OCA STATEMENT BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Pennsylvania Public Utility Commission v. United Water Pennsylvania, Inc. ) ) ) Docket No. R-01-67 DIRECT TESTIMONY OF JENNIFER L. ROGERS ON BEHALF OF THE PENNSYLVANIA OFFICE OF CONSUMER ADVOCATE April 17, 01 EXETER ASSOCIATES, INC. 1080 Little Patuxent Parkway Suite 00 Columbia, Maryland 10
TABLE OF CONTENTS Page I. QUALIFICATIONS... 1 II. PURPOSE AND CONCLUSION... III. MATERIALS AND SUPPLIES EXPENSE... IV. OUTSIDE CONTRACTORS EXPENSE... V. CUSTOMER CARE AND BILLING EXPENSE... 7 VI. OUTSIDE PROFESSIONAL SERVICES EXPENSE... 8 VII. TRANSPORTATION EXPENSE... 9 i
I. QUALIFICATIONS 6 7 8 9 10 11 1 1 1 1 16 17 18 19 0 1 Q. WOULD YOU PLEASE STATE YOUR NAME AND BUSINESS ADDRESS? A. My name is Jennifer L. Rogers. I am an Economist with Exeter Associates, Inc. (Exeter). My business address is 1080 Little Patuxent Parkway, Suite 00, Columbia, Maryland 10. Exeter is a firm of consulting economists specializing in public utility-related issues. Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE. A. I graduated from St. Mary s College of Maryland in St. Mary s City, Maryland, in 007 with a Bachelor of Arts Degree in Economics and a minor in Environmental Studies. In 009, I received a Master of Arts Degree in Economics from Northeastern University in Boston, Massachusetts. In May 009, I joined Exeter as an Economics Research Assistant. I was promoted to Economist in January 011. Since joining Exeter, my assignments have included evaluating and forecasting power supply requirements and costs, developing utility service assessments, providing bill and rate analysis, and assisting in the development of electric and natural gas sales forecasts. I have also provided assistance in reviewing policies and programs related to conservation and energy efficiency; and conducted analysis on renewable energy initiatives and cost allocation. In October 01, I attended the National Association of Regulatory Utility Commissioners (NARUC) Utility Rate School. Q. HAVE YOU PREVIOUSLY TESTIFIED IN REGULATORY PROCEEDINGS ON UTILITY RATES? A. No. I have not previously provided testimony in regulatory proceedings on utility rates. Direct Testimony of Jennifer L. Rogers Page 1
Q. ON WHOSE BEHALF ARE YOU TESTIFYING IN THIS PROCEEDING? A. I am appearing on behalf of the Pennsylvania Office of Consumer Advocate (PA OCA). II. PURPOSE AND CONCLUSION 6 7 8 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? A. Exeter Associates, Inc. has been retained by the PA OCA to assist in the review of the reasonableness of the forecasted costs of United Water Pennsylvania, Inc. (UWPA or the Company) for its fully forecasted future test year (FFFTY or rate year) in its filing 9 under Docket No. R-01-67. My review focuses on evaluating the 10 11 Company s projected rate year expenses for materials and supplies, outside contractors, customer care and billing, outside professional services, and 1 transportation. My testimony presents the results of my review and my 1 1 1 16 17 18 19 0 1 recommendations. My associate, Mr. Thomas S. Catlin, has incorporated my findings in his determination of UWPA s revenue requirements on behalf of the PA OCA. Q. HAVE YOU PREPARED SCHEDULES TO ACCOMPANY YOUR TESTIMONY? A. Yes, I have. Schedules JLR-1 through JLR- are attached to my testimony. These schedules present my findings and recommendations with respect to UWPA s rate year expenses for the materials and supplies, outside contractors, customer care and billing, outside professional services, and transportation categories. Q. PLEASE SUMMARIZE YOUR FINDINGS AND RECOMMENDATIONS. A. As shown in Schedules JLR-1 through JLR-, I am recommending the following adjustments to the Company-proposed rate year expenses: A decrease in the materials and supplies expense of $99,1; Direct Testimony of Jennifer L. Rogers Page
A $0,76 reduction of the outside contractors expense; A $7,7 reduction of the customer care and billing expense; A decrease in the outside professional services expense of $,; and 6 7 8 9 A decrease in the transportation expense of $19,07. In total, these proposed adjustments lower the Company s proposed rate year expenses by $170,966. Q. HOW IS THE REMAINDER OF YOUR TESTIMONY ORGANIZED? A. In the remainder of my testimony, I document and explain each of my adjustments to the following expenses: materials and supplies, outside contractors, customer care and 10 billing, outside professional services, and transportation. Discussion of these 11 1 adjustments is organized into sections corresponding to the relevant expense category. 1 III. MATERIALS AND SUPPLIES EXPENSE 1 1 16 17 18 19 0 1 Q. HOW HAS UWPA DEVELOPED ITS MATERIALS AND SUPPLIES EXPENSE ESTIMATE? A. To develop its materials and supplies expense estimate, UWPA computed a three-year average cost of historical data from calendar years 011, 01, and 01. It then applied a Future Test Year (FTY) inflation rate to the average, and an FFFTY inflation rate to the resulting FTY value. Q. WHAT ADJUSTMENTS ARE YOU PROPOSING TO MAKE TO UWPA S PROPOSED MATERIALS AND SUPPLIES EXPENSE? A. I am proposing an adjustment to the materials and supplies expense such that it reflects the 01 materials and supplies expense provided in response to OCA II-, rather than a three-year average of calendar years 011, 01, and 01. I have Direct Testimony of Jennifer L. Rogers Page
6 7 8 9 10 11 1 modified the 01 value provided by UWPA to eliminate the reduction attributed to a 01 year-end accrual that was reversed out in January 01. My modification adds this value back into the 01 value. Further, I have updated the FTY and FFFTY inflation rates applied to the resulting value to reflect the updated inflation rate provided by witness Thomas S. Catlin. Q. PLEASE EXPLAIN YOUR ADJUSTMENT TO THE MATERIALS AND SUPPLIES EXPENSE. A. In response to OCA VIII-10, UWPA indicated that the Company-provided 01 historical value incorporates a Capital/Expenditure Policy change, which impacted how UWPA accounts for meters. This policy change will continue to be applied in future years and, therefore, the 01 historical value is more representative of the materials and supplies expense going forward, rather than a three-year average of 1 prior years that do not incorporate this policy change. As noted above, I have 1 1 16 17 18 19 0 1 increased the 01 per books amount provided by UWPA to eliminate the $,100 adjustment related the 01 year end accrual to provide a more complete value for the actual 01 materials and supplies expenses for the year that does not incorporate 01 adjustments. Q. HAVE YOU PREPARED A SCHEDULE SHOWING THE EFFECT OF THIS ADJUSTMENT ON MATERIALS AND SUPPLIES EXPENSES? A. Yes. Schedule JLR-1 presents the calculation of my adjustment. As shown there, I have calculated a materials and supplies expense for the rate year of $9,190, which is $99,1 lower than the value proposed by the Company in UWPA Exhibit No. TGL-1, Schedule TGL-11, Adjustment No. 10. Direct Testimony of Jennifer L. Rogers Page
IV. OUTSIDE CONTRACTORS EXPENSE 6 7 8 9 10 11 1 1 1 1 16 17 18 Q. HOW HAS UWPA DEVELOPED ITS ESTIMATE OF OUTSIDE CONTRACTORS EXPENSE FOR THE FFFTY? A. To develop its outside contractors expense estimate, UWPA computed a three-year average cost of historical data from calendar years 011, 01, and 01. UWPA applied a normalizing adjustment to the 011 historical value prior to calculating the average to account for a cost that was no longer applicable. It then applied an FTY inflation rate to the average, and an FFFTY inflation rate to the resulting FTY value. These values were further adjusted to account for a contract between UWPA and Itron for Advanced Metering Infrastructure (AMI) hosting fees in the UWPA Newberry and D1 system. UWPA applied the FFFTY inflation rate to these fees to reach the rate year adjustment value. Q. WHAT ADJUSTMENTS ARE YOU PROPOSING TO MAKE TO UWPA S PROPOSED OUTSIDE CONTRACTORS EXPENSE? A. I am proposing to update the outside contractors expense to reflect the three-year average of calendar years 01, 01, and 01, rather than a three-year average of calendar years 011, 01, and 01. For 01, I have adjusted the value provided in response to OCA II-0 to exclude the Newberry DBP Study costs detailed in response 19 to I&E-RE--D. I am further proposing to update the adjustment included to 0 1 account for the AMI hosting fees in the UWPA Newberry System, to $,97 per UWPA s response to I&E-RE-7. Finally, I have updated the FTY and FFFTY inflation rates applied to the resulting values to reflect Mr. Catlin s recommended inflation rates. Q. PLEASE EXPLAIN THE RATIONALE FOR YOUR ADJUSTMENT TO OUTSIDE CONTRACTORS EXPENSE. Direct Testimony of Jennifer L. Rogers Page
6 7 8 9 10 11 1 1 1 1 16 17 18 19 0 1 A. I am proposing to update the three-year average to reflect the average for the years 01 through 01. Utilizing 01 instead of 011 in the three-year average reflects more recent experience. In addition, 011 expenses include a period prior to the creation of Customer Care and Billing (CC&B) system that required adjustment by the Company to obtain more representative results. Using 01 eliminates the need to adjust the results to reflect the transition to the CC&B system. I am proposing to modify the 01 value, adjusting the value downward by $,069, to account for the Newberry DBP Study costs, as recovery of these costs has been sought separately by the Company. I would note that OCA witness Ashley Everette is recommending that the Newberry DBP costs be disallowed for reasons she explains. The modifications to the FTY and FFFTY inflation rates applied to the resulting values have been made to reflect the recommendations detailed by Mr. Catlin in his testimony. In response to I&E-RE-7, UWPA indicated that the AMI hosting fees in the UWPA Newberry System in the rate year will be higher than the amount included in the Company s filing. I have updated the amount included for these fees to reflect the increased amount provided in I&E-RE-7. Q. HAVE YOU PREPARED A SCHEDULE SHOWING THE EFFECT OF THIS ADJUSTMENT ON OUTSIDE CONTRACTORS EXPENSES? A. Yes. Schedule JLR- presents the calculation of my adjustment. As shown there, the net effect of my proposed adjustments is a decrease in the outside contractors expense for the rate year of $0,76. Direct Testimony of Jennifer L. Rogers Page 6
V. CUSTOMER CARE AND BILLING EXPENSE 6 7 8 9 10 11 1 1 1 1 Q. HOW HAS UWPA DEVELOPED ITS CC&B EXPENSE ESTIMATE? A. To develop its CC&B expense estimate, UWPA computed a two-year average cost of historical data from calendar years 01 and 01. It then applied an FTY inflation rate to the average, and an FFFTY inflation rate to the resulting FTY value. Q. WHAT ADJUSTMENTS ARE YOU PROPOSING TO MAKE TO UWPA S PROPOSED CC&B EXPENSE? A. I am proposing to adjust the CC&B expense to reflect the three-year average of calendar years 01, 01, and 01, using the 01 value provided in response to OCA II-, rather than a two-year average of calendar years 01 and 01. Further, I have updated the FTY and FFFTY inflation rates applied to the resulting values, per recommendations set forth by Mr. Catlin. Q. PLEASE EXPLAIN YOUR ADJUSTMENT TO THE CC&B EXPENSE. A. I am proposing a three-year average incorporating the 01 historical values to more closely reflect what future costs may be expected based on the most recently available 16 data. The modifications to the FTY and FFFTY inflation rates applied to the 17 18 19 0 1 resulting values have been made per Mr. Catlin s recommendation. Q. HAVE YOU PREPARED A SCHEDULE SHOWING THE EFFECT OF THIS ADJUSTMENT ON CC&B EXPENSES? A. Yes. Schedule JLR- presents the calculation of my adjustment. As shown there, I have calculated a CC&B expense for the rate year of $7,07, which is $7,7 lower than the value proposed by the Company in UWPA Exhibit No. TGL-1, Schedule TGL-16, Adjustment No. 1. Direct Testimony of Jennifer L. Rogers Page 7
VI. OUTSIDE PROFESSIONAL SERVICES EXPENSE 6 7 8 9 10 11 1 1 1 1 16 17 18 19 0 1 Q. HOW HAS UWPA DEVELOPED ITS OUTSIDE PROFESSIONAL SERVICES EXPENSE ESTIMATE? A. To develop its outside professional services expense estimate, UWPA computed a three-year average cost of historical data for calendar years 011, 01, and 01. UWPA applied a normalizing adjustment to these historical values prior to taking the average, to account for a new Capital/Expenditure Policy implemented in 01. It then applied an FTY inflation rate to the average, and an FFFTY inflation rate to the resulting FTY value. The resulting FTY and FFFTY values were then adjusted further to incorporate a new contract that will have costs not included in the historical test years. The new contract is between UWPA and Irth Solutions, relating to the handling of UWPA One Call locates. UWPA applied the FFFTY inflation rate to these fees in the FTY to reach the rate year adjustment value. Q. WHAT ADJUSTMENTS ARE YOU PROPOSING TO MAKE TO UWPA S PROPOSED OUTSIDE PROFESSIONAL SERVICES EXPENSE? A. I am recommending an update to the three-year average used to determine the outside professional services expense, using calendar years 01, 01, and 01 rather than calendar years 011, 01, and 01. Further, I have updated the FTY and FFFTY inflation rates applied to the resulting values and to the FTY adjustment accounting for the Irth Solutions contract, per recommendations set forth by Mr. Catlin. Q. PLEASE EXPLAIN WHY YOU UPDATED THE THREE YEAR AVERAGE USED TO ESTIMATE OUTSIDE PROFESSIONAL SERVICES EXPENSE FOR THE FFFTY. A. I am proposing a three-year average incorporating the 01 historical values to more closely reflect what future costs may be expected based on the most recently available Direct Testimony of Jennifer L. Rogers Page 8
data. The 01 value not only reflects more recent information, it also reflects the first year in which the Capital/Expenditure Policy is fully reflected in the data. The modifications to the FTY and FFFTY inflation rates have been made to recognize the recommendations detailed by Mr. Catlin in his testimony. Q. HAVE YOU PREPARED A SCHEDULE SHOWING THE EFFECT OF 6 7 THIS ADJUSTMENT ON OUTSIDE PROFESSIONAL EXPENSES? SERVICES 8 9 10 A. Yes. Schedule JLR- presents the calculation of my adjustment. As shown there, the net effect of my proposed adjustments is a decrease in the outside professional services expense for the rate year of $,. 11 VII. TRANSPORTATION EXPENSE 1 1 1 1 16 17 18 19 0 1 Q. HOW HAS UWPA DEVELOPED ITS TRANSPORTATION EXPENSE ESTIMATE? A. UWPA included the costs for leasing, car allowance, fuel, maintenance and repairs, payroll, insurance, depreciation, disposal of vehicles, and miscellaneous expenses in its transportation expense estimate. Total transportation costs were then reduced by the capitalized and billed-out portion, which was computed from a three-year average of historical capitalized/billed-out labor expenses from calendar years 011, 01, and 01. The FTY and FFFTY leasing expenses included in the Company s estimate reflect UWPA s current leasing agreements, as well as any expected new leases and expected vehicle replacements. Depreciation expenses were determined using the actual costs for the period, and the insurance values were provided by UWPA s Director of Insurance as representative of the Company s expected needs. To Direct Testimony of Jennifer L. Rogers Page 9
6 7 8 9 10 11 1 1 1 1 16 17 18 19 0 1 develop its estimate of the other transportation expense components, UWPA computed a three-year average cost of historical data from calendar years 011, 01, and 01 for each remaining category. It then applied an FTY inflation rate to these averages, and an FFFTY inflation rate to the resulting FTY values for these remaining categories. Q. WHAT ADJUSTMENTS ARE YOU PROPOSING TO MAKE TO UWPA S PROPOSED TRANSPORTATION EXPENSE? A. I am proposing to update the projected rate year expenses for leases to reflect the updated information provided in response to OCA II-. Taking the difference of this update from the previous value, I am proposing to apply the 7.07 percent reflective of the percent charged to Operations and Maintenance (O&M) to determine the actual adjustment to lease expense. Further, I have updated the FTY and FFFTY inflation rates applied to the car allowance, fuel, maintenance and repair, payroll, disposal of vehicle, and other categories of transportation cost. Q. PLEASE EXPLAIN YOUR ADJUSTMENT TO THE TRANSPORTATION EXPENSE. A. I am proposing to update the leases expense per updated information provided by the Company to more closely reflect what future costs may be expected based on the most recently available data. The modifications to the FTY and FFFTY inflation rates applied have been made per the recommendations detailed by witness Mr. Catlin in his testimony. Q. HAVE YOU PREPARED A SCHEDULE SHOWING THE EFFECT OF THIS ADJUSTMENT ON TRANSPORTATION EXPENSES? Direct Testimony of Jennifer L. Rogers Page 10
A. Yes. Schedule JLR- presents the calculation of my adjustment. As shown there, the net effect of my proposed adjustments is a decrease in the transportation services expense for the rate year of $19,07. Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? A. Yes, it does. 08 Direct Testimony of Jennifer L. Rogers Page 11
Schedules
Docket No. R-01-67 Schedule JLR-1 UNITED WATER PENNSYLVANIA, INC Materials and Supplies Rate Year Ending October 1, 016 Amount Per Adjusted Company Filing Adjusted Fully Forecasted Fully Forecasted Future Test Future Test Description Future Test Year Year (1) Year () Materials and Supplies $ 8,60 $,7 $ 9,190 Proposed Adjustment $ (99,1) Inflation Rate: () Future Test Year 1.0% Fully Forecasted Future Test Year 1.77% Year Materials and Supplies 01 () $ 97,79 01 Year End Accrual Reversed Out of 01 () $,100 Modified 01 $ 9,89 Notes: (1) Applied the FTY inflation rate to the Modified 01 value. () Applied the FFFTY inflation rate to the OCA Adjusted FTY value. () Per OCA Witness Thomas S. Catlin's Direct Testimony. () Per UWPA Response to OCA - II-. () Per UWPA Response to OCA-VIII-10.
Docket No. R-01-67 Schedule JLR- UNITED WATER PENNSYLVANIA, INC Outside Contractors Rate Year Ending October 1, 016 Amount Per Adjusted Company Filing Adjusted Fully Forecasted Fully Forecasted Future Test Future Test Description Future Test Year Year (1) Year () Outside Contractor's $,106 $ 0,09 $ 09,8 Future Test Year Adjustment () 0,690 0,000,97 () Total Outside Contractor's $ 7,796 $,09 $,0 Proposed Adjustment $ (0,76) Year Outside Contractor's Expense () Adjustment (6) Adjusted Amount 01 $ 99,167 $ 99,167 01 9,87 9,87 01 60,9 (,069),80 Year Average $ 98,18 Inflation Rate: (7) Future Test Year 1.0% Fully Forecasted Future Test Year 1.77% Notes: (1) Applied the FTY inflation rate to updated year average of historical data before adjustment noted in (). () Applied the FFFTY inflation rate to adjusted FTY amount prior to adjustment noted in (). () Adjustment for new contract with Itron who will perform the AMI hosting fees in the UWPA Newberry System, per UWPA Exhibit No. TGL-1, Schedule TGL-1, Adjustment No. 1. () Value updated in the adjusted FFFTY per UWPA's response to I&E-RE-7. () Values for 01 and 01 are per UWPA Exhibit No. TGL-1, Schedule TGL-1, Adjustment No. 1; value for 01 is per UWPA's response to OCA - II-0. (6) Per UWPA response to I&E-RE--D. (7) Per OCA Witness Thomas S. Catlin's Direct Testimony.
Docket No. R-01-67 JLR- UNITED WATER PENNSYLVANIA, INC CC&B Rate Year Ending October 1, 016 Amount Per Adjusted Company Filing Adjusted Fully Forecasted Fully Forecasted Future Test Future Test Description Future Test Year Year (1) Year () Total CC&B Support Costs $,66 $ 1,00 $ 7,07 Proposed Adjustment $ (7,7) Year Outside Contractor's Expense () 01 $ 6,8 01,98 01,9 Year Average $ 7,60 Inflation Rate: () Future Test Year 1.0% Fully Forecasted Future Test Year 1.77% Notes: (1) Applied the FTY inflation rate to updated year average of historical data. () Applied the FFFTY inflation rate to adjusted FTY amount. () Values for 01 and 01 are per UWPA Exhibit No. TGL-1, Schedule TGL-16, Adjustment No. 1; value for 01 is per UWPA's response to OCA - II-. () Per OCA Witness Thomas S. Catlin's Direct Testimony.
Docket No. R-01-67 Schedule JLR- UNITED WATER PENNSYLVANIA, INC Outside Professional Services Rate Year Ending October 1, 016 Amount Per Adjusted Company Filing Adjusted Fully Forecasted Fully Forecasted Future Test Future Test Description Future Test Year Year () Year () Outside Professional Services $,96 $ 1,809 $ 18,6 Future Test Year Adjustment (1) 17,67 17,17 17,77 Total Outside Professional Services $ 60,1 $ 1,981 $ 6,099 Proposed Adjustment $ (,) Year Outside Professional Services Expense () Adjustments () Adjusted Amount 01 $ 66,61 $ (71,) $ 19,18 01 1,16 (,0) 8,10 01 0,69 0,69 Year Average $ 1,60 Inflation Rate: (6) Future Test Year 1.0% Fully Forecasted Future Test Year 1.77% Notes: (1) Adjustment for new contract with Irth Solutions who will perform the service of handling the UWPA One Call locates, per UWPA Exhibit No. TGL-1, Schedule TGL-17, Adjustment No. 16. () Applied the FTY inflation rate to updated year average of historical data. () Applied the FFFTY inflation rate to adjusted FTY amount. () Values for 01 and 01 are per UWPA Exhibit No. TGL-1, Schedule TGL-17, Adjustment No. 16; value for 01 is per UWPA's response to OCA - II-. () Per UWPA Exhibit No. TGL-1, Schedule TGL-17, Adjustment No. 16, adjustments reflect necessary deductions to normalize and comply with the new Cap/Ex Policy that was initiated in 01. (6) Per OCA Witness Thomas S. Catlin's Direct Testimony.
Docket No. R-01-67 Schedule JLR- UNITED WATER PENNSYLVANIA, INC Transportation Rate Year Ending October 1, 016 Amount Per Company Filing Adjusted Adjusted Fully Forecasted Future Test Fully Forecasted Description Future Test Year Year (1) Future Test Year () Leases $ 6,76 $ 0,1 $ 0,1 Transportation Categories Subject to Inflation () 1,99 0,71 10,10 Transportation Categories Not Subject to Inflation () 7,,990 7, Total Costs $ 86,81 $ 807,78 Less Cap and Billed Out (06,18) (06,18) Total Transportation Expense $ 60,68 $ 601,610 Proposed Adjustment $ (19,07) Updated Leases Value () $,16 Percent Charged to O&M (6) 7.07% Inflation Rate: (7) Future Test Year 1.0% Fully Forecasted Future Test Year 1.77% Total -Year averages of historical data for transportation categories subject to inflation (8) $ 01,69 Notes: (1) Leases adjustment determined per updated value referenced in (), with the percent charged to O&M referenced in (6) applied to the difference from the value provided in the Company filing; Values remaining categories are per UWPA Exhibit No. TGL-1, Schedule TGL-0, Adjustment No. 19, with the updated FTY inflation rate applied to transportation categories subject to inflation. () Applied the FFFTY inflation rate to adjusted FTY amount. () Includes Car Allowance, Fuel, Maintenance & Repair, Payroll, Disposal of Vehicle, and 'Other'. () Includes Insurance and Depreciation. () Per UWPA's response to OCA - II-. (6) Per UWPA Exhibit No. TGL-1, Schedule TGL-6. (7) Per OCA Witness Thomas S. Catlin's Direct Testimony. (8) Per UWPA Exhibit No. TGL-1, Schedule TGL-0, Adjustment No. 19; Includes Car Allowance, Fuel, Maintenance & Repair, Payroll, Disposal of Vehicle, and 'Other'.