LVTC's Position

Intervenor Leona Valley Town Council opposed both AVWC's application increase request and the RRB/AVWC settlement.

LVTC's opposition to A.99-05-023 is set forth in its prepared direct testimony dated August 22, 1999, Exhibit LVTC-1. Its position can be summarized in three categories: depreciation; expenses including taxes other than on income; and plant in service additions.

LVTC states that depreciation is not a true expense but rather an accounting technique that companies may use to manipulate cash flow to their benefit. Considering the nature of depreciation, the Commission would be incorrect to base rate relief partly or wholly on AVWC's claims that its depreciation expense will increase over time. And, in any case, depreciation expense increases are in major part offset by the income tax deductions they generate.

In examining expenses including taxes other than on income, LVTC has plotted recorded figures from 1994 through 1998 and extrapolated through attrition year 2002. For each account, it then concludes that specific AVWC rate case estimates are consistent with the trends and accepts them without challenge, takes no position, or, for six accounts, asks the Commission to scrutinize them further.

LVTC next sums the amounts by which AVWC's estimates for each of those six suspect accounts in each year 1999 through 2002 exceed the corresponding 1994-1998 five-year average for that account, totals the excesses by year, and discounts the results to a 1999 equivalent. Stated another way, LVTC's method effectively asks the Commission to disallow an expense amount, discounted to 1999 dollars, equal to the aggregate amount by which AVWC's 1999 through 2002 estimates for these six accounts exceed the 1994-1998 average.

For plant, LVTC used a similar trending technique to flag as questionable those individual plant accounts for which AVWC's estimated 1999 through 2002 end-of-year plant balances exceed the 1994-1998 trend. LVTC's method effectively calls for disallowing from plant additions 80% of the amount by which the aggregate end-of-year 2002 estimated plant balance in these accounts would exceed the recorded 1998 balance. Here again, the calculation was performed year by year and the increments discounted back to 1999.

In concluding its evaluation, LVTC requests the Commission as a result of LVTC's depreciation and expense analyses " . . . summarily discount any aggregated rate relief by a minimum of 70%." LVTC continues, "Additionally, we have found a $421,300 discrepant overcharge in our Operating and Maintenance [expense] audit, and a questionable $342,762 worth of plant addition. Taken as a whole, we seek a rate rollback."

Exhibit LVTC-1, summarized above, was admitted into evidence on the motion of RRB's counsel at the first evidentiary hearing on September 8, 1999 by prior agreement among the parties. LVTC did not attend. In the March 1, 2000 evidentiary hearing, LVTC's sole witness sponsored only its exhibit in opposition to the AVWC/RRB settlement, making no material direct reference to this earlier prepared direct testimony in opposition to the application. Thus, while LVTC's prepared direct testimony in opposition to AVWC's A.99-05-023 is in the record, no LVTC witness ever sponsored it.

LVTC's opposition to the proposed AVWC/RRB settlement is set forth in its settlement comments filed January 19, 2000, Exhibit LVTC-3, and its witness' testimony at the March 1, 2000 evidentiary hearing. First, it objects to the settling parties' representation that "This settlement commands the unanimous sponsorship of all active parties to this proceeding." The settling parties have acknowledged in their reply comments that the statement is inaccurate.

Second, because LVTC is an affected party and did not join in the settlement, it denies that the settling parties are fairly representative of all affected interests. RRB, LVTC maintains, has failed in this instance to live up to its charge to represent the interests of customers and has instead " . . . sought to confuse, obscure and ignore LVTC's input and participation."

Third, by basing many of their settlement provisions on arbitrary, unsubstantiated and inflated estimates of costs for 1999, the settling parties have distorted the projected expenses for 2000, 2001 and 2002. Further, since late-August, 1999 when LVTC served its prepared direct testimony and settlement negotiations began, "AVWC and RRB have consistently presented new data and proposed settlements in inconsistent and ever-changing formats that cannot reasonably be compared to data previously submitted. New data and settlements cite previous data inaccurately and are presented without substantiation, explanation or supporting schedules of source data." Thus, LVTC alleges, " . . . the information provided to the Commission within the proposed settlement and its exhibits [is] defective and substantially skewed in favor of AVWC and, as such [does] not convey to the Commission sufficient information to permit the Commission to discharge its regulatory obligations with respect to the parties and their interests."

Lastly, "AVWC and RRB have repeatedly failed to provide LVTC with timely notice of substantive meetings or negotiations of the parties and [have] failed to provide LVTC timely or complete distribution of key working papers and filings central to any equitable resolution of the specific objections raised by LVTC throughout the process. LVTC's status as intervenor and its resultant right to service within these proceedings have not been observed by AVWC and RRB."