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E-Mail: Napresley@Iacksonkelly.Com State Bar No. 12293 October 500 LEE STREET EAST SUITE I600 * t?O. BOX 553 * CHARLESTON, WEST VIRGINIA 25322 TELEPHONE: 304-340- IO00 * TELECOPIER: 304-340-1 I30 ~.jac~son~e~~~coi~ DIRECT TELEPHONE: (304) 340-1008 DIRECT TELECOPIER: (304) 340-1 080 E-Mail: [email protected] State Bar No. 12293 October 12,2018 VIA HAND DELIVERY Confidential Materials Enclosed Ingrid Ferrell, Executive Secretary Public Service Commission of WV 201 Brooks Street Charleston, West Virginia 25323 Re: West Virginia-American Water Company 201 8 Consolidated Water and Wastewater Rate Filings Case Nos. 18-0573-W-42T and 18-0576-8-42T Dear Ms. Ferrell: Enclosed are an original and twelve copies of the rebuttal testimony of the following witnesses on behalf of the Company: Brian K. Bruce, Rod P. Nevirauskas, Christina Chard, Jamie D. Hawn, Gregory P. Roach, Carolyn Mount, John R. Cox, John R. Wilde, Ann E. Bulkley, and Patrick L. Baryenbruch. Ms. Hawn’s testimony contains two confidential exhibits (Exhibits JDH-2 and JDH-5), which have been provided under seal. We have also included public redacted versions of these exhibits. Please file this testimony and circulate the additional copies to the appropriate parties at the Commission. Please also date stamp the extra copies provided and return them with our messenger. As always, we appreciate your assistance. Sincerely yours, Nicklaus A. Presley NAP/mrv Enclosures Rob Passrnore Ralph Clark John Auville Andrew Gunnoe Chris Howard Mandi Kay Carter Jackie Roberts Ann E. Bulkley Torn White Patrick L. Baryenbruch 4850-800 1-9576.vI BridgepotxWV Charlescon,W 8 Marunrburg WV * Morgantown WV *Wheeltng.WV Denver. CO * Crawfordrvrlle,IN Evansville. IN * Lexingron. KY *Akron. OH * Rmburgh. PA Warhlogtwr. DC SI CH ARLESTON Case No. 18-0573-W-42T Case No. 18-0576-5-42T WEST VIRGINIA-AMERICAN WATER CO~PANY Rule 42T Tariff Filing to increase Rates and Charges REBUTTAL TESTIMONY OF BRIAN K. BRUCE October 12,2018 West Virginia American Water Company Case Nos. 18-0573-W-42T and 18-0576-S-42T Rebuttal Testimony of Brian K. Bruce Page 1of 9 1 I. INTRODUCTION AND SUMMARY 2 3 Q. Please identify yourself. 4 A. My name is Brian K. Bruce. I am the President of West Virginia-American Water Company (“West 5 Virginia-American,” “WVAW” or “the Company”). 6 7 9. Have you previously submitted testimony in this proceeding? 8 A. Yes, I previously submitted Direct Testimony in this proceeding filed on April 30, 2018. 9 10 Q. What is the purpose of your rebuttal testimony? 11 A. The purpose of my rebuttal testimony is to underscore how the ratemaking adjustments and 12 policies advocated by the Public Service Commission of West Virginia Staff (“Staff”) and the 13 Consumer Advocate Division (“CAD”) in this case adversely impact the Company’s ability to 14 achieve funding levels that best serve the long-term interests of its customers. Among other 15 things, various recommendations of Staff and CAD would result in an abrupt about-face to the 16 constructive rate policies recently adopted by the Public Service Commission of West Virginia 17 (“Commission”) in our most recently concluded case. These include, but are not limited to, 18 turning back the clock by (i) using a test year thirteen month average plant balance, (ii) refusing 19 to recognize rate base and expenses in the Addendum Period, (iii) advocating for unsupportive 20 regulation by recommending a significant reduction to the rate of return on equity granted in the 21 last case, and (iv) depriving the Company of any reasonable ability to achieve its revenue targets 22 by refusing to provide the tools to combat the Company’s revenue erosion. West Virginia- 23 American is facing persistent revenue shortfalls from declining use per customer, declining 24 customer count, and the need to rebuild legacy infrastructure and the recommendations of the 25 Staff and CAD turn a blind eye to these problems. 26 27 9. Have the Company proposals attempted to address these issues? 28 A. Yes, they have. Company witnesses Rod Nevirauskas, John Cox, Jamie Hawn and Christina Chard 29 explain how the Company’s ratemaking proposals - revenue stabilization mechanism (“RSM”) and 30 recognition of rate base, expenses and revenue through the commencement of new rates in West Virginia American Water Company Case Nos. 18-0573-W-42T and 18-0576-5-42T Rebuttal Testimony of Brian K. Bruce Page 2 of 9 1 February 2019 (Addendum Period) - are intended to, and will, efficiently and effectively address 2 those concerns. The RSM provides the Company a realistic opportunity to collect its authorized 3 revenue requirement, and the synchronization of rate base, revenue and expenses with new rates 4 properly recognizes the expense levels and plant that will be serving West Virginia-American’s 5 customers when the new rates take effect. 6 7 Q. What are the likely consequences if the Commission adopts a return on equity (“ROE“)that is 8 recommended by the Staff or the CAD? 9 A. As WVAW witness Ann Bulkley explains in her rebuttal testimony, in Staffs case, their 9.27% ROE 10 recommendation is 48 basis points lower than the ROE allowed in our last rate case at a time 11 when interest rates are rising along with investors’ return requirements. It is also at the very low 12 end of ROESallowed nationally where recently authorized ROES for water utilities have been from 13 9.20 percent to 10.50 percent in 2018. The CAD’S lower ROE recommendation of 8.75 percent is 14 100 basis points lower than was allowed by the Commission in the Company’s last case. 15 Furthermore, if these low ROESare combined with Staff’s recommendation to impose an equity 16 ratio of just 45.59%,’ or the CAD’S equity ratio of 47.73%,2 the resulting low weighted returns on 17 equity would directly and adversely impact the Company’s ability to secure discretionary funding 18 levels that best serve the long-term interests of our customers. 19 20 9. Was there a significant, supportive regulatory change adopted by the Commission in the 21 Company’s last rate case? 22 A. Yes, terminal rate base recognition of actual and projected capital investments made through the 23 year immediately preceding the rate year was a key factor in the Company’s 2015 rate case. This 24 regulatory treatment significantly reduced regulatory lag for the Company as explained in the 25 rebuttal testimony of John Cox. Accordingly, and in keeping with this policy, the Company 26 presented terminal rate base treatment through its Addendum Period filing. 27 Appendix US-1. * Exhibit LA-1, Schedule D. West Virginia American Water Company Case Nos. 18-0573-W-42T and 18-0576-S-42T Rebuttal Testimony of Brian K. Bruce Page 3 of 9 1 Q. Do Staff and the CAD support the continuation of the Commission’s constructive regulatory 2 policy? 3 A. No, surprisingly, they do not. In an unfortunate about-face, both Staff and CAD witness Smith not 4 only removed the Addendum Period from rate base, but also used a test year thirteen-month 5 average plant balance, despite the Commission authorizing terminal rate base treatment through 6 the Addendum Period in 2015. Their justification for this removal is due to the Company being 7 awarded a DSlC in 2017. 8 9 Q. Does the fact that the Commission approved a DSlC for WAW warrant the rejection of 10 recognizing rate base through the Addendum Period? 11 A. No, it does not. Perhaps if DSlC were used and available for all of the Company’s investment this 12 might be a supportable position. That is not the case, however. The Company invests only 13 approximately 40% of its capital yearly in DSlC projects and DSlC investment is only 13% of this 14 rate request. As I will explain below, refusing to recognize plant in service will hurt the Company’s 15 ability to attract discretionary capital investment. In addition, there is no question that when the 16 Commission approved the Addendum Period rate base recognition concept, it did so knowing that 17 it had simultaneously authorized the Company to seek Commission approval of a Staff- 18 recommended surcharge mechanism very much like the DSIC. The Commission expressly found 19 that such a mechanism “would also be effective in reducing the regulatory lag. ..” 2015 Rate 20 Case Order at 26. Staff and CAD’S reasoning does not support the Commission changing its 21 decision to authorize Addendum Period cost recovery in the last case. 22 23 9. In addition to rate base, should expenses and revenue also be recognized through the 24 Addendum Period? 25 A. Yes, absolutely they should be recognized. Regulatory lag is not only composed of the inability to 26 earn a return on our investment, it is also important that expense increases and revenue erosion 27 be recognized. The Commission is setting rates for a period that begins in February 2019. It is 28 hardly extreme to take into account all rate base, expenses and revenues for a period that ends 29 before new rates even begin. 30 West Virginia American Water Company Case Nos. 18-0573-W-42T and 18-0576-5-421 Rebuttal Testimony of Brian K. Bruce Page 4 of 9 1 Q. Staff and CAD also contend that your ROE should be reduced to reflect the DSlC and RSM. Are 2 their recommendationsappropriate? 3 A. No, they are not, and Ms. Bulkley explains why these are not appropriate adjustments in her 4 testimony. I would further point out that many of our affiliated companies in the American Water 5 system already have a DSlC or RSM.
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