BOOK 3 TESTIMONY IN REBUTTAL TO DRA REPORT ON EXPENSES GENERAL RATE CASE TEST YEAR 2014 APPLICATION

Transcription

1 BOOK TESTIMONY IN REBUTTAL TO DRA REPORT ON EXPENSES GENERAL RATE CASE TEST YEAR APPLICATION APRIL 0, 01 0

2 TABLE OF CONTENTS CHAPTER 1: INTRODUCTION & SUMMARY INTRODUCTION... 1 CHAPTER : GLOBAL EXPENSE ISSUES....1 INTRODUCTION.... ECOS FACTOR FOR ESCALATION.... HIGH-PRIORITY MAINTENANCE PROGRAM.... ADMINISTRATIVE CHARGES TRANSFERRED.... SOURCE OF SUPPLY... CHAPTER : DISTRICT EXPENSE, ANTELOPE VALLEY DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER : DISTRICT EXPENSE, BAKERSFIELD DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, BAYSHORE DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, BEAR GULCH DISTRICT....1 INTRODUCTION.... SALES AND REVENUE... 1

3 . OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER : DISTRICT EXPENSE, CHICO DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, DIXON DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, DOMINGUEZ DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... 0 CHAPTER : DISTRICT EXPENSE, EAST LOS ANGELES DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, HERMOSA REDONDO DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... 1

4 CHAPTER 1: DISTRICT EXPENSE, KERN RIVER VALLEY DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER 1: DISTRICT EXPENSE, KING CITY DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER 1: DISTRICT EXPENSE, LIVERMORE DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER 1: DISTRICT EXPENSE, LOS ALTOS DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER 1: DISTRICT EXPENSE, MARYSVILLE DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER 1: DISTRICT EXPENSE, OROVILLE DISTRICT INTRODUCTION... 1

5 . SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES CHAPTER 1: DISTRICT EXPENSE, PALOS VERDES DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER 1: DISTRICT EXPENSE, REDWOOD VALLEY DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER 0: DISTRICT EXPENSE, SALINAS DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER 1: DISTRICT EXPENSE, SELMA DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, STOCKTON DISTRICT INTRODUCTION SALES AND REVENUE OPERATIONS AND MAINTENANCE EXPENSES...

6 . ADMINISTRATIVE AND GENERAL EXPENSES... 1 CHAPTER : DISTRICT EXPENSE, VISALIA DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES.... ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, WESTLAKE DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... CHAPTER : DISTRICT EXPENSE, WILLOWS DISTRICT....1 INTRODUCTION.... SALES AND REVENUE.... OPERATIONS AND MAINTENANCE EXPENSES ADMINISTRATIVE AND GENERAL EXPENSES... 0

7 CHAPTER 1: INTRODUCTION & SUMMARY 1.1 INTRODUCTION This is the California Water Service Company s (Cal Water) Rebuttal Testimony to the Division of Ratepayer Advocates (DRA) and Intervenor Testimony for the 01 General Rate Case (GRC). Cal Water wishes to acknowledge the poor economic conditions in effect during the filing of this GRC and the subsequent continuing struggles facing the Company s customers during this time. This GRC does not occur in a vacuum and Cal Water takes note of the hardships that many of the Company s customers are experiencing at this time. Cal Water notes the input recorded at the Public Participation Hearings. Cal Water would also like to point out that due to the continuing economic difficulties facing its customers, the Company has voluntarily canceled a number of projects it felt were operational enhancements and not strictly needed for day to day operations. The remaining items in the budget are needed for long-term compliance, reliability, and safety issues. This rebuttal testimony is sponsored by Darin Duncan. 1

8 CHAPTER : GLOBAL EXPENSE ISSUES.1 INTRODUCTION This Chapter will discuss expense related issues that span across two or more districts.. ECOS FACTOR FOR ESCALATION Cal Water uses the standard practice of inflating its cost to the test year dollars using the Water Branch ECOS memorandum. At the time of its Application, the latest memorandum was from April 0, 01. In DRA s reports, DRA updated the escalation values to reflect the latest memorandum issued at that time. For districts where DRA uses the escalation factors from a later memorandum, Cal Water does not contest DRA s use of the more recent escalation factors in its work papers. However, Cal Water suggests that the Commission or parties to any settlement consistently use the most recently available inflation factors in calculating final revenue requirements in this docket.. HIGH-PRIORITY MAINTENANCE PROGRAM Systematic maintenance of facilities is necessary in order to provide safe and reliable service to customers and to achieve the long-term lowest life cycle cost of assets. An important component of this effort is having a comprehensive preventive maintenance program. Not having a program,in place can lead to catastrophic failures, safety and service issues, shortened equipment life and higher cost to customers in the long term due to higher overall asset lifecycle costs. California Water Service Company (Cal Water) is seeking approval for additional maintenance funding included in rates to perform routine preventive maintenance on high priority assets to proactively maintain equipment. These assets include rotating equipment (motors, pumps, wells, and electrical components) as well as distribution facilities (pipes, valves, hydrants,air relief points, etc.). Cal Water s infrastructure has grown significantly in the past twelve years without proportional growth in the maintenance spending. This can be observed in the following table:

9 1 Year Plant in Service Maintenance Expense Maintenance Spend / $ Plant in Service 000 $01m $.m 1. cents / $1 Plant in Service 00 $1,1m $1.m 1. cents / $1 Plant in Service 0 $1,1m $1.0m 1.1 cents / $1 Plant in Service The table above illustrates Cal Water spent 1. cents on maintenance for every dollar of plant in service in 000. Over ten years, that spend has decreased 0% to 1.1 cents for every dollar of plant in service. In addition, Cal Water s plant in service continues to age. It is self evident that older equipment takes more maintenance than newer equipment. Cal Water now operates motors, pumps, wells, electrical components, pipes, and valves installed in the s, yet maintenance spend has gone down not up. Aging infrastructure combined with decreasing maintenance funding has resulted in numerous equipment failures, decreased reliability, and a lower overall condition of Cal Water s equipment. This is clear from the following figure: Cal Water Preventive Maintenance Ratio, EMT Hours, 0. In 0, % of the maintenance time spent by Cal Water s Electrical & Mechanical Maintenance Technicians (EMTs) was spent repairing equipment due to failure and % was spent on planned preventive maintenance. According to the American Water Works Association s (AWWA) 00 Benchmarking report, a planned maintenance ratio of % is in the bottom half of the bottom quartile performance. Top quartile performance ratios are having planned maintenance represent of % or greater of total maintenance spend (see below). Clearly Cal Water s performance in this area is not high performing.

10 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%.0% 0.0%.% % PM Spend of Total Maintenance Spend 1.%.% Top Quartile Median Bottom Quartile.0% Cal Water Planned Maintenance Ratio, AWWA 00 Benchmarking Report The value of preventive maintenance can be understood by considering one s personal automobile. When an automobile is purchased, a routine maintenance schedule is provided by the manufacturer. This routine schedule consists of inspection and replacements of small components (fluids, batteries, tires, brakes, etc). When adhered to, the well maintained vehicle starts when it needs to, drives smoothly and safely to its destination, all with little or no breakdowns. When a vehicle is not maintained according to schedule, the vehicle wears faster, which result in unexpected and costly replacements of major components such as the engine and transmission. Additionally, worn brakes and tires present a safety risk to the driver if they fail on the road. The sensible automobile owner recognizes the importance of routine maintenance and maintains the vehicle according to schedule in return for reliability and lower total cost. Like the sensible automobile owner, Cal Water is seeking funding in the rate case to perform preventive maintenance on water utility equipment in order to achieve long term reliability and overall lower costs. To augment preventive maintenance program funding, Cal Water has taken several steps to move towards more reliable infrastructure. In addition to the Electrical and Mechanical Technicians (EMT s), Cal Water has recently deployed the Computerized Maintenance Management System (CMMS) system to its Large Meter Mechanics, Maintenance Engineering, and the Stockton district, and is now preparing to deploy the system companywide.

11 The CMMS is tool that helps plan, schedule, and record maintenance of equipment similar to an automobile s built-in maintenance computer and maintenance database at the automobile s service garage. With the CMMS, historical maintenance records for each asset can be stored along with the schedule for future maintenance. Just like a preventive maintenance reminder from an automobile s built in computer, the CMMS can automatically notify relevant personnel of an asset s maintenance needs. Additionally, Cal Water is developing and rolling out new maintenance policies to standardize maintenance activities and reporting company wide. Cal Water is requesting that the Commission approve additional maintenance funds outlined in the table below. These funds are necessary to establish and perform a more comprehensive preventive maintenance program than what has existed before. This requested increase is based on the funding that is needed to perform preventive maintenance on assets that are critical to sustained and reliable operations, water quality, and service during emergency events. Cal Water expects this additional preventive maintenance will improve its preventive maintenance ratio to greater than 0% thus increasing our reliability and service to customers. Annual Budget Increase for Cal Water District Preventative Maintenance Program Bakersfield $,. Bear Gulch $,. Rancho Dominguez $1,.0 East Los Angeles $0,.0 Hermosa Redondo $1,1.0 King City $,. Livermore $,0. Los Altos $,. Mid Peninsula $,0. Palos Verdes $1,1. Salinas $1,. South San Francisco $,. Stockton $1,01. Visalia $,.0 Westlake $,.0

12 ADMINISTRATIVE CHARGES TRANSFERRED The expense category referred to as administrative charges transferred includes revenue sharing credits to customers for Cal Water s provision of unregulated services. For the majority of unregulated services, Cal Water applies the revenue-sharing and cost allocation rules that the Commission has established for non-tariffed products and services ( NTPS ). As discussed in Cal Water s Report on Unregulated Activities, Cal Water has adopted a specific methodology to share the revenues and allocate the expenses related to unregulated activities. A detailed discussion addressing the issues raised by DRA is included in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. The administrative charges transferred category also includes a non-tariffed service for which Cal Water shares 0% of the fee revenues received: the administrative fees collected from building contractors for processing transfers in extension contracts (advances). When a building contractor transfers an extension contract to a third party, Cal Water must process the transfer, and therefore imposes an administrative fee. Cal Water does not apply the NTPS 0/ revenue split to these fees, and instead passes 0% of the fees to customers as a credit to expenses. As discussed in Chapter of Book 1, Cal Water originally proposed using the last recorded value for unregulated revenues (which appear as administrative charges transferred to offset expenses) in 0 to estimate the credits for the test year. DRA instead recommends using the 01 transactions as a proxy for the credits associated with these administrative fees for the test year. Cal Water agrees with DRA s recommendation. Also discussed in Chapter of Book 1 are Cal Water s and DRA s proposals for the allocation of costs associated with unregulated activities. In brief, for unregulated cost allocation, Cal Water agrees to use recorded 0 expenses without any adjustments. Table -A taken from DRA s Company-wide Report, page -

13 COMPARISON OF NTP&S REVENUE SHARING FORECASTS Test Year Revenue Sharing Test Year Revenue Sharing TY % change Escalation Year 01 Revenue Sharing District CWS DRA DRA Bakersfield $,1 $, 1.1% $, Bear Gulch $,00 $1,.% $1, Chico $,00 $1,.% $, Dixon $, $,.% $,1 East Los Angeles $1, $,1 1.% $1,0 Hermosa Redondo $,00 $, 1.0% $, King City $,00 $,0 1.% $, Livermore $1, $,0 1.% $1, Los Altos $,0 $1, 1.% $1, Marysville $,00 $,0.% $,1 Oroville $00 $1,.1% $1,0 Salinas $,00 $,.0% $0,1 Mid Peninsula & SSF $1,00 $,.% $0,01 Selma $1,000 $, 1.% $, Stockton $, $1,.% $1,1 Visalia $, $1,.0% $1,1 Willows $00 $1,0 1.1% $1, Palos Verdes $0,00 $,0.% $, Westlake $1,00 $,.% $, Dominguez $,00 $1,0 1.% $1, Antelope Valley $00 $.% $1 Kern River Valley $, $1,0.% $1, Totals $,1,0 $,0,.% $,1,. SOURCE OF SUPPLY Cal Water uses a historical average and incorporates (1) inflation, () Consulting costs to establish a storm drain discharge permit, and () annual distribution permit for surface water and well water treatment for its source of supply expense estimate for the test year. For the test year, Cal Water incorporates costs for consulting services to work with the state regional water control board to create a storm drain discharge permit (Non-Storm Water). The current environmental regulatory framework does not offer a storm drain (Non-Storm Water) discharge permit. However water boards in Region and Region and the State Water Control Board are proposing a State Wide Non-Storm Water discharge Permit. In Region, Los Angeles Region, the non-storm water discharges are covered under their new MS permit. In other districts, Cal Water is incurring costs for storm drain (Non-Storm Water) discharge on an ad-hoc basis for individual districts. Cal Water is working with a third-party consulting firm to develop a storm drain (Non-Storm Water) discharge permit. This permit will allow Cal Water to

14 have a structured annual fee that is more efficient to facilitate its compliance monitoring with the regional environmental standards. Cal Water also adds an annual distribution permit for surface water and well water treatment. This is a mandatory fee, required for all entities that have surface water and well water. The table below depicts the associated consulting and annual distribution permits by district. Cal Water requests the Commission adopt its test year estimate for the reasons noted above.

15 Districts S urface Water Permit for surface water treatment Plant Annual Renewal Fee 0-01 Renewal Fees Well Permit Annual Renewal Fee Distribution Permit for Distribution Discharges Annual Renewal Fee Distribution Permit Regulatory Activity Status -01 Proposed Distribution System Permit to allow to discharge to Storm Drain Consultant Fees (One Time Fee) Bear Gulch $1, None None Pending - San $0,000 Los Altos $1, None Francisco Water $0,000 BayShore None None None Board $0,000 Livermore None None None $0,000 Montebello (ELA) None $1, None LA County revised $0,000 Commerce (ELA) None $1, None MS allowing Commerce (ELA) None $,1 None authorization for ELA None $,1 None distribution Hawthorne (RD) None $, None discharges. However $0,000 Palo Verdes (RD) None $1, None give authorization to Rancho Dominquez (RD) None $, None permittees (cities and Rancho Dominquez (RD) None $, None counties) to require Rancho Dominquez (RD) None $,1 None separate permit if WestLake None None None they deem discharge a $,000 source of pollutants. 01 Distribution Permit for Distribution Discharges $1, $1, $1, $1, $1, $1, $,1 $,1 $, $1, $, $, $,1 $1, Well Permits Annual Renewal Fees Antelope Valley None None None $,000 Salinas None $1, None Salinas None $1, None Salinas None $1, None King City None None None None - Central Coast and the City of King City and Salinas have not allowed distribution discharges into the storm drain system. $0,000 $1, $1, $1, $1, $1, Stockton None Part of $1, 1 (Central Valley) Distributi on Permit Willows None $1, None None- Central Valley $0,000 Chico None $1, None is currently revising $0,000 Dixon None $1, None the Low Threat $,000 M arysville None $1, None Permit and $0,000 Lucerne None None None considering a State $,000 Wide Potable Discharge Permit $1, $1, $1, $1, $1, $1, Bakersfield None None None $0,000 Oroville None None None $0,000 Selema None None None $,000 Visalia None None None $0,000 $1, $1, $1, $1,

16 CHAPTER : DISTRICT EXPENSE, ANTELOPE VALLEY DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Antelope Valley District. The Antelope Valley District is comprised of four sub-systems, Lancaster Valley, Leona Valley, and Fremont Valley. Fremont Valley includes customers in the Lake Hughes area.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Antelope Valley District. 1) Summary of Recommendations The Antelope Valley District is comprised of three sub-systems: Lancaster, Leona Valley, and the Fremont-Lake Hughes Unified area. Cal Water agrees with DRA s estimate for sales for each region, but does not agree with the total sales data that DRA presented in Tables -1 and -. DRA s sales data used for estimates for two tables does not flow correctly through to the summary pages that are used in DRA s Tables -1 and -. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method no contest Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using the four-year average (00-0) change for all customer classes. DRA Agrees with Cal Water s estimate for the average change for all customer classes. DRA s report appears to have incomplete data for the number of customers in each of the Antelope Valley District s rate-making areas in its report. The tables below depict a correct comprehensive summary of the service count for all relevant customer classifications in the Antelope Valley District, which is correctly reflected in

17 DRA s work papers. Cal Water requests the Commission adopt Cal Water s estimate for the number of active service connections as summarized in the tables below: Lancaster Number of Customers Customer Class DRA CWS Difference CWS Position Residential DRA accepts Cal Water's estimate Multi family DRA accepts Cal Water's estimate Business DRA accepts Cal Water's estimate Public Authority 0 DRA accepts Cal Water's estimate Total 0 Leona Valley Number of Customers Customer Class DRA CWS Difference CWS Position Residential DRA accepts Cal Water's estimate Multi family DRA accepts Cal Water's estimate Business DRA accepts Cal Water's estimate Public Authority 0 DRA accepts Cal Water's estimate Total Fremont Valley and Lake Hughes Number of Customers Customer Class DRA CWS Difference CWS Position Residential DRA accepts Cal Water's estimate Multi family 0 DRA accepts Cal Water's estimate Business 0 DRA accepts Cal Water's estimate Public Authority 0 DRA accepts Cal Water's estimate Total 0 ) Metered Sales and Supply For the Antelope Valley District, Cal Water used the last-recorded year s data (0) to estimate sales for. Cal Water used this method since there has been drastic sales decline in this district and the most recent year s data better reflects actual water usage. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. Cal Water agrees with DRA s estimate for average sales per service connection by sub-regions in the Antelope Valley District (Lancaster, Leona Valley, Fremont-Lake Hughes area).

18 In its summary tables, Tables -1 and -, DRA erroneously adds the average of each region in its depiction of the average sales per service connection for the entire Antelope Valley District. The summary tables for the district as a whole represent an aggregate of the averages, rather than an average of the whole system. This incorrectly depicts a higher figure as the average sales per service connection for the entire Antelope Valley District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales in the Antelope Valley District as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimated sales per customer as noted below. Sales Per Customer (Ccf 1.) Lancaster Customer Class DRA CWS Difference CWS Position Residential () CWS Accepts DRA's estimates Multi family There are no multi family customers Business 0 CWS Accepts DRA's estimates Public Authority 1, 1,0 CWS Accepts DRA's estimates Sales Per Customer (Ccf.) Leona Valley Customer Class DRA CWS Difference CWS Position Residential 1 () CWS Accepts DRA's estimates Multi family There are no multi family customers Business 1 CWS Accepts DRA's estimates Public Authority,01 1, CWS Accepts DRA's estimates 1 Unit of measure that stands for centi-cubic feet, or 0 cubic feet of water. 1

19 Sales Per Customer (Ccf.) Fremont Valley and Lake Hughes Customer Class DRA CWS Difference CWS Position Residential () CWS Accepts DRA's estimates Multi family 0 CWS Accepts DRA's estimates Business 1 () CWS Accepts DRA's estimates Public Authority 1 0 () CWS Accepts DRA's estimates Annual Sales Lancaster Customer Class DRA CWS Difference CWS Position Residential 1,1,0 (,) CWS Accepts DRA's estimates Multi family n/a Business 1,0 1,0 0 CWS Accepts DRA's estimates Public Authority,, CWS Accepts DRA's estimates Total 0,, (,) Annual Sales Leona Valley Customer Class DRA CWS Difference CWS Position Residential,, (1,) CWS Accepts DRA's estimates Multi family n/a Business,01,1 CWS Accepts DRA's estimates Public Authority,01 1,0, CWS Accepts DRA's estimates Total,,0 (1,0) Annual Sales Fremont Valley and Lake Hughes Customer Class DRA CWS Difference CWS Position Residential 1,,01 () CWS Accepts DRA's estimates Multi family 1 1 CWS Accepts DRA's estimates Business 1,1 () CWS Accepts DRA's estimates Public Authority 1,0 1, () CWS Accepts DRA's estimates Total,, (0) 1

20 ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in the Antelope Valley is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in the Antelope Valley are primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the Antelope Valley District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Antelope Valley District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimates water sales and supply of. KCcf (hundred thousand cubic feet) for test year. Cal Water proposes to meet its supply needs through groundwater from company wells and purchased water from the Antelope Valley-East Kern Water Agency ( AVEK ). Cal water will complete a new AVEK connection in 01 that is anticipated to provide between gallons per minute ( gpm ) and 00 gpm. However, Cal Water has not included this new supply in its water mix for the test year. The purchased water cost is calculated using 1

21 the unit cost multiplied by the estimated purchase quantity. DRA agrees with this methodology. Cal Water requests that the change in the supply mix be incorporated in the final summary of earnings calculations. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. Cal Water accepts DRA s estimate. The table below depicts the estimated purchased power cost based on estimated production for the test year. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power cost. YEAR a) PRODUCTION - KCCF (TABLE -D). b) KILOWATT HOURS per KCCF,. c) KILOWATT HOURS (computed) 0,0 d) COST PER KWH (see note below) $0.0 e) PURCHASED POWER - $THOUSANDS $ ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the recorded chemical expense levels and dividing it by the corresponding years groundwater quantities. For the test year, Cal Water estimates it will need approximately $1,000 for purchased chemicals. DRA agrees with Cal Water s method for estimating chemical expense. Cal Water accepts DRA s proposed lower sales quantities. The lower sales volume results in lower production estimates and lower chemical expense 1

22 estimates. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased chemicals. ) Payroll Purchased Chemical Expense Comparison by the cost per service. Cal Water also escalates this by the most recent percentage change in 1 CWS Proposed Cost 1,00 DRA Proposed Cost 0 CWS Rebuttal Position 0 Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $,00 for a new headcount that it added in January of 01. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. In Cal Water s work papers, it inadvertently added the payroll for this position twice. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, as well as removing the duplicated adjustment. Cal Water accepts DRA s adjustment for the duplicated payroll, but disagrees with DRA s use of the labor escalation rates. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water estimates $,00 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied

23 the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense ) Transportation Expense Postage Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. Cal Water is not requesting for any additional vehicles in this GRC for the Antelope Valley District. DRA agrees with Cal Water s methodology and does not have any adjustments to the estimated cost. Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). Transportation Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Uncollectibles Cal Water estimates uncollectible expense to be $1,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests that the Commission adopts Cal Water s annual uncollectible rate. 1

24 ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average and adds $1,000 for a pump replacement project amortized over three years beginning in. Typically pump replacement projects are treated as capital projects; however, this project was initially contemplated as an expense item because it will need to be replaced more frequently than the replacement criteria for a capital project. DRA disagrees with this position. Upon further investigating this project, Cal Water agrees with DRA s adjustment for this out of expenses and to treat this as a capital project item, and accepts DRA s estimate for pumping expenses for and 01. Cal Water requests that the Commission adopt DRA s method for estimating pumping expense. ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for water treatment expense. Cal Water requests that the commission adopt Cal Water s estimate for water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 1

25 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,00. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s estimate for transmission and distribution expense. 1) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 For test year, Cal Water requests $,00. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water requests that the Commission adopt Cal Water s estimate customer accounting expense. 1) Conservation Expense Customer Accounting Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, 1

26 replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests that the Commission adopt Cal Water s estimate for maintenance stores expense. 1) Contracted Maintenance Expense Maintenance Stores Expense Comparison CWS Proposed Cost 00 DRA Proposed Cost 00 CWS Rebuttal Position 00 For Contracted Maintenance Expense, Cal Water requests $,00 for the Test Year. Cal Water s estimates are based on the five-year (00-0) historical average adjusted for inflation and adds $,00 in 01 to inspect pressure tanks as a safety measure. DRA agrees with including costs for the pressure tank inspection. Cal Water estimates the expense level for by including the pressure tank cost with the historical average and then added inflation. DRA recommends inflating the historical average and then adding the pressure tank cost. Cal Water agrees with DRA s recommendation. Cal Water requests the Commission adopt DRA s estimate for contracted maintenance expense. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal,00 DRA v. CWS Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 0

27 ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Antelope Valley District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,00 for employee benefits in the Antelope Valley District in the test year. DRA estimates $1,00 for test year. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopt Cal Water s method for estimating benefits expense for the test year. ) Rent Expense Benefits Expense Comparison Water s estimate is based on a long-term lease reflected in the historical expenses for 0 and 1 CWS Application, DRA Proposed Cost 1, CWS Rebuttal Position, DRA v. CWS, For the Antelope Valley District, cal water estimates $,00 for the test year. Cal

28 escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the Commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-account. Instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA uses the same estimating method, and adjusts out a one-time legal expense. Cal Water accepts DRA s recommendation. Cal Water requests the Commission adopt DRA s estimate for non-specifics expense.

29 Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,0 for amortization of limited-term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense. Amortization of Limited-term Investment Expense Comparison CWS Application,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water estimates $0 for dues and donation in the test year. DRA agrees with this estimate. Cal Water requests the Commission adopt Cal Water s estimate for dues and donation expense.

30 CHAPTER : DISTRICT EXPENSE, BAKERSFIELD DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Bakersfield District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Bakersfield District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes, except for the residential customer class as it relates to the number of flat-to-meter conversion program. Issue Rebuttal Position 1 Average Active Service Connections DRA agrees with Cal Water s method with exceptions please see discussion Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes, except for the residential customer class. For the residential customer class, Cal Water estimated the test year customer count based on a five year average and includes the rate of change that it anticipates in its flat-to-meter conversion program. DRA agrees with Cal Water s estimate for the average change for all customer classes except for residential customer class. For the residential customer class, DRA and Cal Water disagree on the flat-to-meter conversion rate. DRA recommends a lower level of estimated flat-to-meter conversions per year. Please see the Plant Book for a detailed discussion on the flat-to-meter conversion program. Below is a summary of Cal Water s and DRA s customer count estimates for the test year. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections.

31 Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,,1 () Cal Water disagrees with DRA's recommendations Business,1,1 DRA agrees with Cal Water's recommendation Multi Family 1,1 1,1 DRA agrees with Cal Water's recommendation Industrial 0 0 DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat 1, 0, Cal Water disagrees with DRA's recommendations Total,, ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Bakersfield District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer, but adopt Cal Water s estimate for total annual sales based on Cal Water s proposed flat-to-meter conversion rate. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 0 (1) Cal Water accepts DRA's recommendation Business Cal Water accepts DRA's recommendation Multi Family 1,0 1,0 Cal Water accepts DRA's recommendation Industrial Cal Water accepts DRA's recommendation Public Authority,, Cal Water accepts DRA's recommendation Other 1, 1, Cal Water accepts DRA's recommendation Residential Flat Cal Water accepts DRA's recommendation Annual Sales

32 Customer Class DRA CWS Difference CWS Position Residential,1,0,, (1,) Cal Water disagrees with DRA's recommendations Business,1,,,00 1, Cal Water accepts DRA's recommendation Multi Family 1,1,0 1,1,0 DRA agrees with Cal Water's recommendation Industrial,, DRA agrees with Cal Water's recommendation Public Authority,0,,1,0 1, Cal Water accepts DRA's recommendation Other,, DRA agrees with Cal Water's recommendation Residential Flat,,,0,, Cal Water disagrees with DRA's recommendations Total 0,, 0,0, 1,1 ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in Bakersfield is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Bakersfield District. DRA recommends using the.0% referenced in the Rate Case Plan. Cal Water accepts DRA s recommendation. Cal Water requests the Commission adopt DRA s method for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Bakersfield District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01.

33 ) Purchased Water Cal Water has a firm entitlement with Kern County Water Agency in the amount of,0. acre feet. This calculates to $,,00 for purchased water expense. Because of the firm entitlement quantity, purchased water expense will not vary with sales estimates. DRA agrees with Cal Water s methodology for purchased water expense. Cal Water s Bakersfield District is experiencing a dry year whereby it requires additional groundwater supplies to meet its customer demands. Cal Water is currently engaged in developing a dry-year agreement with the Improvement District No. ( ID ) to acquire additional capacity from the groundwater banking project to meet its anticipated customer demand for 01. This agreement is in progress and should be finalized by the summer of 01. Cal Water is expected to remit payment to ID for the groundwater supply in 01 for a contracted amount of,00 acre feet ( AF ). The estimated unit cost if $ per acre feet. This calculates to an additional fee for purchased water in the amount of $1,000. Cal Water did not anticipate this expense in its Application filing. Since this cost is critical in ensuring adequate supply levels to meet customer demand, Cal Water requests the Commission adopt Cal Water s additional expense relating to the dry-year agreement and its methodology for estimating purchased water. The rates below reflect the proposed estimated purchased water expense for, using rates effective in 01, which s not reflective of the upcoming increase scheduled for Purchased Water Expense Comparison CWS Proposed Cost,,0 DRA Proposed Cost,,0 CWS Rebuttal Position,,0 Difference (1,000) 0 ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost.

34 DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests the Commission adopt Cal Water s method for estimating purchased power. ) Purchased Chemicals Purchased Power Expense Comparison CWS Proposed Cost,0,1 DRA Proposed Cost,0,0 CWS Rebuttal Position,0, Difference (,) Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the recorded chemical expense levels and dividing it by the corresponding years groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests the Commission adopt Cal Water s method for estimating purchased chemicals. ) Payroll Purchased Chemical Expense Comparison CWS Proposed Cost 1,1,0 DRA Proposed Cost 1,1,0 CWS Rebuttal Position 1,1, Difference (,1) Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $1,00 for four new

35 personnel requests in the test year. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, and removing the four new headcount requests. Cal Water disagrees with DRA s use of the labor escalation rates and recommended disallowance of the four new positions. Cal Water has had three temporary personnel filling in for these positions since 0. The cost for these positions is already included in payroll. In Cal water s Application, it adjusted out $,000 for temporary efforts that will no longer exist in payroll in. This adjustment includes the payroll expenses for the three of the four new headcount additions. Cal Water adjusted out the temporary employee payroll associated with three of the four new position requests and included payroll for four new positions to depict a clear replacement. Cal Water completed a comprehensive study that documented the need for these four positions. The study was included in the personnel justification along with the Application. The study contains three years data documenting the need for these four positions. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount and to include four new headcount in the test year, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $, for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense.

36 ) Transportation Expense Postage Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. Cal Water is not requesting for any additional vehicles in this GRC for the Bakersfield District. DRA agrees with Cal Water s methodology and does not have any adjustments to the estimated cost. Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Cal Water estimates uncollectible expense to be $,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 1.0%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. 0

37 1 1 1 ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost 0,0 CWS Rebuttal Position 0, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $1,00. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense. 1

38 ) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 For test year, Cal Water requests ($,00). Cal Water s request is based on the three-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water shows a negative number for the test year 01 due to a change in the affiliate rules. DRA agrees with Cal Water s estimate for customer accounting. Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. 1) Conservation Expense Customer Accounting Expense Comparison CWS Proposed Cost (,00) DRA Proposed Cost (,00) CWS Rebuttal Position (,00) Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the three-year (00-0) historical average expenditure adjusted for inflation. DRA recommends using a five-year average of the historical expenditure adjusted for inflation (00-0). In reviewing DRA s recommendation, Cal Water agrees with DRA s method and estimated expense level for

39 maintenance stores expense. Cal Water requests the Commission adopts DRA s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $,,000 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $0,00 for a well-rehabilitation, reclassification in expenses (no rate impact), and high-priority maintenance program expense. DRA agrees with the well-rehabilitation and reclassification expense, but disagrees with Cal Water s high-priority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,,000 DRA Proposed Cost,1,00 CWS Rebuttal Position,,00 Difference (,00) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs.

40 ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Bakersfield District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,,00 for employee benefits in the Bakersfield District in the test year. DRA estimates $,,00 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison 0 ) Rent Expense CWS Application,0, DRA Proposed Cost,, CWS Rebuttal Position,0, DRA v. CWS 0,1

41 For the Bakersfield District, Cal Water estimates $,00 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests that the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-account. Instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends adjusting out two one-time expenses and using a three-year average to calculate expenses for the test year. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year.

42 Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost 0,00 CWS Rebuttal Position,00 DRA v. CWS,00 ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $0,00 for amortization of limited-term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense. Amortization of Limited-term Investment Expense Comparison CWS Application 0, DRA Proposed Cost 0, CWS Rebuttal Position 0, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $1,00 for dues and donations. DRA agrees with this adjustment. Cal Water requests the Commission adopt this adjustment.

43 CHAPTER : DISTRICT EXPENSE, BAYSHORE DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Bayshore District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Bayshore District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,0,0 DRA agrees with Cal Water's recommendation Business,0,0 DRA agrees with Cal Water's recommendation Multi Family 0 0 DRA agrees with Cal Water's recommendation Industrial 1 1 DRA agrees with Cal Water's recommendation Public Authority 1 1 DRA agrees with Cal Water's recommendation Other 0 0 DRA agrees with Cal Water's recommendation Total,00,00

44 1 1 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Bayshore District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) 1 1 Customer Class DRA CWS Difference CWS Position Residential 1 1 Cal Water accepts DRA's recommendation Business Cal Water accepts DRA's recommendation Multi Family 1,0 1,0 Cal Water accepts DRA's recommendation Industrial,, Cal Water accepts DRA's recommendation Public Authority 0 Cal Water accepts DRA's recommendation Other 1,0 1, 1 Cal Water accepts DRA's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,,, DRA agrees with Cal Water's recommendation Business,0,,0, DRA agrees with Cal Water's recommendation Multi Family 1,1, 1,1, DRA agrees with Cal Water's recommendation Industrial,000 1,1, Cal Water accepts DRA's recommendation Public Authority,00,0,0 Cal Water accepts DRA's recommendation Other,000, 0, Cal Water accepts DRA's recommendation Total,,0,1,, ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated

45 number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the Bayshore District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Bayshore District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of,0. KCcf (hundred thousand cubic feet) for the test year. Cal water proposes to meet its supply needs through % groundwater from company-owned wells, and % water purchased from the San Francisco Public Utilities Commission ( SFPUC ). The estimated purchased water estimate for the test year based on this water mix is $,,00. Cal Water accepts DRA s higher sales per customer and higher sales estimate. The higher sales estimate results in more purchased water quantities, which calculates to higher purchased water expense. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. The contracted rate for water is anticipated to increase in July of 01. Cal Water requests the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates. The rates below reflect the proposed estimated purchased water

46 expense for, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01. Purchased Water Expense Comparison CWS Proposed Cost,, DRA Proposed Cost,, CWS Rebuttal Position,, ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost,1 CWS Rebuttal Position, ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the recorded chemical expense levels and dividing it by the corresponding years groundwater quantities. DRA agrees with Cal Water s method for 0

47 estimating chemical expense. Cal Water requests the Commission adopt Cal Water s method for estimating purchased chemicals. Purchased Chemical Expense Comparison CWS Proposed Cost, DRA Proposed Cost,1 CWS Rebuttal Position, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $1,00 for six additional positions in. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, as well as removing the duplicated adjustment. Cal Water disagrees with DRA s elimination of the additional headcount and requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. Distribution Superintendent CWS maintains its original position. DRA states that the Customer service in the Bayshore District appears to be at a satisfactory level as explained in Report on the Company- Wide Results of Operations (Company-Wide Report). Please see the attached Bayshore s Key Performance Measurements and Results, it states that capital projects and maintenance is completed in a timely manner. Bayshore provided staffing worksheets that demonstrated the need for additional supervisory staff. Prior to the consolidation of the Mid-Peninsula and South San Francisco districts there were supervisors, today there is. There is an increased 1

48 workload due to requirements of regulatory agencies, processes for main and service projects, etc. Cal Water continues to struggle with completing capital projects in a timely manner; preventive maintenance for existing water mains is not being managed in the manner that it should to prevent water main breaks that could potentially cause damage to customer s property, water outages or safety. The existing supervisors have to work longer than normal hours to complete tasks. Attachments for Distribution Superintendent Foreman Hydrant Maintenance CWS maintains its original position. DRA states that the Customer service in the Bayshore District appears to be at a satisfactory level as explained in Report on the Company- Wide Results of Operations (Company-Wide Report). Please see the attached Bayshore s Key Performance Measurements and Results, it states that capital projects and maintenance is completed in a timely manner. The DRA did not address fire hydrant maintenance in their response only to state that we meet performance standards. The Bayshore district has not maintained the fire hydrants in over years for the cities of San Carlos, San Mateo, Colma and South San Francisco, the district currently does not have staffing to inspect or maintain fire hydrants. There are over,00 fire hydrants in the distribution system that require inspections, working the valves, maintaining the caps and threads and painting on an annual basis, the AWWA M1 manual and the Water Distribution System Operation & Maintenance field study training program states the fire hydrants should be inspected annually and painted as required or a rotation of once every years. The reasonable expected time to inspect, maintain and paint a fire hydrant is hours which includes administration and travel. Due to the number of fire hydrants in our distribution system we require one full time employee to manage this program; the inspection and maintenance of the fire hydrants require over 1,0 hours annually. The benefits from maintaining fire hydrants has a direct impact on public safety, improve ISO ratings, fire suppression, line flushing, public s confidence in the quality of drinking water and most importantly the Fire Departments ability to protect lives, homes and businesses in case of a fire.

49 The appearance of fire hydrants has a direct impact on the public s confidence in the quality of the drinking water; therefore, it is necessary to maintain the appearance of the hydrants by painting. Inspector CWS maintains its original position. DRA states that the Customer service in the Bayshore District appears to be at a satisfactory level as explained in Report on the Company- Wide Results of Operations (Company-Wide Report). Please see the attached Bayshore s Key Performance Measurements and Results; it states that capital projects and maintenance is completed in a timely manner. The only alternative would be to hire temporary employees; since the position s workload is on-going it requires a permanent position. Attachment to.. Inspector Two Operations and Maintenance Worker CWS maintains its original position. DRA states that the Customer service in the Bayshore District appears to be at a satisfactory level as explained in Report on the Company- Wide Results of Operations (Company-Wide Report). Please see the attached Bayshore s Key Performance Measurements and Results, it states that capital projects and maintenance is completed in a timely manner. Currently there are NO (0) Operation Maintenance Workers (OMW s) in the Bayshore district. The primary and general responsibilities are being shared by other field employees or not getting completed. The district is behind on meter replacement, hydrant maintenance and painting, housekeeping and meter box replacements. If the positions are not approved the Bayshore district will continue to fall behind on extremely important programs like the meter replacement program, maintenance to fire hydrants and facilities. The 0 routine meter replacement program tracking sheet is attached for reference. Cal Water continues to struggle with completing capital projects in a timely manner; preventive maintenance for existing water mains is not being managed in the manner that it should to prevent water main breaks that could potentially cause damage to customer s property, water outages or safety. The existing supervisors have to work longer than normal hours to complete tasks. Attachment to.. OWM

50 Utility Worker CWS maintains its original position. DRA states that the Customer service in the Bayshore District appears to be at a satisfactory level as explained in Report on the Company- Wide Results of Operations (Company-Wide Report). Please see the attached Bayshore s Key Performance Measurements and Results, which states that capital projects & maintenance is completed in a timely manner. Currently the district is behind on meter replacement, hydrant maintenance and painting, housekeeping and meter box replacements. If the positions are not approved the Bayshore district will continue to fall behind on extremely important programs like the meter replacement program, maintenance to fire hydrants and facilities. The 0 routine meter replacement program tracking sheet is attached for reference. The district is not able to properly manage the meter replacement program due to staffing. Of the,1 meters that should be changed annually Cal Water was only able to change 1, meters. Attachment to.. Utility Worker ) Postage Expense Cal Water s estimates $0, for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense.

51 Postage Expense Comparison CWS Proposed Cost 0, DRA Proposed Cost 0, CWS Rebuttal Position 0, 1 ) Transportation Expense Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation and adds expenses for four new vehicles associated with the new personnel requests for. DRA agrees with Cal Water s methodology, but disagrees with the vehicle additions as DRA recommended disallowing the new employee requests. The variance between DRA and Cal Water s positions in the below table is attributable to DRA s disallowance of the four new vehicle additions. Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense and the addition of four new vehicles for the additional personnel requests. For a detailed discussion on company vehicles, please see the Global Plant Rebuttal Testimony ( Book ) ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost, DRA Proposed Cost,00 CWS Rebuttal Position, Difference (,) 0 1 Cal Water estimates uncollectible expense to be $,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.1%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense

52 Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense Water Treatment Expense Comparison ) Transmission and Distribution Expense CWS Proposed Cost 1,00 DRA Proposed Cost 1,000 CWS Rebuttal Position 1,000 Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $1,00 based on a two-year average. DRA proposes $1,00, based on the five-year (00-0) historical average expenditure adjusted for

53 inflation. Expenses in the most recent two years are more representative of future expense for this category. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense. 1) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Difference (,0) For test year, Cal Water requests $0,00 Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. Customer Accounting Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and

54 estimated expense level for maintenance stores expense. Cal Water requests the Commission adopt Cal Water s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $1,1,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $0,00 for a pressure tank inspection program cost and high-priority maintenance program expense. DRA agrees with the pressure tank inspection program, but disagrees with Cal Water s high- priority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost 1,1,00 DRA Proposed Cost 1,,000 CWS Rebuttal Position 1,1,00 Difference (1,00) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs.. ADMINISTRATIVE AND GENERAL EXPENSES

55 This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Bayshore District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,01,1 for employee benefits in the Bayshore District in the test year. DRA estimates $,00,0 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees, () the difference in the payroll level based on the number of employees and the escalation rate, and () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application,01,1 DRA Proposed Cost,00,0 CWS Rebuttal Position,01,1 DRA v. CWS,1 ) Rent Expense

56 For the Bayshore District, cal water estimates $,00 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-account. Iinstead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a three-year average to calculate expenses for the test year. Cal Water disagrees with DRA s use of a three-year average as a five-year average is a generally accepted estimating method for expenses as noted in the Rate Case Plan. Cal Water requests the Commission adopt Cal Water s estimate for non-specific expenses for the test year. 0

57 Non-specific Expense Comparison CWS Application 1,00 DRA Proposed Cost,0 CWS Rebuttal Position 1,00 DRA v. CWS,00 ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $1,00 for amortization of limited-term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. In modifying some plant positions, Cal Water s rebuttal estimate for amortization of limited term investment expense is $1,00. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense Amortization of Limited-term Investment Expense Comparison CWS Application 1, DRA Proposed Cost 1,0 CWS Rebuttal Position 1, DRA v. CWS (,) ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $00 for dues and donations. DRA agrees with this adjustment. Cal Water requests the Commission adopt this adjustment. 0 1

58 CHAPTER : DISTRICT EXPENSE, BEAR GULCH DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Bear Gulch District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Bear Gulch District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential 1,1 1,1 DRA agrees with Cal Water's recommendation Business 1,01 1,01 DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial 1 1 DRA agrees with Cal Water's recommendation Public Authority 1 1 DRA agrees with Cal Water's recommendation Other 1 1 DRA agrees with Cal Water's recommendation Total 1,0 1,0

59 1 1 1 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Bear Gulch District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) 1 1 Customer Class DRA CWS Difference CWS Position Residential 1 Cal Water accepts DRA's recommendation Business 0 Cal Water accepts DRA's recommendation Multi Family 1, 1, Cal Water accepts DRA's recommendation Industrial 1, 1, Cal Water accepts DRA's recommendation Public Authority 1,0 1,0 Cal Water accepts DRA's recommendation Other 0 0 Cal Water accepts DRA's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,0,,,1 Cal Water accepts DRA's recommendation Business,0 1,0, Cal Water accepts DRA's recommendation Multi Family, 1,1,0 Cal Water accepts DRA's recommendation Industrial 1, 1, DRA agrees with Cal Water's recommendation Public Authority 1, 1, DRA agrees with Cal Water's recommendation Other,, DRA agrees with Cal Water's recommendation Total,0,0,,,

60 ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Bear Gulch District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.0% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Bear Gulch District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of,. KCcf (hundred thousand cubic feet) for the test year. Cal water proposes to meet its supply needs through % groundwater from company-owned wells, and % water purchased from the San Francisco Public Utilities Commission ( SFPUC ). The estimated purchased water estimate for the test year based on this water mix is $1,1,00. Cal Water accepts DRA s higher sales per customer and higher sales estimate. The higher sales estimate results in more purchased water quantities, which calculates to higher purchased water expense. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. The contracted rate for

61 water is anticipated to increase in July of 01. Cal Water requests the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates. The rates below reflect the proposed estimated purchased water expense for, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01. Purchased Water Expense Comparison CWS Proposed Cost 1,1,1 DRA Proposed Cost 1,,1 CWS Rebuttal Position 1,, ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, 1 ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first

62 calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense, but does not agree with Cal Water using the last-recorded year s unit cost to estimate chemical expenses for the test year. Chemical expense is a function is based on the current cost to for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. Purchased Chemical Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost, CWS Rebuttal Position,1 Difference (1,) ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $1,00 for a new headcount request for. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, as well as removing the new personnel request. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense

63 Cal Water s estimates $,00 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation and adds expenses for one new vehicle associated with the new personnel requests for. DRA agrees with Cal Water s methodology, but disagrees with the vehicle addition as DRA recommended disallowing the new employee request. Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense and the addition of four new vehicles for the additional personnel requests. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ).. Transportation Expense Comparison ) Uncollectibles CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, Difference (,)

64 Cal Water estimates uncollectible expense to be $,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.0%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests that the Commission adopt Cal Water s method for estimating pumping expense. ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,000 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating water treatment expense.

65 Water Treatment Expense Comparison CWS Proposed Cost,000 DRA Proposed Cost,00 CWS Rebuttal Position,000 Difference (00) ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense. 1) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 For test year, Cal Water requests $1,000 Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation and adds $,. Upon further review, this addition was based on a legacy addition from a previous GRC. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense, but proposes removing the $, addition. Cal Water accepts DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating customer accounting expense and removes the $, addition. The table below depicts Cal Water s recommended expense level for customer accounting after removing the $, addition.

66 Customer Accounting Expense Comparison CWS Proposed Cost 1,000 DRA Proposed Cost 1,00 CWS Rebuttal Position 1, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,0 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests that the Commission adopts Cal Water s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $1,,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $1,00 for a pressure tank inspection program cost and high-priority maintenance program expense. DRA agrees with the pressure tank inspection program, but disagrees with Cal Water s highpriority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the 0

67 high-priority maintenance program cost. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section O. 1) Tank Painting Cost Contracted Maintenance Expense Comparison positions are attributable to (1) the differences in the estimated number of employees () the 1 CWS Proposed Cost 1,,00 DRA Proposed Cost,00 CWS Rebuttal Position 1,,00 Difference (1,000) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs.. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Bear Gulch District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $1,1,00 for employee benefits in the Bear Gulch District in the test year. DRA estimates $1,,00 for test year. Difference in DRA s and Cal Waters

68 difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter.Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application 1,1,0 DRA Proposed Cost 1,,1 CWS Rebuttal Position 1,1,0 DRA v. CWS 1, ) Rent Expense For the Bear Gulch District, cal water estimates $,00 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests that the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a

69 provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year. Non-specific Expense Comparison CWS Application, DRA Proposed Cost 0,1 CWS Rebuttal Position, DRA v. CWS, ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $1,0 for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited term investment expense.

70 Amortization of Limited Term Investment Expense Comparison CWS Application 1,1 DRA Proposed Cost, CWS Rebuttal Position 1,1 DRA v. CWS,0 ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $00 for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment.

71 CHAPTER : DISTRICT EXPENSE, CHICO DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Chico District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Chico District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes, except for the sales per customer for the public authority customer class. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method with exceptions Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections DRA used a five-year average (00-0) to estimate the number of customers in all customer classes. Cal Water agrees with DRA s method for estimating the average active service connections for residential and industrial customer classes, but disagrees with DRA s estimate for the average number of active service connections for the Business, Multi-family, Public Authority, and Other customer classes. When Cal Water implemented the conservation rate design in 00, it underwent an extensive review of its customer classification for accuracy. In this effort, it reclassified customers for the Business, Multi-family, Public Authority, and Other customer classes. The reclassification depicts an atypical change in the number of customers in 00 that would skew calculations using data from 00. Cal Water agrees with DRA s use of an average from 00 to 0, however, it proposes excluding the data from 00 to avoid using unrepresented data. The table below depicts a calculation for the estimated number of services using data from 00

72 through 0, and excluding data from 00. This method accurately depicts the estimate for the average number of services for these four customer classes. Cal Water requests that the Commission adopt Cal Water s estimate for the average number of services for the Business, Multi-family, Public Authority, and Other customer classes. There were minimal changes in the Residential and Industrial customer class from the conservation rate design implementation effort. Cal Water accepts DRA s estimate for these two customer classes, and recommends that the Commission adopts its estimate for the remaining customer classes as noted below. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential 0, 0, Cal Water accepts DRA's recommendation Business,,0 (1) Cal Water requests the Commission adopt its estimate Multi Family 1,0 1 Cal Water requests the Commission adopt its estimate Industrial 1 1 Cal Water accepts DRA's recommendation Public Authority Cal Water requests the Commission adopt its estimate Other 1 () Cal Water requests the Commission adopt its estimate Total,0, ) Metered Sales and Supply Cal Water agrees with DRA s estimate for total sales for the Chico District for all customer classes, except for the Public Authority customer class, and Cal Water disagrees with DRA on the estimate for sales per customer as well as the average number of services. Cal Water agrees with DRA s estimate for the average active services for the Residential and Industrial customer class. For the Business, Multi-family, Public Authority, and Other customer classes, Cal Water requests that the Commission adopts Cal Water s estimate. DRA s estimate for the annual sales for the public authority class is not aligned with historical sales for this customer class. Cal Water requests that the Commission adopts its estimate for annual sales for the Public Authority customer class, which is more representative of historical sales trends for this customer class. For the Business, Multi-family, and Other customer classes, since Cal Water agrees with DRA s estimate for annual sales volume, Holding the total sales volume constant and changing the estimated number of services results in a different average usage per customer. Cal Water requests that the Commission adopts Cal Water s estimate for sales per services for the Business, Multi-family, Public Authority, and Other customer classes.

73 Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 Cal Water accepts DRA's recommendation Business Cal Water s proposed estimate Multi Family 1, 1, (1) Cal Water s proposed estimate Industrial,, Cal Water accepts DRA's recommendation Public Authority () Cal Water s proposed estimate Other, 0,1 Cal Water s proposed estimate Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,,, Cal Water accepts DRA's recommendation Business 1,1,1 1,1,1 Cal Water accepts DRA's recommendation Multi Family 1,0, 1,,, Cal Water s proposed estimate Industrial 1,0 1,0 Cal Water accepts DRA's recommendation Public Authority,0,0 Cal Water accepts DRA's recommendation Other,00,00 Cal Water accepts DRA's recommendation Total,1,0,1,, ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in

74 estimated expense level and plant additions. Cal Water requests that the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Chico District. DRA recommends using the.0% referenced in the Rate Case Plan. Cal Water accepts DRA s recommendation. Cal Water requests that the Commission adopt DRA s method for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Chico District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water does not buy any wholesale water in the Chico District. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost 1,, DRA Proposed Cost 1,1, CWS Rebuttal Position 1,1, Difference,1

75 1 ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense. Chemical expense is a function is based on the current cost to for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests that the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. Purchased Chemical Expense Comparison CWS Proposed Cost, DRA Proposed Cost 1,1 CWS Rebuttal Position 1, Difference, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $1,0 for a new headcount that it added for a cross-connection control personnel in 01 as well as $,00 for a new request for. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, and the additional cost for the cross-connection control personnel, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, as well as removing the new personnel request. Cal Water disagrees with DRA s use of the labor escalation rates and the removal of the new personnel request. For the discussion on escalation rate, please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter.

76 Cal Water currently has one Customer Service representative addressing service inquires and requests for, metered customers with the assistance of two other Customer Service Representatives ( CSR ). The other CSRs must help the CSR- with her duties when she is overburdened. These other CSRs therefore, must delay their normal tasks to assist. Those delayed tasks can include, but are not limited to: Customer Service can drop not being able to answer phone calls within the Company standard of 0 seconds. Additionally, customers having to wait at the counter to make payments or have questions answered when the CSR is busy helping the CSR-. Daily tasks assigned not completed in a timely manner, including: o Customer billings and collections o New service applications o Preparing monthly, weekly and daily reports o Preparing Bank Deposits The work being performed is critical, although it may not deal directly with customers who can express an opinion regarding the level of service performance. The current level of work effort allows Cal Water to maintain a high level of customer service inquires and service requests, however, the critical portions, not dealing directly with customers, but is critical to its operations are not being done. Furthermore, DRA s reasoning that Cal Water s current good record of customer service as a reason to not hire an additional person, is flawed because it assumes that the Cal Water provides the same type of services to flat-rate as metered service customers. The level of service required for a metered customer is different than those on a flat-rate service. The additional tasks for a metered customer (compared to a flat rate customer) can include, but is not limited to, the following: Meter maintenance (exchange meters, replace dials, testing for stuck) the CSR- generates and/or completes the paperwork Confirming reads (re-reads) Calls from customers confirming their usage fluctuation and/or disputing meter accuracy Including the customer s read data on the daily Read Audit Report (high or low consumption compared to the average or normal range for the customer) Estimating usage due to obstructions and inability to access meter Bill Segment Error report (generated the day after the read has been submitted the system double checks when a read is out of the normal or average range) Additional field orders generated to check above items have to be generated and then completed by the CSR- Meter Mis-match report a monthly report generated when system data regarding the size of a meter does not match exactly 0

77 The additional workload combined with the critical work not currently being completed, will weigh on the current staff. It is unreasonable to assume that Cal Water will be able to maintain a high level of customer service with additional workload anticipated from the adding of new metered customers. For the benefit of the ratepayers, Cal Water does not want to wait until customer service degrades before addressing staffing needs. With the new anticipated workload from adding,0 metered customers, and tasks not currently being addressed, Cal Water needs an additional CSR to maintain a high level of quality customer service. Cal Water requests the Commission adopts its recommendation to hire one additional Customer Service position and incorporate $,00 to the payroll estimates for this position in. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $1,00 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense. Any difference in DRA and Cal Water s estimates are the result of the differences in the estimated number of customers. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, Difference 0 Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation and is not seeking any additional vehicles for the Chico District.. DRA 1

78 agrees with Cal Water s methodology. Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ) ) Uncollectibles Transportation Expense Comparison Table CWS Proposed Cost,000 DRA Proposed Cost,000 CWS Rebuttal Position,000 Cal water estimates uncollectible expense to be $0,0 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests that the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests that the Commission adopt Cal Water s method for estimating pumping expense. 1 Pumping Expense Comparison CWS Proposed Cost 01,00 DRA Proposed Cost 01,00 CWS Rebuttal Position 01,00 ) Water Treatment Expense

79 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,0 for Test Year. Cal Water s request is based on the three-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with using a three-year average and inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,000 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense. Transmission and Distribution Expense Comparison CWS Proposed Cost,000 DRA Proposed Cost,000 CWS Rebuttal Position,000

80 1) Customer Accounting Expense For test year, Cal Water requests $,00 Cal Water s request is based on the fiveyear (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water accepts DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating customer accounting. Customer Accounting Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,0 for maintenance stores. Cal Water s request is based on the two-year (0-0) historical average expenditure adjusted for inflation. DRA recommends using a five year (00-0) historical average expenditure adjusted for inflation for maintenance stores expense. Cal Water disagrees with DRA s methodology (i.e., namely its use of a five-year average in lieu of Cal Water s two-year average). Historical escalated (in 0 dollars) are as follows: 00 had $,00 in maintenance stores expenses; 00, $1,00; 00, $1,00; 0, $.; 0, $,00. DRA accepted these historical amounts but held its average was more reflected of past historical Cal Water historical trends. Cal Water argues these expenses are trending upward and averaging the two last years would be more predictive of future test-year expenses and recommends that the Commission adopts Cal Water s recommendation for maintenance stores expense.

81 Maintenance Stores Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,00 CWS Rebuttal Position,0 Difference (1,00) ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $,000 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds costs for a pressure tank inspection program, and a well rehabilitation. DRA agrees with the pressure tank inspection program and the well rehabilitation cost. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,000 DRA Proposed Cost,00 CWS Rebuttal Position,00 Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs.. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Chico District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense

82 Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,0,00 for employee benefits in the Chico District in the test year. DRA estimates $1,0,00 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. ) Rent Expense Benefits Expense Comparison CWS Application,0, DRA Proposed Cost 1,0, CWS Rebuttal Position,0, DRA v. CWS, For the Chico District, cal water estimates $00 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests that the commission adopt Cal Water s estimate for rent expense.

83 Rent Expense Comparison CWS Application 00 DRA Proposed Cost 00 CWS Rebuttal Position 00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the last adopted amount adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year. Cal Water agrees with DRA s estimate. Cal Water requests that the Commission adopt DRA s estimate for non-specific expenses for the test year. Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS

84 1 1 ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited term investment expense. ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $00 for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment.

85 CHAPTER : DISTRICT EXPENSE, DIXON DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Dixon District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Dixon District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method with exceptions Connections Metered Sales and Supply Cal Water agrees with DRA s Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests that the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,, DRA agrees with Cal Water's recommendation Business 1 1 DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1 Cal Water Agrees with DRA's recommendation Other DRA agrees with Cal Water's recommendation Total,,1

86 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Dixon District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 () Cal Water accepts DRA's recommendation Business () Cal Water accepts DRA's recommendation Multi Family 1, 1, Cal Water accepts DRA's recommendation Industrial Cal Water accepts DRA's recommendation Public Authority 1,0 1, (1) Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential 0, 1,0 (,) Cal Water Agrees with DRA's recommendation Business,0, (,1) Cal Water Agrees with DRA's recommendation Multi Family,,, Cal Water Agrees with DRA's recommendation Industrial 0 0 DRA agrees with Cal Water's recommendation Public Authority,,0 (,) Cal Water Agrees with DRA's recommendation Other Cal Water Agrees with DRA's recommendation Total,00,0 (,) ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated 0

87 number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests that the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the Dixon District. DRA recommends.%. Cal Water requests that the Commission adopt the.% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Dixon District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water The Dixon District obtains all of its supply from company wells. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power. 1

88 Purchased Power Expense Comparison CWS Proposed Cost 1,1 DRA Proposed Cost 1, CWS Rebuttal Position 1, ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the respective year s recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense with variances between the Cal Water and DRA s estimates attributable to differing production forecasts. Chemical expense is a function is based on the current cost for purchased chemicals.. Cal Water agrees with DRA s sales forecast and recommends that the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. ) Payroll Purchased Chemical Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost,1 CWS Rebuttal Position,1 Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use

89 of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water disagrees with DRA s use of the labor escalation rates and the removal of the new personnel request. For the discussion on escalation rate, please see the ECOS discussion above in Section. and.. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $, for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, Cal Water estimates its transportation expenses by taking the last-recorded year s (0) amount with adjustments. DRA disagrees with Cal Water s methodology and instead uses an escalated five-year average (00-0) to forecast its proposed costs. Transportation

90 expenses have generally been trending upward and Cal Water does not anticipate this trend to reverse and to realize post-escalated expenses for that are less than the expenses it incurred in 0. This would be the case if a five-year average was adopted and this is why Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Difference (1,00) Cal water estimates uncollectible expense to be $,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests that the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests that the Commission adopt Cal Water s method for estimating pumping expense.

91 Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Water Treatment Expense Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $0,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses. DRA agrees with Cal Water s methodology. Cal Water requests that the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0,00 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $1,0 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense.

92 ) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 1,0 CWS Rebuttal Position 1,0 For test year, Cal Water requests $,00 Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests that the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: 1) Conservation Expense Customer Accounting Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests that the Commission adopts Cal Water s recommendation for maintenance stores expense.

93 ) Contracted Maintenance Expense Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 For Contracted Maintenance Expense, Cal water estimates $,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds approximately $1,000 for a pressure tank inspection program cost, well rehabilitation, and purification project amortized over years. DRA agrees with the Cal Water s additional costs. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water requests that the Commission adopt its method for estimating contracted maintenance. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost, CWS Rebuttal Position, Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs.. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Dixon District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense

94 Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $1, for employee benefits in the Dixon District in the test year. DRA estimates $1,1 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. ) Rent Expense Benefits Expense Comparison CWS Application 1, DRA Proposed Cost 1,1 CWS Rebuttal Position 1, DRA v. CWS 1, For the Dixon District, cal water estimates $1,000 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests that the commission adopt Cal Water s estimate for rent expense.

95 Rent Expense Comparison CWS Application 1,000 DRA Proposed Cost 1,000 CWS Rebuttal Position 1,000 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts. Instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year.

96 Non-specific Expense Comparison CWS Application 0,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 0,00 DRA v. CWS 1,00 ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited-term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited-term investment expense. Amortization of Limited-term Investment Expense Comparison CWS Application,0 DRA Proposed Cost, CWS Rebuttal Position,0 DRA v. CWS 1 ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $1,0 for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment. 0

97 CHAPTER : DISTRICT EXPENSE, DOMINGUEZ DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Dominguez District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Dominguez District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests that the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,, DRA agrees with Cal Water's recommendation Business,, DRA agrees with Cal Water's recommendation Multi Family 1 1 DRA agrees with Cal Water's recommendation Industrial 1 1 DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Total,, 1

98 1 1 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Dominguez District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 () Cal Water accepts DRA's recommendation Business 1, 1, DRA agrees with Cal Water's recommendation Multi Family 1, 1, (1) Cal Water accepts DRA's recommendation Industrial,, DRA agrees with Cal Water's recommendation Public Authority,0,0 DRA agrees with Cal Water's recommendation Other 1, 1, DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,0,,1,0 (0,) Cal Water accepts DRA's recommendation Business,1,0,1,0 DRA agrees with Cal Water's recommendation Multi Family 1,, 1,, (,) Cal Water accepts DRA's recommendation Industrial,1,,1, DRA agrees with Cal Water's recommendation Public Authority 1,1 1,1 DRA agrees with Cal Water's recommendation Other,, DRA agrees with Cal Water's recommendation Recycled Water,,,, DRA agrees with Cal Water's recommendation TOTAL,,,,1 (1,) ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated

99 number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests that the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates 1.% unaccounted for water in the Dominguez District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests that the Commission adopt the 1.% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Dominguez District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of 1,1. KCcf (hundred thousand cubic feet) for the test year. Cal Water s supply is a mix of purchased water and groundwater produced from company-owned and leased wells. Cal Water proposes to increase groundwater pumping and has capital projects proposed in 01 and 01 to drill, develop and equip new wells, as well as install well-head treatment. The estimated purchased water estimate for the test year based on this water mix is $,1,00. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of 01. The contracted rate for water is anticipated to increase in July of 01. Cal Water requests that the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates once it is effective. The rates below reflect the proposed estimated purchased water

100 expense for, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01. ) Purchased Power Purchased Water Expense Comparison CWS Proposed Cost,1,0 DRA Proposed Cost,, CWS Rebuttal Position,, Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power. ) Purchased Chemicals Purchased Power Expense Comparison CWS Proposed Cost,01,000 DRA Proposed Cost,01,000 CWS Rebuttal Position,01,000 Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense, but does not agree with Cal Water using the last-recorded year s

101 unit cost to estimate chemical expenses for the test year. Chemical expense is a function is based on the current cost to for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests that the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. ) Payroll Purchased Chemical Expense Comparison calculated by taking the 0 postage expense divided by the number of services in 0. The CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $,00 and $,00 for Dominguez s share of Rancho Dominguez s new cross-connection person and seven new headcount positions respectively sought in 01 for a total of $,00. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, as well as removing the new personnel request. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $1,0 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is

102 test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology. Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ).. ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 Cal Water estimates uncollectible expense to be $1,000 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests that the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense

103 Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests that the Commission adopt Cal Water s method for estimating pumping expense. ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,000 DRA Proposed Cost,000 CWS Rebuttal Position,000 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $1,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,1 CWS Rebuttal Position 1,1 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,00 based on a five-year average. DRA agrees

104 with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense ) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 For test year, Cal Water requests $1,00 Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water accepts DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting. 1) Conservation Expense Customer Accounting Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and

105 estimated expense level for maintenance stores expense. Cal Water requests that the Commission adopts Cal Water s recommendation for maintenance stores expense ) Contracted Maintenance Expense Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 For Contracted Maintenance Expense, Cal water estimates $,00 for the test year based on the three-year (00-0) historical average adjusted for inflation and adds $1,0 for a pressure tank inspection program and well rehabilitation costs and high-priority maintenance program expenses. DRA agrees with the pressure tank inspection program and well rehabilitation costs, but disagrees with Cal Water s high-priority maintenance program expense. DRA also recommends using a five-year (00-0) historical average and inflating the average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section O ) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost, CWS Rebuttal Position,00 Difference (0,) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs.

106 ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Dominguez District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,01, for employee benefits in the Dominguez District in the test year. DRA estimates $1,1,0 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. Cal Water requests that the Commission adopt Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison 0 CWS Application,01, DRA Proposed Cost 1,1,0 CWS Rebuttal Position,01, DRA v. CWS 1,1

107 ) Rent Expense For the Dominguez District, Cal Water estimates $1,0 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. This is included in error; the Rent expense should be excluded from ratemaking due to the settlement agreement adopted in D and D Cal Water requests that the commission adopt DRA s estimate for rent expense. Rent Expense Comparison CWS Application 1,0 DRA Proposed Cost CWS Rebuttal Position DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation The Dominguez District is one of the three districts that make up the Rancho Dominguez service area. Other districts in the Rancho Dominguez area include the Palos Verdes and the Hermosa-Redondo districts. The combined amount for worker s compensation for the three districts is $, for the test year. DRA agrees with this methodology and estimated expense level. Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Each of the three districts is responsible for a portion of the total worker s compensation. The estimated amount for is $1,1 for the Dominguez District. Cal Water uses allocation factors to ascribe amounts to each of the three districts. In reviewing its work papers, there is a formula error that incorrectly apportions the worker s compensation cost to the three areas in the Rancho Dominguez umbrella. Cal Water agrees with DRA in revising the allocation proportions. For 01, DRA and Cal Water differ in its methodologies. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter, for more discussion on 1

108 worker s compensation. Cal Water requests that the commission adopt DRA s estimate for worker s compensation expense. ) Non-specifics Expense Worker s Compensation Expense Comparison CWS Application 1,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 DRA v. CWS Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year. Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost 1,00 CWS Rebuttal Position,00 DRA v. CWS,00 ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,1 for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that

109 the Commission adopt Cal Water s estimate for amortization of limited term investment expense. Amortization of Limited Term Investment Expense Comparison CWS Application,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $0 for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment.

110 CHAPTER : DISTRICT EXPENSE, EAST LOS ANGELES DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the East Los Angeles District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the East Los Angeles District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests that the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential 0, 0, DRA agrees with Cal Water's recommendation Business,1,1 DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1 1 DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Total,0,0

111 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the East Los Angeles District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 Cal Water accepts DRA's recommendation Business () Cal Water accepts DRA's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial,, () Cal Water accepts DRA's recommendation Public Authority 1, 1, DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,1,1,, Cal Water accepts DRA's recommendation Business,0,,0, (,) Cal Water accepts DRA's recommendation Multi Family 1, 1, DRA agrees with Cal Water's recommendation Industrial,00, (,) Cal Water accepts DRA's recommendation Public Authority,, DRA agrees with Cal Water's recommendation Other,, DRA agrees with Cal Water's recommendation Total,,1,,, ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated

112 number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests that the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.1% unaccounted for water in the East Los Angeles District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests that the Commission adopt the.1% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the East Los Angeles District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of 1,0 acre feet for the test year. Cal water proposes to meet its supply needs through groundwater from company-owned wells and water purchased from the Central Basin Municipal Water District ( CBMWD ). The estimated purchased water estimate for the test year based on this water mix is $,,00. This cost estimate is based on the Company being able to pump more water from the new proposed well projects in this GRC. The wells are proposed to be constructed on the new property known as Tubeway. DRA recommended removing the proposed new well projects, but did not modify its work papers to include higher quantities purchased from CBMWD to offset the production supply. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. The contracted rate for water is anticipated to increase in July of 01. Cal Water requests that the Commission adopts Cal Water s method for estimating purchased water and allow Cal Water to incorporate the most recent contracted water rates.

113 Should the Commission adopt DRA s recommendation to disallow the Tubeway property purchase, Cal Water requests that the Commission authorize an offsetting expense to purchase more water to accommodate customer demand. The rates below reflect the proposed estimated purchased water expense for, based on Cal Water completing its proposed new well projects and reducing the purchased water quantities, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01. As such, purchased water quantities and the corresponding expense would increase should these well projects be disallowed ) Purchased Power Purchased Water Expense Comparison CWS Proposed Cost,,1 DRA Proposed Cost,, CWS Rebuttal Position,,1 Difference 1,1 Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, Difference,

114 ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. Chemical expense is a function based on the current cost to for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests that the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. ) Payroll Purchased Chemical Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $,00 to annualize the payroll for one customer service representative hired mid-way in 0 and include payroll for a cross connection personnel hired in 01. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last- recorded payroll level from 0 and payroll additions, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter.

115 ) Postage Expense Cal Water s estimates $1,1 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost 1,1 DRA Proposed Cost 1,1 CWS Rebuttal Position 1,1 Cal Water estimates its transportation expenses by using a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ).. ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Cal water estimates uncollectible expense to be $,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.0%.

116 The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests that the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests that the Commission adopt Cal Water s method for estimating pumping expense. ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $0, for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests that the Commission adopt DRA s method for estimating water treatment expense. 1

117 Water Treatment Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0, CWS Rebuttal Position 0, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $1,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense. 1) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 For test year, Cal Water requests $1,00 Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water accepts DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting. 1

118 ) Conservation Expense Customer Accounting Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $1,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests that the Commission adopts Cal Water s recommendation for maintenance stores expense. 1) Contracted Maintenance Expense Maintenance Stores Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 For Contracted Maintenance Expense, Cal water estimates $,00 for the test-year based on the five-year (00-0) historical average adjusted for inflation and initially sought to add $,00 for pressure tank inspection program and well rehabilitation costs and high- priority maintenance program expenses. DRA agrees with the pressure tank inspection program, but disagrees with Cal Water s well rehabilitation costs and high-priority maintenance program expenses. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water agrees with DRA s removal of well rehabilitation costs from the test-year,

119 cancelling one well rehabilitation and moving one back to 01, which was when it was tentatively budgeted, but disagrees with DRA on the recommended disallowance for the highpriority maintenance program cost. Cal Water s projected expenses in the below table takes into account the well rehabilitation adjustments and DRA s escalation methodology. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section O ) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0,00 Difference (0,00) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the East Los Angeles District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in

120 the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,,00 for employee benefits in the East Los Angeles District in the test year. DRA estimates $,,00 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. ) Rent Expense Benefits Expense Comparison CWS Application,, DRA Proposed Cost,, CWS Rebuttal Position,, DRA v. CWS 1, For the East Los Angeles District, Cal Water estimates $0 for the test year. Cal Water purchased a new property with a building that will be used as a customer service center office. Cal Water has since relocated its customer service operations to the new property. DRA disagrees with Cal Water s property purchase and recommends that Cal Water include a rent estimate for the old customer service building to offset DRA s recommendation to disallow the new property. Please see the plant rebuttal book for a detailed discussion on Cal Water s position regarding the new property purchase. Cal Water requests that the commission adopt Cal Water s estimate for rent expense that aligns with the property purchase. However, if the Commission agrees with DRA regarding treatment of the Tubeway property purchase, then the rent component should be included in expense.

121 Rent Expense Comparison CWS Application DRA Proposed Cost,000 CWS Rebuttal Position DRA v. CWS (,000) ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonable to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year.

122 Non-specific Expense Comparison CWS Application 1,00 DRA Proposed Cost,00 CWS Rebuttal Position 1,00 DRA v. CWS,00 ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $0,00 for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees with Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited term investment expense. Please see the Global Plant discussion regarding capitalization of litigation matters for rebuttal discussion of the capital items related to the cost estimate of amortization of limited term investment expense. Amortization of Limited Term Investment Expense Comparison CWS Application 0, DRA Proposed Cost, CWS Rebuttal Position 0, DRA v. CWS 1, ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $1,000 for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment.

123 CHAPTER : DISTRICT EXPENSE, HERMOSA REDONDO DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Hermosa Redondo District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Hermosa Redondo District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests that the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,0,0 DRA agrees with Cal Water's recommendation Business 1,1 1,1 DRA agrees with Cal Water's recommendation Multi Family 1, 1, DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Recycled Water DRA agrees with Cal Water's recommendation Total,1,1

124 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Hermosa Redondo District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 0 Cal Water accepts DRA's recommendation Business (1) Cal Water accepts DRA's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial,, DRA agrees with Cal Water's recommendation Public Authority 0 () Cal Water accepts DRA's recommendation Other DRA agrees with Cal Water's recommendation Recycled Water,, DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,,,, Cal Water accepts DRA's recommendation Business,0, (1,) Cal Water accepts DRA's recommendation Multi Family 1,, 1,, DRA agrees with Cal Water's recommendation Industrial,00,00 DRA agrees with Cal Water's recommendation Public Authority,,01 (,1) Cal Water accepts DRA's recommendation Other,, DRA agrees with Cal Water's recommendation Recycled Water,00,00 DRA agrees with Cal Water's recommendation Total,1,,, (,01) ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated

125 number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests that the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.1% unaccounted for water in the Hermosa-Redondo District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests that the Commission adopt the.1% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Hermosa-Redondo District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of, KCcf (hundred thousand cubic feet) for the test year. Cal water proposes to meet its supply needs through groundwater from company-owned wells, and water purchased from the West Basin Municipal Water District ( West Basin ). The estimated purchased water estimate for the test year based on this water mix is $,,000. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. The contracted rate for water is anticipated to increase in July of 01. Cal Water requests that the Commission adopts Cal Water s method for estimating purchased water and allow Cal Water to incorporate the most recent contracted water rates. The rates below reflect the proposed estimated purchased water expense for, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01.

126 ) Purchased Power Purchased Water Expense Comparison CWS Proposed Cost,,0 DRA Proposed Cost,, CWS Rebuttal Position,, Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power. ) Purchased Chemicals Purchased Power Expense Comparison CWS Proposed Cost, DRA Proposed Cost 1, CWS Rebuttal Position 1, Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense, but does not agree with Cal Water using the last-recorded year s unit cost to estimate chemical expenses for the test year. Chemical expense is a function is based on the current cost to for purchased chemicals. The most recent year s unit cost is more

127 reflective of the cost for purchased chemicals. Cal Water requests that the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense ) Payroll Purchased Chemical Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $1,000 and $1,00 for Hermosa Redondo s share of Rancho Dominguez s new cross-connection person and seven new headcount positions respectively sought in 01 for a total of $1,00. The seven positions in are shared with the Dominguez and Palos Verdes Districts. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0 as well as the new personnel additions, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water disagrees with DRA s use of the labor escalation rates and the removal of the new personnel request. For the discussion on escalation rate, please see the ECOS discussion above in Section. and.. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. 0 ) Postage Expense Cal Water s estimates $,1 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is

128 calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 Cal Water estimates its transportation expenses by using a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology. Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ).. ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Cal water estimates uncollectible expense to be $,0 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests that the Commission adopt Cal Water s proposed uncollectible rate. 1

129 ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests that the Commission adopt Cal Water s method for estimating pumping expense. ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $1,0 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 0, CWS Rebuttal Position 0, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. 1

130 For test year, Cal Water requests $,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense. Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Customer Accounting Expense For test year, Cal Water requests $,00. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water requests that the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting. 1) Conservation Expense Customer Accounting Expense Comparison 1 CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $0,00 for maintenance stores. Cal Water s request is based on the five-year (00-0)

131 historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests that the Commission adopt Cal Water s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $1,0 for a high-priority maintenance program expense. DRA disagrees with Cal Water s high-priority maintenance program expense. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section ) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Difference (,00) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 1. ADMINISTRATIVE AND GENERAL EXPENSES 1

132 This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Hermosa Redondo District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $1,,00 for employee benefits in the Hermosa-Redondo District in the test year. DRA estimates $1,,0 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application 1,,0 DRA Proposed Cost 1,,1 CWS Rebuttal Position 1,,0 DRA v. CWS, 1

133 ) Rent Expense For the Hermosa-Redondo District, cal water estimates $,000 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. This is included in error; the Rent expense should be excluded from ratemaking due to the settlement agreement adopted in D and D Cal Water requests that the commission adopt DRA estimate for rent expense. Rent Expense Comparison CWS Application,000 DRA Proposed Cost CWS Rebuttal Position DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation The Hermosa-Redondo District is one of the three districts that make up the Rancho Dominguez service area. Other districts in the Rancho Dominguez area include the Palos Verdes and Dominguez districts. The combined amount for worker s compensation for the three districts is $, for the test year. DRA agrees with this methodology and estimated expense level. Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Each of the three districts is responsible for a portion of the total worker s compensation. The estimated amount for is $1,1 for the Hermosa Redondo District. Cal Water uses allocation factors to ascribe amounts to each of the three districts. In reviewing its work papers, there is a formula error that incorrectly apportions the worker s compensation cost to the three areas in the Rancho Dominguez umbrella. Cal Water agrees with DRA in revising the allocation proportions. For 01, DRA and Cal Water differ in its methodologies. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter, for more discussion 1

134 on worker s compensation. Cal Water requests that the commission adopt DRA s estimate for worker s compensation expense. Worker s Compensation Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year. Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost,000 CWS Rebuttal Position,00 DRA v. CWS, ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $, for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s 1

135 expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited term investment expense. 1 Amortization of Limited Term Investment Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $0 for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment. 1

136 CHAPTER 1: DISTRICT EXPENSE, KERN RIVER VALLEY DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Kern River Valley District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Kern River Valley District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests that the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,01,01 DRA agrees with Cal Water's recommendation Business DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1 1 DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential,1,1

137 ) Metered Sales and Supply Cal Water disagrees with DRA s estimate for average sales per service connection for the Kern River Valley District. Sales have continued to decline in the Kern River Valley District in 01. The total sales level in 01 is, Ccf. Cal Water requests that the Commission adopts Cal Water s lower sales estimate, which is more in-line with the recent sales trends in 0 and 01. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. Cal Water s estimate is closer to the actual sales trend in recent years, Cal Water requests that the commission adopts its estimate for total sales and sales per customer in the Kern River Valley District. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 0 Cal Water's rebuttal proposal Business Cal Water's rebuttal proposal Multi Family 1 Cal Water's rebuttal proposal Industrial n/a Public Authority 1 1 Cal Water's rebuttal proposal Other n/a Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,, Cal Water's rebuttal proposal Business, 0,00 1, Cal Water's rebuttal proposal Multi Family,00, Cal Water's rebuttal proposal Industrial n/a Public Authority,00,0,00 Cal Water's rebuttal proposal Other n/a Total,1,1,

138 ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests that the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.1% unaccounted for water in the Kern River Valley District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests that the Commission adopt the.1% estimate for unaccounted for water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Kern River Valley District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of KCcf (hundred thousand cubic feet) for the test year. Cal water proposes to meet its supply needs through groundwater from companyowned wells, and water purchased from the City of Bakersfield ( CBK ). The estimated purchased water estimate for the test year based on this water mix is $,. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. The contracted rate for water is anticipated to increase in July of 01. Cal Water requests that the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates. The rates below reflect 1

139 the proposed estimated purchased water expense for, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01. ) Purchased Power Purchased Water Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power. ) Purchased Chemicals Purchased Power Expense Comparison CWS Proposed Cost, DRA Proposed Cost 1, CWS Rebuttal Position, Difference 1,0 Groundwater supplies and surface water in this district require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense, but does not agree with Cal Water using 1

140 the last-recorded year s unit cost to estimate chemical expenses for the test year. Chemical expense is a function is based on the current cost to for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests that the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. ) Payroll Purchased Chemical Expense Comparison test year postage expense estimate is multiplying the estimated number of services multiplied 1 CWS Proposed Cost, DRA Proposed Cost 0, CWS Rebuttal Position, Difference,0 Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water disagrees with DRA s use of the labor escalation rates and the removal of the new personnel request. For the discussion on escalation rate, please see the ECOS discussion above in Section. and.. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $1,1 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The

141 by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost 1,1 DRA Proposed Cost 1,1 CWS Rebuttal Position 1,1 Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Cal water estimates uncollectible expense to be $1,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. 1

142 ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $1,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses. DRA agrees with Cal Water s estimating methodology. Cal Water requests that the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,00 based on a three-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense. 1

143 Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 1 1) Customer Accounting Expense For test year, Cal Water requests $,00 Cal Water s request is based on the fiveyear (00-0) historical average expenditure adjusted for inflation. Upon further review, this addition was based on a legacy addition from a previous GRC. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water accepts DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting. Customer Accounting Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Cal Water estimates $0 for maintenance stores in the test year. DRA agrees with Cal Water s estimate. Cal Water requests that the Commission adopts its estimate. 1) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $1,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $,00 for a pressure tank inspection program expense. DRA disagrees with this expense, but recommends that the cost estimate be inflated first, then add the incremental cost. Cal Water agrees with 1

144 DRA s recommendation. Cal Water requests the Commission adopts its estimated expense as noted below. 1) Tank Painting Cost Contracted Maintenance Expense Comparison expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues 1 CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 1. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Kern River Valley District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,000 for employee benefits in the Kern River Valley District in the test year. DRA estimates $,00 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare

145 Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application,01 DRA Proposed Cost,0 CWS Rebuttal Position,01 DRA v. CWS,0 1 ) Rent Expense For the Kern River Valley District, cal water estimates $,00 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests that the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense 1

146 1 Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year. Non-specific Expense Comparison CWS Application 0, DRA Proposed Cost 1, CWS Rebuttal Position 0, DRA v. CWS 1, ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $, for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited term investment expense. Amortization of Limited Term Investment Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery

147 Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $00 for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment.

148 CHAPTER 1: DISTRICT EXPENSE, KING CITY DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the King City District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the King City District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,1,1 DRA agrees with Cal Water's recommendation Business DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial 1 1 DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Total,, 1

149 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the King City District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 () Cal Water accepts DRA's recommendation Business () Cal Water accepts DRA's recommendation Multi Family 1,0 1,1 () Cal Water accepts DRA's recommendation Industrial 1,0 1,0 DRA agrees with Cal Water's recommendation Public Authority 1,0 Cal Water accepts DRA's recommendation Other 1,00 1,00 DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential 1,0, (1,) Cal Water accepts DRA's recommendation Business,0, (,1) Cal Water accepts DRA's recommendation Multi Family,,1 () Cal Water accepts DRA's recommendation Industrial,, DRA agrees with Cal Water's recommendation Public Authority 0,,1, Cal Water accepts DRA's recommendation Other,0,0 DRA agrees with Cal Water's recommendation Total 1,0,0 (,) ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal 1

150 Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the King City District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.% estimate for unaccounted for water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the King City District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water There is no purchased water expense in the King City District. Cal Water supply is produced sole from its company-owned wells. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water 1

151 accepts DRA s sales forecast and recommends that the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost, DRA Proposed Cost,0 CWS Rebuttal Position, ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for estimating chemical expense, but does not agree with Cal Water using the last-recorded year s unit cost to estimate chemical expenses for the test year. Chemical expense is a function is based on the current cost to for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests that the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. Purchased Chemical Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in 1

152 its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0 amount, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $,0 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests that the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison 1 CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book )..Chapter, Section.

153 Transportation Expense Comparison Table CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Uncollectibles Cal water estimates uncollectible expense to be $,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.0%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests that the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests that the Commission adopt Cal Water s method for estimating pumping expense. Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Water Treatment Expense Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $1,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded 1

154 expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense. Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Customer Accounting Expense For test year, Cal Water requests $,00 Cal Water s request is based on the fiveyear (00-0) historical average expenditure adjusted for inflation. Upon further review, this addition was based on a legacy addition from a previous GRC. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water accepts DRA s recommendations. Cal Water requests that the Commission adopt Cal Water s method 1

155 for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting. Customer Accounting Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $1,0 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 1,0 CWS Rebuttal Position 1, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $1,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $,00 for a high-priority maintenance program expense. DRA agrees with using a five-year average, but disagrees with Cal Water s high-priority maintenance program expense. Cal Water disagrees 1

156 with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost,00 CWS Rebuttal Position 1,00 Difference (,000) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 1. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the King City District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,00 for employee benefits in the King City District in the test year. DRA estimates $1,00 for test year. Difference in DRA s and Cal Waters

157 positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), Chapter. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application, DRA Proposed Cost 1, CWS Rebuttal Position, DRA v. CWS 1, ) Rent Expense For the King City District, cal water estimates $0,000 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense. 1 1 Rent Expense Comparison CWS Application 0,000 DRA Proposed Cost 0,000 CWS Rebuttal Position 0,000 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation

158 Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests the Commission adopts Cal Water s estimate for non-specific expenses for the test year. 1 1 Non-specific Expense Comparison CWS Application,0 DRA Proposed Cost 1,1 CWS Rebuttal Position,0 DRA v. CWS 1, ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,000 for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited term investment expense. 1

159 Amortization of Limited Term Investment Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $00 for dues and donations. DRA agrees with this adjustment. Cal Water requests the Commission adopt this adjustment. 1

160 CHAPTER 1: DISTRICT EXPENSE, LIVERMORE DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Livermore District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Livermore District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests that the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential 1, 1, DRA agrees with Cal Water's recommendation Business 1,01 1,01 DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Total 1,0 1,0 1

161 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Livermore District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 Cal Water accepts DRA's recommendation Business 1 0 Cal Water accepts DRA's recommendation Multi Family,0, Cal Water accepts DRA's recommendation Industrial n/a Public Authority 1, 1, Cal Water accepts DRA's recommendation Other DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,0,1,,0,0 Cal Water accepts DRA's recommendation Business 1, 0, 1,00 Cal Water accepts DRA's recommendation Multi Family,1,, Cal Water accepts DRA's recommendation Industrial n/a Public Authority 00,00 0,0,00 Cal Water accepts DRA's recommendation Other,, DRA agrees with Cal Water's recommendation Total,,,1,0 1, ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees 1

162 with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the Livermore District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.% estimate for unaccounted for water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Livermore District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of,0 KCcf (hundred thousand cubic feet) for the test year. Cal water proposes to meet its supply needs through 0% groundwater from company-owned wells, and 0% water purchased from Alameda County Flood Control and Water Conservation District ( Zone ). The estimated purchased water estimate for the test year based on this water mix is $,,00. Cal Water accepts DRA s higher sales per customer and higher sales estimate. The higher sales estimate results in more purchased water quantities, which calculates to higher purchased water expense. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. The contracted rate for water is anticipated to increase in July of 01. Cal Water requests that the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates. The rates below reflect the proposed 1

163 estimated purchased water expense for, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01. Purchased Water Expense Comparison CWS Proposed Cost,,0 DRA Proposed Cost,, CWS Rebuttal Position,, ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost, CWS Rebuttal Position, ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the average unit cost calculated from the 0 and 0 recorded chemical expense levels and dividing it by the corresponding groundwater 1

164 quantities. DRA agrees with Cal Water s method for estimating chemical expense, but does not agree with Cal Water using the most recent two year s recorded year s unit cost to estimate chemical expenses for the test year. Chemical expense is a function is based on the current cost to for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests that the Commission adopt Cal Water s method for using the average from 0 and 0 calculated unit cost to estimate purchased chemicals expense. Purchased Chemical Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost, CWS Rebuttal Position 1,0 Difference (0,1) ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $0,00 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The 1

165 test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost 0, DRA Proposed Cost 0, CWS Rebuttal Position 0, Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense and the addition of four new vehicles for the additional personnel requests. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ).. ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 1,0 CWS Rebuttal Position 1,0 Cal water estimates uncollectible expense to be $1,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.1%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. 1

166 ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Water Treatment Expense Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost, CWS Rebuttal Position,00 Difference ()

167 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,0 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense. Transmission and Distribution Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position, ) Customer Accounting Expense For test year, Cal Water requests $1,000 Cal Water s request is based on the fiveyear (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water accepts DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting. Customer Accounting Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion.

168 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $,0 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $1,00 for a pressure tank inspection program and well rehabilitation costs and high-priority maintenance program expenses. DRA agrees with the pressure tank inspection program and the well rehabilitation, but disagrees with Cal Water s high-priority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. Cal Water s rebuttal position reflects Cal Water s acceptance of DRA s escalation methodology, while still keeping the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section. 1

169 ) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,0 DRA Proposed Cost, CWS Rebuttal Position 1, Difference (,000) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 1. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Livermore District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $, for employee benefits in the Livermore District in the test year. DRA estimates $,00 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please refer to Cal Water s discussion on benefits and 01(k) matching expense in the General Issues Rebuttal Testimony ( Book 1 ), 1

170 Chapter.Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS,1 1 ) Rent Expense For the Livermore District, cal water estimates $,00 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. 1

171 1 1 ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests the Commission adopts Cal Water s estimate for non-specific expenses for the test year. Non-specific Expense Comparison CWS Application 0,0 DRA Proposed Cost 0,00 CWS Rebuttal Position 0,0 DRA v. CWS, ) Amortization of Limited Term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited term investment expense. Amortization of Limited Term Investment Expense Comparison 1 CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS

172 ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $,00 for dues and donations. DRA agrees with this adjustment. Cal Water requests the Commission adopt this adjustment. 1

173 CHAPTER 1: DISTRICT EXPENSE, LOS ALTOS DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Los Altos District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Los Altos District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests that the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential 1, 1, DRA agrees with Cal Water's recommendation Business 1, 1, DRA agrees with Cal Water's recommendation Multi Family 1 1 DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1 1 DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Total 1, 1, 1

174 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Los Altos District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential (0) Cal Water accepts DRA's recommendation Business 1 1 Cal Water accepts DRA's recommendation Multi Family,, (1) Cal Water accepts DRA's recommendation Industrial,, DRA agrees with Cal Water's recommendation Public Authority 1, 1,1 Cal Water accepts DRA's recommendation Other DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,1,1,1, (,0) Cal Water accepts DRA's recommendation Business 1,0, 1,0, 1,1 Cal Water accepts DRA's recommendation Multi Family,1, (,) Cal Water accepts DRA's recommendation Industrial,0,0 DRA agrees with Cal Water's recommendation Public Authority,0 1, 1, Cal Water accepts DRA's recommendation Other,, DRA agrees with Cal Water's recommendation Total,,,1,1 1, ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal 1

175 Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Los Altos District. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.0% estimate for unaccounted for water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Los Altos District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of,1 KCcf (hundred thousand cubic feet) for the test year. Cal water proposes to meet its supply needs through % groundwater from company-owned wells, and 1% water purchased from the Santa Clara Valley Water District and San Jose Water Company ( SCVWD and SJW ). The estimated purchased water estimate for the test year based on this water mix is $,0,000. Cal Water accepts DRA s higher sales per customer and higher sales estimate. The higher sales estimate results in more purchased water quantities, which calculates to higher purchased water expense. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. The contracted rate for water is anticipated to increase in July of 01. Cal Water requests that the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates. The rates below reflect 1

176 the proposed estimated purchased water expense for, using rates effective in 01, which is not reflective of the upcoming increase scheduled for 01. Purchased Water Expense Comparison CWS Proposed Cost,0,0 DRA Proposed Cost,0,0 CWS Rebuttal Position,0, ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased power expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost 1,1, DRA Proposed Cost 1,1,1 CWS Rebuttal Position 1,1, ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in purchased chemicals expense category. Cal Water estimates purchased chemicals by first calculating the unit cost then multiplying that by the groundwater production quantities. Cal Water calculates the unit cost by taking the 0 recorded chemical expense levels and dividing it by the corresponding groundwater quantities. DRA agrees with Cal Water s method for

177 estimating chemical expense, but does not agree with Cal Water using the last-recorded year s unit cost to estimate chemical expenses for the test year. Chemical expense is a function is based on the current cost for purchased chemicals. The most recent year s unit cost is more reflective of the cost for purchased chemicals. Cal Water requests the Commission adopt Cal Water s method for using the 0 calculated unit cost to estimate purchased chemicals expense. Purchased Chemical Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost, CWS Rebuttal Position, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adjusts out $,000 for a temporary employee who will no longer be performing work after 0. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, as well as removing the new personnel request. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $,00 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is

178 calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense ) Transportation Expense Postage Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, Cal Water estimates its transportation expenses by taking a five-year average that s adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ) Transportation Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, ) Uncollectibles Cal water estimates uncollectible expense to be $1,00 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.0%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. 1

179 ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. Pumping Expense Comparison CWS Proposed Cost 0,0 DRA Proposed Cost 0,0 CWS Rebuttal Position 0, ) Water Treatment Expense Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost, CWS Rebuttal Position, 1

180 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,00 based on an escalated three-year average (00-0). DRA disagrees with Cal Water s choice of average range and instead recommends using a five-year average (00-0) but otherwise agrees with Cal Water s methodology for estimating the expense level for transmission and distribution expense. Per Cal Water s response to DRA s data request HMC-00, which addresses such expenses for Los Altos, transmission and distribution expenses can vary annually depending upon district requirements (e.g., $.1K for restorative purposes to repair a basement damaged by flooding). Such expenses do not follow a standard pattern due to varied expenses from operations and may therefore prove problematic for purposes of forecasting. While a particular expense may not recur in the test year, it is, nonetheless, in the forecast as representative of the type of expenses that occur periodically from time to time and without a predictable pattern. It is therefore unreasonable to reduce expenses by the amount of this particular activity without considering other similar activities that may occur in the test period. Cal Water opted to employ a three-year average in lieu of a five-year average for forecasting purposes due to the general upward trending of these costs in the latter part of the examined five-year period. Cal Water s use of an escalated three-year historical average of $,0 chosen in light of the historical upward trending of expenses resulted in $,00 in forecasted test-year expenses. DRA s use of an escalated five-year historical average of $1,00 to forecast 01 expenses resulted in $,0 in forecasted test-year expenses. Cal Water s methodology proved more accurate for determining the forecasted level of 01 expenses (versus 01 actual expenses) and would therefore be anticipated to result in a more accurate test-year forecast subsequent to the escalation of 01 forecasted expenses to test-year levels. Cal Water therefore recommends the Commission adopt Cal Water s method for estimating transmission and distribution expense. 1

181 Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Difference (,0) 1) Customer Accounting Expense For test year, Cal Water requests $1,00 Cal Water s request is based on the fiveyear (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense. Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting. 1 Customer Accounting Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $0,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense. 1

182 Maintenance Stores Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $0,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $,000 for a pressure tank inspection program cost, two well rehabilitations amortized over three years, and high-priority maintenance program expense. DRA agrees with the pressure tank inspection program and well rehabilitations, but disagrees with Cal Water s high-priority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests that the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section O. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost,00 CWS Rebuttal Position 1,0 Difference (,00) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 1

183 ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Los Altos District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $1,0, for employee benefits in the Los Altos District in the test year. DRA estimates $1,001, for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application 1,0, DRA Proposed Cost 1,001, CWS Rebuttal Position 1,0, DRA v. CWS, 1

184 ) Rent Expense For the Los Altos District, cal water estimates $,00 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests the Commission adopts Cal Water s estimate for non-specific expenses for the test year. 1

185 Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS 1, ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited-term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense. Amortization of Limited-term Investment Expense Comparison CWS Application,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $1,00 for dues and donations. DRA agrees with this adjustment. Cal Water requests the Commission adopt this adjustment. 1

186 CHAPTER 1: DISTRICT EXPENSE, MARYSVILLE DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Marysville District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Marysville District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes, except for the residential customer class as it relates to the number of flat-to-meter conversion program. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method with exceptions Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes, except for the residential customer class. For the residential customer class, Cal Water estimated the test year customer count based on a five-year average and includes the rate of change that it anticipates in its flat-to-meter conversion program. DRA agrees with Cal Water s estimate for the average change for all customer classes except for residential customer class. For the residential customer class, DRA and Cal Water disagree on the flat-to-meter conversion rate. DRA recommends a lower level of estimated flat-to-meter conversions per year. Cal Water requests a higher level of estimated flat-to-meter conversions per year due to the historical increase in the number of annual conversions. Please see the Plant Book for a detailed discussion on the flat-to-meter conversion program. Below is a summary of Cal Water s and

187 DRA s customer count estimate for the test year. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. ) Metered Sales and Supply Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,1,1 () Cal Water disagrees with DRA's recommendations Business DRA agrees with Cal Water's recommendation Multi Family 1 1 DRA agrees with Cal Water's recommendation Industrial 1 1 DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat Cal Water disagrees with DRA's recommendations Total,, (1) Cal Water agrees with DRA s estimate for average sales per service connection as reflected in the below table and in DRA s work papers for the Marysville District. DRA uses total forecasted sales quantities (KCcf) instead of forecasted average annual public authority and other class sales per customer as indicated in its RO Report for Marysville. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests that the Commission adopt DRA s estimate for sales per customer, but adopt Cal Water s estimate for total annual sales based on Cal Water s proposed flat-to-meter conversion rate. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential Cal Water accepts DRA's recommendation Business Cal Water accepts DRA's recommendation Multi Family 1,001 1, () Cal Water accepts DRA's recommendation Industrial 1, 1, Cal Water accepts DRA's recommendation Public Authority,, 1 Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Residential Flat 0 0 Cal Water accepts DRA's recommendation

188 ) Operating Revenues Annual Sales Customer Class DRA CWS Difference CWS Position Residential 0,0,1 (1,) Cal Water disagrees with DRA's recommendations Business 1,1 1,1 DRA agrees with Cal Water's recommendation Multi Family 1,1 1, (1,0) DRA agrees with Cal Water's recommendation Industrial 1, 1, DRA agrees with Cal Water's recommendation Public Authority,00,1, DRA agrees with Cal Water's recommendation Other 1,0 1,0 DRA agrees with Cal Water's recommendation Residential Flat, 1, 1,0 Cal Water disagrees with DRA's recommendations Total 1,, 1, Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Marysville District. DRA recommends using the.0% referenced in the Rate Case Plan. Cal Water accepts DRA s recommendation and recommends the Commission adopt DRA s methodology for accounting for unaccounted water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Marysville District. For many expense items, Cal 1

189 Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water There are no purchased water costs associated with Marysville. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered as a result of changes in sales volume. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests that the Commission adopt Cal Water s method for estimating purchased power Purchased Power Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, Difference (1,) ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over five years and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA agrees with Cal Water s method for estimating chemical expense. The variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and as a result purchased chemicals will vary depending upon changes in sales quantities. Cal Water requests the Commission adopt Cal Water s method for using 1

190 calculated per-unit costs in estimating purchased chemicals expense: Purchased Chemical Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost 1,1 CWS Rebuttal Position 1, Difference (1) ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last recorded payroll level from 0, but recommends using the labor inflation rates, which are lower than the compensation per hour for the non-farm rate. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter ) Postage Expense Cal Water s estimates $1,00 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is determined by multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rates have been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense. 0 1

191 ) Transportation Expense Postage Expense Comparison Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). CWS Proposed Cost 1,0 DRA Proposed Cost 1,0 CWS Rebuttal Position 1,0 1 1 Transportation Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Uncollectibles Cal water estimates uncollectible expense to be $1,00 (rounded to the nearest hundred) in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. 1

192 1 1 ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test Year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost, CWS Rebuttal Position, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $0,00 based on an escalated five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense. 1

193 Transmission and Distribution Expense Comparison DRA Proposed Cost 0,00 CWS Rebuttal Position 0,00 1) Customer Accounting Expense For test year, Cal Water requests $,00. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: CWS Proposed Cost 0,00 1) Conservation Expense Customer Accounting Expense Comparison Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,0 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense. 1

194 CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 1) Contracted Maintenance Expense Maintenance Stores Expense Comparison For Contracted Maintenance Expense, Cal Water estimates $,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $1,00 for amortized well rehabilitation cost. DRA agrees with the historical and tank rehabilitation costs and recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. The difference between Cal Water s and DRA s estimated test-year amount is a result of differing escalating methodologies and Cal Water requests that the Commission adopt DRA s method for estimating contracted maintenance expense: ) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Marysville District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense 1

195 Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,00 for employee benefits in the Marysville District in the test year. DRA estimates $,00 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test year CWS Application,0 DRA Proposed Cost,1 CWS Rebuttal Position, DRA v. CWS, ) Rent Expense Benefits Expense Comparison There is no rent expense associated with the Marysville District. ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from 1

196 current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonable to reduce expenses by the given amount of any particular activity without likewise considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. CWS furthermore disagrees with DRA subsequently reducing the average of all five already reduced annual expenses by $,. in 01 actual amounts to adjust for 01 legal fees. This adjustment is being applied to a forecasted amount derived from the average of the five preceding historical years, resulting in an adjustment being weighted five-time greater than what it would have been had it been included in the calculation of the average. In addition to the $,. adjusted out for 01, DRA removed $,0 and $1, in legal expenses associated with the same firm for 00 and 0 respectively by holding since "they are case specific and near conclusion, DRA considers them one-time expenses." The mere fact these charges are evidenced as having continued into the forecasted period should have precluded them from being classified as onetime expenses. Cal Water requests the Commission adopts Cal Water s estimate for nonspecific expenses for the test year. Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost,000 CWS Rebuttal Position,00 DRA v. CWS,00 ) Amortization of Limited-term Investment Expense

197 This expense category includes the amortization of any intangible asset. Cal Water estimates $1, for amortization of limited-term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense Amortization of Limited-term Investment Expense Comparison CWS Application 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, DRA and Cal Water estimates adjusting out approximately $1,00 for dues and donations. Cal Water requests the Commission adopt this adjustment. 1 1

198 CHAPTER 1: DISTRICT EXPENSE, OROVILLE DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Oroville District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Oroville District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes, except for the residential customer class as it relates to the number of flat-to-meter conversion program. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method with exceptions Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. Cal Water expedited the flat-to-meter conversion program for the Oroville District, whereby it has completed the retrofits for all flat-rate services. Cal Water will not have any flat-rate services in the test year. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. 1

199 Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,,1 () Cal Water disagrees with DRA's recommendations Business DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial 1 1 DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Irrigation DRA agrees with Cal Water's recommendation Total,,1 () ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Oroville District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 (1) Cal Water accepts DRA's recommendation Business 0 () Cal Water accepts DRA's recommendation Multi Family 1, 1, Cal Water accepts DRA's recommendation Industrial, 1,0 (1,) Cal Water accepts DRA's recommendation Public Authority 1,1 1 Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Residential Flat,0,0 Cal Water accepts DRA's recommendation 1

200 Annual Sales Customer Class DRA CWS Difference CWS Position Residential 1,,1 (,0) Cal Water disagrees with DRA's recommendations Business,0 1, (,) DRA agrees with Cal Water's recommendation Multi Family,01,01 DRA agrees with Cal Water's recommendation Industrial,1 1, (1,) DRA agrees with Cal Water's recommendation Public Authority 1,,0,1 DRA agrees with Cal Water's recommendation Other,, DRA agrees with Cal Water's recommendation Residential Flat,0,0 Cal Water disagrees with DRA's recommendations Total 1,, 1,1,1 (,) ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Oroville District. DRA recommends using the.0% referenced in the Rate Case Plan. Cal Water accepts DRA s recommendation and recommends the Commission adopt DRA s methodology for accounting for unaccounted water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Oroville District. For many expense items, Cal 1

201 Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimates sales and supply of 1,0.0 KCcf (hundred thousand cubic feet), which includes unaccounted for water, for the test year. Cal water proposes to meet its supply needs through.% groundwater from company-owned wells,.% from leased wells, and 1.1% from treatment plant operations. The estimated purchased water estimate for the test year based on this water mix is $1,00. The average sales volumes per customer vary between Cal Water and DRA depending upon customer classification and Cal Water has an overall higher production volume based in part due to differences in unaccounted for water. These differences do not impact overall purchased water costs and Cal Water therefore agrees with DRA s purchased water cost estimate. Cal Water s estimate for purchased water expense was based on the,000 AF contracted quantity and $./AF per unit cost for Oroville per the 0 Final Butte County Water Supply agreement and corresponding year s invoice. Additional service charges and other costs made up the remainder. Cal Water requests the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates Purchased Water Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 1,0 CWS Rebuttal Position 1,0 ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered as a result of changes in sales volume. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. 1

202 DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water requests the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost, DRA Proposed Cost,0 CWS Rebuttal Position, Difference (,) ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over four years and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA agrees with Cal Water s method for estimating chemical expense. The variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and as a result purchased chemicals will vary depending upon changes in sales quantities. Cal Water requests the Commission adopt Cal Water s method for using calculated per-unit costs in estimating purchased chemicals expense: Purchased Chemical Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in 1

203 its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last recorded payroll level from 0, but recommends using the labor inflation rates, which are lower than the compensation per hour for the non-farm rate. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter ) Postage Expense Cal Water s estimates $1,0 for postage expense in the test year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test year postage expense estimate is determined by multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense. 0 ) Transportation Expense Postage Expense Comparison CWS Proposed Cost 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, Cal Water estimates its transportation expenses by taking a five-year average that s adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests the 1

204 Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). ) Uncollectibles Transportation Expense Comparison Table CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, Cal water estimates uncollectible expense to be $,0 in the test year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. 1 ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water s request is based 1

205 on the historical five-year (00-0) average of recorded expenses. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,000 CWS Rebuttal Position, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test year, Cal Water requests $,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense ) Customer Accounting Expense Transmission and Distribution Expense Comparison For test year, Cal Water requests $1,00. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 1

206 Customer Accounting Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1, ) Conservation Expense Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter 1 for a detailed discussion. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $,00 for the test year based on the five-year (00-0) historical average adjusted for inflation and adds $,00 for a pressure tank inspection program cost. DRA recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. 00

207 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 1. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Oroville District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test year payroll expense level based on the difference in escalation factors. Cal Water estimates $,000 for employee benefits in the Oroville District in the test year. DRA estimates $,00 for test year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal 01

208 testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests that the Commission adopts Cal Water s method for estimating benefits expense for the test year. Benefits Expense Comparison CWS Application,1 DRA Proposed Cost, CWS Rebuttal Position,01 DRA v. CWS, ) Rent Expense For the Oroville District, cal water estimates $,000 for the test year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense Rent Expense Comparison CWS Application,000 DRA Proposed Cost,000 CWS Rebuttal Position,000 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. 0

209 1 1 ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test year, adjusting out for one-time expenses, while further reducing the overall calculated average by an additional 01 expense it asserts as being of an one-time nature. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonableness to reducing expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests that the Commission adopts Cal Water s estimate for non-specific expenses for the test year Non-specific Expense Comparison CWS Application 1,00 DRA Proposed Cost,00 CWS Rebuttal Position 1,00 DRA v. CWS 1, ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited-term investment expense for the test year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees with Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited-term investment expense. 0

210 Amortization of Limited-term Investment Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test year, Cal Water estimates adjusting out approximately $ for dues and donations. DRA agrees with this adjustment. Cal Water requests that the Commission adopt this adjustment. 0

211 CHAPTER 1: DISTRICT EXPENSE, PALOS VERDES DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Palos Verdes District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Palos Verdes District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes, except for the residential customer class as it relates to the number of flat-to-meter conversion program. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. 0

212 ) Metered Sales and Supply Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,0,0 DRA agrees with Cal Water's recommendation Business DRA agrees with Cal Water's recommendation Multi Family 1 1 DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1 1 DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Total,, Cal Water agrees with DRA s estimate for total sales for the Palos Verdes District for all customer classes, except for the residential and public authority customer classes on account Cal Water disagrees with DRA on the estimate for sales per customer for these two customer classes. Cal Water and DRA agree on the estimate for average active services for the residential and public authority customer classes. DRA s estimate of the annual sales for the residential and public authority classes is not aligned with historical sales for these customer classes. Such sales are based upon average active services for that customer class and the average sales per customer class. Average residential sales per customer have consistently decreased over a five-year period (00-0), having a two-year average (0-0) of. Ccf per connection, and, when taken in light of current conservation efforts, Cal Water holds its estimate of. Ccf is more reasonable than DRA s estimate of 0. Ccf. After all, there has been no indication of average consumption patterns reversing themselves between 00 and 0. The public authority customer class has exhibited a similar consumption pattern with average sales per connection generally trending downward, having done so between 00 and 0, and only slightly increasing in 0 to 1,. Ccf from a five-year low of 1,. Ccf. in 0. The two-year average (0-0) of average public authority sales per connection was 1,. Ccf. Cal Water forecasted 1,1. Ccf per connection whereas DRA forecasted 1,. Ccf. per connection for. Cal Water does not believe it is reasonable to forecast such high average sales per customer and, hence, total sales for these two customer classes and recommends the Commission adopts its estimates for average sales and annual sales for the residential and public authority customer classes, which is more representative of historical sales trends for these customer classes. Cal Water accepts DRA s recommendations and recommends the Commission adopts the estimated forecasted average sales per connection and total sales for the business, multi- family, and other customer classes. 0

213 Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. ) Operating Revenues Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 0 Cal Water's proposed estimate Business 1,0 1, () Cal Water accepts DRA's recommendation Multi Family 1,1 1,1 (1) Cal Water accepts DRA's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1, 1,1 0 Cal Water's proposed estimate Other DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,1,0,0,1,1 Cal Water's proposed estimate Business 1,0,0 1,0,0 (1,1) Cal Water accepts DRA's recommendation Multi Family 1,0 1, (1) Cal Water accepts DRA's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority,00,, Cal Water's proposed estimate Other,, DRA agrees with Cal Water's recommendation Total,,,,, Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. 0

214 ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the Palos Verdes District by taking the historical five-year (00 to 0) percentage of annual unaccounted for water relative to the given year s total water production. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.% estimate for unaccounted for water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Palos Verdes District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of 1,1 KCcf (hundred thousand cubic feet) for the test-year. Cal water proposes to meet its supply needs through 0% water purchased from the West Basin Municipal Water District. The estimated purchased water estimate for the test-year based is $1,0,00. Cal Water disagrees with DRA s higher sales per residential and public authority customers and their corresponding higher sales estimate. The higher sales estimate results in more purchased water quantities, which calculates to higher purchased water expense as a result of changes in sales volume. Cal Water s estimate for purchased water expense was based on the most recent contracted cost as of July 01. Water costs increased in January of 01 and are anticipated to increase in July 01. Cal Water requests the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates. Purchased Water Expense Comparison CWS Proposed Cost 1,0, DRA Proposed Cost 1,1,0 CWS Rebuttal Position 1,0, Difference 1,0,0 0 0

215 1 1 1 ) Purchased Power Purchased power expense is a term used to describe the power cost related to delivering water in a district. This does not include power cost related to the office operations. Because purchased power is related to water volume, purchased water expense will vary with the quantity of water delivered as a result of changes in sales. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. Cal Water accepts DRA s higher sales per customer and higher sales estimate. The higher sales estimate results in more purchased water quantities, which calculates to higher purchased power expense. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water disagrees with DRA s sales forecast for residential and public authority customer classes and recommends the Commission adopt Cal Water s method for estimating purchased power Purchased Power Expense Comparison CWS Proposed Cost,,0 DRA Proposed Cost,0, CWS Rebuttal Position,,0 Difference 1, ) Purchased Chemicals Cal Water s supply is provided entirely by wholesale water. Cal Water purchases finished water from West Basin and does not need to treat its supply. Therefore, Cal Water does not have purchased chemical expenses. ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $1,00 0

216 for Palos Verdes s share of a new headcount acquisition in 01, as well as payroll for seven additional employees in 01 that will be shared with the Hermosa Redondo and the Dominguez Districts. The Palos Verdes s share of the payroll expense is $1,00. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last recorded payroll level from 0 and labor expense additions for the new employee hired in 01 as well as the additional seven headcounts in, but recommends using the labor inflation rates, which are lower than the compensation per hour for the non-farm rate. Cal Water disagrees with requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter ) Postage Expense Cal Water s estimates $,0 for postage expense in the test-year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test-year postage expense estimate is determined by multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rates have been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense. 0 ) Transportation Expense Postage Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense. For a detailed

217 discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). Transportation Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Uncollectibles Cal water estimates uncollectible expense to be $,000 in the test-year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.0%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test-year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. 1 ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water s request is based

218 on the historical five-year (00-0) average of recorded expenses, DRA agrees with Cal Water s estimating methodology. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $1,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense ) Customer Accounting Expense Transmission and Distribution Expense Comparison For test-year, Cal Water requests $1,0. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 1

219 Customer Accounting Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 1,0 CWS Rebuttal Position 1, ) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test-year, Cal Water requests $1,00 for maintenance stores. Cal Water s request is based on the three-year (00-0) historical average expenditure adjusted for inflation on account there is a clear upward trending in such expenses in the latter years. DRA instead recommends the use of an -year average. The -year average is more reflective of the cost of materials for district operations. Cal Water requests the Commission adopt Cal Water s recommendation for maintenance stores expense Maintenance Stores Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Difference (,00) ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $0,00 for the test-year based on the five-year (00-0) historical average adjusted for inflation and adds $0,00 for a pressure tank inspection program cost and high-priority maintenance program expense. DRA agrees with the pressure tank inspection program, but disagrees with Cal Water s highpriority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the 1

220 high-priority maintenance program cost. DRA s work paper amount (reflected in below table) differs from the $0,0 noted in its RO Report on account of DRA apparently looking to amortize tank painting costs. Cal Water disagrees with the amortization of tank painting costs and refers the Commission to its Global Plant Rebuttal discussion on the treatment of tank painting costs. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section ) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0,00 Difference (,00) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Palos Verdes District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in 1

221 the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Cal Water estimates $1,, for employee benefits in the Palos Verdes District in the test-year. DRA estimates $1,, for test-year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test-year. 1 1 Benefits Expense Comparison CWS Application 1,00, DRA Proposed Cost 1,, CWS Rebuttal Position 1,, DRA v. CWS, ) Rent Expense There is no rent expense associated with Palos Verdes. ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for 1

222 each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a four-year average (to exclude 0) to calculate expenses for the test-year. Cal Water disagrees with DRA s removal of the last year for calculating its average. Contrary to DRA's assertion in its RO Report that "CWS provided no explanation for the significant increase in expenses in 0 as compared to previous years," CWS responded in PE-00 that there "were $.1K in legal-related expense charges in 0. These diverse expenses do not follow a standard pattern due to varied expenses from operations. While a particular expense may not recur in the test-year, it is in the forecast as representative of the type of expenses that occur periodically and without a predictable pattern. It is unreasonable to reduce expenses by the amount of this particular activity without considering other similar activities that may occur in the test period. This is why Cal Water used an estimate based on the average of several (five) years activities in this category for purposes of forecasting." Palos Verdes is located on a slope and prone to slides, resulting in shifting water mains and other company infrastructure and broken water mains. These breaks routinely result in property damage to down-slope residences that may already have preexisting property depredation; however, lawsuits are seeking to hold the company fully liable for all such damage. It is furthermore anticipated the company will face at least once instance of litigation per year in this district regarding such matters. The current per incident deductible for such property damage is $0K and results in Cal Water bearing costs through increased exposure, while allowing the rate payers to benefit from reduced premiums. The company therefore believes its initial forecast for of $1.K (that includes not only legal but all non-specific expenses) based upon an -year average is too low in light of 0 s $.K in legal fees relating to these matters and should be raised to $0K in light of the environmental and litigious situations inherent with this district and that not only should DRA's -year average used in its forecasting be disallowed but the higher amount adopted. Cal Water requests the Commission adopts Cal Water s estimate for non-specific expenses for the test-year. 1

223 Non-specific Expense Comparison ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,0 for amortization of limited-term investment expense for the test-year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees with Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense. CWS Application 1,00 DRA Proposed Cost,00 CWS Rebuttal Position 1,00 DRA v. CWS, Amortization of Limited-term Investment Expense Comparison CWS Application, DRA Proposed Cost,01 CWS Rebuttal Position, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test-year, Cal Water estimates adjusting out approximately $0 for dues and donations. DRA agrees with this adjustment in its work papers but indicates no adjustment in its work papers. Cal Water requests the Commission adopt this adjustment. 1

224 CHAPTER 1: DISTRICT EXPENSE, REDWOOD VALLEY DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Redwood Valley District, which is comprised of Coast Springs, Lucerne and Redwood Valley Unified (Armstrong, Noel Heights, Hawkins, and Rancho del Paradiso) subareas. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Redwood Valley District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA disagrees with Cal Water s method for Coast Springs please see discussion, while DRA and Cal Water are in agreement for Lucerne and Unified Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers typically using three- year (00-0) and five-year averages (00-0) for Redwood Unified and Coast Springs respectively to estimate the number of customers according to customer class. Excepting Lucerne s residential and business customers, which were shown as having no growth, Cal Water used a five-year average in forecasting customer connections according to type. DRA agrees with Cal Water s method for estimating Coast Springs and Redwood Unified s average active service connections and recommends Cal Water universally adopt a five-year average for forecasting service connections for Lucerne. Cal Water agrees with DRA s current recommendations and recommends the Commission adopt the below estimates for the average active service connections. 1

225 Average Active Services in 1 1 Coast Springs Customer Class DRA CWS Difference CWS Position Residential DRA agrees with Cal Water's recommendation Business DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total Lucerne Customer Class DRA CWS Difference CWS Position Residential 1,1 1,1 () Cal Water accepts DRA's recommendation Business 1 () Cal Water accepts DRA's recommendation Multi Family 1 1 DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total 1,1 1,1 () Unified Residential 1 1 DRA agrees with Cal Water's recommendation Business DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Redwood Valley District. 1

226 Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. Coast Springs Lucerne Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 Cal Water accepts DRA's recommendation Business 1 1 Cal Water accepts DRA's recommendation Multi Family Cal Water accepts DRA's recommendation Industrial Cal Water accepts DRA's recommendation Public Authority Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Residential Flat Cal Water accepts DRA's recommendation Customer Class DRA CWS Difference CWS Position Residential Cal Water accepts DRA's recommendation Business 1 1 Cal Water accepts DRA's recommendation Multi Family 1, 1,1 Cal Water accepts DRA's recommendation Industrial Cal Water accepts DRA's recommendation Public Authority 1 1 () Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Residential Flat Cal Water accepts DRA's recommendation 0

227 Unified Customer Class DRA CWS Difference CWS Position Residential Cal Water accepts DRA's recommendation Business () Cal Water accepts DRA's recommendation Multi Family Cal Water accepts DRA's recommendation Industrial Cal Water accepts DRA's recommendation Public Authority 1 1 Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Residential Flat Cal Water accepts DRA's recommendation Coast Springs Lucerne Annual Sales Customer Class DRA CWS Difference CWS Position Residential,, DRA agrees with Cal Water's recommendation Business 0 1 DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1 1 DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total,1,1 Customer Class DRA CWS Difference CWS Position Residential 1,,, Cal Water accepts DRA's recommendation Business,1,1 (1) Cal Water accepts DRA's recommendation Multi Family 1, 1, 1, Cal Water accepts DRA's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority 1, 1, () Cal Water accepts DRA's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total, 0,,0 1

228 Unified Customer Class DRA CWS Difference CWS Position Residential,0,1 1,1 Cal Water accepts DRA's recommendation Business 1, 1, (1) Cal Water accepts DRA's recommendation Multi Family,, DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total, 1, 1,0 ) Operating Revenues Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Coast Springs Cal Water estimates.0% unaccounted for water in the Coast Springs District by taking the historical five-year (00 to 0) percentage of annual unaccounted for water relative to the given year s total water production. DRA disagrees with Cal Water s estimate of unaccounted for water in this district and recommends.% based upon the previously adopted unaccounted for water rate adopted in the last general rate case under the auspices of encouraging Cal Water to reduce its level of unaccounted for water. DRA argues Cal Water s rate for unaccounted water has been increasing in the district at a level that is much higher than

229 industry standards. Such standards cannot be applied in a universal manner and in the absence of taking into consideration the district s operating environment. Cal Water therefore disagrees with DRA s recommendation and recommends the Commission adopt Cal Water s.0% estimate of unaccounted for water for purposes of both maintaining consistency in the application of forecasting methodology and reflecting actual data and trending in a more accurate fashion. Lucerne Cal Water estimates 0.% unaccounted for water in the Lucerne District by taking the historical five-year (00 to 0) percentage of annual unaccounted for water relative to the given year s total water production. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the 0.% estimate for unaccounted for water for the Lucerne District. Unified There were apparent linking errors made in determining the unaccounted for water percentage on both DRA and Cal Water s part; however, Cal Water accepts DRA s proposed rate of 1.% and recommends the Commission likewise adopt this 1.% estimate for unaccounted for water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Redwood Valley District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water There was no purchased water for Coast Springs. Cal Water estimates sales and supply of. KCcf (hundred thousand cubic feet) for the test-year in for Lucerne and proposes to meet this supply through 0% water purchased from the Yolo County Flood Control & Water Conservation District. The estimated purchased water estimate for the test-year is $1,00. Cal Water estimates sales and supply of. KCcf (hundred thousand cubic feet) for the test-year in for Redwood Valley Unified and proposes to meet this supply through 0% water purchased from the Sweetwater Springs Water District. The estimated purchased water estimate for the test-year is $1,00. Cal Water provided DRA with revised rates for the Sweetwater Springs Water District and accepts DRA s higher sales per customer and higher

230 sales estimate for the Lucerne District. The updated cost information for Sweet Water resulted in higher purchased water costs, while the higher sales estimate for Lucerne results in more purchased water quantities, which translated into higher purchased water expense. Purchased water costs change as a result of changes in sales. Cal Water requests the Commission adopt Cal Water s method for estimating purchased water and allow Cal Water to incorporate the most recent contracted water rates. Purchased Water Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost 1,00 1,1 DRA Proposed Cost 1,00 1,1 CWS Rebuttal Position 1,00 1, ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered as a result of changes in sales volume. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power for the Coast Springs, Lucerne and Unified Districts. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water accepts DRA s sales forecast and recommends the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost,,1 1, DRA Proposed Cost, 1, 1, CWS Rebuttal Position, 1, 1,

231 ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over five years for the Coast Springs and Lucerne Districts (two years (0 and 0) for Redwood Valley Unified) and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA agrees with Cal Water s method for estimating chemical expense. The variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and, as a result, purchased chemicals will vary depending upon changes in sales quantities. Cal Water accepts DRA s sales forecast and recommends the Commission adopt Cal Water s method for using calculated per-unit costs in estimating purchased chemicals expense: Purchased Chemical Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost,, 1, DRA Proposed Cost,, 1, CWS Rebuttal Position,, 1, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0 and escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water requests the

232 Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $00 in postage expense for Coast Springs; $,00, Lucerne; $,00, Redwood Valley Unified for the test-year in. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test-year postage expense estimate is determined by multiplying the estimated number of services by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rates have been increasing annually. DRA accepts Cal Water s methodology and expense level for postage for Coast Springs and Redwood Valley Unified. The variance between Cal Water and DRA s forecasted postage expenses for Lucerne is attributable to differing service level forecasts. Cal Water accepts DRA s service level forecast for the Lucerne District. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost 1,1,1 DRA Proposed Cost 1,,1 CWS Rebuttal Position 1,,1 Cal Water estimates its transportation expenses for Lucerne and Redwood Valley Unified by taking a five-year average adjusted for inflation. Coast Springs s transportation expense was mistakenly forecasted by DRA and Cal Water using the last-recorded year (0). DRA agrees with Cal Water s methodology and Cal Water requests the Commission adopt Cal Water s method for estimating transportation, while permitting Cal Water to remediate its forecasting of Coast Springs s transportation expense to make use of a five-year average in lieu of the last-

233 recorded year. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). ) Uncollectibles Transportation Expense Comparison Cal Water s estimate of uncollectible expenses is based on a five-year (00-0) average of the annual uncollectible rate except as otherwise noted. The uncollectible rate is calculated relative to the annual operating revenue. DRA generally agrees with this method. Any differences between the parties estimates are noted accordingly. Except for Redwood Valley Unified, Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. Cal Water and DRA s uncollectible rates for Coast Springs differ due to an error in linking in both parties work papers and Cal Water having used a four-year average (00-0) of uncollectible rates whereas DRA changed to a five-year average. There was uncollectible activity for both 0 and 0 and none for the preceding three years and Cal Water believes an average spanning a shorter period (i.e., to years) would be more appropriate. Cal Water s use of a two-year average to include 0 and 0 and the previously omitted uncollected rate for 0 yields an average uncollectible rate of 0.% or $00 versus DRA s 0.0% or $00 for. Cal Water thereby recommends the Commission permit Cal Water to update the average uncollectible rate to more accurately reflect current conditions. Cal Water and DRA s average uncollectible rates of 0.% for Lucerne agree with differences in uncollectible amounts attributable to variances in forecasted revenue for. Cal Water has an estimated uncollectible expense of $,000 whereas DRA is showing Cal Water as having an uncollectible expense for of $1,00 per DRA s RO Report and Cal Water requests the Commission adopt Cal Water s proposed uncollectible amount and rate for the Lucerne District. Coast Springs Lucerne Unified CWS Proposed Cost,00,00 1,00 DRA Proposed Cost,00,00 1,00 CWS Rebuttal Position,00,00 1,00 Cal Water and DRA s uncollectible rates vary due to differing historical total revenues at present rates. Cal Water has a five-year average uncollectible rate of 0.% and DRA has a

234 five-year average rate of 0.%. Present forecasted revenue for also differs between Cal Water and DRA and is attributable due in part to variances in operating revenues arising as a result of differing service numbers. Cal Water has an estimated uncollectible expense of $,00 for but is willing to accept DRA s estimate of $,0 and recommends the Commission adopt DRA s proposed uncollectible rate for Redwood Valley Unified. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates Lucerne and Redwood Valley Unified s test-year expenses for this category using the five-year (00-0) inflation-adjusted average; Cal Water used a two-year (0-0) inflation-adjusted average for forecasting Coast Springs s pumping expenses. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. ) Water Treatment Expense Pumping Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost 00 00,000 DRA Proposed Cost 00 00,000 CWS Rebuttal Position 00 00,000 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. For the test-year in, Cal Water requests $1,00 for Coast Springs; $1,0 for Lucerne; $1,00 for Redwood Valley Unified. Cal Water s requests for Coast Springs and Lucerne are based upon using a two-year (0-0) escalated average of recorded expenses, while Redwood Unified uses a three- year (00-0) escalated average for forecasting the respective districts test-year amounts. DRA agrees with Cal Water s methodology for forecasting Coast Srings s water treatment expenses, but disagrees with the methodologies for Lucerne and Redwood Valley Unified. DRA recommends using a three-year 00-0) escalated average for Lucerne and five-year (00-0) average for Redwood Valley Unified. Cal Water disagrees with DRA s recommendations regarding these two districts. The Department of Public Health requested

235 additional testing in Lucerne beginning in 0 to address taste and odor issues raised by customers and Cal Water therefore holds averaging 0 and 0, both of which showed marked increases in costs over the preceding three historical years, to determine the test-year value is a more accurate method of forecasting. Using a three-year average in lieu of a five- year average for forecasting Redwood Valley s water treatment expenses seems reasonable in light of the last three historical years (00-0) showing an upward trend. Cal Water therefore recommends the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost 1,00 1,0 1,00 DRA Proposed Cost 1,00,00 1,00 CWS Rebuttal Position 1,00 1,0 1,00 (1,00) (1,00) ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $,00 for Coast Springs using an escalated three-year (00-0) average; $1,00 for Lucerne using an escalated five-year (00-0) average; $,00 for Redwood Valley Unified using an escalated five-year (00-0) average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense. Transmission and Distribution Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost,00 1,00,00 DRA Proposed Cost,00 1,00,00 CWS Rebuttal Position,00 1,00,00

236 1) Customer Accounting Expense Using an escalated five-year (00-0) average to forecast each district s test-year for, Cal Water requests $,00 for Coast Springs; $,00 for Lucerne; $,00 for Redwood Valley Unified. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s methodology for estimating customer accounting expenses. The table below depicts Cal Water s recommended expense level for customer accounting: Customer Accounting Expense Comparison Coast Springs Lucerne Unified CWS Proposed Cost,00,00,00 DRA Proposed Cost,00,00,00 CWS Rebuttal Position,00,00, ) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense Maintenance stores expense includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. Redwood Valley makes use of a small amount of maintenance stores and, hence, Cal Water is only seeking $00 for Lucerne s test-year. Cal Water will therefore not be seeking maintenance stores for Coast Springs and Redwood Valley Unified and bases its request for Lucerne on an escalated five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison 0

237 Coast Springs Lucerne Unified CWS Proposed Cost 00 DRA Proposed Cost 00 CWS Rebuttal Position ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal Water requests $,0 for Coast Springs; $,00 for Lucerne; $,000 for Redwood Valley Unified. Cal Water escalated the last-recorded year (0) for determining Coast Springs and Redwood Valley Unified s test-year values, while using an escalated five-year (00-0) average for forecasting Lucerne s test-year value. DRA has $,00 in both its expense work papers and Table -1 of its RO Report for the Lucerne District; however, DRA s showed CWS having a contracted maintenance of $,00 forecasted for in the narrative portion of DRA s RO Report, Table P: Contracted Maintenance. DRA agrees with Cal Water s forecasting methodology for Lucerne and Redwood Valley Unified but instead used an escalated five-year (00-0) average for forecasting Coast Springs s test-year value. Cal Water disagrees with DRA s methodology employed in forecasting these expenses for Coast Springs. Coast Springs s historical maintenance expenses generally trended upward over the latter part of the historical period (00-0), as exhibited in the below supporting table, and Cal Water therefore believes the last-year (0) amount would more accurately project future cost behavior. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense. Historical Contracted Maintenance Expenses ($000) In 0 Constant Dollar DRA - Five-year average. CWS - Last-recorded year (0. Contracted Maintenance Expense Comparison 1

238 ) Tank Painting Cost Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 1. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Redwood Valley District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Coast Springs Lucerne Unified CWS Proposed Cost,0,00,000 DRA Proposed Cost,00,00,000 CWS Rebuttal Position,0,00,000 Difference (1,00) Cal Water estimates benefits expenses of $,00 for Coast Springs; $1,0 for Lucerne; $,00 for Redwood Valley Unified for the test-year in. DRA estimates benefits expenses of $,00 for Coast Springs; $1,00 for Lucerne; $,00 for Redwood Valley Unified for the test-year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter

239 for a detailed discussion. Cal Water requests the Commission adopt Cal Water s method for estimating benefits expense for the test-year. Benefits Expense Comparison Coast Springs Lucerne Unified CWS Application,,, DRA Proposed Cost,1 1,1,1 CWS Rebuttal Position, 1,0, DRA v. CWS, 1,1, ) Rent Expense There is no rent expense for Coast Springs. Cal Water estimates test-year expenses of $0,000 for Lucerne and $,00 for Redwood Valley Unified. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests that the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison Coast Springs Lucerne Unified CWS Application 0,000,00 DRA Proposed Cost 0,000,00 CWS Rebuttal Position 0,000,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from

240 current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-account but instead provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test-year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonable to reduce expenses by the given amount of any particular activity without also considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water initially had a mistake in its application for the Lucerne District whereby $0,000 was inadvertently removed from the historical five-year average as discussed in the data request HMC-0. DRA reversed this error, as did Cal Water in its settlement work papers, with the resulting variance between DRA and Cal Water s positions in the below table being attributable to DRA adjusting out purported one-time expenses. Cal Water requests the Commission disallow these adjustments for supposed one-time expenses and adopt Cal Water s estimate for non-specific expenses for the test-year. Non-specific Expense Comparison Coast Springs Lucerne Unified CWS Application, ,00 DRA Proposed Cost,00,0 1,0 CWS Rebuttal Position,00,00 1,00 DRA v. CWS 1,00,0 ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for Coast Springs s amortization of limited-term investment expense for the test-year in. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal

241 Water requests the Commission adopt Cal Water s estimate for amortization of limited term investment expense. Amortization of Limited-term Investment Expense Comparison Coast Springs Lucerne Unified CWS Application,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses that are not recoverable in rates from its expense estimates. Neither Cal Water nor DRA suggested adjustments for Redwood Valley and Cal Water requests the Commission likewise make no adjustments.

242 CHAPTER 0: DISTRICT EXPENSE, SALINAS DISTRICT 0.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Salinas District. 0. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Salinas District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers excepting for the business and public authority customer classes, which use a four-year average (00, 00-0). DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,, DRA agrees with Cal Water's recommendation Business,1,1 DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Total,0,0

243 ) Metered Sales and Supply Cal Water accepts DRA s estimate for average sales per service connection for the Salinas District when there was a variance between DRA and Cal Water s estimates. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. ) Operating Revenues Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 () Cal Water accepts DRA's recommendation Business 0 () Cal Water accepts DRA's recommendation Multi Family 1, 1,0 () Cal Water accepts DRA's recommendation Industrial 1, 1, DRA agrees with Cal Water's recommendation Public Authority 1,0 1,0 DRA agrees with Cal Water's recommendation Other 1,00 1,00 DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,1,, (,0) Cal Water accepts DRA's recommendation Business 1,,0 1,1,0 (,) Cal Water accepts DRA's recommendation Multi Family,0 0, (,) Cal Water accepts DRA's recommendation Industrial,00,00 DRA agrees with Cal Water's recommendation Public Authority,, DRA agrees with Cal Water's recommendation Other,01,01 DRA agrees with Cal Water's recommendation Total,,0,00, (,1) Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer.

244 DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water accepts DRA s in estimated sales per customer and recommends the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates 1.% unaccounted for water in the Salinas District by taking the historical five-year (00 to 0) percentage of annual unaccounted for water relative to the given year s total water production. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the 1.% estimate for unaccounted for water. 0. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Salinas District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water The Salinas district does not have purchased water costs. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered as a result of changes in sales volume. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water

245 accepts DRA s sales forecast and recommends the Commission adopt Cal Water s method for estimating purchased power ) Purchased Chemicals Purchased Power Expense Comparison CWS Proposed Cost 1,,1 DRA Proposed Cost 1,,0 CWS Rebuttal Position 1,,0 Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over five years (00-0) and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA agrees with Cal Water s method for estimating chemical expense. The variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and as a result purchased chemicals will vary depending upon changes in sales quantities. Cal Water requests the Commission adopt Cal Water s method for using calculated per-unit costs in estimating purchased chemicals expense: ) Payroll Purchased Chemical Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last-recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation

246 rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water disagrees with DRA s use of the labor escalation rates. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter ) Postage Expense Cal Water s estimates $1,00 for postage expense in the test-year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test-year postage expense estimate is determined by multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rates have been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water requests the Commission adopt Cal Water s method for estimating postage expense ) Transportation Expense Postage Expense Comparison Cal Water estimates its transportation expenses by taking a five-year average that s adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). CWS Proposed Cost 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, 0 Transportation Expense Comparison 0

247 CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Uncollectibles Cal water estimates uncollectible expense to be $,00 in the test-year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA likewise has the same average annual uncollectible rate and agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water accepts DRA s estimate of operating revenue and recommends the Commission adopt DRA s proposed uncollectible expense of $,00 and Cal Water s proposed uncollectible rate and Cal Water s methodology of rate determination. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test-year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $1,,0 for Test-year. Cal Water s request is based on the last-recorded (0) expenses that have been escalated and then adds new expenses (non-escalated) amortized 1

248 over three years and covering UCMR compliance. DRA agrees with UCMR compliance costs, but disagrees with inflating the expenses along with the years escalated amounts. DRA recommends inflating the five-year average and then adding the UCMR cost. The $,00 associated with the Unregulated Contaminant Monitoring Rule Stage ( UCMR ) is not an one-time expenses as noted in DRA s RO report but a one-year s amortization amount of $,00 spread over three years. In removing the amortized adjustment from from Cal Water s original calculation, DRA did not correct the formula for determining 01 s estimated water treatment costs, leaving in the removal of the escalated UCMR adjustment, while the amortized component of the 01 UCMR costs were mistakenly omitted by both DRA and Cal Water. This resulted in Cal Water s 01 s UCMR forecasted costs being understated by $0,00. Cal Water agrees with DRA s escalation methodology and incorporates it in Cal Water s revised calculations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense sans the escalation of the UCMR addition and DRA s proposed water treatment expense of $1,1,0. Water Treatment Expense Comparison ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $1,00 based on a five-year (00-0) average. DRA agrees with Cal Water s method and Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. CWS Proposed Cost 1,,000 DRA Proposed Cost 1,1,0 CWS Rebuttal Position 1,1,0

249 1) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 For test-year, Cal Water requests $,00. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense and its correspondingly reduced forecast. The table below depicts Cal Water s recommended expense level for customer accounting: 1 Customer Accounting Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test-year, Cal Water requests $0,00 for maintenance stores. Cal Water s request is based on the four-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method. Cal Water requests the Commission adopt Cal Water s method for estimating maintenance stores expenses.

250 Maintenance Stores Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $1,0,00 for the test-year based on using the five-year (00-0) historical average adjusted for inflation and adding $,00 for pressure tank inspection program and well rehabilitation costs and high-priority maintenance program expenses. DRA agrees with the pressure tank inspection program, but disagrees with Cal Water s high-priority maintenance program expenses. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses but disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. The variance between DRA s and Cal Water s proposed costs is attributable to DRA proposing to disallow the high-priority maintenance program expenses. DRA s work paper amount of $,00 (reflected in below table) differs from the $0,00 noted in its RO Report on account of DRA apparently looking to amortize tank painting costs. Cal Water further disagrees with the amortization of tank painting costs and refers the Commission to its Global Plant Rebuttal discussion on the treatment of tank painting costs. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section. Contracted Maintenance Expense Comparison CWS Proposed Cost 1,0,00 DRA Proposed Cost,00 CWS Rebuttal Position 1,0,00 Difference (,00)

251 ) Tank Painting Cost Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 0. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Salinas District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Cal Water estimates $,00,00 for employee benefits in the Salinas District in the test-year. DRA estimates $1,,00 for test-year. The difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees, () level of payroll based on the number of employees and the escalation rate, and () costs per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test-year.

252 Benefits Expense Comparison CWS Application,00, DRA Proposed Cost 1,, CWS Rebuttal Position,00, DRA v. CWS 1,0 ) Rent Expense For the Salinas District, cal water estimates $,00 for the test-year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense Rent Expense Comparison ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Non-specifics Expense

253 Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test-year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonable to reduce expenses by the given amount of any particular activity without considering other similar activities that may occur. A five-year average is a generally accepted method for estimating expenses as outlined in the Rate Case Plan. Cal Water requests the Commission adopt Cal Water s estimate for non-specific expenses for the test-year. 1 1 Non-specific Expense Comparison CWS Application DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 DRA v. CWS, ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited-term investment expense for the test-year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense. Amortization of Limited-term Investment Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery

254 Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses that are not recoverable in rates from its expense estimates. For the testyear, Cal Water estimates adjusting out approximately $,00 for dues and donations. DRA agrees with this adjustment. Cal Water requests the Commission adopt this adjustment.

255 CHAPTER 1: DISTRICT EXPENSE, SELMA DISTRICT 1.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Selma District. 1. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Selma District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s methodology Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in the below customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,1,1 DRA agrees with Cal Water's recommendation Business 1 1 DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat 1, 1, DRA agrees with Cal Water's recommendation Total,,

256 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Selma District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. ) Operating Revenues Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 0 1 Cal Water accepts DRA's recommendation Business Cal Water accepts DRA's recommendation Multi Family,,1 () Cal Water accepts DRA's recommendation Industrial 1, 1, DRA agrees with Cal Water's recommendation Public Authority 1,0 1,0 DRA agrees with Cal Water's recommendation Other 1,0 1,0 DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential 1,1,1 1,0, 0,1 Cal Water accepts DRA's recommendation Business,, 1, Cal Water accepts DRA's recommendation Multi Family 1, 1, (,000) Cal Water accepts DRA's recommendation Industrial,, DRA agrees with Cal Water's recommendation Public Authority 1,1 1,1 DRA agrees with Cal Water's recommendation Other,, DRA agrees with Cal Water's recommendation Residential Flat 1, 1, DRA agrees with Cal Water's recommendation Total,,,0, 1,1 Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates and () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees 0

257 with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Selma District. DRA recommends using the.0% referenced in the Rate Case Plan. Cal Water accepts DRA s recommendation and recommends the Commission adopt DRA s methodology for accounting for unaccounted water. 1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Selma District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water There is no purchased water costs associated with the Selma District. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered as a result of changes in sales. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. 1

258 DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water accepts DRA s sales forecast and recommends the Commission adopt Cal Water s method for estimating purchased power ) Purchased Chemicals Purchased Power Expense Comparison Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over five years and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA agrees with Cal Water s method for estimating chemical expense. The variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and as a result purchased chemicals will vary depending upon changes in sales quantities. Cal Water accepts DRA s sales forecast and recommends the Commission adopt Cal Water s method for using calculated per-unit costs in estimating purchased chemicals expense: CWS Proposed Cost,0 DRA Proposed Cost, CWS Rebuttal Position, 0 1 Purchased Chemical Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 1, CWS Rebuttal Position 1, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in

259 its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last recorded payroll level from 0, but recommends using the labor inflation rates, which are lower than the compensation per hour for the non-farm rate. Cal Water disagrees with DRA s use of the labor escalation rates. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter ) Postage Expense Cal Water s estimates $,000 for postage expense in the test-year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number of mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test-year postage expense estimate is determined by multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rates have been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water also accepts DRA s service-level forecast and recommends the Commission adopt Cal Water s method for estimating postage expense. ) Transportation Expense Postage Expense Comparison CWS Proposed Cost,01 DRA Proposed Cost,01 CWS Rebuttal Position,01 Cal Water estimates its transportation expenses by taking a five-year average that is adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a

260 detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, Cal water estimates uncollectible expense to be $1,00 in the test-year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.0%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test-year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. 0 1 ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost 1,000 DRA Proposed Cost 1,000 CWS Rebuttal Position 1,000 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test-year. Cal Water s request is based on the five-year (00-0) recorded

261 expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost, CWS Rebuttal Position, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense ) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 For test-year, Cal Water requests $0,00. Cal Water s request is based on the four- year (00-0) historical average expenditure and adjusted for inflation. The 0 amount was deemed unusually high by Cal Water and excluded from the average for purposes of forecasting. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s method for

262 estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: Customer Accounting Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, ) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test-year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the four-year (00-0) historical average of annual expenditures excluding 0 adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopt Cal Water s recommendation for maintenance stores expense Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 1 1) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $0,00 for the test-year based on the four-year (00-0) historical average adjusted for inflation. DRA agrees with Cal Water s methodology for forecasting contracted maintenance expenses and forecasted

263 amount. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense. 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost 0, DRA Proposed Cost 0, CWS Rebuttal Position 0, Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Selma District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Cal Water estimates $,00 for employee benefits in the Selma District in the test-year. DRA estimates $,000 for test-year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the

264 cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test-year. Benefits Expense Comparison CWS Application, DRA Proposed Cost,1 CWS Rebuttal Position, DRA v. CWS,1 1 1 ) Rent Expense For the Selma District, cal water estimates $,0 for the test-year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense Rent Expense Comparison CWS Application,0 DRA Proposed Cost,0 CWS Rebuttal Position,0 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from

265 current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. Cal Water and DRA both agree in forecasting methodology and amount. Cal Water requests the Commission adopt Cal Water s estimate for non-specific expenses for the test-year Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $1,00 for amortization of limited-term investment expense for the test-year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited term investment expense. 1 Amortization of Limited-term Investment Expense Comparison CWS Application 1, DRA Proposed Cost 1, CWS Rebuttal Position 1, DRA v. CWS

266 ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test-year, Cal Water estimates adjusting out approximately $0 for dues and donations. DRA agrees with this adjustment. Neither DRA nor Cal Water identified any expenses for adjustment and Cal Water requests the Commission likewise make no adjustment. 0

267 CHAPTER : DISTRICT EXPENSE, STOCKTON DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Stockton District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Stockton District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in the below excepting public authority and other customer classes, which used four-year averages (00 & 00-0). DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,, DRA agrees with Cal Water's recommendation Business,, DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial 1 1 DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other 0 0 DRA agrees with Cal Water's recommendation Total,0,0 1

268 ) Metered Sales and Supply Cal Water agrees with DRA s estimate for average sales per service connection for the Stockton District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. ) Operating Revenues Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 () Cal Water accepts DRA's recommendation Business 00 () Cal Water accepts DRA's recommendation Multi Family 1,00,00 (0) Cal Water accepts DRA's recommendation Industrial,, Cal Water accepts DRA's recommendation Public Authority,0,0 (0) Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Annual Sales Residential,,0,,0 (,0) Cal Water accepts DRA's recommendation Business,,,,1 (1,) Cal Water accepts DRA's recommendation Multi Family, 0, (1,1) Cal Water accepts DRA's recommendation Industrial 1, 1, DRA agrees with Cal Water's recommendation Public Authority,0 1,00,1 (,0) Cal Water accepts DRA's recommendation Other 1, 1, DRA agrees with Cal Water's recommendation Total,,,1, (1,) Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer.

269 DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the StocktonDistrict by taking the historical five-year (00 to 0) percentage of annual unaccounted for water relative to the given year s total water production. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.% estimate for unaccounted for water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Stockton District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimates sales and supply of, KCcf (hundred thousand cubic feet) for the test-year. Cal water proposes to meet its supply needs through 0% water purchased from the Stockton East Water District. The estimated purchased water cost for the test-year based on this water mix is $,,00. Cal Water and DRA agree with both the methodology and forecasted amount. Cal Water s estimate for purchased water expense was based on 01 rates with the contracted cost for water having increased in 01. Purchased water costs also vary as a result of changes in sales volume. Cal Water requests the Commission adopt Cal Water s method for estimating purchased water and allow Cal Water to incorporate the most recent contracted water rates.

270 Purchased Water Expense Comparison CWS Proposed Cost,,1 DRA Proposed Cost,,1 CWS Rebuttal Position,, ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered as a result of changes in sales volume. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water accepts DRA s sales forecast and recommends the Commission adopt Cal Water s method for estimating purchased power ) Purchased Chemicals Purchased Power Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost, CWS Rebuttal Position, Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over the last two years and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA disagrees with Cal Water s method for estimating chemical expense and instead recommends averaging the annual calculated per unit costs over five

271 years. Averaging 0 and 0 chemical costs per unit in lieu of using a five-year average provides a more accurate forecast based due to the overall tendency for per-unit purchased chemical costs to be higher in later years. Additional variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and as a result purchased chemicals will vary depending upon changes in sales quantities. Cal Water requests the Commission adopt Cal Water s method for using calculated per-unit costs in estimating purchased chemicals expense: Purchased Chemical Expense Comparison CWS Proposed Cost, DRA Proposed Cost,0 CWS Rebuttal Position, Difference (1,0) ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $,00 for a new headcount request for 01. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water disagrees with DRA s use of the labor escalation rates. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. ) Postage Expense Cal Water s estimates $1,00 for postage expense in the test-year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is

272 calculated by taking the 0 postage expense divided by the number of services in 0. The test-year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water accepts DRA s service forecast and recommends the Commission adopt Cal Water s method for estimating postage expense ) Transportation Expense Postage Expense Comparison CWS Proposed Cost 1,1 DRA Proposed Cost 1,1 CWS Rebuttal Position 1,1 Cal Water estimates its transportation expenses by taking a five-year average adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests the Commission adopt Cal Water s method for estimating transportation. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ) ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Cal water estimates uncollectible expense to be $1,00 in the test-year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 1.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated

273 operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test-year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense ) Water Treatment Expense Pumping Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test-year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five-year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost, CWS Rebuttal Position,

274 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $0,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense ) Customer Accounting Expense Transmission and Distribution Expense Comparison For test-year, Cal Water requests $1,00. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0, Customer Accounting Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 1) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense

275 Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test-year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense ) Contracted Maintenance Expense Maintenance Stores Expense Comparison For Contracted Maintenance Expense, Cal water estimates $1,000 for the test-year based on the five-year (00-0) historical average adjusted for inflation and adds $0,00 for a pressure tank inspection program cost and high-priority maintenance program expense. DRA agrees with the pressure tank inspection program, but disagrees with Cal Water s high- priority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. DRA s work paper amount (reflected in below table) differs from the $,00 noted in its RO Report on account of DRA apparently looking to amortize tank painting costs. Cal Water disagrees with the amortization of tank painting costs and refers the Commission to its Global Plant Rebuttal discussion on the treatment of tank painting costs. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section. CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00

276 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost 1,000 DRA Proposed Cost 0, CWS Rebuttal Position 1,000 Difference (1,) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 0

277 . ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Stockton District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Cal Water estimates $,1,00 for employee benefits in the Stockton District in the testyear. DRA estimates $,,00 for test-year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test-year. Benefits Expense Comparison CWS Application,1,0 DRA Proposed Cost,,1 CWS Rebuttal Position,1, DRA v. CWS,1 0 1

278 ) Rent Expense For the Stockton District, cal water estimates $1,00 for the test-year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using an adjusted three-year (00-0) average to obtain the 01 escalated amount, which is then further adjusted downward. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonable to reduce historical expenses by the given amount of any particular activity without considering other similar activities that may occur. Cal Water further disagrees with DRA s employing a three-year average in this instance and its additional reduction of the 01 forecasted amount. A five-year average is a generally accepted estimating method for

279 expenses as outlined in the Rate Case Plan. Cal Water requests the Commission adopt Cal Water s estimate for non-specific expenses for the test-year. Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost 1,00 CWS Rebuttal Position,00 DRA v. CWS,0 1 1 ) Amortization of Limited Term-investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $0,000 for amortization of limited-term investment expense for the test-year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense Amortization of Limited-term Investment Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test-year, Cal Water estimates adjusting out approximately $,00 for dues and donations. DRA disagrees with this adjustment and seeks to adjust out $,00 for dues and donations. The variance between the adjustments results from the inclusion/exclusion of expenses associated with memberships in the Better Business Bureau and San Joaquin Partnership. The Better Business Bureau is a community-based business organization that represents Cal Water to its customers and provides an additional means for these customers to engage its customers

280 in informal discourse and provide additional feedback regarding our business. The San Joaquin Partnership is a non-profit privately-funded economic development corporation that assists business and industry to locate into the area. This assistance takes the form of location and expansion services and are provided directly to the company and/or indirectly to the company s site consultant or real estate broker with the resulting expansion in service benefiting Cal Water s customer base. Cal Water requests the Commission adopt this adjustment.

281 CHAPTER : DISTRICT EXPENSE, VISALIA DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Visalia District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Visalia District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Excepting business and multi-family customers, which employed four-year averages (00-0), Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in the below customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections.

282 ) Metered Sales and Supply Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,, DRA agrees with Cal Water's recommendation Business,, DRA agrees with Cal Water's recommendation Multi Family 1,0 1,0 DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total 0, 0, Cal Water agrees with DRA s estimate for average sales per service connection for the Visalia District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential Cal Water accepts DRA's recommendation Business 1 () Cal Water accepts DRA's recommendation Multi Family 1,0 1,0 Cal Water accepts DRA's recommendation Industrial,01,01 Cal Water accepts DRA's recommendation Public Authority 1,0 1,0 Cal Water accepts DRA's recommendation Other 1 1 Cal Water accepts DRA's recommendation Residential Flat Cal Water accepts DRA's recommendation The above sales-per-customer values were obtained from Cal Water and DRA s respective work papers. DRA proposes 1 Ccf and notes Cal Water as having for forecasted business sales in Table -d of its RO Report.

283 ) Operating Revenues Annual Sales Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Visalia District. DRA recommends using the.0% referenced in the Rate Case Plan. Cal Water accepts DRA s recommendation and recommends the Commission adopt DRA s methodology for accounting for unaccounted water. Customer Class DRA CWS Difference CWS Position Residential,,1,1,,1 Cal Water accepts DRA's recommendation Business,1,0,01,0 (,1) Cal Water accepts DRA's recommendation Multi Family 1,1,0 1,1,0 DRA agrees with Cal Water's recommendation Industrial 1,01 1,01 DRA agrees with Cal Water's recommendation Public Authority 1,0, 1,0, DRA agrees with Cal Water's recommendation Other 1,1 1,1 DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total 1,, 1,, 1,1. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Visalia District. For many expense items, Cal

284 Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Purchased water costs were reclassed as water treatment expenses. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Purchased power will also change as a result of changes in sales volume. Cal Water accepts DRA s forecasted sales volume and recommends the Commission adopt Cal Water s method for estimating purchased power ) Purchased Chemicals Purchased Power Expense Comparison CWS Proposed Cost 1,, DRA Proposed Cost 1,1,01 CWS Rebuttal Position 1,1,01 Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over four years (00-0) and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA agrees with Cal Water s method for estimating chemical expense. The variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and as a result purchased chemicals will vary depending upon changes in sales quantities. DRA s RO Report s proposed purchased chemical costs for ($1,00) differs from its proposed amount in its work papers ($1,00). DRA also states it

285 uses a five-year average in its RO Report for purposes of calculation but uses a four-year average in its work paper calculations. Cal Water accepts DRA sales quantity forecast and recommends the Commission adopt Cal Water s method for using calculated per-unit costs in estimating purchased chemicals expense: Purchased Chemical Expense Comparison CWS Proposed Cost 1,0 DRA Proposed Cost 1, CWS Rebuttal Position 1,0 Difference ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate, and adds $,00 for a new headcount request for 01. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water disagrees with DRA s use of the labor escalation rates. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. 0 ) Postage Expense Cal Water s estimates $,00 for postage expense in the test-year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test-year postage expense estimate is multiplying the estimated number of services multiplied

286 by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water accepts DRA s forecasted service level and recommends the Commission adopt Cal Water s method for estimating postage expense ) Transportation Expense Postage Expense Comparison Cal Water estimates its transportation expenses by taking a five-year average that s adjusted for inflation. DRA agrees with Cal Water s methodology, but disagrees with the inclusion of a mistaken vehicle addition. Cal Water agrees with DRA s disallowance of the new vehicle addition and recommends the Commission adopt the proposed transportation expense for as reflected in the below table and Cal Water s methodology for estimating transportation expenses. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). CWS Proposed Cost,0 DRA Proposed Cost,0 CWS Rebuttal Position, Transportation Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 1 ) Uncollectibles Cal water estimates uncollectible expense to be $1,000 in the test-year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. 0

287 ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test-year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense. Pumping Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1, ) Water Treatment Expense Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $1,000 for Test-year. Cal Water s request is based on the five-year (00-0) recorded expenses, and adds new expenses for UCMR compliance, and then adding inflation. DRA agrees with UCMR compliance cost, but disagrees with inflating the expenses with this cost incorporated. DRA recommends inflating the five year average and then add the UCMR cost. Cal Water agrees with DRA s recommendations. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. 1 Water Treatment Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 1,000 CWS Rebuttal Position 1,000 1

288 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense. Transmission and Distribution Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Customer Accounting Expense For test-year, Cal Water requests $,00. Cal Water s request is based on the fiveyear (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: Customer Accounting Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 1) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials,

289 replacement meters, meter boxes, and meter lids. For test-year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopt Cal Water s recommendation for maintenance stores expense. Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $,00 for the test-year based on the five-year (00-0) historical average adjusted for inflation and adds $0,00 for a pressure tank inspection and well rehabilitation program costs and high-priority maintenance program expense. DRA agrees with the pressure tank inspection program, but disagrees with Cal Water s high-priority maintenance program expense. DRA also recommends inflating the historical average before adding in the incremental expenses. Cal Water agrees with DRA on this method for escalating expenses. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. DRA s work paper amount (reflected in below table) differs from the $,00 noted in its RO Report on account of DRA apparently looking to amortize tank painting costs. Cal Water disagrees with the amortization of tank painting costs and refers the Commission to its Global Plant Rebuttal discussion on the treatment of tank painting costs. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section.

290 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,1 CWS Rebuttal Position,00 Difference (,) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs.. ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Visalia District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Cal Water estimates $,1,00 for employee benefits in the Visalia District in the test-year. DRA estimates $,0,000 for test-year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal

291 testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test-year. Benefits Expense Comparison CWS Application,1, DRA Proposed Cost,0,01 CWS Rebuttal Position,1,1 DRA v. CWS 1, ) Rent Expense There is no rent expense associated with the Visalia District. ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test-year and adjust out for one-time expenses. Cal Water disagrees with DRA s removal of the one-time expenses as it is unreasonable to reduce expenses by the given amount of any particular activity without considering other similar activities that may occur. DRA's allowance of an identified one-time pilot study of single-pass ion treatment for water quality, which may be one-time in terms of the study's specificity but is nonetheless recurring in its generality (i.e., similar studies do arise periodically), should likewise

292 carry over to the other study it disallowed in 00, for, although it was similarly identified as being possibly one-time in nature, it may nonetheless arise again at a later date. If this specific study does not arise again, it is expected similar nonspecific studies will become necessary, and therefore CWS is recommending both studies be allowed in its forecasted amounts. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests the Commission adopt Cal Water s estimate for non-specific expenses for the test-year Non-specific Expense Comparison CWS Application 1,000 DRA Proposed Cost,00 CWS Rebuttal Position 1,000 DRA v. CWS 0,00 ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited-term investment expense for the test-year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense Amortization of Limited-term Investment Expense Comparison CWS Application, DRA Proposed Cost, CWS Rebuttal Position, DRA v. CWS 0 ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test-year, Cal Water estimates adjusting out approximately $1,00 for dues and donations, while DRA seeks to disallow approximately $,0 in dues and donations. DRA holds Women s

293 Trade Club of Tulare County and Networking for Women should not be allowed. Both of these organizations provide additional informal channels of communication whereby members of the community and ratepayers may engage Cal Water s staff in discourse and Cal Water s staff through their participation are further developed and empowered to better serve the ratepayers. Cal Water therefore recommends the Commission adopt its adjustment.

294 CHAPTER : DISTRICT EXPENSE, WESTLAKE DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Westlake District.. SALES AND REVENUE This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Westlake District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Excepting industrial and recycled customers, Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. There were no industrial customers and recycled customer connections exhibited infrequent changes and both categories were therefore indicated as having no anticipated changes in the forecasted period. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections.

295 ) Metered Sales and Supply Average Active Services in Customer Class DRA CWS Difference CWS Position Residential,1,1 DRA agrees with Cal Water's recommendation Business 0 0 DRA agrees with Cal Water's recommendation Multi Family 1 1 DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Recycled 1 1 DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total,, Cal Water agrees with DRA s estimate for average sales per service connection for the Westlake District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 Cal Water accepts DRA's recommendation Business 1, 1, 1 Cal Water accepts DRA's recommendation Multi Family (1) Cal Water accepts DRA's recommendation Industrial Cal Water accepts DRA's recommendation Public Authority 1,0 1,1 () Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Recycled,, Cal Water accepts DRA's recommendation Residential Flat Cal Water accepts DRA's recommendation

296 ) Operating Revenues Annual Sales Customer Class DRA CWS Difference CWS Position Residential,,1,00,, Cal Water accepts DRA's recommendation Business,,0, Cal Water accepts DRA's recommendation Multi Family,,000 (,) Cal Water accepts DRA's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority,1, (1,) Cal Water accepts DRA's recommendation Other,0,0 DRA agrees with Cal Water's recommendation Recycled 1, 1, DRA agrees with Cal Water's recommendation Residential Flat DRA agrees with Cal Water's recommendation Total,0,1,0,0 0, Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.% unaccounted for water in the Westlake District by taking the historical five-year (00 to 0) percentage of annual unaccounted for water relative to the given year s total water production. DRA agrees with Cal Water s estimate for unaccounted for water in this district. Cal Water requests the Commission adopt the.% estimate for unaccounted for water. 0

297 . OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Westlake District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water Cal Water estimate sales and supply of,1. KCcf (hundred thousand cubic feet) for the test-year. Cal water proposes to meet its supply needs through.% potable water and.% reclaimed water purchased from the Calleguas Water District. The estimated purchased water estimate for the test-year based on this water mix is $,,00. Cal Water accepts DRA s higher sales per customer and higher sales estimate. The higher sales estimate results in more purchased water quantities, which calculates to higher purchased water expense. Purchased water costs change as a result of changes in sales volume. Cal Water s estimate for purchased water expense was based on rates as of January 01. The cost for water has risen in 01. Cal Water requests the Commission adopts Cal Water s method for estimating purchased water and allows Cal Water to incorporate the most recent contracted water rates Purchased Water Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, 0 ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water 1

298 accepts DRA s forecast and recommends the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost,00 CWS Rebuttal Position, ) Purchased Chemicals Neither DRA nor Cal Water are forecasting purchased chemical costs for the Westlake District. ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last-recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate, as well as removing the new personnel request. Cal Water disagrees with DRA s use of the labor escalation rates and the removal of the new personnel request. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter. 0 ) Postage Expense Cal Water s estimates $,00 for postage expense in the test-year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The

299 test-year postage expense estimate is multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as postage rate has been increasing annually. DRA accepts Cal Water s method and expense level for postage. Cal Water accepts DRA s forecasted service level and recommends the Commission adopt Cal Water s method for estimating postage expense ) Transportation Expense Postage Expense Comparison CWS Proposed Cost,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 Cal Water estimates its transportation expenses by escalating last-year s (0) amount for. DRA agrees with Cal Water s methodology and Cal Water requests the Commission adopt Cal Water s method for estimating. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ) ) Uncollectibles Transportation Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1, Cal water estimates uncollectible expense to be $1,00 in the test-year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense

300 In its Application, Cal Water estimates the test-year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense ) Water Treatment Expense Pumping Expense Comparison Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $,00 for Test-year. Cal Water s request is based on the five-year (00-0) average of recorded expenses and accounted for inflation. Cal Water and DRA agree on methodology and forecasted amount. Cal Water requests the Commission adopt Cal Water s method for estimating water treatment expense. CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1, Water Treatment Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests the Commission adopt Cal Water s method for estimating transmission and distribution expense.

301 1) Customer Accounting Expense Transmission and Distribution Expense Comparison For test-year, Cal Water requests $1,0. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for customer accounting expense and Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. The table below depicts Cal Water s recommended expense level for customer accounting: CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, Customer Accounting Expense Comparison CWS Proposed Cost 1,000 DRA Proposed Cost 1,000 CWS Rebuttal Position 1, ) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test-year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense.

302 Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $0,00 for the test-year based on the five-year (00-0) historical average adjusted for inflation and adds $,00 for a pressure tank inspection and high-priority maintenance program expenses. DRA agrees with the pressure tank inspection program but disagrees with Cal Water s high-priority maintenance program expense. Cal Water disagrees with DRA on the recommended disallowance for the high-priority maintenance program cost. Cal Water requests the Commission adopt its method for estimating contracted maintenance expense that incorporates the high-priority maintenance program expense. For a detailed discussion on the high-priority maintenance program, please refer to the Global Expense discussion in Chapter, Section ) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 0,00 Difference (,00) Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Westlake District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense

303 Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Cal Water estimates $1,00 for employee benefits in the Westlake District in the test-year. DRA estimates $,00 for test-year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopt Cal Water s method for estimating benefits expense for the test-year. 0 1 Benefits Expense Comparison CWS Application,1 DRA Proposed Cost,1 CWS Rebuttal Position 1, DRA v. CWS,0 ) Rent Expense For the Westlake District, cal water estimates $0,00 for the test-year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense. 0

304 Rent Expense Comparison CWS Application 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends using a five-year average to calculate expenses for the test-year and did not adjust out any one-time expenses. A five-year average is a generally accepted method of estimation for such expenses as outlined in the Rate Case Plan. Cal Water and DRA agree with the methodology used and forecasted amount and Cal Water requests the Commission adopts Cal Water s estimate for non-specific expenses for the test-year. Non-specific Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS

305 ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited-term investment expense for the test-year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees with Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests the Commission adopt Cal Water s estimate for amortization of limited-term investment expense Amortization of Limited-term Investment Expense Comparison ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test-year, Cal Water estimates adjusting out approximately $00 for dues and donations. DRA shows no adjustment in its RO Report for dues & donations. CWS & DRA both showing an approximate $00 adjustment in their work papers. Cal Water requests the Commission adopt this adjustment. CWS Application, DRA Proposed Cost,1 CWS Rebuttal Position, DRA v. CWS 1 CHAPTER : DISTRICT EXPENSE, WILLOWS DISTRICT.1 INTRODUCTION This chapter presents Cal Water s analysis and rebuttal proposal for the Willows District.. SALES AND REVENUE

306 This section presents Cal Water s analysis and rebuttal proposal regarding forecasted number of customers, water sales, and operating revenues for the Willows District. 1) Summary of Recommendations Cal Water agrees with DRA s estimate for all customer classes. Issue Rebuttal Position 1 Average Active Service DRA agrees with Cal Water s method with exceptions Connections Metered Sales and Supply Cal Water agrees with DRA s method and estimate with exceptions please see discussion Operating Revenues Please see discussion Unaccounted for Water DRA agrees with Cal Water s method Rate Design DRA agrees with Cal Water s method ) Average Active Service Connections Excepting Business and Multi-family customers, which use a four-year average (00-0) estimation methodology, Cal Water estimates the annual change in the number of customers using a five-year average (00-0) to estimate the number of customers in all customer classes. DRA agrees with Cal Water s method for estimating the average active service connections. Cal Water requests the Commission adopt Cal Water s estimate for the average active service connections. ) Metered Sales and Supply Average Active Services in Customer Class DRA CWS Difference CWS Position Residential 1, 1, DRA agrees with Cal Water's recommendation Business DRA agrees with Cal Water's recommendation Multi Family DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority DRA agrees with Cal Water's recommendation Other DRA agrees with Cal Water's recommendation Residential Flat 1 Cal Water agrees with DRA's recommendation Total,,0 1 Cal Water agrees with DRA's recommendation Cal Water agrees with DRA s estimate for average sales per service connection for the Willows District. Cal Water estimates sales by customer class, but does not forecast sales in a more granular level by tiers. The sales apportioned to each tier block is not forecasted, but is calculated based on the average of the actual proportions of sales in each block from the most recent three years. 00

307 Cal Water used the regression equations to calculate weather adjusted recorded usage from 0 as a basis for estimating sales for. DRA calculates its forecast using the unconstrained regression model to arrive at a forecasted usage per customer. In reviewing DRA s data, Cal Water accepts DRA s estimate for sales as enumerated in the table below. Cal Water requests the Commission adopt DRA s estimate for sales per customer. ) Operating Revenues Sales Per Customer (Ccf.) Customer Class DRA CWS Difference CWS Position Residential 1 1 (0) Cal Water accepts DRA's recommendation Business 1 (1) Cal Water accepts DRA's recommendation Multi Family 1, 1, Cal Water accepts DRA's recommendation Industrial Cal Water accepts DRA's recommendation Public Authority 0 Cal Water accepts DRA's recommendation Other Cal Water accepts DRA's recommendation Residential Flat Cal Water accepts DRA's recommendation Annual Sales Customer Class DRA CWS Difference CWS Position Residential,, (1) Cal Water accepts DRA's recommendation Business,00,0 (,) Cal Water accepts DRA's recommendation Multi Family,1,1 DRA agrees with Cal Water's recommendation Industrial DRA agrees with Cal Water's recommendation Public Authority,00,, Cal Water accepts DRA's recommendation Other 1 1 DRA agrees with Cal Water's recommendation Residential Flat 1,,0, Cal Water agrees with DRA's recommendation Total,0 1,1,00 Cal Water calculates the operating revenue at present rates by (1) taking the estimated sales for multiplied by the current adopted quantity rates () adding the estimated number of customers for multiplied by the current adopted service charge. DRA agrees with Cal Water s estimating method. The difference between Cal Water and DRA s estimates of present revenue in this is the result of the difference in estimated sales per customer. DRA s discussion regarding the revenue allocated to non-residential customers for the proposed revenue is not accurate. Cal Water allocates the revenue collection to residential and non-residential customer class by approximately the same ratio of revenue collected from residential and non-residential customers at present rates. 01

308 The difference between Cal Water and DRA s estimates of proposed revenue in this is primarily driven by (1) the difference in estimated sales per customer and () the difference in estimated expense level and plant additions. Cal Water requests the Commission adopt Cal Water s method for estimating present revenues. ) Unaccounted for Water Cal Water estimates.0% unaccounted for water in the Willows District. DRA recommends using the.0% referenced in the Rate Case Plan. Cal Water accepts DRA s recommendation and recommends the Commission adopt DRA s methodology for accounting for unaccounted water.. OPERATIONS AND MAINTENANCE EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted operations and maintenance expenses for the Willows District. For many expense items, Cal Water uses the historical average expense adjusted for inflation and includes any new expenses to estimate expenses for and 01. 1) Purchased Water There are no purchased water costs associated with the Willows District. ) Purchased Power Purchased power expense is a term used to describe the power cost related to producing water in a district. This does not include power cost related to the office operations. Because purchased power is related to water production, purchased water expense will vary with the quantity of water delivered. Purchased power cost is calculated by multiplying the estimated production by the kilowatt hours ( KWh ) needed to produce a unit of water. The total estimated kilowatt hours is then multiplied by the estimated rate per KWh to arrive at the cost. DRA agrees with Cal Water s methodology for estimating purchased power. Any difference in DRA and Cal Water s estimate is due to DRA s recommended sales forecast. Cal Water accepts DRA s sales forecast and recommends the Commission adopt Cal Water s method for estimating purchased power. Purchased Power Expense Comparison 0

309 CWS Proposed Cost,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 1 1 ) Purchased Chemicals Groundwater supplies require treatment. Cal Water accounts for the treatment cost in the purchased chemicals expense category. Cal Water estimates purchased chemical costs by averaging the annual calculated per unit cost over five years and then multiplying the estimated year s groundwater production quantities by the corresponding escalated average per unit cost for the given year. DRA agrees with Cal Water s method for estimating chemical expense. The variance between Cal Water and DRA s estimates arise as a result of differing forecasted production quantities and as a result purchased chemicals will vary depending upon changes in sales quantities. Cal Water accepts DRA s forecasted sales and recommends the Commission adopt Cal Water s method for using calculated per-unit costs in estimating purchased chemicals expense: Purchased Chemical Expense Comparison CWS Proposed Cost, DRA Proposed Cost, CWS Rebuttal Position, ) Payroll Payroll is separated out by operations and maintenance and administrative and general categories. Cal Water estimates expenses for these different payroll categories in one area in its work papers. Since Cal Water estimates payroll for these different categories in one area, Cal Water will discuss payroll for the district as a whole in this section. Cal Water estimates operations payroll using the last recorded payroll level from 0, escalates the payroll using the compensation per hour for the non-farm rate. The escalation rates are from DRA s ECOS Memorandum dated April 0, 01. DRA accepts Cal Water s use of the last recorded payroll level from 0, but recommends using the labor inflation rates, which is lower than the compensation per hour for the non-farm rate. Cal Water disagrees with 0

310 DRA s use of the labor escalation rates and the removal of the new personnel request. Cal Water requests the Commission adopt Cal Water s estimate for payroll based on the 0, and escalate payroll expense by Cal Water s negotiated union agreement. For the discussion on escalation rate, please see the General Issues Rebuttal ( Book 1 ), Chapter ) Postage Expense Cal Water s estimates $,00 for postage expense in the test-year. Cal Water estimates postage expense by first calculating the postage cost per service, since postage cost is correlated with the number mailings to each service connection. The cost per service is calculated by taking the 0 postage expense divided by the number of services in 0. The test-year postage expense estimate is determined by multiplying the estimated number of services multiplied by the cost per service. Cal Water also escalates this by the most recent percentage change in the postage rate, as the postage rate has been increasing annually. The variance between DRA and Cal Water s forecasted postage expense is attributable to the difference in the number of forecasted services for. DRA accepts Cal Water s method. Cal Water accepts DRA s forecasted service level and recommends the Commission adopt Cal Water s method for estimating postage expense ) Transportation Expense Postage Expense Comparison Cal Water estimates its transportation expenses by taking the last-year (0) amount adjusted for inflation. DRA agrees with Cal Water s methodology and Cal Water requests that the Commission adopt Cal Water s method for estimating transportation expense. For a detailed discussion on company vehicles, please see the Global Ratebase Rebuttal Testimony ( Book ). CWS Proposed Cost,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 Transportation Expense Comparison 0

311 ) Uncollectibles CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, Cal water estimates uncollectible expense to be $,00 in the test-year. Cal Water s estimate is based on a five-year (00-0) average of the annual uncollectible rate, or 0.%. The uncollectible rate is calculated relative to the annual operating revenue. DRA agrees with this method. Any difference between the parties estimates is due to the difference in estimated operating revenues. Cal Water requests the Commission adopt Cal Water s proposed uncollectible rate. ) Source of Supply Expense Please see Global Expense Issues, Chapter for a detailed discussion. ) Pumping Expense In its Application, Cal Water estimates the test-year expenses for this category using the five-year inflation adjusted average. DRA agrees with Cal Water s method and estimated expense level for pumping expense. Cal Water requests the Commission adopt Cal Water s method for estimating pumping expense ) Water Treatment Expense Pumping Expense Comparison Water treatment expenses include water sampling at wells, laboratory expense, bacterial laboratory expense, lab fees, and miscellaneous treatment costs. Cal Water requests $1,00 for Test-year. Cal Water s request is based on the five-year (00-0) average of recorded expenses after escalation. Cal Water agrees with DRA s recommendations and recommends the Commission adopt Cal Water s method for estimating water treatment expense. CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0,00 0

312 Water Treatment Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 ) Transmission and Distribution Expense Transmission and Distribution ( T&D ) expenses include supervision and engineering, flushing, T&D lines, turn-on and turn-off for services, installation, and miscellaneous expenses. For test-year, Cal Water requests $1,00 based on a five-year average. DRA agrees with Cal Water s method and estimated expense level for transmission and distribution expense. Cal Water requests that the Commission adopt Cal Water s method for estimating transmission and distribution expense ) Customer Accounting Expense Transmission and Distribution Expense Comparison CWS Proposed Cost 1,00 DRA Proposed Cost 1,00 CWS Rebuttal Position 1,00 For test-year, Cal Water requests $0,00. Cal Water s request is based on the five- year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s methodology and accepts its forecasted amount. Cal Water requests the Commission adopt Cal Water s method for estimating customer accounting expense. 0 1 Customer Accounting Expense Comparison CWS Proposed Cost 0,00 DRA Proposed Cost 0,00 CWS Rebuttal Position 0,00 0

313 1) Conservation Expense Please see the Global Expense Rebuttal discussion on the conservation program expense. 1) Maintenance Stores Expense Maintenance stores expenses includes inventory components of various accounts associated with maintenance, including service line material, pipeline, repair materials, replacement meters, meter boxes, and meter lids. For test-year, Cal Water requests $,00 for maintenance stores. Cal Water s request is based on the five-year (00-0) historical average expenditure adjusted for inflation. DRA agrees with Cal Water s method and estimated expense level for maintenance stores expense. Cal Water requests the Commission adopts Cal Water s recommendation for maintenance stores expense Maintenance Stores Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position, ) Contracted Maintenance Expense For Contracted Maintenance Expense, Cal water estimates $,00 for the test-year based on the five-year (00-0) historical average adjusted for inflation. Cal Water agrees with DRA on this method for escalating expenses and recommends the Commission adopt its method for estimating contracted maintenance. 1 1) Tank Painting Cost Contracted Maintenance Expense Comparison CWS Proposed Cost,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 Please see the Global Plant Rebuttal discussion on the treatment of Tank Painting costs. 0

314 . ADMINISTRATIVE AND GENERAL EXPENSES This section presents Cal Water s analysis and rebuttal proposal regarding forecasted administrative and general ( A&G ) expenses for the Willows District. Estimating method varies by the type of expenses as discussed below. 1) Payroll Expense Please see the discussion on the operations and maintenance payroll for a detailed discussion. ) Benefits Expense Employee benefits include health insurance, survivor benefits, pension funding, 01(k) matching, and retiree group health insurance. Cal Water estimates benefits expenses for health insurance, survivor benefits, pension funding, and group health insurance using the Milliman Group s estimated cost per employee multiplied by the number of employees. For the 01(k) matching cost, Cal Water estimates this based on the level of payroll multiplied by historical employee contribution rate. Cal Water and DRA s positions differ based on (1) the difference in the cost per employee and () the test-year payroll expense level based on the difference in escalation factors. Cal Water estimates $1,00 for employee benefits in the Willows District in the test-year. DRA estimates $1,000 for test-year. Difference in DRA s and Cal Waters positions are attributable to (1) the differences in the estimated number of employees () the difference in the payroll level based on the number of employees and the escalation rate () the cost per employee for 01(k) matching, pension, healthcare, and retiree healthcare expense. Cal Water disagrees with DRA s recommendation. Please see the General Issues Rebuttal testimony ( Book 1 ), Chapter for a detailed discussion. Cal Water requests the Commission adopts Cal Water s method for estimating benefits expense for the test-year. Benefits Expense Comparison CWS Application 1, DRA Proposed Cost 1,0 CWS Rebuttal Position 1, DRA v. CWS 1, 0

315 ) Rent Expense For the Willows District, cal water estimates $,00 for the test-year. Cal Water s estimate is based on the historical expenses for 0 and escalated for inflation. DRA agrees with Cal Water s estimate. Cal Water requests the commission adopt Cal Water s estimate for rent expense. Rent Expense Comparison CWS Application,00 DRA Proposed Cost,00 CWS Rebuttal Position,00 DRA v. CWS ) Administrative Charges Transfer Expense Please refer to the Global Expense write-up, in Chapter, Section for a discussion on the Administrative Charges Transfer Expense. Please see the General Issues Rebuttal Testimony ( Book 1 ), Chapter for a discussion on Non-Tariffed Products and Services. ) Worker s Compensation Cal Water estimates worker s compensation insurance based on actuarial expectations described in the guidance from the actuaries at Milliman USA ( Milliman ). Cal Water includes a provision to account for worker s compensation to include expected future payments from current employment. Please see the General Issues Rebuttal Testimony, Chapter for a detailed discussion. ) Non-specifics Expense Nonspecific expenses generally represent miscellaneous administrative and general expenditures encompassing multiple sub-accounts. Cal Water does not estimate expenses for each sub-accounts, instead, it provides an estimate for the combined amount for based on the five-year (00-0) historical average adjusted for inflation. DRA recommends adjusting out one-time expenses from historical amounts even if doing so results in negative non-specific expenses for the adjusted year s expenses. DRA then derives a five-year average (00-0) of these adjusted historical amounts that is then escalated to estimate non-specific expenses for. Cal Water disagrees with DRA s inclusion of negative expenses in determining such averages and its removal of such one-time expenses as it is unreasonable to reduce expenses 0

316 by the given amount of any particular activity without likewise considering other similar activities that may occur. A five-year average is a generally accepted estimating method for expenses as outlined in the Rate Case Plan. Cal Water requests the Commission adopt Cal Water s estimate for non-specific expenses for the test-year. Non-specific Expense Comparison CWS Application 1,000 DRA Proposed Cost,00 CWS Rebuttal Position 1,000 DRA v. CWS, ) Amortization of Limited-term Investment Expense This expense category includes the amortization of any intangible asset. Cal Water estimates $,00 for amortization of limited-term investment expense for the test-year. Cal Water bases its estimate from the general method for this expense shown on its GRC models. DRA agrees Cal Water s methodology. Any differences between DRA and Cal Water s expense levels for this category is attributed to adjustments to plant. Cal Water requests that the Commission adopt Cal Water s estimate for amortization of limited-term investment expense Amortization of Limited-term Investment Expense Comparison CWS Application,1 DRA Proposed Cost,1 CWS Rebuttal Position,1 DRA v. CWS ) Dues and Donation Adjustments from Rate Recovery Cal Water is allowed to recover expenses for some dues and donations in rates. Cal Water adjusts out expenses which are not recoverable in rates from its expense estimates. For the test-year, Cal Water estimates adjusting out approximately $1 for dues and donations. DRA agrees with this adjustment. Cal Water requests the Commission adopt this adjustment.

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319 INSTRUCTIONS All Areas highlighted in Yellow need to be filled out. On the worksheet, the activities will have a RED number next to it. It will refer you back to the instructions or additional data fields to give you a glimpse into everything in that activity. All Activity times are calculated to reflect Average Required Hours Per Week. 1 District - Enter name of District - Drop Down Department / Position - Enter position or area in the District - Drop Down Date - Enter date this worksheet is completed Total Staff Count For District - Enter the total number of staff (non-management) for the district Total MGMT Count for District - Enter the total number of Managers / Supervisors / Superintendents for the district. Current Staff - Superintendent (F.T.E.'s) - This cell will automatically default to "1" if there is a volume entered for Total Staff Count For District (Section #). Additional Community / Service Clubs - This field will automatically calculate additional time based on the completed sheets return to us. Current Staff - Direct Reports (F.T.E's) - Enter the number of staff F.T.E's (Full Time Equivalents) directly reporting to the Superintendent. Travel (Miles) - Enter the number of miles driven by the Superintendent during an average week. Fixed Allowance - This number will automatically calculate a standard "Fixed Allowance" A Emp(loyee) Admin - Hiring, Discipline & W/C - This field will automatically calculate hours based on the number of Direct Reports (#) for a Superintendent. 1 Auto Accident & Gen(eral) (Liab)ility Claims Filed - This field will automatically generate hours for Superintendents to process claims in their area. 1 Activities - Below is a drop down menu listing all activities within the District for all position, select one 1 Volume - Enter either the number of occurrence per week this activity is worked, the number of completed items for this activity, the number of staff or what is instructed 1 Required Hours - This field is auto-calculated and represents the average weekly Required Hours for the listed activity 1 Projected Required Hours - This field is auto-calculated and represents the total weekly Required Hours based on Superintendent Activities (from drop-down menus) and their volumes. 1 Additional Required Hours - This field is auto-calculated and represents weekly hours required to complete management activities based the number of direct reports, additional Service Club requirements, and miles driven for a Superintendent. 1 Total Required Hours - This field is auto-calculated and represents the sum of Projected Required Hours and Additional Required Hours. 1 Projected Required F.T.E.'s - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on Projected Required Hours 0 Projected Required F.T.E.'s with Allowances - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on the sum of Projected Required Hours and Additional Required Hours. 1 Additional Available Hours - This field is auto-calculated and represents the difference between a superintendent's Available Hours and Required hours (+ or -). F.T.E.'s (+) (-) - This field is auto-calculated and represents the difference in Superintendent Available F.T.E.'s and Required F.T.E.'s (Full Time Equivalents). *** On the "worksheet" page, by clicking on the highlighted red # ( 1 ), it will hyperlink you to the details concerning that given item. LEGEND / KEY DM ADM CSM CSS LM GEN. SUP. DIST. SUP. PROD. SUP. CONT. SUP. GEN. FOREM. All Position will have this activity District Manager - Activities and Required Weekly Time Needed to Complete Tasks Assistant District Manager - Activities and Required Weekly Time Needed to Complete Tasks Customer Service Manager - Activities and Required Weekly Time Needed to Complete Tasks Customer Service Supervisor - Activities and Required Weekly Time Needed to Complete Tasks Local Manager - Activities and Required Weekly Time Needed to Complete Tasks General Superintendent - Activities and Required Weekly Time Needed to Complete Tasks Distribution Superintendent- Activities and Required Weekly Time Needed to Complete Tasks Production Superintendent - Activities and Required Weekly Time Needed to Complete Tasks Construction Superintendent - Activities and Required Weekly Time Needed to Complete Tasks General Foreman - Activities and Required Weekly Time Needed to Complete Tasks

320 SUPERINTENDENT STAFFING WORKSHEET Average Weekly Requirements District: BAYSHORE 1 Department / Position: CONSTRUCTION SUPERINTE Date: SEPT. 0 1 Activities Required All Service Installation / Replacement / Abandon - Enter 1 1. Total Staff Count For District:.0 1 Vol - 1 Req. 0. WK Hrs. Total MGMT Count for District:.0 Annual Blankets PO's - Oversight / Set-up - Enter Current Staff - Superintendent (F.T.E.'s): 1.0 Approve & Process P-Card Transaction - Enter Barricade Log - Enter Additional Community / Service Clubs: 0. Annual Inspection - Sites - 0 Mins Per Site / Per Year Building Maintenance - Enter Current Staff - Direct Reports (F.T.E.'s):.0 0. Call Out Report - Enter Capital Budget Preparation 01, 1, 1 - Enter Travel (MILES): 1 CCC Program - By Device City / County Coordination Meeting - Enter Fixed Allowances:.0 Investigate / Respond to PUC Complaints - Enter Leaks - Mains - Enter Number Leaks Per Week EMP ADMIN - Hiring, Discipline & W/C: 0. Leaks - Service - Enter Number Leaks Per Week Legal Issues - Contracts, Liability Claims, etc - Enter Auto Accident & Gen. Liab. Claims Filed: 0.1 Lock / Key Inventory - Enter Manager Goals - Create - Enter Map Corrections - Enter Meetings District / Staff - Enter 1 Per Week 1 1. Mileage Report - Enter New Business - Enter 1 1. New Program Roll-Out - Enter New Service Order Request - Enter NPDES Reports & Schedule Sampling - Enter On call Supervisor - Enter Operating Budget - Enter Operations Contracts - Enter 1 1. PP - Master Contract - Enter 1` 1.0 PP Expense Report - Enter Permits - 0 Mins. Each Personal Goals - Superintendent - Create - Enter Plan, Assign & Follow-Up w/staff: 1. HRS = Enter 1 1. Projects - Enter Property Report - Liability Non-Auto Accidents - Enter Public Agency Meetings - Enter Reports - Construction - Enter Requisitions - Review - Enter Review & Approve Payroll Reports - Bi-Weekly - Enter Projected Required Hours:.0 Safety Meeting - Enter Sampling - Enter Additional Required Hours:. SCADA - Review Alarms - Enter Superintended Goals - Create - Enter Total Required Hours:. Tailgate Meetings - Enter Tailgate Meetings - Monthly - Enter Projected Required F.T.E.'s: 1. Underground Service Alerts - Enter USA - Enter Projected Required Vehicle Maintenance / Wash - Individual - Enter F.T.E.'s with Allowances: Vehicle Quarterly Inspection - EACH - Enter # Vehicles 0 0. Web-Now - Enter Additional Available Hours: Weekly News Letter - Enter Weekly OT Report - Review - Enter Will Serve - Enter Work with Field Clerk - Enter Work with Store Clerk - Enter Projected Required Hours: F.T.E's (+) (-): 0..

321 SUPERINTENDENT STAFFING WORKSHEET Assumption Justification - Formulas & Supporting Data Total Staff Count For District: Q1=(IF(O1>1,.,IF(O1=0,0,IF(O1<,0.,(IF(O1<1,1.,IF(O1<1,.1,)))))))/O1 O0=Q1 O=.0*O (Employee Annual Vacation & Evaluations, Employee Quarterly Verification) Employee Administration - W/C, Hiring & Discipline Employees W/C - HRS Hiring Discipline Totals 0 - = = = = Total MGMT Count for District: O 1 = Blank Cell, record current number of management staff for District Current Staff - Superintendent (F.T.E.'s): O=(IF(O1>0.1,1,IF(O1=0,0)) O Drives the Additional Available Hours ( O ) cell and FTE's (+)(-) ( O ) cell Current number of Superintendent (FTE / HRS) available against Project Required Hours and FTE's (+) (-) This cell will automatically defaults to "1" Additional Community / Service Clubs: O=IF(O1>.,1,IF(O1=0,0,IF(O1<0,0.,IF(O1<.,0.)))) Current Staff - Direct Reports (F.T.E.'s): O = Blank Cell, record current number of Staff that report to management individual Travel (MILES): Q=IF(O>.1,1.,IF(O=0,0,IF(O<0,.,IF(O<00,.,IF(O<00,.,IF(O<00,.,IF(O<00,.1,IF(O<,1.,)))))))) Miles Traveled Per Week Per Individual 0-0 =. HRS 0-1=. HRS 00 - =. HRS 00 - =. HRS 00 - =.1 HRS 00 - = 1. HRS 00 - = 1. HRS Fixed Alowance: O1 = IF(O<0.,"",(V+V)) - Additional / Other Time (VAC, Sick, Holidays, Personal & Floating) =. - C.I. - Weekly & Quarterly Activities =. - Communication - Per Week =. - Employee Administration - Daily & Weekly =. - Manager Training - Annually = 0. EMP ADMIN - Hiring, Discpline & W/C: O=IF(O1=0,'''',Q1) Auto Accident & Gen. Liab. Claims Filed: 1 O = O=(IF(O1>,0.0,IF(O=0,0,IF(O1<,0.01,IF(O1<,0.0,))))) MGMT 0 - = = = 0.

322 Projected Required Hours: 1 O = F Projected Required Hours transferred from Activity List Workspace to Summary Additional Required Hours: 1 O0=IF(O=0,"",(O1+O+O+O+O0O+O+O0)) Total Required Hours: 1 O=IF(O1=0,"",(O+O0)) Projected Required F.T.E.'s: 1 O = O/. Projected Required F.T.E.'s with Allowances: 0 O=IF(O=0,"",((O+O0)/.)) Additional Available Hours: 1 O=IF(O=0,"",(.*O)-(O+O0)) F.T.E's (+) (-): O=IF(O=0,"",(O-O))

323 EXAMPLE QUESTIONS 1 Question: Define managers, does this include supervisors? Answer: Yes, this number should include all supervisory positions; Managers, Supervisors, Superintendents, Local Managers and Foremen Question: Does the weekly travel miles apply to all miles driven, on-call, travel to and from work? Answer: Yes, The background for this area is based on travel logs from GO. It captures all travel. Question: Clarify when to mark "1" for certain activities? Answer: Unless instructed otherwise, always enter into the cell the number "1". In the drop downs you will be guided when to enter a different number Question: What are Full Time Equivalents (F.T.E.'s)? Answer: Full Time Equivalents equal to the total number of staff, i.e. if You have Full Time Positions and Part Time Position the F.T.E.'s would equate to F.T.E.'s'. Question: Better explanation for # Additional Community / Service Clubs. Is it everyone you participate in? Answer: This field will automatically calculate additional hours per individual based on the return worksheets. Question: Explain in '1' Volume that you can put decimal figures if it is an occurrence that only happens once every weeks, i.e. put '' instead 1 Answer: Again based on the returned worksheets, we have identified all the activities that occur other than daily / weekly. There are many buried formulas that automatically calculate this, i.e., if an activity occurs once every weeks and it take.0 HRs to complete, when you enter '1' it calculates the time ( HRs) divided by ( times every other week) X 1. The same holds true for an activity that happens once a year and it take 1 HR, the resulting number would be 1 HR / =.01 HRs per week. In this case you will see 0.0 in the Required Hours. Question: Can't change column 1? Answer: Column 1 is driven by formulas and is locked. Again if you see 0.0 after you enter your volume, it really reflex's Question: Some entries in column 1 show 0 even though you put in a factor in column 1? Answer: Please refer to Question & above. Question: After you type in your figure in column 1 it should retain exactly what you typed, i.e., a decimal so you can review it at the end. Currently it rounds decimals up or down Answer: All numbers entered in column 1 should be whole numbers Question: When you go to enter into the next line instead of returning to the first entry, it would auto recall to the next option after the one you just put in so you don't have to scan down every time Answer: Yes, it would be great if it could, but with EXCEL that s not an option. Question: Do all the tasks have populated times or only some? Answer: Yes, all task will have times assigned to them based on a number of factors i.e., Observations, Interviews, Department / Company Records and retuned documentation

324 INSTRUCTIONS All Areas highlighted in Yellow need to be filled out. On the worksheet, the activities will have a RED number next to it. It will refer you back to the instructions or additional data fields to give you a glimpse into everything in that activity. All Activity times are calculated to reflect Average Required Hours Per Week. 1 District - Enter name of District - Drop Down Department / Position - Enter position or area in the District - Drop Down Date - Enter date this worksheet is completed Total Staff Count For District - Enter the total number of staff (non-management) for the district Total MGMT Count for District - Enter the total number of Managers / Supervisors / Superintendents for the district. Current Staff - Superintendent (F.T.E.'s) - This cell will automatically default to "1" if there is a volume entered for Total Staff Count For District (Section #). Additional Community / Service Clubs - This field will automatically calculate additional time based on the completed sheets return to us. Current Staff - Direct Reports (F.T.E's) - Enter the number of staff F.T.E's (Full Time Equivalents) directly reporting to the Superintendent. Travel (Miles) - Enter the number of miles driven by the Superintendent during an average week. Fixed Allowance - This number will automatically calculate a standard "Fixed Allowance" A Emp(loyee) Admin - Hiring, Discipline & W/C - This field will automatically calculate hours based on the number of Direct Reports (#) for a Superintendent. 1 Auto Accident & Gen(eral) (Liab)ility Claims Filed - This field will automatically generate hours for Superintendents to process claims in their area. 1 Activities - Below is a drop down menu listing all activities within the District for all position, select one 1 Volume - Enter either the number of occurrence per week this activity is worked, the number of completed items for this activity, the number of staff or what is instructed 1 Required Hours - This field is auto-calculated and represents the average weekly Required Hours for the listed activity 1 Projected Required Hours - This field is auto-calculated and represents the total weekly Required Hours based on Superintendent Activities (from drop-down menus) and their volumes. 1 Additional Required Hours - This field is auto-calculated and represents weekly hours required to complete management activities based the number of direct reports, additional Service Club requirements, and miles driven for a Superintendent. 1 Total Required Hours - This field is auto-calculated and represents the sum of Projected Required Hours and Additional Required Hours. 1 Projected Required F.T.E.'s - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on Projected Required Hours 0 Projected Required F.T.E.'s with Allowances - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on the sum of Projected Required Hours and Additional Required Hours. 1 Additional Available Hours - This field is auto-calculated and represents the difference between a superintendent's Available Hours and Required hours (+ or -). F.T.E.'s (+) (-) - This field is auto-calculated and represents the difference in Superintendent Available F.T.E.'s and Required F.T.E.'s (Full Time Equivalents). *** On the "worksheet" page, by clicking on the highlighted red # ( 1 ), it will hyperlink you to the details concerning that given item. LEGEND / KEY All Position will have this activity DM District Manager - Activities and Required Weekly Time Needed to Complete Tasks ADM Assistant District Manager - Activities and Required Weekly Time Needed to Complete Tasks CSM Customer Service Manager - Activities and Required Weekly Time Needed to Complete Tasks CSS Customer Service Supervisor - Activities and Required Weekly Time Needed to Complete Tasks LM Local Manager - Activities and Required Weekly Time Needed to Complete Tasks GEN. SUP. General Superintendent - Activities and Required Weekly Time Needed to Complete Tasks DIST. SUP. Distribution Superintendent- Activities and Required Weekly Time Needed to Complete Tasks PROD. SUP. Production Superintendent - Activities and Required Weekly Time Needed to Complete Tasks CONT. SUP. Construction Superintendent - Activities and Required Weekly Time Needed to Complete Tasks GEN. FOREM. General Foreman - Activities and Required Weekly Time Needed to Complete Tasks

325 SUPERINTENDENT STAFFING WORKSHEET Average Weekly Requirements District: BAYSHORE 1 Department / Position: GENERAL FOREMAN Date: SEPT. 0 Required Total Staff Count For District:.0 Activities 1 1 Vol - 1 Req. 0. WK Hrs. Total MGMT Count for District:.0 All Service Installation / Replacement / Abandon - Enter 1 1. Annual Blankets PO's - Oversight / Set-up - Enter Current Staff - Superintendent (F.T.E.'s): 1.0 Check Large Meter Book - Review - Enter Create FA's Mins Each / Per Week - Enter Additional Community / Service Clubs: 0. Weekly OT Report - Review - Enter Approve & Process P-Card Transaction - Enter Current Staff - Direct Reports (F.T.E.'s):.0 Approve REG's - Enter Billing Contracts for City Services - Enter Travel (MILES): Building Maintenance - Enter Call Out Report - Enter Fixed Allowances:.0 City / County Coordination Meeting - Enter Capital Budget Preparation 01, 1, 1 - Enter EMP ADMIN - Hiring, Discipline & W/C: 0. Capital Budget Report - Oversight - Enter Capital Project - Daily Oversight - Enter Auto Accident & Gen. Liab. Claims Filed: 0.1 Community Involvement - Public Relations - Enter Contractor Interaction - Enter Defective Gate Valve Replacement - Enter Deliver Parts to Field - Enter Department t Goals Meeting - Weekly - Enter / SCADA - Enter 1.0 Emergency / Un-Planned Event - Enter Expense Report - Enter Expense Report Approval (P-Card) - Enter External Training - Classes, Workshops, Conf. etc - Enter Emergency Preparedness Program - Enter Field Visits - Enter 1 1. Fire Flow Request - Review - Enter Flushing & Valve Maintenance Program - Enter Hydrant Maintenance Program - Enter InfoDistrict - Customer Enquiry s - Enter Interact with Master Contractors - Enter Internal Training - IT, WQ, HR, ACCT, etc - Enter IT Power User - Enter Leaks - Mains - Enter Number Leaks Per Week 0 0. Leaks - Service - Enter Number Leaks Per Week 0 1. Legal Issues - Contracts, Liability Claims, etc - Enter Map Corrections - Enter Projected Required Hours: 1.0 Meetings District / Staff - Enter 1 Per Week 1 1. New Service Order Request - Enter Additional Required Hours:. On call Supervisor - Enter Overtime Report - Monthly Posting - Enter Total Required Hours:.0 PP - Master Contract - Enter 1`.0 PP Expense Report - Enter Projected Required F.T.E.'s: 1. Permits - 0 Mins. Each 1 1. Plan, Assign & Follow-Up w/staff: 1. HRS = Enter 1 1. Projected Required Projects - Enter 1 1. F.T.E.'s with Allowances: Property Report - Liability Non-Auto Accidents - Enter Safety Meeting - Additional - Monthly - Enter Additional Available Hours: Service Club Meetings - Enter Vault Maintenance Program (PRV) - Enter Vehicle Administration - Enter Vehicle Maintenance / Wash - Individual - Enter Weekly News Letter - Enter Projected Required Hours: F.T.E's (+) (-):

326 SUPERINTENDENT STAFFING WORKSHEET Assumption Justification - Formulas & Supporting Data Total Staff Count For District: Q1=(IF(O1>1,.,IF(O1=0,0,IF(O1<,0.,(IF(O1<1,1.,IF(O1<1,.1,)))))))/O1 O0=Q1 O=.0*O (Employee Annual Vacation & Evaluations, Employee Quarterly Verification) Employee Administration - W/C, Hiring & Discipline Employees W/C - HRS Hiring Discipline Totals 0 - = = = = Total MGMT Count for District: O 1 = Blank Cell, record current number of management staff for District Current Staff - Superintendent (F.T.E.'s): O=(IF(O1>0.1,1,IF(O1=0,0)) O Drives the Additional Available Hours ( O ) cell and FTE's (+)(-) ( O ) cell Current number of Superintendent (FTE / HRS) available against Project Required Hours and FTE's (+) (-) This cell will automatically defaults to "1" Additional Community / Service Clubs: O=IF(O1>.,1,IF(O1=0,0,IF(O1<0,0.,IF(O1<.,0.)))) Current Staff - Direct Reports (F.T.E.'s): O = Blank Cell, record current number of Staff that report to management individual Travel (MILES): Q=IF(O>.1,1.,IF(O=0,0,IF(O<0,.,IF(O<00,.,IF(O<00,.,IF(O<00,.,IF(O<00,.1,IF(O<,1.,)))))))) Miles Traveled Per Week Per Individual 0-0 =. HRS 0-1=. HRS 00 - =. HRS 00 - =. HRS 00 - =.1 HRS 00 - = 1. HRS 00 - = 1. HRS Fixed Alowance: O1 = IF(O<0.,"",(V+V)) - Additional / Other Time (VAC, Sick, Holidays, Personal & Floating) =. - C.I. - Weekly & Quarterly Activities =. - Communication - Per Week =. - Employee Administration - Daily & Weekly =. - Manager Training - Annually = 0. EMP ADMIN - Hiring, Discpline & W/C: O=IF(O1=0,'''',Q1) Auto Accident & Gen. Liab. Claims Filed: 1 O = O=(IF(O1>,0.0,IF(O=0,0,IF(O1<,0.01,IF(O1<,0.0,))))) MGMT 0 - = = = 0.

327 Projected Required Hours: 1 O = F Projected Required Hours transferred from Activity List Workspace to Summary Additional Required Hours: 1 O0=IF(O=0,"",(O1+O+O+O+O0O+O+O0)) Total Required Hours: 1 O=IF(O1=0,"",(O+O0)) Projected Required F.T.E.'s: 1 O = O/. Projected Required F.T.E.'s with Allowances: 0 O=IF(O=0,"",((O+O0)/.)) Additional Available Hours: 1 O=IF(O=0,"",(.*O)-(O+O0)) F.T.E's (+) (-): O=IF(O=0,"",(O-O))

328 EXAMPLE QUESTIONS 1 Question: Define managers, does this include supervisors? Answer: Yes, this number should include all supervisory positions; Managers, Supervisors, Superintendents, Local Managers and Foremen Question: Does the weekly travel miles apply to all miles driven, on-call, travel to and from work? Answer: Yes, The background for this area is based on travel logs from GO. It captures all travel. Question: Clarify when to mark "1" for certain activities? Answer: Unless instructed otherwise, always enter into the cell the number "1". In the drop downs you will be guided when to enter a different number Question: What are Full Time Equivalents (F.T.E.'s)? Answer: Full Time Equivalents equal to the total number of staff, i.e. if You have Full Time Positions and Part Time Position the F.T.E.'s would equate to F.T.E.'s'. Question: Better explanation for # Additional Community / Service Clubs. Is it everyone you participate in? Answer: This field will automatically calculate additional hours per individual based on the return worksheets. Question: Explain in '1' Volume that you can put decimal figures if it is an occurrence that only happens once every weeks, i.e. put '' instead 1 Answer: Again based on the returned worksheets, we have identified all the activities that occur other than daily / weekly. There are many buried formulas that automatically calculate this, i.e., if an activity occurs once every weeks and it take.0 HRs to complete, when you enter '1' it calculates the time ( HRs) divided by ( times every other week) X 1. The same holds true for an activity that happens once a year and it take 1 HR, the resulting number would be 1 HR / =.01 HRs per week. In this case you will see 0.0 in the Required Hours. Question: Can't change column 1? Answer: Column 1 is driven by formulas and is locked. Again if you see 0.0 after you enter your volume, it really reflex's Question: Some entries in column 1 show 0 even though you put in a factor in column 1? Answer: Please refer to Question & above. Question: After you type in your figure in column 1 it should retain exactly what you typed, i.e., a decimal so you can review it at the end. Currently it rounds decimals up or down Answer: All numbers entered in column 1 should be whole numbers Question: When you go to enter into the next line instead of returning to the first entry, it would auto recall to the next option after the one you just put in so you don't have to scan down every time Answer: Yes, it would be great if it could, but with EXCEL that s not an option. Question: Do all the tasks have populated times or only some? Answer: Yes, all task will have times assigned to them based on a number of factors i.e., Observations, Interviews, Department / Company Records and retuned documentation

329 INSTRUCTIONS All Areas highlighted in Yellow need to be filled out. On the worksheet, the activities will have a RED number next to it. It will refer you back to the instructions or additional data fields to give you a glimpse into everything in that activity. All Activity times are calculated to reflect Average Required Hours Per Week. 1 District - Enter name of District - Drop Down Department / Position - Enter position or area in the District - Drop Down Date - Enter date this worksheet is completed Total Staff Count For District - Enter the total number of staff (non-management) for the district Total MGMT Count for District - Enter the total number of Managers / Supervisors / Superintendents for the district. Current Staff - Superintendent (F.T.E.'s) - This cell will automatically default to "1" if there is a volume entered for Total Staff Count For District (Section #). Additional Community / Service Clubs - This field will automatically calculate additional time based on the completed sheets return to us. Current Staff - Direct Reports (F.T.E's) - Enter the number of staff F.T.E's (Full Time Equivalents) directly reporting to the Superintendent. Travel (Miles) - Enter the number of miles driven by the Superintendent during an average week. Fixed Allowance - This number will automatically calculate a standard "Fixed Allowance" A Emp(loyee) Admin - Hiring, Discipline & W/C - This field will automatically calculate hours based on the number of Direct Reports (#) for a Superintendent. 1 Auto Accident & Gen(eral) (Liab)ility Claims Filed - This field will automatically generate hours for Superintendents to process claims in their area. 1 Activities - Below is a drop down menu listing all activities within the District for all position, select one 1 Volume - Enter either the number of occurrence per week this activity is worked, the number of completed items for this activity, the number of staff or what is instructed 1 Required Hours - This field is auto-calculated and represents the average weekly Required Hours for the listed activity 1 Projected Required Hours - This field is auto-calculated and represents the total weekly Required Hours based on Superintendent Activities (from drop-down menus) and their volumes. 1 Additional Required Hours - This field is auto-calculated and represents weekly hours required to complete management activities based the number of direct reports, additional Service Club requirements, and miles driven for a Superintendent. 1 Total Required Hours - This field is auto-calculated and represents the sum of Projected Required Hours and Additional Required Hours. 1 Projected Required F.T.E.'s - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on Projected Required Hours 0 Projected Required F.T.E.'s with Allowances - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on the sum of Projected Required Hours and Additional Required Hours. 1 Additional Available Hours - This field is auto-calculated and represents the difference between a superintendent's Available Hours and Required hours (+ or -). F.T.E.'s (+) (-) - This field is auto-calculated and represents the difference in Superintendent Available F.T.E.'s and Required F.T.E.'s (Full Time Equivalents). *** On the "worksheet" page, by clicking on the highlighted red # ( 1 ), it will hyperlink you to the details concerning that given item. LEGEND / KEY DM ADM CSM CSS LM GEN. SUP. DIST. SUP. PROD. SUP. CONT. SUP. GEN. FOREM. All Position will have this activity District Manager - Activities and Required Weekly Time Needed to Complete Tasks Assistant District Manager - Activities and Required Weekly Time Needed to Complete Tasks Customer Service Manager - Activities and Required Weekly Time Needed to Complete Tasks Customer Service Supervisor - Activities and Required Weekly Time Needed to Complete Tasks Local Manager - Activities and Required Weekly Time Needed to Complete Tasks General Superintendent - Activities and Required Weekly Time Needed to Complete Tasks Distribution Superintendent- Activities and Required Weekly Time Needed to Complete Tasks Production Superintendent - Activities and Required Weekly Time Needed to Complete Tasks Construction Superintendent - Activities and Required Weekly Time Needed to Complete Tasks General Foreman - Activities and Required Weekly Time Needed to Complete Tasks

330 SUPERINTENDENT STAFFING WORKSHEET Average Weekly Requirements District: BAYSHORE 1 Department / Position: DISTRICT MANAGER Date: September 1, 0 1 Activities Required Additional CSM Relief Time - Enter Total Staff Count For District:.0 1 Vol - 1 Req. 0. WK Hrs. Total MGMT Count for District:.0 Adjustment Approval - Enter Current Staff - Superintendent (F.T.E.'s): 1.0 Annual Inspection - Sites - 0 Mins Per Site / Per Year Annual Rate Review Mins Per System / Per Year Additional Community / Service Clubs: 1.0 Cell Site Coordinating - Enter Approve & Process P-Card Transaction - Enter Current Staff - Direct Reports (F.T.E.'s): Association Meetings - Monthly - AWWA, NAWC, etc - HRS Per Audit - Enter Travel (MILES): 1 Billing Contracts for City Services - Enter Call Out Report - Enter Fixed Allowances:.0 Capital Budget Preparation 01, 1, 1 - Enter Capital Budget Report - Oversight - Enter EMP ADMIN - Hiring, Discipline & W/C: 0. CCC Program - By Device 1 1. Cell Site Coordinating - Enter Auto Accident & Gen. Liab. Claims Filed: 0. City / County Coordination Meeting - Enter City / County Council Meetings -. HRS Each - Monthly. Community Involvement - Public Relations - Enter Conservation - Enter 1 1. Customer Complaint Resolutions - DM - Enter 1 1. Customer Contact - Walk-Ins - Enter CWS Hosted Meetings - Enter Daily Mail - Enter Department Goals Meeting - Weekly - Enter Donations Budget - ADMIN - Enter DPH - Annual Inspection Per System - Enter # Systems.0 DPH - Annual Report - 0 HRS Per System - Enter # Systems.1 DPH Public Meetings - Annual -.0 HRS Each 0 0. Easement Issues - Enter / SCADA - Enter 1.0 Emergency / Un-Planned Event - Enter Employee Celebration Day - Planning - Enter Employee Celebration Day - Enter Expense Report Approval (P-Card) - Enter External Training - Classes, Workshops, Conf. etc - Enter Freeze Accounts in RMS / CIS - Mins Each Leaks - Mains - Enter Number Leaks Per Week 0 0. Legal Issues - Contracts, Liability Claims, etc - Enter Projected Required Hours:.0 Manager Goals - Create - Enter Manager Goals - Review - 1 Mins. Per Quarter - Enter Additional Required Hours:.0 Meetings District / Staff - Enter 1 Per Week. Monthly Operating Report - Enter Total Required Hours:.0 Operating Budget - Enter Personal Goals - Superintendent - Review - 1 Mins Per Super Per Q 0 0. Projected Required F.T.E.'s:.0 PUC - Public Meeting & District Tour - Enter Reports - District Manager - Enter Projected Required Safety Meeting - Enter F.T.E.'s with Allowances: SCADA - Review Alarms - Enter Sox Reports / Compliance - Enter Additional Available Hours: Union Rep - Meeting - Enter Review & Approve Payroll Reports - Bi-Weekly - Enter Weekly News Letter - Enter Urban Water Management Plan - YRS - Enter Weekly OT Report - Review - Enter Projected Required Hours: F.T.E's (+) (-): 1..

331 SUPERINTENDENT STAFFING WORKSHEET Assumption Justification - Formulas & Supporting Data Total Staff Count For District: Q1=(IF(O1>1,.,IF(O1=0,0,IF(O1<,0.,(IF(O1<1,1.,IF(O1<1,.1,)))))))/O1 O0=Q1 O=.0*O (Employee Annual Vacation & Evaluations, Employee Quarterly Verification) Employee Administration - W/C, Hiring & Discipline Employees W/C - HRS Hiring Discipline Totals 0 - = = = = Total MGMT Count for District: O 1 = Blank Cell, record current number of management staff for District Current Staff - Superintendent (F.T.E.'s): O=(IF(O1>0.1,1,IF(O1=0,0)) O Drives the Additional Available Hours ( O ) cell and FTE's (+)(-) ( O ) cell Current number of Superintendent (FTE / HRS) available against Project Required Hours and FTE's (+) (-) This cell will automatically defaults to "1" Additional Community / Service Clubs: O=IF(O1>.,1,IF(O1=0,0,IF(O1<0,0.,IF(O1<.,0.)))) Current Staff - Direct Reports (F.T.E.'s): O = Blank Cell, record current number of Staff that report to management individual Travel (MILES): Q=IF(O>.1,1.,IF(O=0,0,IF(O<0,.,IF(O<00,.,IF(O<00,.,IF(O<00,.,IF(O<00,.1,IF(O<,1.,)))))))) Miles Traveled Per Week Per Individual 0-0 =. HRS 0-1=. HRS 00 - =. HRS 00 - =. HRS 00 - =.1 HRS 00 - = 1. HRS 00 - = 1. HRS Fixed Alowance: O1 = IF(O<0.,"",(V+V)) - Additional / Other Time (VAC, Sick, Holidays, Personal & Floating) =. - C.I. - Weekly & Quarterly Activities =. - Communication - Per Week =. - Employee Administration - Daily & Weekly =. - Manager Training - Annually = 0. EMP ADMIN - Hiring, Discpline & W/C: O=IF(O1=0,'''',Q1) Auto Accident & Gen. Liab. Claims Filed: 1 O = O=(IF(O1>,0.0,IF(O=0,0,IF(O1<,0.01,IF(O1<,0.0,))))) MGMT 0 - = = = 0.

332 Projected Required Hours: 1 O = F Projected Required Hours transferred from Activity List Workspace to Summary Additional Required Hours: 1 O0=IF(O=0,"",(O1+O+O+O+O0O+O+O0)) Total Required Hours: 1 O=IF(O1=0,"",(O+O0)) Projected Required F.T.E.'s: 1 O = O/. Projected Required F.T.E.'s with Allowances: 0 O=IF(O=0,"",((O+O0)/.)) Additional Available Hours: 1 O=IF(O=0,"",(.*O)-(O+O0)) F.T.E's (+) (-): O=IF(O=0,"",(O-O))

333 EXAMPLE QUESTIONS 1 Question: Define managers, does this include supervisors? Answer: Yes, this number should include all supervisory positions; Managers, Supervisors, Superintendents, Local Managers and Foremen Question: Does the weekly travel miles apply to all miles driven, on-call, travel to and from work? Answer: Yes, The background for this area is based on travel logs from GO. It captures all travel. Question: Clarify when to mark "1" for certain activities? Answer: Unless instructed otherwise, always enter into the cell the number "1". In the drop downs you will be guided when to enter a different number Question: What are Full Time Equivalents (F.T.E.'s)? Answer: Full Time Equivalents equal to the total number of staff, i.e. if You have Full Time Positions and Part Time Position the F.T.E.'s would equate to F.T.E.'s'. Question: Better explanation for # Additional Community / Service Clubs. Is it everyone you participate in? Answer: This field will automatically calculate additional hours per individual based on the return worksheets. Question: Explain in '1' Volume that you can put decimal figures if it is an occurrence that only happens once every weeks, i.e. put '' instead 1 Answer: Again based on the returned worksheets, we have identified all the activities that occur other than daily / weekly. There are many buried formulas that automatically calculate this, i.e., if an activity occurs once every weeks and it take.0 HRs to complete, when you enter '1' it calculates the time ( HRs) divided by ( times every other week) X 1. The same holds true for an activity that happens once a year and it take 1 HR, the resulting number would be 1 HR / =.01 HRs per week. In this case you will see 0.0 in the Required Hours. Question: Can't change column 1? Answer: Column 1 is driven by formulas and is locked. Again if you see 0.0 after you enter your volume, it really reflex's Question: Some entries in column 1 show 0 even though you put in a factor in column 1? Answer: Please refer to Question & above. Question: After you type in your figure in column 1 it should retain exactly what you typed, i.e., a decimal so you can review it at the end. Currently it rounds decimals up or down Answer: All numbers entered in column 1 should be whole numbers Question: When you go to enter into the next line instead of returning to the first entry, it would auto recall to the next option after the one you just put in so you don't have to scan down every time Answer: Yes, it would be great if it could, but with EXCEL that s not an option. Question: Do all the tasks have populated times or only some? Answer: Yes, all task will have times assigned to them based on a number of factors i.e., Observations, Interviews, Department / Company Records and retuned documentation

334 INSTRUCTIONS All Areas highlighted in Yellow need to be filled out. On the worksheet, the activities will have a RED number next to it. It will refer you back to the instructions or additional data fields to give you a glimpse into everything in that activity. All Activity times are calculated to reflect Average Required Hours Per Week. 1 District - Enter name of District - Drop Down Department / Position - Enter position or area in the District - Drop Down Date - Enter date this worksheet is completed Total Staff Count For District - Enter the total number of staff (non-management) for the district Total MGMT Count for District - Enter the total number of Managers / Supervisors / Superintendents for the district. Current Staff - Superintendent (F.T.E.'s) - This cell will automatically default to "1" if there is a volume entered for Total Staff Count For District (Section #). Additional Community / Service Clubs - This field will automatically calculate additional time based on the completed sheets return to us. Current Staff - Direct Reports (F.T.E's) - Enter the number of staff F.T.E's (Full Time Equivalents) directly reporting to the Superintendent. Travel (Miles) - Enter the number of miles driven by the Superintendent during an average week. Fixed Allowance - This number will automatically calculate a standard "Fixed Allowance" A Emp(loyee) Admin - Hiring, Discipline & W/C - This field will automatically calculate hours based on the number of Direct Reports (#) for a Superintendent. 1 Auto Accident & Gen(eral) (Liab)ility Claims Filed - This field will automatically generate hours for Superintendents to process claims in their area. 1 Activities - Below is a drop down menu listing all activities within the District for all position, select one 1 Volume - Enter either the number of occurrence per week this activity is worked, the number of completed items for this activity, the number of staff or what is instructed 1 Required Hours - This field is auto-calculated and represents the average weekly Required Hours for the listed activity 1 Projected Required Hours - This field is auto-calculated and represents the total weekly Required Hours based on Superintendent Activities (from drop-down menus) and their volumes. 1 Additional Required Hours - This field is auto-calculated and represents weekly hours required to complete management activities based the number of direct reports, additional Service Club requirements, and miles driven for a Superintendent. 1 Total Required Hours - This field is auto-calculated and represents the sum of Projected Required Hours and Additional Required Hours. 1 Projected Required F.T.E.'s - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on Projected Required Hours 0 Projected Required F.T.E.'s with Allowances - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on the sum of Projected Required Hours and Additional Required Hours. 1 Additional Available Hours - This field is auto-calculated and represents the difference between a superintendent's Available Hours and Required hours (+ or -). F.T.E.'s (+) (-) - This field is auto-calculated and represents the difference in Superintendent Available F.T.E.'s and Required F.T.E.'s (Full Time Equivalents). *** On the "worksheet" page, by clicking on the highlighted red # ( 1 ), it will hyperlink you to the details concerning that given item. LEGEND / KEY DM ADM CSM CSS LM GEN. SUP. DIST. SUP. PROD. SUP. CONT. SUP. GEN. FOREM. All Position will have this activity District Manager - Activities and Required Weekly Time Needed to Complete Tasks Assistant District Manager - Activities and Required Weekly Time Needed to Complete Tasks Customer Service Manager - Activities and Required Weekly Time Needed to Complete Tasks Customer Service Supervisor - Activities and Required Weekly Time Needed to Complete Tasks Local Manager - Activities and Required Weekly Time Needed to Complete Tasks General Superintendent - Activities and Required Weekly Time Needed to Complete Tasks Distribution Superintendent- Activities and Required Weekly Time Needed to Complete Tasks Production Superintendent - Activities and Required Weekly Time Needed to Complete Tasks Construction Superintendent - Activities and Required Weekly Time Needed to Complete Tasks General Foreman - Activities and Required Weekly Time Needed to Complete Tasks

335 SUPERINTENDENT STAFFING WORKSHEET Average Weekly Requirements District: BAYSHORE 1 Department / Position: GENERAL SUPERINTENDENT Date: SEPT. 0 1 Activities Required Adjustment Approval - Enter Total Staff Count For District:.0 1 Vol - 1 Req. 0. WK Hrs. Total MGMT Count for District:.0 Air Quality Permits & Inspections - Enter Current Staff - Superintendent (F.T.E.'s): 1.0 All Service Installation / Replacement / Abandon - Enter Annual Blankets PO's - Oversight / Set-up - Enter Additional Community / Service Clubs: 0. Annual Treatment Certification & Records - Mins Per Cert / Per Yea Approve & Process P-Card Transaction - Enter Current Staff - Direct Reports (F.T.E.'s):.0 0. Association Meetings - Monthly - AWWA, NAWC, etc - HRS Per Building Maintenance - Enter Travel (MILES): 0 Call Out Report - Enter Capital Budget Preparation 01, 1, 1 - Enter Fixed Allowances:.0 Capital Budget Report - Oversight - Enter Capital Project Report - Enter EMP ADMIN - Hiring, Discipline & W/C: 0. Certifications - Enter City / County Council Meetings -. HRS Each - Monthly 0 0. Auto Accident & Gen. Liab. Claims Filed: 0.1 Community Involvement - Public Relations - Enter Conservation Master Plan - Enter CWS Hosted Meetings - Enter Defective Gate Valve Replacement - Enter Department Goals Meeting - Weekly - Enter DPH - Annual Inspection Per System - Enter # Systems 1 1. Easement Issues - Enter / SCADA - Enter 1. Emergency / Un-Planned Event - Enter Emergency Preparedness Program - Enter Employee Celebration Day - Enter Expense Report - Enter Expense Report Approval (P-Card) - Enter 1 1. External Training - Classes, Workshops, Conf. etc - Enter Field Visits - Enter GRC - ADM - Enter InfoDistrict - Customer Enquiry s - Enter Interact with Master Contractors - Enter Internal Training - IT, WQ, HR, ACCT, etc - Enter ISO Inspections / Various Cities - Systems - Enter Leaks - Mains - Enter Number Leaks Per Week 0 1. Legal Issues - Contracts, Liability Claims, etc - Enter Weekly OT Report - Review - Enter Projected Required Hours:. Meetings - Prep, Shop, Order, Lunch & Snacks HRS Per Occurr Meetings District / Staff - Enter 1 Per Week 1 1. Additional Required Hours:. New Program Roll-Out - Enter On call Supervisor - Enter 1.0 Total Required Hours:.0 Operating Budget - Enter Oversee Capital Budget - Enter Projected Required F.T.E.'s: 1. PP - Master Contract - Enter 1` 1.0 PP Expense Report - Enter Projected Required Permits - 0 Mins. Each F.T.E.'s with Allowances: Personal Goals - Superintendent - Create - Enter Personal Goals - Superintendent - Review - 1 Mins Per Super Per Q Additional Available Hours: Plan, Assign & Follow-Up w/staff: 1. HRS = Enter 1 1. Projects - Enter Property Report - Liability Non-Auto Accidents - Enter Relief Hours - General Superintendent - Enter Service Club Meetings - Enter Projected Required Hours: F.T.E's (+) (-): 0..

336 SUPERINTENDENT STAFFING WORKSHEET Assumption Justification - Formulas & Supporting Data Total Staff Count For District: Q1=(IF(O1>1,.,IF(O1=0,0,IF(O1<,0.,(IF(O1<1,1.,IF(O1<1,.1,)))))))/O1 O0=Q1 O=.0*O (Employee Annual Vacation & Evaluations, Employee Quarterly Verification) Employee Administration - W/C, Hiring & Discipline Employees W/C - HRS Hiring Discipline Totals 0 - = = = = Total MGMT Count for District: O 1 = Blank Cell, record current number of management staff for District Current Staff - Superintendent (F.T.E.'s): O=(IF(O1>0.1,1,IF(O1=0,0)) O Drives the Additional Available Hours ( O ) cell and FTE's (+)(-) ( O ) cell Current number of Superintendent (FTE / HRS) available against Project Required Hours and FTE's (+) (-) This cell will automatically defaults to "1" Additional Community / Service Clubs: O=IF(O1>.,1,IF(O1=0,0,IF(O1<0,0.,IF(O1<.,0.)))) Current Staff - Direct Reports (F.T.E.'s): O = Blank Cell, record current number of Staff that report to management individual Travel (MILES): Q=IF(O>.1,1.,IF(O=0,0,IF(O<0,.,IF(O<00,.,IF(O<00,.,IF(O<00,.,IF(O<00,.1,IF(O<,1.,)))))))) Miles Traveled Per Week Per Individual 0-0 =. HRS 0-1=. HRS 00 - =. HRS 00 - =. HRS 00 - =.1 HRS 00 - = 1. HRS 00 - = 1. HRS Fixed Alowance: O1 = IF(O<0.,"",(V+V)) - Additional / Other Time (VAC, Sick, Holidays, Personal & Floating) =. - C.I. - Weekly & Quarterly Activities =. - Communication - Per Week =. - Employee Administration - Daily & Weekly =. - Manager Training - Annually = 0. EMP ADMIN - Hiring, Discpline & W/C: O=IF(O1=0,'''',Q1) Auto Accident & Gen. Liab. Claims Filed: 1 O = O=(IF(O1>,0.0,IF(O=0,0,IF(O1<,0.01,IF(O1<,0.0,))))) MGMT 0 - = = = 0.

337 Projected Required Hours: 1 O = F Projected Required Hours transferred from Activity List Workspace to Summary Additional Required Hours: 1 O0=IF(O=0,"",(O1+O+O+O+O0O+O+O0)) Total Required Hours: 1 O=IF(O1=0,"",(O+O0)) Projected Required F.T.E.'s: 1 O = O/. Projected Required F.T.E.'s with Allowances: 0 O=IF(O=0,"",((O+O0)/.)) Additional Available Hours: 1 O=IF(O=0,"",(.*O)-(O+O0)) F.T.E's (+) (-): O=IF(O=0,"",(O-O))

338 EXAMPLE QUESTIONS 1 Question: Define managers, does this include supervisors? Answer: Yes, this number should include all supervisory positions; Managers, Supervisors, Superintendents, Local Managers and Foremen Question: Does the weekly travel miles apply to all miles driven, on-call, travel to and from work? Answer: Yes, The background for this area is based on travel logs from GO. It captures all travel. Question: Clarify when to mark "1" for certain activities? Answer: Unless instructed otherwise, always enter into the cell the number "1". In the drop downs you will be guided when to enter a different number Question: What are Full Time Equivalents (F.T.E.'s)? Answer: Full Time Equivalents equal to the total number of staff, i.e. if You have Full Time Positions and Part Time Position the F.T.E.'s would equate to F.T.E.'s'. Question: Better explanation for # Additional Community / Service Clubs. Is it everyone you participate in? Answer: This field will automatically calculate additional hours per individual based on the return worksheets. Question: Explain in '1' Volume that you can put decimal figures if it is an occurrence that only happens once every weeks, i.e. put '' instead 1 Answer: Again based on the returned worksheets, we have identified all the activities that occur other than daily / weekly. There are many buried formulas that automatically calculate this, i.e., if an activity occurs once every weeks and it take.0 HRs to complete, when you enter '1' it calculates the time ( HRs) divided by ( times every other week) X 1. The same holds true for an activity that happens once a year and it take 1 HR, the resulting number would be 1 HR / =.01 HRs per week. In this case you will see 0.0 in the Required Hours. Question: Can't change column 1? Answer: Column 1 is driven by formulas and is locked. Again if you see 0.0 after you enter your volume, it really reflex's Question: Some entries in column 1 show 0 even though you put in a factor in column 1? Answer: Please refer to Question & above. Question: After you type in your figure in column 1 it should retain exactly what you typed, i.e., a decimal so you can review it at the end. Currently it rounds decimals up or down Answer: All numbers entered in column 1 should be whole numbers Question: When you go to enter into the next line instead of returning to the first entry, it would auto recall to the next option after the one you just put in so you don't have to scan down every time Answer: Yes, it would be great if it could, but with EXCEL that s not an option. Question: Do all the tasks have populated times or only some? Answer: Yes, all task will have times assigned to them based on a number of factors i.e., Observations, Interviews, Department / Company Records and retuned documentation

339 INSTRUCTIONS All Areas highlighted in Yellow need to be filled out. On the worksheet, the activities will have a RED number next to it. It will refer you back to the instructions or additional data fields to give you a glimpse into everything in that activity. All Activity times are calculated to reflect Average Required Hours Per Week. 1 District - Enter name of District - Drop Down Department / Position - Enter position or area in the District - Drop Down Date - Enter date this worksheet is completed Total Staff Count For District - Enter the total number of staff (non-management) for the district Total MGMT Count for District - Enter the total number of Managers / Supervisors / Superintendents for the district. Current Staff - Superintendent (F.T.E.'s) - This cell will automatically default to "1" if there is a volume entered for Total Staff Count For District (Section #). Additional Community / Service Clubs - This field will automatically calculate additional time based on the completed sheets return to us. Current Staff - Direct Reports (F.T.E's) - Enter the number of staff F.T.E's (Full Time Equivalents) directly reporting to the Superintendent. Travel (Miles) - Enter the number of miles driven by the Superintendent during an average week. Fixed Allowance - This number will automatically calculate a standard "Fixed Allowance" A Emp(loyee) Admin - Hiring, Discipline & W/C - This field will automatically calculate hours based on the number of Direct Reports (#) for a Superintendent. 1 Auto Accident & Gen(eral) (Liab)ility Claims Filed - This field will automatically generate hours for Superintendents to process claims in their area. 1 Activities - Below is a drop down menu listing all activities within the District for all position, select one 1 Volume - Enter either the number of occurrence per week this activity is worked, the number of completed items for this activity, the number of staff or what is instructed 1 Required Hours - This field is auto-calculated and represents the average weekly Required Hours for the listed activity 1 Projected Required Hours - This field is auto-calculated and represents the total weekly Required Hours based on Superintendent Activities (from drop-down menus) and their volumes. 1 Additional Required Hours - This field is auto-calculated and represents weekly hours required to complete management activities based the number of direct reports, additional Service Club requirements, and miles driven for a Superintendent. 1 Total Required Hours - This field is auto-calculated and represents the sum of Projected Required Hours and Additional Required Hours. 1 Projected Required F.T.E.'s - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on Projected Required Hours 0 Projected Required F.T.E.'s with Allowances - This field is auto-calculated and represents the # of Superintendent F.T.E's (Full Time Equivalents) based on the sum of Projected Required Hours and Additional Required Hours. 1 Additional Available Hours - This field is auto-calculated and represents the difference between a superintendent's Available Hours and Required hours (+ or -). F.T.E.'s (+) (-) - This field is auto-calculated and represents the difference in Superintendent Available F.T.E.'s and Required F.T.E.'s (Full Time Equivalents). *** On the "worksheet" page, by clicking on the highlighted red # ( 1 ), it will hyperlink you to the details concerning that given item. LEGEND / KEY All Position will have this activity DM District Manager - Activities and Required Weekly Time Needed to Complete Tasks ADM Assistant District Manager - Activities and Required Weekly Time Needed to Complete Tasks CSM Customer Service Manager - Activities and Required Weekly Time Needed to Complete Tasks CSS Customer Service Supervisor - Activities and Required Weekly Time Needed to Complete Tasks LM Local Manager - Activities and Required Weekly Time Needed to Complete Tasks GEN. SUP. General Superintendent - Activities and Required Weekly Time Needed to Complete Tasks DIST. SUP. Distribution Superintendent- Activities and Required Weekly Time Needed to Complete Tasks PROD. SUP. Production Superintendent - Activities and Required Weekly Time Needed to Complete Tasks CONT. SUP. Construction Superintendent - Activities and Required Weekly Time Needed to Complete Tasks GEN. FOREM. General Foreman - Activities and Required Weekly Time Needed to Complete Tasks

340 SUPERINTENDENT STAFFING WORKSHEET Average Weekly Requirements District: BAYSHORE 1 Department / Position: PRODUCTION SUPERINTEND Date: Sept. th, 0 1 Activities Required Air Quality Permits & Inspections - Enter Total Staff Count For District:.0 1 Vol - 1 Req. 0. WK Hrs. Total MGMT Count for District:.0 Annual Blankets PO's - Oversight / Set-up - Enter Current Staff - Superintendent (F.T.E.'s): 1.0 SCADA - Review Alarms - Enter Annual CP Inspection - Enter Additional Community / Service Clubs: 0. Annual Inspection - Sites - 0 Mins Per Site / Per Year Annual Pressure Survey - Oversight - 0 Mins Per Site / Per Year Current Staff - Direct Reports (F.T.E.'s):.0 0. Annual Treatment Certification & Records - Mins Per Cert / Per Yea Annual Vendor Selection - Enter Travel (MILES): 0 Approve & Process P-Card Transaction - Enter Audit - Enter Fixed Allowances:.0 Backflow 1st Test Notices - Per Test Backflow nd Test Notices - Per Test EMP ADMIN - Hiring, Discipline & W/C: 0. Backflow Final Test Notices - Per Test Call Out Report - Enter Auto Accident & Gen. Liab. Claims Filed: 0.1 Capital Budget Preparation 01, 1, 1 - Enter Capital Budget Report - Oversight - Enter Cell Site Coordinating - Enter Check Treatment Plant, Wells, Canals, etc - Enter Contractor Interaction - Enter 1 1. Daily Mail - Enter Daily Review of Charts - Mins Per Station - Mins Per Week - En 0 0. Data Request - Internal & External - Enter Department Goals Meeting - Weekly - Enter DPH - Annual Inspection Per System - Enter # Systems.0 DPH - Annual Report - 0 HRS Per System - Enter # Systems.1 / SCADA - Enter 1. Emergency / Un-Planned Event - Enter Emergency Preparedness Program - Enter Employee Celebration Day - Enter Expense Report - Enter Expense Report Approval (P-Card) - Enter External Training - Classes, Workshops, Conf. etc - Enter Facility Inspection - Housekeeping - 1 Mins Per Station Per Quarter Field Analyzer Calibration - Inspection - Enter Field Visits - Enter 1.0 Flushing & Valve Maintenance Program - Enter Flushing Mains Maintenance - Dead Ends - Enter Projected Required Hours: 1.1 HazMat Permit & Inspection - Enter InfoDistrict - Customer Enquiry s - Enter Additional Required Hours:.0 Interact with Master Contractors - Enter Landscape - Enter Total Required Hours:.1 Lead to Copper Monitoring Program - Enter City / County Coordination Meeting - Enter Projected Required F.T.E.'s: 1. Map Corrections - Enter MAXIMO - Enter & Tract - Enter Projected Required Meetings District / Staff - Enter 1 Per Week 1 1. F.T.E.'s with Allowances: NPDES Reports & Schedule Sampling - Enter On call Supervisor - Enter Additional Available Hours: Post Project Checks - Enter PUC - Public Meeting & District Tour - Enter Service Club Meetings - Enter SCADA - Review Alarms - Enter 1 1. Vault Maintenance Program (PRV) - Enter Projected Required Hours: F.T.E's (+) (-): 0..