STATE OF INDIANA

INDIANA UTILITY REGULATORY COMMISSION

PETITION OF COMMUNITY UTILITIES OF INDIANA, INC. FOR APPROVAL OF (1) EXPENDITURES FOR CONSTRUCTION OF ADDITIONS AND IMPROVEMENTS TO PETITIONER’S WATER UTILITY PROPERTIES AND (2) THE INCLUSION OF SUCH NEW FACILITIES IN PETITIONER’S RATE BASE IN FUTURE CASES.

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CAUSE NO. 45342

COMMUNITY UTILITIES OF INDIANA, INC.’S

SUBMISSION OF ITS PROPOSED ORDER

Petitioner Community Utilities of Indiana, Inc., by counsel, hereby submits its proposed

Order in this Cause.

Respectfully submitted,

______________________________ Jeffrey M. Peabody (Atty No. 28000-53) Lauren M. Box (Atty No. 32521-49) Barnes & Thornburg LLP 11 South Meridian Street Indianapolis, Indiana 46204 Peabody Phone: (317) 231-6465 Box Phone: (317) 231-7289 Fax: (317) 231-7433 Email: jpeabody@btlaw.com lbox@btlaw.com Attorneys for Petitioner COMMUNITY UTILITIES OF INDIANA, INC.

CERTIFICATE OF SERVICE

The undersigned hereby certifies that the foregoing was served by electronic transmission

this 14th day of July, 2020, upon:

Lorraine Hitz-Bradley Daniel Le Vay Office of Utility Consumer Counselor, PNC Center 115 W. Washington St., Suite 1500 South Indianapolis, Indiana 46204 Lhitz-bradley@oucc.in.gov dlevay@oucc.in.gov infomgt@oucc.in.gov

Theodore A. Fitzgerald Brian E. Less Petry, Fitzgerald & Less, P.C. 107 N. Main Street P.O. Box 98 Hebron, IN 46341 petry@netnitco.net ted_0919@yahoo.com Nikki G. Shoultz Bose McKinney & Evans LLP 111 Monument Circle, Suite 2700 Indianapolis, IN 46204 nshoultz@boselaw.com

_____________________________ Jeffrey M. Peabody

Jeffrey M. Peabody (Atty No. 28000-53) Lauren M. Box (Atty No. 32521-49) Barnes & Thornburg LLP 11 South Meridian Street Indianapolis, Indiana 46204 Email: jpeabody@btlaw.com lbox@btlaw.com Attorneys for Petitioner COMMUNITY UTILITIES OF INDIANA, INC. DMS 17715980v1

STATE OF INDIANA

INDIANA UTILITY REGULATORY COMMISSION

PETITION OF COMMUNITY UTILITIES OF INDIANA, INC. FOR APPROVAL OF (1) EXPENDITURES FOR CONSTRUCTION OF ADDITIONS AND IMPROVEMENTS TO PETITIONER’S WATER UTILITY PROPERTIES AND (2) THE INCLUSION OF SUCH NEW FACILITIES IN PETITIONER’S RATE BASE IN FUTURE CASES.

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CAUSE NO. 45342

ORDER OF THE COMMISSION

Presiding Officers: Stefanie N. Krevda, Commissioner Jennifer L. Schuster, Administrative Law Judge

On February 7, 2020, Community Utilities of Indiana, Inc. (“CUII”) filed its Verified Petition. On February 7, 2020, Petitioner also filed its case-in-chief and workpapers in this Cause.

On March 3, 2020, a petition to intervene was filed by Lakes of the Four Seasons Property Owners’ Association (“LOFS”), which was subsequently granted by the Presiding Officers.

On March 11, 2020, Petitioner, LOFS and the Indiana Office of Utility Consumer Counselor (“OUCC”) filed a Stipulation and Agreement in Lieu of Prehearing Conference. On March 12, 2020, the Presiding Officers issued a Docket Entry establishing the procedural schedule.

On March 30, 2020, LOFS and the OUCC filed a Joint Motion for Extension of Procedural Schedule (“First Joint Motion”). On May 1, 2020, Petitioner filed its Response in opposition to the First Joint Motion and on May 4, 2020, LOFS and the OUCC filed their Reply in support of the First Joint Motion. On May 6, 2020, CUII, LOFS and the OUCC filed a Joint Motion for Agreed Extension of Procedural Schedule (“Second Joint Motion”). On May 6, 2020, the Presiding Officers issued a Docket Entry denying the First Joint Motion as moot, granting the Second Joint Motion and establishing an amended procedural schedule.

On May 19, 2020, the OUCC and LOFS filed their respective cases-in-chief. On June 3, 2020, CUII filed the rebuttal testimony of Witnesses Steven M. Lubertozzi, Sean Carbonaro and Loren Grosvenor.

On June 8, 2020, the OUCC filed its Objection and Motion to Strike Portions of the Rebuttal Testimony of Petitioner’s Witnesses. On June 11, 2020 the Presiding Officers issued a Docket Entry establishing the Motion to Strike briefing deadlines. On June 12, 2020, CUII filed an Unopposed Motion for Modification of Procedural Schedule. On June 17, 2020, the Presiding Officers issued a Docket Entry granting the Motion and establishing new briefing deadlines for

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responding to the Motion to Strike. CUII filed its Response to the Motion to Strike on June 18, 2020 and the OUCC filed its Reply to CUII’s Response on June 25, 2020.

On June 29, 2020, the Presiding Officers issued a Docket Entry denying the OUCC’s Motion to Strike to the extent it sought to strike the objected-to evidence from CUII’s rebuttal case, but granted the Motion with respect to the OUCC’s alternative request to file sur-rebuttal evidence related to the objected-to items in CUII’s rebuttal. The OUCC filed the Supplemental Testimony of James T. Parks addressing the objected-to items on June 30, 2020.

On July 7, 2020, the Presiding Officers issued a docket entry request seeking additional information, to which Petitioner responded on July 9, 2020.

Pursuant to notice of hearing given and published as required by law, proof of which was incorporated into the Commission’s official file, a public evidentiary hearing in this Cause was convened on July 10, 2020 via WebEx, at which time the parties appeared and participated at the hearing. Following the hearing, post-hearing proposed orders and briefs were filed in accordance with the established schedule for such filings.

The Commission, based upon the applicable law, the evidence herein, and being duly advised, now finds as follows:

1. Notice and Jurisdiction. Due, legal and timely notice of the prehearing conference and the public evidentiary hearing conducted herein was given by the Commission as required by law. Petitioner is a “public utility” within the meaning of that term in Ind. Code § 8-1-2-1 and is subject to the jurisdiction of the Commission in the manner and to the extent provided by law. The Commission has jurisdiction over Petitioner and the subject matter of this proceeding.

2. Petitioner’s Organization and Business. CUII is a public utility incorporated under the laws of Indiana with its principal office address located at 500 W. Monroe, Suite 3600, Chicago, IL 60661-3779. Petitioner is a “public utility” as defined in Ind. Code § 8-1-2-1 and is subject to the jurisdiction of the Commission in the manner and to the extent provided by the laws of the state of Indiana.

CUII was incorporated in 2015 for implementation of the merger into a single entity of the three separate wholly owned Indiana subsidiaries of Utilities, Inc. (“UI”) that provided water and sewer services in Indiana. Those subsidiaries are Twin Lakes Utilities, Inc. (“Twin Lakes”), Water Service Company of Indiana, Inc., and Indiana Water Service, Inc. The merger was approved by the Commission’s July 8, 2015 Order in Cause No. 44587.

CUII provides water service to approximately 5,000 customers and wastewater service to approximately 3,300 customers. Petitioner renders such water and wastewater utility service by means of utility plant, property, equipment and related facilities owned, operated, managed and controlled by it that are used and useful for the convenience of the public in the provision of water and wastewater service. Petitioner’s service area includes portions of Jasper, Lake, Newton and Porter counties.

3. Relief Requested. CUII seeks approval of expenditures for construction of additions and improvements to Petitioner’s water utility properties and confirmation that such

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approved improvements will be included in Petitioner’s rate base in future rate cases once the improvements have been placed in service, as provided by Ind. Code § 8-1-2-23. Petitioner is planning to replace the South Filter at Water Treatment Plant #1 (“WTP #1”), which is approaching the end of its useful life and is no longer feasible to rehabilitate or repair. Petitioner is also seeking to reconfigure the treated water storage/pumping distribution system at WTP #1, and upgrade the Motor Control Centers (“MCCs”) and controls equipment for the facility to modern technology (referred to herein as the “Proposed Improvements”). Petitioner received construction bids for the Proposed Improvements on January 9, 2020, and the total capital cost for the Proposed Improvements is estimated to be $2,094,406 (exclusive of AFUDC, capitalized time (“Cap Time”) and associated regulatory costs, for which Petitioner also seeks preapproval). Petitioner intends to place the Proposed Improvements in service by May 1, 2021, contingent on timely approval of these expenditures.

4. Evidence.

A. CUII. Mr. Steve M. Lubertozzi, President of CUII, provided an overview of Petitioner’s case. He testified regarding the estimated capital cost of the project, as well as additional soft costs the Company intends to include in the overall cost of the project. Mr. Lubertozzi also discussed the Commission’s directive in CUII’s most recent rate case (Cause No. 44724), which required CUII to develop a System Improvement Plan (“SIP”) to address the following three key aspects (“Three Key Aspects”): (a) decrease total incidences of wastewater backups in homes, (b) decrease total incidences of manhole overflows, and (c) decrease total complaints of discoloration of drinking water. Mr. Lubertozzi testified the Company has taken steps to address the Three Key Aspects and discussed the activities the Company has undertaken, including filing quarterly reports, participating in technical conferences and engaging with LOFS and the OUCC in an effort to engage with stakeholders in a collaborative process.

Mr. Lubertozzi also testified regarding the estimated rate impact on customers. He testified the Company estimates a monthly rate impact for all CUII water customers of approximately $4.20 per month. He explained this figure is only an estimate, does not include AFUDC, Cap Time or regulatory costs, and should not be used for ratemaking purposes. Mr. Lubertozzi testified customers will benefit from the Proposed Improvements as they are reasonably necessary to address the South Filter, improve operational efficiency of WTP #1, and modernize CUII’s facility’s controls. He also testified preapproval of the Proposed Improvements is in the best interest of the Company and its customers, as preapproval will provide CUII with the regulatory certainty necessary to engage in significant capital investment.

Mr. Sean Carbonaro, Director of Engineering & Asset Management for CUII, described the project and the process CUII engaged in for engineer selection, design, bid and contractor selection. Mr. Carbonaro sponsored Confidential Attachment SC-1, a technical memorandum prepared by Symbiont Engineers to address the structural and operational issues identified at WTP #1 (“Symbiont Report”). With respect to the South Filter replacement project, Mr. Carbonaro testified the South Filter is approaching the end of its useful service life and has a poor metal condition that is no longer feasible to repair. Mr. Carbonaro said the Company is proposing to replace the South Filter with a similar capacity unit based on a recommendation from its design engineer, Lockwood, Andrews & Newnam Inc. (“LAN”). He explained the Company considered alternatives for the iron treatment process, but ultimately determined to replace the South Filter in

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kind with a similar package iron removal gravity filtration unit due to its simpler hydraulics, lower chemical consumption, and operator familiarity and based on the recommendation from LAN.

Mr. Carbonaro also discussed the proposed piping modifications to address the operational issues identified in the Symbiont Report. Mr. Carbonaro testified Symbiont identified the treated water storage/pumping/distribution configuration at WTP #1 is inefficiently arranged, as only one water transmission main is constructed between WTP #1 and the Ground Storage Tanks (“GSTs”). This means water can only draw from or fill the ground storage tanks at any one time. Mr. Carbonaro testified this arrangement causes a number of operational issues, including stagnant water in the ground storage tanks and unbalanced flow from the North and South filters, which results in the Company experiencing difficulties meeting peak demands and optimizing water age. Mr. Carbonaro discussed the improvements the Company intends to make to address these operational issues, including adding a fill transmission main from the filters to the GSTs and installing a mixing system in the GSTs to improve water quality. Mr. Carbonaro testified these improvements will allow the facility to simultaneously treat water to fill the GSTs and pump treated water to the distribution system, and will also improve turnover and water quality in the GSTs.

Mr. Carbonaro also testified regarding the proposed upgrades CUII intends to make to the MCCs and controls equipment for the WTP #1 facility. Mr. Carbonaro testified the controls for the water and wastewater system are generally outdated and CUII identified the project as an opportunity to modernize these controls and standardize controls equipment to ensure compatibility and full functionality. Mr. Carbonaro further testified CUII engaged Concentric Integration (“Concentric”) to prepare an assessment of CUII’s Supervisory Controls and Data Acquisition (“SCADA”) system and provide recommendations for the project. Mr. Carbonaro sponsored the Concentric SCADA System report as Confidential Attachment SC-5. Mr. Carbonaro testified Concentric provided recommendations for equipment, communications, and design philosophy for the system improvements and integration of the existing equipment.

Mr. Carbonaro also described the construction firm bidding process and the contractor selection process. Mr. Carbonaro testified CUII conducted a competitive, fair bidding process. He further testified CUII and LAN directly contacted contractors to increase interest in the project, and also posted the bidding documents publicly on the Dodge Report. He also testified CUII held a pre-bid meeting with potential bidders on December 4, 2019 to allow bidders to familiarize themselves with the facility and ask questions. Mr. Carbonaro testified four bids were received on January 9, 2020, and CUII and LAN identified Bowen Engineering Corporation as the apparent low bidder. He further testified CUII and LAN also determined Bowen had the necessary experience and financial resources to successfully complete the project.

Mr. Carbonaro also discussed the project cost. He testified LAN’s design, permitting, bidding and construction administration engineering is anticipated to be approximately $229,208. The total cost of Concentric’s SCADA Assessment attributed to the WTP #1 project is $13,453. He further testified CUII anticipates total construction cost of the project to be $1,907,000, with additional costs for permitting anticipated to be $1,000. He testified the total capital cost of the project is anticipated to be $2,094,406.

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B. OUCC and LOFS.

(1) OUCC. Mr. James Parks, Utility Analyst II in the Water/Wastewater Division, testified regarding CUII’s proposed project. Mr. Parks recommended the South Filter not be demolished and replaced, but rather rehabilitated. He testified the South Filter should be rehabilitated because it is younger than reported, it has remaining service live with proper maintenance, it was recently rehabilitated in 2017 with new underdrains and media, and with production increases at WTP #2, the South Filter is less critical to meet demand. Mr. Parks further recommended the Commission disapprove the piping and pumping modifications CUII proposed, including three new low service pumps and filter effluent piping, because Petitioner has not shown these changes are necessary or will result in a cost savings to customers. He further recommended the Commission direct CUII to do a cost benefit analysis comparing better utilization of WTP #2’s existing capacity and rehabilitation of the South Filter, with Petitioner’s proposed project to replace the South Filter. In line with his recommendation that CUII evaluate better utilizing WTP #2’s existing capacity, Mr. Parks also recommended a number of proposed improvements to WTP #2. Mr. Parks further recommended CUII follow the public bidding process with open competitive bidding to attract contractors interested in bidding and garner cost benefits for customers through competition. He also recommended CUII investigate other lower cost means to mix the GSTs such as internal mixers that circulate water within the tank, rather than a pumped water system as proposed. Mr. Parks further recommended disapproval of the proposed SCADA improvements, as well as disapproval of the new fencing and gate access, chlorine analyzers, miscellaneous painting, new doors, building conversion to gas heat and the new eyewash station as proposed by Petitioner. He testified these additions are not needed because existing equipment appears to be in good working order, the equipment is newer or Petitioner has not supported the need for replacement.

Ultimately, Mr. Parks recommended the Commission preapprove $400,000 in construction costs for the electrical improvements, mixing improvements, the new piping from the GSTs, and a new high service pump/motor and a new high service motor.

Ms. Margaret Stull, Chief Technical Advisor in the Water/Wastewater Division, testified regarding the various costs CUII proposed to include in the capitalized costs of the project. More specifically, Ms. Stull recommended the 8.175% weighted cost of capital authorized in CUII’s most recent rate case (Cause No. 44724) be used instead of the 9.15% proposed by CUII. She also recommended the Commission disallow the inclusion in rate base of any overages or excess costs incurred by CUII above the amount preapproved by the Commission in this Cause, absent the Commission granting additional approval of these costs prior to the future rate case. Finally, Ms. Stull recommended denial of CUII’s request to capitalize regulatory costs. Ms. Stull also recommended the Commission consider the rate impact the proposed water projects will have on CUII’s customers in its determination of which projects will be preapproved. In conjunction with the rate impact, Ms. Stull also recommended the Commission consider the affordability of CUII’s rates and require CUII to begin developing a rate affordability program so as to be prepared to deal with this issue.

(2) LOFS. Mr. Martin Wessler, CEO of Wessler Engineering, testified regarding LOFS position on Petitioner’s WTP #1 Improvements. Mr. Wessler testified three aspects of CUII’s proposed project are unnecessary or inappropriate for inclusion in rates as a capital project, stating: (1) it is unnecessary to replace the existing pumps and raw finished water

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piping in the filter building; (2) it is unnecessary to install mixing in the ground storage tanks; and (3) it is inappropriate to include in rates as a capital project the repainting of piping, interior and exterior walls, as these activities should have been completed as routine maintenance. He recommended the Commission deny preapproval of these portions of CUII’s request on the grounds the work is unnecessary, imprudent and improperly included in the preapproval proceeding. Mr. Wessler recommended two alternatives—the “First Alternative” and the “Second Alternative”—to CUII’s proposed pumping/piping project. Mr. Wessler also recommended the Commission admonish CUII to update and maintain accurate asset origin and maintenance data. He further recommended CUII be required to continue adding fluoride to its water supply absent authorization from the Indiana State Department of Health.

C. CUII Rebuttal.

(1) Lubertozzi. On rebuttal, Mr. Lubertozzi emphasized the need and importance of the entirety of the proposed WTP #1 Improvements Project. Mr. Lubertozzi acknowledged the South Filter was placed in service in the mid-1980s, but testified the Company made the decision to replace the South Filter based on its condition, not its age. He testified CUII’s view of the condition of the South Filter and need for replacement is based not only on the Company’s observations and conclusions, but also on outside engineering experts. He further testified failure of the South Filter would be catastrophic and would put the Company at risk of being unable to meet water demand during backwashing and peak demand periods.

Mr. Lubertozzi also responded to the accounting and ratemaking issues raised by Ms. Stull. Mr. Lubertozzi testified affordability of service is important to CUII, and, while the Company always wants to avoid rate increases for its customers, the projects proposed in the proceeding are reasonable and necessary for the Company to continue to provide reasonable and adequate service. Mr. Lubertozzi further testified CUII believes its rates will remain reasonable and affordable following the WTP #1 improvements, and he does not expect the improvements to significantly change the affordability of CUII’s rates relative to other utilities. Mr. Lubertozzi also responded to the issues Ms. Stull raised regarding AFUDC, capitalized labor, regulatory costs, depreciation and painting expenses. Mr. Lubertozzi testified the Company will seek recovery of these costs in its next rate case and that is the appropriate time to consider them.

(2) Carbonaro. Mr. Carbonaro responded to the specific issues raised by the OUCC and LOFS regarding CUII’s WTP #1 project. Mr. Carbonaro disagreed with Mr. Park’ recommendation the South Filter should be rehabilitated and not replaced. Mr. Carbonaro testified he disagreed with Mr. Parks’ recommendation because the South Filter is necessary to meet peak demand and rehabilitation is not feasible. He further testified rehabilitation efforts would be risky and may only provide limited additional service life of the South Filter. Mr. Carbonaro also responded to Mr. Parks’ recommendation CUII should better utilize WTP #2, and showed why Mr. Parks’ proposal is not feasible or desirable.

Mr. Carbonaro also responded to LOFS’ and the OUCC’s recommendations regarding the pumping/piping arrangement. Mr. Carbonaro responded to each of Mr. Parks’ claims regarding the piping and pumping arrangement and explained why Petitioner’s proposal is necessary to improve efficiency of the water system and also improve service and reliability for customers. He also responded to Mr. Wessler’s recommendation the Company consider alternatives to its

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proposed pumping/piping arrangement. Mr. Carbonaro explained that both of Mr. Wessler’s proposed alternatives would fail to improve operation of the WTP #1. He testified the Company disagrees with Mr. Wessler’s proposed “First Alternative” because it would require an inappropriate usage of pumps that would likely not work or would lead to significant premature wear on the pumps. Mr. Carbonaro further testified the Company disagrees with Mr. Wessler’s proposed “Second Alternative” because it believes that mixing is necessary to promote water quality and the proposed passive mixing option is the lowest cost option. Mr. Carbonaro also described the Company’s ongoing efforts to improve asset management and explained the Company’s implementation of Lucity, an Operations Management System for this purpose. He testified the Company recognizes the need for the Asset Management Program and will continue to develop and implement it.

Mr. Carbonaro also responded to Mr. Parks’ recommendation the Commission deny Petitioner’s proposed SCADA System improvements. Mr. Carbonaro explained why Petitioner is proposing to upgrade to the proposed SCADA system and testified customers will benefit as the system will improve automation of the facility and allow operations staff more flexibility. He further responded to Mr. Parks’ recommendations that the chemical storage, feeding system and “miscellaneous improvements” should be disallowed. He discussed each project individually and explained why each item is necessary. Mr. Carbonaro also responded to Mr. Parks’ criticisms of CUII’s public bidding process. He testified the Company conducted an open, competitive bidding process and received competitive bids.

(3) Loren Grosvenor. Mr. Loren Grosvenor, State Operations Manager for CUII, provided additional information on rebuttal regarding the South Filter metal condition and the significant challenges posed by attempting to rehabilitate the South Filter. Mr. Grosvenor described previous rehabilitation efforts performed on the South Filter and testified previous contractors expressed concerns during repairs regarding rehabilitating the South Filter due the poor condition of the tank’s steel. Mr. Grosvenor testified due to the South Filter’s design, the filter would need to be cut apart to be properly rehabilitated for longer life expectancy. Mr. Grosvenor ultimately testified that due to these thin metal conditions and the already extensive patching done to the filter, rehabilitation of the South Filter as recommended by Mr. Parks is not feasible. Mr. Grosvenor provided additional information on the operational challenges due to the inefficient pumping and piping arrangement, and testified why he disagreed with Mr. Parks’ operational recommendations.

Mr. Grosvenor also responded to Mr. Wessler’s criticisms of CUII’s decision to discontinue adding fluoride to the water supply. Mr. Grosvenor explained why CUII made the decision to discontinue adding fluoride and discussed the Company’s engagement with LOFS on the issue. Mr. Grosvenor testified the Company notified the Indiana State Department of Health (“ISDH”), the Indiana Department of Environmental Management (“IDEM”) and its customers of the decision. Mr. Grosvenor ultimately testified if LOFS wants CUII to continue adding fluoride and the Commission agrees, the Company will do so.

D. OUCC Supplemental. The OUCC filed a Motion to Strike portions of CUII’s rebuttal testimony that it viewed as being new, or non-responsive evidence. While the

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Commission denied the OUCC’s Motion to Strike the portions of testimony, it did grant the OUCC an opportunity to file sur-rebuttal limited only to the objected-to evidence.1

Mr. Parks filed supplemental testimony to respond to the objected-to portions of Petitioner’s evidence. Mr. Parks discussed the evidence and explained why it did not change any of his original recommendations.

5. Commission Discussion and Findings.

Petitioner’s request for approval of expenditures is filed pursuant to Indiana Code § 8-1-2-23. This section, in pertinent part, provides:

Unless a public utility shall obtain the approval by the commission of any expenditure exceeding ten thousand dollars ($10,000) for an extension, construction, addition or improvement of its plant and equipment, the commission shall not, in any proceeding involving the rates of such utility, consider the property acquired by such expenditures as a part of the rate base, unless in such proceeding the utility shall show that such property is in fact used and useful in the public service; Provided, That the commission in its discretion may authorize the expenditure for such purpose of a less amount than shown in such estimate.

In American Suburban Utilities, Inc., Cause No. 41254 (IURC 4/14/1999), we set forth our analytical framework for considering a request for pre-approval of expenditures pursuant to Ind. Code § 8-1-2-23:

When faced with such a request, the first question we must ask is whether an expenditure of any amount is reasonably necessary to assure reasonable and adequate service. If so, we must proceed to the second question: what amount reasonably needs to be invested? Once we answer the first question affirmatively, we cannot simply deny in its entirety a request for approval of expenditures. If we did, it would mean that we would deny approval for any amount of expenditures even though we have already found that some level of expenditures is necessary for the provision of reasonable and adequate service. Such a result would be counter to our very purpose.

Id. at p. 14; see also, Indiana-American Water Co., Cause Nos. 41692 (IURC 11/8/2000) and 43320 (IURC 1/30/2008). This standard was most recently repeated in Indiana Michigan Power Co., Cause No. 45235 (3/11/2020), at 15.

1 See Commission’s Docket Entry dated June 29, 2020.

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As a preliminary matter, we find that Mr. Parks misstated this standard for preapproval by asserting: “[p]reapproval cases focus only on the selected project, not potential alternatives to the requested project that may be more cost effective in resolving operational issues that CUII has identified.” Parks Direct at 3. Our orders confirm that the focus is not the selected project but instead the need for the proposed expenditures, and more specifically: (1) whether an expenditure is necessary to assure reasonable and adequate service, and if so (2) what amount or level of expenditure reasonably needs to be invested. Moreover, as discussed below, the record shows CUII did consider potential alternatives before presenting the Proposed Improvements for preapproval in this proceeding.

This case presents the situation described in Cause No. 41254 when we explained our standard for preapproval. With respect to Petitioner’s WTP #1 project, there is no dispute that some level of improvement and expenditure is reasonably necessary. Both CUII and LOFS provided proposals that involve replacement of the South Filter. See Wessler at 5-6. While OUCC Witness Parks disagreed with Petitioner’s proposed project and proposed level of expenditures, he recommended this Commission preapprove $400,000 in construction costs for electrical improvements, the new line to the GSTs, one new high service pump (“HSP”), one new HSP motor and the GST mixing systems. Parks Direct at 56. He also recommended the South Filter be rehabilitated but did not include any amount in his preapproval expenditure recommendation for the rehabilitation. Id. at 57. Mr. Parks made further recommendations regarding additional capital improvements Petitioner should undertake, for example, to WTP #2, but did not include any level of expenditure for this work in his preapproval recommendation. Id. at 58.

Thus, it is clear from the parties’ testimony some level of expenditure is reasonably necessary to assure reasonable and adequate service. The question that remains is how much reasonably needs to be invested. Petitioner’s WTP #1 Project can be divided into four distinct projects: (1) South Filter Replacement; (2) Pumping/Piping Rearrangement; (3) Electrical and SCADA Improvements; and (4) Miscellaneous Improvements. We will address each of these projects, in turn, to discuss the necessity for the expenditures and, if some level of expenditure is necessary, we will determine what level of expenditure is reasonably necessary.

A. South Filter Replacement Project.

(1) CUII’s Evidence. Mr. Carbonaro testified Petitioner is proposing to replace the South Filter because it is approaching the end of its useful service life, primarily due to poor metal condition that is no longer feasible to repair. The Symbiont Report discussed the poor condition of the South Filter and, based on its evaluation of the South Filter, Symbiont recommended replacing the South Filter due to the age and condition of the iron filter and its detention tank.2

(2) OUCC. Mr. Parks recommended the South Filter not be demolished and replaced, but rather rehabilitated because it is younger than CUII reported, it has remaining service life with proper maintenance, and it was recently rehabilitated in 2017 with new underdrains and media. Parks Direct at 57. He further asserted that production increases at WTP

2 Id. at 6.

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#2 will mean WTP #1 and the South Filter are less critical to meet demand. Id. Mr. Parks also identified a discrepancy between the Symbiont Report, which indicated Symbiont inspected the filter interior, and CUII’s response to OUCC DR 5-10, which indicated Symbiont did not inspect the South Filter and took no interior photographs.3 Mr. Parks testified he was concerned that Symbiont did not actually inspect the filter interior, because “[an inspection] is absolutely necessary to review project necessity and evaluate if less costly alternatives exist.” Parks Direct at 22.

With respect to the South Filter’s age, Mr. Parks presented evidence showing the South Filter was installed in 1985-1987, and not 1968 as Petitioner stated in its case-in-chief. Id. at 2, 12-13. Mr. Parks also presented an analysis of the expected South Filter service life. Id. at 13-17. Based on his analysis, he testified Petitioner’s proposal to replace the South Filter appears to be premature, as “CUII’s South Filter at WTP #1 should produce finished water for another 6 to 11 years of operation.” Id. at 14. Mr. Parks described the past rehabilitation and maintenance activities performed on the South Filter, and testified when done regularly, such maintenance activities enhance continued filter operation and helps the filter reach its 45 year service life. Id. at 20. Mr. Parks recommended CUII continue operating the South Filter with periodic maintenance of all four filters for recoating the steel filter vessels, making repairs and media change-outs as needed. Id. at 57.

With respect to the South Filter condition, Mr. Parks testified the Symbiont Report did not discuss finding any cracks, holes, depressions, or mound effects and did not quantify anything about the filter’s metal condition. Id. at 23. He said Petitioner provided no inspection reports, photographs, steel testing reports, wall thickness reports, metal analyses, or any other documents to support demolishing the filter because of repair infeasibility. Id. at 26. Mr. Parks testified the statements in the Symbiont Report are unsupported by any actual inspection or condition assessment, and concluded, absent an internal inspection, Petitioner has not supported the need to demolish the existing South Filter. Id. at 22, 50.

Mr. Parks asserted the South Filter replacement project will not address any of the “Three Key Aspects” or discolored water complaints. Id. at 23. He further testified the South Filter is not needed to meet average or peak demand. Id. at 28. He presented an analysis showing that due to declining usage and additional supply being added at WTP #2, the South Filter’s capacity is unneeded except during limited circumstances. Id. at 2. However, Mr. Parks testified the OUCC is not recommending the South Filter be eliminated. Id. at 31. Instead, he ultimately recommended the Commission direct CUII to do a cost benefit analysis comparing better utilization of WTP #2’s existing capacity, coupled with rehabilitation of the South Filter, versus Petitioner’s proposed project to replace the South Filter. Id. at 58.

(3) LOFS. Mr. Wessler recommended the Commission deny portions of Petitioner’s requested preapproval WTP #1 project, but did not recommend disapproval of the South Filter replacement project. Wessler at 6-7. The only concern Mr. Wessler expressed about the South Filter project was Petitioner’s claim it did not possess important information about the

3 CUII’s Response to OUCC DR 5-10 is included as Attachment JTP-4.

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origin and specification of the facility. Wessler 4-5. He recommended the Commission admonish CUII to update and maintain accurate asset origin and maintenance data. Wessler at 12.

(4) CUII Rebuttal. Mr. Lubertozzi responded to Mr. Parks’ claims about the South Filter. Mr. Lubertozzi acknowledged the South Filter is younger than originally reported, but testified the Company made the decision to replace the South Filter based on its condition, not its age. Lubertozzi Rebuttal at 6. He testified the WTP #1 is an aging asset and the South Filter is in need of replacement based on its condition. Id. He testified CUII’s view of the South Filter’s condition and need for replacement is based on the Company’s own observations and conclusions, as well as outside engineering experts. Id. at 6-7. Mr. Lubertozzi also discussed the challenges with rehabilitating the South Filter, as more fully addressed in Mr. Grosvenor’s rebuttal testimony. Id. Mr. Lubertozzi testified replacing the South Filter now, as opposed to waiting for it to fail and jeopardize CUII’s water utility service, is consistent with good utility practice and with the Commission’s directive to CUII to “continue to improve service quality and proactively manage its water … system.”4 He further testified Mr. Parks’ approach of recommending only $400,000 in construction costs is “tantamount to ‘deny[ing] approval for any amount of expenditures even though [he agrees] that some level of expenditures is necessary for the provisions of reasonable and adequate service.’” See Lubertozzi Rebuttal at 6 (citing Re American Suburban Utilities, Inc., Cause No. 41254 (approved April 14, 1999) at 14).

Mr. Carbonaro also responded to Mr. Parks’ claims about the South Filter Replacement Project. Mr. Carbonaro disagreed with Mr. Parks’ recommendation that the South Filter be rehabilitated and not replaced. Carbonaro Rebuttal at 4. Mr. Carbonaro reiterated the Company made the decision to replace the South Filter based on its condition, not its age, and the poor condition of the South Filter was confirmed by several sources. Id. at 5. Mr. Carbonaro testified these sources include the Symbiont Report and the Company’s own observations. Id. Mr. Carbonaro also testified that Peerless-Midwest previously noted difficulty welding patch plates on the South Filter due to how thin the metal is, and, for this reason, the Company is hesitant to complete any abrasive blasting that would further thin or damage the structure. Id. Mr. Carbonaro sponsored a February 6, 2017 letter from Peerless-Midwest recommending replacement from the South Filter as Attachment SC-R2. Mr. Carbonaro also sponsored Attachment SC-R3, a letter from its design engineer, LAN, formalizing the discussions CUII and LAN had during design discussions. The LAN Letter notes “[c]orrosion of the steel tankage and the south package iron removal unit is significant, with numerous coating failures and steel plate patches from previous leak repairs visible.”5

Mr. Grosvenor described previous rehabilitation efforts performed on the South Filter and testified previous contractors expressed concerns during repairs regarding rehabilitating the South Filter due the poor condition of the tank’s steel. Grosvenor Rebuttal at 3. Mr. Grosvenor testified both Gaskill & Walton noted the metal was too thin and too many patches existed which would make it difficult to weld additional patches. Id. He further testified Peerless-Midwest employees expressed concerns during recent repair efforts about finding good metal to weld and felt patches would continue to get larger due to thin metal. Id. Mr. Grosvenor testified due to the South Filter’s design, the filter would need to be cut apart to be properly rehabilitated for longer life expectancy.

4 In re Twin Lakes Utilities, Inc., Cause No. 44388, 2014 WL 1712265 at p. 9 (IURC April 23, 2014). 5 Attachment SC-R3 at 2.

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Id. at 4. Mr. Grosvenor ultimately testified that due to these thin metal conditions and the already extensive patching done to the filter, rehabilitation as recommended by Mr. Parks is not feasible. Id.

Mr. Carbonaro echoed Mr. Grosvenor’s testimony and stated the Company does not believe rehabilitation of the South Filter would be prudent because rehabilitation is no longer feasible due to thin metal. Carbonaro Rebuttal at 9. Mr. Carbonaro testified if the Company were to pursue a full rehabilitation of the South Filter, including metal patching and abrasive blasting and coating, it expects such a project would cost greater than $100,000. Id. at 9-10. Mr. Carbonaro further testified there is also some risk that the rehabilitation may not be completed if it was determined the South Filter could not be returned to operational condition after abrasive blasting or other rehabilitation work revealed additional defects. Id. at 10. He testified this scenario would put the Company in a position of more urgently pursuing replacement. Id. Mr. Carbonaro compared the cost of rehabilitation with the cost of replacement, and testified the Company expects the filter replacement portion of the project to cost approximately $465,000. Id. at 10-11.

Mr. Carbonaro testified the Company does not believe it would be prudent to pursue a risky rehabilitation for greater than $100,000 when the filter will need to be replaced for $465,000 in the near future. Id. at 11. He noted Mr. Parks’ own analysis shows he expects the South Filter to only have another 6 to 11 years of service life. Mr. Carbonaro further testified the Company does not agree with Mr. Parks’ recommendation to operate the South Filter to the end of its useful life. Id. at 14. He testified by developing this project, the Company is proactively managing its water system by replacing the South Filter at or near its minimal acceptable level of service, rather than waiting for complete failure. Id. Mr. Carbonaro testified the project is also consistent with the “Three Key Aspects” and replacement of the South Filter will reduce the likelihood of increases in discolored water complaints. Id. at 3.

Mr. Carbonaro also responded to Mr. Parks’ recommendation that the Company should better utilize capacity at WTP #2 to relieve reliance on WTP #1. Mr. Carbonaro testified he disagreed with Mr. Parks’ recommendation, as the Company needs the South Filter to meet peak day demands and it would be imprudent for the Company to forgo necessary investment in an asset hoping that the Company can rely on other assets to make up the shortfall. Id. at 15. Mr. Carbonaro said Mr. Parks’ own analysis confirms the South Filter is needed for the Company to meet peak day demands, and Mr. Parks concluded “CUII should retain both filters at WTP #1.” Id. at 15; Parks Direct at 31. Mr. Carbonaro also sponsored the Company’s updated capacity analysis as Attachment SC-R6, showing the South Filter is required to meet peak day demands. Carbonaro Rebuttal at 16-17. Mr. Carbonaro also discussed the improvements Mr. Parks recommended the Company make to WTP #2 to increase capacity, and explained why many of these improvements are not feasible or cost effective. Id. at 17-21.

(5) OUCC Supplemental Testimony. Mr. Parks testified the objected-to evidence does not change his original recommendations. Parks Supplement at 1-2. With respect to CUII’s Supplemental Response to OUCC DR 5-10, Mr. Parks testified the eight interior photographs of the South Filter do not provide a basis for replacement, as he believed Symbiont did not adequately inspect the filter and lacked a discernable basis for recommending replacement. Id. at 7. He further testified the eight photographs do not show any defects or patches. Id. at 7. With respect to the LAN Report, Mr. Parks testified the LAN Report did not support the need to

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replace rather than rehabilitate the South Filter. He testified LAN does not state it performed its own filter inspection, or that it reviewed past repairs, or how it determined that corrosion was significant, and therefore, the report does not change his opinion that the South Filter should be rehabilitated instead of demolished. Id. at 10.

Mr. Parks also addressed the evidence included in Mr. Grosvenor’s testimony regarding previous repairs and rehabilitations performed on the South Filter. With respect to the 2009 repairs performed by Gaskill & Walton, Mr. Parks testified the information about the 2009 repairs provides no evidence of damage to the structural integrity of the tank and no evidence that the South Filter could not be rehabilitated. Id. at 18. With respect to the 2016 repairs performed by Gaskill & Walton, Mr. Parks testified the invoice provided as Attachment LG-R1 and the filter photographs from the rehabilitation provided in response to OUCC DR 9-3, provide no evidence of damage to the structural integrity of the tank and no evidence that the South Filter could not be rehabilitated. Id. at 21. Further, with respect to the December 2016 to March 2017 media replacement and repairs performed by Peerless-Midwest, Mr. Parks testified Peerless-Midwest inspected the filter before Great Lakes removed the media and cleaned the filter. Id. at 23. He testified since Great Lakes did not remove the media before Peerless-Midwest’s inspection, Petitioner’s reliance on Peerless-Midwest’s February 6, 2017 repair proposal to support its decision to replace the South Filter is unwarranted.

(6) Commission Discussion and Findings. As we discussed at the outset of this Section, there is no dispute that there is a need for investment with respect to the South Filter – i.e., some level of expenditure is reasonably necessary to improve the South Filter. While LOFS raised concerns about CUII’s recordkeeping with respect to the South Filter, LOFS did not recommend Petitioner’s proposal to replace the South Filter be denied. Further, while the OUCC disagreed with Petitioner’s proposal to replace the South Filter at this time, Mr. Parks recommended throughout his testimony that the South Filter be rehabilitated. However, Mr. Parks included no amount of expenditure in his preapproval recommendation of $400,000 for the rehabilitation he recommends. While the Commission could develop its own estimation of the rehabilitation cost and include the cost in the overall amount of expenditures we preapprove, it is not necessary to address this issue. For the reasons set forth below, we agree with Petitioner “the South Filter is approaching the end of its useful service life, primarily due to poor metal condition that is no longer feasible to repair” and therefore should be replaced. Carbonaro Direct at 4.

Mr. Carbonaro testified on rebuttal that based upon past rehabilitations he would expect another rehabilitation of this filter to cost at least $100,000, and that assumes once the work commences the metal is thick enough to continue patching. And, if it is successful, Mr. Parks’ testimony tells us that we could expect a continued life of 6-11 years. At this point, the full replacement would be needed because the capacity from this filter is needed to meet CUII’s peak day demands. If the rehabilitation was unsuccessful, CUII would need to proceed with an emergency replacement of the filter. So the issue before us is whether it is better to spend the $465,000 today on a full filter replacement or spend more than $100,000 today hopefully to rehabilitate the filter so that it can be fully replaced in a few years.

Mr. Carbonaro testified the “Company does not believe it would be prudent to pursue a risky rehabilitation for greater than $100,000 to possibly achieve another 6 years of service life, followed by replacement, when the filter can be replaced for approximately $465,000 as part of

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this project.” Carbonaro at 11. We agree. Mr. Parks’ approach would be to throw good money after bad. CUII provided evidence both on direct and rebuttal demonstrating that rehabilitation may not be feasible due to the poor metal condition of the South Filter. Carbonaro Direct at 4; Grosvenor Rebuttal at 3-5. Even if rehabilitation were feasible, by the OUCC’s own analysis, the filter’s remaining service life is only 6 to 11 years. We disagree that rehabilitating the South Filter now (as the OUCC proposes), with the potential for replacing it in 6 years, would maximize ratepayer benefits. Engaging in costly and risky rehabilitation work now, only to gain minimal additional service life from an asset, is not a prudent course for the utility or its customers.

Further, the approach Mr. Parks is suggesting, to run an asset to failure, is the opposite approach of what this Commission directed in Cause Nos. 44388 and 44724. In Cause No. 44388, we encouraged Twin Lakes Utilities, Inc., predecessor to CUII, to “continue to improve service quality and proactively manage its water and wastewater systems. . . .”6 Further, in Cause No. 44724, we directed CUII to develop a system improvement plan to address the Three Key Aspects of service quality.7 One of those Three Key Aspects is to decrease total complaints of discoloration of drinking water. While Mr. Parks asserted that replacement of the South Filter will not address discolored water, the record shows that the South Filter project will reduce the likelihood of increases in discolored water complaints. Carbonaro Rebuttal at 3. Mr. Carbonaro testified Mr. Parks’ suggestion to wait until conditions worsen, rather than proactively manage CUII’s water and wastewater systems, is contrary to CUII’s operational goals and the intent behind the focus on the “Three Key Aspects.” Id. We agree.

The record shows a failure of the South Filter would be catastrophic and would put the Company at risk of being unable to meet water demand during backwashing and peak demand periods. Lubertozzi Rebuttal at 8. The record also shows the Company recognized the South Filter’s high consequence of failure, and failure or removal of the South Filter would leave the Company unable to meet peak day demands. Carbonaro Rebuttal at 7, 21. Mr. Lubertozzi discussed the collaborative process the parties engaged in prior to filing this request for preapproval. Mr. Lubertozzi testified the Company engaged in a collaborative process wherein the Company, the OUCC and LOFS worked together to address the Three Key Aspects to ensure the Company makes improvements and achieves certain goals. Lubertozzi Direct at 8-9. Although the OUCC participated in this collaborative process and reviewed the materials CUII submitted with its quarterly reports and presented at technical conferences, it waited until CUII filed this preapproval case to raise any of its issues related to the WTP #1 project.

Mr. Parks testified the South Filter is not needed to meet average or peak demand. However, Mr. Carbonaro sponsored an updated capacity analysis on rebuttal (Attachment SC-R6) showing the South Filter is necessary to meet maximum day demand. Carbonaro Rebuttal at 16. Further, Mr. Parks testified CUII should ultimately retain the South Filter, but suggested CUII should increase capacity at WTP #2 and rely on WTP #1 less. We fail to see how Mr. Parks’ recommendation is prudent utility management or conforms with the Ten State Standards. The record shows, and we find, that the South Filter is necessary to meet peak day demands. Thus, we agree with Mr. Lubertozzi that failure of this asset would be catastrophic, as it would leave Petitioner in a position of not being able to meet peak day demand. Running a critical asset to

6 In re Twin Lakes Utilities, Inc., Cause No. 44388, 2014 WL 1712265 at p. 9 (IURC April 23, 2014). 7 In re Community Utilities of Indiana, Inc., Cause No. 44724, 2018 WL 1583126 at p. 66 (IURC January 24, 2018).

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failure is not prudent utility management, and we find proactively replacing the South Filter is the better approach.

Mr. Parks raises a number of arguments to support his position the South Filter should be rehabilitated and not replaced. We summarize them here as follows: (1) the South Filter is younger than reported and has remaining service life; (2) the South Filter was rehabilitated in 2017 and its condition does not warrant replacement; and (3) reduced demand and production increases at WTP #2 will make the South Filter less critical to meet demand. Parks Direct at 57. We will address each of these arguments in turn.

With respect to the age of the South Filter, Mr. Parks spends a significant portion of his testimony proving the age of the South Filter is younger than reported. Mr. Parks testified the South Filter was actually installed in 1985-1987 and, as a result, Mr. Parks argued the filter is younger than CUII reported, has remaining service life and should be rehabilitated to reach the end of its service life. Parks Direct at 2, 57. Petitioner acknowledged in discovery and on rebuttal the South Filter was likely placed in service in the mid-1980s as Mr. Parks testified. Lubertozzi Rebuttal at 6. While Petitioner’s failure to recognize the correct age of the South Filter may indicate some deficiencies in its asset management and recordkeeping, a topic we will address later in this section, we disagree the younger age of the South Filter warrants rehabilitation over replacement as Mr. Parks suggests. While the South Filter may be younger than its originally reported 54 years, by Mr. Parks’ own analysis, the South Filter still only has 6 to 11 remaining years of useful service life. As we already discussed, we disagree with Mr. Parks that it is prudent utility management to run a high consequence of failure asset to failure. Further, we disagree with Mr. Parks that rehabilitating the asset now only to gain limited additional service life will maximize benefit to CUII’s customers.

Mr. Lubertozzi and Mr. Carbonaro also testified the age of the South Filter is secondary to the condition of the filter, and the Company ultimately made the decision to replace the South Filter based on its condition and not its age. Id. As Mr. Parks acknowledged in his testimony, CUII’s internal Asset Management Program database listed the age-based condition of the South Filter as Very Good, but listed its Post Workshop Confirmed Condition as Poor. Parks Direct at 17. Further, CUII provided evidence from two outside engineering companies and one contractor identifying structural concerns with the South Filter and recommending the South Filter be replaced.8 The Company also provided evidence of past rehabilitation efforts performed on the South Filter, as well as its own observations on the South Filter’s condition based on employees’ participation in those efforts and based on employees’ own technical knowledge and experience. See, e.g., Grosvenor Rebuttal at 3-4.

Mr. Parks dismisses the evidence Petitioner provided regarding the South Filter’s condition, because the engineer’s reports were not supported by an actual inspection or a condition assessment. Mr. Parks testified absent supporting documents and an actual inspection, Symbiont’s reference to patching, corrosion, and long term structural integrity concerns appear to be

8 See Symbiont Technical Memorandum, Confidential Attachment SC-1; Peerless-Midwest Letter, Attachment SC-R2; LAN Letter, Attachment SC-R3.

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unsubstantiated. Parks Direct at 7. He raised similar issues with the Peerless-Midwest and LAN Reports in his supplemental testimony. See Parks Supplemental at 10, 23.

The record shows there was significant disagreement between the parties regarding whether Symbiont actually inspected the interior of the South Filter. While the Symbiont Report states Symbiont did perform an inspection of the interior filter, CUII responded in discovery to OUCC DR 5-10 that Symbiont did not inspect the interior and no photographs were taken.9 CUII learned after the OUCC filed its testimony that Symbiont had in fact inspected the interior of the South Filter and took photographs, and CUII provided this information to the OUCC in its Supplemental Response to OUCC DR 5-10.10 Mr. Parks filed Supplemental Testimony where he maintained Symbiont did not adequately inspect the South Filter, because “Symbiont’s brief filter review did not include entering the filter or documenting conditions except for these eight photographs.” Parks Supplemental at 7. Mr. Parks also testified the eight photographs provided did not show any defects or patches. Id.

Ultimately, we decline to wade into the semantics of what an “inspection” means, because the record shows that at least three outside contractor firms have viewed the South Filter since 2009 (Symbiont, Peerless-Midwest, and Gaskill & Walton), and two of these firms have provided written recommendations indicating the South Filter be replaced.11

While Mr. Parks may disagree with Petitioner’s engineering reports and with Petitioner’s definition of inspection, it does not change the fact there are three outside reports in the record supporting Petitioner’s position the South Filter is in poor condition and needs to be replaced. Furthermore, the photographs of the South Filter interior, provided in the Company’s Response to OUCC DR 9-3 and in the record as Parks Supplemental Testimony Attachment JTP-S3, show numerous patches, including patches on patches. While Mr. Parks argues the information in the reports is unsubstantiated due to a lack of supporting documentation, he ignores that these reports were prepared by qualified, third-party engineering firms and include the expert opinions of qualified engineers. Mr. Parks did not provide his own supporting documentation, condition assessment or any other evidence to contradict the evidence provided in the engineer’s reports. Mr. Parks himself did not inspect the interior of the South Filter, and the only evidence he provided to contradict the reports were his own observations that “the filters appeared to be structurally sound” from site visits on March 9, 2016 and May 12, 2020. Parks Direct 14-15. When we view the record as a whole (as we must), we find the evidence presented demonstrates the South Filter is in poor condition and needs to be replaced.

Finally, Mr. Parks argues with lower demand and increased capacity at WTP #2, the South Filter is less critical to meet demand. Parks Direct at 57. However, as we already addressed in our discussion of proactive asset management, the evidence of record shows the South Filter is necessary to meet peak demand. While Petitioner included substantial evidence on rebuttal showing Mr. Parks’ recommendation to better utilize capacity at WTP #2 is not feasible, we do

9 CUII’s Response to OUCC DR 5-10 included as Attachment JTP-4. 10 CUII’s Supplemental Response to OUCC DR 5-10 included as Attachment SC-R4. We address the OUCC’s concerns with the timing of this response later in this section. 11 See Grosvenor’s Rebuttal at 3; Confidential Attachment SC-1 and Attachment SC-R2.

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not need to reach these arguments. We conclude the South Filter is necessary to meet peak demand and prudent asset management supports CUII’s decision to proactively replace the asset.

We therefore find an investment is needed with respect to the South Filter, and we further find the appropriate level of expenditure that should be preapproved for the South Filter project is the amount Petitioner requested for the replacement of the South Filter in its case-in-chief. We further address the specific dollar amount that should be preapproved in the context of the entire project at the end of this section.

B. Pumping and Piping Arrangement.

(1) CUII Evidence. Mr. Carbonaro testified regarding the proposed piping modifications the Company intends to make to address the operational issues identified in the Symbiont technical memorandum. Mr. Carbonaro testified Symbiont identified the treated water storage/pumping/distribution configuration at WTP #1 is inefficiently arranged, as only one water transmission main is constructed between WTP #1 and the GSTs, meaning water can only draw from or fill the GSTs at any time. Carbonaro at 4-6. Mr. Carbonaro testified this arrangement causes a number of operational issues, including stagnant water in the ground storage tanks and unbalanced flow from the North and South filters, which results in the Company experiencing difficulties meeting peak day demands and optimizing water age. Id. Mr. Carbonaro discussed the improvements the Company intends to make to address these operational issues, including adding a fill transmission main from the plant to the GSTs and installing a mixing system in the ground storage tanks to improve water quality. Id. Mr. Carbonaro testified these improvements will allow the facility to simultaneously treat water to fill the GSTs and pump treated water to the distribution system, and will also improve turnover in the ground storage tanks. Id.

(2) OUCC. Mr. Parks recommended the Commission disapprove the piping and pumping modifications CUII proposed, including three new low service pumps and filter effluent piping, because Petitioner has not shown these changes are necessary or will result in a cost savings to customers. Parks Direct at 57. He further recommended CUII continue distributing filtered water directly to customers using the existing high service pumps with the existing piping as currently installed. Id. Mr. Parks testified he recommended this approach so that distribution of stored water age are both minimized. Id.

(3) LOFS. Mr. Wessler recommended portions of Petitioner’s proposed piping/pumping project be disallowed because there are lower cost alternatives to these projects. Wessler at 7. He testified it is unnecessary to replace the existing pumps and raw and finished water piping in the filter building. Id. He also testified it is unnecessary to install mixing in the ground storage tanks. Id. Mr. Wessler recommended two alternatives to these projects. The “First Alternative” is to keep the existing piping, valves and high service pumps. Id. The “Second Alternative” is to take one of the GSTs offline and not install the mixing systems. Id. at 10.

(4) CUII Rebuttal. Mr. Carbonaro testified he disagreed with Mr. Parks’ and Mr. Wessler’s recommendations regarding Petitioner’s proposed piping and pumping project. Carbonaro Rebuttal at 55-56. With respect to Mr. Parks’ recommendation that the Commission disapprove Petitioner’s proposed piping and pumping changes, Mr. Carbonaro testified Mr. Parks’ recommendation is contradictory with his other recommendation that the Company construct a

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new pipe from the GSTs. Id. Mr. Carbonaro explained Mr. Parks’ recommendation to construct a new line from the GSTs to HSPs #4 and #5 to “directly bypass the distribution” is contradictory because such an arrangement is impossible with the current plant piping, as HSPs #4 and #5 cannot pump directly from the filters. Id. at 49. With respect to Mr. Parks’ recommendation that Petitioner investigate lower cost means to mix the GSTs, Mr. Carbonaro testified Petitioner did investigate lower cost alternatives and this analysis is provided in his direct testimony. Id. at 55-56. Mr. Carbonaro testified the passive mixing system had the lowest cost of ownership compared to a mechanical mixing system. Id.

Mr. Carbonaro also responded to Mr. Wessler’s recommendations that Petitioner consider the “First Alternative” and “Second Alternative” as lower cost alternatives to what Petitioner proposed. Mr. Carbonaro testified the Company disagrees with Mr. Wessler’s proposed “First Alternative” because it would require an inappropriate usage of pumps that would likely not work or would lead to significant, premature wear on the pumps. Carbonaro at 56. Further, he testified the Company disagrees with Mr. Wessler’s proposed “Second Alternative” because the Company believes that mixing is necessary to promote water quality and the proposed passive mixing system is the lowest cost option.

(5) Commission’s Docket Entry Request. On July 7, 2020, the Presiding Officers issued a docket entry request requesting additional information, to which Petitioner responded on July 9, 2020. The Commission’s request asked “under the proposed design, will CUII still have the ability to pump freshly filtered water directly into the distribution system.” In its response, the Company stated it will not have the ability to pump freshly filtered water directly into the distribution system and explained why the Company does not believe this ability is necessary. The Company explained that while the current arrangement can be used to pump water directly from the iron filter clearwells to distribution, this creates water age and other issues. The Company stated under its proposed design, the Company will pump all treated water from the iron filter clearwells to the GSTs, and treated water in the GSTs will then be pumped to the distribution system. The Company explained that this change in design is important to promote mixing and turnover in the GSTs to minimize water age, stagnation and other potential issues with water storage.

(6) Commission Discussion and Findings. Again, there appears to be no dispute amongst the parties that some level of investment needs to be made in Petitioner’s existing piping and pumping arrangement. Mr. Parks recommended $400,000 be preapproved and all of these preapproved expenditures relate to Petitioner’s piping and pumping project. Further, Mr. Wessler agreed some level of investment needs to be made, but recommended lower cost alternatives to Petitioner’s proposed project. Mr. Carbonaro explained at length in his testimony why Mr. Parks’ recommendations regarding Petitioner’s proposed pumping and piping project were not feasible. See Carbonaro at 22-30. Mr. Carbonaro also explained why Mr. Wessler’s proposed First and Second Alternatives would fail to improve the operation of WTP #1. Id. at 44-45. Our docket entry requested additional information from Petitioner regarding whether its proposed design would still allow Petitioner to pump freshly filtered water into the distribution system. In its response, Petitioner explained the proposed design will not have this ability, and further explained why this ability is not necessary or desirable. We agree with Petitioner its proposed design will help address water quality and water age issues and pumping directly into the distribution system is not necessary. We have reviewed the evidence provided by the parties

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on these issues, and we agree with Mr. Carbonaro the Company has provided sufficient evidence its proposed pumping and piping rearrangement will improve the efficiency of the water system and improve service and reliability to its customers.

We therefore find an investment is needed with respect to the pumping and piping arrangement, and we further find the appropriate level of expenditures is the amount proposed in the Symbiont Report and Petitioner's case-in-chief. We will address the specific preapproval amount later in this section.

C. Electrical and SCADA Improvements.

(1) CUII Evidence. Mr. Carbonaro testified the Motor Control Centers (MCCs) and controls equipment for WTP #1 are outdated. Carbonaro Direct at 4. He testified the Company identified the project as an opportunity to modernize controls at the facility, as well as to standardize controls equipment to ensure compatibility and full functionality. Id. at 9. Mr. Carbonaro testified CUII engaged Concentric Integration (Concentric) to prepare an assessment of the Supervisory Controls And Data Acquisition (SCADA) system and to provide recommendations for the project. Mr. Carbonaro sponsored the SCADA System Assessment as Confidential Attachment SC-5. Id. He testified the report provides recommendations for equipment, communications, and Concentric’s design philosophy for the system improvements and integration of the existing equipment. Id.

(2) OUCC. Mr. Parks testified he agreed with Petitioner that the aged Motor Controls Centers should be replaced. Parks Direct at 54. With respect to Petitioner’s proposed SCADA project, Mr. Parks testified Petitioner’s project appears to include SCADA and future AMI capabilities, but Petitioner has not discussed or quantified how new AMI meters would reduce customer costs or improve customer service. Id. at 54-55. He further testified Petitioner has not explained why the $87,170 Water SCADA capital project it proposed in 2015 (in Cause No. 44724) cannot be implemented based on the Mission system and instead be replaced with a more costly and sophisticated SCADA project. Id. at 55. Mr. Parks testified Petitioner has not identified any cost savings to ratepayers from the more costly SCADA system and has not quantified the benefit of any operational efficiency improvements. Id. Mr. Parks recommended against approval of the SCADA improvements, including switching out to AMI meters, absent a showing the improvements will lead to customer savings. Id. at 58.

(3) LOFS. Mr. Wessler recommended the Commission deny portions of Petitioner’s requested preapproval of the WTP #1 Project, but did not recommend disapproval of the SCADA project. Wessler at 6-7. Mr. Wessler also identified benefits associated with Petitioner’s proposed SCADA system in his testimony. See, e.g., Wessler at 7. He testified CUII’s planned installation of an automated SCADA control system and electrical control valves should allow the operator to more evenly balance the flow between the North and South Filter. Id. He further testified CUII’s proposal to install a SCADA system to control plant operations will allow the Company to eliminate its manual operations. Id. at 8.

(4) CUII Rebuttal. Mr. Carbonaro responded to Mr. Parks claims regarding Petitioner’s proposed SCADA improvements. Mr. Carbonaro testified the proposed SCADA improvements will allow automation of processes within WTP #1, including improved

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logic for filtration and backwashing, real-time and remote monitoring of operational data, and greater operational resiliency. Carbonaro Direct at 32. He further testified the proposed SCADA system will allow the Company remote control of water and chemical pumps during the event of an emergency, and will improve data collection at WTP #1. Id. at 32. Mr. Carbonaro testified he disagreed with Mr. Parks that the Company has not quantified the benefit of any operational efficiency improvements. Id. at 33. He testified that not all improvements made by the Company necessarily lead to customer savings, but they can nonetheless improve other aspects of customer service. Id. at 31. Mr. Carbonaro further explained that not all benefits from the SCADA improvements can be quantified, and testified the Company’s evidence has demonstrated the proposed SCADA improvements will improve the reliability and resiliency of the water system and ultimately the Company’s ability to consistently deliver safe and reliable water. Id. Mr. Carbonaro also addressed Mr. Parks’ position the Company has not explained why the $87,170 Water SCADA capital project it proposed in 2015 cannot be implemented. Mr. Carbonaro testified while the 2015 project was originally included in Cause No. 44724, the Company ultimately removed the project because the scope of work was not sufficiently defined and bids were not received. Carbonaro Rebuttal at 30. He further testified the $87,170 proposed in that Cause was based on an internal estimate. Id. Mr. Carbonaro also responded to Mr. Parks’ claim the proposed SCADA improvements project includes transition to AMI meters. Mr. Carbonaro testified that while the Concentric Report indicates it is possible to incorporate AMI capabilities with SCADA in the future, the proposed SCADA improvement project proposed in this Cause directly relates to the operation of WTP #1 and does not include AMI. Id. at 34.

(5) Commission Discussion and Findings. Unlike the South Filter Replacement Project, there is disagreement amongst the parties regarding whether some level of expenditure must be made to upgrade CUII’s controls equipment to the proposed SCADA system. OUCC Witness Parks testified he agreed with Petitioner’s proposal to upgrade its outdated MCC, but disagreed with Petitioner’s proposal to upgrade its existing controls equipment to the SCADA system proposed by Concentric. Parks Direct at 58. In contrast, CUII and LOFS support the SCADA improvements project, and LOFS Witness Wessler identified a number of benefits CUII would achieve by upgrading to the proposed SCADA system. CUII also sponsored the Concentric Report which provides a detailed assessment of CUII’s existing Missions system and the improvements needed to upgrade the system to technology that better supports water treatment plant operations.

Mr. Parks did not address CUII’s position that the existing controls equipment at WTP #1 is insufficient, or the evidence included in Mr. Carbonaro’s direct testimony and the Concentric Report supporting this position. Instead, Mr. Parks testified he disagreed with Petitioner’s proposal to upgrade to the SCADA system because Petitioner did not include evidence showing the SCADA improvements will lead to customer savings. Parks Direct at 55. Mr. Parks did not respond to or contradict the evidence included in Petitioner’s case-in-chief or the Concentric Report showing that Petitioner’s existing system is outdated and needs modernized. Mr. Parks also did not include any of his own evidence showing why Petitioner should continue to operate its existing Missions system or why Petitioner does not need to upgrade its existing system to modern SCADA technology.

We find the record shows Petitioner’s existing controls equipment are outdated, and we further agree with both Mr. Carbonaro and Mr. Wessler that upgrading to the proposed SCADA

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system will produce a number of benefits for the Company and its customers. Many, if not the majority of utilities, have already upgraded to an automated controls system, and SCADA systems are now standard in the utility industry. As Mr. Carbonaro testified, the proposed SCADA system will allow automation of processes within WTP #1, including improved logic for filtration and backwashing, real-time and remote monitoring of operational data, remote alarming, remote control of processes, logging of operational data, and greater operational resiliency. Carbonaro Rebuttal at 31-32. These functions are necessary traits of a utility operating in the 21st century, and we find some level of expenditure is needed to upgrade Petitioner’s existing controls equipment to an automated SCADA system.

We further disagree with Mr. Parks that Petitioner’s SCADA improvement project should not be approved absent a showing the SCADA improvements will lead to customer savings. We agree with Mr. Carbonaro that not all improvements made by a utility will necessarily lead to customer savings. Carbonaro Direct at 31. Many improvements undertaken by a utility will have qualitative benefits that cannot be quantified in savings to customers, but will nevertheless provide benefits to customers. Mr. Carbonaro testified the SCADA improvements will improve customer service and the Company’s ability to fulfill its responsibility to provide safe and reliable water to its customers. Carbonaro Direct at 31. We agree, and find these benefits are sufficient to justify Petitioner investing some level of expenditure to upgrade its existing controls equipment.

We therefore find an investment is necessary for Petitioner to upgrade its MCCs and controls equipment and believe the appropriate level of expenditure is the amount needed to undertake the SCADA system improvement project as set forth in the Petitioner's case-in-chief. We will address the specific level of expenditure in the context of the entire project at the end of this section.

D. Miscellaneous Improvements.

(1) CUII Evidence. Mr. Carbonaro sponsored Confidential Attachment SC-6 and Confidential Attachment SC-7, the bidding plans and the front-end technical specification documents and bidding addendums prepared by LAN, respectively. Confidential Attachment SC-6 and Confidential Attachment SC-7 described the scope of work for the WTP #1 Improvements Project and discussed each component of the project.

(2) OUCC. Mr. Parks recommended disapproval of Petitioner’s request for preapproval of costs for chemical storage and feeding systems, as well as for other “miscellaneous improvements.” These improvements include the costs for: the new fencing and gate access, chlorine analyzers, miscellaneous painting, new doors, building conversion to gas heat (from existing electric heat), and the new eyewash station. Parks Direct at 59. With respect to the chemical storage and feeding systems, Mr. Parks recommended the projects not be approved because Petitioner installed the phosphate-based sequestering agent storage, metering and control system in 2017 and this system should be retained. Id. at 55. Mr. Parks further testified the sodium hypochlorite disinfection system should be retained as is. Id. With respect to the miscellaneous improvements, Mr. Parks testified these additions are not needed because the existing equipment appears to be in good working order, the equipment is newer or because Petitioner has not supported the need for replacements. Id. at 56. Mr. Parks further testified miscellaneous painting should be a maintenance expense and not capitalized. Id.

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(3) LOFS. Mr. Wessler recommended the Commission deny portions of Petitioner’s requested preapproval of the WTP #1 Project, but did not recommend disapproval of these miscellaneous improvements. Wessler at 6-7. Mr. Wessler did, however, testify it is inappropriate to include in rates as a capital project the repainting of piping, interior and exterior walls, as these activities should have been completed as routine maintenance. Wessler at 7.

(4) Rebuttal. Mr. Carbonaro responded to Mr. Parks’ recommendation the Commission disallow preapproval costs related to the chemical storage and feeding systems, and the miscellaneous improvements. Mr. Carbonaro addressed each item identified by Mr. Parks, and explained why each item is necessary. The discussion and justification for each item is included in Mr. Carbonaro’s Rebuttal Testimony at pages 53-55.

(5) Commission Discussion and Findings. Again, there appears to be disagreement amongst the parties regarding whether some level of expenditure must be made to address the chemical storage and feeding systems, as well as the miscellaneous improvements. Mr. Parks recommends disallowance of all costs associated with these projects, while LOFS does not oppose the projects, apart from reclassifying certain capitalized painting expenses as maintenance expenses. With respect to the chemical storage, Mr. Parks testified the storage was installed in 2017 and therefore is not old and should be retained. Parks Direct at 55. With respect to the feeding system, Mr. Parks testified the system should be retained as is, but provided no basis for this recommendation. Id. Similarly, with respect to the miscellaneous improvements, Mr. Parks generally testified these additions are not needed because the existing equipment appears to be in good working order, the equipment is newer or because Petitioner has not supported the need for replacements. However, Mr. Parks does not provide any support for this general assertion, or address the individual items specifically, to justify his recommendation that an individual item be disallowed.

Apart from his recommendation that the chemical storage system be retained due to its age, Mr. Parks provides no support for any of his other recommendations beyond a general assertion that the system should be retained (with respect to the chemical feed) and, with respect the miscellaneous improvements, the existing equipment appears to be in good working order, the equipment is newer or because Petitioner has not supported the need for replacements. Mr. Parks provides no evidence regarding which equipment is in good working order or is newer, or how he formed this opinion. He also does not state which components of the project Petitioner has not supported.

In contrast, Mr. Carbonaro addressed each of the items raised in Mr. Parks’ testimony and explained why each item is necessary and should be approved. See Carbonaro Rebuttal at 53-54. Further, these items were identified by CUII’s design engineer, LAN, as components that should be included in the overall project. We find Petitioner has supported the need for each of these items, and an amount should reasonably be invested to address them. We address the specific level of expenditure in the following paragraph.

E. Preapproval Amount. As discussed in the Direct Testimony of Sean Carbonaro, the total capital cost of the project including design costs is $2,094,406. This amount is based on an actual bid received from Bowen Engineering and engineering costs for LAN and Concentric for all components of the WTP #1 Project, including the South Filter Replacement,

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Pumping and Piping Improvements, SCADA Improvements and Miscellaneous Improvements discussed herein. We believe $2,094,406 is the appropriate level of expenditure that should be preapproved for Petitioner’s WTP #1 Project. We believe this level of expenditure is appropriate because it is based on a fully defined scope of work and was derived from actual bids received by the contractor. We ultimately find this amount is reasonable and should be preapproved.

F. Other Issues. The OUCC and LOFS raised several issues that are unrelated to CUII’s request for preapproval in this proceeding, including, CUII’s competitive bidding process, recordkeeping and asset management, CUII’s decision to discontinue adding fluoride and the overall affordability of Petitioner’s rates. While these issues are outside of the scope of a preapproval proceeding, we will briefly address each of these issues in the following paragraphs.

(1) Competitive Bidding Process. Mr. Carbonaro testified the Company engaged in a competitive, fair bidding process to solicit bids for the proposed project. Carbonaro Direct at 10. Mr. Carbonaro further testified the bidding documents were publicly posted on the Dodge Report and CUII also directly contacted contractors to increase interest in the project. Id. Mr. Carbonaro testified as a result of the process, CUII received four bids, and Bowen Engineering was identified as the lowest, responsible bidder. Id. at 11. In contrast, Mr. Parks testified he disagreed Petitioner created a competitive, fair bidding process. Parks Direct at 47. He also raised a number of concerns with Petitioner’s bidding process, including, the process limited bidders, the process was conducted in a condensed timeframe, and the process limited bidder participation because the advertisement for bids indicated the bids would be opened privately. Id. at 47-50. Mr. Parks testified these conditions may have fostered an environment for higher bids from fewer competitors. Id. at 48. On rebuttal, Mr. Carbonaro responded to each of Mr. Parks criticisms and explained why Petitioner did engage in an open, competitive bidding process. Carbonaro Direct at 35-42.

While Mr. Parks argues Petitioner’s bidding process may have led to higher prices, he provides no evidence to support that the Company’s bidding process was flawed or led to higher prices. Mr. Parks also provides no evidence the prices as competitively bid for this project were unreasonably high. As we stated in Cause No. 42351 DSIC-11, “speculation about what ‘may’ be is not evidence.”12 We find Petitioner engaged in an open and competitive bidding process.

(2) Recordkeeping and Asset Management. Both the OUCC and LOFS raised concerns regarding Petitioner’s recordkeeping and asset management in this Cause. For example, Mr. Wessler recommended the Commission “admonish CUII to update and maintain accurate origin and maintenance data” in response to Petitioner not having accurate origin data for the South Filter. Wessler at 3. Further, the OUCC’s Motion to Strike accused CUII of “sandbagging” because CUII failed to turn over certain information in discovery.13 OUCC’s sandbagging claim was specifically made with respect to Petitioner’s Supplemental Response to OUCC DR 5-10, where CUII indicated Symbiont did inspect the South Filter and provided photographs from the inspection, even though CUII originally responded an inspection did not take place and no photographs existed. CUII explained the error in the original response by stating “the employee who attended the entire Symbiont inspection is no longer with the Company and it

12 Indiana-American Water Company, Inc., Cause No. 42351 DSIC 11, 2018 WL 1391887 (3/14/18). 13 See OUCC’s Objection to and Motion to Strike Portions of the Rebuttal Testimony of Petitioner’s Witnesses at 3.

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was the belief of current employees that Symbiont did not perform an inspection of the filter interior.”14

Mr. Carbonaro testified on rebuttal the Company began implementation of Lucity, an Operations Management System in 2018, and this system allows for electronic management of work orders, maintenance records, plans, specifications, and other information assigned to assets. Carbonaro Rebuttal at 50. Mr. Carbonaro testified the use of Lucity will allow the Company to maintain records permanently in electronic format and assign the records to the appropriate asset. Id. at 51. He further testified the Company continues to develop and improve its comprehensive Asset Management Program, and the Company is committed to employing it successfully. Id. at 51-52.

As a preliminary matter, we disagree with the OUCC’s contention CUII was “sandbagging” or intentionally withholding evidence from the OUCC in discovery. While it is true CUII did not provide the supplemental Symbiont inspection information until two days after the OUCC filed its testimony, CUII’s response to OUCC DR 8-02 indicates CUII decided to contact Symbiont after reviewing Mr. Parks’ testimony and his statements regarding the internal inspection.15 The response further indicates CUII promptly and appropriately supplemented its prior discovery response upon learning Symbiont did perform an interior inspection and receiving the photographs.16

While we do not believe CUII’s failure to provide accurate responses in discovery or to correctly identify the age of the South Filter suggests ill intent on the Company’s part, we do believe it identifies gaps in CUII’s recordkeeping and asset management functions. While we understand employee turnover will sometimes lead to these gaps due to the loss of institutional knowledge, we believe a robust Asset Management Plan and accurate recordkeeping can help address many of these gaps. We were pleased to see Petitioner’s discussion of its Lucity Asset Management Program and of its commitment to improving recordkeeping and asset management moving forward. We encourage Petitioner to continue prioritizing asset management and improving its recordkeeping moving forward, to ensure it is keeping and maintaining accurate records related to its assets and operations.

(3) CUII’s Decision to Discontinue Adding Fluoride. Mr. Wessler recommended the Commission require CUII to continue adding fluoride to CUII’s water supply absent authorization from ISDH. Wessler at 3. While CUII’s decision to discontinue adding fluoride is outside the scope of this proceeding, we felt it necessary to address Mr. Wessler’s recommendation nonetheless. Mr. Wessler testified CUII’s operational decision to discontinue adding fluoride to its water supply concerned him. Id. at 5-66. On rebuttal, Mr. Grosvenor testified the Company made this decision because Fluorosilicic acid is a harmful chemical and fluoride addition is an operational cost to the Company and the ratepayer. Id. at 14. He testified mixing the acid with chlorine can produce a lethal gas to humans, and storage of the chemical can cause additional maintenance or premature failure of equipment in its vicinity. Id. He further testified the Company’s raw water supply already has a natural Fluoride concentration of 0.4 milligrams

14 Attachment SC-R4 at 1. 15 Attachment JTP-S5 at 2. 16 Id.

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per liter (mg/L) compared to the ISDH recommendation of 0.75 mg/L. Id. Mr. Grosvenor also testified the Company notified IDEM, ISDH and all customers of its decision to discontinue adding fluoride. Id. at 15-16. Mr. Grosvenor ultimately testified that if LOFS wants the Company to continue adding fluoride and the Commission agrees, the Company will do so. Id. at 15.

As stated, CUII’s decision to discontinue Fluoride is outside the scope of this proceeding and is not relevant to Petitioner’s request for preapproval. We encourage CUII and LOFS to work together to come to a reasonable resolution of this issue.

(4) Overall Affordability and Costs; Other Ratemaking Issues. OUCC witnesses Stull and Parks raised issues around overall affordability of CUII’s rates. Ms. Stull recommended the Commission consider the affordability of CUII’s rates and require CUII to being developing a rate affordability program to address this issue. Stull at 19. Mr. Lubertozzi acknowledged Ms. Stull’s concerns and testified affordability of service is important to CUII, and CUII has worked hard to evaluate options available to address the water system issues. Lubertozzi Rebuttal at 8. He testified while the Company always wants to avoid rate increases for its customers, the projects proposed in this proceeding are reasonable and necessary for the Company to continue to provide reasonable and adequate service. Id. at 8. Mr. Lubertozzi testified the Company estimated a rate impact of $4.20 per month (not including AFUDC, Cap Time or regulatory costs) related to the WTP #1 project. Lubertozzi Direct at 11. He testified CUII is not seeking a rate increase at this time, but included the estimate in an effort to be transparent. Id. at 12. He further testified the Company believes its rates will remain reasonable and affordable following implementation of the improvements, and he does not expect the improvements to significantly change the affordability of CUII’s rates relative to other water utilities. Id. at 8-9.

While we appreciate the concerns raised by Ms. Stull and the OUCC, the OUCC’s request that the Company be required to develop a rate affordability program is outside the scope of this preapproval proceeding. This is something the Company may consider in a future proceeding, if it deems appropriate to do so.

Further, with respect to the accounting and ratemaking issues raised in Ms. Stull’s testimony, we also believe these are generally outside the scope of this proceeding. As Mr. Lubertozzi testified, CUII is not seeking a rate increase in this Cause and the appropriate place to address these issues is in a future rate proceeding.

We do, however, want to address the issue of regulatory costs and the inclusion in future rate base of any project cost overages. Ms. Stull recommended CUII’s request to capitalize regulatory costs to the Proposed Improvements be denied. Stull at 19. On rebuttal, Mr. Lubertozzi testified that capitalizing regulatory costs is consistent with U.S. generally accepted accounting principles and the NARUC Uniform System of Accounts includes legal expenditures as a component of construction. Lubertozzi Rebuttal at 10. He also cited a number of Commission orders where preapproval and/or recovery of regulatory costs has been approved by this Commission. Id. at 11-12. Notably, no party took issue with the reasonableness of the estimated regulatory costs or their direct connection to the Proposed Improvements at issue in this case. We agree with Mr. Lubertozzi capitalizing regulatory costs is consistent with U.S. generally accepted accounting principles, NARUC and Commission precedent. We find Petitioner’s incurrence of

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such regulatory costs is reasonable and should be capitalized to the Proposed Improvements for purposes of Petitioner’s future rate proceeding.

Ms. Stull also recommended the Commission disallow the inclusion in rate base of any overages or excess costs incurred by CUII above the amount preapproved by the Commission in this Cause, absent preapproval of such overages prior to the Company’s next rate case. Stull at 19. Mr. Lubertozzi testified he disagreed with Ms. Stull’s position, and prudently incurred costs in excess of the amount should be eligible for recovery if the Company adequately supports the reasonableness of such costs in its future rate case. Lubertozzi at 14. Mr. Lubertozzi further testified the Commission will have an opportunity to review any costs in excess of the preapproved cost estimate before such costs may be reflected in rates. Id. Mr. Lubertozzi also cited this Commission’s Order in Cause No. 45124 for explanation of this concept.

We agree with Mr. Lubertozzi that prudently incurred costs in excess of the preapproved amount should be eligible for recovery. As we held in Re American Suburban Utilities, Inc., Cause No. 45124 (April 14, 1999), “[o]nce we have determined the amount that is reasonably necessary and therefore should be approved, the utility is of course free to spend more, either because of cost-overruns, changes in circumstances, overbuilding or other reasons.” at 4. We noted that “[I]f it does so, however, it does so at the risk that the amounts in excess of the expenditures we have approved will ultimately not be included in rate base. . . .” Id.

(5) Ultimate Finding. For the reasons set forth herein, we find Petitioner’s request for preapproval of $2,094,406 expenditures related to its WTP #1 project is reasonable and should be approved, along with associated AFUDC, Cap Time and regulatory costs.

6. Confidentiality. CUII filed a Motion for Protection and Nondisclosure of Confidential and Proprietary Information on February 7, 2020 which was supported by an affidavit showing documents to be submitted to the Commission were trade secret information within the scope of Ind. Code §§ 5-14-3-4(a)(4), (9), and 24-2-3-2. The Presiding Officers issued a Docket Entries on February 24, 2020 finding such information to be preliminarily confidential, after which such information was submitted under seal. No party objected to the confidential and proprietary nature of the information submitted under seal in this proceeding. We find all the information is confidential pursuant to Ind. Code § 5-14-3-4 and Ind. Code § 24-2-3-2, is exempt from public access and disclosure by Indiana law and. shall continue to be held confidential and protected from public access and disclosure by the Commission.

IT IS THEREFORE ORDERED BY THE INDIANA UTILITY REGULATORY COMMISSION that:

1. Petitioner’s Proposed Improvements and the expenditures associated therewith shall be and hereby are approved by the Commission. Specifically, Petitioner’s request for preapproval of expenditures for the WTP #1 Project is approved up to $2,094,406, along with associated AFUDC, Cap Time, and regulatory costs. Once any of the Proposed Improvements are in service, the associated expenditure as approved may be included in rate base for ratemaking purposes in Petitioner’s subsequent rate proceedings.

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2. To the extent the actual expenditures exceed the preapproved amounts, inclusion of such excess expenditures in rate base in future rate cases shall be addressed in the same manner as rate base additions that have not been pre-approved.

3. Once any of the Proposed Improvements are in service, Petitioner shall notify the Commission, the OUCC and LOFS of the actual cost of the Proposed Improvements.

4. The Confidential Information filed under seal in this Cause shall continue to be treated by the Commission as confidential and not subject to public disclosure.

5. This Order shall be effective on and after the date of its approval.

HUSTON, FREEMAN, KREVDA, OBER, AND ZIEGNER CONCUR APPROVED: I hereby certify that the above is a true and correct copy of the Order as approved. ______________________________________________ Mary M. Becerra Secretary to the Commission

DMS 17679100v2