20230111Comments.pdf

RILEY NEWTON 6 D
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION 08
PO BOX 83720
BOISE,IDAHO 83720-0074
[phone]
IDAHO BAR NO.11202
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF GEM STATE WATER )COMPANY LLC'S APPLICATION FOR AN )CASE NO.GSW-W-22-01
ORDER AUTHORIZING AN INCREASE IN )ITS RATES AND CHARGES FOR WATER )SERVICE IN THE STATE OF IDAHO )COMMENTS OF THE
)COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission ("Commission")comments as follows
on Gem State Water Company,LLC's Application.
BACKGROUND
On July 21,2022,Gem State Water Company,LLC ("Company"or "Gem State Water")
filed an Application requesting Commission authorization to increase its rates and charges for
water service.The Company is a whollyowned subsidiary of NW Natural Water Company,LLC
("NW Natural Water"),which itself is a whollyowned subsidiary of NW Natural Holdings
Company ("NW Natural").As of September 1,2022,the Company served 1,040 customers.
The Company requested its Application be processed by Modified Procedure and that any
changes to its rates and charges be effective for bills rendered on or after September 1,2022.The
Company stated its proposed rate increase would increase Company revenues by $402,000 or
69.9%.Application at 1.
STAFF COMMENTS 1 JANUARY l 1,2023
The Company requested to incorporate the partial consolidation of rates into four systems
and incorporate proposed rates for the l 1/2-inch and 2-inch meter customers.The proposed
consolidation of rates and charges also applies to minimum customer volumes.Application at 1
and 2.
On September 6,2022,the Commission issued a Notice of Application,a Notice of
Intervention Deadline,and a Notice of Suspension of the Proposed Effective Date for 30 days
plus five months under Idaho Code §61-622.Order No.35498.No party intervenedin this case.
STAFF REVIEW
Overview
Commission Staff ("Staff")recommends a total revenue requirement of $682,248,an
increase in the Company's annual revenues of $107,648 or 18.7%.This revenue requirement is
based on a 9.5%Return on Equity ("ROE")and a hypothetical capital structure consisting of 45%
debt and 55%equity for a Weighted Average Cost of Capital ("WACC")of 7.41%applied to net
rate base of $944,552.
System Descriptions
Between 2019 and 2021,the Company acquired eight small non-contiguous water systems
located along a corridor of land between Athol,Idaho to the north and Coeur d'Alene,Idaho to
the south.The systems are briefly described below,moving from the northernmost system to the
southernmost.
Spirit Lake East ("SLE")is north and west of Athol and was acquired in 2019.It serves
344 connections to residences on ten-acre forested parcels.
LynnwoodEstates ("LE")is on the northern edge of Athol and was acquired concurrently
with SLE in 2019.It serves 47 connections to residences on five-acre forested parcels.
Bitterroot ("BR")is located about four miles south of Athol and was acquired in 2020.It
serves 129 connections to residences on five-acre parcels.BR is physicallyinterconnected with
the Rickel Water ("RW")system.
RW is immediately south and east of BR,and was acquired concurrentlywith BR.It
serves 39 connections to residences on five-acre parcels.
Bar Circle "S"("BCS")is about eight miles south of BR and was acquired in 2019.It
serves 253 connections to residences on five-acre parcels,as well as Garwood Elementary School.
STAFF COMMENTS 2 JANUARY l 1,2023
Diamond Bar Estates ("DB")is about three miles south of BCS,and four miles east of
Rathdrum,Idaho.It was acquired concurrentlywith BR in 2019.It serves 57 connections to
residences on five-acre flat parcels.
Happy Valley ("HV")is about five miles southwest of DB,and five miles northwest of
Coeur d'Alene.It was acquired concurrentlywith BR and RW in 2020.It consists of 24
connections to residences on five and ten-acre flat parcels.
Troy Hoffman ("TH")is located within the Coeur d'Alene city limits between Fourth and
Fifteenth Street,and Dalton Avenue and Day Road.It was acquired in 2021 and consists of 147
connections to residences on 1/4-acre parcels.
The eight systems are in various stages of readiness.Only BCS appears to be fully
compliant with the Idaho Department of Environmental Quality ("DEQ")standards for
community water systems.The other seven systems will require various levels of investment to
bring them into full compliance with DEQ.Four systems (SLE,LE,HV,TH)will require a
backup well to be drilled.Five systems (SLE,LE,BR,RW,HV)cannot meet the Maximum Day
Demand ("MDD")requirement if one pump fails.Six systems (LE,BR,RW,DB,HV,TH)need
emergency power and water storage upgrades to enhance service reliability and fire protection
capabilities.Most systems have manuallyread meters that cannot be accessed in the winter,and
some meters have access problems throughoutthe year.All of the systems will require
substantial future investments to become fully compliant and reliable.
The needed improvements notwithstanding,many system deficiencies have been corrected
by the Company since it assumed ownership.Extensive electrical repairs were completed to the
DB pumps in compliance with Order No.33578.1 Response to Staff Production Request No.20.
In addition,the Company has constructed a backup well in the DB system and other related
deficiencies have been addressed with the DEQ,in compliance with Order No.34416.2 Response
to Staff Production Request No.21.For the BR system,a Water Facility Plan has been
conditionallyapproved by the DEQ,thereby eliminating the system's disapproved status,in
compliance with Order No.34616.3 Response to Staff Production Request No.22.For the TH
I Case No.DIA-W-15-01.
2 Case Nos.DIA-W-19-01 and BCS-W-19-01 Acquisition by Gem State Water for Transfer of CPCN No.413 and 296
were filed concurrently.
3 Case No.GSW-W-19-01 Approval of Acquisition of Assets of Happy Valley and Bitterroot Amendment of CPCNs.
STAFF COMMENTS 3 JANUARY 11,2023
system,the Company completed a meter replacement program to address the issue of inaccessible
meters.Response to Staff Production Request No.23 at 3.
Allocation Method
In its Application,the Company used the number of customers to allocate costs over the
different water systems.This method is common among small water utilities and is the method
Staff used to allocate its adjustments.The Company has eight regulated water systems in Idaho,
making up 65%of its total customers,and two systems that are not regulated by the Commission
which make up the reaming 35%.Table No.1 -Allocation Method.
Table No.1 -Allocation Method
No.Water Systems Customers Composition
1 Spirit Lake 344 22%
2 LynnwoodEstates 47 3%
3 Bitterroot 129 8%
4 Rickel 39 2%
5 Bar Circle "S"253 16%
6 Diamond bar Estates 57 4%
7 Happy Valley 24 1%
8 Troy Hoffman 147 9%
Total Regulated ID 1,040 65%
9 Gem State Infrastructure ("GSI")515 32%
10 Pelican Point -Washington State 47 3%
Total 1,602 100%
Revenue Requirement
Revenues
Staff recommends a total revenue requirement of $682,248,which is an 18.7%increase in
billed revenue,and a total expense allowance,includingtaxes and depreciation,of $598,651.The
Company's test year revenue included $574,600 in billed metered residential revenue.Staff does
not propose any adjustments to the Company's test year revenues.Attachment No.1,lines 2-5.
STAFF COMMENTS 4 JANUARY l1,2023
OperatingExpenses
Salary
In its Application,the Company included pro forma employee costs.The Application
outlines the amount charged to all entities included in Table No.1.Staff used the 65%customer
allocation factor for Idaho regulated entities and included the amounts allocated to Idaho only.
The Company included seven employees,five full-time and two part-time.One of the part-time
employees is not employed year-round.The Company also included a pro forma adjustment of
364 hours of overtime,$300 in other compensation,insurance expense,and a matching 401(k)
expense.
Staff recommends several adjustments to the Company's salary expense.First,Staff
recommends an adjustment to overtime hours reducing overtime pay.Second,Staff recommends
an adjustment to actual salaries based on hours and the ability to hire.Third,Staff recommends
an adjustment to the workers'compensation premium calculation.Lastly,Staff recommends
adjusting the Company's 401(k)matching expense to the actual expenses incurred during the test
year.The combined adjustments remove $50,921 from the Company's payroll expenses.The
details of each adjustment are described in more detail below and outlined in Table No.2 -Salary
Adjustment.Attachment No.1 -Staff Adj.No.1.
Table No.2 --Salary Adjustments
Overtime Adjustment $(6,255)
Employee Time and Hiring Adjustment $(27,169)
Insurance Expense Adjustment $(8,568)
Workers'Compensation Premium Adjustment $(1,660)
401(k)Match to Actual Adjustment $(4,685)
Other Salary Adjustment -Payroll Taxes $(2,584)
Total $(50,921)
Overtime Adjustment
In response to Production Request No.45,the Company stated that it had overstated the
pro forma overtime hours.Instead of 364 hours of overtime,the Company stated that 132 hours
would be more accurate because several employees are on a salary and do not receive overtime
pay.Using the 132 overtime hours instead of 364 reduces the Company's overtime payroll
expense by $6,255.
STAFF COMMENTS 5 JANUARY 11,2023
Employee Time and HiringAvailability
The Company included a part-time office administrative assistant and a part-time seasonal
employee in its pro forma payroll calculations.The Company calculated the hours for the part-
time office position at 40 hours per week for the entire year.Because this is a part-time position,
Staff reduced the hours to 30 hours per week.Additionally,in the summer of 2022,the Company
was unable to fill the seasonal employee position.One of the significant functions of this position
was to assist with reading meters.As the Company moves to radio-read meters the need for this
employee will decrease.Because the Company was unable to fill this position,Staff recommends
removing this employee's salary from payroll expenses.The effect of this adjustment reduces the
Company's payrollexpense by $27,169 and decreases insurance expense by $8,568.
Worker's Compensation Premium
In calculating the worker's compensation premium for its employees,the Company used
two different rates:one for the office staff and one for the field staff.The Company applied the
office staff rate for half of the salary of the billingadministrator and the field staff rate for the
other half.The Company also applied the field staff rate to the part-time office employee.
Because the job duties of the billingadministrator and part-time office employee do not include
any field work,Staff recalculated the worker's compensation premium for these two employees at
the office rate,which reduces the expense by $1,660.
401(k)Match Contributions
In its proposed revenue requirement,the Company included a pro forma adjustment to its
401(k)matching contributions.Staff opposes this adjustment because the amount is not known
and measurable.The amount of future 401(k)contributions subject to the employer matching
contributions cannot be calculated with any certainty as employees can change their contribution
rate throughoutthe year.Additionally,employees can discontinue their own 401(k)
contributions;therefore,they would not be eligible to receive a company matching contribution.
In Order No.29838,the Commission confirmed that 401(k)matching contributions are not
known and measurable.Therefore,Staff removed the pro forma amount and recommends the
Company recover the actual 401(k)matching contributions incurred during the test year.This
adjustment reduces the Company's payroll expenses by $4,685.
STAFF COMMENTS 6 JANUARY l1,2023
Payroll Taxes
Adjustments to payrollexpenses have a corresponding adjustment to payroll taxes.The
net impact of the payroll adjustments above also reduces the Company's payroll taxes by $2,584.
Lease Adjustment
In its Application,the Company included a pro forma lease expense of $48,000 for renting
office space.In response to Staff's Production Request No.7,the Company attached a copy of
the lease agreement signed in August of 2022 with an annual lease amount of $20,592.Staff
adjusted the Company's rental property and equipment expense account by $27,408,the
difference in pro forma lease amount requested and the actual lease amount.Attachment No.1 -
Staff Adj.No.2.
Water Testing
Water testing requirements vary from year to year with the least frequent test required
every nine years.It has been standard practice to calculate expenses using a nine-year rotation
schedule,which essentially averages the annual recovery over the nine-year period.The
Company reported $1,623 in water testing expenses during the test year.Staff calculated the
annual amount to be recovered over a nine-year period to be $5,664,therefore,Staff proposes an
adjustment to increase the Company's water testing expenses by $3,741.Attachment No.1 -
Staff Adj.No.4.
Depreciation
The Company reported net depreciation expense of $114,917.After evaluating the
Company's depreciable assets,Staff adjusted the depreciation life of 24 different plant assets to
better align with National Association of Regulatory Utility Commissioners ("NARUC")
depreciation rates.The sum of these adjustments resulted in a net depreciation expense
adjustment of $40,230.Attachment No.1 -Staff Adj.No.6 and Attachment No.2 -
Depreciation Adjustment.
Miscellaneous Expense
The Company included $49,021 in Miscellaneous expenses in the test year,of which
$40,749 was in one account titled "General Operating Expenses (Wash)."The Company stated
STAFF COMMENTS 7 JANUARY l1,2023
that these expenses were mostly a double counting of expenses for its Pelican Point water system
located in Washington.Staff recommends that these expenses be removed from the Company's
revenue requirement as Idaho customers should not pay for expenses of a Washington system.
This adjustment reduces operating expenses by $40,749.Attachment No.1 -Staff Adj.No.10.
Geographic Information System ("GIS")
The Company started a GIS project to map all its water systems.GIS provides many
benefits but,due to poor record keeping for the systems prior to the Company's ownership,
mapping all the water systems will be a long-term project.The Company stated that 17%of the
Operator l's work time has been solely committed to this project.Staff recommends adjusting
17%of the Operator l's payrollexpenses and recording them to Construction Work in Progress
until the project is completed and placed in service.Table No.3 -GIS Labor Adjustment.Staff
recommends $8,101 of Operator l's salary,insurance benefits,workman's compensation
premium,and payroll taxes be capitalized and recovered after the GIS project is complete and
functional.Attachment No.1 -Staff Adj.No.11.
Table No.3 -GIS Labor Adjustment
GIS Labor Adjustment $(6,037)
GIS Employee Benefits Adjustment $(1,620)
GIS Other Salary -Payroll Tax Adjustment $(444)
Total $(8,101)
Gross Revenue Conversion Factor
The gross revenue conversion factor is based on revenue-sensitiveitems that change as
revenue changes,including uncollectibles,Commission regulatory fees,Idaho state income taxes,
and federal income taxes.The gross revenue conversion factor converts the Company's net
operating deficiency into the additional revenues necessary to collect from customers to earn its
authorized rate of return after accounting for all the revenue-sensitiveitems previously
mentioned.Staff adjusted the Company's gross revenue conversion factor to account for various
changes.In calculating the gross revenue conversion factor,the Company used an outdated
Commission assessment rate of 0.2529%.In Order No.35372,issued on April 14,2022,the
Commission approved an assessment rate of 0.1995%.Staff recommends using the current
STAFF COMMENTS 8 JANUARY l 1,2023
assessment rate of 0.1995%for the gross revenue conversion factor.Additionally,the Company
included a 6%Idaho corporate tax rate in its calculations.On September 1,2022,House Bill l
reduced the corporate tax rate to 5.8%.Staff recommends using the Idaho state tax rate of 5.8%
for gross revenue conversion factor calculation.Table No.4 below shows the calculation of
Staff's recommended gross revenue conversion factor.
Table No.4 -Gross Revenue Conversion Factor
Line Application Staff
No.Adj
1 Total Gross Revenues 1.000000 1.000000
2 Less RegulatoryFees (percentage)0.002529 0.001995
3 Net Revenue 0.997471 0.998005
4 State Income Tax 6.0%0.059848 5.8%0.057884
5 Federal Income Tax Base 0.937623 0.940121
6 Federal Income Tax 21.0%0.196901 0.197425
7 Net Operating Revenue 0.740722 0.742695
8 Net Income to Gross Revenue Multiplier 1.35003 1.34645
Rate Base
Plant-in-Service
The Company reported Plant-in-Service of $2,763,722 and an accumulated depreciation
balance of $1,428,485,for a net Plant-in-Service balance of $1,335,237.As outlined below,Staff
recommends an adjustment of $275,107to Plant-in-Service and $1,118 from accumulated
depreciation.
Prudenev of Capital Projects
Staff reviewed the prudency of capital investments claimed since each system's last rate
case,including the new company truck and the meter replacement program.Staff recommends
removal of $182,4644 of the $1,019,796 proposed as incremental Plant-in-Service,while allowing
$837,332 for rate recovery.Attachment No.1 -Staff Adj.No.12.
The Company claimed $185,780 in capital investments for the BCS system since its last
rate case in 2010.However,most of the amount is for investments made before the Company
4 Differencebetween Attachment No.1 and amount in Staff Comments is due to rounding.
STAFF COMMENTS 9 JANUARY 11,2023
acquired the system.The Company was unable to provide any supporting details for the
investments,includinga simple description of each investment.Response to Staff Production
Request No.47 at 3.The Company merely asserts the amount of each investment,the accounting
category,and the date of acquisition.Without additional justification from the Company,Staff
cannot determine the prudence of these investments and recommends disallowing the BCS capital
investments for 2010,2011,2017,and 2018 for a combined total of $162,310.
The Company also claimed $74,973 in capital investments for the SLE system since its
last rate case in 2013.Like BCS,some of this amount is for investments made.Two items only
described as "Misc.Equip"and a third with no description at all total $26,098.The Company did
not provide any supporting details for the investments.Response to Staff Production Request No.
47 at 2.Without additional justification from the Company,Staff recommends disallowing the
SLE capital investments described as "Misc.Equip"for 2017 and 2018,and the single blank
description in 2016 for a combined total of $20,155.
The single biggest capital investment claimed by the Company is for the installation of a
backup well,well pump,booster pump,and electrical infrastructure for the DB system.This
$452,481 investment was necessary to address DEQ deficiencies and to comply with Commission
Order No.34416.Staff believes these installations were prudent and cost-effective.
The remaining $384,851 of new capital investment includes items such as new pumps,
new meters,customer billing software,electronic payment software,remote system monitoring,
and network security.Staff reviewed the new capital investments and concurs that the new items
were needed,and the expenses incurred were prudent.
In sum,Staff recommends that the $837,332 of new investments,in addition to the
$1,596,675 of investments approved in previous rate cases,be determined prudent.
Company Vehicle
In May of 2022,the Company purchased a 2019 Ford F-350 for $87,150.The truck was
purchased for hauling large payloads includingportable generators,tools,pumps,and other heavy
equipment.Prior to the purchase,the Company was using employees'personal vehicles to
perform these activities.The Application listed several risks associated with using employees'
personal vehicles for work related activities.These risks include:
STAFF COMMENTS 10 JANUARY 11,2023
1.Relyingon employees to maintain personal vehicles used in utility operations.
2.Challenges related to succession planning for employees who leave because a
successor is required to own a vehicle suitable for work related activities.
3.A limited fleet if an employee is not available during vacation or sick time.
Staff agrees that the use of employees'personal vehicles is not sustainable,and that the
purchase of the truck was necessary for maintaining safe and reliable service.
After evaluating the market value of trucks with similar year,mileage,and make,Staff
concluded that the truck was overvalued by $9,058.The price adjustment was calculated by using
the Company's truck price before tax and other fees and reducing it by the average market price
of three online truck listings with similar year,mileage,and make.The truck prices used in the
analysis were found on the Edmunds and Carfax websites.Attachment No.3 -Company Truck
Adjustment.
In its Application,the Company failed to allocate a portion of the truck to its Washington
subsidiary,Pelican Point Water and Gem State Infrastructure ("GSI"),a non-regulatedservice
company.Using the Company's allocation method,Staff calculated an adjustment by multiplying
the total truck price by the percent of customers in Pelican Point Water and GSI.Staff
recommends an adjustment of $27,830 for the allocated portion to GSI and Pelican Point and a
$5,270 adjustment to depreciation expense.In total,Staff recommends an adjustment of $36,888
from Plant-in-Service and a $5,270 adjustment from depreciation expense.Attachment No.1 -
Staff Adj.No.3.
Well Pump Depreciation Adjustment
In July of 2021,the Company purchased two pumps for redundant reliability purposes.
During the on-site audit,Staff discovered that the two pumps were included in the Company's
Plant-in-Service but should have been placed in the Materials and Supplies inventoryaccount.
Both pumps have a deprecation life of 25 years and a total cost basis of $55,753.
To address the error,Staff reduced the Company's Plant-in-Service by $55,753 and added
$55,753 to the Company's materials and supplies inventoryaccount.Because the pumps were
removed from Plant-in-Service,Staff also reduced depreciation expense by $2,230 and added
back $1,118 in accumulated depreciation.Attachment No.1 -Staff Adj.No.5.
STAFF COMMENTS 11 JANUARY l1,2023
Contributions in Aid of Construction ("CIAC")
The Company failed to account for CIAC on the books for the TH,SLE systems,and BR
which merged with RW in 2018.Order No.34027.For each of the three water systems,Staff
recommends that CIAC be amortized at the 35-year meter depreciation rate.
The Application included a remaining unamortized CIAC of $9,307 for TH,but with no
amortization expense.However,SLE reported in its 2014 Annual Report a net CIAC of $70,050
and the BR/RW 2018 Annual Report presents a net CIAC of $158,231.Without any supporting
evidence that the CIAC amounts have been fully amortized,Staff recommends including the SLE
and BR/RW net CIAC amounts to offset Plant-in-Service by $237,588.Table No.5 -CIAC and
CIAC Amortization Expense Schedule.
Because no amortization schedule existed on the Company's books for the CIAC,Staff
recommends that $6,889 in total amortization expense be placed in account 407 -Other
Amortization as presented in Attachment No.1 -Staff Adj.No.7,No.8,and No.9.The
amortization of contributions will reduce depreciation expense by a total of $6,889.
Table No.5 -CIAC and CIAC Amortization Expense Schedule
System Original Company's Staff Accum.Amort.Amort.
Contributions Booked Adj.to CIAC Period Expense
CIAC CIAC Amort.in Years Schedule
Troy Hoffman $12,859 $9,307 $0 $0 35 $367
SLE $70,050 $0 $70,050 $0 35 $2,001
BR/RW $173,250 $0 $173,250 $15,019 35 $4,521
Total $256,159 $9,307 $243,300 $15,019 $6,889
Working Capital
Working capital represents the amount of cash and liquid assets that can be used to pay
expenses and short-term liabilities.It can be included in net rate base for the Company to earn a
return if it can show that the Company's owners were the source of the cash and liquid assets.
For small water companies,use of the 1/8th method for calculating working capital is widely
accepted.The 1/8th method calculates the amount of time between when the owners of a
company have to pay operating expenses and when recovery occurs from customers,which is
generally 45 days,or 1/8 of a year.Multiplyingthe amount of annual operating expenses by 1/8
STAFF COMMENTS 12 JANUARY l1,2023
provides a reasonable proxy for the amount of working capital to include in rate base for a small
water utility.This a common practice for small water utilities who cannot perform a more
complex analysis such as a lead-lag study.With this calculation,Staff recommends a working
capital of $69,726.Attachment No.1-Working Capital at 2,Line No.34.
Rate of Return
ROE
The Company proposed a 10.2%ROE in its Application.The Company based this
request on the Commission-approved ROE for Falls Water Company,Inc.,another subsidiary of
NW Natural Water,Order No.34925.The Company also claimed that its proposed hypothetical
capital structure of 55%equity/45%debt justifieda higher than usual ROE.
Determining a proper ROE is not an exact science.The objective of establishinga
reasonable ROE is to provide the Company with comparable earnings to other similar companies,
allowingthe Company to maintain its financial integrity and continue to attract the capital needed
to maintain service.However,a fair return established at one time may not be applicable at a
different time because of changing business risks,economic factors,and alternative investment
opportunities.
The Company's method and results of the calculation of its proposed ROE are limited.
ROE should be based on a detailed analysis of the Company's individual situation and not on
blanket statements and concepts.Though the Company proposed a hypothetical capital structure,
this proposed structure is typical for utility companies and does not justify special treatment in the
ROE calculation.Because the Company is a whollyowned subsidiary of NW Natural,investors
are not able to invest in directly.Evaluating the Company in isolation excludes the benefits of
having a large parent Company with better access to the capital markets and a credit rating from
major rating agencies.NW Natural's Credit rating is Al from Moody's and AA-from Standard
and Poor's ("S&P"),both of which are well into investment grade.
Staff used several methods to create a reasonable range for an appropriate ROE,including
the Discounted Cash Flow ("DCF")method and the Capital Asset Pricing Model ("CAPM").
Staff also compared the results of these two methods to the ROE agreed to in a settlement in NW
Natural Gas Company's,a whollyowned subsidiary of NW Natural,most recent rate case in
Oregon.Details of each analysis are included as Attachment No.4 -Return on Equity.
STAFF COMMENTS 13 JANUARY l1,2023
DCF Method
The DCF Method is premised on the theory that investors value a stock based on its future
stream of cash flows through dividends and growth.For the DCF Method to be useful in this
case,it is best to evaluate investor sentiment in NW Natural's stock.NW Natural is the entity
issuing stock for this organization.NW Natural's stock price closed at $45.47 on December 16,
2022.The 52-week high was $57.63 and low was $42.37.The fact that the current stock price is
towards the bottom of the 52-week range implies that investors are not necessarily willing to
purchase NW Natural's stock.Therefore,the DCF method may provide an analysis that
understates the return expected by investors.
There are 3 variables in calculating a DCF:
1.Stock Price (Staff's analysis is based on price on 12/16/2022,$45.47);
2.Dividend amount (declared of $1.93 per share);and
3.Growth rate (Staffused the average growth rate of dividends over the last six years,
or 0.51%).
Using the three variables,Staff calculated a DCF ROE of 4.754%.This is dramatically
lower than the Company's proposed ROE.The DCF ROE is primarily driven by the lack of
dividend growth,which is also driven by the lack of earnings growth.
CAPM
The final analysis Staff used to calculate a proper ROE was the CAPM.This model is
premised on the theory that riskier investments require a higher return than less risky investments.
The model describes the relationship between the expected return and risk of the investment.The
expected return is equal to a risk-free return plus a risk premium,or the difference between the
risk-free return and the market return.The risk premium is then multiplied by a risk
measurement,or Beta,to establish the amount above the risk-free return required to attract
investments.The CAPM formula is:
Expected Return =Risk-free Return +[Beta x (Expected Return on Market -Risk-free Return)]
For the risk-free rate of return,Staff used the one-year and 30-yeartreasury rates for 2022.
One-year treasury rates are used as an absolute risk-free rate,while the 30-year treasury rates are
used as an analog of a risk-free rate with the impact of inflation included.Staff also used the
STAFF COMMENTS 14 JANUARY 11,2023
most recent treasury rates available as well as the annual average which smooths out market
volatility.
For the market return,Staff used the return from the S&P 500 over the last ten years.This
is comparing relativelylarge and well-established companies as a surrogate for equivalent returns.
Staff also used the entire stock market returns since 2010 as a surrogate for equivalent market
returns.The Beta for Northwest Natural was reported as 0.53 by Yahoo Finance on December
16,2022.6
The variables result in a range of a CAPM ROE from 4.94%to 9.89%with an average
CAPM ROE of 7.32%.
Established ROE
The main source of revenue for NW Natural comes from its subsidiary,NW Natural Gas
Company.In 2020 and 2022,NW Natural Gas Company established a 9.4%ROE in its settled
general rate cases.The "Established ROE"method can be used to determine an ROE that the
parent company may expect for its primary regulated utilities.Thus,in this case,NW Natural,the
parent company of Gem State Water,could expect a similar ROE of 9.4%.
Rate of Return and Capital Structure
Staff's analysis results in a ROE range from 4.754%to 9.89%.Staff recommends the
Commission approve an ROE of 9.5%,which is at the higher end of the analysis and greater than
what NW Natural settled on in its last two Oregon general rate cases.The 9.5%ROE reflects that
Gem State Water,due to its small size and disparate systems,is at a slightlyhigher risk for
financial failure than NW Natural,while recognizing the benefit of equity raised by a large parent
company with easier access to capital.
An ROE of 9.5%produces a WACC of 7.41%when using the Company's proposed
capital structure.The proposed capital structure fairly represents an appropriate structure of
investor-owned utilities and matches other NW Natural owned water system's capital structure.
Table No.6 -Rate of Return and Capital Structure.
S https://finance.yahoo.com/quote/NWN/
STAFF COMMENTS 15 JANUARY 11,2023
Table No.6 --Rate of Return and CapitalStructure
Description Amount Percent Cost Company Staff Staff
of Total Proposed Proposed Proposed
Capital WACC Cost WACC
Debt $454,478 45.00%4.86%2.19%4.86%2.19%
Equity $555,461 55.00%10.20%5.61%9.50%5.22%
Total $1,009,939 100.00%7.80%7.41%
Rate Design
In its Application,the Company proposed to consolidate the eight separate water systems
into four consolidated rates for both the basic charge and volumetric charge.The Company also
requested that the adjusted rates be based on the American Water Works Association ("AWWA")
meter factor.Larger meter sizes create a larger demand and costs to the system,thus the need for
higher charges and higher minimum allotted usage.Staff agrees that the AWWA meter factor,as
outlined in the Application,should be applied across all water systems that have l 1/2-inch and 2-
inch metered customers.
The Company is also proposing to implement irrigation rates.The Company is not
currentlydifferentiating irrigation customers from residential customers.Staff recommends that
the irrigation rates for current irrigation customers be approved as filed and only be applied
during the spring and summer months.Attachment No.5 -Rate Structure at 3.
Consolidation Criteria
Consolidation of rates is necessary to mitigate future rate shock as investments are
required.Consolidation also provides operational benefits such as reducing system level tracking
of time,materials,and equipment,while ensuring the costs are being allocated properly.
Consolidation may also reduce administrative burden and improve customer service.On top of
the items the Company identified in the Application,Staff has applied additional criteria to
determine if consolidating rates is an appropriate rate structure.The followingare criteria that
Staff used to determine whether consolidation was appropriate:
1.Expected investments and impact on customer rates;
2.Administrative ease;
3.Revenue stability;and
STAFF COMMENTS 16 JANUARY l 1,2023
4.Conservation.
Staff weighed each criterion against different rate options,including the Company's
proposal,and recommends a partial consolidation of customer rates.Staff recognizes that fully
consolidating rates in this case would result in severe rate shock to customers in specific water
systems and will require additional rate cases.However,Staff's proposal is a step towards
consolidation.Staff recommends an increase to both the basic monthlycharge and volumetric
rates,and a decrease in the allotted usage included in the monthlybasic charge for most
customers as a step towards full rate consolidation.Attachment No.5 -Rate Structure.
Expected investments
The Company anticipates investing one to five million dollars into various water systems
within the next five years.Without consolidating rates,customers of the water systems that
require extensive upgrades would experience severe rate shock with increases above 300%.
Consolidating rates will spread those costs over a larger customer base and mitigate rate shock in
the future.
Administrative Ease
The Company stated that consolidating the water systems into four water rates would be
easier to understand for customers and the Company.It may also reduce staffmg hours and
provide additional efficiencies to offset future rate increases.Staff's recommended rate design
accomplishes the goal of administrative efficiency by consolidating rates into three groups with
two separate volumetric rates.
Revenue Stability
The Company is expected to make large investments in each system,including radio-read
meters,added storage,and redundantwater supply.By moving to a consolidated rate structure,
revenue stability will be achieved and may allow the Company to make investments at a more
rapid rate than it is currently.
Staff's proposed increase to the basic monthly charge will allow the Company to collect
47%of its revenue through the basic monthlycharge.Staff recommends increasing the basic
monthlycharge for customers who currentlypay less than $32.00.
STAFF COMMENTS 17 JANUARY l 1,2023
Conservation
Public water systems are required to have a redundant source of water.If water
conservation is encouraged,utilities managing public water systems may avoid expensive
investments in additional sources of water.Therefore,rates should be designed to encourage
conservation.Staff recommends rate structures that allow utilities to recover fixed costs and,
simultaneously,encourage conservation.
Without a rate structure that encourages conservation,the Company may be required to
buy more water which will increase customer rates.High usage customers increase rates for all
customers.Staff's proposed rate structure provides a price signal to high usage water users to
conserve.
Rate Structure
The majority of the Company's customers have large lots ranging from one-acre to
twenty-acres with no access to water other than what is supplied by the Company.To minimize
the need to add additional access to water,Staff is recommending a rate design that considers
each of the four consolidation criteria enumerated above by Staff.The rate design includes a
fixed monthlycharge with a decrease in the allotted volume,and multiplevolumetric rates.
Without radio-read meters,the Company cannot provide 12 months of usage data.
Reading meters is not possible during the winter months for some water systems.Without 12
months of usage data,it is not appropriate to implement a block rate structure.If the Company
provides 12 months of usage data,Staff may support additional rate blocks with increased
volumetric rates to further encourage conservation.The Company is planning to transition to
radio-read meters across all water systems and has already installed radio-read meters for the
entire TH system.
Basic Charge
The basic charge in the Company's tariffs includes a flat fixed rate which includes an
allotted volume.For example,LE,HV,and BR have allotted volumes greater than 10,000
gallons included in their basic charge.As outlined in the Application,there has not been a rate
increase or a rate adjustment for several water systems.To encourage conservation and move to
consolidation,Staff recommends increasing all basic monthlyrates and decreasing allotted
volume levels.
STAFF COMMENTS 18 JANUARY l1,2023
Staff recommends Staff's proposed basic monthlycharge and proposed allotted volume as
outlined in Attachment No.5.Staff has provided a comparison of the current rates,the
Company's proposed rates,and Staff's proposed rates reflecting differences in basic charges and
allotted volumes.
Volume Charge
The final adjustment to rates is the increase to the volumetric rate.The Company's
Application proposes that the systems that are consolidated into a common group share the same
volumetric rate.The Application moves the volume charge from eight rates to four rates.
Because current high-water users have high allotted volumes and low volumetric rates,there is no
incentive for customers to conserve.Staff's recommended volumetric rates move customers
closer to a fully consolidated volumetric rate for all water users.Attachment No.5 -Rate
Structure at 1,Line Nos.13 to 29.
Summary
Staff s proposed rate structure and consolidation includes the following:(1)adjusted basic
charge for all 1-inch meter,1 1/2-inch meter and 2-inch meter customers;(2)new rates for
irrigation meters (as proposed);and (3)Staff s proposed basic charge,volumetric rates,and
allotted volumes.Staff recommends the followingrate structure:
1.Basic Charge:
a.A basic charge of $32.00 for SLE,BCS,HV,BR,RW and TH systems;
b.No basic charge changes for LE and DB systems;
c.A $64.00 1 1/2-inch meter basic charge for SLE,BCS and HV systems;
and,
d.A $102.40 2-inch meter basic charge for SLE,BCS and HV systems.
2.Volumetric Rate:
a.No volumetric rate change for SLE and BCS systems;and
b.A $1.624 volumetric rate for the remaining six water system.
STAFF COMMENTS 19 JANUARY l1,2023
3.Allotted Volume:
a.A 7,500 gallon allotted volume be included within the basic charge with
any excess usage charged at Staff's recommended volumetric rates for the
SLE,BCS,DB,TH systems;
b.A 10,000 gallon allotted volume be included within the basic charge with
any excess usage charged at Staff's recommended volumetric rates for the
BR and RW systems;
c.A 15,000 gallon allotted volume be included within the basic charge with
excess usage charged at Staff's proposed volumetric rates for HV 1 1/2-
inch meter customers;and,
d.A 48,000 gallon allotted volume be included within the basic charge with
excess usage charged at Staff s recommended volumetric rates for all 2-
inch metered non-irrigationcustomers.
4.Irrigation Service:
a.The irrigation rate as filed (the allotted volume as proposed by the
Company be included within the basic charge and the volumetric rate for
usage in excess of the allotted volume for 1-inch meter,l 1/2-inch meter,
and 2-inch meters).
Non-Recurring Charges
The Company proposes to standardize the new connection ("hook up")fee for all water
systems at a rate of $5,500,plus the cost to bore or trench across the road,if required.The legacy
fees for this service range from $458 to $6,000,dependingon the system.The Company
confirmed that there is no preexisting service infrastructure installed for undevelopedlots within
any of its eight systems,so the scope of work to install a new connection will be consistent.
Response to Staff Production Request No.63.Staff reviewed recent third-partybids to install a
new water connection and the values ranged from $5,328 to $8,800.None of these bids included
the cost to bore or trench across a road.Therefore,Staff concurs with the Company's proposed
hook up fee for new connections.
The Company also proposed new tariff language that requires customers to pay the
accumulated monthlycharge or base rate if they disconnect and then reconnect service within 12-
months at the same premise.Staff concurs that rates are based on continuous service,and
STAFF COMMENTS 20 JANUARY 11,2023
customers should not be able to disconnect for a season and then reconnect to avoid the monthly
charge.
Finally,Staff concurs with the Company's proposal to keep the late payment charge,
reconnection fees,and return check fees unchanged from the original tariff.
CUSTOMER NOTIFICATION,PRESS RELEASE,WORKSHOP,AND CUSTOMER
COMMENTS
Customer Notification and Press Release
The Company submitted a Press Release and Customer Notice with the Application.The
customer notice was included as an insert in the customer billingsent to July 27,2022.A press
release was published in the Coeur d'Alene Press on July 29,2022.The Customer Notice failed
to mention the availability of the RSS Feed as outlined in the Commission's Rules of Procedure,
IDAPA 31.01.01,Rule 125.01.d.However,the volume of customer comments received either by
email to the Commission Secretary or the Case Comment Form on the Commission website
suggest that customers had sufficient notification and the ability to follow case progress.
Public Customer Workshop
A customer workshop was held on the campus of North Idaho College in Coeur d'Alene,
Idaho on Tuesday,November 15,2022,beginning at 6:00 pm.There were approximately thirty-
five people in attendance as well as Company representatives.The Customers represented most
of the different water systems and their concerns echoed those presented in customer comments
submitted to the case record.
Customer Comments
As of January 3,2023,101 customer comments have been received.The majority of the
customers,eighty-eight,were against the high percentage increases proposed by the Company.
Customers spoke against both the increase in the monthlycharge and the amount charged for
water used above the usage allowance.Customers raised concerns about the decreased monthly
allowance for water.Customers also cited the high inflation rate and the effect on customers with
limited income.A minority of customers recommended a phased-in approach to the increase in
rates,spread over time.
STAFF COMMENTS 21 JANUARY 11,2023
Customers also expressed concerns about low water pressure,lack of backup power
during outages,lack of backup wells,and response to emergency calls.
STAFF RECOMMENDATION
Based on Staff's audit and analysis of the Company's Application and system,Staff
recommends an annual revenue requirement of $682,248,consisting of a rate base of $944,552,a
ROE of 9.5%,and a WACC of 7.41%.Staff recommends the Company collect its revenue with
the metered rate design proposed by Staff in Attachment No.5.
Respectfully submitted this day of January 2023.
Riley Newton
Deputy AttorneyGeneral
Technical Staff:Travis Culbertson
Michael Eldred
Chris Hecht
Ty Johnson
Matt Suess
Joseph Terry
Jolene Bossard
i:umisc/comments/gsww22.lmrm comments
STAFF COMMENTS 22 JANUARY l1,2023
ATTACHMENT NO.1
TO
COMMENTS OF THE
COMMISSION STAFF
IN
CASE NO.GSW-W-22-01
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o
m
e
.
(8
4
,
3
7
6
)
2
,
5
8
4
-
5,
2
7
0
-
.2
,
2
3
0
40
,
2
3
0
3
6
7
2
,
0
0
1
4
,
5
2
1
-
44
4
-
,(
2
6
,
7
2
9
)
46
NE
T
In
c
o
m
e
(1
8
7
,
9
9
6
)
50
,
9
2
1
27
,
4
0
8
5,2
7
0
(3
,
7
4
1
)
2,2
3
0
40
,
2
3
0
36
7
2,
0
0
1
4,
5
2
1
40
,
7
4
9
8,1
0
1
-
(9
,
9
4
0
)
GS
W
-
W
-
2
2
-
0
1
Sta
f
f
Co
n
u
n
e
n
t
s
At
t
a
c
h
m
e
n
t
No
.
1
1
St
a
f
f
Ad
j
u
s
t
m
e
n
t
s
Sta
f
f
Ad
j
St
a
f
f
Ad
j
Sta
f
f
Ad
j
Sta
f
f
Ad
j
St
a
f
f
Ad
j
Sta
f
f
Ad
j
St
a
f
f
Ad
j
Sta
f
f
Ad
j
Sta
f
f
Ad
j
St
a
f
f
Ad
j
St
a
f
f
Ad
j
Sta
f
f
Ad
j
No
.
1
No
.
2
No
.
3
No
.
4
No
.
5
No
.
6
No
.
7
No
.
8
No
.
9
No
.
10
No
.
11
No
.
12
Lin
e
Co
m
p
a
n
y
Sa
l
a
r
y
et
Le
a
s
e
Co
m
p
a
n
y
Wa
t
e
r
Re
m
o
v
e
De
p
r
e
c
i
a
t
i
o
n
Tr
o
y
Am
o
r
t
Bit
t
e
r
r
o
o
t
Mis
c
.
GIS
La
b
o
r
Pl
a
n
t
-
i
n
-
St
a
f
f
Po
s
i
t
i
o
n
No
.
Ca
s
e
al.
Ad
j
Ad
j
Ve
h
i
c
l
e
Te
s
t
i
n
g
In
v
e
n
t
o
r
y
fr
o
m
Ad
j
Ho
f
f
m
a
n
SP
L
CI
A
C
Ad
j
.
Ad
j
u
s
t
m
e
n
t
Se
r
v
i
c
e
Ad
j
Ad
i
De
p
CIA
C
CI
A
C
Sa
l
a
r
y
'
BC
S
/
S
L
E
1
Pla
n
t
-
i
n
-
S
e
r
v
i
c
e
2
30
1
-
Or
g
a
n
i
z
a
t
i
o
n
3
30
2
-
Fr
a
n
c
h
i
s
e
s
an
d
Co
n
s
e
n
t
s
4
30
3
-
La
n
d
&
La
n
d
Ri
g
h
t
s
14
,
5
4
5
14
,
5
4
5
5
30
4
-
St
r
u
c
t
u
r
e
s
&
Im
p
r
o
v
e
m
e
n
t
s
40
,
4
3
8
40
,
4
3
8
6
30
5
-
Co
l
l
e
c
t
i
n
g
&
Im
p
o
u
n
d
i
n
g
Re
s
e
r
v
i
o
r
s
12
0
,
6
7
2
12
0
,
6
7
2
7
30
7
-
W
e
l
l
s
1,3
6
5
,
3
0
4
(1
4
7
,
9
6
9
)
1,2
1
7
,
3
3
5
8
30
9
-
S
u
p
p
l
y
M
a
i
n
s
84
,
3
1
9
84
,
3
1
9
9
31
0
-
Ge
n
e
r
a
t
o
r
s
14
0
,
8
8
0
14
0
,
8
8
0
10
31
1
-
Pu
m
p
s
&
Ac
c
e
s
s
o
r
i
e
s
41
0
,
8
9
1
(5
5
,
7
5
3
)
35
5
,
1
3
8
11
32
0
-
Pu
r
i
f
i
c
a
t
i
o
n
Sy
s
t
e
m
s
1,
5
0
4
1,
5
0
4
12
33
0
-
Di
s
t
r
i
b
u
t
i
o
n
Re
s
e
r
v
i
o
r
s
&
St
a
n
d
p
i
p
e
s
7,
1
9
5
7,
1
9
5
13
33
1
-
Tr
a
n
s
.
&
Dis
t
r
i
b
.
Ma
i
n
s
&
Ac
c
e
s
s
o
r
i
e
s
14
0
,
2
5
2
(1
4
,
3
4
2
)
12
5
,
9
1
0
14
33
2
-
Se
r
v
i
c
e
s
15
33
4
-
Me
t
e
r
s
12
9
,
4
3
1
12
9
,
4
3
1
16
33
5
-
H
y
d
r
a
n
t
s
4,
4
0
5
4,4
0
5
17
33
9
-
Oth
e
r
Pla
n
t
an
d
Mi
s
c
Eq
u
i
p
11
7
,
6
2
6
(3
6
,
8
8
8
)
(2
0
,
1
5
5
)
60
,
5
8
3
18
34
0
-
Off
i
c
e
Eq
u
i
p
m
e
n
t
12
0
,
8
3
4
12
0
,
8
3
4
19
34
3
-
To
o
l
s
&
Eq
u
i
p
m
e
n
t
l
1,
5
2
3
11
,
5
2
3
20
34
5
-
Po
w
e
r
Op
e
r
a
t
e
d
Eq
u
i
p
m
e
n
t
42
,
3
5
2
42
,
3
5
2
21
34
6
-
Co
m
m
u
n
i
c
a
t
i
o
n
s
Eq
u
i
p
m
e
n
t
5,7
2
8
5,7
2
8
22
34
7
-
Mi
s
c
e
l
l
a
n
e
o
u
s
Eq
u
i
p
m
e
n
t
3,
1
6
8
3,1
6
8
23
34
8
-
Ot
h
e
r
Ta
n
g
i
b
l
e
Pr
o
p
e
r
t
y
2,
6
5
5
2,6
5
5
24 25
To
t
a
l
Pla
n
t
-
i
n
-
S
e
r
v
i
c
e
2,
7
6
3
,
7
2
2
-
-
(3
6
,
8
8
8
)
-
(5
5
,
7
5
3
)
-
-
(1
8
2
,
4
6
6
)
2,4
8
8
,
6
1
5
26
Le
s
s
Ac
c
u
m
u
l
a
t
e
d
De
p
r
e
c
i
a
t
i
o
n
(1
,
4
2
8
,
4
8
5
)
1,
1
1
8
(1
,
4
2
7
,
3
6
7
)
27
Ne
t
Pl
a
n
t
-
i
n
-
S
e
r
v
i
c
e
1,
3
3
5
,
2
3
7
-
-
(3
6
,
8
8
8
)
-
(5
4
,
6
3
5
)
-
-
-
-
(1
8
2
,
4
6
6
)
1,
0
6
1
,
2
4
8
28
Le
s
s
Co
n
t
r
i
b
u
t
i
o
n
s
in
Ad
of
Co
n
s
t
r
u
c
t
i
o
n
29
Gr
o
s
s
Co
n
t
r
i
b
u
t
i
o
n
s
(1
2
/
3
1
/
2
0
2
1
)
9,3
0
7
70
,
0
5
0
17
3
,
2
5
0
25
2
,
6
0
7
30
Le
s
s
Ac
c
u
m
u
l
a
t
e
d
Am
o
r
t
i
z
a
t
i
o
n
(1
2
/
3
1
/
2
0
1
9
)
-
15
,
0
1
9
15
,
0
1
9
31
Ne
t
Co
n
t
r
i
b
u
t
i
o
n
s
in
Ai
d
of
Co
n
s
t
r
u
c
t
i
o
n
9,3
0
7
-
-
-
-
70
,
0
5
0
15
8
,
2
3
1
-
-
-
23
7
,
5
8
8
32 33
Ne
t
Pl
a
n
t
-
i
n
-
S
e
r
v
i
c
e
1,
3
2
5
,
9
3
0
-
-
(3
6
,
8
8
8
)
-
(5
4
,
6
3
5
)
-
-
(7
0
,
0
5
0
)
(1
5
8
,
2
3
1
)
-
-
(1
8
2
,
4
6
6
)
82
3
,
6
6
0
34
Wo
r
k
i
n
g
Ca
p
i
t
a
l
(1
/
8
of
Op
.
an
d
Ma
i
n
t
.
Ex
p
e
n
s
e
)
84
,
7
7
8
(6
,
0
4
2
)
(3
,
4
2
6
)
-
46
8
-
-
-
-
-
(5
,
0
9
4
)
(9
5
7
)
-
69
,
7
2
6
35
Ma
t
e
r
i
a
l
s
an
d
Su
p
p
l
i
e
s
-
55
,
7
5
3
55
,
7
5
3
36
De
f
e
r
r
e
d
Ta
x
e
s
(4
,
5
8
7
)
(4
,
5
8
7
)
37
To
t
a
l
Ra
t
e
Ba
s
e
1,
4
0
6
,
1
2
0
(6
,
0
4
2
)
(3
,
4
2
6
)
(3
6
,
8
8
8
)
46
8
1,
1
1
8
-
-
(7
0
,
0
5
0
)
(1
5
8
,
2
3
1
)
(5
,
0
9
4
)
(9
5
7
)
(1
8
2
,
4
6
6
)
94
4
,
5
5
2
GS
W
-
W
-
2
2
-
0
1
Sta
f
f
Co
m
m
e
n
t
s
Att
a
c
h
m
e
n
t
No
.
l
2
St
a
f
f
Ad
j
u
s
t
m
e
n
t
s
CA
L
C
U
L
A
T
I
O
N
OF
RE
V
E
N
U
E
RE
Q
U
I
R
E
M
E
N
T
Lin
e
Co
m
p
a
n
y
St
a
f
f
No
.
]
Ra
t
e
Ba
s
e
1,4
0
6
,
1
2
0
94
4
,
5
5
2
2
Re
q
u
i
r
e
d
Ra
t
e
of
Re
t
u
r
n
7.
8
0
%
7.
4
1
%
3
Ne
t
Op
e
r
a
t
i
n
g
In
c
o
m
e
Re
q
u
i
r
e
m
e
n
t
10
9
,
6
3
5
70
,
0
1
0
4
Ne
t
Op
e
r
a
t
i
n
g
In
c
o
m
e
Re
a
l
i
z
e
d
(1
8
7
,
9
9
6
)
(9
,
9
4
0
)
5
Ne
t
Op
e
r
a
t
i
n
g
In
c
o
m
e
De
f
i
c
i
e
n
c
y
29
7
,
6
3
1
79
,
9
5
0
6
Ne
t
Op
e
r
a
t
i
n
g
In
c
o
m
e
De
f
i
c
i
e
n
c
y
29
7
,
6
3
1
79
,
9
5
0
7
Gro
s
s
up
Fa
c
t
o
r
1.3
5
0
0
3
1.3
4
6
4
5
8
To
t
a
l
In
c
r
e
m
e
n
t
a
l
Re
v
e
n
u
e
Re
q
u
i
r
e
m
e
n
t
40
1
,
8
1
2
10
7
,
6
4
8
9
Re
v
e
n
u
e
s
at
ex
i
s
t
i
n
g
ra
t
e
s
57
4
,
6
0
0
57
4
,
6
0
0
10
To
t
a
l
Re
v
e
n
u
e
Re
q
u
i
r
e
m
e
n
t
97
6
,
4
1
2
|
68
2
,
2
4
8
|
11
Pe
r
c
e
n
t
In
c
r
e
a
s
e
Re
q
u
i
r
e
d
69
.
9
%
|
18
.
7
%
|
GS
W
-
W
-
2
2
-
0
1
St
a
f
f
Co
m
m
e
n
t
s
Att
a
c
h
m
e
n
t
No
.
l
3
ATTACHMENT NO.2
TO
COMMENTS OF THE
COMMISSION STAFF
IN
CASE NO.GSW-W-22-01
De
p
r
e
c
i
a
t
i
o
n
Ad
j
u
s
t
m
e
n
t
Co
m
p
a
n
y
Co
m
p
a
n
y
St
a
f
f
Ad
j
u
s
t
e
d
Li
n
e
Ac
c
o
u
n
t
Es
t
i
m
a
t
e
d
De
p
r
e
c
i
a
t
i
o
n
Ad
j
u
s
t
e
d
De
p
r
e
c
i
a
t
i
o
n
De
p
r
e
c
i
a
t
i
o
n
No
.
No
.
Ac
c
o
u
n
t
Ty
p
e
Ba
s
i
s
Li
f
e
Ex
p
e
n
s
e
Li
f
e
Ex
p
e
n
s
e
Ad
j
u
s
t
m
e
n
t
1
30
4
St
r
u
c
t
u
r
e
s
an
d
Im
p
r
o
v
e
m
e
n
t
s
$
70
8
15
.
0
$
47
20
.
0
$
35
$
(1
2
)
2
30
4
St
r
u
c
t
u
r
e
s
an
d
Im
p
r
o
v
e
m
e
n
t
s
$
12
,
5
0
6
4.
0
$
3,
1
2
7
20
.
0
$
62
5
$
(2
,
5
0
1
)
3
30
5
Co
l
l
e
c
t
i
n
g
an
d
Im
p
o
u
n
d
i
n
g
Re
s
e
r
v
o
i
r
$
39
,
8
1
8
25
.
0
$
1,
5
9
3
50
.
0
$
79
6
$
(7
9
6
)
4
30
7
We
l
l
s
an
d
Sp
r
i
n
g
s
$
50
5
14
.
0
$
36
25
.
0
$
20
$
(1
6
)
5
30
7
We
l
l
s
an
d
Sp
r
i
n
g
s
$
9,
4
2
7
14
.
0
$
67
3
25
.
0
$
37
7
$
(2
9
6
)
6
30
7
We
l
l
s
an
d
Sp
r
i
n
g
s
$
22
,
2
6
8
7.
0
$
3,
1
8
1
25
.
0
$
89
1
$
(2
,
2
9
0
)
7
30
7
We
l
l
s
an
d
Sp
r
i
n
g
s
$
67
,
0
3
0
14
.
0
$
4,
7
8
8
25
.
0
$
2,
6
8
1
$
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At
t
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No
.
2
1
ATTACHMENT NO.3
TO
COMMENTSOF THE
COMMISSION STAFF
IN
CASE NO.GSW-W-22-01
Company Truck Adjustment
2019 Ford F-150 Super Duty Crew Cab GSW Purchase Market Avg Price Allocation Total Truck
XL Price Truck Price Adjustment Adjustment Adjustment
Price before tax and other fees $74,995 $65,937 $(9,058)$(27,830)
Commerical Warranty $5,495
Commercial Maint.$1,935
Tax $4,512
Non Tax Fee $14
DocFee $199
Total Truck Price $87,150 $(9,058)$(27,830)$(36,888)
Adjustment (Percent of Total)10%32%42%
Dep Effect 7 year life $(1,294)$(3,976)$(5,270)
Truck No.2 Truck No.3 Diff of Company's
The Company's Truck No.I From From Avg Truck Truck and Avg
Truck Price Comparison Truck From Carfax Edmunds Edmunds No.1 -3 Truck
Price before tax and other fees $74,995 $61,599 $69,995 $66,217 $65,937 $(9,058)
Year 2019 2019 2019 2019
Mileage 35,977 39,049 59,893 40,958
Ford F-350 Ford F-350
Ford F-350 XL 4x4 Ford F-350 Lariat Lariat 4X4 SD Lariat 4X4 SD
SD Crew,Dual 4X4 SD Crew,Crew,Dual Crew,Dual
Make Rear Wheel Dual Rear Wheel Rear Wheel Rear Wheel
Truck No.1
9 Near Sauda CO <Share
2019 Ford F-350 Lariat
$61,599 39,049 mi
$7,541 below ·$69,140 CARFAX Value Q)
was SO on 10/19/2022 Show Price History
Vehicle History
No Accident or DamageReported
Truck No.2
2019 Ford F-350 Super Duty 569,995LariatdoCrewCab4WOLBDRW;62L Sevi SA)
Vehicle summary
o
Muemp 59.893 HOD evowet 450 hp
Es to>OMagnebcMetallic MaxicaineCana<¾2t000Ibs
O Black Leather Max Payna:Capaefy 6.540 lbs
Engine Olesel Bed L nym 87
Tiano,soon Automatic Da Rum Wheels Dual Rear Wheels
Onsekam FourWheelDrive Seats 52
Truck No.3
2019 Ford F-350 Super Duty
$66,217 A rair price
Vehicle Summary
a ge 40,958 maanpar 450 hp
Ext Eder Q Magnehe Metalhe Max Towing Capaety 2t0DO lbs
M*Colo Black Leather Max Pàvicad Cavay 6510 lbs
Enomo Diesel Bo tengin ST
Transtras 06 Automatic Dua;Rear Whoes Dual Rear Wheels
AWoNabon chevro ?A BookannDuvetramFourWheelDriveSeas5Vaay(Soceane va ey WA E
GSW-W-22-01 Attachment No.3 1
ATTACHMENT NO.4
TO
COMMENTS OF THE
COMMISSION STAFF
IN
CASE NO.GSW-W-22-01
Return on Equity
Discounted Cash Flow ("DCF")for NW Natural
Share Price as of 12/16/22 $45.47
52 Week high $57.63
52 Week Low $42.37
Summary of Variables -DCF
Share Price $45.47
Dividends $1.93
Growth Rate 0.510%
ROE 4.754%
CapitalAsset Pricing Method ("CAPM")
Risk-free Rate of Return
Average Risk Free Latest Risk Free
1 Yr 30 Yr 1 Yr 30 Yr
S&P 10 Years 4.94%5.11%5.85%5.30%
Total Market Return since 2010 8.98%9.16%9.89%9.34%
Market Return
Return On Market 10 Years
S&P 500 6.91%
Years starting 2010
All Market 14.54%
Beta 0.53
Reference:httos://finance.vahoo.com/quote/NWN/
CAPM ROE
Minimum 4.94%
Maximum 9.89%
Average 7.32%
ROE Authorized by Oregon Public Utilities Commission
2020 9.4%
2022 9.4%
GSW-W-22-01 Attachment No.4 1
ATTACHMENT NO.5
TO
COMMENTSOF THE
COMMISSION STAFF
IN
CASE NO.GSW-W-22-01
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a
n
y
1-
1
/
2
In
c
h
$
27
.
4
3
$
1.7
4
$
70
.
0
0
$
2.
2
6
0
15
5
%
30
%
$
64
.
0
0
$
1.
7
4
0
13
3
%
0%
22
Ba
r
Cir
c
l
e
"S
"
Wa
t
e
r
Co
m
p
a
n
y
2
In
c
h
$
27
.
4
3
$
1.7
4
$
11
2
.
0
0
$
2.
2
6
0
30
8
%
30
%
$
10
2
.
4
0
$
1.
7
4
0
27
3
%
0%
23
Di
a
m
o
n
d
Ba
r
Es
t
a
t
e
s
1
In
c
h
$
41
.
0
0
$
1.1
6
$
35
.
0
0
$
2.
2
6
0
-1
5
%
95
%
$
41
.
0
0
$
1.
6
2
4
0%
40
%
24
Ha
p
p
y
Va
l
l
e
y
Wa
t
e
r
Sy
s
t
e
m
s
1
In
c
h
$
27
.
0
0
$
0.
7
0
$
35
.
0
0
$
2.
8
5
0
30
%
30
7
%
$
32
.
0
0
$
1.
6
2
4
19
%
13
2
%
25
Ha
p
p
y
Va
l
l
e
y
Wa
t
e
r
Sy
s
t
e
m
s
1-
l
/
2
In
c
h
$
27
.
0
0
$
0.
7
0
$
70
.
0
0
$
2.
8
5
0
15
9
%
30
7
%
$
64
.
0
0
$
l.
6
2
4
13
7
%
13
2
%
26
Ha
p
p
y
Va
l
l
e
y
Wa
t
e
r
Sy
s
t
e
m
s
2
In
c
h
$
27
.
0
0
$
0.
7
0
$
l1
2
.
0
0
$
2.
8
5
0
31
5
%
30
7
%
$
10
2
.
4
0
$
1.
6
2
4
27
9
%
13
2
%
27
Bit
t
e
r
r
o
o
t
s
Wa
t
e
r
Co
m
p
a
n
y
1
In
c
h
$
21
.
0
0
$
1.
7
3
$
35
.
0
0
$
2.
8
5
0
67
%
65
%
$
32
.
0
0
$
l.
6
2
4
52
%
-6
%
28
Ri
c
k
e
l
Wa
t
e
r
Co
m
p
a
n
y
1
In
c
h
$
30
.
0
0
$
1.1
0
$
35
.
0
0
$
2.
8
5
0
.
17
%
15
9
%
$
32
.
0
0
$
1.
6
2
4
7%
48
%
29
Tr
o
y
Ho
f
f
m
a
n
Wa
t
e
r
Co
r
p
o
r
a
t
i
o
n
1
In
c
h
$
27
.
5
0
$
1.
1
2
$
35
.
0
0
$
4.
1
5
0
27
%
27
1
%
$
32
.
0
0
$
1.
6
2
4
16
%
45
%
GS
W
-
W
-
2
2
-
0
1
At
t
a
c
h
m
e
n
t
No
.
5
1
Ra
t
e
St
r
u
c
t
u
r
e
PR
E
S
E
N
T
Co
m
p
a
n
y
Pr
o
p
o
s
e
d
Ra
t
e
St
r
u
c
t
u
r
e
St
a
f
f
Pr
o
p
o
s
e
d
Ra
t
e
St
r
u
c
t
u
r
e
Li
n
e
.
Al
l
o
t
t
e
d
Al
l
o
t
t
e
d
Vo
l
u
m
e
Al
l
o
t
t
e
d
Vo
l
u
m
e
Wa
t
e
r
Sy
s
t
e
m
Me
t
e
r
Si
z
e
No
.
Vo
l
u
m
e
Vo
l
u
m
e
%
Vo
l
u
m
e
%
1
Sp
i
r
i
t
La
k
e
Ea
s
t
1
In
c
h
8,
0
0
0
8,
0
0
0
0%
7,
5
0
0
-6
%
2
Sp
i
r
i
t
La
k
e
Ea
s
t
1-
l
/
2
In
c
h
8,
0
0
0
20
,
0
0
0
15
0
%
15
,
0
0
0
88
%
3
Sp
i
r
i
t
La
k
e
Ea
s
t
2
In
c
h
8,
0
0
0
32
,
0
0
0
30
0
%
48
,
0
0
0
50
0
%
4
Ly
n
n
w
o
o
d
Es
t
a
t
e
s
Su
b
d
i
v
i
s
i
o
n
1
In
c
h
20
,
0
0
0
8,
0
0
0
-6
0
%
15
,
0
0
0
-2
5
%
5
Ba
r
Cir
c
l
e
"S
"
Wa
t
e
r
Co
m
p
a
n
y
1
In
c
h
7,
5
0
0
7,
5
0
0
0%
7,
5
0
0
0%
6
Ba
r
Ci
r
c
l
e
"S
"
Wa
t
e
r
Co
m
p
a
n
y
1-
1
/
2
In
c
h
7,
5
0
0
20
,
0
0
0
16
7
%
15
,
0
0
0
10
0
%
7
Ba
r
Ci
r
c
l
e
"S
"
Wa
t
e
r
Co
m
p
a
n
y
2
In
c
h
7,
5
0
0
32
,
0
0
0
32
7
%
48
,
0
0
0
54
0
%
8
Di
a
m
o
n
d
Ba
r
Es
t
a
t
e
s
1
In
c
h
5,
5
0
0
7,
5
0
0
36
%
7,
5
0
0
36
%
9
Ha
p
p
y
Va
l
l
e
y
Wa
t
e
r
Sy
s
t
e
m
s
1
In
c
h
20
,
0
0
0
10
,
0
0
0
-5
0
%
15
,
0
0
0
-2
5
%
10
Ha
p
p
y
Va
l
l
e
y
Wa
t
e
r
Sy
s
t
e
m
s
1-
l
/
2
In
c
h
20
,
0
0
0
20
,
0
0
0
0%
30
,
0
0
0
50
%
11
Ha
p
p
y
Va
l
l
e
y
Wa
t
e
r
Sy
s
t
e
m
s
2
In
c
h
20
,
0
0
0
32
,
0
0
0
60
%
48
,
0
0
0
14
0
%
12
Bit
t
e
r
r
o
o
t
s
Wa
t
e
r
Co
m
p
a
n
y
1
In
c
h
15
,
0
0
0
10
,
0
0
0
-3
3
%
10
,
0
0
0
-3
3
%
13
Ri
c
k
e
l
Wa
t
e
r
Co
m
p
a
n
y
1
In
c
h
15
,
0
0
0
10
,
0
0
0
-3
3
%
10
,
0
0
0
-3
3
%
14
Tr
o
y
Ho
f
f
m
a
n
Wa
t
e
r
Co
r
p
o
r
a
t
i
o
n
1
In
c
h
10
,
0
0
0
10
,
0
0
0
0%
7,
5
0
0
-2
5
%
GS
W
-
W
-
2
2
-
0
1
At
t
a
c
h
m
e
n
t
No
.
5
2
Ra
t
e
St
r
u
c
t
u
r
e
PR
E
S
E
N
T
Co
m
p
a
n
y
Pr
o
p
o
s
e
d
Ra
t
e
St
r
u
c
t
u
r
e
St
a
f
f
Pr
o
p
o
s
e
d
Ra
t
e
St
r
u
c
t
u
r
e
Lin
e
Al
l
o
t
t
e
d
Ba
s
i
c
Al
l
o
t
t
e
d
Ba
s
i
c
Al
l
o
t
t
e
d
Ba
s
i
c
In
c
r
e
a
s
e
Wa
t
e
r
Sy
s
t
e
m
Me
t
e
r
Siz
e
No
.
Vo
l
u
m
e
Ch
a
r
g
e
Vo
l
u
m
e
Ch
a
r
g
e
Vo
l
u
m
e
Ch
a
r
g
e
%
l
Ir
r
i
g
a
t
i
o
n
Se
r
v
i
c
e
-
Dia
m
o
n
d
Ba
r
1
In
c
h
-
$
-
7,
5
0
0
$
35
.
0
0
7,
5
0
0
$
35
.
0
0
0%
2
Ir
r
i
g
a
t
i
o
n
Se
r
v
i
c
e
-
Di
a
m
o
n
d
Ba
r
l
-1
/
2
In
c
h
-
$
-
20
,
0
0
0
$
70
.
0
0
20
,
0
0
0
$
70
.
0
0
0%
3
Ir
r
i
g
a
t
i
o
n
Se
r
v
i
c
e
-
Di
a
m
o
n
d
Ba
r
2
In
c
h
-
$
-
32
,
0
0
0
$
11
2
.
0
0
32
,
0
0
0
$
11
2
.
0
0
0%
GS
W
-
W
-
2
2
-
0
1
At
t
a
c
h
m
e
n
t
No
.
5
3
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS llTH DAY OF JANUARY 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF,IN
CASE NO.GSW-W-22-01,BY E-MAILING A COPY THEREOF TO THE
FOLLOWING:
LESLIE ABRAMS-RAYNER ERIC W NELSEN
GENERAL MANAGER ADAM RUE
GEM STATE WATER CO NW NATURAL
PO BOX 3388 250 SW TAYLOR ST
COEUR D'ALENE ID 83816 PORTLAND OR 97204
E-MAIL:[e-mail] E-MAIL:[e-mail]
SECRETARY
CERTIFICATE OF SERVICE