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Alright. Let's go ahead and go back on the record. Okay. Miss Barriosko, we had finished with mister Psy. Correct? Yes, your honor. Okay. Then if oh, let me ask if there are any housekeeping matters or procedural matters or anything? No? Okay. I I do have, one thing with respect to, our next witness who will be miss Crystal Brown. I I have, I believe that she's going to refer to confidential rubo exhibit 25. And in this respect, I'm not sure that we can avoid it. So I just wanted to alert you that we might have to let the folks

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in the comm room know. Okay. Give me a moment. Sorry. Sorry, Jen. Back off the record again. Alright. Let's go back back on the record again again. And, so miss Barrow is cool. Go ahead. Thank you, your honor, and good morning. Once again, Ruko would call its next witness, miss Crystal Brown. Okay. Good morning, miss Brown. If you could please, remain standing to be sworn in by the court reporter. Good morning. Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth? I do. Thank you. Alright. Have a seat and double check.

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Make sure your microphone's on, please. Yep. Yeah. And and your honor, during the course of miss Brown's testimony, I'm gonna ask her to provide a brief summary, and I have, copies of that. If I may approach, your honor, and, council tables. Please. Hey. Miss Brown, good morning. Could you please My phone. Oh, my phone. Miss Brown, good morning. Could you please state your name for the record? Tell us where you, how you are employed and, and where. My name is Crystal Brown. I work for the residential utility consumers office,

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and I am a Public Utilities Account Analyst. And you should have in front of you a great many binders. There are some white binders that do not have covers. Those are Ruko's. And within those binders, could you, look for Ruko five and six, please? I have it. And is Ruko five the direct testimony that you prepared in connection with this case? Yes. And is Ruko six your surrebuttal testimony slash opposition to the settlement that you prepared

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in connection with this case? Yes. Okay. Did you have any other, testimony or notices of verata relating to your testimony as far as you can recall? No. Okay. And these documents, Ruko five and six, they were prepared by you or at your direction? Yes. K. Do you have any additions or corrections to either of those documents? No. Okay. I'd move to admit what's been marked as route code five and six. K. Any objections? No objection. No objection. Alright. Route code exhibits five and six are admitted. Could you also identify in the binder Ruko 10?

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That is the commission decision relating to the, company's request to defer depreciation expense for the, Sarabelle Water Reclamation Facility. K. And is is it decision number 81022 docketed 03/20/2025? Yes. 80122. And did you, review this decision and, rely on it in connection with your testimony? Yes. Okay. I move to to admit Ruko ten.

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Any objection? None from staff. So Ruko ten is admitted. Miss Brown, would you please provide a summary of your testimony and reply to any rejoinder at this point? Yes. In regards to the lag days used for interest expense on long term debt, Ruko's recommend recommended lag days of ninety one point two five is more reasonable than the settlement agreement's 50 lag days. In regards to test your plant retirements, the company stated in response to staff data request 4.04 that it had discontinued making retirement entries in 2019.

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RUCO makes recommendations to address the lack of test year retirements. In regards to depreciation expense for the fully depreciated pumping equipment, consistent with commission rules, the pumping equipment should continue to be included in plant and service until such time as the company ascertains that the pumps have been physically removed or abandoned and the retirements have been recorded in Liberty Litchfield's books and records. In regards to the accumulated depreciation synchronized to the company's depreciation annualization,

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Ruko is not rolling forward any accumulated depreciation into a future period. So any characterization of Ruko's adjustment as a roll forward is incorrect. In regards to the Ceravell depreciation expense deferral, decision number eight one zero two two that authorizes the depreciation expense deferral did not state that the deferred depreciation expense was an asset and should be included in rate base. Decision number eight one zero two two limits the scope defer of the deferral order

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to depreciation expense only and does not give an equity an equity return on that expense. Expenses also do not typically earn a return. The company has already recovered the depreciation expense through rates in 2024 and 2025 and will recover it again when the new rates go into effect. Depreciation expense is not an investment and should not receive an equity return. Ruko is recommending that the deferred depreciation expense be recovered as an operating expense with

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the 4.19% debt return identified in the decision. Okay. Could you please, return to 10? And I'm going to be referring to page six of that order. I have it. Okay. And and does the order there say, it's therefore ordered that an accounting order is hereby approved for Liberty Utilities Litchfield Park Water and Sewer Corp subject to the following limitations. And then there are three bullet points. The cost deferral associated with the specific accounting order for the Cereval plant eliminate all

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costs associated with endo and AFUDC. The costs eligible for deferral be limited to the depreciation expense subject to the removal of endo and AFUDC, and the cutoff point for recording costs related to Cerevel plant to be included in the deferral will end on 12/31/2024. Is that the order section of this decision? Yes. If you flip back to page five, do you see, paragraph 16 on page five? I have it. Okay. And there, does it does the decision acknowledge staff's recommendations that the costs eligible for the deferral

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be limited to depreciation expense? Yes. And with respect, to this, the deferral order, you had identified, if I heard you correctly, a cost of debt of 4.19%. Did I hear you right? Yes. Okay. And can you tell us where is that, cost of debt figure? Where does it appear within the order? Oh, I I think I found it. If you could refer to page four around line 17. Yes. 4.19. Okay. And if you look at page three, on line starting line 25,

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paragraph 10, does it indicate that the accounting order request that this decision relates to arises from the company seeking 3,800,000.0 in annual depreciation expense? Yes. Okay. Is there anything that you identified within this order, that as an analyst indicates to you that there should be carrying costs on that depreciation expense? The 4.19%.

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Okay. Okay. You said something during your summary about depreciation expenses not typically earning a return. Can you elaborate on that? Yes. Depreciation expense represents the portion of capital that was used to generate revenue in a certain accounting period. So depreciation expense represents a return of capital. So since the company got that capital back,

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then, it it it's not prudent to, to provide an equity return on that capital. It's a it's an operating expense. Okay. You also said during your summary Oh, and there's another reason. Oh, go ahead. The plant that gave rise to the depreciation expense is already, in rate base. And, well, it it's it's already in service, and the company, is getting a an equity an equity return on the plant that gave rise to

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the, depreciation expense. Alright. And you I heard you in your summary to say that, the company had already taken or or taken in depreciation expense with respect to Ceravol? Yes. Okay. In order to, address that, would you have to refer to confidential exhibit Route 25? Just just answer that with a yes or no question. Okay. Yes. Okay. So it's my intent now to ask her to do that. Okay. Let's go off the record while we get this set up. Up. Okay. Let's go back on the nonconfidential

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record. Okay. Miss Barra's cool. Thank you, your honor. With that, I'd move to admit Ruko twenty five. Objections? No objection. No. In terms of that. Okay. Ruko twenty five is admitted. Okay. Miss Brown, you you identified that there were other, that there were other some other issues relating to, the company not having made retirements after after 2019. Do you remember that? Yes. Okay. Can you, tell us or elaborate on on that and identify within your testimony where the information

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is that shows the company did not make those retirements. I may be able to help you along. Let me let me interpose a quest a new question instead. Well, I have it. Oh, good. What what are you referencing? Okay. In in my, rebuttal testimony, it oh, It oh god. It should it's Okay. Miss Brown, is Ruko six your rebuttal testimony? And within that is attachment six staff data request four point o four? It's, it it's 4044 o 6,

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where they tell staff, I believe Well, let let me help move this along a little bit. If if you'll refer to Ruko six, attachment six, do you see that page? Just let me know when you're there. Yes. Okay. And in the, in that request, it says plan retirements. Please identify which plant addition projects listed in, quote, Doctor number four, plant replacement project for Lipsco water and sewer plant additions, unquote, are associated with

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retirement. Do you see that? Okay. And then within the response in the first paragraph, does it does it read, in prior periods, plant asset additions were not unitized, which resulted in retirements being reflected at the end of the asset's depreciation life and documented annually in the b two schedule. Retirement entries were discontinued in 2019 due to software limitations that caused negative asset balances. Do you see that? Yes.

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Okay. Based on that, did you conclude that there were not retirements after 02/2019? Yeah. On that on that. And also, if you look at, Let me see. I if you look at the company's, schedule b two for the water and wastewater division, which I got it. Put it. Is is that a schedule that would be attached to a one, the application? Yes. I'm so sorry. Which schedule, miss Brown? B or d? It's the it's the schedule b two.

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Schedule b two page, like, 3.8. Okay. So, in my what is it? My direct testimony, I provide a summary. Aruko schedule six. But it's also in the company's, b two schedules. B two, like, 3.8 through 3.1. And you will see, no retirements for either the water and the wastewater division. And also, the company's response to staff, data request, I believe, four four point o four,

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which I don't give me a second. Oh, no. 406. Sorry. Okay. Well, miss Brown, why don't you tell us what Ruko's recommendations are as a result of the company not making plant retirements after 2019? So having well, the company stated that, making that it did not, you know, make any retirements after 2019 and that making, retirements would be onerous and immaterial. And based upon the company's response

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to staff 04/2006, which showed that they had, replacements of plant, That and a replacement typically means that you you took out a nonoperational piece of plant, a a plant that's no longer providing service, and you put in and you replace it with a new piece of plant. So there were actual, retirements in the test year. So and the company said that it was onerous, which, you know, the commission rules say to follow the NAIRUCH uniform system of accounts.

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The NAIRUCH uniform system of accounts says to record retirements. So the company, when it says, well, we're you know, it's too onerous. It's it's it's too much. They're effectively not complying with the commission rules. They they did it for five years. So as a result, did Ruko make an adjustment, which to your understanding is not included as a term of the settlement agreement with respect to the retirement? Yes. Okay. Okay. And let I I just wanna say something else. So, having zero

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retirements is an abnormal amount, especially when they had actual retirements in the test year. So what Ruko did was to normalize the amount, which Ruko believes is, is is a normal rate making adjustment, and it it reflects the rate payer's interest because they should not be paying for plant all of those retirements. They should not continue paying depreciation expense on that plant when they were retired.

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Okay. And with respect to, and I'm not gonna cover all of your adjustments with you, because your testimony, sets those forth. But I I do want to refer you to, miss Rouse's rebuttal testimony, which I'll have to get the number. It's gonna be a 17, so it'll be in the company's binders. A 17, and I'll be referring to page 11. I have it. Okay. Miss Brown, you your testimony, sponsored a Ruko adjustment with respect to to unamortized finance charges. Right? Yes.

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Okay. And on page 11 of a 17 starting at line 25, do you see the question, does the company agree with Ruko's recommended rate base adjustment number five to remove unamortized finance charges for wastewater division? Yes. And turning the page, starting on page 12 line one, is the answer, yes, the company agrees with Ruko's rate based adjustment number five to remove the unamortized finance cost from rate base from the wastewater division? Yes. K. To your understanding,

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was that also included as a term of the settlement agreement? Yes. Okay. To your understanding, is that the only of the Ruko adjustments that you sponsored that was included in the settlement agreement? Yes. Okay. Is there anything else you'd like to say before I turn you over for cross examination? No. Okay. With that, I tender miss Brown for cross. Okay. Thank you. Mister Sabo? No questions for this witness. Alright. Thank you. Miss Humphrey or miss Scott? I do. Hi. I have a few questions if I could just work the mic. If you can give me just a minute to switch sections here.

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Thank you. Good morning, miss Brown. Good morning. I prepared, a copy of the issue the final issues issues matrix in this case, and marked it as exhibit s 20 s 16. That should be I left it on top of, of a notebook, which contains, staff exhibits. Do you have that? I have it. And have you reviewed that, issues matrix previous to this morning? I don't I don't know. I've reviewed some, issues matrix, but I don't know if I've reviewed this one.

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Okay. I'd like to look a little bit at the at the numbers on page one of the of this, issues matrix, and particularly addressing the, addressing your directing your attention to the revenue requirement, hyphen, water section. And if you can look at the revenue requirement, can you tell us what Ruko's recommendation currently is for, revenue requirement on water? This the issues matrix says 21,432,111 without the ARAM.

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And as far as you know, is that an accurate statement of what Ruko's position is? Yes. Alright. And then the next column, under liberty heights liberty slash settlement, there is a a revenue required dollar amount. Can you tell us what that is? $21,000,004.60 $468,602. And according to my math, I see that that's about $36,491 more than what Ruko is recommending.

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Correct? Correct. And that's why they should go with Ruko's. Because the number's so close? Because, they're they are, just more, in the public interest. Okay. Look let's look at the revenue requirement for the wastewater, and what what is Ruko recommending for the revenue requirement on wastewater? 30,911 thousand 5. $504. And how does that compare to what, the Liberty slash staff settlement agreement provides? 31,585 thousand.

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And according to my calculation, that that that's a difference of $673,585 between, what Ruka was proposing and what the settlement agreement provides. Correct? Yeah. Subject to check. Subject to check, which is probably a good thing to do. And, again, that's under a million dollars difference. Correct? Yes. And probably about, again, according to my math, about 2%, less than the total that's recommended in the settlement agreement or approved in the settlement

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agreement. Yeah. So if, if Ruko's adjustments are adopted, you know, customers would have a a smaller bill. And in these days, every dime counts. But you would agree with me that in in the scheme of things in this case, the numbers we've just discussed between, and their difference between staff the staff and, company settlement and Ruko's position are are really pretty small. Are they not? Objection. Mistakes the testimony. I I would also object based on relevance and confusion of the issues because she's

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talking about the numbers, the revenue requirement numbers without the ARAM. And I think it's pretty fair to say that those numbers aren't the same with the ARAM, regardless of two sets of schedules. Miss Humphrey, which, said we're talking about with or without ARAM? We're talking about, what what the issues matrix provides, which is the without ARAM. Okay. Go ahead. So we're in agreement on that, that that's what it covers. Would would you agree with me, though, what that in this comparison that we've looked at, miss Brown, that that the the difference is is,

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in the scheme of things, relatively small. Well, you know Is that a calls for a yes or no answer? Well, I I can't I can't do a yes or no. I would need to clarify my answer. Alright. Go ahead. Okay. The numbers, are what they are, and, there are precedents that well, not really precedents, but, precedents that well, not really precedents. But oftentimes, when a, company or or any party makes an adjustment, they like to refer to what the commission has done in the past. And there are, things in this rate case that by well,

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that are inconsistent with, commission rules, that are inconsistent with, normal rate making treatment that just on principle shouldn't be allowed to go through. You've been employed as a financial analyst for more than thirty years, I believe. You touched by credit. It's called yeah. There it's called a public utilities analyst analyst analyst analyst. Okay. And is it that was that both at the commission and at Ruko? Yes. So you I think your your testimony indicated that you'd been with the corporation commission

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for more than twenty years and more than seven years at Ruko following that. Correct? Yes. So I'm guessing that you have probably reviewed hundreds of cases in those thirty plus years. Would that be correct? Well, I I I haven't counted them. Would you say that you've reviewed at least a 100 cases? I don't know. Don't you say you've reviewed 50 cases? Yes. Do you have any idea how many cases you've averaged a year in your thirty plus years? Objection. Asked and answered. She said she hasn't counted them. Overwolf, go ahead and stop for you.

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I don't know. Fair to say a lot. Probably more than anybody in the room. Would you agree? I don't know. Alright. Thank you. Would you agree with me that in the vast majority of cases, the final numbers come in somewhere between what the staff has recommended, what the interveners have recommended, and what the company has recommended? Typically. Did you I'm sorry. Did you answer? I said typically. Typically. Thank you. Can you think of any instances when, this commission has adopted all of the recommendations of any one party?

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Oh, I I remember one case where the commission did, and then, I think the company said that that that the, order was, real biased because they picked up one part all of one party's adjustments, and I I think it was staff's adjustments and none of the companies. Can you what case was that if you don't remember? Do you remember any other cases in your thirty plus years? No. I'm just checking my notes here. Thank you. With regard to plant retirements,

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does does does the adjustment that Ruka makes, is that is that a revenue neutral adjustment, or does that change the revenue requirement? Well, the the adjustment that Ruko made was to normalize, plant retirements. The company said that there were zero plant retirements when they had actual plant retirements. That means that, their customers would be required to pay depreciation expense on plant that had been replaced. So in effect, they'd be, paying depreciation expense on the old plant that was,

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taken out and then depreciation expense on the new plant that replaced it. So, no. It was not revenue neutral because we were taking out the depreciation expense that customers should not be paying. Alright. Thank you. Let's move on to the number of lag days that this that Ruko was recommending. I've You're familiar, I'm sure, based on your experience with the concept that, every case before the commission stands on its own. Correct? Yes. Now you are advocating, and according to your pre file testimony, you at Ruko are are advocating that the number of lag days should be consistent

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with other companies or and with with what the kite what this company is doing with regard to another, another of another case involving live days and earlier case. Correct? Well, there let me just go Sir, rebuttal testimony because there were other, let's see. Direct. Sir, rebuttal. The number of the black days. Well, there were other, reasons. And one of the reasons Miss Brown, that's not what I asked you. I asked you if one of the reasons that you gave or what what one of one of Ruko's positions is,

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that the number of lag days should be consistent with those of other companies and and those of this Liberty in the last in the in the last rate case. Well, in order to explain not what your Ruko said what you stated in your pre filed testimony? Okay. Okay. I'm gonna interpose an objection here. I I think the witness should be allowed to answer the question. I I think it changed a little bit, and I'm fine with that. But Okay. Okay. Miss wait. Stop. Miss Brown, I need you to please listen to the question being asked and answer the question

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that's being asked. And please do not talk over one another. Go ahead. Thank you. Now you wouldn't be reached do I need to repeat your question again, miss Brown? Yes. Alright. Isn't it true that in your pre filed direct testimony, you, on behalf of Ruko, argue that the there should be consistency among the companies, various companies in that are coming before the commission, as well as between this company's prior rate case decision and and the decision in this case,

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in the number of lag days. Yes. And one of the reasons that I, argued that is because the company's 50 is based in part on a related party transaction. That requires, the company to, make monthly payments. So the the company is basically borrowing money from itself. That's what a related party transaction is. They they represent both sides of of the

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agreement. You know, there's no independent discussion of parties trying to represent their, best interest. So in this related party transaction, the company Liberty is borrowing money from itself, and it's paying money back to itself. And because of this, conflict of interest, that that related party transaction, which, you know, the company self self dealt itself the the best repayment terms of monthly repayment terms

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of of a monthly repayment term, has boosted has artificially boosted the revenue requirement by $46,000, a a year. And if you multiply that by five years, you know, over the five years of a of a of the formula rate plan, the stay out period, they can get $230,000 from rate payers artificially. So, you know, in this time of high inflation,

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Ruko just believes that this fifty one days that resulted from a related party transaction, should not should not be allowed. And, we we showed the other, days of the other companies comparison. And in the last rate case, the company had a related party transaction, where they had to pay monthly, but they used 90.25 in that last rate case. Would you would you acknowledge that in most rate cases,

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the issue of lag days is very case specific. Well Yes or no? No. In your analysis, did you find any data or other evidence that would support your theory that somehow, Liberty received, more favorable terms, than it should have because of its affiliate connection with the parent. Yes. It's what I data. Yes. It's It's what I said. It it artificially boosted. And, miss Brown, I'm asking what data you based that on.

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Did you look at invoices? Did you look at, the general ledger? What data did you utilize to come to that conclusion? Well, what I did was I calculated the lag days using the company's fifty lag days, and then I'm sorry. I I calculated the increase to the cash working capital using the company's 50 lag days, and then I calculated, the cash working capital using the the typical amount of lag days,

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91.25. And I think that's in one of my testimonies. I can refer you to. Let me ask you a question. What do you consider on what basis do you state that there is a typical number of I'm sorry. I thought there was a question pending that she was answering. She can well, maybe she Let her let's let her We'll let her finish. To where she has it in her testimony. Okay. Well, maybe it's my direct testimony. Okay. It's on table two of my of my surrebuttal. It's on page six.

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And it shows the analysis that I did, with the, calculating the cash working capital using the company's 50 related party transaction, And this it shows that the conflict of interest you know, conflict of interest is when, you want to give yourself the best terms. And in this in this case, that conflict of interest from that related party transaction artificially will artificially boost the, revenue requirement by $46,708.

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And if you multiply that 46,000 times five years, that's $230,000 over, five years that customers will have to pay in this time where some of them can't even afford their their, medicine. Let me see if I understand what you're saying. You're you stated earlier that that Ruko's number, the 92 whatever, is a typical is the typical number of lag days. Is am I stating that correctly? Well, it's it's a number that,

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is used when there are, semiannually sem semiannual, interest payments. And are you saying that it's used uniformly by the corporation commission or by whom? No. No. No. What if you go to my Miss Brown, did did you understand the question that I asked you? I'm trying to explain it. Alright. Okay. So if you go to page five, of my Surrey Buttle testimony, I you know, to support the reasonableness of Ruko's 91.25,

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I list 11 other companies that used between seventy four 91 point two five, and I would like to note that Liberty Litchfield Park, used ninety point two five days in its last rate case, and Liberty Rio Rico, used ninety one days. And it's, in docket number number WSDash026768Dash23Dash0340. When you analyzed the

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application and and and looked at these numbers, let me strike that and start over and see where I was. What you you you you looked at these numbers that you listed on on page five of your Careful your, like, talking waving microphone. You're right. Thank you. It's okay. When you came you you've listed some numbers that of of lag days that other companies used. Did you look at the terms of any of those, in any of those cases to look as to look at things as such as invoices and how long it was before the company normally got pay or expenses were

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normally paid, things of that nature. Did you look into that in any of these cases you list in your pre file testimony? Yes. In the Liberty Litchfield Park rate case and their last rate case, the they had, like, a $40,000,000 financing that was a part of their rate case. And the the term sheet said monthly payment terms, yet the company used 90.25. And was that do you know if that was something that the company agreed to?

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That is what the company proposed in their application. And you still I I don't think you've told me that you other other than the fact that this was an affiliated, that this fall this case falls in with within the affiliated interest rules, and because they, the the, the the agreement was between two affiliates, they should have a higher, there should be a a higher number of lag days. Other than that, is there any other basis on which you make your recommendation to the for the number of lag days, such as reviewing invoices, reviewing ledgers, looking at the facts of this particular case?

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Well, one, you know, first of all, I didn't say that the company's, related party transaction fell within the affiliated interest rules or however you say it. So, the my recommendation was based upon, you know, I didn't put it in there, but, you know, the the NAIRUCH, it's the the NARU cost allocation and, I think, affiliate rules. It it says that, related party transactions should have greater scrutiny. So it was that. Then it was that you look at the the number of days compared to

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companies that are considered well managed. It's that. And then you look at the what was, authorized in the company's last rate case. Now are you citing to Naruk, or is that what your position is in in how you conduct the analysis? It's it's Naruk. And can you cite the provision of Naruk that talks? Miss Humphrey, can I ask a question, Jimin? Absolutely. I think miss Humphrey has asked a couple of times. I haven't maybe I missed it. When doing this,

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what invoices did you look at to determine the the lag days? Okay. So some of these companies, I did look at the the invoices. So but for this company, what invoices did you look at? Well okay. So I didn't look at any invoices, but there is no need to. Are you saying that the lead lag in this instance solely relates to the affiliated transaction? No. You know, so what what what does the okay. So what the looking at invoices would show,

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what it would show is when did they make those payments? You know? Did they make them monthly, or did they make them quarterly, or did they make them send me annually? That is the only reason you would look at the, you know, the, the invoices to calculate the lag days. You know? So if you if I agree with the company that it's it's they paid it monthly, then there's no need for me to look at the actual invoices. I agree that it was monthly. So you agreed with this company with regard to everything on the lag days except

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the affiliated, transaction? So okay. So looking at the invoices would verify that the fifty lag days was calculated correctly. I mean, like, mister Barossa said, oh, it was for you know, it was it was less than, 50. You know? I'm I'm not arguing with that. That's what looking at the invoices would do. Okay. What I'm saying is that a monthly payment term is not typical of a what a a companies that are in the

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well managed category would, would do. The company, you know, the company itself had monthly payment terms in the in the last in Litchfield Park's last rate case. Their actual lag days would be around 50 because they had monthly payment terms. But they didn't use 50. They used 90.25. Thank you. Thank you, miss Humphrey, for letting me jump in. Thank you, Your Honor. So in essence, it sounds to me like this is almost a situation like the capital structure of

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a company that that that the the actual number of lag days is not really what Ruka was focusing on. It's more of a hypothetical, number of lag days of what the company ordinarily should have, used as lag days but did not. Is that fair to say? Well, you would have to, add in the reason that we are not accepting the 50 lag days is because it's a self dealt number in a related party transaction that has artificially,

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boosted the revenue requirement. That is the reason. So if you if you say what you said and then add what I said, that would be the the, basically, the total reason. And, in all of your testimony today regarding the lag issue of lag days, is there any justification or basis on which you make your recommendation which you have not covered? I've it it's covered in my, direct and sir rebuttal. And is there anything in your direct and sir rebuttal that you have not covered here today on the stand in that regard?

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No. Thank you. With regard to the issue of, accumulated depreciation to be synchronized to the company depreciation, annualization adjustment. It seems to me I I've seen that recommendation before in in some of Ruko's, pre file testimony in other cases. Is that something that Ruko typically requests in a rate case? Yes. But the reason that we've requested in the in this one is maybe, slightly different. Well, Well, it's a lot different than why we used to request it.

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In all of the cases that you have proposed this type of an adjustment, have you ever been successful? Objection, foundation as to which those cases are. Overworld. I can rephrase it. In the time that Ruko has been making this a proposal of of this adjustment, of this adjustment, has the commission do you recall can you recall any cases, where your position was adopted by the commission? No. But that doesn't tie the commission's hands. Doesn't mean they can't do it this time. Is that what you're saying? Yes. Yes. With regard to the Cereval plant, would you agree with me that the decision to construct the Cereval plant, in the manner and in the time frame in which it did was not made

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at the sole discretion of the company? Yes. There was a previous case where involving capacity. Correct? Correct? Yes. And the commission commission, investigated capacity, of liberty, and talked about the cerebellum plant. Correct? Yes. And so at least part of the timing and the nature of the plant that was to be constructed was at the commission's direction, not at the company's discretion. Yes. Alright. I think we've probably beaten that to death. Miss Brown, thank you for your for your answers this morning, and I have no further questions at this time,

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your honor. Thank you. Good morning, miss Brown. Good morning. Actually, the only oops. Oops. Oops. The only topic I want to go over again is the the issue of the retirements. So from the company's response to one of the data requests, I understand that they said that they had not accounted for retirement since the year 2019, correct? Correct. And the reason they gave was? They said that it was onerous and, let's see here.

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Yeah. They said it was onerous and immaterial. Yeah. Alright. I'm going to object that she is misstating the data request response, which, was provided by Ruko as attachment six to her direct testimony, and reflects I'm not gonna read it. It says why they stopped doing it. She's saying why we didn't make a further adjustment in this case to do it. But the reason the stop being done is stated in that data response. Okay. Let's go with that one. Has the company indicated that they have since improved their software to be able to

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account for this? That's what they've said. But that's not helping, customers in the test year. Is it typical Is it a typical action for a utility to come before the commission and say, well, we don't have that information. We just decided it was not something that we needed to provide because we had certain issues? No. And, for five years, they didn't have, retirements. And they are supposed to be, like they're they're a part of a,

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public publicly, you trade traded, company, and they were asking for, I don't know, how many millions of dollars just for the the water division. It was, 8 I think it was. I'm not sure how how many millions. But it was several millions of dollars for the, water division and the wastewater division. Let me see if I can find that. Which which was shocking to me that they're requesting all of that, money for labor, and they and they can't do,

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like, a little special project representatives and say, well, you know, what can can you recall? Can you just kinda do do the best you can and, recall what what items that you replaced? You know? Because you because they give staff a list of the items that they replaced. They could have gone and did a a, hand used a handy Whitman and, trended those costs backwards to, when they think that it was installed and came up

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with with some numbers that way. You know, estimated the numbers. But they just, in my opinion, just disregarded the commission's rules and, hey. Nothing's gonna happen to us. You know? And, in the process, they're making customers pay for a plant that's still that that's that's not in service. So let me ask a question. The the numbers that Ruko has in in testimony relate solely to the post test year plant being sought here and not any additional numbers going back

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in years. Am I saying that right? If I if I I can assist, your honor. Ruko's not asking for any reopening of any prior decisions and doesn't make any recommendations about post test your plant from other general rate cases. Alright. Thank you. Okay. So So then, based on what the commission adopts here for retirements, the numbers, that will be the starting point for future retirement calculations. Yes. That will, reduce their plan and service, and it also reduced their accumulated depreciation. So there was a net effect of zero on rate base.

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You know, the NARUC says that, when you retire a plant, say it's $1,000, you take it out of plant and you take it out of accumulated depreciation. So it's a net effect of zero. But what it will do, it will stop ratepayers from paying depreciate depreciation expense on plant that is not providing service to them. And the company wants to treat that the the 569,000 and the other fully depreciated pumping equipment as retirements,

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and Ruko is opposed to that because, they should take the time because that plant could still be serving customers. That those those pumps could still be serving customers, and and Ruko would just like for them to take the time to ascertain, whether or not that plant is still serving customers. And until such time as they, don't provide that information, Ruko is recommending that that the fully depreciated pumps should be treated as pumps that are still providing service. Thank you,

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record. Okay. Alright, y'all. Okay. Let's go ahead and go back on the record. Miss Barrios Cool. Thank you, your honor. Miss Brown, I I first want to clarify, Ruko's recommendations requirement, one with formula rates and one without? Yes. Okay. And with in connection with the filing of your direct testimony, did Rugo provide a set of FBR or formula based rate schedules? Yes. And that's different than the schedules without formula rates? Yes. Okay.

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Is it you'd agree with me that the, issues matrix marked as six or excuse me, s 16, it only states Ruko's positions without the ARAM. Is that right? That's correct. And to your understanding, is that because Ruko opposes the ARAM? Yes. Okay. Would you, would you agree with me, subject to check, that Ruko's, recommendation for the revenue requirement regarding the water division with formula rates is 20,232,000,

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$81 subject to check? Yes. Okay. And if I had told you I had done the math between the, set proposed revenue requirement in the settlement agreement as it appears in the issues matrix and taken that number and then subtracted Rupo's with formula rates number, would you have any reason to disagree with me that I'd done that math? No. K. And would you have any reason to disagree with me that subject to check,

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the difference was approximately $1,236,521? I would agree with you. Okay. And if I told you I'd done similar math with respect to the wastewater, division, and calculated the difference between the settlement's proposed revenue requirement and Ruko's with formula rates, revenue requirement. Do you have any reason to disagree with me? No. K. And would you accept that Ruko's proposed annual revenue requirement with formula rates,

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subject to check, 30,654,622? I would agree. Okay. And if I told you I calculated the difference between that and the settlement agreement, to be approximately subject to check, $930,417. Would you have any reason to disagree with me? No. Okay. And would you agree with me that $930,000, pretty close to a million dollars? Yes. Okay. I remember you saying, in connection with your discussion with miss Humphreys,

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every dime counts. Do you remember saying that? Yes. Is a million dollars or thereabouts a lot of money to Ruko? Yes. K. Is a million dollars or thereabouts tend to be a lot of money for Ruko's constituency, the residential rate payer? Yes. When they're all added together, it it's it's, it's material. K. Is it your position that Rugo can propose a number of lag days for regulatory purposes? Yes. For rate making purposes. Okay. And are you aware of any commission rule that, requires the use of particularly calculated lag days for rate making purposes?

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There is no rule. And would you agree that the commission can, if it so chooses, be informed in one case by its own decisions and rationale in other similar cases? Yes. Okay. Can you can you elaborate on why you synchronized the depreciation expense in this case? Yes. So in the past, Ruko used, matching. In this rate case, the primary reason that Ruko is really the only reason that Ruko, synchronized the accumulated depreciation to the company's,

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depreciation annualization adjustment is based on the commission rule, the commission's definition of original cost rate base. And I will read it. It's attachment five in my surrebuttal. And it's, paragraph h. And it says, original cost rate base. An amount consisting of the depreciated original cost prudently invested of the property, exclusive of contributions and or advances in aid of construction at the end of the test year,

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used or useful plus a proper allowance for working capital, and including all applicable pro form a adjustments. So, that adjustment was applicable. If you look at the paragraph beneath, h, which is I, it says pro form a adjustments. Adjustments to actual test your results and balances to obtain a normal or more realistic relationship between revenues, expenses, and rate base. And a a a relationship denotes at least two parts.

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You know, it says, a more realistic relationship. That denotes two parts. The company only adjusted one part. Ruko adjusted both of the parts. So Ruko made those adjustments in order to be consistent with the commission's rules. Okay. And and that's addressed, more fully within your surrebuttal testimony? Yes. So to be clear, you're not making an argument for a roll forward of, accumulated depreciation, which the commission in the past has not accepted in other cases.

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Right. Ruko's adjustment, does not roll forward any accumulated depreciation into a future period. It doesn't go into the, post test year period. It only pertains to the test year. So the any characterization of the roll forward is is incorrect. Thank you, miss Brown. No further questions. Mister Sabo, anything? No, your honor. Miss Humphrey? Nothing further. Thank you. Alright. Okay. Miss Brown, thank you very much. Appreciate your time and your testimony today. And you may step down.

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You're excused. Miss Barrios School, will we could be calling any further witnesses at this moment? Not at this moment. Okay. Before we get to staff witnesses, let me ask, does does anybody have questions for, miss Lee? Staff Staff witness Lee? I I think I have a few, for Lee, but, admittedly, she she was, like, third in staff's order, so I haven't reviewed those again in light of where we're at. Okay. I just wanted to make sure somebody had some questions. Okay. Yeah. I do have a few. I don't think it'll be lengthy by any stretch of the imagination.

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Okay. Then let's go to, miss Scott or miss Humphrey? Yes, your honor. Before we we we begin, I actually and I was hoping to get miss Perrault's calls. I've, between hearings and we couldn't. Steph intends to call only two witnesses. That would be Theresa Hunsaker and Britt Baxter. As I told you in, in our, opening, I think, miss Scott and I have divided the issues up, into, settlement agreement, and revenue requirement and the formula rates. So, we may both be asking questions of mister Baxter if that's not a problem.

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I don't think anybody's objected so far. But I I in discussions with with, miss Barrios Cool, she has advised us that she does wish to ask questions of staff's other witnesses. So, one, I learned over the break that miss Betz Maya has gone home sick today. Oh, no. Mister Baxter, as her supervisor, plans on testifying, to anything that she could have testified to, and so I'm hoping that would that will be acceptable. We would like to know if you have any, any witnesses of staffs who filed pre filed testimony who you would like to ask

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questions of, and and we obviously are gonna make those people available. But I I would note that because of the way this this case occurred, the the remaining staff witnesses other than miss Hunsicker and mister mister Baxter, really only filed pre pre pre filed testimony with in their direct testimony. The position of staff has changed since that direct testimony, but those witnesses and those witnesses really don't have anything to do with anything that happened after their direct testimony. So the, we believe that that their their cross examination should be limited,

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to what's in the direct testimony, and they can certainly tell any of the parties who have questions what you know, something is outside their area. But I wanted to give you an advance on that, and then let us know, you know, which witnesses you want us to call, and and we will call those. I think the only witness that miss Barrios Cool didn't need was Guadalupe Ortiz. Yeah. I think the difficulty is is that Rupert hasn't signed on to the settlement agreement. But I do see your point that they're free to question them about the pre filed testimony. And and they need to be given an

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mentioned in Right. Settlement about Settlement negotiations. So, And if I may, your honor, I I don't intend to, I don't intend to quiz staff witnesses on what they supposedly don't know about the settlement. I may ask them, for the record, if they, are are aware of the settlement agreement or if they reviewed their own pre filed testimony to determine whether aspects of the adjustments they proposed in direct are incorporated in the settlement agreement. But I don't I don't intend to go deeply on that.

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If they say, no, I wasn't involved at with the settlement agreement or anything after my direct testimony, then I can't imagine I'd have any questions for them on on those issues because they just said they didn't have anything to do with it. But I don't wanna have constraints imposed on my cross examination, particularly because Ruko didn't didn't, sign, didn't sign on to the settlement agreement and opposes it. Your honor, if if I could chime in on this, and I see mirrored in both what staff and Ruko was saying. I guess, on a practical note,

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since Ruko has only stipulated to miss Ortiz's testimony, I mean, we're gonna have to get the other testimonies in, so those witnesses are at least gonna have to sponsor them. So, I I I don't know what that means. We need to drag everybody down here to, you know, is this your testimony, blah blah blah. But, I I don't know if there's another option to that. I I will say this. However, with respect to miss Bethsimaie, I conferred with mister Pazewski who's going to be, examining mister Baxter. And I I think if it's okay with everybody,

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I could ask the questions I had for miss Betsy Maier of mister Baxter, and then mister Pazewski can pick up where he intended to, in the areas he intended to examine mister Baxter separately. Okay. And, actually, your honor, that that is something that is what we had what we had originally planned was to co director of utilities and supervises all of these, all these potential witnesses. We were going to use utilize, mister Baxter to introduce those the the all of the pre file testimonies since he was done at his direction,

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and that he would be able to answer all the questions that the other witnesses would be able to answer. But as I said, it you know, it it has a right to to to question these people if if they want to, and we will make them available. Your honor, there's one other thing at the right time. Which is? The and this has to go with this is Barrio's cool. I don't know how we're gonna how we're gonna get limited with these other witnesses, etcetera, etcetera. But there is a dynamic here that's a reality, and that is the settlement agreement does not contain any of the provisions of the

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ARAM. The only thing in the ARAM, ARAM's not even mentioned in the settlement agreement. So still there's this question and I intend to talk with mister Baxter about that exactly whether the settlement agreement even applies to the ARAM, the one that's signed. But I do know that regardless of where that conversation goes, I wanna make sure then as far as Kool can discuss with miss Hunsaker because she's the one who talked about the formula rates,

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the ARAM discussion because obviously, we don't wanna wait till we get to mister Baxter, find out there's objections all over because he's only testifying about the settlement. So there's a dynamic here and that's what we're talking about, giving us a little leeway and making sure we're not cut off. Miss Humphrey indicated that miss, Hunsicker would be testifying. Okay. K. I and I have questions for mister Swiler as well. I I mean, I understand that mister Baxter is the utilities co director, but my understanding is he's not a cost of capital analyst. I know he's a man of many talents. Of capital analyst. I know he's a man of many talents,

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and I've only ever heard him say he's not an engineer. So, but I would like to to examine mister Swiler as well. Okay. And your honor, let me point out that while there is only one signed settlement agreement, which does not, include, the ARAM, there have been subsequent filings, joint filings between the staff and company, indicating that we do have an agreement, just not a signed written agreement on the ARAM. So, just to I'm sorry. I'm sorry. Just to clarify, and I'm not looking for a I mean, you know, we didn't file a motion of limine.

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I'm not asking for a formal order, as to what what Ruko can and cannot go into. I was trying to give you an indication of of where we're headed with this, what we think they have, and, you know, if if we if if a question is asked that does not address something that that witness is capable of answering, we'll so indicate, but we're not looking for a formal order from you saying, yeah, you could talk about this or not. I'm just giving you a heads up. Okay. Could I add one thing, your honor, to what miss Humphrey said? I'm concerned with what mister Pizzeski said because I think the intent is for since

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there was this separate agreement on the formula rate plan, the intent is that mister Baxter could testify as to that and would with respect to the policy issues. I'm sorry. There was a separate agreement on the ARAM between staff and oh, that's right. That was I'm sorry. I'm sorry. Okay. Yeah. Alright. I think the company would prefer to use the word stipulation just because it's not a formal, you know, settlement agreement with clauses and all that stuff.

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We would agree with that. You know what? Let's go off the record. I need to take a break for a few minutes. Let's come back here at five after. Just a short one. Sure. Okay. Let's go ahead and go back on the record. And, while we were gone, miss Humphrey, had something that she wanted to relate on the record. Yeah. Thank you. Edith. Thank you, your honor. I I misspoke when I when I said that, Britt Baxter was gonna be covering the testimony of Helen Betzamaya. That would actually be Teresa Hunsaker, who is her immediate supervisor Okay. And who also,

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of course, has been a witness in the Liberty cases for years. Okay. So what we will do then is, where are we? Oh, here we are. I'm sorry. Yeah. I'd Ruko would like to get something on the record as well. Okay. And and I just asked you to bear with me on this. So, in an abundance of caution and recognizing that, this case relates to a request for imposition of a formula rate. Ruko does contemplate that the ultimate outcome could lead to an appeal. And Ruko does not want to invite any error.

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And we observe that neither miss Hunsaker's nor mister Baxter's testimony relates in any way to the ARAM. And with respect to mister Baxter's testimony, it doesn't include, policy arguments with respect to formula rate plans in general. All of that is outside the scope of the testimony. And so Ruko would object to that testimony being now provided here, in connection with the hearing. The the scope of the testimony is the scope of the testimony, and we don't expect that the witnesses would be able to go beyond that scope.

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We also don't want to, create a situation where it it can be argued that Ruko waived any of its grounds for appeal by failing to object. And so, we would place that objection on the record. And if your honor believes it's necessary, we could file a motion in lemonade in the docket to the extent necessary. Okay. Let me ask a question about that. Because when we were talking about what to do, whether to bifurcate, whether to move the whole thing, anything like that, was Ruko's position is, no.

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We're gonna move forward. Wait. That was Ruko's position, but we're hearing now today that miss Hunsaker is going to be providing testimony on the ABRAM. None of that has been disclosed to us. And just this morning, I I believe I heard from miss Humphrey that mister Baxter is also going to be providing testimony regarding, you know, policy grounds and issues relating to formula rate plans, which is outside of a settlement testimony as well. Okay. Mister Sallow? Yes. Thank you, your honor. I appreciate the opportunity to be heard on this point.

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As your honor was, just noting, the this was discussed. You know, staff and, the company, had suggested a bifurcation in the phase two. That was what was reflected in the settlement, which would have had multiple rounds of testimony and all that sort of thing, and Ruko was determined not to do that. They insisted, no. We wanna go forward this this week. And so that's what we have done. It required a, I'll say Herculean effort of both, the company's, folks and personnel as well as,

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staff attorneys and staff's witnesses and personnel to, get the POA, together, updated, reflect UNS Gas, reflect all the things in staff's testimony, all the other adjustments, get that all together, get the template together, get the customer notice together. So based on Ruko's insistence that we go forward this week, that has all been done. I I don't see how we can have a hearing about the ARAM without having testimony from staff about the ARAM. And Ruko's position that we should have the hearing this week is inconsistent with a

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position that staff be precluded from testifying about the ARAM. So, we would, strongly disagree with any attempt to limit staff from testifying to the very thing that Ruko invited. If I can just respond to that briefly. Miss Humphrey or miss Scott? Your honor, I agree with mister Sabo. In addition, we have been offering there has been testimony on the ARAM up until this point. Our some of our, or I should say, Ruko's witnesses,

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the company's witnesses, have given extensive testimony on the ARAM. And, staff has cross examined all these witnesses. So now for Ruko to wait until this point and say that it wasn't an issue and shouldn't be an issue in this case, to me, that's very disingenuous. And I think we have we had every basis to presume that the ARAM was going to be subject to this process. In fact, I believe, your honor, I'm not sure it was you,

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I thought it was, suggested that some leeway would be given to us because we hadn't been able to file pre filed testimony. And so we did, in good faith, operate on this basis that we could present it. And again, we heard no objections from Ruko during this whole process. So, I think we're well within our, rights here to have proceeded in this manner, and I think it should be continue to be part of this hearing. I'm sorry. Ms. Barrow School.

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Thank you, your honor. First, Ruko's, arguments relating to its opposition to bifurcate related to the CSRM, which, the company had characterized as a fully fledged proposal. It's a completely different proposal than the ARAM and the joint filings, that came subsequent to to all of that, including subsequent to the, pretrial conference, that was held, during which, your honor suggested a change to the name, but then the result was also a change to the template and protocols. So I just wanna note that,

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the company has filed testimony with respect to, its formula rate plan, its proposals, and with respect to c the CSRM. And the company also provided exhibits that relate to the ARAM and to, and to the current protocols, but staff has not filed any testimony. And so the, the issue is that now it appears that staff is wanting to provide evidence on the stand that, that isn't supported at all by by any prefiled testimony.

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Staff I mean, I think your honor observed staff did have the opportunity to file a rebuttal. It it chose not to do so, when it reached the settlement to my understanding, but but there's simply not testimony there. And because there's not testimony there and the ARAM is not subject of the settlement, that's where we have an issue. Yes, your honor. Oh, wait. Please go ahead. Your honor, I just wanted to note that we did file some, direct testimony on the CSRM and rate design. And, in this proceeding, even Ruko has been asking witnesses,

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well, the CSRM is the ARAM, is it not? So, I I do, again, believe that this should remain in this phase of the proceeding as I think was contemplated. And if I may, your honor, because miss Scott wasn't involved in this in at this point in time in this case, to point out that the parties of all I had all agreed to, a schedule of witnesses, which I've mentioned before, and a and an and an updated procedural schedule, which listed all the times when, when testimony would be filed.

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And we that's in your procedural order, revising the procedural schedule, and this issue was not raised at that time. And I think by in that in that adopting that schedule implicit in that is that staff was not filing any testimony. In fact, I believe it was discussed at the procedural con at a procedural conference, that that, staff would because if you if you remember, there's a a line in the in the procedural order that talks about testimony and opposition, and that would be slash server buttle,

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but that's but there was discussion that staff would not be filing any server buttle, based on the settlement. So that that has been implicit in this since you know, for weeks. Let's put it that way. And sorry. I didn't wanna butt in. But And and your honor, further to that point, if if if I may, your honor's, procedural order dated 02/27/2026 at page five, adopts there's an ordering paragraph adopting a procedural schedule, and it's in table format.

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It's the table that was agreed between, staff, Ruko, and and the company. And the one, two, three, four, fifth line down in that table says, testimony in opposition to settlement, Prorin, and Ruko's surrebuttal to company rebuttal and Prorin, and that was due 03/16/2026. So the, schedule adopted by your honor provided for testimony in support of the settlement on on March 6, which was done,

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then the joint POA was was not available until, later in the month. And the March 16 date did not include, staff serve rebuttal. It was Ruko's serve rebuttal. So, I would agree, with miss Humphrey on that point. And, on the point of whether the CSRM is completely different than the ARAM, obviously, there's a difference in perspective on that. We've provided testimony that it's an evolution. Certainly, I have some questions for staff on that very topic,

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And we can hear testimony about the extent to which it's radically different or not. It's no surprise to Ruko that we were incorporating provisions from UNS Gas, or and, you know, should should not be a surprise that we were adopting some of staff's direct testimony recommendations and, you know, also some of Ruko's recommendations. You know, if if we adopt Ruko recommendations, that's not a basis to preclude testimony. The, hearing has gone forward, with questioning, from all the parties on the joint proposed POA,

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which is exhibit a 23. Liberty has been permitted to testify about it. It has been subject to cross about it. I asked mister Michalik various questions about it. So Ruko has testified about it both in their direct on the stand and in cross examination. So to suggest that staff, uniquely among all the parties here, should be precluded from, discussing the plan of administration, we would strongly disagree with that. And I think to have a full record to provide the commission and,

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to, give the commissioners the information they need, they should, have the benefit of staff's testimony. Hey, your honor. Just make sure Stop. Miss Barrios Coop. Thank you, your honor. I wanna be clear about the relief that Ruko's requesting at the moment. We're not asking to bifurcate the proceeding. What what we're asking is that the scope of the testimony for both miss Hunsaker and Britton Baxter, other staff witnesses, be limited to their pre filed testimony. Ruko does acknowledge that it it did agree to, changes to the procedural schedule with respect to pre filed testimony that included,

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testimony in support of the settlement agreement, which staff did file. But staff's testimony in support of the settlement agreement does not relate to the ARAM and does not relate to formula rates. That's because the the company and staff in the settlement agreement only addressed, a phase two. And I I'm not aware of any request, by staff to supplement or amend its testimony in support of the settlement. And like mister Pozewski noted, the the ARAM,

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the jointly proposed protocols and and templates, they're not part of the settlement agreement. And so we're just asking that the testimony of staff witnesses be limited to the pre the scope of the pre filed testimony. That's that's what we're asking for. Miss Scott, yes. One one more point, your honor. With respect to the settlement agreement that's being referred to, of course, that address the revenue requirement issues in this case largely. However, and the surrebuttal testimony that was permitted in that regard, did not allow for,

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it was our interpretation, any filing of testimony on the CSRM or ARAM but yet, there was the suggestion that parties would have leeway, because of the changes to to the procedural schedule to address, issues such as this. Ruko's own witness, mister Michalik, included some exhibits from the UNS gas case and he discussed those. They were the testimony of one of the witnesses in in UNS Gas that Ruko

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had presented. I think, you know, all in all, I think, it it was contemplated that we would be able to address the formula rate plan. And I I just find that bringing this up now as Ruko is doing, is should they should have brought it up much sooner if this was their actual feeling. This to me is very disingenuous. Thank you. Alright. I I have to say that the actions of the parties has been shocking to me.

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Deciding on your own accord not to file testimony that's been directed to be filed, deciding on your own accord not to, provide testimony about an extraordinarily important subject right now before the commission, and just going back and forth, we In the first procedure conference, I stated very clearly that we needed to have this done before TEP and APS. And it was solely because you guys were going to have your hands full with everything. And I guess, you know, that was a little, I don't know, parental of me saying,

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I know better, you know, but And and the company's continued insistence that it would be better to have all of this all of these other cases go before us so we have that information. Well, they don't have that information. Flabbergasted by this. This has resulted in, you know, for whatever confusion I've caused, so what I'm going to do is we're gonna take a lunch break. We'll come back at 12:30, and I will let you know what we decide then, but there will be additional testimony given today on certainly other things, if not the ARAM. Understood?

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Yes. Yes, your honor. Thank you. Thank you. Let's go off the record, and we'll see everybody at 12:30. Okay. Miss Scott, if she doesn't come in shortly, then you'll have to back up and fill her in on where we are because we need to get forward, move forward. So Okay. Let's go ahead and go back on the record. So here is what we're gonna do. We will take direct testimony today from Ms. Hunsicker and Mr. Baxter about whatever, but also about the formula rate plan. Then Monday,

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and if not Monday, some other day next week, the calendar's pretty open. Bring them back so folks will have had time over the weekend or whenever to review the testimony because, I've asked our broadcast folks to put it up on the website as soon as they possibly can so they will have that to go back and refer to. And we can do the, cross examination, redirect, and all that stuff on Monday. So first question is, does Monday work for everybody, or do we need Tuesday, Wednesday, what? 10AM. Ten I'm sorry. 10AM, your honor? Mhmm. That works for us,

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your honor. K. We need to check with miss Hunsicker and mister Baxter and the staff too. They're checking right now. Mhmm. While they're doing that, may I apologize for my delay? I got wrapped up in reading a document. I hate to do that to you again. Okay. Mister Salvo, mister Emedy, do you have issues on Monday? We're we're fine Monday. We we can make any day next week work, your honor. I'll also, offer, what whatever your pleasure is. We do potentially have some cross that's, that we could do with those witnesses that it's possible Ruko will want to hear

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before they do their cross. So we can do that today or or Monday as as you believe is best. Okay. Mister Baxter indicated he was fine on Monday. Okay. And he have you heard? And Ranelle is also fine, the other co director. And Bridget and I are both fine for Monday. Great, thank you. So Monday at ten a. M, please. Then also, Ms. Humphrey and Scott, just, you know, I asked admin to send around that email this morning about, you know, written summaries of testimony. Does mister Baxter have one something beyond the settlement agreement?

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I mean, yeah, beyond the settlement agreement, sorry. Actually, your honor, that's what I was looking into and when when I was delayed. We filed the the witness summaries, before the issue of bifurcation was addressed. And at that time and before we had the the new POA, on the ARAM. And at that time, we were just listing the settlement because we didn't know that that we weren't gonna bifurcate, and, we didn't have the the agreement between staff and the company. Sooner, the better, because we can take testimony today here. But I think,

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again, it would be helpful to everybody if we had something in writing as well to to move forward. And, again, the this thing will be up as soon as possible as soon as broadcast can get it up. We appreciate the efforts of both your honor and the broadcast room as well. Thank you. Okay. And then, mister Sabo and mister Amity, I'm afraid I have some ugly requests. Thank you. First, I need it's probably a legal opinion at some point, so maybe for the brief. But the transactions between the company and its parent company,

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that we were discussing today regarding the lag days, Any either evidence or legal opinion as to whether that was an arm's length transaction? K? Your honor, we're happy to have out it is not a arm's length transaction. It's within the company, so, we would not consider it arm's length. So that's your legal response then. Okay. Okay. And then retirements. First, is is Liberty, dealing with plant retirements the same way that it's dealing with Litchfield for its other utilities? Can I have a moment to Yes? Check on that?

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Yes. Your honor, yes. The company, does have, essentially a company wide accounting system. So, it's the same for all the different subsidiaries in Arizona. And as noted in that attachment to, miss Brown's testimony, I believe it was attachment six, the data response. There there was a problem with the prior accounting system, and so now they've adopted a new accounting system and are are working on getting that all squared away so we don't have to deal with this again.

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Okay. The difficulty with that, and I'm sure you know, is that despite what miss Barrios Cool said about, you know, we don't need to we would have to do, forty two fifty two, I disagree with that because we wouldn't be asking to change anything there. You roll those retirements forward, you roll that depreciation forward, and and if you don't, there's the the danger of customers overpaying for that. Your honor, it's helpful. We we can provide a witness to further address address that as as a rebuttal

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or, however we wanna do that. However you you wanna do that, accept. To the best of the company's ability and despite whether or not it's onerous, I would like as a late filed exhibit, a schedule or a table or something for the plant retired since 2000 19 by year, division, account, and amount. Because whatever that number those numbers reflect moving forward, they need to be reflected here. So we keep that as late fall exhibit, and I will keep the record open, to if anybody has something they need to address in it.

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And I know that's that's an ugly request, but I just don't see how it benefits rate payers to say, oh, well, we didn't account for it beginning in 2019. That's five years, six years. So that's, what I need to require. Alright. Having said all that, so what I guess we're gonna do is go first to other witnesses beside, miss Hunsicker and mister Baxter to get their testimony and your questions answered and then we'll go to them. Miss Barrios Cool? That works for Ruko, your honor. Although I'm I'm happy to, ask questions I would have asked of miss Fatsamae,

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to miss Hunsaker. So the other witnesses of staff that I have questions for, aside from, miss Hunsaker and, mister Pizefsky's questions of mister Baxter, I have questions for mister Malone, miss Lee, and mister Swiler. Okay. And then miss Hunsicker will do herself and miss, Bethsomea and then mister Baxter. Are we missing somebody? I think that's everybody. Right? Mhmm. Okay. So, miss Scott or miss Humphrey, you can call them in whatever order you need to. Alright. Thank you. Thank you. Staff calls as its first witness,

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Matt Malone. Right. Okay. Good afternoon, mister Malone. If you could please, approach the stand, but remain standing for it to be sworn in by the court reporter, please. Good afternoon. Please raise your right hand. Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth? Thank you. Go ahead and be seated. And I'm sorry. Are you miss Scott or miss Humphrey? I'm going to. Okay. Miss Humphrey, please. Good afternoon, mister Malone. Would you state your name and business address for the record? Yes. My name is Matthew Malone, and the business address is 1200 West Washington Street.

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Oh, Matthew Malone. Sorry. Matthew Malone. Business address, 1200 West Washington Street. In Phoenix? Yep. Phoenix, Arizona. By whom are you employed and in what capacity? The Arizona Corporation Commission. I'm employed as a public utility analyst. Were you assigned as, to conduct an analysis of the applications of Liberty Water and Sewer in this case? Yes. And can you tell us briefly what your review consists of? Yes. My review consisted of, review of the rate based items for Liberty Litchfield Park water and sewer.

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You should have up there on the stand a notebook that has, witness test witness statements. Do you see that? It's a white it has a white cover. And I would direct, your attention to what has been marked as exhibit s four, which should be your direct testimony. Okay. I got it. Great. Running. And, is s four in fact the pre filed direct testimony that you prepared in this case. I believe it's s three in this order. But Alright. My notes could have a typo. Let me look really quickly,

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so I don't At least in this binder. And, miss Humphrey, your exhibit list also identifies s threes, mister Malone's list. Typo in my notes then. Thank you so much. Stand corrected. Mister Malone, can you identify exhibit s three? Yes. Is that your direct testimony? Yes. This is my direct testimony. And was it prepared by you or at your direction? Yes. Now, since the time that your testimony filed was filed in this case, has staff's position on the issues changed? Yes. And, were they was was the was staff's position changed to reflect the settlement agreement?

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Yes. Did your testimony help inform the terms of the settlement agreement? Yes. It helped inform them. Yes. Now I'm what I'm going to ask you is, do you have any changes or corrections to make to your testimony? Setting aside the the fact that some of the issues have changed as written, is your testimony correct, or do you have changes to it? It's correct. Alright. And are you adopting that as part of your testimony here today? Yes. Your honor, we would move for the admission of exhibit s three. Okay.

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Any objection? No objection. No objection, your honor. Alright. Exhibit s three is admitted. And mister mister Malone is available for cross. Alright. Where are we? Mister Sabo or mister Ebony? Alright. Go ahead. We have no questions, your honor. Thank you. Alright. Thank you. Alright. Miss Barrio is cool. Thank you, your honor. Good afternoon, mister Malone. Good afternoon. I I have a few questions for you, and I wanna chat. Since you've got s three in front of you, you're direct. I wanna start with some of the text inside of your executive summary. Mhmm. First, let's talk about Liberty's ability to raise capital.

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First, as acknowledged in your executive summary, Liberty's ultimate parent is the Algonquin Power Utilities Corporation, a Canadian corporation whose shares are traded on the New York and Toronto stock exchanges. Is that right? I believe so. Yes. K. And, are you aware that consolidated with this case is a financing application relating to which the company is asking the commission to approve, issuance of new debt? Yes. And does your executive summary, identify that the amount of the the debt the financing application seeks is $65,000,000

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in long term debt bringing the total debt authorization to a $105,000,000? Yes. K. And as far as you know, no one is contesting that financing application. Right? Yes. Let's turn to page six of, your direct. Okay. Do do you see at line 10 in connection with the financing application? Does it say there the lender is u Liberty Utilities? Yes. Okay. So to be clear, Liberty Litchfield Park will be getting financing, from its parent if the, financing application is approved by the commission?

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Yes. Okay. You also indicate that Liberty Litchfield Park is in the process of potentially applying for a low cost loan from the Water Infrastructure Finance Authority or WIPA. Yep. Yes. Okay. So you'd agree with me, wouldn't you, that Liberty, at least to the extent it's, successful in obtaining a WIF alone or a loan from its own parent, it wouldn't be raising those funds from outside investors. Any question on capital procurement, I would, direct to mister Swiler. Okay. Thank you. Did you,

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after the settlement was reached, review the various adjustments sponsored in your direct testimony to see if they were incorporated in the settlement agreement? Anything that pertains to the settlement agreement, I would direct to mister Baxter. Can you turn to page 21 for for me, please, of s three? And then, starting at at line 20, there does does your testimony read, upon review of the company's accumulated depreciation schedules, staff determined that the company had not been including plant retirements since 2019.

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Staff is currently working with the company to properly adjust for retirements and will address this issue in further rounds of testimony? Yes. K. But this is the only, round of testimony you provided. Correct? Yes. Okay. And to the extent that, there's anything having to do, with the plant retirements in connection with the settlement agreement, would you defer those questions to mister Baxter? Yes. Okay. Can you turn to page 23, lines 22 to 24 of your testimony. And and starting on, page 23,

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line 22, do you see, there you're discussing a rate based adjustment for reclassification to the water division? Yes. Okay. And and there, do you state generally that the staff reviewed some documentation and had to reclassify, some plant from the water to the wastewater division? Yes. Within the, scope of your direct testimony, did you also, touch upon removals that, staff had determined, at that time should be made because plant was no longer used and useful, incorrectly classified, or otherwise inappropriate for inclusion in rate base?

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Yes. Okay. And to the extent that, we have questions about whether those, are incorporated in part of the settlement agreement, would you refer those questions to mister Baxter? Yes. I'm looking for something in particular. Okay. Do you know whether the settlement, you know, strike that. Let's talk about the, about the Cereval deferral order. Can can you go back to the executive summary of your testimony, s three? I'm just trying to find exactly oh, on the second page of your executive summary, do you see in in bold there's some words that around the middle of the

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page, it says other items? Yes. Okay. Does the paragraph right above that read staff review the Cerebral depreciation deferral accounting order as authorized by the commission in decision number 80122, 03/20/2025, and determined that the accounting order followed the specific limitations and requirements set forth in the decision, staff concurs with the inclusion of 5,204,310 in rate base. Do you see that?

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Yes. Okay. In connection with this testimony, were you the analyst on behalf of the commission who reviewed, that decision and made the made the recommendation it be included in rate base? I did not do the review of the decision. That would be missus Hunsicker, and I would refer to her on the history of Okay. So with respect to staff's interpretation of the deferral order and what's included and not included, you would refer those questions to miss Hunsaker? Yes. Okay. K. Give me just a second. Thank you, mister Malone. No further questions.

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Thank you. I have no questions, so let me go back to miss Humphrey if there's any follow-up. I have no redirect. Alright. Thank you. You got off easy. Yeah. Okay. Thank you very much. You must sit down. Okay. Miss Humphrey, miss Scott? Steph would now call you normally. Good afternoon. Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth? Thank you. Good afternoon, miss Lee. Good afternoon. Would you please state your name and business address for the record? Eunyoung Lee, e u n y o u n g l e e.

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Okay. It's very soft spoken, so make sure you speak out right now. And business address is 1200 West Washington Street, Phoenix, Arizona. By whom are you employed and in what capacity? Arizona Corporation Commission. I am utility engineer. Were you assigned to conduct an analysis of the applications of Liberty Water and Sewer in this case? Yes. What did your review consist of? My review consists of analysis of our wastewater and water system and water usage and wastewater flow compliance status,

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rate base, plan addition, including post test year plan addition, and, other issue, requested by company. Did you conduct a site visit in this case? Yes. And do you recall who was present with you at the site visit? There's a various person. Yeah. I I remember the miss Wise and, mister Garlic and the operator manager. I can't remember. Terry was there. And including, our staff member is Matthew and Theresa and others.

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And Matthew Malone? Yes. And Theresa Hunsicker? Yes. Thank you. You should have in in front of you a notebook that has, staff's exhibits in it. Do you have that? Yes. Could you turn to exhibit s seven? I'm there. Is that s seven your direct testimony filed in this case? Yes. Was it prepared by you or at your direction? Yes. And, since you filed the direct testimony, has staff's position on the issues changed? Yes. And was that to reflect the terms of the settlement agreement? Yes. Did your testimony that you pre filed help inform the terms of the settlement agreement?

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Yes. Now setting aside those changes, I wanna ask you about the if you have any changes to make to your pre filed testimony today, and I I I don't want you to include anything that changed because staff's position changed just correcting errors or adding something that was left out. Do you have any of those changes to your pre file testimony? No. Are you adopting it as part of your testimony here today? Yes. Your honor, we would move for the admission of exhibit s seven. Okay. Any objections? No objection. Alright. Exhibit s what?

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And miss Lee is Wait. I lost I lost oh, s seven and s eight are admitted. With that, miss Lee is available for Cross. Mister Sotto. Alright. Miss Barriosco. Hello, miss Lee. Good afternoon. Good afternoon. With respect to, the company's application, isn't it true the company originally requested twelve months of post test year plan added during the period of 01/01/2025 through 12/31/2025? Yes. Okay. And indirect, staff agreed to that proposal based on its,

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its typical criteria for using post test your plant. Is that right? Yes. Okay. Can you turn to, page 43 in your testimony that's been marked as s seven and just let me know when you're there? Yes. I'm there. '43. And there between, line seven and eighteen, that sets forth, your understanding of, the criteria that staff typically uses when evaluating a project's inclusion as post test your plan? Yes. Okay. Is that your opinion of the typical criteria,

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or is that staff's standard criteria that that we would see used from case to case? We use the typical, rate case for this criteria. Would you agree with me that that criteria was formed in connection with, with rate cases going back a number of years? Yes. Okay. Did are you aware of whether the staff has made any analysis of whether its typical criteria remains appropriate for a formula rate case?

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A formula rate case is annual basis, so it depends. Can you can you elaborate on that? Depends on the what's project, but typically, this is only for post test year plan addition, which is, typical rate case for five year or six year periods with, additional post test year plan addition. This is the criteria we're adding, but formulary is different. Is is there an is staff working on developing a new criteria for formulary cases that you're aware

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of? I don't know. Okay. Fair enough. With respect to the criteria that that's set forth here and, rate cases as you described that maybe happen every five or six years, is the purpose of the post test year plan, pro form a adjustment to address regulatory lag? Yes. Let's see. Can you turn, to the next page, page 44? Yes. I'm there. Okay. And and as addressed, starting in this page, is it fair to say that, at the time of your direct, staff had determined that some changes were necessary,

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to the company's proposed pest proposed post test year plan because, in some instances, projects were not used and useful. What do you mean? Can you explain more? Yeah. Let me see if I can give you, a reference. Okay. So let's start with the water division, for instance. So starting at line nine, does it say there, two projects were identified for exclusion because the costs were not considered significant expenditures for the company and do not meet staff's post test year plan criteria.

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Accordingly, staff concludes that $8,499,870 of the Liberty Litchfield Park Water Systems post test year plant additions are used and useful and in the provision of service. Do you see that? Yes. Okay. We're so can you can you elaborate on those that were excluded? Were they only excluded because the projects weren't significant to the company, or were they excluded for some other reason? The exclude exclusion vision is the the I think

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the page 43, number three. I mean, it's a point three dots. So you see that's a third dot. Project must be significant expenditures for the company. Two project is only cost less than $5,000 so that's why I excluded. Okay. Thank you. And with respect to going back to page 44 Mhmm. And with respect to, the sewer division starting at line 20, or excuse me, 21, did staff determine that several post test year projects recorded under accounts 393 and 396

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had not yet been initiated and should be excluded from consideration? Yes. Okay. And then did you identify, other projects that were excluded here, because they didn't meet the significant expenditure requirement? Yes. Or were those the same? Same reason as a water system. Okay. But same reason, but different from the projects that hadn't been initiated. Is that right? Yes. So first of all, that's a schedule. They have a sum cost under that account, 393396.

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They haven't been started that project. And other project they listed it is less than $5,000 that's why I excluded. Okay. Can you turn to page 45 of your direct? I'm there. Okay. On lines 23 to 24, do you say, in in part, accurate retirement records are essential for transparent and reliable reporting which supports proper may rate making? Yes. Do you stand by that statement? Yeah. To the extent Ruko has questions about how the settlement agreement treats the retirements,

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would you defer those questions to mister Baxter? Yes. I will defer to mister Baxter. Can you can you turn to, page 24? Yes. I'm there. Okay. At line 17 Okay. And Yes. Okay. And staff also proposed that the company provide a cost of service study in its next rate case? Yes. Okay. To the extent has questions about how that would work if the ARAM is approved, would you defer those questions to miss Hunsaker? Yes. Okay. Can you turn to page 22 of your direct?

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I'm there. Okay. At lines, six to 12, do you discuss a staff's position at the time of direct regarding the company's, projected testing costs for PFOAs and PFOSs? Yes. Okay. And and generally, is that and you'll have to forgive me for not, giving it a shot actually seeing these on the record. Generally, those relate to testing, cost per PFAS. Yes. Okay. And staff, as stated in line 10, didn't find it appropriate to to include the PFAS related testing costs in wastewater,

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testing expenses for rate making purposes? Yes. Okay. And it says unless such testing becomes mandated by federal or state regulation? Yes. Okay. To your knowledge, it's it's not currently mandated for wastewater. Is that right? No. It's not. Okay. It to the extent these testing costs, could be federally or, state regulated and mandated in the next five years and the ARAM is, is put into place, would you defer questions about that to miss Hunsaker? Yes. Okay. I have no further questions for miss Lee. Alright. Thank you. Miss Humphrey,

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I don't know. Correct. Alright. Thank you. Miss Lee, thank you very much. I appreciate your time and your testimony. It's always very well done. I appreciate it. Thank you. Let me step down and you're excused. Alright. Oh, okay. Yes. We need to take a break while we resolve a technical difficulty off the record. I think we all need to reboot. Okay. Is that working? K. Okay. Good. Okay. Is everybody ready? Let's go ahead and go back on the record. And, our next witness is Mark Swiler. Okay. Swiler. If you wanna write down what goes to what alternate and do that,

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but I mean, just Would you please stand up there and Awesome. Raise your hand? Right hand, and be sworn in by the court reporter? Yes. Yeah. Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth? I do. Thank you. Thank you. Please have a seat. And please feel free. Good afternoon, mister Swiler. Would you state your name and your business address for the record? My name is Mark Swiler. My business address is 1200 West Washington Street, Phoenix, Arizona, 85007. By whom are you employed and in what capacity?

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I'm employed by the Arizona Corporation Commission as a public utilities analyst, primarily for cost of capital analysis. Were you assigned to conduct an analysis of the applications of Liberty Water and Sewer in this matter? Yes. And what did your review consist of? My review consisted of, reading mister Baross's testimony, understanding his models and inputs, as well as the supplemental factors discussed. And, is this the first time you've testified before the commission? Yes. How long have you been working for the commission?

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Full time since last June. Full time since last June. When did you graduate from school? 2025. I graduated with a master's in finance and a MBA from the U of A, Eller College of Management. And you have bachelor's before that, I assume? Yes. What was that in? In applied math and economics from Case Western Reserve University. In addition to your education, do you have any work experience in the field of of utility regulation, or or finance analyst financial analysis?

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That's that's the word I want. Yes. Between high school and college, I worked for, entered for a chartered financial analyst doing business valuations which conducting business valuations which involved establishing a risk premium so that has some some relevance to the cost of capital analysis. And was that is that job what led you into your majors in college? Partly, I yeah. I thought I like math and have a have a like thinking about finance. Thank you. You should have in front of you a book of staff's exhibits,

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and I would direct your attention to exhibit s six. Let me know when you have that. Alright. I'm there. Alright. And is exhibit s six your pre file direct testimony in this case? Yes. Was that testimony prepared by you or at your direction? It was. And since you filed this testimony, has staff's position changed with regard, to the issues? Yes. Was that I'm sorry. Go ahead. Yes. Staff now supports the settlement agreement. Thank you. And did your testimony help inform the terms of the settlement agreement?

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Yes. I'm going going to be asking you now if you have any changes or corrections to make to your pre filed testimony. And when I when I'm ask when I ask you that, I I want you to tell me changes that should have been made at the original testimony, not changes that are related to staff's changing position. So with that, do you have any changes or corrections to make to your testimony? I do not. Are you adopting it as part of your testimony here today? Yes. In your testimony, did you address the issue of whether an ROE should be adjusted,

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or could be adjusted if there is a if there are formula rates and an ARAM adopted in this case? I I did. And do you it is likely that formula rates or an ARAM could reduce risk for the company? It is it is likely that formula that formula rates could reduce risk. Is there any basis currently on which you can quantify the risk and make a recommendation as to a change, any change in the ROE? I cannot, quantify that risk at this time and would not quantify that risk at this time

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and would not recommend any changes to the ROE based on that. Would will that require would would recommend or coming up with quantitate an ability to quantify, is that going to depend depend on evidence or information that is developed over the years as formula rates are put into place? Objection calls for a legal conclusion, some speculation. Can, can you ask it a different way? Or Yeah. Sure. Okay. If you can. Yeah. Is is the fact that we don't have we've we're just introducing or looking at

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formula rates in Arizona and don't have any data now on which to base a a quantifying number on ROE, why you can't testify to that now? Correct. And do you believe that over time that information will be developed and in the future we may be able to quantify this? I believe so. I have no further questions at this time. Mister Swiler is available for cross, your honor. Thank you. Mister Sabo? Well, since this is the first time, I probably should do a little. So welcome. Good to have you here with us.

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I'll try and keep it, you know, relatively brief. But, I guess, first question, if I have any questions about the settlement agreement cost of equity, those go to you or to mister Baxter? Baxter? And that counsel can answer that too. The settlement agreement ROE is a negotiated position best addressed by mister Baxter. Thank you very much. Now, could you go to page three of your direct testimony exhibit s six? I'm there. And, do you see there's a little chart that says methodology and then ROE midpoint? Yep.

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Alright. So, and then you it looks like you had four different models. Is that right? That's correct. Alright. And so first was discounted cash flow at 9.12 was the midpoint. Correct? Correct. Then the CAPM midpoint was 8.96. Is that right? Yep. Then the risk premium was 9.93 percent? That's correct. And then the comparable earnings was 9.77%. Correct? Yes. And,

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your point estimate was 9.45%. Correct? Yes. Is it fair that although you've presented a point estimate, because the cost of equity cannot be determined with precision. In fact, it's a a range of numbers. Indeed. A range would be appropriate. Could you could you tell us, what the bottom and top of your ranges were? In this case, my range encompassed, 9.2 to 9.7%. Thank you. Now, I believe and now we're going back to, like, Tuesday.

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So, I believe, Ruka at one point asked mister Barraza, hey. Did you do a side by side comparison of, for the all the companies in your sample group of the each adjuster, surcharge mechanism, and, the exact provisions of each compared to the ARAM. And he said, well, no. I didn't do that. So my question to you is, did you do that? I did not. It's fair because nobody did it. So, you're you're in good company, with that. I appreciate your testimony today.

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Thank you very much. Thank you. Thank you. This is Burrows School. Hello, mister Swiler. Hello. Always happy to see, fellow Wildcats, so I hope you're as excited for the Elite Eight as I am. And I'll I'll echo, mister Sabo's words to mister Tsai, which is, well, welcome. Welcome to the club. Here we go. Let's start with, the cost of debt. I think it's an easy place to go. Can you find the company's black binders in front of you? I think they have, like, the o m logo on them. Yes. Okay. Can you pull out,

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a 21? Alright. I'm there. Okay. And is is 08/21 a, notice of errata relating to the settlement agreement that that states that the correct cost of debt for the settlement agreement is 4.45%? 5.45%. Okay. And and would you agree with me that that's that's very close to the, cost of debt that that you proposed in your direct of 5.49%? Yes. Okay. And your your proposed cost of debt,

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it was based on, recent three months of treasury yields. Right? That's correct. Given the proximity to those two numbers, any concern from your perspective on the settlement agreement's proposed cost of No. No concern. Okay. Let's, turn next to, the capital structure. And I'm gonna start referring to your direct testimony, which I believe was marked as, s six. Yep. Great. Before we get started, on that in earnest, when you were speaking with miss Humphrey, you mentioned mister Barossa's testimony, but not mister Tsai's.

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Did you review mister Tsai's testimony, or is that outside the scope of, your involvement in the hearing? I did review it. It was, filed as concurrently, so I I, of course, didn't review it before filing my own. Okay. And you didn't provide any surrebuttal testimony in response to mister Tsai's cost of capital analysis. Right? That's correct. Okay. Great. Good. Then we'll just stick with your direct. Okay. Can you turn in s six, to page two? And I'm gonna refer to lines 15 through 17. Okay. And there,

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do you, did you acknowledge the company's proposal to use its adjusted test year or twelve month ending 12/31/2024 capital structure? I could you repeat the question? Sorry. Yeah. Sure. So within that, those lines and let me look at the reference. 15 through 17. Do you do you see there it says the company proposed using its adjusted test year, twelve months, ending 12/31/2024, capital structure of long term debt and equity, which weights of 4654%,

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respectively. Do you see that? Yes. Okay. And that's to your to your understanding, is that the capital structure used in the settlement agreement? Yes. Okay. And that's also the company's expected capital and structure after taking into consideration the additional debt that the company proposes, be facilitated by its financing application. Right? That's correct. Okay. You you did tell miss Humphrey that any questions about the settlement agreement, generally could could be directed to mister Baxter. Right? Yep. K. To your knowledge, mister Baxter is not a cost of capital analyst,

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is he? To my knowledge, that's correct. Okay. And and is it fair to say, to the extent that you, have been receiving, some cost of capital training here at the commission. That's come by way of, mister Parcel, who's often a consultant for the commission staff on cost of capital? Yes. I've mister Parcel has been, instrumental in my my knowledge of of our yes. He's he's been he's given me instruction. Okay. So in this case, your direct testimony, it recommended a 9.45% ROE. Right? Correct. And that was the average of the outcomes of your estimation models.

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Right? Yes. Simple average. Can you say why a cost of capital analyst uses estimation models rather than just gathering up some averages from some recently decided cases and kind of picking a number consistent with those cases. Even even, even in a single in several months, our financial conditions can change in relatively quickly in a period of several months, so it would not necessarily be it would not be the best

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estimate to use an average for recently settled cases. Okay. And is that because, like, events that might shape the markets like like a war with Iran can kind of come up in a couple of months that might not have existed months or the year prior. Yep. Exactly. Okay. With respect to the estimation models, that you used, among them, and actually, let's look at your executive summary because then we can see them all together. Okay. You you see there you've listed your methodologies and your ROE midpoints from each of those methodologies? Yes. Okay.

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And among those is an average 9.93 ROE, which is the midpoint from the comparable comparable earnings model. Is that right? That is correct, but I guess I would like to to issue a change because, according to that's that's different from page three on on, with the same table. That 9.93 actually is the, risk premium rather than the comparable earnings. There must there is a those rows were switched. Oh, so so that's to say the executive summary would need to be corrected?

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I mean, let let Yeah. Okay. So as no. I'm just gonna make this really clear, so hopefully everyone will indulge me. So as between the two tables, the correct, the correct numbers are on page three? Yes. Okay. Great. But that correction, it doesn't impact the weighted average that you calculated. Right? Correct. Okay. Why did you employ a comparable earnings model? Each model has certain strengths and weaknesses, and the comparable earnings measures the ability of the company to attract Maintain financial, integrity and attract capital,

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and I think it's the closest probably it follows from the closest reading of of Hope and Bluefield, which are the court cases establishing how to set rate rates as far as I understand. Okay. And with respect to your other models, you also choose chose to employ a, capital asset pricing model or CAPM. Is that right? Yep. Would that be fair to say that's the same as, like, a traditional CAPM? Yeah. Okay. Tell us why you didn't use an empirical CAPM or a modified CAPM.

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The empirical CAPM, biases the betas well, it corrects the betas towards one towards the market market return, which value line betas already are have that correction in place. If I used a different set of betas, then it may be well, yeah. So so it already was accounted for. And then the modified CAPM is a different a different beast entirely that has because it includes a size premium. Okay. Let's let's chat a little bit about,

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size premiums. In your experience, when utilities request ROE premiums in their cost of capital analysis for factors like regulatory environment or size of the company, how do those experts typically quantify those typical it has to come from the market, I would say. Okay. And typical it has to come from the market, I would say. Okay. When you were speaking with miss Humphrey, I heard heard you to sort of speculate that after time period,

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where, hypothetically, the corporation commission here had implemented some formula rate plans, there would be some, data relating to which we could quantify the reduction of risk. Do you remember that discussion? Yes. Okay. So, I mean, talk to me a a little bit about why you think there would be that data and at what point in time you think that the data would materialize from which we could quantify the reduction in Well, APOC, it's or sorry. Algonquin Power Utility Company isn't is Liberty is a small part of that,

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but, there are other sorry, I need to think a little bit. That's okay. One one definition of risk involves volatility of of earnings, and so it would take several years to at least determine what the difference in volatility would be. I'm not sure how many years would be sufficient, exactly, but the vol vol the the degree of the degree to which volatility is reduced would be an important part of any risk reduction analysis.

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Okay. So would you agree with me it's it's fair to say it could it could take a long time before there's a, definitive quantifiable number. Is that fair? That's fair. Okay. And would you agree with me that whether or not to, compensate the rate payers for that now or wait years is a policy question for the commission? Or would you do for that question to, miss Hunsaker, the staff's formulary witness? I even though I'm not

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aware of the each proxy group's specific risk adjustment mechanisms. There are many, in other jurisdictions, there are many revenue decoupling or expense adjusters that are included in the proxies. Risk reduction. Risk reduction. Okay. Does the commission have discretion to your your understanding when it considers what ROE to authorize? Yes. And to your understanding, does the dis the corporation commission here have discretion in how much of a premium or reduction in I'm looking for something, so bear with me for a second. Okay. I I want you to take a look at,

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s nine in your in your binder there. And that's the, rate design testimony of miss Hunsaker. I'm I'm there. Okay. Can you find page eight, line 16 catching up to you. Okay. I'm catching up to you. Okay. There at line well, let's start at line 15. That'll make it easier. At starting at line 15, does it say, while staff agrees that there are benefits to to such a mechanism for all involved, this type of mechanism is close to a guaranteed return and addresses regulatory lag.

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Do you Got it. Do you see that? Can can we just get that page again? I'm sorry. Oh, sure. It's, page eight starting at line 15. Yes. I see that. K. Your testimony, doesn't disagree with miss Hunsaker, does it? It does not. Okay. Go ahead and, well, hold on. Now I gotta find the right number. Go ahead and look in the, the white binders. Those are Ruko's binders for Ruko 27 for me. Would you, please? Alright. I'm I'm there. Okay. And can you go to page, well, actually, let's start on page

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one. Is that a, memorandum dated 04/11/2024? Yes. K. And do you see it says, regarding in the matter of the commission's inquiry into possible modifications to the commission's test year rules, and then there's a docket number? Yes. K. And is that, in the it's two docket control, and then it says from Ranelle s Paladino and Britton a Baxter utility division co directors? Yes. K.

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And do you recognize the signature above, or below the docket control line as mister Baxter's signature? Subject to check. I've never seen his signature, but yes. Oh, fair fair enough. Fair enough. Okay. Can you, look at page five for me? Okay. There's a paragraph there that says formula rate plan in italics. Do do you see that? Yes. Okay. And starting at the second line, does it read, formula rate plans utilize, quote, prespecified formulas that allow for a calculation of annual adjustments to rates if a utility's

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actual earned return on equity, quote, ROE, falls outside of a defined bandwidth of its authorized ROE. It says that. Right? Yes. K. When it refers to that defined bandwidth, that refers to the dead what we call the dead band. Right? Yeah. Your honor, I'm going to object that, this seems beyond the scope of the witness's testimony, and mister Baxter, who cosigned this memo, is sitting right over there, and he's gonna testify. So he seems like the right guy. Well, this is about the reduction in risk,

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but I have to I have to lay the foundation that we're talking about the same thing here. Okay. Okay. I'll allow it. Alright. So the defined bandwidth to your understanding is what we refer to as the dead band. Correct. Okay. And and, with respect to the next line, does it say formula rate plans guarantee a return to the utilities with any costs of excess of expectations given to the customers or any lessened costs paid back to the customer base? Yep. And you'd agree with me that reduces risk for the company?

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As as colloquially under as understood colloquially. As risk is understood colloquially. Yes. Can you can you elaborate on that? What do you mean by as understood colloquially? I can't say that either. For instance, in the CAPM method, the only risk that's compensated for is is market risk. So to the extent even if Market risk being how closely the returns correlate with with markets. So if even if, the level of earnings is

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more stable, that doesn't that might not translate to a lower risk in the CAPM method, for instance. Okay. Can let's go back to your testimony, s, six, at page 24. I'm there. Okay. And at line eight, you say staff believes that a formula rate plan will reduce the risk risk of under recovering on the commission approved revenue requirement. Right? Correct. Okay. Give me a second to look at my notes. Alright. Let's let's talk about,

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Hope and Bluefield for a few minutes. Okay? Sure. You're not you're not a lawyer, mister Swiler. Right? Correct. Okay. So you'll be giving me your, your thoughts on this, but as a cost of capital analyst and not a lawyer. True? True. Okay. I'm gonna try not to ask you for any legal conclusions or opinions. Is there a regulatory basis to allow a rate of return for a company commensurate with with its peers even if that utility is not operating efficiently? Your honor,

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if if she has maybe specific language in Hope or Bluefield that she's referring to, I'm not sure I tracked the question otherwise. I I can try and break it down a little. Let's, let's look at your direct at page six. Okay? I'm on page six. Okay. Actually, I'm I'm gonna make it page five. Okay. So see, on page five at line three, it says, Bluefield states, states, and then and you've got a section from Bluefield there? Yep. Okay. And starting at line 11, it reads, the return should be reasonable reasonably sufficient to assure confidence in the financial soundness of

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the utility and should be adequate under efficient and economical management to maintain its credit and enable it to raise money necessary for the proper discharge of its public duties. Do you see that? Yes. Okay. So is it fair to say that, the idea behind, gen very very generally, very broadly, the idea, the idea behind BlueField is that, companies should have, like, sort of commensurate, returns with their peers. Yes. But that assumes that the utility is are all operating efficiently.

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Right? Correct. Okay. And is there a regulatory basis that you're aware of for companies to earn commensurate with their peers even if they're not aware of any such Okay. Regulatory, standards. Based on your regulatory work in this area, you're aware that the commission's duty is to set just and reasonable rates. Right? Correct. Okay. You didn't consider the company's requested 10.8%, return on equity to be reasonable.

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Did you? Right. Okay. And in fact, you characterized it in your executive summary as excessive for a water utility. Correct? Correct. Okay. And to the extent that the settlement agreement proposes an ROE of 9.75, that's, 30 basis points above the 9.45% recommendation in your direct. Right? Correct. Okay. But you didn't offer any settlement testimony in connection staff has made you aware of any cost of capital testimony supporting that 9.75%

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ROE after the settlement agreement was entered. Right. The 9.75 is a negotiated position after all. Okay. Do you agree that a, formula rate band essentially, guarantees a return for the company within the dead band? In the abstract, yes. But, of course, the the there's a lot of implementation details that I am not privy to, and I know it may not be the case. Do you agree that the, that a formula rate plan that operates, like the CSRM that you evaluated in your direct,

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that it guarantees the company's revenues and income within the dead band? Yes. K. And as far as you know, the ARAM in that respect doesn't work any differently than the CSRM. Right? Correct. Do you agree that, formula rates transfer a significant portion of the company's risks from its shareholders to its rate rate payers? I believe that depends on the implementation details. Okay. Let me look at something. Okay. K. Can you turn in Ruko's exhibits to Ruko 13 for me? You're okay.

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I'm at Exhibit 13. Okay. Give me a second. I think what I was looking for is something different, so bear with me for a moment. The page I was hoping for isn't in here. So, your honor, can you can you assist me with my recollection? I believe you had taken judicial notice of the entirety of decision eight one six five three. Am I correct? I have. Yes. That's correct. I have. Well then, mister Swiler, you're off the hook there. Okay. Let me see. Okay. Let's go back to your direct s six at at page 24,

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and I'll get you a line number. Okay. Starting at line 12, do you see do you see there it says staff believes it's premature to quantify the impact that formula rates will have on the ROE. Do you see that? Yes. Okay. Given that you told mister Sabo, you didn't compare or analyze whether the proxy group companies had mechanisms like the Abraham. On what basis did you conclude it was premature to quantify the impact that formula

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rates would have on the ROE? Yeah. Could I have that, read back, please? Question. Okay. Given that you told mister Sabo you didn't compare or analyze whether the proxy group companies had mechanisms like the ARAM, On what basis did you conclude it was premature to quantify the impact that formula rates would have on the ROE? Going to object to the question in that it misstates the testimony. The specific question was whether he had gone through and compared the, details of the different mechanisms, not whether they had any of the mechanisms at all.

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It's a nuance, But I I think I allowed the question. Mister Swiler, would it would it help you if the court reporter read it back to you one more time? Sure. Question. Okay. Given that you told mister Sabo you didn't compare or analyze whether the proxy group companies had mechanisms like the ARAM, on what basis did you conclude it was premature to quantify the impact that formula rates would have on the ROE? And let me comment on that, if I may, your honor. That that doesn't make sense to me. The two thoughts are not connected.

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I just I just only took me three times hearing it. I agree. I I I think that that it's kind of a non sequitur. I can ask a better question. If you can. I'm gonna try. Okay. Okay. Mister Swiler, don't you think before you judged it premature to quantify the impact of, formula rates that you should have analyzed the various adjuster mechanisms of the proxy group companies to see if there was something similar and then to identify if the market

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allowed you to quantify the impact of such formula rate mechanisms? It's a a hard problem to solve in terms of even knowing had I know studied each proxy group the the specific mechanisms of each proxy group. There are certainly some overlaps as to, you know, whether you have a future test year or expense adjusters or, deferred accounting. Some of those have overlapping functions. So I mean, or some of those,

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in practice, have the same, can can have the same effect. So it's I I just don't have the don't have the expertise as of yet to really quantify quantify the the ver variety of of regulatory the variety of regulatory mechanisms as well as how that would come into play in this case. Is it your opinion that, investors looking to potentially invest in Liberty Utilities could have already priced in the, effect of the ARAM? It's possible. What do you base that on?

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Or or do you or do you mean it in this sort of anything's possible way? Yeah. Anything's possible way. Okay. Let let me go first. Or do you mean it's possible in this sort of anything's possible kind of way? Yep. That's exactly how I meant it. Give me just a minute. Thank you for your time, mister Swiler. Thanks. Good afternoon. I believe miss Barrio's school covered all the ground that I wanted to cover. So I just wanna say, well done so far. Good job. Let Let me ask miss Humphrey if she has any follow-up. Yeah. Just, I think,

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one question. You were asked when when miss asked you about the why you did why you didn't look into the, proxy companies to see what the formula rates were. Are those proxy companies all within Arizona? No. To the best of my knowledge, none of them have operations in Arizona. To the best of my knowledge, the, whether it's American Water Works, California Water, Essential, s or h two o, or Middlesex. And do we know whether those proxy companies, utilize future test years or past

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test years? I don't know specifics. We'd have to you'd have to research that, would you not? Correct. And how many proxy proxy companies did you have in this case? Six companies. Six? So even if you had, analyzed each company to see if they had formula rates, one, it would have only been six companies that you looked at, which do you think that's a fair representative representation of of the market in general? That's it's the best we have, but it's not a lot of information. In terms of looking at whether they have formula rates, even if all six of them had formula rates,

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do you believe that six companies from different states that have formula rates would have helped you, determine whether Arizona's some formula rates were similar and the impact on the ROE was going to be similar? That decision still would have been it would have helped, but it still would have been hard. And you don't know if any of those had caps I don't know. Or how how broad the dead band was. Correct? Correct. Alright. That's all I have, your honor. Thank you. Thank you, mister Sabo. I guess just to follow-up on that,

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even if you were going to look into the details for those six companies, many, if not all, of those companies, operate in multiple states as well. Correct? Correct. So you you for a company like American Water, you'd have go look at quite a few states to figure out what all the different adjusters in different states did. Fair? Fair. Thank you. Missus Myers Coole? Thank you, your honor. And, mister Swalor, do you know whether any of the proxy group companies that you utilized have a formula rate mechanism? I'm not aware. K.

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Would you agree that looking at, at the formula rates in other states could have been helpful to, to your analysis if you if you'd done been able to undertake that analysis? It could have been helpful. Okay. And and would you agree that it would have been relevant to, to your testimony about whether or not, it reduced risk and how to quantify it? It could have. Alright. Thank you, mister Swiler. I have one follow-up. Okay. Your honor. Because we used to say in my old job, is this a situation where the juice isn't worth the squeeze?

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Objection. In other words let me finish. I like that one. It sums up so much. Do you think that that the information that you would have gleaned from that type of in-depth analysis would have been worth the effort, in informing your position to justify your engaging in all of that effort? Objection. Calls for speculation. It doesn't cost us. No. No. I'm sorry. Oh. We can let him answer the question for what the answer's worth. I mean, if it's if it's the job, that's the job.

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But, that would be it would have been a lot of work to what mister Sable was saying if since American Water Works like a company like American Water Works is a big huge conglomerate with operations in many different states. So if you to really get into the details, you one might want to disaggregate the revenue by the state, and I don't even to my knowledge, that's not even publicly disclosed on their, 10 k's. So so it would it would have been too much to it would not have

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been worth the squeeze. Thank you. I'm gonna have a follow-up question. Mister Sabo? Yeah. Alright. Miss Burrows, cool. Keep it clean? I will try, your honor. Mister Swiler, you'd agree with me that because you didn't do that analysis and it never occurred, you can't really know how you might have felt at the back end of the analysis because you didn't do that analysis. Right? Correct. Yeah. I didn't do that analysis. Thank you, mister Swiler. Alright. Miss Humphrey. Alright. Mister Swiler, thank you so much for your time and testimony today.

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Well done. Good job. Good testimony. Appreciate it. Thank you, your honor. Okay. You're excused. You may step down. Okay. Why don't we take a a brief break and come back at, 02:25 off the record? Mister Sabo, should we wait for mister Emmettie now? Okay. Alright. Let's go ahead and go back on the record. And, miss Scott or miss Humphrey, who's up to bat? Staff would call miss Theresa Hunsicker. Alright. Good afternoon, miss Hunsicker. You know the drill. Yeah. But then I have copies of this. Do you solemnly swear or affirm that the testimony you're about to give will be the truth,

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the whole truth, and nothing but the truth? Thank you. Scott, go ahead. Good afternoon. May I have a moment to get acclimated where every all the exhibits are at? Of course. Okay. We had through all of the there. 30. And was there an additional exhibit for exhibit 30 from the company that's not in the notebook? Pretty. I'm not sure we put it in the notebook. Let me round it up to you. Thank you. And then fifteen and fifteen. Thank you. Alright. August 13. Thank you for giving me a moment. Sure.

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Can you please state your name and business address for the record? Teresa Hunsaker. 1200 West Washington, Phoenix, Arizona 85007. And by whom are you employed and in what capacity? Arizona Corporation Commission, utilities division in the financial and regulatory analysis unit. Unit. What are your responsibilities as a public utility manager? I oversee staff that will analyze, rate case applications and, review their work. They perform analysis on rate cases, financings, could be involved in CCNN applications or sales,

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as well as other matters. Additionally, I've performed if needed, I performed those tasks as well. And today I'm here to sponsor the testimony for the one CSRM, now ARAM. Okay. And how long have you been with the commission? Nearly thirteen years. Now in your role as public utilities manager, did you review the application of Liberty Utilities Corp for a rate increase in this matter? Yes, I did. Did you file direct testimony in response to the application? Yes, I did. And

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I am going to ask you to identify that direct testimony by exhibit number. It's S9. Can you describe briefly what issues your, testimony addressed? Staff would have reviewed the company's original, request, for formula rates and their formula rate mechanisms as well as their templates to, align the protocols that are laid out in the plan of administration through the the, schedules. Additionally, staff would have worked, reviewing and getting data requests from the company to see that the formula,

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the templates would have worked in a manner, to calculate, a rate. Staff would have provided additional questions with respect to recommendations regarding the deadband, what parts of plan administration that staff determined that needed to be refined, and, additionally, staff worked with The company, to create a more, coherent and amenable plan of administration of that to take into consideration, the decision from UNS Gas as well as what was ongoing through the, open meeting and try to refine that to give a better work product so that

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the commission could see, the plan and how it would work. Okay. Now, with respect to the first settlement to the settlement agreement that was entered into in this matter on the company's request for a rate increase, did were you part of that settlement agreement? I was a participant, yes. Okay. And when was that agreement filed with the commission? It was I think it was a few days before, Mr. Baxter would have, provided his testimony on March 6, so it would have been,

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filed, prior to that. They don't have it as an attachment in here. It says March 3. Would you accept March 3 subject to check? Yes. Is your understanding that most of the staff testimony on revenue requirements issues, has been referred to mister Baxter to address? Address? Yes. Did the settlement agreement provide that there were to be a phase two for formula rates? It was one of the things that, staff and the company put forth as a part of their settlement agreement.

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And that's since changed, correct? Yes, it has. K. So that, the issue of formula rates is being addressed in this proceeding, correct? Yes. Did staff and the company ultimately jointly file what was called an ARAM, public or I'm sorry, an ARAM POA and a template in this matter? Yes. And that is the formula rate plan that's before the commission, correct? That's what's, in this proceeding that's been adopted as an exhibit

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judge. Okay. And, subject to check is this also exhibit A23 that was put into the record by the company. Give me a moment to check. Yes. It is. Just as a point of order, there my understanding is based on the exhibit list, there are two jointly proposed ARAM plans of administration and templates, eight I have a 23 and a 28. I don't I don't know if they're Your honor, a 23 is the plan of administration, and then a 28 is the template and customer notice,

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which were completed after the POA, was, finalized. Thank you, mister Sabo. Thank you. So and was the, formula rate plan filed on or about March 20? One moment. Yes. K. Did staff or the company file any pre filed or written testimony in support of the stipulated formula rate plan? No. Was staff's understanding that because of various procedural issues that arose at the time that

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such testimony could be provided, at the hearing in support of the formula rate stipulation. Objection. Foundation calls for a legal conclusion relating to interpretation of the procedural order. No. I'll allow it. Go ahead. You want me to repeat the question? Yes, please. Was staff's understanding that because of various procedural issues that arose, such testimony could be provided in support of the formula rate, formula rate, during the proceeding? Yes, it was my understanding that we would address it in this proceeding instead of kicking

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the can down the road. So, is the ARAM a large part of your testimony today? Yes, it is. And is it accurate that you're going to be handling non policy related questions regarding the formula rate stipulation? Yes. Will there be another staff witness providing testimony on the formula rate stipulation? Yes. And who will that be? Mr. Baxter. And what issues will he be addressing? I do not that would be at your discretion,

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what questions or issues he will address. Will he well one of the things he will be addressing will be the formula rate plan from an overall policy perspective? I would say that was accurate. Do you want to give any comment at this time on, any of the issues contained in the settlement agreement on non formula rate issues? No, I think that was our best address by mister Baxter. Now, the, the stipulated formula rate plan or the ARAM that was ultimately agreed to by staff and the company.

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Who was part of the negotiations for staff in that? I don't know that I would characterize that as negotiations where I would more say that it was a collective effort, with consideration to staff's file testimony, what was being laid out in the UNS Gas, decision, and consideration of all of the obstacles that staff would, incur if in doing an annual rate filing, such as cost allocations. And were you a large part of those talks efforts to put something together that could be agreed to by staff and the company?

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That would be in part directly a part of my direct testimony and can be laid out it's laid out in my direct testimony about the different things that staff has for recommendations. There were additional things with respect to cost pools and how the cost pools work and how that would impact, any type of plant, investments that would incur during an annual filing, as well as any calculations of indirect overheads, as well as AFUDC. And any of those would be addressed,

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in a manner similar to the agreement on what costables were being allowed in the rate filing. Have any formula rate plans been adopted by the commission yet? Well, there's a plan for Uniscass, but it's yet. I mean, there's they haven't done a filing but they've just recently, had their decision. Do you know when that was adopted and what the decision number is? There are excerpts, that have been provided by Ruko and Ruko 13. Would you agree separate subject to check that that was decision number 81653

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and it was entered on 02/27/2026? Yes. And I do see that staff has provided it as exhibit S15 in its entirety. Okay. Did you review the UNSG UNSG formula rate plan and decision in developing the plan for liberty? Yes, as well as, attended the open meeting and, reviewed the transcripts as well. Okay. Let's go back a step or two and can you describe,

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what an ARAM is and how it works? It's an annual rate adjuster mechanism which it's, part of it is driven by a plan of administration which you would look to as the protocols or the MISO protocols as Ms. Scott likes to prefer, refer to. It, lays out a plan in order to determine what will be included and what won't be included. There are things that are fixed and there's things that will be the actual costs

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incurred for that year. For example, the ROE would be fixed. Certain things within the plan that we've put forth are fixed dependent on this situation. The plan is, a formula rate is where you come to the protocols and then those are mathematically put through, a formula, a schedule, and those are the templates in order to determine if, you know, a rate that they would expect to, rates that they would expect to obtain from customers based on that annual filing. And that's determined by actual prudently incurred costs,

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whether it be through plant investments, or operating expenses. Those would be we would look at the operating revenues, operating expenses, prudently incurred, investments. All of that would be a part of an annual filing. Additionally, in the protocols that we've set forth, we would have annual updates that would provide that information especially to engineering where they can look at those plan investments ongoing instead of trying to look at those entire years' worth of investments all at that annual filing. Okay. So, if we wanted to,

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for someone that hasn't worked with a ARAM before or a formula rate and we want to get real down to the basics for them. Would you describe the POA in large part as a document which sets forth the process for, this proceeding and provides parties with an opportunity to participate interested parties and provides for instance for challenge periods, etcetera. Is that a good way to describe what's in the POA largely?

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I think the best description would be how that's laid out in the decision number seven nine six four seven, dated 12/31/2024 as an attachment A that prescribes what the envision of the commission was in developing formula rates. And then that second part that you described, the rate template, that would be the actual formula. Correct. Is that correct? Okay. Okay. Was the the UNSG plan helpful to you in formulating the Liberty formula rate plan?

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Yes. Yes, very helpful. There were some things that as this hearing has been ongoing for the last week, were refinements that, that I honestly wish we had kind of thought about, in this plan. I think that, there's some considerations to some things, that we may want to change, in thinking about how the how everything would work. But I think that that certainly can be addressed in, you know, in an update or possibly a compliance item that we could refine, where I think that there were some issues or,

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I guess some very valuable, items that were brought up. For example, Ms. Vargas Cool brought up the property tax calculation. And in looking at UNS Gas, they don't have the property tax So, that in itself would mean, we should probably look to, the company stated that they would look to, not to exceed 15.15. We would look to that so that they would need to follow what's, statutorily required and that would change the GRCF because that is a component of the GRCF. Okay.

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And when you talked about the, the inputs before, you mentioned one of them, there are fixed and, there are fixed inputs, correct, that go for the term of the plan? Correct. And then there are variable inputs that are looked at in each year of the annual update, correct? Yes. And the company would have color coded those. We tried to follow what, your honor had requested in that the it would be better laid out with some color coding to give better indication on what is going to be fixed and what

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will, be an input. So And is possibly a quick way to describe the difference between the inputs is that the ones that are subject to annual review are, not as complex and complicated as the ones that are fixed for the term of the plan. Plan. So for instance, could you describe what a, what a input that would be subject to annual review would be? Chemical cost. I'm sorry, what did you say? Chemical costs. Okay. Or,

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you know, pretty much most of majority of the expenses would be subject to an annual review. Okay. And what about the fixed costs? Could you give an example of those? Well, contractual services has been a contentious issue, over the course of years. Those have been, settled with respect to we've come to an agreement that we, will take certain percentages, and, that and those will be a part of a removal from the six different cost pools. And how about the cost of service study? Would that be a fixed cost? We don't really I mean,

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the company could provide the G Schedules and we would possibly use the G Schedules in to look at, what the cost to serve those customers would be in setting the rate designs but that's for the most part, a cost of service study is used by the energy section for gas, the electric section, we really don't utilize the cost of service study. We do have a recommendation, in, by staff, that we would like to do a cost of service study to understand certain, charge that the company wanted to include in recovery in this case,

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but we didn't have enough information to really see if that was going to be continue to be recommended at that rate. It may be based on a cost of service study if it needed to be raised or lowered that would be evident in the next cost of service study provided in the next rate case and that is one of our recommendations. Okay. And ROE, which is a very contentious issue, you would agree, that's one of the fixed inputs, correct? That is based on the settlement. That's yes. Okay. Now what other components are there to an ARAM?

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Wow. Is there a dead band? Yes. I mean that's kind of an earnings test to determine whether it gets implemented or it doesn't. Does it if it falls within the band, then there's no rate increase, there's no filing, and we move to next year. So, that's the earning test to determine whether we even consider or even review their, you know, application. It falls within the dead band then there is no filing. So, does the dead band, seek to prevent over earning and under earning?

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My case Yes. Okay. What did the company propose for its dead band initially? Plus or minus 20 points basis points. And what was the amount what was the amount stipulated to? It was they agreed upon staff's recommendation at plus or minus 50 basis points. And can you just explain very briefly why staff may prefer the wider deadline, dead band to the more limited one? It's, it's in line with what was recommended and ultimately approved,

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in the UNS Gas, plan of administration for the protocols. It's with a wider dead band. It affords some protections that, you know, you've got to stay within this band in order to get an increase. It has the safeguards to try to, you know, protect rate payers and also incentivizes the company to, you know, act appropriately and, you know, make investments and be prudent with their costs and it's still gonna require oversight if they fall outside the dead band. Is it correct that with a wider dead band there would be less of a

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potential for an increase to the customer in rates? Can you rephrase the question? Yes. With a wider dead band, would you a rate increase be less likely? Well, it really depends on the investments and the costs of prudently incurred costs because this is all driven by costs, you know. If the company is making prudent investments and operating, you know, making prudent, you know, prudently incurring those costs. And if it falls, you know, outside the dead band, then, you know, depending,

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the dead band can go to the plus, which means they've over earned. It could go to the minus where they've under earned and then, therefore, then that's when we would engage on creating the amounts, determine the amounts that need to be recovered through the annual filing. With respect to the benefits, that are attributed to a formula rate plan, do you believe that the ARAM will improve transparency to both participants and customers? I think with respect to transparency it allows for customers to see how the costs

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are incurred in a more, in annually. You know, you're seeing costs go up, you're seeing the costs that they've incurred, the company's incurred on an annual basis slowly so you can see the investment of them putting in that plant down the street, it's finally went into service, they see a small increase in their bill, they can see actively within their communities how those investments and the costs incurred by that have resulted in, small incremental increase tech about eight years, and that was a result, you know, water was a decrease and in that situation they saw growth happen but,

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you know, they didn't see how much investment went in and there wasn't really, you know, all of a sudden now there's this massive increase so they didn't see the incremental costs as those investments were put in and how those costs would have translated into small incremental changes in an annual rate filing. Okay. The, participants or interested parties, which could be the customer, we'll also have the opportunity to participate in an annual meeting, information exchanges. And, if necessary, to challenge part of the rate update and resolution,

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correct? Yes. I would note that, I do agree with Ms. Marius Kull that we do need to refine some of the way we would define an interested party and Okay. The, a notice. Okay. The, ARAM, would you agree also will reduce regulatory lag for the company and administrative burden for not only the company, but also the the participants? Yes. And it's correct that there is a rate case required after the first five years?

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I think specifically it's the after the fifth filing. But if it's determined by the commission that it's required, the company can be ordered in at any time for a rate case. And could the company decide to file a rate case? Yes. Okay. There's no interference with the company's, you know, overall decision making. This is they can they provide their I mean, they're required to file their annual filings and make a determination whether they are within the deadbound. They'd have to let us know. We'd have to review the information, determine if they fall within or without the deadbound.

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And then that would either lead to an annual filing proceeding or an annual filing which resulted in, a surcharge or a credit or if they know what they are not there if they're in the band, it would not really result in any. Okay. So with the the reduction in regulatory lag, won't the company be able to access capital at lower rates to the benefit of customers? Possibly? Possibly. I would say that and it's a lot less of if they're recovering the costs on an ongoing basis through small increments for the investments that they've made,

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then they're less likely to have to build up and take, you know, continue to operate at losses until they come in for their next rate case. So they're getting small incremental increases over time for the investments they're putting in. In a lot of cases, you'll see where they'll wait until right before they come in for a rate case to make investments And that doesn't benefit rate payers. If the need is there for the investment to be done, it's a shame that they have to wait that they look to wait until, they file a rate case or closer to a rate case.

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They could make investments on an ongoing basis which is better for rate payers in small increments. And you mentioned that that's referred to as gradualism and under the ARAM that is certainly an attribute If I may, I I think counsel's testifying. I didn't hear the witness say that. Can you rephrase the question? I can. You're on mute. Thank you. You mentioned the you mentioned the concept of gradualism. Does does that, does the ARAM help customers manage their utilities bills better?

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I think the overall rate design that staff has recommended allows the rate design to be both driven by, the actual rate design that's proposed in the in the overall rate case, this case. So if we're looking to recover a certain percentage of revenues through the basic service charge, the rest through the commodity, we would drive the cost, or we would look to recover the cost based on, you know, certain amount recovered from in the commodity rates and we set that accordingly based on the meter size and the commodity rates and we set that accordingly based on the meter size and the capacity

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now that would allow customers to kind of curtail their usage just like they would in any rate in any rate proceedings where there's a rate increase you'll find that customers will start to pull back from their usage because they have an increase so they are afforded the same opportunity to you know pull back their usage just like they would in any rate case just like I'm doing right now with APS rate case coming We all do the same thing. We all look to try to minimize our cost by looking at our usage.

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So in this case with the ARAM, the rate increases are expected to be smaller and more gradual in nature, correct? Objectional, leading. Okay, I'll say r. Are the rate increases expected to be smaller and more gradual in nature than under the current process? I would think that's essentially how this is intended to work where if you've made investments of $1,000,000 each year that's small steps rather than coming in in five years and now it's five million dollars then it's all a hit in one year.

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Small incremental steps overall. Would you say that the ARAM promotes stability? I think stability can be created in a couple different manner or different ways. Stability for the company financially because now they're getting a return on their investment. They're getting recovery for the investments they're making. They're having to go out maybe less to the market to get additional capital because they're getting it from the customers to pay for what plant investments they've made. Now, there is always gonna be a regulatory lag because we don't have any forecast of

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their future but there, you know, on annual filings you'll be able to get that ability. And stabilizing, I mean, I don't know. I mean, we're in this economy with stabilizing, you know, everybody's on a fixed income, and I don't know how you can stabilize anything in the world we live in for the most part when with respect to cost. You know, you never know tomorrow what the cost of gas is going to be and what the cost of medications. But, you know, utilities have been, you know, this I know that there is an increase but it's not as significant

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as others. Is it possible in addition to smaller rate increases with the annual filing that you customers may actually experience a rate decrease? Yes. That's a sir credit. That's falling to the top of the debt band. Staff had considerable input into the ARAM, correct? We worked with the company to jointly work through the plan templates. So, yes, with respect to that. What important guardrails or safeguards were incorporated into the plan? I would say the one of the biggest would be the dead band.

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A lot of it, is also driven by what the company, and staff worked on on what is the review procedures, the timeliness, how the notice will be done, how the annual filing information exchanges, all of that is laid out in the plan of administration that staff worked with the company as well as in review of, what was brought up in the UNS gas, proceeding as well as their plan of administration that took into consideration what was safeguards were being put in place.

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Was another important, guardrail commission approval? All of this is subject to commission approval. So, in the end, our proposal is that this will go before the commission for the ultimate decision whether the annual rate will be implemented. Are you aware if the FERC formula rate formula rate process incorporates FERC approval before the rates go into effect? It's my understanding it's in the initial filing that you, you know, you would have to go through all the MISA protocols initially if you were going

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to significantly or introduce a formula rate where you didn't have one. So I know that that's an extensive process that requires FERC but it also requires a significant numbers of interested parties that have to agree to it. I'm sorry. Ms. Scott, can I just have a quick Your background Do you have any background with electricity and with FERC in actuality or just familiar with it? No, I actually worked in the telecom participated in flew to D. C. To go to FERC to talk about a new formula plan and the MISA protocols.

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Thank you. Good times. Thank you. Subject to check, would you agree that FERC does not approve them? That they go into effect automatically? Yes. There's a period where, depending on the plan. I mean, like, everyone's protocols are different. But for the most parts, they go into effect with a challenge period and then that's when everything can get engaged, FERC's engaged. It requires there's challenges and it's all laid out in the protocols and it's very specific to each plan. And going back a moment to the dead band,

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which you've talked about extensively, was the, what was the ROE that was selected for the dead band? Do you recall? That's based on the settlement of 9.75 and that should be referred to mister Backstreet. Okay. Did you listen to the testimony of other witnesses over the last few days on the ARAM? The whole time. Yes. Can you speak briefly as to the difference between what's referred to as the CSR M versus the ARAM? I would say that we, took direction to try to use similar naming conventions,

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and change the name to something, more acceptable. Is it fair to say that the ARAM is the plan that, staff and the company agreed to at this point? Yes. I would say that anytime you see the word CSRM, just replace it with ARAM. But that's just the name, not the provisions of the CSRM. Correct? No. This is a formula rate plan. And this is where we set the as you defined in the plan of administration, the protocols and the formula that operates or determines,

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you know, what the amount is, that's within the template. And the ARAM provisions have been updated from the CSRM, correct? Correct. And they do need some refinement. I do understand where certain things and how they would flow, but in my defense, it was we were trying to get it something before, Your Honor so that she would have something and before all parties here to give something for discussion. Now, did you hear the testimony of witness Michlick for Ruko yesterday?

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Yes, I did hear the testimony of Mr. Michlick. One of the concerns he expressed was with respect to game gamemanship and the dead band. Do you agree that that's a big concern with liberty? Well, anyone that knows me knows that that's going to be every filing is going to be heavily reviewed. That we're going to do everything we can to, if something starts to feel like we're always hitting that one of the examples was they're always within, like, point seven nine and then you kick it over or something for that.

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If something is starting to feel like you are specifically only putting in projects to see if you can get to it at the end of the year, I mean, that's going to set off red flags. Red flags are going to be there. If costs start to incur in a ratio that's way outside what was originally in the rate case, we're going to look at that. And guess what? In those parts or recommendations, staff can disallow costs. They need to be prudently incurred costs as well as the investments. We're going to be reviewing what has been prudently incurred.

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And that's the bottom line. Okay. I appreciate that. So that if there is any gamemanship going on, the process allows for that to be identified. Correct? Yes. Between all interested parties, which means staff, RUCO, and any other parties that wish to participate. Is it correct that many of mister Michlick's concerns and his direct testimony related to the CSRM? Yes. And in his defense, that's what the name was at the time. Do you recall the dead band recommended by Ruko,

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witness Michlick? Yes. It's plus 50, minus 80. What are your thoughts on an asymmetrical deadband? I don't agree. I think that you're bringing in new, a new mechanism. This will only be the second, you know, this is only the second time where we've really introduced it. I don't think we should start to introduce something so widely different. Most dead bands that you're seeing that are have been, recommended or adopted through other commissions have been, with, 50 plus or minus or at least a symmetrical

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dead band with an even amount at the top and even amount at the bottom. Okay. I I just don't think that I think that we should follow, you know, what we're doing in UNS Gas in respect to let's keep it very uniform because we need to know how we go going forward. So if we were looking to recommend something different, this is I don't see that there's a difference that we should be treating the gas and the water and the wastewater and those with the same dead band until

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we know what if we would change that. We don't really have a record now to make that determination, but I think this is a reasonable look at a dead band. Okay. Are we at a point in your opinion where we can identify the basis point reduction to the return on equity if the ARAM is adopted? Do you mean like what's the equivalent of say 10 basis points with respect to the debt band? I mean with respect to the authorized rate of return on equity.

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As far as recognizing a reduction in risk, the return on equity is sometimes adjusted. Do you think we're at a point in this proceeding where we could identify that type of reduction? I'm I'm gonna hold on. I'm gonna object. That sounds like cost of capital testimony to me. We certainly haven't heard that miss Hunsaker is going to be giving any cost of capital testimony. Sorry. What was the question? My answer would be I'm not a cost capital expert at that. Okay. I was asking about the dead band and the authorized rate of return on equity

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and, you know, proposals that would reduce it because of the formula rate plan. Yeah, we'll stick with cost capital testimony. Okay. Now, Ruko made several, proposals, apparently what they consider to be safeguards and I wanna ask you about those. They had proposed a rate cap. Is that something that you would favor at this point? No. And why is that? If the cost had been prudently incurred, then why should we capital why would we set a cap? If they're prudently incurred,

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we would be able to look at those, and make a determination in every filing. If something seems as though they should have come in for a rate case then, you know, we could deny the annual filing and say that should have been brought up. So if you were to put a plant in, say, Sarville and completed it and then tried to run that through an annual filing, that wouldn't be appropriate. These are supposed to be small incremental changes the large plan investments something like in, you know, 100,000,000 that should be done in a rate case.

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And how about a productivity credit? No and here if can I expand on why? I think they're modeling the productivity credit similar to how the SIB does an efficiency credit. The best way I can describe why an adoption of efficiency credit works in a sieve is that you've got aged infrastructure and you're replacing that infrastructure and you've got water loss, you may have water loss issues. By replacing that plant and putting a new plant now your system is more efficient

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and now you don't have as much water loss. It's like replacing in your home an air conditioning unit that's not efficient. Wouldn't you expect those costs are gonna your overall electricity costs are gonna go down? Doesn't it mean, you know, aren't you going to be more efficient? I don't think that that is I don't think that that should be applied in the situation. I don't think that it makes it more productive productivity, you know, in the way they plan to in their recommendations. Okay. How about a pilot program? Do you think that's necessary?

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Dead band affects, you know, how the companies incur their costs, how the investments are going on, how we've maybe seen small incremental changes in rates in court over the course of the next few years. I don't I think the commission's policy has been set. I don't think they envisioned that we would just kind of look at this and see if they wanted to end the program. They can end the program at any time. They have that discretion. I don't know that we need to try to pilot a program. I think you're going to see these annual filings go through their review processes.

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The decisions are gonna come before the commission. At any time, anything can change and stop a program. Do you believe over all that the ARAM is in the public interest? Yes. Is there anything else you'd like to add at this point with respect to the ARAM? No. Okay. Your honor, miss Hunzinger is available for cross examination. K. Thank you. Mister Sabo. Thank you. Good afternoon, miss Hunzinger. Good afternoon. Did I say that right? Hunzinger. And you're Sabo. Yeah. Yeah. We've known each other for a while. Wait a minute. I just realized. We aren't doing cross today.

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Oh. I just realized we're just doing direct today. Oh, that's right. Yeah. Sorry. And also, were we going to ask her to adopt and or answer miss Betzameia's questions and Yes. That's my understanding. Okay. And and to the extent you wanna get that part Yeah. Out of the way, we're I'm prepared to do to do that. Right. Let's yes. Let's do that. I'm sorry about that. Okay. I apologize. Oh, yeah. Miss Miss Hunsicker, are you familiar with the testimony of Helen, Beth Samaya in this proceeding?

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Yes, I'm her direct supervisor. Okay. And, do you have the staff binder of exhibits Yes. At the bench? S four and s five. Okay. And could you identify what s four is? S four is her direct testimony, s five is her rate design testimony. K. Have you, reviewed that testimony? Several times. And, do you would you make any changes to that testimony today? No. So are you, at this time, are you adopting her testimony as your as your own today? Yes.

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Your honor, I would ask for admission of that testimony. Okay. No objection. Your honor, we have no objection either. Housekeeping wise, I'm not sure s nine was admitted either. I have it marked off. Okay. Thank you. Alright. Okay. And you're on have it marked off? S nine? I don't remember. Or did I just get ahead of myself? I think you got a little ahead of yourself because I did go through everything with her, but I hadn't yet asked her to Okay. Thank you too. Be admitted. Thank you too. So we're looking at s four, s five, and s nine?

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Yes. Okay. Objections. Okay. Then s four, s five, and S9 are admitted. And then, your honor, could I would you beg my indulgence? I forgot to ask her about, one other thing. Okay. Miss Hunzinger, were you here today, and did you hear some testimony on retirements? Yes. And the failure of the company to record retirements after 2019 being of concern to staff? Staff? Is that the question? Yes. It was that of concern to staff their failure not to record them after 2019?

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I would say that it, it needs to be adjusted but in looking at the retirements I would say that a large majority of the retirements that that are in question are done in a first in first out type of, analysis or layout that happens within the b two schedules in a vintage method, meaning you put it in by year for each specific line item so if it was meters going back to 2007 it would be on the 2000 line and any retirements will go along with that 2000,

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addition and then any accumulated depreciation would build and any retirements that are included in that b two would be a part of it. It's highly likely that in the discussion about retirements that those amounts would have already been fully depreciated. They just weren't removed from the overall plant and, I mean, it's it's it's it's in the plant balance, but it's also probably most likely fully depreciated. So the net effect is zero And for the most part. And you did address this with the company.

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Correct? That would have been a part of the testimony, and I almost want okay. So part of it, in the company's review, in the staff exhibit s two in the in the issues matrix. I think there's an updated one on s 16. Was that, filed? I think is that late filed? Because I think that's an update. Yes. And the company made the company has agreed on an ongoing base, to address this on an ongoing forward looking basis, correct? Correct? Their intention is,

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in my understanding in working with the company, is that they plan to update and make the corrections in a review of their, the way they record their information in their accounting system. They just went through a major, change in their accounting system so that has that in part led to this oversight, but, I would see that a lot of those retirements most likely was for plant that had already been fully depreciated and the impact would be zero. It is laid out in the issues matrix on the impacts. Let me Okay.

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Thank you. Hold on. Let me hold on. Miss Humphrey, you and I talked about 16, the updated issues matrix being late filed exhibit. I I haven't seen that yet, or has it just been done? No. I I just I've been trying to reach my admin today, and, and it it did just get filed. I do have extra copies if anybody needs it with a new with a new, exhibit list and some and some copies of the of the exhibit, but I think we all have that exhibit. I I I would appreciate, a paper copy. Great. That'd be so great. Thank you.

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No problem. Oh, also, and I'm I'm not objecting, But that was a lot of information on the retirements, and I'm sort of confused about whether miss Hunsaker was saying that that there's an agreement for that to all be addressed. Is that in the settlement agreement, or is that just sort of Okay. In the ether? Let me stop for a moment and ask about this because it's 03:30, we still have to do mister Baxter. Would people be opposed to just finishing direct for miss Baxter mister Baxter and miss

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Hunsaker today and doing all cross beginning Monday because it's 03:30? If that's what works for your honor and and the parties, that's fine with us. Because some of us still have a two hour two to three hour drive at us. So, if that's okay with everybody, mister Sabo? Yes. Yes. Okay. Is that okay? Fine step. Alright. The sunsaker, is that okay with you? I can answer, not answer whatever you you say. Be here till we till the cows go home? Okay. Alright. Let's let's do that. Let's get through everybody's, direct testimony today. Okay. Oh, so we were did we finish with miss Bethsimea's testimony?

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Yes. Okay. Well, right. That would have been the retirements. I didn't because that's a part of her adjust or no. That's what with mister, Malone's adjustments. Yeah. Great. K. Okay. Okay. Any any other any other questions that are not, cross examination? My my questions that I have miss for miss Hunsaker, I can address and cross. Okay. Thank you. Alright. Is there any other direct? No. No? Okay. Alright. Thank you, miss Sunziger. Thank you. Thank you. We'll see you on Monday. Alright. All the bells and whistles and other accoutrement.

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Thank you. Should we take a, like, five, ten minute break just to Yes. Please. Okay. Let's do that, off the record until until about, 03:40. Okeydokey. Are you ready? He's my second favorite Phoenix ship. Let's go ahead and go back on the record. And, is this miss Scott or miss Humphrey going? We will be calling Britt Baxter, and I will be doing his questioning. Okay. Probably all of it. Okay. But miss Scott is gonna be monitored to make sure I don't miss anything. Please remain standing. Be sworn in by the court reporter.

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Please, humbly, swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth. Thank you. Thank you. You're seated, Anne. It's time for you. Yes. Give me just a second. Sorry, your honor. This was just another copy of exhibit s 16, but I see there's one up here. Okay. I'm so sorry. So situated familiar with the layout? I'll figure it out. I'll make it up as I go, your honor. Alright. Mister Baxter, good afternoon. Would you please state your name and your business address for the record? My name is Britton Baxter. Britton Baxter,

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my business address is 1200 West Washington Street, Phoenix, Arizona. By whom are you employed employed by the Arizona Corporation Commission as a co director in the utilities division. As part of your duties as co director of of the corporation commission utilities division, Do you oversee all of the pre file testimony, at least in water cases? Yes. And in this case, did you did you oversee the pre file testimony of of all the witnesses? Yes. Do you believe that as the co director you're able to provide, testimony on most if not all of the issues in this case?

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Yes. And did you yourself prepare and file settlement testimony in the case? Yes. You should have in front of you, a booklet with all of that testimony in there, and I'm gonna double check your case your docket your, exhibit number and ask you to take a look at exhibit s 11, which should be your settlement testimony. There is an s 11 tab, but it is empty. It's missing. Well, that's not gonna work. Let me let me get you a copy. It's gonna be it's gonna be Friday for the rest of the day.

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I have a copy now. Oh, okay. Great. Thank you. And it is s 11. Correct? Correct. Alright. Mister Baxter, was that testimony marked exhibit s 11 prepared by you or at your direction? It was. Do you have any changes or modifications to make to that testimony? I do not. Are you adopting it as part of your testimony here today? Yes. Your honor, we would move for the admission of exhibit s 11. Objections? No objection. No objection, your honor. Alright. S 11 is admitted. Thank you, your honor. And, mister Baxter, did you participate in the settlement,

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negotiations and settlement agreement that was ultimately arrived at in this case? Yes. Ruko did not participate in that settlement agreement. Correct? Rugo participated in the discussions. They did not sign the settlement agreement. Alright. Can you describe for us the, generally, the the, the process settlement meeting and the settlement agreement. Sure. So, generally, when a utility reaches out to have to initiate settlement discussions, we've had some do so shortly after they file their application,

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and we're just not prepared at that point to have those types of discussions. Liberty did not, just to be clear for the record. It's staff's preference to wait until we and Ruko and any other party file their direct testimony because then that gives the commissioners, the judges, and everybody paying attention the opportunity to see how we got from point a to point b to point c to kind of follow the issues as we go through. In a settlement discussion, there's a lot of give and take on issues. Prior settlement discussions,

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you would sometimes find what's called a black box settlement agreement where the parties would agree to a revenue requirement number, and then you wouldn't necessarily know how that number was arrived. It's currently not our position to have those types of agreements. We would prefer to have a settlement agreement in total with full schedules that everybody can evaluate and review, and that's what we've been doing since we started settling cases again. There's been, quite a few references today, to the settlement process and excuse me.

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I just lost my spot. If I can have a moment. Well, did you you you you haven't been present in the in the hearing room for all of the hearing, in this case. Correct? Correct. But you have you been watching it from your office? As much as I can. Alright. And did you hear the testimony the Rugos concerns expressed in their testimony over the settlement process? I caught bits and pieces of it. I'm not sure I caught all of it. I think high level, they have concerns about staff and the companies entering into settlement agreements that they're not a signatory to and that there's maybe some due process concerns there.

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I would argue that, like I said, Ruko is a participant in this settlement discussion. There are some components in the settlement agreement that were adopted based off of Ruko's positions. In settlements, there's give and take. We might give on a ROE, for example, in order to get an adjustment to rate base. So I I don't believe that the fact that a party, be it Ruko or any other party in any other rate case, not being a signatory to the settlement agreement in any way impedes the process. In your opinion,

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did Ruko have a full and fair opportunity to participate in the settlement negotiations? Yes. And we can't, of course, talk about what happened in those settlement negotiations, so I don't wanna go any further with you, on that. But that your comment brought up what I what the other, matter that I was going to ask you about. And you mentioned it's been a lot of mention about negotiated terms, give and take, things of that nature. When when you say that that there is give and take and things are negotiated, does that mean that staff has not necessarily, considered whether each element to which it's agreeing in the settlement agreement is in the

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best interest of the the the public and the customers and the company and staff? Or do you do you take those into consideration as part of your decision to compromise on an issue? I would say that staff would not necessarily look at any particular issue that's discussed within the confines of a settlement negotiation. I'd I would take the position that staff looks at it more holistically. As with most agreements, right, not everybody walks away happy,

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and that's probably an indication that it's a good agreement, that not everybody got what they wanted, but they're comfortable with where the party's landed. And I would say that's applicable in this case. Sorry. I just lost my train of thought. I'll just stop there. Alright. Let me also direct your attention to exhibit number s 16, and that should be the final issues matrix. I have it. Did have you had a chance to review that document? Yes. And as far as you can tell, is that a an accurate depiction of where the parties stand, on all of the issues contained therein?

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Yes. Alright. Your honor, I would move for the admission of exhibit s 16. Objections? No objection. No objection, your honor. Thank you. Alright. S 16 is admitted. The staff believe that the terms of the settlement agreement are just and reasonable and in the public interest? Yes. And can you tell us on what particular basis you you believe that to be true? So my understanding, when the commission voted to reaffirm the settlement policy, there was a signal sent to staff in the industry that they take settlement agreement seriously, that they see a benefit to rate payers in reducing rate case expense by the

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process of settling an issue rather than fully litigating it. Does that mean that any party who's not a signatory to the settlement agreement should not be op provided the opportunity to litigate their position? Absolutely not. But should it lead to efficiencies in the hearing? I I believe it should, and that's where the benefit to the rate payers come from by reducing rate case expense. And, no. Were there any other are there any particular particular elements of the terms of the settlement agreement that that you would wanna point

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out to the ALJ as being beneficial to the and in the public interest other than that. Nothing specific. I think as a whole, the settlement agreement is in the public interest. Thank you. I wanna ask you a a few questions about some of the revenue requirement issues before I jump into the into the, formula rates. I I spoke with miss Brown on the stand today about lag days, in determining, the inter lag days for the interest on the long term debt. And and it's my understanding that the settlement agreement adopts the company's proposed fifty days,

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whereas Ruko wants ninety one point two five days. With regard to with regard to, like, to lag days, how are lag days determined in a rate case generally? So, generally, when it comes to lag days, there's a study that's performed by the utility to analyze for each line item on the income statement the difference between when the revenues are collected to pay for that expense versus when that expense is due. So, for example, property tax is one that's generally paid twice a year, so the lag days would be roughly a hundred and eighty days.

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So the the shorter the lag days, the quicker the company gets the revenue to be able to cover that expense. And in in assessing what the number of lag days should be in a particular case, does staff give consideration to what other what has happened with other companies in other cases? Not necessarily. Excuse me. I understand the importance of wanting to be consistent from case to case, but there's certain elements of each case that is very specific to that utility. And I would say the lag days would be one of those.

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And I know even from affiliate to affiliate application, circumstances can change that would result in a different lag day from one case to the next. Is is this kind of an area where where the numbers are what they are? In other words, you look at the invoices and and or a contract or whatever documentation you have to determine the act what the actual lag days are, and you go from that rather than from some philosophical, or hypothetical, type of lag day. Yes.

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And in my experience, staff generally does not take a position on a specific lag day unless we see something that stands out to us. What we have generally taken positions on is certain components that are are are not being included in the cash working capital calculation, such as interest. Right. And is there any dispute on that subject in this case? Not on the inclusion or exclusion of any particular component. No. Okay. I'd like to talk to you also a little bit about plant retirements.

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Was staff concerned when when they realized that the company had not been recording retirements? Yes. It's concerning when you go since 2019 without recording any retirements when we're seeing infrastructure investment made in the system. So our testimony put the company on notice that that needs to be addressed. It's my understanding that the company is working on that. I know that they implemented a new software program, and this might have just been an oversight. So they are working on it. It's also my understanding that the settlement agreement incorporates some level of,

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reflecting retirements in it. And in this particular case with the proposed where the plant retirements in question, the inclusion of plant retirements, in this case, in in with regard to I'm sorry. I'm apologize. Let me rephrase that. In this case, did the did the retirements in question have any impact on the revenue requirement? Any impact they would have had, I think, would have been de minimis. I don't know the exact specific nature to miss Hunsaker's earlier testimony about there being a net zero impact because the retirements were fully depreciated.

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I don't have any reason to doubt her. She's closer to the details than I am. Alright. And, miss Brown's testimony also addressed, depreciation expense adjustments for fully depreciated plant. Do you have a response to Ruko's position on that? I didn't catch all of miss Brown's testimony, but to be frank, the pieces I did catch, I didn't exactly follow. It didn't quite make sense to me. I I didn't really understand what she was talking about. What about the issue of, accumulated depreciation sync being synchronized to the company's depreciation annual adjustment?

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Are you familiar with that argument that Ruko makes? I I am. And what's staff's response to that? Ruko, in prior cases, has taken a position of the matching principle being applied, and I'm not sure that that position actually follows the matching principle. Do you know if that position has ever been adopted by the commission? I do not believe it has been. Thank you. Let's talk next about the cost for Cereval, and the the deferral. Can you tell us sorry. I'm rushing. I apologize. Would you would you tell us what this deferral would do? So first,

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let me start with staff is generally not in favor of accounting deferrals. In our opinion, it it leads to almost a preapproval in terms of recovery. So it's a pretty rare instance when staff will recommend approval of an accounting order. For the Cerabelle issue specifically, Given the fact that the commission had opened an investigation into the capacity issues on the wastewater side for Liberty Litchfield Park, and while there is not a specific order from the commission directing them to build

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that, I think there was a very clear message sent from the dais that Liberty needed to move forward as quickly as possible. So given the nature of that, generally utilities plan rate cases around when they're making significant investments. So you might see I know Liberty's case, last rate case was 2018 roughly. So they went quite a few years without filing a rate case. So they would plan investments such as Cervel, which was roughly a $100,000,000, I believe, in a way that would allow them to recover it either as a test year

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or post test year project because the commission essentially directed them to move forward expeditiously because it was impacting growth in the area and developers were pressuring. We believe that an accounting deferral in that instance was appropriate. However, we had some relatively restrictive parameters around it and in the rate case when this rate case Liberty seeking recovery of that deferral, we ensured that the parameters from the commission's decision were met,

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and they were. Were there any other factors that that, that staff considered in in agreeing to the deferral that the company requested? No. The the primary focus was on compliance with what the commission authorized in the deferral order. And I think in this case, the deferral is has to do with the interest of carrying charges. Correct? Correct. And did you hear, Ruko's, testimony on that issue and and concerns that, that customers would be overpaying, the the interest. I did not hear that, but I would

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I did not hear it. But when it comes to the deferral, that was one of the I'm gonna object, your honor. I if if the witness didn't hear it, he should be testifying on it. So I'm gonna object. Can you rephrase the question such a way that's sure. But at least it's his knowledge. Sure. Do staff have concerns, with the deferral, of of the interest charges as well as the principal? This is essentially one of the reasons why staff does not approve of accounting deferrals.

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But like I said, in in this instance, we believe the commission sent a clear signal to Liberty to build that plant and get it up and running as soon as possible. So the timing of when it would roll into rates was not at the discretion of the company. So that's why we believe the deferral was appropriate. That deferral allowed for the recovery of the deferred cost, the depreciation, and the o and m of that plant with a small piece for a carrying cost, which, by the way, was not as much as the company originally proposed. Do you have any numbers on that?

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So many numbers in my head. I don't remember the specifics. I I know it was roughly one or two percentage points lower than what they had originally proposed. You've opened the door. You gotta ask the question about money. Without giving a legal opinion, since you're not an attorney, what is your understanding of the role what is staff's understanding of the role of a settlement agreement, when not all parties have signed, and and and the matter is then presented to the ALJ. So I would say, and I've said this in prior cases, that

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we have every faith in the judges to weigh the settlement agreement with the appropriate weight that it should be given. However, I'd note the last two rate cases, water specifically and wastewater, that, had a settlement agreement that not all the parties were signatory to. Those particular judges adopted some of Ruko's positions in the rue that was presented to the commission, and most, if not all of them, were admitted to be put back to what was in the settlement agreement. So to staff, that sends us a pretty strong signal that the commissioners are taking water and wastewater

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case settlement agreements quite seriously. Do staff believe that the commission intends for any one party to exert more influence over the other, when it comes to settling cases? No. Is this when staff talk discusses a settlement, where engages in settlement negotiations, do do staff make an effort to make sure that all the parties are fairly have a fair opportunity to present their position. 100%. And is staff willing, if, for instance, a party could agree on some issues but not all issues, would staff be is staff continue to be willing to,

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stipulate to certain issues even without a full settlement on all issues with certain parties? Absent a full settlement agreement or even a partial settlement agreement whether or not all the parties are signatories to, yes. Staff doesn't have the intention of prolonging any proceeding. So to the extent that we can narrow the scope of issues either through a stipulation or rounds of testimony, we believe it benefits rate payers. It also benefits part all parties in that it allows them to prioritize certain issues,

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that are more important to them and maybe let go of some issues that aren't as important. Does it not? I believe so. And I know that's leading, but it's late in the day. I'll try not to rephrase it. In staff's opinion, is a rule making required to implement formula rates? No. Did the regulated utilities need a policy statement to be able to up to propose formula rates. No. I'm gonna object, your honor. That calls for a legal conclusion. I agree. Okay. Does staff believe that the updated POA is better than the, initial version of the of the CSRM that was presented.

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Yes. Because we were able to work with the company, and the company accepted many of staff suggestions. We also took the the signal from the commissioners and their approval of the UNS Gas. As miss Hunteker testified to, could can we make additional improvements? Yes. Should we? I believe so. So my suggestion would be as a compliance item in this decision, should the commission move forward with approving it, that the parties, and I by parties, I mean, Ruko included, have ninety days to work on providing an updated POA for commission approval.

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There was some discussion earlier, about, the SIB, and obviously, there's comparisons between the SIB and and formula rates. And, there was let me think about this for a minute. Just checking notes here. Will staff, let's see. How does view I believe it's pronounced meso protocols that are part of the ARAM POA. The MISO protocols? MISO. Thank you. MISO is this soup. So the the MISO protocols came about because it was adopted in the the form formula rate policy statement.

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Those are kinda predicated on what FERC has approved, in the MISO, lost it, RTO. And it essentially establishes a formal process by which parties can complain about, maybe one component of the formula rate that they do not believe the utility is following. Was the SIB adopted through a rule making? No. Have there been a number of SIB, applications, since the time that the SIB was approved? After the supreme court upheld it, there has been, to my knowledge, four utilities that have the SIP mechanism that have implemented it.

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There are others that had it approved, but to my knowledge had never sought recovery of it. Do you know which companies those are off the top of your head? So Arizona Water has one for their northern group, their eastern group, and then EPCOR has one for their wastewater system, their consolidated Sonoran system. And I believe they have one for their consolidated, Sonoran water system as well. Are all those companies either a or b companies? They're all class a companies. And did Ruka participate in the actual SIB,

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the annual SIB, applications? The request to implement them? No. Have there been other, infrastructure adjuster mechanisms that were approved by the commission or adopted by the commission without a rulemaking? Yes. Can you give us examples of what those are? I don't know. I'm gonna object. I should've I would've objected before. I don't think this is relevant whether or not Ruko participated in a rulemaking in a SIB. The SIB or any of those other adjusters are completely different than what we have

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here. So it's comparing apples to oranges. So it's irrelevant. So aside from all of that, I'm not really sure what Ruko being involved has to do with it. Well, there are a lot of protections that are that are requested. There are are there are, terms that are being requested by Ruko, and Ruko has expressed, you know, a lot of concern here about the public's ability to be involved or the the the other parties to be involved in the in the follow-up process when a SIB or some other adjuster mechanism is is reviewed. And I think to that to that extent,

364
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if if Ruko is concerned about those, it's the fact that they haven't participated in any in any way kind of quest brings into question how concerned you know, how how legitimate those concerns are, I guess. Okay. I Yeah. I don't I don't think that those are relevant isn't the word, derogatory, argumentative, not necessary, maybe. So let's think of something else. It's a minor. And aside from that, just for the record, we do review those. Whether we get involved or not, that's our prerogative. But we certainly do review,

365
06:12:08.435 --> 06:12:54.600
at least some of them I know we do. So I don't want Okay. Let's move on. Thank you. In establishing the the the protocols for the, formula rates, staff set some timelines. Is that correct? Yes. And what do you what do you envision the the timeline process to be in a in a formula rates application? So if you go back to the the policy, it it lays out the hundred and fifty days, I believe it is, from the initial filing to a decision from the commission. And the cases that like UNS Gas that the mechanism has been approved and the other cases

366
06:12:54.600 --> 06:13:29.445
where one is pending, from a staff workload management perspective to process this type of application in a hundred and fifty days would be a little problematic, especially if we're gonna have a number of them all kinda hit within a very narrow period, which is why we've recommended and has been accepted the quarterly review process where we get information quarterly. For for me, I think that's beneficial because if we've got an engineer going out to to do a site visit on another pending rate application,

367
06:13:29.985 --> 06:14:07.505
and we've got a a utility such as Liberty who says we put this new well into service, the engineer can swing by on their way through, take a look at it. We can start requesting invoices. So we can do a lot of the detailed audit work upfront ahead of when the utility files a request to implement. So that will help us be a lot more efficient. It's open to any party who's interested to participate and have access to that same information. The company in this case has agreed to the same thing UNS Gas agreed to with the ten day discovery response time period so that it's not open ended.

368
06:14:08.685 --> 06:14:42.480
But the bottom line, staff will do our best to follow the the protocols, the MISO protocols that are incorporated into the POA. But I'll point out that there's timeline in the SIP POA that we don't always meet because we're not gonna take it to the commission if we're not comfortable with what's in the request. So for me, that will apply to the formula rates. So if we're not comfortable, if we're still looking at a particular project that we haven't determined if it was prudent or not, to miss Hunsaker's point and to Ruko's concern about gaming the process,

369
06:14:42.940 --> 06:15:18.980
if we find any indication that that might be happening, we are gonna take our time to make sure it is not before we present something to the commission. Do staff believe that adopting formula rates is a pair of shift in, rate making in Arizona? I would say no. To me, I think and I've called it this before in the workshop and in other discussions. It's kind of the next evolutionary step. It's still based off a historical period. We're we still have the opportunity to do an audit like we would do. To me, it's just taken smaller bites.

370
06:15:20.640 --> 06:15:55.045
I know miss Wake testified to quality of concern issues that she doesn't see that this would address those. I would argue that, yes, it would. So if we've got a a company like Liberty who not only was there a capacity investigation open, there was a pressure investigation docket opened because they were having some pressure issues on the water side. So if we were taking annual looks at what's going on in terms of performance and investment into the system, I think we could eliminate the need for those types of investigations because the commission

371
06:15:55.045 --> 06:16:29.635
will have eyes on every year. And the the same the same rate making formula that we've that Arizona has always applied will remain as part of the formula rate. Will it not? Correct. And in in this instance, there's a commission approval of a a model, a template to miss Hunsaker's testimony that will be fixed inputs such as the ROE, the capital structure, cost of debt that will not need to be discussed and those tend to be the most litigious in any rate case, the most controversial.

372
06:16:30.175 --> 06:17:12.080
So it's taking those issues off the table and then it's just a matter of was it a prudent investment? Did the change in in expense make sense? Is it supported? And is it con in compliance with what the commission authorized? Did you hear mister Michlick's testimony as to how the SIB mechanism was developed? Yes. Do you agree with his position? Yes. I would just add a little clarification that it's my understanding that initially, there was a proposal for a disc type mechanism. Don't ask me what that stands for because I think it depends on the jurisdiction

373
06:17:12.140 --> 06:17:48.005
you're talking about. But essentially, it was a capital tracker, that would allow the utilities to recover investments similar to the way the SIB ended up being modeled. It got pretty contentious when it went before the commission, and the commission directed staff in the industry in Ruko to go to the drawing board and to come up with something that everybody could work with and live with, and the SIB was was the result of that. The the, formularies POA that that staff has looked at, does not contain a cap on the amount that the rates are can increase by.

374
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Correct? Correct. And and do you believe that a floor or ceiling makes sense for the ARAM? And why or why not? I do not because for a rate case, there's no cap on how much of an increase can occur. And I think if the commission were to approve a cap for a formula rate, you could get into the same type of discussion we've had multiple times with commissioners when it comes to a phase in of the company not having the opportunity to be made whole with the revenue requirement that the commission has authorized. And then you might have the very effect that Ruko is arguing is going to

375
06:18:23.085 --> 06:19:04.510
happen with the pancaking of rates because then there could be some interest component. And I heard discussion of a true up. There is no true up. There's no need for a true up. It's just an annual adjustment to put it to what should be recovered. So is it and I know I'm I'm sorry. I'm jumping around a little bit. Is it is it fair to say that that, some of the service issues, such as in the Johnson utilities case, that that staff has experienced can hopefully be, controlled a little better,

376
06:19:04.830 --> 06:19:43.085
on an ongoing basis with this annual reporting than they could if companies if companies don't report these, report changes or improvements or etcetera, and between right cases. Yes. I think the Johnson is kind of the poster child for a utility that wasn't doing what they were supposed to be doing. They filed one rate case since their CCNN was approved in the early nineties. That was in 2008. They were ordered to file another rate case and came in multiple times with the request for an extension that the commission approved.

377
06:19:43.785 --> 06:20:21.350
Some parties we were opposed to that. We thought we needed to get eyes on the system. Not saying that had we had eyes on the system, it would have prevented the sewer from flowing down the street into the wash. I believe it would have because we would have seen the conditions some of those lift stations were in and probably would have had some pretty strong recommendations like we ultimately did in the order to show cause proceeding. And under current circumstances where where there there isn't the annual reporting, it is it unusual for for the commission staff to learn of problems or complaints

378
06:20:21.410 --> 06:20:57.030
that customers have had but haven't brought to the commission between rate cases? It it is fairly unusual for us to hear about issues that are occurring. Sometimes we'll get phone calls with complaints about service. There's been times where staff has opened investigation dockets. Other times where commissioners have opened investigation dockets to look into the allegations. Sometimes it's the development community not being able to move forward because they don't have the capacity to serve or there's a moratorium on meter installations.

379
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But but generally, it's I would say it's easier for the commission to have an ongoing access to the information rather than through a mechanism such as a formula rate, rather than having to take that additional step because quite frankly, we've got a very large workload. We used to get breaks at the end of the year that doesn't happen anymore Now the rate cases are just one after another after another Sometimes the two largest utilities file rate cases within days of each other other large utilities get new rates and six months later wanna file another rate case.

380
06:21:35.745 --> 06:22:19.990
So with the workload staff's presented with, we would love to be able to to do a deeper dive and and to even the cases that are presented for us, we don't always have the opportunity to. As an auditor, I would love to do a 100% audit. There's no way you can do it. You can't really do it for a small utility, but you for sure can't do it for a class a. The commission does have a, or utility division does have a compliance, unit. Do they not? Yes. And what do what kind of things do they track? So compliance's main responsibility is when the commission issues a decision,

381
06:22:20.930 --> 06:22:53.565
they monitor the certain ordering paragraphs from the decision that have some compliance requirement like file a POA or a tariff or send a customer notice or file a new rate case. So they're responsible for they have a deep a database that tracks all of those items. They check off when it's been completed. So if a company was ordered to file a rate case, they filed a rate case. They check off in their database that it's been completed. So they no longer track that. On a monthly basis,

382
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they're sending utilities advance notice of an upcoming compliance, and then they're also sending at the end of the month notice that you failed to meet a compliance requirement. They are also responsible for the annual reports, making sure the utilities are submitting their annual reports every April 15 or May 15 if they get a thirty day extension. Are there elements of a of a rate case decision, which are not, in a format that makes them easy to track by staff or possible to track by staff? Yes. And we've kinda struggled with this through the years.

383
06:23:30.990 --> 06:24:03.080
Years. At one point, the compliance group was trying to track compliance requirements that are in POAs, but it's very problematic for them to do that. The way the system has been automated is it pulls the ordering paragraphs from the decisions, puts it into a work queue for compliance, and then one of the analysts in compliance goes through and checks kind of like a yes or no of whether it should be tracked. If they check yes, it goes into their database and they track it. But it's only the ordering paragraphs.

384
06:24:03.140 --> 06:24:40.920
It can be difficult that if there's and and the SIB is a prime example because the SIBs generally have a requirement to file a full rate case after five years. Unless it's in an ordering paragraph, it's problematic for our staff to be able to track that. Do you believe that the quarterly reporting that that goes along with formula rates could help ameliorate that? From my perspective, the quarterly reporting with formula rates isn't necessarily a benefit to the compliance group. It's more a benefit to the analyst who are going to be evaluating the request

385
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once it's filed. Alright. Thank you. If we may have a a moment, your honor, I appreciate it. While I'm conferring with counsel, I have a an another, question I think that that we had wanted to discuss, and that's about regulatory lag. Do you believe that regulatory lag is an incentive to the company to operate efficiently? No. In fact, I think it's a counter incentive. Traditionally, under the the current traditional rate making paradigm, what we've seen is utilities will oftentimes delay infrastructure improvements until they can time it such that it'll be recovered more quickly through a rate case.

386
06:25:41.945 --> 06:26:16.695
So and I'm not saying Liberty did this, but for example, if a company hasn't filed a rate case in five years and they've determined that they're going to in two years, they'll start making the investments in the test year, make investments in the post test year period so that they can be recovered when they file the rate case in a a more timely manner. There's still regulatory lag there, but I don't think that promotes efficiency at all. In fact, if I could add, I I think it can contribute to the Johnson type situation because you're delaying in

387
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infrastructure improvements that you should be making to address quality concerns. I think someone will ask it. Thank you for your indulgence, your honor. Does the ARM the ARAM alter the long established rate formula used by the commission? No. If the commissioner drops the ARAM, does Liberty still have to provide evidence to support the fair value of its utility assets? Yes. And is there anything in the ARAM that prevents the commission from adopting a just and reasonable rate? No. In fact, I think it requires them to.

388
06:27:13.905 --> 06:27:51.715
And that's the constitutional mandate of the commission. We've between you and miss Hunsaker and actually the company's witnesses heard a lot of the, a lot of the terms that of of this of the, of the new POA and the ARM ARAM, that are beneficial. Do do you, is there anything that that we haven't covered that you'd like to add that you see see as a benefit of of using of the ARAM as staff and the company have discussed it most recently and presented to the commission? Not necessarily specific to the details of this particular POA,

389
06:27:52.815 --> 06:28:30.610
but I I see a long term benefit for staff and and the other parties that evaluate rate cases. Like I said, when you do an annual review of the investments, you can and I'll use this term. I don't know if it's a fair term but kinda bank the audit that you've done in each of those annual filings and save that for when the utility files their next full rate case and rely on the work that's done in the interim so it'll make the next full rate case that much more expensive. Specific to Liberty, there'll be some additional steps because of some of the provisions of the ARAM POA,

390
06:28:31.550 --> 06:29:05.305
specifically Endo because that's been a long standing dis issue of dispute between the company, Ruko, staff on how to handle that. My opinion, the the settlement agreement from the Rio Rico case that established those rates has gone a long way towards making this rate case specifically, and I think future rate cases a lot more efficient. But those cost pools do change on an annual basis, and to analyze that within a context of a formula rate would be extremely problematic. So that provision,

391
06:29:05.305 --> 06:29:38.235
I think, is very beneficial to the parties and that it'll kind of hold steady the cost pool that can be allocated for the indirect overhead of the investments in made in each year should the commission approve the ARAM. That will trigger a little bit of additional steps that will need to be conducted in the next rate case to actually update the actual cost pulls in the intervening years. So there might be some slight modifications to the rate base number, but I think it should be de minimis.

392
06:29:38.235 --> 06:30:24.390
It's all dependent on the cost pools and what flows through. Do the rates approved by the commission in a formula rate plan compound? No. How does staff envision that they will work? So staff's vision is rather than there being a separate ARAM surcharge each year, the ARAM surcharge will just be adjusted each year. So it'll be one ARAM adjustment that each time the company files an update, that number will be modified to reflect either the deficiency or the over earning.

393
06:30:25.250 --> 06:31:06.005
I'd also like to add to that I I think even if there's significant investment made subject to like a Cervel type plant in in this instance, there could potentially be a slight credit to customers because many times utilities in certain areas, the reason why they don't file a rate case for many years is because they're experienced quite a bit of growth, and the growth can kinda overcome some of the maybe operational deficiencies or investments that are being being made. So our adjustments to the ARAM for the rate design piece also incorporate the growth.

394
06:31:06.065 --> 06:32:05.525
So the billing determinants will be updated annually to reflect more water that was used, more customers that have come on the system. So even if there is an increase to that revenue requirement in the ARAM, it could potentially result in a credit to customers because there's more customers to spread the revenue requirement over. Okay. Mister Baxter, do you believe that that that that utilizing an ARAM, and the ARAM in this case will lead to rate stability? I believe it has the potential to. In what way? And the fact that there will be some years where it will likely be an

395
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increase. There could be some years where there's no change. There could be some years where there might be a slight decrease. I believe that that could potentially benefit rate payers because for several reasons that I illustrated the Johnson example of of utility that was failing to make the investments in the system. I think this will afford the utilities the opportunity to do that on an annual basis rather than waiting, deferring those improvements. So that helps kinda stabilize. So instead of waiting, waiting, waiting, and now you've got significant investments in plant made test year,

396
06:32:42.250 --> 06:33:21.525
post test year. Those investments will be spread out over a longer period that makes more sense. The growth I just mentioned, the systems that are growing, there'll be some benefit and stability to the rates to reflect those because the growth not only over overshadows potential inefficiencies, but it it tends to allow the utilities to make additional money from the growth. And I think a formula rate will will help kinda mitigate the potential for that to happen. Another thing that's been discussed several times during this hearing is the fact that with

397
06:33:21.525 --> 06:33:58.770
the adoption of, ARAM type mechanism, staff anticipates that many of the other surcharges or mechanisms, that a company has would be eliminated. Is that correct? For water and wastewater utilities, I believe all of them should be eliminated because you don't need them anymore. If you ask me for an electric or a gas utility, it's our position that some of the purchase fuel adjuster should still stay in place just because of the volatility. And I think it's important for the commission to have those segregated so they can

398
06:33:58.770 --> 06:34:32.750
review those individually and not be rolled into the other adjustments. So in those industries, I would staff's position to maintain those as separate, but you wouldn't need a SIB. You wouldn't need an FCCRM, a PPAM, a PWAM, any of those. It's also staff's opinion you really wouldn't. I I think miss Raul testified that accounting deferrals would probably only need be needed in extreme circumstances, I don't think they would be needed at all. Because if there's some cost that a utility is having to incur, as long as it's prudent,

399
06:34:33.050 --> 06:35:15.995
it can flow through a formula rate as well. And do you believe that that's a benefit to the rate payers? I believe having one adjustment happening once a year is beneficial than having three, four, five, seven, 10 happening at different points throughout the year. Is that mostly an issue of transparency? I think it helps with transparency. There's a lot of customer confusion when you've got a bill that you can hardly read because there's so many different line items on it for different surcharges. With regard to either the settlement process,

400
06:35:16.055 --> 06:36:29.185
the revenue requirement, or the formula rates, is there anything that we haven't covered that you would like to address this afternoon? No. But since I'll be back here Monday, I have a couple of days to noodle on it. So Alright. That's all I have for this afternoon, your honor. Thank you so much for your indulgence, and sorry I'm cobbling together some different questions here, and I apologize for jumping around. Well, it's fine with me. I'm not answering the questions. And I do that all day every day. Takes it's a special talent. Mister Baxter, thank you, you, and we will see you on Monday. Thank you, your honor.

401
06:36:31.005 --> 06:37:13.190
Alright. Let's see. Are there any procedural oops. Any procedural matters? I know, your honor. Yes, sir. Your honor, we're gonna request that this hearing continue not Monday. I came prepared honestly to cross mister Baxter today on his settlement testimony. When you went through what you did as far as, a procedural plan, it sounded good at the time, but I didn't expect what we just heard and all that testimony today.

402
06:37:13.730 --> 06:37:51.660
And I would I would say to you, could you imagine if we ever did that and we said to staff, oh, you have to weekend now to is this gonna even be on video for us to look at? Yes. Yes. Are we gonna have an opportunity to talk to my client now and see, you know because remember, we were supposed to be able to go after this, and see if we have anything by way of rebuttal. Quite frankly, I almost can say I feel like we were ambushed today. And I know it wasn't your thinking, but it's kind of the reality that I feel that we're in now.

403
06:37:52.360 --> 06:38:29.475
And, again, mister Baxter pretty much, gave testimony as to every aspect of the case, and in response to every one of Ruko's witnesses, which was completely not the purpose or scope of his testimony. I ever understood it. And we certainly haven't had anything pre filed to to look at about it. So at this point, I would request, probably and, I mean, I I I don't wanna do this because, obviously, we've got TAP and we've got APS. But on the other hand,

404
06:38:29.475 --> 06:39:10.680
I think my client is entitled, to be able to for some time to to review this, to to prepare an adequate cross and not be rushed, and to also consider what, if anything, we wanna offer, in response. What is your suggestion? Suggesting probably at least another another week. May I respond, your honor? Uh-huh. First, let me note that we I tried to include as much as possible, in my questions for mister Baxter today so that Sirocco would have as much as

405
06:39:10.680 --> 06:39:47.025
we were ever gonna offer, and they wouldn't they wouldn't be faced with anything that they hadn't on Monday, they wouldn't be faced with anything that they that they hadn't heard today. So we over over questioned our witness to make sure that everything was presented, and Ruka would have a fair opportunity to, to address it. I guess, I I'm a little I I I will tell you if if Ruko feels that they were ambushed, staff feels that they were hijacked. So we can all we can all point fingers at each other for what happened

406
06:39:47.025 --> 06:40:22.235
in this case, but but, we're all trying to make this make our way through this as as best possible. But but we now have less than three but about three weeks, to prepare for the TEP case, and Ruko has the APS case, and Maureen has the APS case after that. So if we have to redo this case in a week, then what are we gonna do about briefing? How is that gonna hit the it it the TEP case? Where does our prep time for the TEP's case come? And none of this is a surprise.

407
06:40:22.235 --> 06:40:58.460
This is this is all information that is is on the record, and, you know, staff didn't file testimony about the ARAM. But we filed with the company the joint agreement that staff and the company reach, which has all the terms in it, that would have gone into this into actual prefiled testimony. So, I if we wanted to go a couple of days, that would be one thing. But to have to go a week or two weeks or whatever is is gonna be really difficult for all the parties involved with the possible exception of the company

408
06:40:58.460 --> 06:41:47.340
since they don't well, you're in t they're in TEP too, I guess. So, that's the dilemma that we have here today. I don't wanna be obstructionist, but, we've all had limited time to address. You know, I mean, we we didn't get Ruko's position on the settlement agreement until, you know, not too many days before the hearing started. So we've all been in a time crunch in this case, and and I would ask you to take those things into consideration. Mister Sabo? Yes. Thank you, your honor. It's been a long week. So, trying to digest where we're at here. The direct testimony that we heard this afternoon from miss Hunsaker and mister Baxter,

409
06:41:47.820 --> 06:42:25.250
Well, helpful and thoughtful, and informative. It didn't cover any new ground. It was all the same stuff that we heard earlier in the week from miss Rao. It's, you know, the same topics that were covered with mister Michalek. This that nothing that came out of mister Baxter's mouth was a surprise. Like, the the terms of the, ARAM are what they are. The rationales for it are the same. The benefits, you know, what are the different benefits? It's the same,

410
06:42:25.790 --> 06:43:06.475
you know, perspective that the company presented and that Rugo disagrees with, and it's been hashed through extensively. I certainly support Rugo having the opportunity to fully cross examine, but, we we also, would would like this to come to an end at some point. I I do have witnesses that, and participants here, miss Wise and, miss Rao, who are out of state folks, and they've rearranged their schedules. You know, they they were gonna fly out on Thursday,

411
06:43:06.475 --> 06:43:44.570
and then they changed the flights to fly out tonight. And they've added flights to come back on Monday. And and to be clear, we'll show up whenever you direct, but our our preference would be to to let's get this, in the can, close the record, and and, move on to briefing. Your honor, could I bring up just one other point? Actually well, okay. Go ahead. I just wanna mention that a lot of what's in the ARAM that's being proposed here was proposed in UNSG,

412
06:43:45.590 --> 06:44:26.365
and Ruko was a part of that case, discussed extensively in that case, and the decision has come out. Mister Wazowski. Well, several things, your honor. I mean, I I I can you know, I personally have some family commitments both this weekend and early next week. I mean, I'm willing to put those aside. But on, the other hand, to do a proper to to respond to to what I had, heard today. I don't want I I'm not gonna have the time to do it before Monday.

413
06:44:26.365 --> 06:45:05.940
That's certainly for sure. And I can't speak for miss Cool, but she's indicated the same. Surely can't talk about discuss it with my clients. And, you know, I'm gonna say this. Yeah. I mean, maybe, this thing schedule was different, but at the end of the day, staff could have filed some testimony. I know they were worried, well, there wasn't an order blah blah blah, but they they could have made an an effort to do something to give us some so I'm sorry. I I I'm not empathetic to the the fact that it's Ruko's problem and all

414
06:45:05.940 --> 06:45:42.120
this. They're presenting the evidence. Again, maybe this would have been solved had they joined with the company and gone first and then we would be to present their case. That's just not how it is. I'm sorry about bringing it in. So now we would be in a position where we would be better able to respond. But we've responded to the company and staff and now we've got the company or staff coming in at the end with all this new stuff that's not been filed. So, it is the reality of the situation. It's not you're you've been wonderful and I think the parties are doing the best

415
06:45:42.120 --> 06:46:18.755
that they can. But I know it's an inconvenience, but we gotta create a record that we wanna do so we can consider where we're gonna go. And, we wanna make sure that the record is complete. And I don't know if it can be complete from our perspective if we come in here on Monday and do a hurried cross and we don't even have an opportunity. And, yeah, there were some things that, mister Baxter said that were inconsistent with what miss Hunsaker said and certainly all inconsistent with our witnesses said that, are are sort of new things to to me.

416
06:46:18.975 --> 06:46:54.155
I don't know if they're gonna be new to my client, but I suspect they will be, and I'm sure they're gonna wanna have an opportunity to talk about that. Talked a little bit about, as you heard, the different perspectives on, for instance, the retirements. I heard a completely different story. I'd like to have my client have a chance to respond to that that or at least tell us. I'm sorry. I I I No. No. No. No. No. No. Of all the of all the things you've said, mister Bezewski, the one that resonates most with me is that everybody has family commitments.

417
06:46:55.130 --> 06:52:53.460
This is a this is a job. You know, we do important stuff, but this is a job. Can we reconvene on Monday? Oh, god. Do you you'll mind giving me about five minutes? And just to let everyone know, I will not be here Tuesday. So please, if we do do something, don't make it Tuesday. Okay. Alright. Alright. Let's come back to disorder. And let's go ahead and go back on the record. Mister Pesesky. Yeah. We can, be available Thursday and Friday of next week. Fuck. Not that we wanna be any more than you. No. No. No. No. No. I was gonna say Wednesday. Is that not doable at all? Where you where I mean,

418
06:52:53.460 --> 06:55:45.840
sorry. This is Wednesday doesn't work? Yeah. I think we're all in another set on the Oh, okay. Alright. Go off the record. I need to make sure we have Thursday or Friday available on the calendar. So be right back. Go off the record again. Alright. Let's go back on the record. We have HR two available on Friday. So I have put that on the calendar. What that means is that we cannot leave all of our stuff here. I was using another word. All of our stuff here, so we have to pack up tonight, take it with you. So Friday at 10:00, is that acceptable to Mr. Peszewski? Is that okay?

419
06:55:46.460 --> 06:56:27.785
Mr. Sabo? So, what I was Oh, one thing I forgot to mention. Your folks can appear by WebEx. You know, they don't have to unless it's your preference to know that they'd be here in the room. But they can be Webex instead of making all these travel plans and stuff. We we appreciate that, your honor. I know you have to drive, so I'm reluctant to suggest nine. But I guess, can can Ruko do they think that'll be enough time? Well, then let's start at nine at nine. Okay. Hopefully, Grace can hear me. Grace, can we change that to nine from ten? Miss Humphrey, Miss Scott,

420
06:56:28.085 --> 06:57:15.393
09:00 Friday? That's acceptable. I will note that I just spoke with mister Baxter. He has a 02:00 meeting on Friday with one of the commissioners, but that's the only conflict. So Okay. We can work around that. Okay. Alright. Is there anything else, any other housekeeping matters before we adjourn for today? Nothing? Oh, yeah. We are finishing Friday. I've kept you. Alright, if there's nothing else, thank you very much, And we are done for this week. Everybody have a good weekend. Okay? You too. And be safe out there. Alright. Off the record.