thursday, April 23, 1998, and concluding on
9 Friday, April 24, 1998, at the Commission Hearing Room,
10 472 West Washington, Boise, Idaho, is a true and correct
11 transcript of said proceedings and the original thereof
12 for the file of the Commission.
13 Accuracy of all prefiled testimony as
14 originally submitted to the Reporter and incorporated
15 herein at the direction of the Commission is the full
16 responsibility of the submitting parties.
17
18
19 CAROLE A. WALDEN
Certified Shorthand Reporter #71
20
21
22
23
24
25
1100
CSB REPORTING AUTHENTICATION
Wilder, Idaho 83676