20221223_Veolia to Staff Attachment - Response to No. 97.pdf

VEO-W-22-02 IPUC DR 97 Page 1 of 1
VEOLIA WATER IDAHO, INC. CASE VEO-W-22-02 THIRD PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Wilson REQUEST NO. 97:
Please state whether the Company has performed a cost-benefit analysis to show that
leasing the vehicles is the least-cost alternative to owning its own fleet. Please provide a copy of
any cost-benefit analysis and explain how leasing the vehicles benefits customers.

RESPONSE NO. 97:
Please see attached for cost-benefit analysis on leasing versus owning our fleet vehicles.
Lease And
Ownership Overview
December 2022
Understanding The Benefits Of Lease
And Ownership Scenarios
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Critical Considerations
LEASE AND OWNERSHIP
Cash Constraints
•Do we have enough money
to fund ALL our vehicle
needs?
•Capital budget restrictions
shouldn’t drive replacement
policy
Cost Management
•Should cash be used on
core business or
depreciable assets?
•Internal rate of return vs
cost of funds
Asset Management
•Do we have the right data,
benchmarking and services?
•Improved asset
management enabled by
warehousing all fleet date in
our system
Administrative
•Are we spending too much
time on fleet activities?
•Is fleet our core competency?
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CRITICAL CONSIDERATIONS
Element Provides:
•Ordering/upfitting/delivery
•Tax/Title/Licensing
•Consolidated billing
•Asset management &
reporting
•Full-service program offering
•Consulting (complimentary)
through lifecycle of vehicle
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Common
Misconceptions
of Leasing
MISCONCEPTION
Control
Flexibility
Cost
Tax Benefits
TRUTH
Retain exclusive use of asset and
maintain control of vehicle
selection, operation, and cycling
Flexible rates (fixed or floating),
service life, and lease terms
Net Present Value of discounted
monthly lease payments is less
than single payment cash option
Benefit of rental tax paid monthly
vs. upfront sales tax in most states
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ANALYSIS
DISCOUNTED CASH FLOW (DCF)
•Uses time value of money to measure
present value of cash flows over a period
•What type of return do
investors/owners/the organization
expect on investments?
–Weighted Average Cost of Capital
(WACC)?
–Internal Rate of Return?
•Tax treatments varies with financing option
•Determine the most beneficial tax
arrangement for your company
–Lease payments typically deductible
as operating cost
–Modified Accelerated Cost Recovery
System (MACRS) is used to
determine deductible amount under
the other two options
Key Concepts in Lease And Ownership Analysis
TAX IMPLICATION
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Lease And Ownership Financial Analysis
Ford F150 XLT 4x4
Discount Rate 6.70%
Cap Cost (Lease / Own)$50,167 / $55,525
Interest Rate 5.700%
Management Fee (Lease / Own)0.030% / $7.00
Amort Term / Deprec Method 72 months / 5-year MACRS
1 2 3 4 46
Present Value Cost Per Unit Year 1 Year 2 Year 3 Year 4 Total
Ownership (With Cash)
Own Depreciation/Lease $52,463 $76 $71 ($22,193)$30,418
Own Fed Tax Benefits ($3,940) ($3,794) ($2,102) ($1,298) ($7,005)
Own Sales Tax $3,143 $0 $0 $0 $3,143
Own Interest on Deferred Taxes ($77) ($216) ($240) ($195) ($728)
Own Total $51,589 ($3,934) ($2,270) ($23,686)$25,827
Lease (Step Down - SD)
Lease Payment $11,332 $9,722 $8,689 ($1,410)$28,333
Lease Fed Tax Benefits ($2,390) ($2,738) ($2,449) ($2,272) ($7,773)
Lease Sales/Rental Tax $680 $583 $521 ($85)$1,700
Lease Interest on Deferred Taxes $0 $0 $0 $0 $0
Lease Total $9,621 $7,567 $6,762 ($3,766)$22,259 ← best option
Lease Benefit/(Cost) vs. Ownership $41,968 ($11,501) ($9,032) ($19,920)$3,568
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LEASE AND OWNERSHIP
Financing
•Capital (EBITDA friendly) or operating
lease
•Fixed or Float Rates
•Cash flow enhancements: Ability to pay
as you go with lease payments
Best Practices Flexibility
•Amortization terms
•No mileage or wear/tear penalties
•Service Life / Replacement timing (>12 MIS)
Freedom
•Choose optimal vehicle for job application
•Select lowest TCO option to minimize
fleet costs
•Why tie up bank lines or cash in non-
earning assets?
•Open end lease is flexible
•No mileage penalties
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