Okay. Let's go on the record. Good morning, everyone. Welcome back to the Arizona Corporation Commission. We are resuming the hearing today in TEP's rate case, docket number ending 25Dash0103. I have a couple things to start with mainly for mister Patton. So I had mentioned the prior financing order that I wanted to, ask mister Rademaker about. So I just wanted to clarify one should testify about it. But the if you look at it, you'll find in the ordering paragraphs that the reference point for the cap on the
equity ratio is the company's quote then most recent rate, I think, rate order. To do that. Okay. Yeah. I didn't see them. So you can refer to them, but they still need to be treated confidentially. And if you have any questions about, Then, it really wouldn't be proper. Okay. I think we can get But did you No. What's the benefit to rate payers, mister a return on the fair value Benefit? Rate payers? Is any benefit per se? It's a requirement by the Sims, but it has to be done or supposed to be done,
but if it's associated with it. No. We could it could make the company a little bit stronger for now. Rates cheaper in the future. It it it may or may not result in a the next rate case being further on the road. But if it per se, it's a it's a shift of of cost shifting risk shifting, and which I recommended rate payers be compensated for. It's They're assuming risk in an involuntary basis, and they should be rewarded by that by a lower return on equity. Questions for you on, on how the WACC and the ARAM interact.
And For what? The how the weighted average cost of capital and the ARAM interact. And, just let me know if the question is, mister Smith rather than you, sir. So I want you to imagine a scenario where in connection with the implemented ARAM, only part capital changes from year to year. And those parts would be the capital structure and the cost of debt. Maybe. K. Can you elaborate? The because it's it's an actual number,
it reflects retained earnings. And you'd expect the company to have a retained earnings increase, of course, the company I'll be also be selling debt. But over the last as I show in my testimony, over the last three cases, the company's equity ratio has an upgrown slightly, I think, 52% in 2019 like And the cost of debt is the actual cost. So from a a cost of cap Standpoint. That does not give me concern. I suppose there is some that would maybe give me some concern, but I don't know if that would happen. So, yeah, I don't have a lot of concern. I mean, it doesn't bother me a lot. No. But but I I again,
mister Smith looks at it from a and I wanna know his views. Would you agree with me that if implemented, the system reliability benefit or SRB, to the extent it recovers capital investment between rate cases, that that would also be risk reducing? It it would. And I think that is is only all encompassing is would be the formula rates. But, I mean, it would be risk reducing, but like you and I have discussed