Y'all set, Jen? Alright. Let's go ahead and go on the record. And this is the time set for public comment and docket numbers w no. Wrong one. Yes. No. That's right. Sorry. WDash01427 a Dash25, Dash0126 and SW, Dash01428ADash25Dash0127 for rate increases for the water and wastewater divisions for Liberty Litchfield. And docket numbers WDash01427ADash25Dash0163SWDash01428ADash25Dash0163,
approval of a financing application. Good morning. Welcome everybody to the commission. My name is Belinda Martin, the administrative law judge assigned to this matter. And what I would do first well, let's go ahead and take appearances for today. Appearing on behalf of Liberty Litchfield. Good morning, your honor. Tim Sabo with the law firm of Osborne Maladon appearing on behalf of the applicant. And also, with me is Steven Emediti, the director of legal services. Thank you. And on behalf of Ruko? Good morning, your honor. Sarah Barrios Cool, and with me is chief counsel Dan Pesetzky.
Alright. And on behalf of staff? Good morning, your honor. Bridget Humphrey and Maureen Scott on behalf of the utilities division staff. Thank you. Okay. I see we have, one person online. Do we have anybody here in the room that's supposed to do my public comment? Okay. Then let me go to our person online. Miss Corbett, can you hear me if you push star six? You should be able to unmute your microphone. There you go. Can you hear me okay? Good morning. Yes. Good morning. Okay. My name is Leandra Corbidge. I'm 73 years old. I actually grew up in the Midwest before moving to Tucson,
Arizona in 2004. I'm married. I have two older sons who have, given me four precious grandchildren. Although we are retired, we're supposed to be, my husband is still holding three jobs to make him meet despite all of our hard work throughout our long careers. And due to the constant current state of the economy and all of the rising living expenses, we are quite stressed and overwhelmed. We are on a very fixed income,
and our rent is $2,000 per month. On top of that, our landlord charges a $2.99 service fee on the portly each month to process our rent payment. If we have any maintenance issue, we also had to go through the portal and pay $2.99. We're kind of Oops. You cut out a little bit there. I'm sorry. Important. You cut out a little bit. Can you say something? Okay. I said we're kind of terrified right now that our landlord is going to raise the rent.
Our insurance costs are up to $725 average per month. And, this is actually going to increase even more starting next month. All of our costs have been steadily increasing, including the cost of my medication, then my husband's co pays on his Medicare supplement, I guess, retirement dream. Going out once in a while to spend time with friends or just enjoy life without feeling guilty is really becoming impossible.
We are at a point that we know it will break our budget. Our kids and grandkids, they live in Georgia and Nebraska. So we usually have to miss important moments with our family. We miss our grandchildren's birthday. We miss our holidays with them, and we also miss celebrating with friends. I mean, to constantly make excuses about why we can't it can be moments of of pain. I have been a Tucson Electric Power customer since 2004.
Oh, dear. Oh, dear. Hold on. I had a You said Miss Corbett, hold on. I neglected to ask you which company. We have two public comments going on right now. And they've stuck you in the wrong one, I think. So if let's go off the record and I will go see what we can do to get you over to TEP. I am so sorry. I didn't check. Hold on. Alright. Let's go back on the record. Okay. Are you wanting me to start over again? Well, no. Here's what here's what I need you to do. This is for a different company. So, there were two public comments being held today. One for TEP and one for this one for,
Liberty. So when you called in, you used the passcode for this one instead of passcode for TEP. So what you would need to do is call the phone number that you called, but let me give you the passcode that you would enter for the TEP, public comment. Okay? Do you have a pen and paper? Yes. I do. Okay. You all set? Yes. Okay. It would be 24601833204 and pound. Just one pound? Well, it'll be two when they when they prompt you again.
If you don't have one, then you'll push pound again. So, yeah, two pounds, I guess. You're right. Okay? Well, I I press the pound to get to you. Right. So I will do the same thing. It'll be the same thing. Call the same number. And will another person answer, and will I have to explain to her what happened? Or or him? No. You just call in, and, when you give your name, they will they will drop you in the correct one. If I see you show up here again, I will I will figure something out. But that that passcode just gets you to the other room. Okay. So I need to start all over again when I get to the other room.
Correct? Yes. I'm sorry. Okay. Thank you. My apologies. Thank you. Bye bye. Bye. Alright. Oops. Hold on. Go off the record. I need to give this badge practice. Yeah. Trying. Oh, okay. Okay. Alright. I don't see anybody else on the line. I think we did have somebody, but maybe they're in the wrong one too. Alright. So, that concludes total comment for this oh, I'm sorry. I'm sorry. Back on the record. Sorry. Where? What? Oh, there we go. Oh, okay. Oh, I'm sorry. Didn't see. My apologies. Why don't you come on up then? And on the microphone, there's a little button, and there's light green,
bright green on the microphone right there? Yes, ma'am. Okay. Great. Go ahead. Good morning. My name is Matthew Williams. I'm the city manager for the city of Litchfield Park and also a resident of Litchfield Park, Arizona. I want to come and speak this morning on the request Liberty rate increase for water and sewer. I'm very familiar with Liberty. I've worked with them for years. We use them, of course, for water and sewer in the city of Litchfield Park. I'll be glad to. Yes, ma'am. I apologize. I'm very familiar with Liberty. I've worked with Liberty for some years. I've been the city manager now for about six years in the city of Litchfield Park. I apologize. Sorry about that.
And I just wanna make a couple of comments this morning about their water and sewer rights. A few requests. So I am very familiar with rate studies as as far as city utilities go. I understand, of course, Liberty is a little different as it answers to the ACC. One thing I would request is that this is a large rate increase, and I understand why because there hasn't been a rate case done since 2016. The city would request that this rate be divided among a number of years instead of one fell swoop, and also that if it could be possible that it be written in that future increases are are done automatic annually.
What I mean by that, when I ran a city with utilities personally, I wrote it into the city ordinances that we had an automatic 3% COLA every year, a 3% cost of living adjustment, and that way the utilities never got behind. Utilities should be investing at least 3% in the future investment. If not, you're gonna get behind. And the idea being, of course, the for example, in this case, if the last ten years, if the rates had jumped 3%, that, of course, would've been 30%, and you would be requested a much smaller rate increase now than is being requested. If that would be possible that could be done here, I think that would be a great idea for the ACC and also for Liberty
and the residents. It's much easier to politically to swallow a three or 5% increase every year than it is 50. Right? So I think that would be a great idea if that could be considered by the ACC and by Liberty as well. Again, to put an automatic call over, it goes up a little bit every year. That's great for future investment. And, also, if possible, with the large increase now, could be staggered somewhere over the next few years. I understand that Liberty has to recover its investment. I realize that. But that also that by waiting so long for rate studies, Liberty is actually actually losing money, in my opinion, by waiting so long to do that because the money the increase they would've been
getting every year is money lost by Liberty, and then the customers have to end up paying that down the road. Again, I understand the process of doing rate increase, and I'm not saying anything that Liberty doesn't know. So, again, we work with Liberty regularly, and they're great partners. One thing I would also ask is that there's I don't think Liberty can guarantee this by any means, but that they would do their best to maintain a water pressure of 40 pounds. That's historically a problem we've had in Litchfield Park. I would love to see the law change where all utilities providers had to maintain a minimum pressure of 40 pounds. The current state law is twenty, and twenty is just not sufficient.
That being said, I understand the infrastructure investment to maintain 40 pounds. But, again, if they could do their best to maintain 40 pounds, that would be great. I will say they have been doing much better at that the last year or two than they have been previous years, and we do appreciate that, and I wanna be clear about that. I'm happy to answer any questions if I can for I know I'm I'm speaking public here, and I understand that. But if there's any questions the ACC may have for the city of Litchfield Park, how this affects our residents, I'm happy happy to answer them. Thank you. No, I appreciate that. And it was Matthew Williams? Yes, ma'am. That's correct.
Okay. And normal spelling, m a t t h e w? Yes, ma'am. That's correct. Okay. Alright. Sir, thank you very much for coming and I apologize I didn't see you over there. No problem. Have a great day. Thank you for your time. Okay. Let's see. Let me double check, make sure there's no one else in the room. It was just to make public comment. Okay. And I see no one else on the phone. So, alright. Now, this concludes public comment for today. If anybody's listening in, who was just listening but might still want to make a comment, you can go to the commission's website at azcc.gov.
And, there are forms there you can fill out to write a public comment or you can call commission staff and they will help you, with your getting your comment on the record. Alright? Thank you. Okay. Let's go ahead and go off the record for that. And next. Okay. Let's go ahead and go back on the record. Okay. This is the time set for the hearing and docket numbers WDash01427ADash25Dash0126 and SW Dash01428ADash25Dash0127
for rate increases for the water and wastewater divisions and docket numbers WDash01 excuse me. Let's see. 01427ADash25Dash0163 and SWDash01428ADash25Dash0163 in approval of a financing application. And good morning again. And I'm still Belinda Martin. We're still at the ACC. So we'll do this again. We will go ahead and take appearances again,
appearing on behalf of the company. Good morning again, your honor. Tim Szabo with Osborne Maladon, appearing on behalf of the applicant, and also appearing is Steven Amity. Great. Thank you. And appearing today on behalf of Ruko? Good morning, your honor. Sarah Barriosko. And with me is chief counsel Dan Pizewski. Thank you. And on behalf of staff? Good morning, your honor. Bridget Humphrey and Maureen Scott on behalf of commission staff. Alright. Thank you. Before we get started, let me ask mister Sabo, do you have any, procedural matters you need to discuss? Just briefly, your honor, some some updates. We did file,
two late filed exhibits this morning. They'll be for mister Barrasso, so we won't be getting to those today, but, so folks are aware of that. And then, we either did or momentarily will be filing an update to the exhibit list. And, all three parties had further revisions and tweaks to that. So, hopefully, we're we're done with that, but we'll get that, to you and and everyone shortly. Okay. Thank Thank you. Miss Burrows Cole, any procedural questions? Yes, your honor. Just just a a point. I believe mister Sabo just said exhibit list.
I think he meant to say issues matrix. I see him nodding, so Okay. That's that's good. Yes. I appreciate that thumbs up too. I I, along with mister Sabo, hope that we don't have any further revisions, but I have asked my team to to take a close look. I'd hoped that that, could occur before we got started this morning, but the team was out for the weekend. So, other than that, I think we'll just kind of see how things develop as we go. We will figure it out. Miss Humphrey, any any but we would basically mirror the comments of Ruko. We had been working on an updated issues matrix this weekend,
and, I think the final now is showing up on docket but, my my staff has not had an opportunity to my client has not had a opportunity to review that yet but that aside, I don't anticipate any problems with that. Gotcha. I there's one issue, that I've been asked to address and that is the adopting the testimony of Guadalupe Ortiz who is, it's my understanding, Ruko does not have any questions of. I don't know if your honor has any questions, but we plan to either stipulate if the parties are willing or allow mister Baxter
to to introduce miss Ortiz' testimony for the record. Alright. Let me go to mister Savo. Any objection to stipulating to the testimony of Guadalupe, please? No objection. Okay. Miss Barrows School? No objection. Okay. And that is exhibit staff exhibit what? Oh, s 10. Do I have that right? That right? I know. Right? Okay. Right. And then, mister Sabo, we had talked about, I think, stipulating to mister Eichler's testimony, but that, miss Breyer or mister Thompson, somebody would would adopt it as their own. But if you wish to just stipulate it too,
I'm fine with that. Your honor, if we can do that, I would ask that we stipulate the admission mister Eichler's testimony. Alright. Miss Briarskell? No objection. Alright. And that is exhibit a nine. A nine. Okay. And a nine is stipulated testimony. Okay. Alright. Anything else? Your honor, do you wanna address, how many witnesses we're doing today? Oh, yes. I'm sorry. Today, we will be taking the testimony of, I believe it was Mr. Thompson and Mr. Garlic? Yes. They had because they had a date certain, correct? Yes. Alright. And that's what we'll be doing today before we adjourn.
And then so I think if there's nothing else, then let's go ahead and take up new statements. Mister Sabo. Thank you, your honor. And, I do have a, presentation for this, and we'll we'll file it so it's in the record. And, hopefully, IT will be bringing it up on the screen momentarily, he he said with expectation. There we go. Thank you very much, to the IT folks for helping out with that. And, in addition to thanks to them, I'd I'd also like to, thank staff, Ruto, and the Ministry of Law Judge. It takes a huge amount of work to get to this point where we can
start the hearing. And I know, attorneys for all the parties were working through the weekend, given the, emails and certainly working throughout the months, that this case has been going on. So, that these cases really are a huge amount of work to and so thanks to staff, to Ruko, to the administrative law judge so that, we're here, able to get this kicked off this morning. And let's see if the clicker works. It does. Great. So let's talk a little bit about the rate increase and why it is, needed. And really, there are two key drivers,
your honor, why, we're asking for a rate increase, at this hearing today. The first is that Liberty made capital investments of over 118,000,000 since the last last rate case, which for utility of this size, that's that's a substantial amount of investment. And, this 118,000,000 has been invested both in a, wastewater plant as well as several new wells. And then the second big factor, is that there has been significant, inflation since the last test year of 2016. And you heard the the city manager talk. It has been a while since since we did a rate increase.
We've had other rating cases for other utilities, Gold Canyon, Rio Rico, Cortez Lakes, etcetera, etcetera, but it's it's been a while for Litch Park. The last rate increase was in, 2018 based on a 2016 test year, and there was actually a 11% increase in wastewater, but a five ish percent decrease on, water in that case. So as I mentioned, the the biggest issue, is investment, and the first and biggest of those is the Sarabelle Water Reclamation Facility.
And this is only the second wastewater plant for Liberty Litchfield Park. And Liberty invested 80,000,000 net of hookup fees. There was actually about a 105,000,000 was the cost, but we offset some of that with hookup fees as as much as we could. Liberty is proud of this innovative and award winning facility as you will hear from Liberty Witness, Matthew Garlick. And then the the second thing that the company has spent a lot of money on is wells, and they've invested heavily in in new wells,
to provide service to the customers. And this investment was needed due to a large increase in demand, so adding these wells was essential to Liberty's ability to provide safe and reliable service to Liberty's existing customers. And then we've got some pictures of those wells and the there were four of them that were added, Mirabella number one, number Mirabella 2, well 19 B, and Monument Point. And, those are four very large wells, and you'd see the last three year,
especially significant producers. So they're really providing a lot of capacity benefit to the system and to help out with those pressure issues that you heard from the city manager this morning. So investment in wastewater plant, investment in wells, and then the the second factor is just inflation, and that's been about 31% since the last test year. And that was actually from mister Thompson's direct, and, you know, fortunately, there's been more inflation since then too. And that's, I guess,
just the world that we live in now. Nobody likes a rate increase or wants a rate increase, but we have attempted to include some customer benefits and protections as as we're doing this. Liberty's application included features to benefit customers, such as not asking for a fair value increment, increases to the hookup fee, and improvements to the customer assistance program. And our witness, Regina Wise, is the the witness about the customer assistance program, if you have any questions about that. And, of course,
community outreach is very important, and you'll hear from Liberty's president, Moses Thompson, who will testify about customer engagement and outreach, which Liberty has taken very seriously, including numerous open houses and briefings, to the community. And then turning to the settlement, your honor, we had dialogue, with both staff and Ruko throughout the case as well as a productive, settlement meeting last month. And we were able to reach a settlement with staff, which is fair and reasonable resolution of the issues. And so we'll be asking your honor to recommend approval of that.
We did not reach agreement with Ruko, but, I think, all three parties gave it the the college try on that. And I appreciate RUCO's efforts and participation. Turning then to the settlement. The settlement revenue requirement is actually very close to the direct positions of both staff and RUCO, and, really, all three parties were not that far apart. So getting to a settlement on the revenue requirement was, I would say easy, but it was doable, because we weren't all that far apart. And Liberty witness Mansa Rao provides the details of how each each issue was resolved
in the settlement in her settlement testimony. And also in the summary, attachment a, lays out kind of the specifics of each in a chart format. And then everyone, likes to talk about cost of equity. So the settlement includes a cost of equity of 9.75%, which is slightly below what has been adopted in several recent water rate cases. And then the 9.75 in the settlement is also in line with many recent staff recommendations. So turning to the the biggest disputed issue,
and I know probably everyone is is tired of talking about formula rates, but, that is, I'm sure that the issue with the most attention and probably the biggest disputed issue in this case is formula rates. So a little bit on that. Formula rates have been adopted in a number of states, both directly and as components of other similar mechanisms. And miss Rao will sponsor exhibit a 25, which summarizes formula rates across the country with details on formula rates approved for other
water and wastewater utilities. Although miss Rao is sponsoring the exhibit, it was really a team effort that that took a whole group of people to to pull together. So, and a lot of them are in the room here. So I'd like to thank them for, all the brain damage that went into that. So benefits of formula rates in in our view, there are some, not surprisingly. And the first and foremost of those is gradualism. Having, as you heard from the city manager, smaller incremental changes each year is is easier for everyone to do adjust in budget
for than having a big big increase, you know, every, you know, three, five, or ten years. So that's that's number one on the benefit. But then also reduced regulatory lag, that that benefits both customers and, the company, obviously, depending on which way things are going. But it gives the utility a real chance to earn its authorized return, which is the objective, not a guarantee, but a a real realistic chance to do it. And then you also minimize the time between incurring a cost and recovering that same
cost. And then the third benefit is price signals, and you're just aligning the, price customers pay with the cost of providing that service so they have an accurate price signal on on the cost of the service that they're using and can make, appropriate decisions based on that. And then, supporting investment. And as as I've mentioned, the company has invested a lot. And, unfortunately, things being the way they are, they're probably gonna have to invest quite a bit in the the years to come as well.
And minimizing that lag period really does help that company pull the trigger on those investments and and get it through the finance department and get the money from investors or, lenders to do these things. So it supports infrastructure investment. And then passing on cost savings, and miss Rao will talk a little bit about this in in her testimony. And then lastly, enhanced transparency through, detailed quarterly reporting as well as annual updates.
You know, we're not going to be trying to figure out the prudence of an investment from 2017. Trying to figure that out in 2026 is is more difficult than if you were reviewing that in reviewing that in in 2018. And then having these quarterly reports gives everyone staff who go, any member of the public that's interested can look at those quarterly reports to see what is the infrastructure spending. Is the company spending to to keep up with service or not? That will all be public. So those are the benefits as we see them, and we continue to work,
with, especially staff, and were able to, reach a joint proposed ARAM plan of administration. So we continued to discuss formula rates throughout the case with both staff and Ruko. The Commission's adoption of the first formula rate plan for UNS Gas a few weeks ago was a watershed event, which came after the settlement conference in this case. Based on the outcome in the UNS Gas case, we worked with staff to develop a joint ARAM plan of administration.
The joint POA includes recommendations from staff's direct testimony as well as incorporating features from the ARAM approved for UNS gas. And Liberty witness Mansa Brau will sponsor the POA and explain its features. And the joint POA also includes robust participation provisions, including both informal information exchange as well as formal challenge protocols. And then in terms of timing, the historical nature of the formula rates is retained for each year.
The ARAM filing is the following May 1 with rates then effective no later than November 1, again, of that following year, which should be nearly a year after the end of the historical ARAM test year. And then, just briefly on the witnesses that we'll be presenting, your honor, you you'll be hearing from six witnesses, for Liberty. I have already mentioned mister Thompson, mister Garlic, and miss Brough, Terry Gilbertson and miss Wise. Terry Gilbertson is our operational witness. And, last but certainly not least,
Tom Barasa, of course, will be providing our revenue requirement and cost of capital testimony. And, thank you for your time this morning, your honor. Thank you, mister Sabo. And I appreciate the the name shift, But also, I want to thank everybody for putting that that, table together of the different states and how that works with them. And that was very helpful. I know it was I understand because I tried researching myself and it was not fun. So I appreciate that. Thank you. Let's go to miss Barrios Cool. Thank you, your honor, and good morning again. In between the commission's adoption of its formula rate plan policy and the UNS Gas
decision, Liberty Litchfield Park, which I'll just refer to as Liberty or the company today, filed this rate case application recommending, among other things, its version of the ARAM. Staff and Liberty have come to an agreement on the ARAM issue and have submitted, on the eve of this hearing, proposed plan of administration. My understanding is that's in progress even as I speak. In fact, after the pretrial conference in this case, the company all but abandoned the CSRM plan of administration and the CSRM template and
then worked with staff to develop a new POA for the ARAM, the Liberty ARAM, based on the UNS Gas ARAM. I haven't seen the template yet, but my understanding is that, it has been based on UNS Gas and with, is expected in a new version in a couple of hours. Ruko still recommends that the commission reject Liberty's proposed ARAM. While the ARAM in this issue is, as mister Sabo said, the biggest disputed issue in this case,
Rugo also recommends that the commission reject the settlement and support of testimony and positions in this case given the settling party's late filings and, positions and the procedural history of this case. Just last night, for instance, I saw that there was an Abraham template for the first time. I wasn't able to receive it until after we were on the record this morning. And, there also have been new updated exhibits regarding cost of capital. So any leeway your honor can provide us in terms of our presentation, we appreciate. Liberty Utilities has relatively fewer customers compared to UNS Gas.
As of 12/31/2024, the company served approximately 24,200 waste water connections and 22,350 water connections. Nevertheless, approval of the ARAM is a significant change for Liberty Water ratepayers and waste water ratepayers and would have significant consequences for all of them. This is the first, formula rate plan or FRP proposal being heard for a water wastewater utility in Arizona. And in this regard,
we're in uncharted territory. And while there are some similarities between Liberty's proposed ARAM and UNS Gas' ARAM, the rate case history of this company, the application, the procedural history, and the form of proposed ARAM, and the template relating to the ARAM are all different. This case stands alone and should be evaluated on its merits. The evidence will show that the company's proposed ARAM is not equivalent to a system improvement benefit or SID. It is also not equivalent to an arsenic cost recovery mechanism or ACRM.
It's not even equivalent to the UNS Gas ARAM. This Liberty Utilities ARAM is based on a plan of administration, filed just two business days ago. And while the new plan of administration brings Liberty's ARAM closer to the the form of ARAM approved in the UNS gas rate case, it does not resolve Ruko's main concerns. The ARAM still results in higher rates, illusory and unproven ratepayer benefits, a dead band that, among other things, distorts the utility's incentives,
rewards the utility for underperforming, leaves Ruko and other intervening parties without adequate due process and an ability to engage in meaningful discovery, shifts the burden of support from the company to the interveners to dispute revenue updates, and shifts the risks to the rate payers without providing any tangible benefits or accountability to the company. Rugo will show that the ARAM shifts risks from the company to rate payers, incentivizes overspending and excessive capital investment, again, at the risk of ratepayers,
isn't necessary here because the SIB, along with the FCCRM, would accomplish the company and commission's goals of reducing regulatory lag and allow it to make capital investments to continue providing safe and reliable service. The proposed ARAM here also guarantees a return in the deadband. Should the company actually earn below the deadband, the ARAM is triggered, and a rate adjustment will be made to to allow recovery of its authorized ROE. The lower the company's actual return below the deadband floor, the more revenue it will make when the ARAM is triggered.
This approach does not nor cannot result in just and reasonable rates. It also screams at the need to establish caps so this thing doesn't get out of control, which is not part of the POA. And that's significant, your honor, because the idea of gradualism when when I hear people like this Slitchfield Park City manager speak about it, people, when I hear them, it seems to me that they assume there will be smaller gradual increases, but without a cap. How can we know that?
How can we be sure? We we don't know. These are completely untested. And when the ins the incentives for the company are being shifted completely in a different direction, that keeps the company smaller. They could be large increases, and that's not what anybody is hoping to see out of these mechanisms if they're approved. For obvious reasons, the ARAM is a risky proposition, which benefits primarily the utility. It certainly reduces the company's risk, which we ask you to prioritize how to compensate the rate payer for that reduced risk to the company. The company has identified
a few water and wastewater companies in The US that it claims have formula rate mechanisms. That information was provided as part of a '25, a late exhibit filed, in the early evening of Friday, I think just two two or three days ago. And so we are still, looking at that exhibit, and we'll be providing some rejoinder testimony on the stand. But Ruko will show that there are some formula rate plans in other states that do have caps. Arkansas is one,
and it has a cap of 4% to make sure that the revenue increase or decrease for each rate class will not exceed 4% of any rate class' total for the twelve months preceding the formula rate review test period. And Arkansas is not the only state that has, has caps. I believe Alabama is the other, but I'll cover that with mister Michlick during his testimony. In addition to caps, the ARAM should include an upper dead band of plus 50 basis points and a lower dead band of negative 80 basis points,
no additional cap above the upper dead band of plus 50 basis points, a collar or floor mechanism mechanism set at negative 80 basis points relative to the approved ROE so that a further 30 basis points beyond the lower limit, is applicable, and that limits the further ARAM adjustments beyond that level for the year. A further global revenue increase cap for each annual filing that limits the total permitted increase to no more than 5%. This would consider both ABRAM increases and decreases on a cumulative basis subject to the
floor mechanism. The POA should include a requirement that the equity ratio and cost of debt used in the capital structure for the ARAM update by the company be set at the commission approved level in the rate case. In other words, those inputs would not be subject to adjustment during the annual rate increase. And that ARAM, if approved, should include a requirement that the company report on a separate schedule of the ARAM all new capital and operating costs that the company incurs that are driven by new plans or programs implemented by the company in the historical year.
I do know that there are quarterly reports proposed as part of the ARAM, but the scope of those quarterly reports is my under to my understanding, just for capital investment. So it doesn't include new programs or operating costs, or other changes that may impact the ARAM annual reconciliation updates. Additionally, no rate case expense should be included in the yearly ARAM filings. And consistent with the provisions of the POA, no pro form a adjustments, including post test year plant,
should be included in the yearly ARAM filings except for the first annual filing. And any increase in the yearly ARAM filing should be applied only to the commodity rate. I'm almost done with this. There shouldn't be a 10% productivity credit, which is a concrete and quantitative way to compensate the rate payers for the additional risk they assume if the ARAM is approved. Umrugo also recommends that the ARAM should be subject to a pilot program so that we can see how things are going and there's some clear and definitive,
off ramps for the commission, that the company can also expect, as we move along. Several other issues as are more fully set out in the issue matrix remain in dispute. With respect to the issues matrix, I note for your honor that the revenue requirement there for Ruko is expressed without the ARAM, But there are two sets of Ruko schedules, so our revenue requirement is slightly different with or without the ARAM as a result of, our recommendations on the return of equity being different whether or not the ARAM is
approved. With respect to cost of capital, the company currently has a return of equity of 9.7%. The settlement agreement's 9.75% proposed ROE is far above what staff recommended in its direct case and far above what Rupam recommends. You'll certainly hear from testimony today as you heard from mister Sabo that other water rate cases have higher ROEs. And those ROEs were set based on other market information pulled last year and the result of hearings from last year.
It is not based on current market information. And the settlement agreement's 9.75% ROE is not supported by any cost of capital testimony filed after the settlement was reached. Ruko has two recommendations regarding the ROE. Ruko recommends a risk adjusted ROE of 9.32%, assuming the commission rejects the ARAM and approves the settlement agreement's capital structure and cost of debt. RUCO recommends a risk adjusted ROE of 9.17%
assuming the commission authorizes the settlement agreements requested capital structure and cost of debt and approves the ARAM and phases out the other adjusters. To the company's credit, it is not requesting a return on the fair value increment in this general rate case. Although, there are some questions we need to explore during the hearing about whether it could be part of the ARAM, and that's especially true now that the company here is adopting aspects of the UNS Gas ARAM template, which did include a return on the fair value increment.
Ruko would oppose any return on the fair value increment being a part of the Liberty rate the Liberty ARAM because that was never something that was a dispute in this case and is not part of the general rate case. With respect to depreciation expense, there are concerns regarding the deferral order that the company obtained regarding its Cereval plan. Ruko takes the position that there should not be any return earned on the depreciation expense. Expenses do not typically earn returns since they are not investments.
The plain language of the deferral order also limits what can be recovered under that order to depreciation expense only at the then cost of debt of 4.9 19%. Ruko witness, miss Crystal Brown, will explain that Liberty did not make any retirements after 2019, so here too is another issue regarding depreciation expense. There should be changes here because there should be no depreciation expense on fully depreciated plant. Next, while the parties appear to agree on the lesser of the actual expense or $400,000
for rate case expense for this general rate case only, there is a difference of opinion regarding the amortization period. Ruko is not a party to the settlement agreement and does not believe the settlement agreement is in the public interest. At the very least, your honor cannot adopt to the settlement agreement in whole because it, includes a phase two for the, resolution of the formula rates, and that aspect of the settlement agreement is something that, all of the parties no longer support and that I believe the company and staff
have moved away from as discussed in the pretrial conference. We would ask your honor to view each issue separately in determining whether accepting the settlement agreement is in the public interest. Anruka would urge the commission to consider and adopt its fair and reasonable recommendations in this case. Thank you. Thank you. Is Humphrey? I'll just slide over here. There we go. Good morning, your honor. First, staff would note that, other than the formula rates issue, the parties really are not terribly far apart in terms of revenue requirement and rates.
I ran some numbers based on the, issues matrix, which was filed last week and which we worked on over the weekend. They may be slightly off at this point because there have been changes in that issues matrix, but it still can give you the general idea. If you look at the ROE, Ruko proposes nine point three nine point three two. Staff proposed 9.45. The company proposed 9.4 nine sorry, 10.7, and the settlement agreement adopts a 9.75.
If you look at the difference between what Ruko has proposed and what the settlement agreement adopts. It's only 43 basis points. And as as miss, Berrios Cool's opening statement indicated, the current or the proposed, revenue ROE increase would from the current compared to the current ROE of the company, which is 9.7, is only point five, increase, which is which is very small, small particularly when you're looking at, all the inflation issues that are present in this case.
For the revenue requirement for the water division, Ruko proposes $21,385,339 in revenue requirement. Staff proposed 21,080 sorry. I can't can't talk this morning. $21,087,196. The company finally reached up to $22000003.55.039,
and the settlement agreement adopts a $21,000,468,600,602, revenue requirement. The difference between what Ruko proposes and the settlement agreement is only $83,263. And by my calculation, that is point 39% of the total, which is again extremely low. These parties are not even a million dollars apart out of 21 and $22,000,000
asks. Similarly, for the wastewater division, Arruco proposes a revenue requirement of $68,734,797 Staff proposed only slightly more, dollars 69,028,791. The company proposed $69,765,704
The settlement agreement adopts a $70,007,480 revenue requirement. Million, which is 1.8% of the settlement total. I'm sorry. That was the fair that I misspoke. That was the that's the fair value rate base. The revenue requirement for waste water is higher. Ruko proposes 30,000 scratch that. Ruko proposes $30,837,737
Staff proposes slightly higher at $31,153,166 The company was at $33,000,160.65 dollars $165,000 and $465. The settlement agreement adopts $31,585,039. Only slightly higher than what Ruko and the company and, its staff offered. The difference between the Ruko settlement between the Ruko proposal and the settlement agreement is
only 747,000 agreement is only $747,000. For for $7.47 $3.00 2 out of $31,585,039 that is point 024% of the settlement agreement. These are all essentially de minimis numbers. Finally as to the fair value rate base on wastewater, staff proposed a 100 sorry. Ruko proposed a $125,000,007.06
$7,005.02 6. $100. Staff proposed $1.32 $6.93 $1.08 0. The company proposed $133,887,000 and $159. The settlement agreement does adopt a higher amount. This has largely to do with, AFUDC and some of the other adjustments made and may also be related to the deferral of the Cereval plant. But the settlement agreement,
and Ruko are $10,560,544 apart, which is 7.7% of the total settlement number. Again, where that is a much higher number, that's insignificant. But for the formula rates issue, it's it's would seem fairly likely that there could have been a resolution since these numbers are so extremely close. The second thing we would like to talk about is the role of a settlement agreement in this case. When when the company and the and staff have reached a settlement,
but an intervener has not been able to reach a settlement. Although both all the parties did meet and and I think very thoroughly, and rationally and fairly discussed all the issues. And I think we've made a good effort, but we were simply unable to get there. Staff is placed in a somewhat difficult position in this regard. The commission has urged staff to settle cases. This is designed to reduce rate case expense, to promote fairness, and to promote judicial and administrative economy. But when you have an intervener in a case,
we often find that interveners have fairly limited or discreet issues on which they are very, passionately representing their position. And it is not unusual in a settlement situation for an intervener not to be able to arrive at settlement because of the nature of the, of the issues of interveners. In any normal case when there's a settlement agreement, even when all the parties have signed and all the issues are resolved. The ALJ still has an opportunity
to accept that agreement, reject that agreement, or tweak the terms of that agreement. There's no difference in this case between the ALJ's obligations and opportunities. The ALJ still has a right to make those decisions. What we would caution you in this case, however, is that when you look at the issues, the The ALJ should be looking at the issues of the parties in all of their their positions, in their direct testimony, in the settlement testimony, and in the opposition testimony. Because in a settlement,
the company has already come down from what is asking what it is asking for, whereas the intervener has not has not come up and is recommending what their initial position was. Was. So it it it's really, counterintuitive to to simply look at the settlement agreement versus Ruko. In this case, we should look at all of the parties' positions versus Ruko to see what concessions have already been made. And finally, Ruko or staff would like to talk a little bit about the issue of formula
rates, the ROE, and bifurcation. Initially, staff and the company did believe bifurcation was appropriate. There was no UNSG decision yet. No no, formula rates had been adopted at the time. There's an argument that, risk should be reduced with formula rates, but there's no quantifying data to support that. So we were going into this really not knowing very much about what formula rates were going to involve. And we believed that there was a better chance at getting the issues resolved in
a fair and reasonable manner if we bifurcated the hearing in this case. We that would have given the parties an opportunity to more fully develop the terms of the ARAM. And a year down the road, when some of these formula rates have been in place over a period of time, it is anticipated as it developed in this case, act clearly, there has been a dispute going on for the last couple of weeks about whether there should be bifurcation or not. As that as that requirement changed, obviously, there have been a lot of last minute issues being raised on formula rates along
with the opposition testimony of Ruko, which has not been filed all that long ago. In all rate cases, we try and get these issues set up for resolution earlier rather than later and not to have a lot of last minute, exhibits, testimony, etcetera. That really doesn't happen very often. And in cases like this where you have a changing, set of facts to work with on formula rates, it's going to be even more true. That having been said, a couple of things occurred after this initial settlement agreement was reached between staff and
the company, we did get the POA and the a r and the ARAM from UNSG, which helped us a lot to look at the different kinds of terms that should go into a POA to to, protect the customers, from any unknown consequences or unintended consequences of formula rights. And then, of course, that forced all of these changing issues forced or encouraged, staff and the company to sit down and work really hard to develop, terms that would be protective of rate payers,
with the formula rates plan and yet still offer the company a better opportunity to recover its revenue requirement than it might otherwise have. Not a guarantee. It still doesn't guarantee anything, but it does it does look we think we anticipate it would lower the risk. That seems logical. But until we actually speculative it's speculative only. In a year, we would have had some data. But we can adjust that. You know, we can we can deal with that issue down the road if we as we
go ahead and process, an agreement on the, POA and and ARAM in this case. With that, your honor, staff does encourage the ALJ to adopt the settlement agreement as written and the agreement between the company and staff on formula rates. The commission has already decided they want formula rates. The issues of constitutionality, of, of protections for the customers, all of that is are things that can be worked out. But I don't think we need to relitigate litigate the the,
the commission's policy decision. That formula rates would be appropriate. And as the city manager for for Litchfield Park has indicated, customers seem to be favoring that, because it will shock. Thank you, your honor. Thank you. Okay. I think we are ready to begin, mister Sibyl. Thank you, your honor. We call our first witness, mister Moses Thompson. I'm gonna have you come up here. See the this chair up here. They've got all the stuff ready for you up here. Get to look down on everybody imperiously. Okay. I'm gonna have you remain standing to be sworn in by the court reporter, please. Good morning.
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? Okay. Thank you. Now you be seated. And, mister Sabo. Good morning, mister Thompson. Good morning. You all situated up there? Yes, sir. Alright. Could you tell us your name and business address for the record? Name is Moses Thompson, and my business address is 14920 West Camelback Road, Nicheville Park. And, by whom are you employed and and in what capacity? Employed by Liberty Utilities as the president for Liberty Utilities Arizona,
Texas and acting president for California. And, what are your duties in that position? In that position, my duties is the overall, safety of our customers and our employees. It's the operations and the strategic management of the company as well. And, did you prepare or cause to be prepared direct and rebuttal testimony in this case? Yes, sir. And there should be a binder that that looks like this up there, with a white cover. Do you see that? Yes, sir. And if you could go to,
tab number six, the document marked as exhibit a six. Tab number six. Okay. And you're lucky as the case goes on, the binders are gonna proliferate up there, and they're hard to manage. But, is the document marked as exhibit a six your direct testimony? Yes, sir. And is, then turning to tab number seven, is the document marked as exhibit a seven, your rebuttal testimony? Yes, sir. And do you have any, corrections or modifications to these documents? No.
Do you adopt exhibits a six and a seven as part of your sworn testimony today? Yes. Your honor, I would move the admission of exhibits a six and a seven. Any objections? None. None. Thank you. Exhibits a six and a seven are admitted. Thank you, your honor. Just a few more questions, mister Thompson. Could you, tell us what outreach did the company do in this case? Absolutely. The company understands that there's never a good time for a rate increase, and that's why we made sure that we went above and beyond as far as
communicating with all stakeholders. We've held several town hall meetings where all stakeholders, were invited. We've had, bill in search with frequently asked questions about the process. We have, added to our websites information about rate case. And, I personally met with, majority of our stakeholders including, mister Matthew Williams as well for Litchfield Park and the city manager for for the city of Goodyear. Thank you, mister Thompson. And then, is the company requesting formula rates in this case? Yes. It is. We believe that this is a great opportunity for mutual mutual benefit between their customers
and the company and, believe, strongly in where the commission's thoughts are in regards to formula rights. And is, although you're you've mentioned it, miss Rao the the primary witness on the formula rates issues? That's correct. I tend to surround myself with smarter folks than I am that are, a whole lot more into you as far as our rate making. Thank you. Alright. I I appreciate that. Thank you, mister Thompson. And your honor, mister Thompson is available for cross examination. Alright. Thank you. Miss Barrasco or mister Pudzewski?
It is gonna be aye, your honor. Thank you. Good morning, Mr. Johnson. How are you? Fantastic. Good morning, sir. Most of my questions are going to come from, ASICs, your direct testimony and then some about the application. And that is the only testimony you filed in this case as I recall, your direct testimony. Correct? Yes, sir. K. Dan, there there was a rebuttal a seven. Right. But am I mistaken? Okay. There were some short testimony filed in rebuttal.
That's fair to say. Correct? That's correct. Okay. Well, I'm still gonna stay mostly at a six. Liberty Litchfield Park is a subsidiary of Algonquin Power and Utilities Corp, APUC. Correct? Correct. APUC's a large utility holding company. Fair? That's correct. K. And APUC serves approximately 1,200,000 customer connections in 13 states, Canada, Bermuda, and Chile? That's correct. And the company has access
to Liberty Utilities extensive resources to help it meet its obligations to its customers and its regulars. Is there? Just for clarification, when you say the company, are you referring to Liberty Utilities? Or Well, let me ask you. I'm taking this from d two, your direct testimony on page two, and it's a term that you used, the company. So I don't wanna tell you what I think it means. Maybe the better thing is for you to tell me what it means. It's on page two. Lines 18 to 20.
It states, quote, the company thus has access to Liberty Utility's extensive resources to help the company meet its obligations to our customers and our regulators. Your honor, I'll I'll note that's a defined term on page one, line seven. K. And and and that defined term, is Liberty util Litchfield Park Water and Service Corp. Correct? Correct. Okay. So you would agree with that statement then with that caveat that we're talking about Litchfield Park. Correct? Yes, sir. Okay. And the company, again, Liberty Lakefield Park has approximately,
what, 22,355 water customers and 24,205 wastewater customers. Correct? That's correct. And is it fair to say that while you have some wastewater only and bulk customers, the majority of your customers use Liberty for both wastewater and water? That's a fair statement. And roughly approximately how many? That I don't know the exact number at this time. Okay. Fair enough. I'd like to go to the application, talk a little bit about what was originally proposed by the the company.
Do you have a copy of the application before you make it easier? It's a one. A one. It'll be tab one in that binder. Okay. K. And if you could, go to page two at the top, you'll see there's a chart there which shows the company's increase in revenue requirement as well as the bill impact for the average user for the water and wastewater. Correct? Correct. And that chart indicates that the percentage of the increase, in the revenue is 38.4 o percent for water and 53.76%
for wastewater. Correct? Correct. And if you add it to the increase in the revenue requirement, the water and wastewater, the total revenue requirement increase would be $17,000,789.04 $0.07. Would you accept that subject to check? Yes, sir. K. And would you agree that both of these figures, these percentage figures that I just discussed with you, are higher than what the company observed to be the cumulative inflation from December 2016 to December 2024,
which in your testimony, at page three, the company asserts was about 31%. I'm sorry if you could repeat the question. Sure. Let's just move to page three of your testimony and where I'm getting my information. And I will try to direct you so you're you're aware is lines 19 through 20. So I went through those percentages of the water and the wastewater, the 38.4 and the 53.76. And all I'm asking is those numbers are larger than what the company observed or
in your testimonials cumulative inflation from December 2016 to December 2024, which is about 31%. Correct? Correct. K. And when we talk about these, this rate increase, we're not taking into account any annual increases if the company's prepare pro proposed ARAM is implemented. Correct? These percentages that we've discussed, these numbers, these increases in the application and, in the settlement, what we're talking about about are increases that have nothing to do with future annual
increases. Correct? That's correct. Okay. I'd like to move to the application also, on the second page, if we could. Yes. Actually, it may be on the Oh, This is the application. Yeah. Right. I'm sorry. So are you there, mister Thompson? Second page Second page. Bottom. The application. Yeah. Yes, sir. Lines 24 through 27. Now so so we can clarify this. In the application at that point, the company was referring to a future proposal of formula rates as CSRM,
but it's since been changed to the ARAM. Correct? That's correct. K. So I will use ARAM instead of CSRM for purposes of this unless I have to distinguish. Fair? Bear with me. Okay. And with regard to the CSRM but I want to ask you, if the same applies to the ARAM. It says that the company will be requesting a formula rate mechanism to allow annual rate changes between rate cases. This provides for more gradual rate changes and improves the company's opportunity to earn its
revenue requirement, thus aligning rates with the cost of providing service. The same applies to the AMRAM. Correct? Correct. Okay. Has the company, or have you seen conducted any type of analysis to determine, that, the rate cases or the the rate increases will be more gradual if an ARAM is actually approved? Any study done? That I'd have to defer to, miss Roer. Have you seen any modeling, or forecasting to determine what the impact of annual increases will be on rates moving
forward? Yes. I've looked at and we have looked at our capital projected spend over the next three to five years. And given the fact that those as they stand today are fluid, things can change year to year to year as far as material or, engineering's ability to finish capital projects within that calendar year. So things can change from year to year. But just purely from a position of if we were to break it down and recoup x amount each year versus
recouping after three to five years as you've heard, mister Williams, testify earlier, a gradual increase is a whole lot more acceptable. And, that's the the whole notion of it by gradually increasing versus and for argument's sake, if we were to say we're spending $20,000,000 a year in capital investments, it would make sense that you're recouping those gradually versus going in for $100,000,000 after five years. But have you forecasted or done any sort of modeling to determine what those gradual
increases in the next coming years will be based on the capital expense that you've just discussed that you've looked at, just to give you an idea. Any forecasting like that, that you're aware of? Not that I'm aware of. And again, I'd revert that back to, Amanza. Okay. But do you think those type of details are important when making a proposal like this? They would be important. As I mentioned before, the capital spend is fluid at this time because we've seen it. You can have a five year capital plan or a three year capital plan and
not necessarily adhere to it because things may have changed. An emergency may have happened where a a project may have to be pulled forward or, pushed further into further years. You're saying in your direct testimony that and I've heard you say it in your opening here that rate increases are never popular. Correct? That's correct. And if that's true, why do you, mister Thompson, believe that Liberty's customers would support a AMRAM that has the potential to cause rate increases year after year?
I've met with as I mentioned earlier, during our town hall meetings, I've met with our customers, the ones that showed up for those town halls and explained to him as far as why the rate increase is needed and the fact that we were in the process of filing for formula rates and what that meant as far as gradual. And every customer I've spoken to have leaned towards that would make more sense as far as a gradual increase. And again, I live in the service territory. Most some of our employees live in the service territory as well.
I've talked to my neighbors and it's the same thing. A gradual increase would make more sense. So just if a gradual increase would make more sense and you truly believe that that's what the ARAM would be, don't you think it would make sense to at least put a revenue cap on to make sure that, any increase could be limited? I'm not an expert as far as, rate making, and that's why I've left it up to the folks who are experts and working with staff as well, see what makes sense and, is best for our customers.
Right. But I'm not asking you a specific number. All I'm asking is a general concept, a limit on the amount of the revenue increase. Wouldn't that make sense to make sure that there is actually what you're portraying, what you believe is gonna happen, perhaps gradual increases? Just to make sure this thing doesn't get out of control. Yeah. And I believe he's indicated another witness is best for that. Yep. Fair enough. Followed your other question. But you do believe that Liberty's customers overall support a formula eight increase.
Correct? That's correct. Okay. Wanna move on to, page seven of your direct testimony. There, you talk about other adjustment mechanisms or surcharge mechanisms. Correct? Yes, sir. And I just wanna reconcile this to make sure we all understand what's being proposed with the current ARAM. There you state that, you're asking the commission to approve the cost of service reconciliation, which let's for purpose of this, say the ARAM formula rate adjuster mechanism in accordance to the commission's formula rate policy statement.
In the alternative alternative, if the ARAM is not approved, approved, the company request that the commission approve a federal compliance cost recovery mechanism, property tax adjustment mechanism, and purchase power adjustment mechanism. Correct? Yes, sir. And is that what you're currently, requesting if the AMRAM is not approved, that commission approved these three things. Correct? Again, I'd have to revert that to, miss Monza. Okay. The commission has previously approved the property tax adjustment mechanism and the purchase power adjustment
mechanism. You're aware of that. Right? Yes, sir. K. And the current company currently has another adjuster, the tax expense adjuster in place. Correct? Yes, sir. K. And up to this point, the company has been providing safe and reliable service. Is that a fair statement? Yes. It is. Do you believe that the company will still be able to provide safe and reliable service if the commission doesn't approve the ARAM? Yes, sir. If the ARAM is approved, what adjusters is the company seeking approval to retain?
And that I'd have to revert to, missus Mons as well. I haven't been in the weeds with, working with staff on, what would be in and what would be out. But you have read the settlement agreement. Correct? Yes, sir. And you're aware that on page seven, the settlement agreement really only addresses the FCCRM and says that if the settlement is approved, the FCCRM is moot. Would you agree with that? Which exhibit is that? That's, the settlement agreement. Eight twenty. Eight twenty, page seven. It's under heading three,
sub paragraph four, federal compliance cost recovery mechanisms. And it states, if formula rate is approved by the commission in the phase two proceeding Could could you wait till the witness can get to that page? Sure. Yeah. It's day 20. What page? Page seven, paragraph four. Not section four, but paragraph four. Alright. I'm at seven. Are are we talking, number four, federal compliance recovery? Right. Okay. The one you testified to in direct in page seven. And it states that if a formula rate is approved by the commission in the
phase two proceeding, the company agrees that such a decision will render the mechanism moot. Correct? That's correct. And I assume since we're not gonna have a phase two proceeding, if in this proceeding just wanna make sure we're all clear. If a formula rate, the ARAM is approved, the company still would agree that a decision will render that mechanism move. Correct? K. And are you aware, does the settlement discuss any of the other mechanisms? No. But that's not you're not the person to testify on that.
Correct? Correct. Fair enough. I won't ask you. K. Alright. I believe that's all the questions I have. Thank you, mister. Thank you. Excuse me. Miss Humphrey? No questions. No questions, your honor. Thank you. Alright. Good morning, mister Johnson. Okay. In your direct testimony, a six. K. And page two. Page two. There you go. This is just a curiosity question from me. You talked about, around line 15 ish. It says Algonquin is a pure play utility holding company. I thought that meant that you just
that the holding company had one thing that they did. And does that mean in this case that it's just their one thing is regulated utilities? Because I would have thought, you know, water, but is that what that means? Yes. Now we're in the regulated utility space. Okay. Okay. Thank you. And then, does does being a pure play holding company did I say that right? Add a a benefit to somebody who might wanna purchase stock or invest in the company? Does that help them? That I'm not sure. Prior to being a pure play,
we were in the regulated space as well as the renewable space. What we've done is I'm sorry. As the what? The renewable space. What we've done is, divest that portion of the company. So now we're 100% in the regulated utility space. So that means water, wastewater, natural gas, electric. Okay. Okay. But this question is not for you. Okay. When putting this together And although this person wasn't speaking about liberty, they were talking about TEP, but this person talked about
the impact of all of these increases from utilities and, you know, of course, gas and food and all that. But I've got water, wastewater, electric gas, all coming at them all at once. Did the company give that any consideration? It absolutely did. And this this was brought up as well during one of our town hall meetings, meeting with our customers and having to explain to them that the company and I request that off each and every one that works for me. We're prudent in our spending. We're always looking for ways to keep our costs down and mitigate inflation as well.
One of the things that we have done, for instance, by having solar panels at some of our facilities to help offset, peak usage, which would mean an increase in my O and M costs, which would mean and again, that is a one to one pass through to the customer. So by doing these things, we're able to stay out as long as possible and keep costs down for customers. So we're always looking at ways how do we mitigate any increase from inflation. So, the answer is yes. We are very prudent in in what we do from a capital spend or an O and M standpoint.
Anyway, okay. That was me. Oh, shoot. But I need to lose my question. Okay. Maybe it'll come back. This question might not be for you either, but, in talking about the what is the PFAS, the poly floral foreign layer of the things. Sorry. Sorry, Jim. Are you aware this question is not for you, but I'll finish it. Aware of the EPA has loosened any of the regulations requirements on the on those bad things. Are you asking if I'm aware of the EPA loosening any,
what I do know, the deadline as far as 2029 still stands, and I do know that, I've heard talks of them looking into potentially, moving that to 2031. Okay. Oh, I remember now. Yay. So the last rate increase was approved in 2016. That was not the test year, was it, or was it? Your honor, 2018 was that '16 test year. Sorry. Okay. Okay. So the last was 2016. It's been so so between testers, it's been what was eight years because it's 2024.
So how was the company able to stay out for so long? K. Now the company was able to stay out, as long as it did because of the growth that was happening at the time, so that offset the need to come in for a for a rate increase. Okay. Thank you. Can you are you able to give me, like, a percentage from 2016 to 2024 of the percentage of growth overall? I believe, that is in, one of the documents here as far as water versus wastewater, capacity wise, what that growth look like and customer growth as well.
But I do apologize for that. I just Yeah. Just tell me who I can talk to about that. Who would have that? Yes. Who would have that information? I believe that is in my in my statements I wasn't sure. If there were some graphs as well. Oh, okay. I missed that. My bad. There it is. I'm sorry. No problem. Okay. Okay, I'll ask that question to someone else too. And mister Williams spoke when he provided comment about, water pressure issues. Are you aware if that's been resolved or is it still ongoing? Yes. That has been resolved. And, I know I've, I meet with,
mister Williams as as well as the city manager for City of, Goodyear, periodically. And, that has been resolved over, let's say, over two years now. We haven't had any complaints, and I joke around that there was one complaint. It was that the water pressure was too high. Okay. So when you say resolved, does that mean it's meeting the the minimum requirement of pressure at 20 PSI? We maintain and, mister Gilbertson, who's the operation manager for the City of, Mishaw Park in Goodyear will, speak more on that. But we have made changes to the way we operate and added several wells over
the last two to three years. And between that and some operational changes, we have been able to maintain above that 40 psi. Okay. So 40, not 20. That's correct. Okay. Thank you. The 20 psi is is the minimum operating pressure that, is not only recommended but, it's a policy within, the states. But we have, I believe the minimum we have maintained so far. Our goal is to operate above 40 PSI. And as I recall, reading various testimony, the wells, the water is entirely ground water?
Yes. Okay. Alright. Thank you. Alright. That's those are all the questions I have. Thank you. Thank you. Mister Sewell? Nothing, your honor. Okay. Alright. Mister Thompson, thank you so much for coming down to talk with us today. I really appreciate your time and your testimony, and you may step down. Thank you. Thank you. Your honor, might I inquire, from the the folks, how much cross they have for, our next witness, mister Garlic, so we can figure out should we just press through and take a late lunch, or should we take lunch and and come back for the afternoon? Your honor,
I really don't have much. It should take more than fifteen minutes. Yeah. I think we can carry on. So let's do that. Oh, wait. Do you need a break? Okay. We need to take a brief break. Let's come back at ten till noon, or ten till twelve. Thank you. Right. Off the record. Okay. Alright. We are back. Let's go ahead and go on the record. Okay. And, mister Sabo. Yes. We call, Matthew Garlic. Okay. Well, sorry, mister Garlic. I'm gonna have you stand back up to be sworn in by the court reporter, please. 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. Please be seated. And, mister Sabo. Thank you, your honor. Good morning, mister Garlic. Mhmm. Good morning. I guess we got five minutes left in the morning. Could you, tell us your name and business address for the record? Yes. My name is Matthew Garlic, and my work address is 14920 West Camelback Road, Litchfield Park, Arizona 85340.
And by whom are you employed and in what capacity? I am employed by, Liberty Utilities service co company, Liberty Utilities. I'm their vice president of technical services water. And, is that is that just for Arizona? Are you like No. It's actually across the country. Country. So there's seven water utility or seven states that have water utilities. And so I am now doing work across multiple states. And, what does the vice president of technical services do?
Well, we, have got several great managers that work with me in the area of geographical informational systems, capital planning, asset management, operator, certification, technical training. Let me see what else we have. Water quality and then, policies and procedures and compliance. And, mister Garlic, did you prepare or cause to be prepared direct testimony in this case? I did. And, is your education and qualifications as set forth in your direct testimony? It is, but I did find one error on page two,
sentence, for sentence one where it says grade three, that should say four. And then where it says on sentence two wastewater collection, there should be a three inserted in front of that. Okay. And what line was that? Line two. Okay. Thank you. Thank you. And then, there should be a binder of exhibits before you to see that. I have that. And can you go to the document which is marked as exhibit a eight? It will be at tab number eight. I am there. And is, that your, direct testimony? It is. And,
with that, do you have any additional corrections to that? I have found no other additional corrections. And, with that correction, do you adopt exhibit a eight as part of your sworn testimony today? Yes. I do. Now could you turn to page four of your, direct testimony? I am there. And, referring to the map that is there, can you explain what a sewer shed is and, just describe where the Palm Valley and Sarah Vale, waste water plants are? Yeah. I can I can do that for you? Your honor, I'm assuming you're seeing the same chart I'm looking at.
If I can bring your attention to, that there's two colors on the map. It's a kind of a I guess it's like a light blue and a yellow color. Those are the sewer shed. A sewer shed area is basically a given area where the wastewater is collected and then ultimately maneuvered through. And in this case, if you look closely, the very bottom of that, you will note there's a green square and then a yellow square off to the left. I don't know if you can see those. Those are the locations sewer shed above that is in that yellow color.
So any customer that, sewer shed, either an existing customer or future, that wastewater would emanate, would travel gravity downhill. We like gravity. They're very reliable sewers and they go right to the wastewater plant for treatment. And the same would be this on the same case would be on the West Side or in the blue where that yellow plant sits on McDonough Road. That's known as Cerebral Wastewater Treatment Plant. And anything in that bluish green color, whatever we wanna call that color, all emanates down to that wastewater plant as well. And could you explain why those two plants are kinda located on the the bottom
of those two maps? Yeah. Of course. If you look at the top of the map, the elevation is generally higher in elevation. And as you go down towards End I-ten, it's lower. So when you lay a sewer in, the water flows downhill for the most part. And, is it fair to say that the Sarrail plant is one of the biggest projects you have been involved with in your career? It is. I've been with the organization for now going on some twenty six years, and this project is the largest in our company history. It's a $105,000,000 plant, so it's quite quite sizable,
when it comes to, projects. It's been a long time coming, right? It has. In fact, like as I indicated earlier, I've been here twenty six years, and it's a rare opportunity for somebody to be sitting in front of you today, your honor, who actually did the MAG, Maricopa Association 02/2008 planning for not only Palm Valley but wastewater. Built and constructed Palm Valley in 2002 and then ultimately purchased the property in roughly 'four, then a small section in 'nine and then ultimately built the plant, and brought it online in March '4. So that's not usually how it works.
It's one person designs it, another person builds it, and twenty years later, different things happen. But in this case, I was able to see it kind of from the beginning to where it is today. Yeah? Great question since we're on the map. Yeah. So the plant for Saraval is down in that little yellow square. So the gravity feed line, is it the black or is it like the dark line coming across Camelback and then down and then Indian School down down down to McDowell? Is that That is that is correct. Your your honor.
Okay. Thank you. Thank you, mister Tahoe. And then, Mr. Garlick, could you explain what a design build process is and why it was used for Ceravell? Yep. A design build project, is a little little different than a normal project where you might hire specifically one engineer, who would build or who would actually engineer the project. Then ultimately, you go out to bid and you would do construction separately. And it's usually kind of starting out with A to B to C to get it completed. But when you do a design build, you basically hire one firm who's got all of those mechanisms.
The engineering, exists within that organization as well as the construction. And why it's so unique is when you start the design of it, it, the people who are gonna build it are actually sitting at the table. So when engineer, by example, and this actually happened, an engineer decided, hey, I wanna put in a 30 inch pipe at the wastewater treatment plant of a given size and material, turned out that that construction people knew that that material takes twenty weeks to get. However, if knowing that before they design it on the plan can say, Hey,
that takes twenty, twenty weeks to get, but I can get you a 30 inch, let's let's say high density, polyethylene pipe, and I can get that in four weeks. Does that work? And the engineer could could say, Yes, so let's design it that way. So as they're designing the plant and engineering is doing the engineering and the construction is very intricately tied together, what happens is you can very, very quickly take that three year time frame and compress it into roughly twenty months. And that's exactly what happened here. And are there benefits in terms of cost as well?
Exactly. Another example might be if you're building that plant and you would have had to purchase that pipe and didn't get it, or you needed to rush that pipe because you didn't design it closely with the engineer and the construction company right off the bat. What happens is to get that pipe, you may have to buy it from somewhere else at a higher cost. And so, that adds cost in the end. And just that's just one discrete example, but as you go through it, it's these things start to add up and they add time and they add more and more and more cost. So it's it's imperative to to work together closely.
And I'm guessing if you've got people on-site and equipment that's rented and so forth, those people aren't working, that just adds to the cost. It does. Now usually on a big site like that, very often, you can maneuver and and and put those, push those people around to to to extent of maybe only a couple of weeks. And then after that, then you're waiting. And that becomes very costly quickly. And, in my opening statement I mentioned that Saravel was a award winning plant. Could you tell us about that? Yeah, in fact, the Arizona Water Association,
we won the plan of the year for the wastewater treatment plant, mostly due to the fact that it was an MBR technology with a closed loop reactor. We'll talk a little about that system. It's very innovative. The piping runs are very short. They're close by each other. We use a lot of gravity to move water around. So all of these things add to very cost effective wastewater treatment. Would it be fair to say that, Palm Valley was state of the art as of when it was built twenty ish years ago. And today, CerroVal, using different technologies, is state of the art for today.
It is. Well, both in the state of, within the state, how they look at water, they both are A plus plants. But the water quality from the cerbo plant in this technology is very superior to what the quality technology was, you know, just twenty years ago. And, turning to the attachment to your direct testimony, there's some photographs there. And, could you kinda just walk us through each of these since this is the the biggest capital project for the company? Yeah. I I do wanna note that contract was signed,
I believe it was May 11 of of that of twenty second, twenty second? May 11 is when the contract was awarded. And on the first slide here on 06/18/2022, and then construction actually started on 07/05/2022. And you may look at this and say, Wait a minute, this picture is June 18, that's before July. That's because we actually work, we have cities that we work very closely with and this was the city of Goodyear. Growth, we have extreme growth in Goodyear. It's well known along the 303 and we're able to get a at risk grading
permit issued by the city immediately to expedite the building of this plan. And so that's really what you're seeing on June 18 and why it may not align with my testimony saying that we started, starting beginning on July 5 and that's because in Truly, well, we we did do a grading at work earlier, so we started just months early. So with that, on August 31, this would be page, I think it's got a hole punch to it, I think it's three. Your honor, it's at the night photograph. And what you're looking at, these are called these closed CLRs or closed loop reactors.
You imagine when this gets built there'll be wastewater traveling through those, and what you're seeing is just basic rebar. It's about 38 feet down, straight down, so you can imagine this hole is quite large. Yeah, 38 feet straight down from the middle and then so the lay length would be it's a massive massive hole for wastewater tanks. On the fourth page, October 18, now this is a picture from a different angle, but now that you're seeing the rebar and the concrete and all the people that are hanging on there tying the rebar and building these closed loop reactors,
On the next page five, you now can see that December 30, you can see the tank covers are now being put on these. Ultimately we're building the surge tank because those channels you see in the front, that's when the when the wastewater finally gets processed and cleaned up, it goes into that and then it's pumped out to reuse customers. And this is what you're seeing here, 02/28/2023, page six. Another angle basically from the south facing north you can see a little bit more going up. There's a building to the far left. I think it's the first time we've seen this.
This is Building D. This is our Biosolids building and that's the stem wall and the construction. I will bring note to, if you look, your honor, to the upper, maybe a little bit up and to your right, you'll see a concrete pad. That's the control building. That's where all the operators, the couple operators will have will operate the building from. And just to the north of that, you'll see some fencing around that. That is, what we call the IPS, the influent pump station. So we talked about water or sewer sheds. When all that wastewater arrives, it all arrives at that exact location.
And from there, you'll see some more equipment coming together. On April 18, 2023, number '7, again, you can see some of the piping arrangements being cut in at the facilities. I believe that, probably to bring a note there, if you look closely along that blue fence, you'll see a purple pipe in the ground. As you're aware, effluent pipes have to be purple. Those are the purple pipes that were that tie into the wastewater plant and that will be delivering the high quality effluent, A plus effluent, to our customers for use. On June 13,
I guess that's page eight, you get another aerial view. You can see a lot more construction happening. You got the IPS in the bottom left corner which is our influent pump station. There's this circular u shaped thing, kind of elongated. You see that, Your Honor? That is actually a part of our headworks. So we remove grit, from two grit board texts. We have two, large six millimeter, fine or large screen, screening devices and then two fine. So that's where all the wastewater goes. So everything that goes in the wastewater system gets removed at that location.
That water then goes across into the plant for further treatment. And then to the far right, Building D, which was our is now these buildings are all Building A, B, C, D, that's the four that you might see there. They're all now starting to get a roof and that's what you're looking for now is those, excuse me, the roofs being put on. All the vehicles that you see there are because of all the workmen that are actually inside the building now terminating all the pumps and electrical lines and the AC and all that. And interesting enough,
I'd like to add that during this process and how we put this design build contract together, at the same time, if you recall, there was a plant being built in Phoenix, it's known as TSMC. That is the big Taiwanese semiconductor plant. Almost all the concrete and rebar in the valley was going to this location. And when we built our our contracts, we stipulated certain things in the provisions of contracts to protect us and our interest to design build, which is great because when our electricians showed up on job site, other locations were charging $10 more an hour for those same people.
So keeping people on the site and contracting that in that early design stages was very necessary, not knowing that this was gonna happen. So huge cost savings. What it was, we don't know, but we know we didn't face those things like others did. And then ultimately, number nine, you could see more of the work being done. It's kind of a split shot where it's got just some blow ups of more details. On November 13, 10:00 or at page 10, I'm sorry. You notice that the site's being fairly cleaned up now. We're getting very close.
We're starting to get ready to come online. We initially built a plant to come online September '24. We worked with our contractor throughout the process because the community wanted to expedite and move this thing along. And we actually come online on March, in March '24, some several months early on time and under budget. And that project you can see today. That is what the plant looks like, although the plants are bigger now. You could see all those small mini plants are starting to grow if the rabbits haven't eaten them.
And then ultimately, that plant is actually underway and, it's currently, receding and taking flow. And, mister Garlic, with this, more advanced technology, does, are you able to run Cervelle with fewer operators than at Palm Valley? Yeah. Palm Valley is, is, it's it's it's it's just it's designed very differently. Pumps lift water, move water. It's a little bit more labor intensive. At this location it is, yes, much much less. I think it's somewhere between three, four,
something like that in that range of operations versus maybe closer to 10. So it's a lot it's a lot, a lot more compact and less labor. And when you talk about reactors does that mean there's like a little bacteria in there eating up the Yep. Stuff? Yeah. They're not nuclear reactors. Reactors are in essence in a wastewater biological process. It's the material that gets put into the wastewater system with the screenings removed. In that is food and bacteria. And all simply we do is we add, we add air, take it away to break up the nitrogen cycle so that we process your wastewater.
But if we wanna get more into that, Terry Gilbertson, our expert witness, who's an operations manager, can give you all the details. Thank you, mister, Garlic. I'm not gonna have you go through the permit or the, flow diagrams or or any of that, but this was our biggest project. So we we wanted your honor to hear a little bit about it. Thank you, mister Garlic, and, mister Garlic is available for cross examination. Thank you. Mister Peszewski? Thank you. Good afternoon, mister Garlick. How are you? I'm doing great, mister Peszewski. Palm Valley was initially Liberty's only water reclamation facility.
Correct? That is correct. Okay. And then Sarajevo was commissioned and placed in service in, what, March 2024? That is correct. K. And construction in Sarajevo began in July 2022. Correct? Sounds about right. Yeah. July 5, I think, is what my testimony says. Okay. And so it's placed in service in March 2024. And I know this isn't gonna be your topic, but it's just a general question. You are aware that in August 2024,
the company filed an application with the commission for approval of an accounting order to defer depreciation expense for DeSarville WRF. You're aware of that? Subject to check. I I wasn't part of that, Dan, but, but subject to check, I'll I'll go with that. Okay. And and no no big surprise here. The commission subsequently approved that application for the accounting order. Subject to check. Correct? Yes. K. Going to that map on page four, believe me when you talk about those little squares,
they are little. Yeah. So I think I understand the Sarabelle is the yellow square that's about close to the bottom in the middle part of the the map, but at the bottom. And then the, Palm Valley is the green square that's, I don't know, about an inch and a half over in the yellow section. Is that fair? That is correct. And as I understand it, according to your testimony, the company is now investing in ability to move flows between the two. Is that correct? That is correct.
Can you elaborate on that a little? Yep. So the Palm Valley Water Reclamation Facility, which is that green square, is a 6.9 MGD facility, and it encompasses that sewer shed above it. And as you have indicated, the yellow Sarabo was a four MGD plant, which is off to the west for that growth. And so having a line between the two facilities, while there is a line mostly already there and making that interconnection, the idea to put that line in was to be able to potentially,
plant were to have a problem or an issue, you could use a joining capacity for that. And in I might add a little bit to that, if if you don't mind me, honor, your honor, why why one might do that. Most wastewater treatment plants are located in very low lying areas. For instance, in the West Valley, you might see Tullison or Phoenix. They're way down very close to the, to Salt River. Look at Avondale. It's literally right on top of it. Go to 157th Goodyear Wastewater Plant, it literally sits on on that. This plant isn't.
These plants are located many, many, many miles from that river river system. And why is that? When a plant has a problem, it could overflow. If it overflows, it's right there in a river. You can contain it. You can do things. In this situation, these are what we call dead end plants. They are on their own. And so when we put these two together, one thing should be noted, the city of Goodyear's line actually comes down McDowell Road and goes right past our facility, in which, potentially one day we could interconnect with them and to deliver water down and work
with each other. And so the idea was to bring in Palm Valley and have a cerebral interconnected so that during certain events, if they were to occur, to give us more flexibility within the community as well as potentially share capacity if we needed if we had an overcapacity on one side or another and needed me to challenge. So that was the idea is the idea behind that. And how far is the distance between the two? I'd see roughly three miles maybe. And you said that they are interconnected at this point,
correct? They're not. They're not. There there's a segment of probably roughly two and a quarter, two and a half miles. This is just from from recollection. There is a piece that is needed to go from Palm Valley over to the the Bullard Intersection to make the connection between the two. K. And in total, what are the estimated costs, if you know, to make that connection? I I do not know that information. And when does the company anticipate the connection project will be finished? I believe they're we're anticipating it's in our capital budget for this year,
I believe. K. So do you know will those costs be part of this new ARAM that the company is proposing? When it comes to ARAM, I'm just gonna have to send you over to, missus Rau only because she is a company expert and I do not have information on that. Fair enough. In your direct testimony at page seven, you testified that Sarval's total committed capacity was 71% at the time of your direct, and Palm Valley is a 75% committed at the time of your direct.
Is that fair? Yes. That's what it says. And is that approximately what it is at this point? Here's what I can say about what it is approximately at this point. Wastewater treatment capacity, it can be, can fluctuate, Your Honor, and Dan, based upon seasonality. So right now, in our season for one of our plants, ironically, we have a lot of people that have come to visit for spring training or will shortly, so those flows go up tremendously. On the other plant where it may not have as much seasonality to it, it actually is independent. It actually functions,
based upon what the industrial load is. So we have certain customers that use large chillers and begin to start chilling, their water down and producing higher volumes of wastewater when it reaches 85. So it's this kind of odd cyclic blend. So at the time these numbers were correct, but I think if you wanna get into those numbers very specifically, I would suggest Terry Gilbertson following up behind me to answer those two, more directly. Okay. Okay. But those numbers, whatever they may be,
are significant to Maricopa County environmental service department. Right? Doesn't in your testimony, don't they provide guide lines that state that the wastewater utility should begin design and construction by the time the average day maximum month flow to the facility reaches 80% of the facility's rated capacity? The expand Sarbel? I don't know the answer to that Dan, but those are correct, the 80%, 90%. All right. Let's move on. I want to talk a little bit about pretreatment tariffs. Generally, pretreatment tariffs are those tariffs that require some businesses and certain industrial customers to take
action to deal with potentially harmful or damaging contaminants before sending it to the facility for treatment? That is correct. That's correct. Why is the company seeking tariff updates? So, we are seeking tariff updates regarding this, due to the fact that in the past we haven't had really strong language and ability to, ability to, what do they call it, to apply penalties for those that are Okay. But those updates that we're talking about in tariffs,
they're not for residential rates. Correct? That that's correct. They're generally speaking, and and there is boy, that's one of those, if I could retract that, it's a yes and no question. So generally speaking, 99% of the time it is for industrial. However, if a resident did what they call a non residential discharge, would be putting something into the sewer system that did not meet residential standard, they could be subject, however rare it is, they could be subject to that. Okay. Alright.
But that that those are sort of one off situations to Very rare. Yes. Okay. Moving down to the PSAs. In 2016, two of Liberty's wells were identified as needing treatment for PFAS. Correct? That is correct. And Liberty installed granular activated carbon treatment unit at these wells, Wells 2 A L and 4 A L. Is that correct? That is correct. K. And the company believes that under the EPA's current rule, 10 of Liberty's wells will eventually require treatment.
Correct? Currently based on the levels that the EPA has set, subject to any change that is made, which we don't believe will happen at this point, but subject to that change, 10 of those wells. Have you got any estimate as to what it will cost to treat those wells? We've estimated to be somewhere near or above $40,000,000 However, that being said, that is an estimate. We have retained an engineering company by the name of Olsen Engineering. Do you need the spelling on that? O l o s s o n, Engineering. And they are currently contracted to begin the process of doing engineering design work and
estimation of O and M costs as well. Is there a difference, Matt, between PFAS remediation cost and PFAS treatment costs? I think it's one and the same. Yeah. K. And Liberty has filed a lawsuit against PFAS manufacturers and is seeking WIFA loans to assist with their remediation costs. Correct? We have filed, lawsuits in regards to PFAS. That is correct. In regards to WIFA, I think we are currently reviewing that now, and that's still yet underway.
Is there anything else that the company is doing to keep the cost to cut customers limited in addition to the lawsuit? We also have an additional, Circular lawsuit, with the Department of Defense, in regards to this as well. K. So So with regard to those two lawsuits, if Liberty wins these lawsuits, will it credit its customers with any of the proceeds it's awarded? Well, currently today, we have received, some of those proceeds, and those proceeds are being directly used to design engineering of those projects.
So in essence, it is lowering the rate base on behalf of the customer. That is the goal. Okay. Will residential customers see any benefit there? I would believe so. Yes. Alright. The last little area I wanna talk to you about is hookup fees. You talk, in your direct on page 14 about the large industrial customers, and, I can I won't quote the whole thing, but the line in your testimony says, we believe the large industrial customers should pay their fair share of the capacity costs
they impose on wastewater systems? Is that fair? That's fair. And when you say fair share that those large industrial customers will pay for that those large industrial customers will pay, does a fair share mean the entire share of those capacity costs that they incur? Trying to get an idea of what your definition or your thinking of fair share means. Yeah. I think I think what we're trying what I'm trying to say in in this testimony is, meter sizes are generally, built based upon what we consider demand and multiples of demand for meter sizes.
But when you get up to very large, large industrial facilities that are wanting to purchase not tens or 50,000 gallons, but now we're talking hundreds or half a million gallons, that's a very significant portion of whatever investment you put in the ground. And so I'm referring to fair share. I don't know what that percentage is, Dan. That would probably be a mis route or maybe even a Mr. Baraza question, if they were asking on rates. But it's got to be larger than currently what what we believe,
has been set for us. The last tariff. So getting back to that earlier question about you believe large customers should pay their fair share, you you present this paradox, and I'm just trying to figure out how ratepayers aren't affected by this. You state that large industrials and and your direct page 14, line five through 13, if you wanted to see it. Large industrial customers can require wastewater treatment capacity that requires millions of dollars worth of capital investment to meet these capacity needs and support growth.
The current hookup fees fall far short of addressing this. If the company invests to make up the difference, the resulting increase in rate base creates increases that will be passed on to all customers. And my concern, of course, is what efforts you're making or how the company is looking at this to make sure it's not passed on to all customers, but just those customers that are incurring those costs. Can you comment on that? I think I understand that. And I think, you know, we are following the tariffs that is set that has been provided for us for
the last rate case. And in this rate case, we are identifying areas potentially in the future only because of all the growth we've seen along the 03/2003, the large, large customers that are coming. We don't know what we're facing, but we wanna have the ability to reassess that differently. And then if we have some one off that we need to talk to commission, you know, most certainly have that conversation. But we wanna make sure that we're we're covering those bases in the future. So in that regard, are you asking anything of the commission at this point or just providing sort of,
hey, look, this is coming up. We gotta figure it out. We haven't we don't have a proposal yet. Well, I think in the in the hookup tariff, we are asking for that provision for large customers, something special to be set aside for when that specific, you know, event comes that we would address it differently than we would with how we put things together. Okay. K. So you're not as I said, you don't have a a plan to propose at this point on how to address it, but to consider that when it comes,
then we gotta address it. Correct? Okay. Yes. The answer is yes. Alright. That's all I have, your honor. Thank you, mister Garlic. Thank you. Miss Humphrey? Just a couple questions, your honor. Good afternoon, mister Garlic. Good afternoon. Normally, when, Liberty, is going to build a large plant like it did with the Cereval plant, does the company have a great deal of discretion in determining when in conjunction with the company's next rate case that they will actually construct that plant? Can you rephrase that? I'm sorry. Sure. Yeah.
In in a normal situation when when the company is going to, invest in new plant, doesn't usually have a lot of discretion in determining when that project is going to be, when that's gonna be started, in relation to when the next rate case is so that the company can recoup its recover its costs sooner rather than later. Yes. That is correct. And did that happen in this case? Well, I mean, we finished the plant in '25, and here we are today. So, yeah. How how did how was it determined that this plant was going to be built?
Was it part of another case before the commission? If this plant was to be built? Yeah. Yes. Actually, it was. We we had quite a few hearings with, many of our developers who were concerned about us moving this plant along much faster. And so we had those hearings and we did expedite and move this plant along much, much quicker, because of those hearings. And the hearings, what did what was the topic of the hearings? Well, the topic of the hearings were, it was on the wastewater treatment plant and our ability to move the project along as quickly as we possibly could.
If you recall, we had many developers in the room who who indicated that they needed treatment capacity, at that time, some 100 and some odd developers. Ultimately, it turned out that, they did need capacity, but not to probably as fast as some of them would have liked to to have, you know, have indicated to build out. So but because of the requirements from Maricopa County, you know, designing over 80% and when we reached that '2, we were above 90%, we were required to begin that process and had already started that process underway.
Thank you. That's all I have, Your Honor. Thank you. Okay. Hello, sorry. So, Mr. Pazescu asked a couple of questions, so I have a couple more. On page seven of your direct testimony? Yes. Okay. Can you help me understand how let's see. It says on line two, average daily flow of 4,000,000 gallons, but with a maximum average flow of 4,400,000 gallons per day? Yes. What's the capacity? So the capacity is 4,000,000 gallons a day. That's our average daily flow. So that just means that the wastewater, the nameplate in the plant is set for four.
But the 4.4, maximum average daily flow means you could, some days, you could exceed four and you would have no no issue with the ability to treat that. But after a longer period of time, you eventually couldn't treat anything above 4.4. Does that make sense? Mhmm. It's kinda like you can go this fast, but we recommend you stay at 65. Maybe that's a better way of looking at it. Okay. Are there because because you have the what is it? The Arizona PDES. Are there are there penalties for those sort of I don't know what the word
is, exceedances? Or Are are you talking about the Arizona, NPDES? The what? And the NPDES permit. Yeah. So that's a discharge permit. So we're required to have that to discharge into the waters of The US. Gotcha. So we must meet a standard on our permit to do so. Okay. So is it the APP that tells you the maximum that you can have? Yeah. The APP is rated on our plant. That's our plant permit, for the aquifer protection permit. So that is rated according to the plan. Correct. Yeah. Let's see.
So and the next one the next, paragraph. So the total committed capacity is now 3.1. But have have you ever had a a situation where at the Cerro Ball plant, you've they've have had the maximum average daily flow of 4.4? Or that's just capability for a short period of time? I am not aware of that, your honor. But, when Terry Gilbertson, our operations manager, comes up, you can ask him that and he could tell you clearly if that has ever happened. Okay. I'm sorry. I might be missing. I'm just not entirely sure how it all works. So Okay. And then,
I know we're talking about, applying to WIFA for certain funds, which kind of surprised me because I had always thought WIFA was for smaller companies, you know, CDE, but they do work with A's? They do. And the way it works is with WIFA, once you meet the requirements and apply, they then have a sliding scale and they determine they look at their scale and they've got a bunch of things to look at and then they determine what that loan is and what it looks like for interest and what have you. Okay. But that still hasn't been decided yet? That's still in the works? It's still in the works.
There's a bunch of different process to that. There's some internal things we have to do and then of course a commissional approval before we seek those funds. Okay, so the financing application here has nothing to do with what WIFA's gonna do or not do? That's correct. Okay. Oh, on that pretreatment tariff, as it currently exists, how many companies are subject to that tariff, if you know? I do not know that. Okay. Again, mister Gilbertson may have that, or we could get that for you before too. So, let's see. Okay, I think that's my question, although I think I will require the company to change well 19 b to something
more attractive like the others have. It's just so sad. We are taking suggestions. Okay. It's just so sad. Alright. Thank you. Mister Sabo? Yes. Thank you, your honor. I do have a few, questions on redirect. Recognizing I'm standing between everyone in lunch, we'll we'll try and keep it quick. Could you go to page seven of your direct testimony, mister Gerlach? I'm there. And in particular, lines 19 through 24. So I'm not sure I heard, your exchange with mister Pisevsky correct. I was worried you might have said it was you do construction at 80%.
So can you just walk us through Sorry. What the 8090% in those two bullet points are? Yes. To correct that, it's the average day maximum month flow when the facility reaches 80% of its rated capacity. And that's when we do the planning and designing portion of it. The construction hopefully, that helps. And then in terms of the capacity at Palm Valley, would this interconnection, assist with the capacity? You'd be able to basically pull the capacity. And then in terms of the capacity at Palm Valley, would this interconnection assist with the capacity? You'd be able to basically pool the capacity, and not be at the 80 or 90% you are at now.
Yes. You could. You could maneuver capacity around, potentially. Do we remind you that there is significant, growth still on the on these two sewer sheds, so those areas are anticipated to continue to grow. So there'll be growth, but the interconnection will assist with potentially, helping the capacity. Yes. And, you mentioned the interconnection. Is it possible for flows to go from Sarajeville to Palm Valley, but not the reverse right now? The connection is one component of that interconnect.
Once the connection is made, then some modifications to pumping stations will need to also be made so we can pull that water and start to move it if we have to. One way is downhill and the other way is uphill. That's correct. Alright. Now, I wanted to talk a, a little bit about the in service date for Ceravell. Just to clarify on on page three of your direct testimony, could you go to that at line 20? I'm there. And at, line 20, it says it was commissioned Ceravell was commissioned and placed in service in March 2024.
That's correct. So that's the correct date, not Correct. Correct. Yeah. March 24. Great. And then I wanted to talk a little bit about hookup fees, which, you know, everybody's favorite topic. The could you please turn to exhibit a '24? I have a '24. And, mister Garlic, did Liberty Litchfield Park request an increase to its wastewater hookup fee in 2021? Hang on. Just take a look at that now. Yes. And, is exhibit a '24 the resulting decision from that request?
It appears to be. Yes. And and then on page two, you see there's a chart there on page two? I do. And, according to the heading on the chart, the commission staff recommend a reduction in the proposed Hough increase, from 3,000 per unit down to 2,697. Yes. On line 26, it did. And then on the next page, the commission accepted the staff recommendation. That is correct. So the, amount of the huff the company requested a higher huff,
but it was cut back. Is that right? That is correct. It it was, proposed at, 3,000. It was approved at 2,697. And so, when, some of these customers have been coming in line, especially in that Sarabelle Sewer Shed, the company has been charging the required huff, that is allowed to charge under the tariff, and it can't can't unilaterally increase that. That's correct. Okay. So one of the things the company has done in this case is say,
hey. Let's increase the water huff. Is that right? That is correct. And then you you're also asking, let's have some special provisions for big industrials on the wastewater house? That is correct. And, in terms of, you know, how final that, wastewater proposal is, there is specific tariff language that is in, miss Wise's, testimony. Subject check. I don't think I'd read her testimony as of yet, but You didn't go through I didn't get that. The tariff sheet 25 of 1822.
So we'll we'll cover that with her. But, alright. Thank you, mister Garlic. I was sorry for keeping you from your sandwich. Mister Pazewski. I just wanted to follow-up with what mister Sabo asked you. You referred to that decision, the one about the hookup fees filed on 03/02/2022 correct? That is I were referring to exhibit a 24. Right. Yeah. Yes. Correct. And if you go to, paragraph three of staff analysis, the company proposed a different share in mechanism,
between the company and the developer than what staff recommended. Correct? Yes. That's what that says. So the company proposed the developer to have a higher percentage, 63.8, and, staff recommended a 55 a 55%. Correct? Correct. That's what it says. So I'm just kinda curious, how that works with the current way of thinking. Is is that providing what what the company was recommending? Would that be fair to say that, there's now more of a subsidy in that that tariff rate?
In other words, that the company's, subsidizing? Yeah. You know, I think, again, this might be a better question for our rates people, miss Rao. If you'd like to have her address it, she could probably better analyze that. Okay. But that's the current tariff that's applying now. Correct? This is a tariff that, that I was referencing, 08/24 Yeah. Which is 03/02/2022. Okay. But my my question is still in place. Correct? I'm not aware if it's still in place or not, honestly. That's all. Nothing for your honor. Thank you. Thank you. Miss Humphrey?
Nothing further, mister Affleck. Alright. Thank you. Mister Estebo, anything else? Yes, your honor. Could I move the admission of a eight, which is mister Garlic's testimony, and then A 24, the decision we were just discussing. Alright. Any objections? No. No? No. So, exhibits A8 and A24 are admitted. Thank you, your honor. And then, are we in this room tomorrow? Yes, you can Leave everything here except anything with has value, like electronics and stuff like that. Papers, fine. Unless it's confidential testimony, please take it with you.
Okay. Thanks for everybody's indulgence in breaking early today, I appreciate it. And we will adjourn We adjourn, come back together tomorrow at 9AM, and we're off the record. Jen, did you have any follow-up that you needed? No? Okay. Alright, everybody.