Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from James Lykins – Hilliard Lyons.
James Lykins – Hilliard Lyons
First of all, I was wondering if you could talk about with the increase in expenses, I’m just wondering if the decoupling and the modified cost balancing accounts are working as advertised, first of all?
Martin Kropelnicki
I’ll take that one. I think if you think about our business you can break it down kind of into three lines. You have revenue, you really have cost to goods sold, which would cover your production cost, and then you have your other expense items.
The RAM really is going to take care of your revenue line and the differences in adopted revenue versus your actual sales. The modified cost balancing account is really going to cover the cost on your production line. So then you do have to drop down to where you’re other expenses are.
I think for the year, what I think was interesting in doing my analysis, if you look at where the changes came from in the revenue, that the difference between, when we talked about the increase in revenue at $43.2 million the net RAM MCBA adjustment was $2 million, which was just about equal to the decline in sales to existing customers and that would tell me that we’re tracking about right.
The big increase that you saw in the expense lines and operating expenses really had to do with increased pension costs, healthcare costs, and the change that we saw in the bad debts going from the one-third of a point to a half a point in bad debt expense, as well as increased water production costs.
James Lykins – Hilliard Lyons
Okay. And with some of these costs, I know you stated in you press release, like water mains, reservoirs, pumping, and also the health and welfare. Do you think some of these are more one-time in nature or are we looking at more of a run rate at these levels going forward?
Martin Kropelnicki
I think it depends on what happens. Obviously, medical costs, I think generally speaking, are deflating a little bit fright now across the U.S. So that works to our advantage. Obviously, with the market results, as you’ve seen in some of our non-qualified plants, we’ve had negative mark-to-market adjustments. Those are things that have to get factored actuarially into our plan expenses for next year.
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