Okay. Good morning, everyone. We'll go ahead and convene our November contingency open meeting and bring it to order. If we could please rise for the invocation from commissioner Marquez Peterson and our pledge, which will be provided by Britton Baxter. Baxter. Good morning. Please bow your heads if you would like. Dear lord, in this month of thanksgiving, we wanna thank you for all that you have provided us. We're very grateful and and hope that we each reflect individually on all that we have been provided. Please, lord, be with those families who are impacted by the federal shutdown. Please provide for food where there is insecurity.
Lord, guide our our decisions today, our actions, that we make the very best decision for the state of Arizona. In your son's name, amen. Amen. Thank you, chairman. If I can to thank all veterans in advance of Veterans Day next week, chairman, commissioner Lopez, please join me in the pledge. I pledge allegiance to the flag of The United States Of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all. Thank you. Please be seated. We have three items on our agenda today.
All of them are rate cases. Surprisingly, we do not have any consent agenda items. So this is kind of a first for us. Our first item will be TRICO, which was, held off, in our October open meeting. I would like to make one scheduling change and move item number three, Kylo Bradshaw, to be heard second, and then we'll move Cactus to third in the final slot. So while you are taking your seats, before we get started, I wanna recognize an important honor recently bestowed upon the commission, the National Conference of Regulatory Attorneys,
which is organized by NAIRUCC and is tailored by, the government utility, regulatory attorneys recently elected our esteemed general counsel Tom VanFline, as president for the twenty twenty six conference. One of the cool things about, being the president is you get to help organize the twenty twenty six conference, which is going to be held here in Phoenix, in early May next year. I know Tom, would probably be the first to to say that it was, to acknowledge that his appointment, was, wouldn't be possible without the entire office of general counsel.
And, so I wanna thank everyone for everything that they've done, all of our ALJs, as well as the support staff, who keep the train on the tracks. And so, Tom, congratulations, and thank you for, all you do for us. Oh, thank you. We'll be putting together an agenda with panels and so I'll be reaching out to all of you to participate as well. Okay. Very good. Sounds awesome. And so with that, let the flogging begin. So vice chair Myers, would you please move our first item? Sure. I move item number one for discussion. Judge Madder, please kick us off.
Great. Good morning, mister chair, commissioner. Julia Madder on behalf of the hearing division. This matter involves a rate application for Trico Electric Cooperative, a member owned class a nonprofit, providing service to approximately 50,000 mostly residential members in rural areas of Pima, Pinal, and Santa Cruz Counties. One written comment was received in opposition to the rate application, and Trico's current rates and charges were approved in February 2017, using a test year ending 12/31/2014. Trico and staff entered into a settlement agreement in this matter,
and the rue adopts the settlement agreement. Araseya is not a signatory to the settlement agreement but does not oppose it. Araseya's testimony in this case pertain to the proposed elimination of net metering, for commercial members, which it objects to. The settlement agreement provides a total revenue requirement of a $131,809 131,809,300, an increase of about 8,200,000.0 or 6.69% over test share revenue of,
a little over a 123,000,000. The revenue requirement results in operating income of, almost 13,000,000 and eight point nine one percent rate of return on the agreed upon fair value rate base of 206, 500,000.0, a net tier of 3.66, and a DSC of 2.44. The revenue requirement includes over 1,000,000 in rest in e e d s m's cost and eliminates TRICO's rest and DSM surcharges. The settlement agreement provides that TRICO will eliminate net metering for nonresidential customers six months
after the date of this decision and grab a grandfather's nonresidential net metering customers for the remaining term of the customer's interconnection agreement. After the grandfathering period has ended, those customers will transfer to the appropriate export rate tariff and receive the DGE rate in effect at that time with no lock on that rate. The DGE rate will be adjusted annually only for new, distributed generation customers, and the effective rate will not be less than the avoided cost rate for debt metered customers. The settlement agreement adopts a base cost of power of 0.088874,
cents per kilowatt hour and approves a modified wholesale power cost adjuster POA that increases the threshold that triggers a mandatory adjustment to the, to the rate from 2,000,000 to 4,000,000. The settlement agreement adopts Trico's revised rate design and provides for an effective date of rates of 01/01/2026. The settlement agreement rate design increases the monthly customer charge for all classes with the base residential customer charge increasing from 20 to $25.05 dollars. The rates also increase the per kilowatt hour energy charge and eliminate the residential two
tier inclining block volumetric rates. So a typical residential customer using 935 kilowatt hours of consumption will experience an increase of $9.73 or 6.96% from a $139.79 to a $149.52. The settlement agreement also includes other updates to the tariffs, including clarifying changes and recommendations from staff's direct testimony. No exceptions were filed. There are two proposed amendments.
Thank you. Great. Thank you. And we'll go ahead now and hear from staff. Good morning, chair, vice chair, commissioners. Renel Paladino for staff. Staff supports the Roo. We're available to answer any questions and to address the amendments at the appropriate time. Thank you. And we'll go ahead and hear from the company. Thank you, mister chair. Michael Patton, on behalf of the company. And with me here is Eric Hawkins, who's the chief operating officer and general counsel for TRICO. We would like to thank staff for allowing us to process this rate case effectively and efficiently.
As you may have noted, we reduced our rate case expense significantly as a result of that process. And we we think staff's, approach to this case allowed us to do that. We also would like to thank Judge Madder for her very prompt, rue in this case. As you heard her say, rates are not gonna go into effect until January 1 this next year instead of November, December. That results in revenues that we could have recovered over the next couple months of a significant amount,
but that is something that had been communicated to Trico's members on a start date for new rates, and that was discussed at various district meetings in which the rate case was sort of set forth. And And I'd like mister Hawkins to sort of explain a little bit about that member outreach to to get a handle on what has been communicated to the customers and their reactions. Thank you, mister chairman, commissioners. As as a cooperative, we spend a lot of time trying to communicate with our members, be as transparent as possible, and give them some predictability on especially on rates.
So we have, I think several of you attended our annual meeting. We did present on our our rate proposal, our rate case, and some of our plans at that meeting. We've also we have seven different director districts that we have been working through. I think we have, the final one actually coming up this week, but we've held, I believe, five other district meetings the the first few months of this year or the the first eleven months of this year, to reach out to all of the districts. We we usually get, I think, between thirty and fifty members who show up at those meetings,
so we've had some good turnout. And we have presented to them on the rate proposal, indicating that our target was to have rates in place by the the first of the year and that even if we we had pursued and and been efficient in processing the case, but still intended to have them wait until the first of the year. We are foregoing some funds the last couple months of the year, but that's certainly what our board is comfortable with and what they think is best. We did communicate with them on a variety of other topics as well at these meetings. That includes the the the issue of the surcharges, which I I know we'll talk about in a few minutes.
We had, part of the reason we have moved towards the idea of include of eliminating the surcharges and and putting the operational pieces of those programs into our rates was from member feedback. We didn't have any specific surveys, but we certainly have heard from members that they don't like seeing extra additional line items. And throughout this process, we had we had shared that concept, mentioned that during the meetings, and generally received, you know, nodding heads and and and good responses to to that solution. So, again, we we've worked hard.
We've also had, you know, information on our website and as well as other information that we've distributed to the members, but, been trying to communicate with them throughout this process so they they would know what to expect and when to expect it. Thank you. I think it goes without saying we support the the rule as written. We do have concerns about the two amendments, and we're prepared to address those at the appropriate time. Great. Thank you. And we'll go ahead now and turn to well, actually, I see that Autumn Johnson wanted to speak. So, Autumn, are you online? I am, chairman.
Can you hear me? Yeah. We can hear you. Go ahead. Good morning, chairman and commissioners. I'm Autumn Johnson on behalf of the Arizona Solar Energy Industries Association or Eresia. We're party to this matter, and while we did not join the settlement, as judge Madder mentioned, we also do not oppose it. I'd like to start by commenting on the settlement process, a process which is new to many of us as there were many years in which the commission was not pursuing settlements. I have since gone through two settlement processes with two different utilities. I think how TRICO conducted itself during this process fair. That is certainly not the case necessarily with with all utilities,
and so I very much appreciate that. I also appreciate how staff engaged in this process. That being said, ARACY did not join the settlement agreement because we do not support the elimination of net metering for commercial industrial customers, and we do not believe that the record here supports its elimination. Multiple cooperative utilities have moved to eliminate net metering for CNI customers, TRICO included, but their cost of service studies are one-sided. While they thoroughly document all costs associated with net metering, it's a one-sided analysis because they do not similarly include the many benefits of distributed
generation, many of which are articulated in the NARUC manual on distributed energy rate design and compensation, nor do they utilize any other tests such as the basic customer method developed by the regulatory assistance project. ERC agreed to not oppose the settlement because if the commission does move away from CNI net metering, at least in the coop context, TRICO included several components we believe are critical for basic fairness, such as TRICO agreed that their export rate would never fall below the avoided cost. This is a requirement of federal law,
and unlike other cooperatives, Trico easily accommodated this baseline. Trico agreed to grandfather customers already on net metering for the full twenty years the commission has previously required. TRICO agreed to a six month buffer period so that projects in various stages of development can be finished before an abrupt policy change. This provides customers necessary notice as CNI projects can take months to years to complete. TRICO has initiated other innovative programs that modernize its rate design, such as a virtual power plant proposal and a critical peak pricing proposal.
We believe these programs are significant to adopt should the commission move away from C and I net metering. Those dockets have been outstanding since last year, and we hope the commission will expeditiously move forward and approve them. Those docket numbers are 24Dash0122 and 24Dash0271. It's worth noting that TRACO has moved away from the ten year lock in period for RCP because their RCP step down process has reached avoided cost. This is anomalous among the other utilities of which I am familiar and therefore should
not replicated with other cooperatives. ARACY recommends that the commission hold other cooperatives in the future to the standard that TRICO has demonstrated can easily be met. It is possible to work with stakeholders and come up with a reasonable and fair settlement. Thank you, and I'm happy to take any questions. Thank you, Autumn. Don't know where that came from. There we go. Hi. Good morning. So I saw you haven't had a rate case since 2014, and, what we're looking in the revenue requirement is a increase of just under 7%. So I just wanted to acknowledge and thank you for being fiscally prudent that,
you're looking at less than a 1% increase in cost your year after year. And also the reduced rate case expense, that you mentioned, I wanna just kind of acknowledge that and thank you for, finding ways to to cut those costs. My question is on, the block. If if Trico could expand on when you tried the block, if you could give more information about why it was unsuccessful and that you're switching back to this other method. Thank you, mister chair,
vice chair, and commissioner Walden. I think you're referring to the two tier block, volumetric rate. Yeah. And I'll let mister Hawkins explain that. There was testimony in the record about it. Thank you, Mr. Chairman, commissioners. Commissioner, the, I'd say two major reasons that we're moving away from it. One is that I think part of goal of the block was to encourage energy efficiency, and we just really haven't seen that. Honestly, we see some of our lower income members tend to have higher usage in part because they have less efficient homes. And so in a lot of cases,
they are doing their best but maybe not able to control, their usage in some cases and so they end up getting hit with that into that higher block area above, I think, at the 800 kilowatt hours. So, number one reason was it didn't seem to really be serving the purpose of energy efficiency. Number two was that as we tried to add programs and options for other members, there are some limitations in our programming and billing programs that we're being frustrated by the by the the inclining block. And trying to plan for that block and make that work within those other programs,
became a problem. And and in some cases, either was not possible and limited what we could do, or in other cases, it just caused us a lot of additional programming and planning expenses that we wouldn't otherwise have. So given that it wasn't serving the purpose that that that we thought that it had that that it originally had and that it was causing us frustrations, we thought it was best to eliminate. Alright. Thank you. That's all my questions. Commissioner, Marques Peterson. No questions. Thank you. Commissioner or Vice Chair Myers. No. The question I had was already answered, but I do find that the elimination of the the reasonings for the elimination of
the block very interesting, and wondering if we should consider that in the future for other utilities. So Commissioner Lopez? Yeah. Also, I just want to reiterate, Commissioner Walden's statement about staff and and you all, you know, continuing the settlement agreement, reducing the cost to the to the, to the rate payers, streamlining and making it faster. You probably were looking at a January and advertising a January, date, for a rate change because you were expecting this to take a lot longer. So in the end, again, it was it looks like it's a it's a win win for everyone across any in that alignment of of the rate payer and the utility stability,
seemed aligned in the settlement agreement. So, thank you and kudos to staff and and to you all for for coming to the table. And I I just echo my colleague's sentiments. Good job in in in working through this. Thank you, judge Madder, for all you did as well. We'll go ahead and move into, the amendments. We'll start with mine as, I was submitted first, so we always go by submission. So I was looking at the the range of the rate increases the company is requesting and and authorizing the Roo. And I appreciate that there was, some discussion of spreading
Sorry. What's is up there? There he is. Sorry. I was reading the wrong amendment. There we go. So the Thompson proposed amendment would remove the rest in EEDSM program costs from the base rate and would keep them as surcharges. So my amendment does not alter the current funding levels, and I understand why TRICO pursued the route of certainty with the rest and EDSM mandates repeal process underway. But I think it's premature and once these existing, surcharges get folded into base, I think it's a lot harder for the commission to be able to evaluate
those surcharges. And then, to the extent these surcharges are going to remain on customer bills in their current form, I just wanna make sure that we're being as transparent as possible. So for that reason, there's a reason why, I guess, the the charges and local taxes are required to be individualized on your, like, hotel bills and so and so that you can see them and and understand what you're paying for. And so, you know, it's still a surcharge and I think utilities should be transparent and ratepayers should be fully aware of what's being included on their bills and the effect that a lot
of these previously enacted mandates are having on their monthly bills. And so, my amendment requires TRICO to file updated rest and EE DSM plans within the specific timeframes as they were previously exempted from these requirements for the request after repeal proceedings were initiated. And so, that is Thompson Amendment one and I will, turn to, staff for any questions. Chair, vice chair, commissioner, staff does not oppose this amendment.
Happy to explain staff's opinion on putting it into base rates if you wanna hear more, but otherwise just we don't oppose the amendment. Yep. I would love that. I think one of the the considerations for staff is that the majority of the million dollars that we put into base rates is related to the rest. And it's not an upfront incentive. It's not a rebate that is making up those dollar amounts, it is performance based incentives that are contracts that Trico has to abide by. And from from what the company's provided,
those contracts run through 2036, so we're looking at a surcharge being on the bill through 2036 which is certainly feasible. But for staff looking at trying to get rid of the amount of surcharges on the bill, that was kind of the option that we went. Okay. Thank you. And company? Thank you, mister chair. And Trico understands that this has been done in other times. And we looked at it very hard, but we thought what is in the best interest of our members, what does the board think is appropriate. And so we're at the stage of the renewable program.
The DSM program is just a very nominal piece, so we don't even we have a very minor plan. So it's mainly the rest costs that we're talking about. We're at the stage where it's basically ongoing operational costs where overhead from administrative staff and programs like that to manage the ongoing rooftop solar deployment, reviewing plans, inspecting interconnections, a variety of things like that had currently been recovered through the rest surcharge in part. That's really just an operational piece that we think is more appropriate in base rates.
The other piece, as Ms. Palladino indicated, was, the ongoing performance based incentives. These are contracts that start to roll off in 2032. We will be back in for a rate case before that for sure. And, again, these are sort of ongoing operational costs that we think are more easily done in in base rates. Our members think it's it's nice not to have an extra line. We do as well. I would also note that the amount that we're seeking to include in base rates is less, by probably
a 100,000 to $200,000 than we had been collecting through the, the rest surcharge. So again, we think it's a win win for for our members. We think given our unique circumstances, given our member outreach and understanding, given where we are in in the programs, that we putting these operational costs in base rates is more appropriate, and we don't need another line item on the the bill to have to continue to explain to the members. We're not doing anything new or different. This it's in base rates and is covered. So, we we would respectively oppose the amendment.
We don't think it's necessary. We think communication has been made with our members and and is appropriate for TRICO circumstances. Thank you, Mike. Judge, do you have any opinions? Thank you, chair Thompson. I I don't have a lot to add. I when I was thinking about this component of the rue and this issue, because they're not new programs, different programs, they're programs that have been around for a while and and, like, they just stated their contract contractual obligations. At this point, I I was thinking of them more as just sort of more ordinary ongoing expenses
and thus appropriate for, being put in base rates. Also, I think as a cooperative, there are more opportunities to address that transparency concern, than there might be with some of the larger utilities. I suspect that, some of these costs have already been communicated to members, certainly the board, in the outreach that's already been done. And and if there were concerns about transparency and and what this change means, what it's gonna mean for bills, I think the cooperative certainly could be ordered to provide a little bit more information,
to the membership. And there are those opportunities, I think, that are a little better with a cooperative than than another type of, utility. And then also, as, mister Patton mentioned, they they will almost certainly be in for, another rate case before, those contractual obligations expire. Great. We'll go ahead and go to questions commissioner questions starting with commissioner Walden. Thank you. So I think part of the issue for me with putting it in base raises that then there's a return on equity on on it when we put it in the base rate. So I understand,
that people don't wanna see an itemized charge on their bill. I I appreciate that, but I think it you are gonna cost more in the long run by putting it in Race Bay race based than if there's a surcharge. And I understand that, you know, you're supposed to come in for a rate case in three years. If that doesn't happen, because time between last rate cases was a lot longer than three years. So if that doesn't happen then you run the risk of over collecting on on that amount. So I I do support the amendment, the commission has voted to repeal rest and DSM and come back with programs that
don't create cost shifts for rate payers because what we find is you've got a small small group of people that are subsidizing a program that's been paid by everybody, which includes those who can who can least afford it. So I I will be supporting the amendment. Commissioner Marcus Peters. Mister chair, could I just respond briefly to miss commissioner Walden and, again, mister chair, commissioner Walden? Again, the the the cooperative situations does create a a somewhat different circumstance than investor owned utility. Our revenue requirement is not based on a return on equity target or anything like
that. It's designed to create enough cash flow to meet our lender ratio obligations, generate adequate cash flow for operations. It's not a return on on rate based matter. I have to take that comment back. I think you probably understand that. But, also, in our case, if there is an over collection and and we these are just ongoing costs. They're not they're they're an expense, so you don't earn a return on an expense per se. If there is an ongoing over collection per se,
any margins, any profits per se, go back to the members as capital credits. So it doesn't go to a a shareholder, it doesn't go to an investor. The investors in this utility are, in fact, the members. So that I appreciate your concern about that. I think for our situation, these expenses, and the fact we're going to be coming back in for rate case in the next three to four years, should obviate that. And and we would prefer to put these ongoing operational expenses in base rates where we think they belong, take a line item off the the bill,
and continue to communicate with our members as we've been doing. Yeah. No. And I I have to make that correction because I did mention that this will actually go into the would be part of the base rate, so I wanna make that correction. The one of the things that I like about the amendment is having TRICO come back, to to review the program. And it's been really important that, that we have that transparency, that we can see what everything's costing to try to avoid those cost shifts. And I just I know you're saying that you'll come back in for a rate case in three years,
but things happen. And we see, you know, years between rate cases a lot of the times. So I'm I'm not comfortable in saying that we'll we're for sure gonna have a a rate case to address this in three years, but definitely in the the votes that have happened at the commission for repealing these these programs, there's going to be opportunity to, review it very soon and decide if things need to be scaled back or not. And that's really the the main crux of for me of supporting the amendment. Alright.
Thank you, mister chair, commissioner Walden. At this point, with respect to the rest programs, we really don't have any programs per se. It's ongoing monitoring and management of rooftop solar systems that are out there regardless of whether there are programs. And we have the contractual obligations, and and that's it. So there's really nothing new to bring in, and the line items we put in are, reflect those costs. So I understand your concern. I think we are certainly with respect to the rest, we're past new programs and we have not actually if you look at the numbers
and the accounts that are being put into base rates, they don't really cover the the EE programs at all. That's now no surcharge, no cost that's fully attributable to the EE program. So that's why we we took this approach for simplicity's sake. The board thinks it's it's beneficial for the members to do it this way, and, that's that's where where we ended up in in terms of how we approached it. Right. Thank you. No other questions. Commissioner Marcus Peterson. Well, thank you. And and thank you for that those questions and that explanation.
I understand the premise behind the chairman's amendment. I do, though, applaud Trico for your outreach by the districts, to the customers, to the members, and, certainly, the board support for, putting this within base rates. And I'll I'll I'll probably not support this chairman's amendment because I do think that, that discussion makes sense to me. Vice chair Myers. Yeah. I'm a little confused on you said you said that putting it in the base rates would save 1 or $200,000. Can you go into that a little bit more? Yes. Mr. Chair, Mr. Vice Chair,
we went back and looked at what the current rest surcharge would recover and it would recover approximately $1,200,000 of revenue. So that would be that would flow through so it would be approximately $150,000 more than what we are putting into base rates for recovery. So But that would ultimately just go back to the members, that extra 150,000? It it ultimately would, but it's Right. It's it's something on their bill that will increase their their monthly bill by by
a nominal amount. Right. 10 to 15¢ probably. Right. So I I I get your viewpoint. I get commissioner Thompson's viewpoint, especially the transparency aspect. That's that's, you know, fairly important, especially on, you know, hot buttons like this particular one. Is there a is there maybe a compromise for this where we put it in base rates, but there's a, I I I did the same thing, commissioner Walden, base rates. But, maybe put a footnote or something on the back of the bill that says this is how much this program is continually costing,
just so we can have some, I guess, monthly updates of of how much those programs are are contributing to their bill. But then we don't have the line item, so it's front and center, you know, for the we certainly would be happy to do that. And I think the majority of the cost that's related to old programs is, in fact, the the performance based incentives. Right. The other sort of just administrative costs of dealing with, you know, people come in and apply to put rooftop solar on and all that,
that's going to be an ongoing cost Right. Regardless. It's not really a program based cost anymore. It's just the reality of being a utility in Arizona. Right. So it's it wouldn't add a significant amount of work to pull that cost out and you know, I assume it'd be automated in the software or something, right? Mr. Chairman, commissioners, we can certainly message it to members. It might be difficult for us to actually include something like that on the bill itself. Our bill redesign is not always the easiest easiest process, but Right. We could certainly communicate it to member find a way to communicate it to members
and and provide it to the commission as well. Okay. I'm I'm wondering if we might have a modification to do, like, you know, quarterly bill inserts or something that gives that transparency, but then also allows them to keep it in base rates and and, you know, lower the bill by that 10 or 15¢. I guess my counter to that would be if they're already putting the asterisk there anyway and putting the information there, why not just leave the surcharge on the bill? Well, largely, it's a matter of customer preference,
to put it quite bluntly. So it's in lieu of transparency? In in some respects, yes. But again, that's why I I want to keep the transparency by either having the asterisk on the back of the bill or a quarterly bill insert that gives a summary, something along those lines. But it it actually does save the customers money, by putting it in the rate base, then that seems to make some sense too. So I don't know. I'm I'm kinda either way, but just a thought. I I just wanna add, though, I think, because I I appreciate trying to find, like, a a balance between what what your board or customers are saying versus what the
amendment is trying to accomplish. But I do think that, you know, one of the the aims of this amendment is that we can review and reduce the program, sooner than the next rate case. Whereas if we leave it as is, then we're at the mercy of the next rate case to do any kind of changes. It does seem like the residential PV program is growing, and then I think that runs the risk of increasing the amount that is going into into the rest. I think once, you know, once these rules are done, the appeal's done,
then there's gonna be that opportunity to modify all of these programs in in every utility. That overall is going to save money. I think that cost will make up for any 10 to 15¢ addition that there might be from the surcharge because in the in the long run, repealing these programs will save a lot a lot more than that. Well, my my understanding, and correct me if I'm wrong, is that the the program's basically done and gone. This is just the ongoing administrative costs that are gonna be there likely forever at this point because the rooftop solar's there and you still have to administer it somehow.
Right? You can't you can't take the solar panels off the house. So is that a a fair category, you know, categorization of it? Chairman Spitzer, that that's correct and and we're still having rooftop solar deployed in the in the service area too and that requires, you know, reviewing the interconnection Right. Thing, inspecting, But you're not contributing to that anymore. Right. I mean, it's basically just a An administrative cost. An administrative cost that are Okay. Right now, we assign a portion of someone's salary to that thing and it get it flows
through the the rate case. It's really just the basic operational cost that we would have regardless whether any programs out there. Gotcha. Thank you. Commissioner Lopez. Yeah. Since all this discussion kinda already happened, so I again, I came into this, really supporting some men initially because of the transparency. But, again, the reasoning behind why staff, Trico, and, judge Manner, why you did allow it to go into, the the rate base. You have the right base rate? Base rate. Base rate. I'm sorry. Still learning. I I kinda understand the transparency and and,
need for it and why the amendment came forward, which was originally kinda when I, again, saw this was in in full agreement. But after the discussion again, when you talk about members, again, a lot of us have have have to serve a large contingency, of of, constituents as you do. And when you have that feedback that they do like to see this removed from the bill and that be put into, the base rate, I I kinda give that a little more credence and weight also. So, in the end, I I I do like, Vice Shermyer's idea of somehow documenting somewhere,
not not I I know through your member outreach, you do this very regularly that it's it's something that would be able to be, you know, communicated, but something that would be documented, either quarterly or once a year or whatever that this is this is what's going on. I don't see the same concerns that, commissioner Walden had with the changes. It sounds like as you addressed it that this is a set program. Right? There's there's not a lot more programs coming out. There's it's kinda really set, and it's it kinda fire and forget at this point and why you wanna roll it into the to the base rate. So, yeah, if there's some way that that could be just at least documented,
through email, use newsletter, or whatever, you know, that would put me in a lot more ease of, of going and accepting more of the settlement agreement and and not this amendment. Yeah. Thank you, mister chair, Commissioner Lopez. Franco does have a monthly newsletter and mister Hawkins can sort of explain that and perhaps propose how to do an article or two about that. Sure, mister chairman, commissioners. We we do have our monthly Livewire newsletter, that goes out to our members that we use for elections and all of our different notifications. So we could certainly, quarterly, I think was suggested, include a a a article section in that area in in the newsletter where we
would describe what's going on with the programs and what's still k. That's good for me. Thanks for all the questions I had. Great. Yeah. I I don't, you know, I'm kinda torn because I think it's, you know, the I think it's a little bit premature just to strike a surcharge and put it in base rates, you know, because the rest rules have yet to be rebuilt and they're still out there. And so, you know, you still have, solar that you could add.
You know, it's still allowed per the DSM, EE, and rest rules. And so, until if and when the rest rules are actually, eliminated, I think it's, to me, it's imperative to have the transparency, which is why I put this amendment forward. You know, because we're still considering the rest rules to be in place until otherwise decided by this commission. And so, I think it's really premature to start putting, the, you know, the surcharges and so forth into the base rates which is why I put this
amendment forward. And I get that nobody likes it, but for me, it's all about transparency and making sure that we're accounting for that and that the consumers, your members, at the end of the day are very aware of what their costs are, being attributed to on their monthly bills. And so that's why I put this amendment forward. And, Chair Thompson, can I have, more time? Sure. So on page 11 in the docket, because I've, you know, I've heard my colleagues talk about this program's done and it's basically done,
but it does say that, Trico needs to recover costs related to contractually obligated payments of existing performance based incentives and costs related to the review deployment and oversight of distributed generation facilities and the revenue for DSM surcharges. So, you know, we're continuing to collect money over a million dollars for it. So I'm not sure what it means by, like, the program's basically done because there is an additional 1,100,000.0 in revenue that if these rules didn't exist, you wouldn't need to collect that. That's all. I I can respond to that, mister chair, mister Walden. You're correct. There are ongoing
costs that had been flowed through the rest surcharge, you're correct. The $1,200,000 that was in the application, when we went and identified specific accounts that are sort of the ongoing operational and the performance based incentives or a $1,500 or $150,000 reduction. There's there's nothing new. Those contracts for the performance and base incentives were signed back probably ten years ago or longer. And the other costs that are being allocated through the rest charge are the ongoing
costs of sort of managing people who are coming in and putting stuff on their roof. It's not a a rest specific cost anymore. It is a, you know, utility doing business cost. So that was our thinking of it. And, Chairman, I had a follow-up question. Yes. I I wanna ask, Raik, what, what will be the impact to bills if this is put within the, base rate? The the dollar impact? Just one second. K. Yes, mister chair. Commissioner Marquez Lopez. Marquez Marquez Marquez Peterson. Marquez Peterson. You're fine. Sorry. I'm I'm getting confused here.
We did have, our financial consultant run some numbers. And if the dollars are taken out of base rates and moved back to the surcharges, we estimate it would be approximately, for the average customer, which is $9.35 KWH per month, it would increase the rates by 37¢, a month. Or the bill would increase by 30¢ a month over what is in the settlement agreement. So that would be the dollar amount listed as the surcharge, the 37¢ or that's the amount inflating the base rate?
The dollar amount, listed would depend on their usage. Right now the rest surcharge is 0.003. It's actually 0.3¢ basically. There's a maximum There's a cap on the surcharge of a dollar 68 a month. So it could be as high as a dollar 68. But, based on average use, it's gonna be some something less than that. Okay. Thank you. If we if we wait wait until the next rate case, then it's a $1,000,000
subsidy that stays until the next rate case. If the chair's amendment passes, then, Trico will be coming back much sooner to submit a new plan to the commission. There could be an opportunity to eliminate that surcharge altogether, which would be a lot cheaper than waiting till the next rate case. Mister chair, mister Walden, the contractual obligations will remain in place until those contracts expire. Those contracts expire. What about with the program that's growing as your residential rooftop increases?
The there is no direct program costs anymore with respect to the rooftop program. They're basically the indirect cost of if a member decides to put rooftop solar on it. In order for TRICO to make sure that it's done properly, doesn't back feed into the system, doesn't create operational issues, we need to review the plans, review the interconnection. At some point, make sure they've got the permitting that they need from the local governments to put it up there, and then we'll go out and inspect the the interconnection to make sure that it's
done properly, won't back feed into the system, which is a real safety hazard for our members. That has nothing to do with the rest program. It just has to do with the fact that people are still putting rooftop solar on it even though they're getting no incentives or anything else like that. They just have been convinced that it's a a good thing for them to do by the solar community. So those are really the costs that we're we're seeking. Those are gonna be ongoing no matter what. Whether we have no programs, we're gonna still have those those costs. You still have other programs,
though, like your water heater program, for example. Correct? It's not just rooftop solar in in this surcharge. I think there may be a water heater program, but I don't believe there has been a single water heater application, in years, maybe a decade. So that that is a dollar amount that's not not included and would be subsumed with this lower amount of of base rate costs in the event that someone actually came in and sought that. And we certainly would be willing to file something to modify that surcharge
if once the rest rules are taken out. But that that is such a nominal amount that, it it would be I mean, if if it happens, it would be very small. Mike, you you had mentioned, that the monthly cost difference between base rates and the surcharge, that there is a difference there. So since it's been a while since you've come in to, update your arrest and DSM plan and I don't wanna suggest anything but just rather ask, is is then your rest and DSME,
surcharges, are you maybe over collecting, on on that since you haven't been in in a while and there is a cost difference? I I'll let mister Hawkins address that. I don't think that we are. Yeah. Mister chairman, commissioners, I don't believe that we are. I I would say on the DSM program, I believe our last DSM plan we've submitted routinely but I think our last approved plan is from about ten years ago, 2013, I think it may be, so a little over ten years. So, I think,
I I don't think that there's any risk that they were over collecting. I think the DSM budget is somewhere in the $54,000 range, so it's a small amount. And on the rest programs, again, there's there there's essentially not any more rest programs. It's essentially just all operational costs. I so I I don't believe that we are over collecting or there's a risk that we're over collecting. Okay. Thank you. Well, I guess if there okay. Yeah. Not to drag this out any longer, I guess, but, well, first off, it sounds like we need to address some other rules rather than just rest and
EE, but that's a whole side topic. If, let's say, commissioner Thompson's amendment does not pass, would you be amicable to, an amendment that basically says nothing is to be added to rest and EE, which it sounds like you're not gonna do anyway, But this way, we can guarantee it won't. And then also, a requirement to to, do the quarterly bill inserts or whatever magic number we decide we, you know, that is good. Would you be amenable to an amendment like that that seems to solidify what you're already telling us? It's just making sure
Yes. Yes, commissioner. That that would work. Thank you. Okay. That's all I have to think. Okay. And Yeah. I Go ahead. Can you do an amendment like that if the rest the rest plan hasn't been submitted for approval yet? I think that's something that would be done, if your amendment passes, Yes. Just jump in real quick? I saw your I I kept seeing your finger inch forward, so I was I was gonna ask you. I I don't disagree with anything that has been said, and I certainly understand the concerns with the wanting to see what's in a plan
and wanting to know if there's an over collection. With regard to the DSM, again it's a $50,000 a year budget mostly low income weatherization so you could have the company file a new DSM plan and you could review that and see if you wanted to continue spending those dollars. The rest, I do agree with the company, even if they file a new plan you have very limited amount of wiggle room. They are contractual obligations that they have to pay from prior incentives. There aren't any incentives that are happening now.
There's no new payments going out. There is just ongoing expense associated with rooftop solar customers. So a a staff would totally fine if they file a plan. I don't see a lot changing in the rest plan and the rest surcharge after they file a plan. Could we expedite the filing of that or have them expedite it since it's minimal anyway? I know they do it, you know, periodically, but what if we just ask them to do it right away? For rest and DSM? Or Yeah. I mean, basically, give us a new But I think we would have to wait until to see
if and when the rest rules are eliminated. Why? Would we? Because wouldn't that change what they would, submit in their arrest plan? I don't think it would. If they're not doing anything right now anyway and the rest rules have largely expired, as has been noted, you know, does this even affect their filing? I I don't think it would. So for arrest plans, co ops file plans that are targets that they're going to meet. They don't have a specific standard.
Yeah. DSM, like you mentioned, the standard has already expired. Okay. And and, you know, in in looking at this and trying to determine, you know, what's contractually obligated. Right? So there's going to be contracts, especially the the utility scale solar. But just okay. So for example, on page eight in table four, there's administrative expenses of almost $400,000. Oh, oh, decision seven nine four two six so you know what I'm looking at. 79426.
And and so we heard from Trico about you know sending people out for inspections so there's administrative expenses with the residential solar other expenses that are listed in this table that would would fall off once that program is ceased. I think if we're gonna eliminate a cost shift, if that's something that is necessary for residential solar, that that cost would be born by the recipient of the panels and not born by the entire plan. Whereas now this surcharge,
these other expenses, administration staff is shared by everybody who's a customer in the service territory. So I I I still feel like what what we're seeing in this data, like, there's still gonna be surcharges that could be eliminated, in a in a new review and repeal of these programs. I I and I just wanna mention I know it was mentioned a while ago, but kinda reiterate But I I do agree with the chair that I don't think that we should switch something from a surcharge and then put it into into the the base that
is being paid. I think the timing on that's not good. I think it's not a good time to change it, but, and you did mention the administrative expenses. So we can we can go back to that if if you'd like for TRICO. Sure. Mister chairman, commissioners, commissioner Walden, yeah, really, all I would say is that we I don't think philosophically we're disagreeing with you on on any of this. I think we just right now, the rest program is essentially whether we want them to put solar on or not. If they do, there are certain costs that we then need to incur to make sure that it's
safe for our system, properly connected to our system and and working. So that that's really what's included in the current rest program besides the existing contractual obligations that, again, we are contractually bound to pay one way or the other. So I we we don't disagree with the with the approach that the commission is taking. I guess we're just at this point, we really don't have rest programs or incentives that we would be wanting to provide. Sure. Can I ask a question? Clarity. Go ahead. So what what commissioner Walden, what you're asking about,
so and and just to get clarity between staff, Trico, because she's mentioning in that and and you do mention the administrative overhead for a new customer coming in with solar. There's a certain expense that's gonna have to be born. But I think what commissioner Rollins kinda hitting at that that expense be born by the individual resident and not by the whole company. But are there other utilities either yourself know of and or staff that that that overhead of doing the engineering evaluation of any new solar coming onto, circuit is born solely by the one coming in or is that not rationalized as,
again, operational expense, for the company? Hope I asked that question correctly. I think so. I that was my question. So yes. Mister chair, commissioner Lopez, we're not aware of any of those. Obviously, every member may have a certain specific need. There there may be, you know, things that are attributable to a particular member and it's hard to parse those things out. So That's kind of the levelizing that happens within a large area. Again, you're gonna have some, like, in higher usage, lower usage. So that's kinda why, again, most companies would adopt that as a an overall,
again, base rate. Right? So staff, any other inputs on that? Thank you. Okay. Well, I will go ahead and put my amendment forward. So chair Myers vice chair Myers? Yes. So I move, Thompson number one be approved. Let me go ahead and cast your votes. Thanks, guys. This is a really tough one, because I see both sides of this equation. So I'm gonna I think for the time being, I'm gonna go ahead and vote yes on this, but with the explanation that, you know, I I I think it probably you know, these operational costs probably should be rolled into rate base,
in the future. And, you know, I I get the point that my colleagues are all making and and and like I said, I just find it to be a a little bit of a tough decision. So I'm gonna go with this one for the time being. But, in the future, you know, I expect, especially if the rest of the rules go away, that that this whole thing kinda goes away. And, so that that's it. Thank you. Okay. And with that, Thompson one passes three to two. So I will now turn to, commissioner Walden for her amendment. So this amendment is to keep the rate case expenses as a surcharge mechanism to
ensure that we do not over collect should you not come in for a rate case within the three years that's in that's anticipated. So simply, we're removing it from base rates and and keeping it making it a surcharge that will fall off when it's paid off. Okay. We'll go ahead and move to questions company. Thank you, Mr. Chair. We would respectfully oppose this amendment as well. We understand the concept and certainly, if there's a larger amount, with an investor owned utility who would make profits from over collection and I certainly
see the point. Looking at the $50,000 a year, if you do it on a per member basis, that's going to be less than $0.08 a month on the line item. And it's just one more thing that we'll have to put on the bill administratively and explain to the members what it is. We do anticipate coming in for a rate case. We have a lot of capital expenditures coming as mission's aware of the some of the generation solar and and battery stuff that we're looking at. And in the event that it's not three years but maybe four
years, any excess collection inures back to the members. It doesn't go to an investor. And it's frankly, it's a nominal amount, and we think it's appropriate just to keep it in base rates at this point, not out of line to the bill and treat it the way that the settlement agreement has done so. Great. Thank you. Staff? Chair, vice chair, commissioner, staff does not oppose this amendment. Judge? Thank you, chair Thompson. I I don't really have much to add other than to say it is a relatively low expense,
in comparison to their overall annual expenses and that the if placed in a surcharge would be a very low amount, like, I think a little over 8¢ a month per customer. So given that the given the nominal nominal amount and the interest from the membership and lowering the number of line line items on their bill. That's why the Roo did not contemplate a rate case expense or charge. Great. Thank you. We'll go to commissioner questions now,
and I'm guessing, commissioner Walden, you don't have any questions for yourself? I do not. Now I'll move on to commissioner Marquez Peterson. Yeah. Thank you. Question for Trico. So in you in your conversations during member meetings regarding surcharges, was it general they dislike surcharges and that's what your board ultimately supported? Or was there specific specificity to rate case expense? Mister chairman, commissioners, there was not specificity as to rate case expense. We weren't we weren't foreseeing that that would be be an issue. We have just generally over the years really heard grumbling that,
you know, extra line items and extra surcharges just give us one rate is usually the the comment that we hear from members. So that that's the aim that we're having. Okay. And at the $50,000 a year expense, that equates to, I think I just heard, 8¢ per month on the customer bills likely. Is that correct? Yes, commissioner. It's about it would be about 8¢. And and as we I I was just going to add as well that in terms of membership equity capital credits, I mean, any any overs that we have would go back to members and just providing some context on that.
This will be our sixteenth year in a row of paying back membership equity. I actually don't think we've announced it yet, but you'll first to know. So it'll be $3,000,000 this year and 33 out of the last thirty five years. So we we do consistently make sure that anything that is, an overage does get paid back to our members. So, I mean, I fully support transparency, and I've struggled myself with all the surcharges and people bringing out their bills saying, what are are all these line items? But I think in this case, this would this is not something I would support. I think because it's coming out at 8¢ a month,
it is rate case expense that is expected, and the over collection is handled differently in this nonprofit coop situation. So I I won't be supporting the amendment. Vice chair Myers. The only thing I can add is that, you know, we typically do surcharges, for rate case expenses. So, I'll probably be supporting this one. Commissioner Lopez. Can I ask what was done in the past in the previous rate case? Was it rolled into base rate or was it also surcharge? And that was a larger amount. Sounds like this one is lower than previous. So Thank you, mister mister chair,
commissioner Lopez. It was part of base rates. It was a significantly larger amount because there were some very controversial issues in it that spent a lot of time on it. But the the rate case surcharge is actually a relatively new phenomenon, having watched rate cases for longer than I care to admit. Mhmm. So I do understand the concept. I think it's it's actually a good one for investor owned utilities where that extra revenue's gonna get siphoned off away from the customers. Here, we don't have that situation, and we just think given the nominal amount,
given that we were able to do this very cost efficiently, we think, we would just prefer not to have another line on the bill. Okay. Thank you. And I I agree with, I I with vice chair Myers. I I think it's something that we've always allowed in the past, and I I think transparency is always a good thing even if it's 8¢ because 8¢ plus another 8¢ plus another 8¢ ends up being almost a quarter. And so, I think anytime that we can, be transparent and allow the consumers to see what their what their true actual costs
are and what is, you know, what the what their cost is made of, I think it's always a good thing. So I'll be supporting, Walden number one. If there's no other questions, vice chair Myers. Yes. I move, Walden one be adopted. Go ahead and cast your books. And Walden one passes three to two, with Commissioner Marquez Peterson, Commissioner Lopez voting nay. Vice Chair Myers, please move the item as amended. And now I move item number one as amended for adoption. And item number one passes five-zero as amended.
And now I will move item number three for discussion. Mr. Chair, thank you very much. Mr. Hawkins, just Yeah, we just wanted to say thank you to staff and the the administrative hearing judge, the commission, being able to process this smoothly and quickly for a lower cost is very much appreciated by TRICO, our our members as well. So thank you very much and for your consideration today as well. Well, thank you. And I just wanna, echo comments that were made earlier. So thank you for your, for delaying the increase effective date.
I wish, you know, you're foregoing some revenue by doing that and I think that, or I wish that other utilities would recognize that and would take that into account as well. So thank you for what you've done as well. Thank you. Okay. So moving to item number three which is Kilo Development. Doing business as Bradshaw Mountain View Water Company. So we are changing of the guard real quick. K. We'll go ahead and and hear from our ALJ. Yvette, I can see you, but I can't hear you. So, JKenzie, I believe you may be muted.
It doesn't look like she's muted, but there might be another double mute. Double mute. Secret double mute. Yeah. Nope. I see Michael working feverishly to figure it out. That's interesting. I hear that other people can hear Yvette on the Webex. Oh. But we can't. Other people can hear her? Sarah, who's on the Webex, says she can hear you back. Sounds like our broadcast team's got some work to do. Can you hear me at this point? I can. Yay. That's Alright. Technology. Please please proceed, judge Kinsey. Thank you. Great when it works and great and not so great when it doesn't.
Good morning. Chairman Thompson and vice chair Myers and commissioners. This is Yvette Kinsey on behalf of the hearing division. On 09/25/2025, Kilo Development Corp, DBA Brad Shaw Mountain View Water Company, filed an emergency rate application requesting approval of an emergency rate surcharge and an emergency water augmentation tariff. Bradshaw is a Class d utility providing potable water service to an area located approximately
three miles northwest of the town of Cortez Junction near the interstate intersection of US Highway 69 and Interstate 17 in Yavapai County. Bradshaw's president, mister Steve Stuart McClain, owns Bradshaw and Homeboat Water Company, another public service the company's current rates and charges were approved in commission decision 75926 on 01/13/2017.
Bradshaw's application requests approval of an emergency rate charge to collect 7,920 approval of an emergency water request for an emergency rate surcharge stems from additional expenses it incurred to haul water during the summer months when demand outpaced the company's water system production. Staff reviewed the company's water hauling costs and found them to be reasonable. Staff recommends, among other things, approval of the emergency rate surcharge and that the company file a full rate case by 10/31/2026.
The company does not oppose staff's recommendations, and no exceptions have been filed. The Root adopts staff's recommendations in this matter. Thank you, judge. We'll go ahead now and hear from staff. Good morning, mister chair, vice chair, commissioners. Burton Baxter for staff. Staff supports the rue as written and is available for any questions. Thank you. We'll now hear from the company. Good morning, commissioners. We have no questions this time unless you need me to answer anything. Okay. Great. Thank you. We'll move to, commissioner questions starting with commissioner Walden. I I don't have any questions.
I understand the the surcharge, and then I'm glad to see that you're required to file a rate case no later than October 2026. I I do just kind of wanna admonish the water companies that are small that can, qualify for ombudsman assistance that they take advantage of that. The last rate case was 2017, and it's much better for the customers to not go in such a length of time between rate cases. K. Thank you. And, commissioner Marcus Peterson? No. Thank thank you to mister McClain for coming today. It's good for us to to meet face to face,
I think, with our our utilities no matter the size. So I appreciate you being here in person. And thank you to our, small water ombudsman team that is working with the companies. It is vitally important, and we need to try to reach every one of them. I don't don't have any questions, but also glad to see that you are coming in for a rate case, next year. I assume the small water ombudsman team will be assisting, I guess, mister Baxter. Is that the case? Or Mister chair, vice chair, commissioner Marquez Peterson, we are available to assist, but mister McClain might have other plans.
Okay. And, mister McClain, are you already preparing for your rate case? Yes, mister commissioner. We, we've started the process in doing the rate case as well. We'll have it in before the allotted time. Wonderful. Thank you very much. Thank you. Vice chair Myers? Yeah. No questions for me. I just wanna, kinda drive home the point that I I hope other water companies come in before this these emergencies happen. So, you know, if you haven't come in for a long time, now's a good time. Thank you. Commissioner Lopez? Yeah. The only question is more historical in that, you know, if if there were,
issues in past summers of having to do water hauling previously? Yes, commissioner Lopez. Three years ago, we no. We have never had to haul water before. Three years ago, we went into a stage two, restriction, and we were able to get through the season. Kylo Development is situated in a water shed, areas. We don't have a aquifer underneath us. We're a 100% reliant on winter storms and summer monsoons. So coming off the heels of a three years of no monsoons and no winter, it really affected us. Okay. And and well, since you got a rate case coming,
I think one of the questions that's gonna come up is, you know, what what the plans are to mitigate the future of, does it seem like we're getting any wetter, you know, any year, any time coming? So, so freeze your consideration again in your rate rate case on what what's gonna be evaluated for, you know, to prevent the need for hauling again in 2026. Yes, commissioner. We're gonna we're working on plans to help us in the future for that as well. Okay. Perfect. Thank you. Thank you. And I don't have any questions. So with that, Vice Chair Myers. I move item number three be approved.
Go ahead and cast your votes. Heck. That was green. Try it again. So item number three, passes five to o. Thank you. Let's take a quick ten minute break if we can just so everybody can stretch a little bit, maybe use the restroom. We'll be we'll reconvene at at, 10:26. Okay. Well, welcome back. We're gonna go ahead and reconvene our meeting. So with that, vice chair Myers. Yes. I move item number two for discussion. Okay. We'll go ahead and hear from the judge. Judge
Martin. Good morning, chairman, vice chairman, commissioners. Belinda Martin on behalf of the hearing division. On 09/16/2024, Cactus State filed a rate application for consolidation of and rate increase Cactus State first rate case before the commission since its acquisition of multiple Arizona Class D and E public water and wastewater companies. The party will be filed a settlement agreement on 07/07/2025. The settlement agreement reflects a consolidation of Cactus State's water systems into two consolidated geographical groups with separate rate schedules,
a north group and a south group. For the rate base for the different groups, parties agreed on original cost rate base for the north group of $3,982,389 for the South Group of $4,912,134 and for the wastewater, dollars $1,511,868 In this settlement agreement, the parties agreed on a hypothetical capital structure of 55% equity, 45% debt and a 6.36%
cost of debt and cost of equity of 9.95%, resulting in weighted average cost of capital of 8.33. The parties agreed to a revenue requirement for the North Group of $1,722,068 for the South Group of $2,329,970 and for the wastewater, dollars 722,117. The parties had also the company had also asked for acquisition premiums from its purchase
of some of these companies, and the parties agreed on a total acquisition premium allowance for the North Group of $1,159,205 and for the South Group of $939,971 The consolidation of the water systems into a North Group and a South Group is reasonable and in the public interest. The Roo finds that the capital structure and cost of debt adopted in the settlement agreement are reasonable and appropriate. The Roo finds that the capital in the settlement agreement are reasonable and appropriate. The Roo finds that a return on equity of 9.8% is reasonable, which with the weighted cost of capital adopted in the settlement results in required rate
of return of 8.25%. That's 8.25%. Section 2.7 of the settlement agreement. The parties agreed that in future general rate cases seeking rate consolidation of either acquired water systems with either the North Group or the South Group, the company will not be required to prepare or submit separate full stand alone rate schedules. The rule rejects 2.7% of the settlement agreement as lacking transparency and ignoring commission rules regarding rate case filings,
allowing the company to abdicate its responsibility to disclose fully the information necessary for both customers and decision makers. There are, several amendments and CACSC has filed exceptions to the room. Thank you, judge. We'll go ahead and hear from staff. Good morning, chair again, mister chair, vice chair, commissioners. Usually, I'm pretty brief in my initial comments, but I thought it might be beneficial for the commission if I shared some quick statistics I pulled together this morning, on the the systems that are in this consolidated application.
Four of the systems are currently operating on their CC and N rates. Seven of these systems had their last rate case in the nineties or older with one being 1965. Seven of them have flat commodity rates, so no inverted three tier structure. Three of them include gallons in the minimum, which we generally don't see very frequently anymore. And I'd like to highlight that Gadsden's current rates are $8 for the monthly base charge and then $1 per thousand gallons for the commodity rates. So I know that there's concerns with rate impact,
rate shock for these systems. For Cactus' exceptions, we joined in those exceptions. We believe that the ROE that was in the settlement agreement is appropriate. It was a negotiated position. There's no risk premium adjustment or any other adjustments. We also believe that the section 2.7, doesn't advocate any. It's the commission's rules on what's required for a rate case filing. Believe me when I say this, this was an extremely complex case for so many d's and e's.
When you're dealing with 26, 27, 28 different sets of schedules, it can very quickly get away from you. Very easy to make mistakes, very easy to lose track in where you're at. So that's why that section 2.7 is one that we believe is beneficial both to the company, to staff, and to rate payers because it will reduce the amount of rate case expense in future rate cases. And at this point in time, we're talking about, by my count, might have a diff slightly different count for Cactus States. 10 systems that are not in this application.
That was due to timing of when they were acquired. So with all that, we appreciate the work that judge Martin did, working with the company and coming to the terms that were in the settlement agreement. We believe it's in the public interest. And with that, I'll be quiet and say we're available for any questions. Thank you, Brett. We'll go ahead now and hear from the company. Good morning, chairman Thompson, vice chair Myers, and commissioners Patrick Black and Caitlin Smith on behalf of Cactus State Utility Operating Company LLC. With us here today is mister Aaron Silas, assistant VP of customer experience and regulatory operations,
and Fred Kreis, Arizona regional director of utility acquisitions and government affairs. While he had hoped to be here in person today, mister Josiah Cox, president and CEO of Cactus State, was not able to make his plane ride here because it was canceled. But I believe he is available, via the Webex, so he will be here to to to answer any questions that you might have. I will begin by thanking all the utilities division staff members assigned to this case as well as administrative law judge Martin for all of their hard work in dealing
with a very complex rate application, which included new and precedent setting issues relating to the Commission's groundbreaking water policies established nearly a decade ago. Today represents an important milestone for Cactus State and the Commission in the common pursuit of improving water and wastewater service for thousands of Arizona residents. Nearly four years ago in late December twenty twenty one, the commission approved Cactus State's first round of asset acquisitions, which included 25 small, non viable water and wastewater systems, pursuant to the policies established in decision numbers 7562675743.
The policies established in these two important commission decisions lay out a roadmap that includes incentives for willing companies like Cactus State to acquire and consolidate small, nonviable water and wastewater systems so that these customers can benefit from the advantages that a large, well capitalized and professionally managed utility brings to the operation and maintenance of systems that, in many cases, could no longer deliver quality or reliable service in the absence of much needed investment. Notably, many of these systems have never been through a modern rate case,
leaving customers with outdated infrastructure and no path to recovery. To build upon Mr. Baxter's, some of his data points, of the 24 water systems included in this application, the average CCNN was issued approximately forty four and a half years ago, with several, 14 of them, over fifty years ago. In fact, a number of these systems had aging compliance conditions meant to coerce them into updating their rates. Of these same 24 water systems, the average number of years since the last rate increase is seventeen point four years.
13 of the systems have not had new rates for fifteen years or more, and seven of these 13 fall into the twenty five year or more category. No other utility provider has taken on the challenge to improve Arizona's infra fractured water and wastewater industry to the degree that Cactus State has. Since its first round of acquisitions in 2021, Cactus State has acquired 10 additional small systems and have an additional five systems pending closing, bringing the total to 40 small communities to be served,
all of which were established to be nonviable systems by the commission except in one case. During these four years, Cactus State has worked diligently to bring many of these systems into regulatory compliance, particularly with ADEQ water quality standards. The company has invested millions of dollars and continues to make system and operational improvements to benefits its customers in both the short and long term at an operating loss of roughly $3,230,000 at the time that this rate was actually filed.
Before you today for approval is a settlement agreement between Cactus State and commission staff that was negotiated after intensive discovery and review. The kind of review that the commission envisioned when approving the deferred debits for each of the acquisitions made by Cactus State that are a part of this proceeding. By settling, all parties avoided substantial rate case expense that the company would otherwise have incurred and sought to recover, which is a direct and immediate benefit to rate payers. The settlement agreement was a result of a compromise by both parties done in a
way that was open, transparent, and inclusive, and resulting in an outcome that is fair to both the company and its customers with the establishment of just and reasonable rates. As noted in the filed exceptions, Cactus State encourages the commission to amend the ROO to approve the settlement agreement in full. Well thought out settlements in complex cases such as this one serve the public interest by providing substantial benefits to customers, the parties, to the rate case, and to the commission. As such, settlements should be supported and encouraged by the commission, not only through policy but also by
commission approval of settlements fairly negotiated as a comprehensive resolution of complex issues. Commissioner Lopez has submitted two proposed amendments to restore the settlement agreement, and Cactus State certainly supports these amendments, and we encourage the commission to adopt them as a means to fairly implement the compromises made by the parties to address the complex issues in this case. For instance, on the issue of consolidation, the company determined that full statewide consolidation was the best means for customers to share in the cost of much needed infrastructure upgrades on a system by system basis.
But in direct response to policy concerns articulated by vice chair Myers in past cases, Cactus State accepted staff's proposed two system consolidation that group similarly situated customers into a northern and southern group under different rate structures. On the issue of deferred debits, the company adopted the recovery percentage amounts proposed by staff in all of the 10 systems that Cactus State is seeking recovery for except one. In that case, the company and staff agreed to a 95% instead of a 90% originally
95% recovery instead of a 90% originally recommended by staff. Additionally, Cactus State is allowed to seek recovery of any deferred debits not recovered or asked for in this proceeding in a future rate proceeding, meaning that incentives will still be in place and continue to drive the company to make the necessary improvements the commission expects in furtherance of its water policy decisions. On cost of capital, the parties agreed to a 9.95% return on equity, which is within the range recommended by both parties' cost of capital witnesses.
The ROE reduces the ROE from 9.95 to nine point zero by rejecting the risk premium adjustment. However, as noted in the joint exceptions filed by Cactus State, the agreed upon 9.9% does not include a risk premium adjustment. On the issue of future rate filings, again, the parties agreed to sections 2.7 of the settlement agreement, which is designed to streamline future cactus state rate proceedings without sacrificing transparency. Not only will section 2.7 make you future filings manageable for both parties, but will also reduce future rate case expense,
which ultimately benefits customers. We therefore ask that the commission also approve, Commissioner Lopez's particular amendment regarding 2.7. Finally, despite the substantial increase, Cactus State and staff believe that the agreed upon revenue requirement produces rates that are just and reasonable. For the majority of the systems included in this proceeding, rates remain static for years, often leading to a lack of investment in new infrastructure, maintenance, and repair. Operations also suffered, making compliance with increasingly stringent environmental health and safety standards more and more difficult for
a small water or wastewater utility owner. Indeed, these are the very scenarios that the commission was looking to address and resolve when issuing its water policy decisions, and Cactus State has invested heavily in Arizona over these past four years to bring customers safe and reliable drinking water and wastewater treatment services that will last into the future. No doubt that future will include the company's continued coordination and cooperation with its regulators, including commission staff and members of ADEQ and ADWR.
With the ongoing challenges facing today's water and wastewater industry, Cactus State's mission is not done. The company continues to seek and acquire small, troubled water and wastewater systems in Arizona, hoping to bring these new customers the benefits of consolidation, managerial and technical expertise, and a well capitalized company ready to make the investments necessary to ensure safe and reliable service. Therefore, approving the settlement agreement is an important step in enabling Cactus State to achieve these shared commission goals, and the company respectfully ask for your support here today.
Thank you. Thank you. We'll go ahead and move now to commissioner questions starting with commissioner Walden. Thank you. And just wanna thank everybody, all the parties involved for your hard work in this case and especially staff. I really appreciated mister Baxter's comments on the the work and the concentration that's involved in trying to look at 26 different systems and do a consolidation. And, leading into that, I just for now, I have some comments and amendments that I'll hold off, but just have some questions about,
the community response to these rate cases. Mister Baxter already noticed one of these systems hasn't had a rate case since 1965. Many of them go back, to the nineteen nineties. So some of these rate increases will be substantial. They'll be much less substantial than if they were were stand alone. I don't think they could be affordable at all. Even with these higher rate increases, it still looks like it it's going to bring the water bill into still a range of affordability. But I was wondering if, Cactus had any comments or feedback on what you saw from the community.
Yeah. Definitely. So Aaron Silas. I'm the assistant vice president over our customer experience department. So, there were some consumer comments made in the docket in the docket from the notice that we sent out about, you know, the increase in average bill. And, really proud to to state that my team, the customer experience team, was able to reach out to all of those customers that that made comments and kind of talk them through kind of the situation, what rates would look like on a a stand alone basis. Prior to filing the case, we also hosted a virtual community meeting for every single service area we serve, to kind of talk about consolidation,
why it's helpful, why it's important. So I think, you know, especially after after some of the initial conversations, the feedback has been, actually really positive from the communities. Obviously, you know, with the bill increases, there there are some negative, comments that that we kind of, talk customers through. But all in all, it's been pretty positive once they understand some of the kind of points that we're making. So thank you for the question, commissioner. Yeah. Thank you for that feedback. I think it's always great to to reach out to people even if it's it's individual. I'm sure many of these customers enjoy having a lower bill,
but didn't realize that they were in a nonviable water system, and and no one was coming to help them. So I I think that's great. You you did that explanation, and hopefully, people can can understand that, obviously, costs go up year over year. And after forty to sixty years, with inflation, those costs are gonna be more substantial than if we had water companies coming in on a regular basis. So I'll hold the rest of my comments for the amendments. Great. Commissioner Marcus Peterson. Yes. Thank you. So I also appreciate the fact that, Cactus has come to the state focusing on nonviable systems.
And I understand the balance that must occur as you make these important improvements, and balance the rate impacts to customers. Also appreciate the discussions and kind of the give and take that occurred in the settlement agreement for all the the different folks. Thank you to mister Baxter and his team and the utilities division staff on focusing on the small water utilities. You know, know, when I first joined the commission, we had close to 70 that hadn't had a rate case in more than twenty years, and you've got a good chunk of them in this rate case here. So we really do appreciate and and hope that you'll continue that, interest in Arizona as you continue to grow.
My question is similar to commissioner Walden. I read one of the comments. I think it came from the Yuma area, and thank you for the map. I think our staff put together that shows where all your different utilities, that you've acquired are. But this customer in particular talked about a reasonable time line for improvement. So I guess a little more direct question on what communication did you specifically have with customers about the timeliness, doing it all at once, spreading it out over time, gradual impact, or or what conversations did you have? Yeah. That that's a great question, commissioner. Thank you. We, with every acquisition, send a welcome letter,
to every community that we acquire. And on the back of that welcome letter, we put what's called the state of your facility. Right? And that's really what we try to use to educate our customers as best we can. And so on the back of that welcome letter, it kind of details what type of facility it is, the deficiencies that we see, why it's marked nonviable, etcetera, and gives kind of not a specific, you know, one, two, three year, but it does walk through that for larger projects, for for larger deficiencies, we have to go through processes with ADQ. We have to get permits approved.
We have to bid things out and and get, you know, get bids before we can even begin construction. So we do our best to walk our customers through that these improvements are not done overnight. On top of that, we do, e blasts whenever large construction projects are completed and annual community updates for those customers who don't have, email or text. So what that means is that annual community update is a hard copy letter that we mail to every single resident, and they differ by community. Right? So it talks about what we've done in that community to date.
It talks about what our future plans are and how long that's gonna take. So we do a lot of different, methods to try and educate our customers as best we can on timing and the investment going on in their specific communities. Very good. Thank you. I also understand as you move forward on acquisitions, each or mister Cox or Fred have certainly headed out to the different parts of Arizona and had negotiations with different small water owners, small water utility owners. But one that was kind of an anomaly as I looked through your paperwork was Harrisburg, which, had an acquisition premium of over $800,000.
Can you talk about that, please? Please? And why that was different, I guess, than so many of the others. Yeah. I can I can let Fred chat a little bit about this, but Harrisburg in particular Or Yes, Josiah? Go go ahead. I could I could take that one because I was part of that one. Great. Thank you. Commissioners, I apologize for not making it today in person. I was, stranded. The government shutdown finally affected me personally, so I I apologize again for not being there. Yeah. I I I think, commissioner, the answer to that question is twofold. You know, one, it was actually a larger system in terms of total amount of customers,
you know, which helps from a a, a cost of service standpoint. So, you know, one, it was more valuable because it was a larger service area. Two, that owner had you know, even though he really couldn't prove a lot of the investments he made, he definitely was pulling more cash out of that system. So it's a little bit more of a a negotiation with that particular owner than it was with some of the other ones because he wasn't feeling the regulatory pressure, I would say, nearly as keenly as some of the other owners we had. So we looked at it as a company. One, we could look at the valuation and tell that we were still underpaying from our
perspective from a depreciated net original cost standpoint is what we kinda look at that. And then two, we knew it'd be beneficial for customers across the state in terms of lowering operating costs because the size of the system compared to some of the smaller systems we buy. Yeah. And thank you, Josiah, for for dialing in. Sorry. We're stranded in the airport. But, looking at the map, it's interesting even your strategy of acquisition and and what you've acquired, there's no con like, what's the word? I guess, contingent locations or or those located next to each other, you're you're kind of all over the place.
Is it just based on then, nonviable facilities in the state of Arizona, or how are you managing this geographic spread, I guess, in utilities? Yeah. I get two questions here, commissioner. So one, you know, how are we selecting the targets? We are not we are buying distressed utilities. So we're going approaching owners who don't have the technical managerial or financial ability to continue to run water utility as you've heard from all the parties today. So that's our focus on acquisitions. So, no, we are not in fact, I would say that's what separated us from a lot of the other water companies in the state. The reason why they haven't bought these small disperse utilities is because they're not in
adjacent areas, and so they are harder to manage by, you know, just by that fact alone. So I think that does separate us from the other utilities that are working in your state, and that's why these utilities have been Orphan for such a long period of time. Two, in terms of how we're managing these disparate utilities, I mean, I would say it's a particular skill set that we've developed as a company. So we own about a thousand utilities now across 11 states. So I think we've built a particular set of expertise in terms of doing remote monitoring, having, you know, all our infrastructure asset management live in the cloud,
you know, having detailed GIS maps that never existed for these systems before we took ownership. So we do targeted investments, and we can send personnel on a proactive basis rather than, rather than having someone live in the area, which would be much more expensive from a a customer standpoint. So I believe that we've really, as a company, focused on being able to run these things in an efficient manner to provide safe reliable service. Very interesting. Thank you. And question for our administrative law judge then. Just wanted to, I guess, better understand why you didn't accept all the provisions of the settlement agreement,
in your final rule. If you could speak to that more, please. First of all, if I may, go address the, return on equity question. The staff and the company have said, well, the risk adjustment was not part of the settlement negotiations. I was not there. I don't know what the negotiations were. Then we can't discuss them. What I did know, and still do know, is that in the pre filed testimony, that was part of discussion and that 1.5% risk adjustment was part of the range of returns on equity.
That's what I knew. I also knew that staff's original testimony said, we don't agree with this business adjustment. This one. But rather than pulling it all out because I disagree that or rather I agree with SAS's original position that it should not be permitted, the risk adjustment, I just said, let's take out 15 basis points, that's all, move it down to 9.8, which is more in the range of what the commission's recent decisions have been, and which resulted in a very minimal change in rates, you know, 30¢ range,
60¢ range. That was it. But because I don't know what went on with settlement negotiations, I don't know. What I don't know, I don't know. And if I don't know it, I can't ask about it. But I just felt that we should make a point that in this instance, where the company is getting a lot of acquisition premium money and they're also not a poor distressed company, they have resources to pull upon, that that that risk adjustment should be pulled out. But again, I did not pull out the entire bit. I just pulled out a small bit to put it more in line with what
other commission decisions lately have approved. That's on that one. So Okay. And then the second portion The 2.7? Yes, please. Earlier this morning, in one of the other items, the commission was talking a lot about transparency. I do, having been with the commission for seventeen years, I do understand staff's burden. I completely get it. But we have the rules for a reason so that we can say to people, we've looked at all of the information and we believe that this is reasonable and in the public interest to accept x y and b x y and z or
change x y and z. Allowing the company initially, allowing allowing the company to say, well, these are the only schedules that we really need. You know, we don't usually use schedule f, so we could do it. Okay. Great. And staff would look at it and say, well, no. I don't but as the judge, again, I don't know what I don't know. And if I don't know what I can't ask about it. I don't if I don't see all the numbers, I can't make a decision about it. And I don't think that that's transparent for me or for the commission or for me to be able to write a rue for the commission and legitimately say, you know, sure,
this is fair. I don't know. So that was my reason behind rejecting 2.7. Other than that, I'm I'm so happy. Believe me. Fully litigating cases are no fun, and I'm very happy about settlement agreement for 90% of it. But just those two things just didn't sit right with me, and that's why I made those decisions. K. Thank you, judge, for that Thank you. Discussion. And wanted to come back to mister Baxter, I guess, from staff. If you could talk to, I guess, section 2.7 and whether that's a burden or what was the what was the reasoning, I guess, behind your support for that?
Sure. Mister chair, vice chair, commissioners, commissioner Marquez Peterson, part of it was what I talked about initially. When you're dealing with 20 plus sets of schedules, we can't presume the commission's gonna agree with consolidation in future rate cases, so we would have to file responsive schedules for on a stand alone basis and if those systems were to be consolidated either into the north or south, depending on where they're located. I understand the judge's concerns. I don't necessarily disagree with her, but haven't been in the trenches myself and helped our staff on this case through
the trenches. And 10 by my count, maybe there's some more, possibly coming down the pipe. One of the recent ones that was just approved was Dateland Water. I'm gonna use them as an example. Eight customers. So to customers. So to have the company file the full sets of schedules for eight customers, us have to analyze those schedules and make recommendations on a stand alone basis just seems like an inefficient use of resources. So that's why that section is helpful to staff, important to staff. If the commission approves the rue as is,
we will make do. We will do what we always do in future cases. Maybe there's a middle ground where the commission today can decide those systems will be consolidated, and then we can identify specific schedules that would be helpful when they file to bring those systems into the fold. Like, the a, b's, and c's, I think, would be helpful. H's, we already agreed are necessary because those are the billing determinants and the current rates and what the new rates would be. So we understand the judge's concerns don't necessarily agree.
It would help us out from an efficiency standpoint if that if commissioner Lopez's amendment were to pass, but maybe there's a middle ground that could be reached. K. Thank you. And and, mister Baxter, can you also speak to the risk adjustment comments that were made? Sure. It's, mister chair, vice chair, commissioners, commissioner Marquez Peterson. Judge Martin's correct. In the company's original, application, there was a risk adjustment included, and we did not believe it was appropriate to incorporate that or for the commission to accept it. I'll I'll dance carefully. Lawyers can poke me if I'm treading into areas I shouldn't go into.
When we I'll speak generally first. So when we're having settlement discussions, we are cognizant of recent commission decisions to on on the ROE, we know where the commission is is making their decisions. So part of it is perhaps timing of where the commission was trending at the time we were having these discussions. Part of it is, mister Black's correct, this is within the range that is on the record between the parties. If memory serves me right, I believe our original recommendation was 9.75.
So it's between the company's proposal and our recommended proposal. So, again, a negotiated position that's somewhere in the middle. So, hopefully, that addresses your question, commissioner. Did. Thank you. And I guess the voice that we're not hearing because we're past that and the acquisitions have occurred is the voice of all the small water utility owners. And I'm looking to you, mister Baxter. Any feedback or input you wanna provide from that perspective? Sure. So mister chair, vice chair, commissioners, commissioner Marquez Peterson, I at one point did the count. I don't remember what it is anymore because there's been a lot of numbers floating
since then. A handful of these systems, the ombudsman either assisted at one point, was assisting, or attempted to assist. I was thinking about bringing it up. I think I will. In terms of infrastructure improvements, I don't know that some of these customers knew the state of the facilities that were existing at the time Cactus acquired it. I don't know if any of the offices have seen the pictures, but we've seen the pictures of the garbage can as a chlorinator. Very alarming. And and Cactus has come in and made the necessary improvements or is making the
necessary improvements to bring them up into compliance with the Safe Drinking Water Act. And having dealt with a large number of small utility owners, I think they struggle with the capital. They are afraid of the commission. They don't wanna come to the commission. I I try to tell them you all aren't as bad as maybe the perception is, that your focus really is to try to help them. And that's why the ombudsman was created to to guide them through the process and to help them understand. Yeah. It might hurt a little bit,
especially that first time you come in if it's been since the sixties, but it's necessary. You need current rates to be able to provide quality service to your customers. And I think Cactus has done a great job in coming in and trying to do that to communicating with the communities that they're entering into, what their plan is, what their goal is. And that as painful as it was to go through this process to analyze 24 different systems at once, I think it'll help not only show support for the commission's policies from 2016,
jurisdiction in terms jurisdiction in terms of individual rate making perspective. Cactus is bringing the expertise. Otherwise, the commission wouldn't have approved the 35 or 40 different acquisitions that they've had. I've rambled for a bit, so hopefully, I addressed the question. But I I think from and I'm not a small utility owner. I would never be a small utility owner. Mhmm. Never, commissioner Lopez. And I've been offered a system, and I wasn't I'm good. I think and to kinda backtrack to to your one of your first questions,
yes, they're spread all throughout this the state. And I think part of it is a willing seller. Right? So Cactus can only acquire the systems that somebody's willing to sell them. So that's part of it. But a lot of these were super small systems, troubled systems. Part of the acquisitions, it was a contingency plan. Right? Who's gonna continue to operate these? A lot of these, the parent put the infrastructure in, built the company, and then passed away, and then the kids were, I don't wanna do this. You know, I'm a lawyer. I'm a doctor.
I'm I'm not a water operator. So I think a lot of these systems fell into that category, and that's why we're starting to see the next generation not wanting to do this. And the current generation recognizing that the next generation doesn't wanna be in the business and are planning reaching out to the ombudsman. We're putting them in touch with entities like Cactus, and there's a few other players that might be entering into the arena. So, again, sorry I rambled there a bit, but, hopefully No. That's fine. The question. Thank you very much.
I appreciate all those comments. And no further questions. Yeah, I hope your comments about not owning the water company isn't because you don't wanna deal with your ombudsman. That would be a little weird. No. Actually, for staff, there was a section in there that, talked about the the number of complaints, against Cactus Utilities, and it it varied pretty significantly. Can you compare that to before Cactus took over? Mister chair, vice chair, commissioners, I don't know that we necessarily did an analysis of kind of a pre and post Cactus State ownership, so I wouldn't be able to share those numbers sitting here today.
I've been it's something we could probably pull together and provide to your office later. I think my answer would be it kinda depends. Certain of these communities have more engagement from their customers, so they're paying attention. Some of them I know from experience was a love hate relationship with the owner. One pulled a gun on a customer, so that's kind of the mindset of of some of these prior owners. I imagine Cactus has never pulled a gun on any of the thousands of systems that they own, but that's Arizona. So I I don't have a pre and post vice chair,
but it's probably something that we could pull together if you're interested in this. More work for you. I was mostly just curious, but it does look like CACUS is addressing these complaints, so I'm not overly con concerned about it. It it just was a curiosity. If, you know, assuming we approve this, how often do you guys plan to come in for rate cases? I mean, commissioner, this is just Sycox again. I I would I would tell you, you know, we want we'll we'll have time between rate cases as we onboard new systems and make improvements because one of the things that I hope we've demonstrated in this case
is we waited a number of years after buying these systems before coming in for our first rate case. So we wanted our customers to experience the benefits of reinvestment and professional management, that kind of thing Mhmm. Before we came in and and raised rates on customers. So I would tell you I don't have a plan on that all the way yet, but, you know, as we onboard these every couple years until we get the systems all the way, you know, into full compliance. And, obviously, that's on a continuum continuum that you heard from our, Aaron there in the in the the hearing room as we go through the engineering,
permitting, and construction work. Okay. Thank you. We've kind of been addressing the the the amendments as we went along a little bit, I think. So, just giving my 2¢, you know, I I absolutely love what this company's been doing. I, I have for a long time. I appreciate the fact that you've divided this up, but I also have to balance the, you know, the rate case with the customers. And and, you know, even if it is eight customers, those eight customers would come ask after us with tar and feathers at a certain point. So, you know, I I do appreciate the judge's,
thoughtfulness on, you know, the data that she had and and where these these these decisions came from. So I'm I'm probably going to side with the the ALJ on on both of these rues, and not because I don't appreciate what you guys do. I think you guys do a great job, but it is something we need to have that transparency for as the electeds up here. So, you know, I I I feel for you, but thank you. So that's all I have. Commissioner Lopez. So to to vice chair's, first comment about the, customer action, it would be great,
if you are full historical and it's not an order or a requirement. But, you know, I think for your own tooting of horn and, you know, PR, looking at past complaints or looking, again, evaluations and going forward, what things have gone to and seeing the improvements and seeing the quality improvements and and and putting that out more of a, you know, a urine p no PR notice and and and advising us of that, I think, would go a long way again, for your future, rate cases. Cases. The only question I really have, for the company before we get into amendments is, I I noticed that, again, it talks about,
discussions around a phased approach. Can you elaborate more on because some of these are pretty substantial on, elaborate on why, yeah, you decided not to do a phased approach. I I'm gonna give my boss an opportunity to chime in, but I I I can't okay. I can answer that question. Yeah. Commissioner, I appreciate the question. And, yes, you know, the these can be steep increases, and we've seen similar increases, especially if our system hasn't been in for, you know, thirty years, forty years. Our, you know, our opinion, having done this a number of times, is it is better to rip the Band Aid off in one fell swoop,
right, because customers adjust to those costs, and then you get to a steady state. Because oftentimes with deferral mechanisms and, you know, you know, unpaid return, that actually ends up being more for rate payers than, than the the initial, raise there. And, obviously, there's more improvements we made in these systems. So we're we're really are trying to mitigate final future rates as we go through this whole process. And I would tell you I'm, you know, having done a lot of these across the the the country commissioner that, you know, yes, Is there sometimes an initial,
you know, you know, outcry about rate increases? Sometimes. But what we've seen, and I'm saying 98% of the time, is people actually realize that, hey. There I shouldn't have been paying $88 for forty years. Years. Like, that's not right. You know? And this was coming, and especially when they see some of the improvements we've made. I mean, I obviously, we went through pictures. I mean, think about we've got water pressure tanks that are held together by straps, and you'd tell me it was just crazy, the things we experienced. And I I say that you have you know, every time I think I've seen everything, I go to a place like Arizona,
and I realize they're using, you know, pool, you know, pool queues and crazy stuff to monitor water quality. And then it's really an interesting, you know, phenomenon what people are willing to do to, keep something going. Well, we are a state of innovation in Arizona. I agree. I agree with that. I agree with that. So our experience is, hey. There there can be initial sharp. We've not and we have programs if someone needs, you know, you know, more time to pay their bill, that kind of thing. But what we have seen is people adjust. They understand the rate they're paying is not representative of the true cost of service,
and it gets absorbed very quickly. And prolonging it actually prolongs the people's angst is what I've seen. So when you do a phase in rate, you get two you, you know, you get two outbursts of customers being mad the first time it goes up, and the second time the phase in comes into fact rather than just dealing with all the customer complaints and education in one fell swoop. And I'll I'll add to that just very briefly. Thank you, Josiah. As the, you know, head of our customer experience department, I I see exactly what Josiah is talking about every day. We were recently approved for a a rate increase in Tennessee that was phased in.
And we get customer calls almost daily asking when is phase two hitting, what is it gonna be, you know, what you know, just all these questions and confusion and angst, like Josiah said, from our customers that because of the way the phase in the structured, we don't know the answer to. Right? And so it it really does add from my perspective over the customer experience department a whole lot of anxiety that that isn't necessarily needed for our customers. Okay. Thank you for that. It's the only questions I answer. Great. Thank you. I appreciate,
commissioner Lopez's questions because I was gonna go down that same path. I mean, when I, you know, when I got this and I looked at it, I had a few a few choice words to say, because I think, you know, 300%, spike in in in rates is is crazy, you know, especially, you know, for for really, you know, low income individuals, which is a lot of your customers in this situation would qualify as. And, but, you know, knowing that they haven't come in for multiple decades,
for rate relief tells me that the system is in disrepair and that the customers are going to be so much better off having a professional organization running the water system, and not having boil alerts and water loss, and so forth. And so I I appreciate Josiah's point too that that Cactus has, you know, given a lot of time between, you know, the the acquisition, the construction to let people get used to having proper service from a from a
professional company. And so, but I know that, you know, there's no perfect solution in this situation, you know, when you have a a system that hasn't been in since the sixties. And, so I'll just leave it at that. And, so let's go to amendments. And I know commissioner Lopez has one, but I also know that hearings has an amendment. So I will ask, Vice Chair Myers if he would please move the hearing amendment and we can, hear directly from ALJ. Yes. I, I move that hearing division amendment number one be,
for discussion. Thank you. Ms. Ward. I would note, Chairman, Vice Chairman, Commissioners, I would note that, depending on what happens with Commissioner Lopez's amendments, part of my, or sorry, part of the hearing division's amendment would just need to be pulled out, the second part. Because I do wanna correct Mr. Howard's name from Thomas Matthew though, so I don't wanna pull the whole thing. But, the hearing division amendment relates to the return on equity, wherein the rue I had written 1.5%, which was incorrect. It was 1.5, or sorry, 15 basis points,
and that's what that correction was. And it also explained a little more, clarified a little more as to why I had relied on the issue of risk adjustment to make my decision. And so that's just what that language does there. That that would fall under conforming changes though, wouldn't it? Yes. Perfect. Staff, do you have any questions or concerns? Mister chair, vice chair, we do not. Company? With the with the hearing division amendment as conforming changes? No. We do not. Okay. Questions from commissioner, mister Walden? Or he speak Yes, ma'am.
Mister Lopez? Okay. Vice Chair Myers, would you move Okay. Hearing item number one. I move hearing division amendment number one for adoption. If it stays green this time. And hearing amendment one passes five o. And would you please move, Commissioner Lopez, amendment number one. I move, Lopez revised number one, for discussion. Okay. Go ahead and hear from the judge. Any questions or concerns? I think I addressed this I'm sorry, Commissioner, Vice Chairman. Addressed this with Commissioner Marquez Peterson's question about section 2.7,
regarding just the necessity of transparency. And I would also note though that I didn't mention, there were 26 systems in this case. I think if Cactus State came in with another case that had 26 systems in it, staff would have staff would be profitable. So hopefully they'll be smaller but, but I do understand what staff is saying and I think perhaps Mr. Baxter had a reasonable idea about, you know, once this is done, we can figure out what would work best at that point. Great. Thank you. Mister Baxter. Mister chair, vice chair, commissioners haven't heard the vice chair's comments about transparency.
I and like Judge Martin just indicated, perhaps I don't know if this is an alternative version of a compromise, but and that I don't know if the company will be upset with this. But perhaps we have if this is unsuccessful in passing, an alternative could be to have them file the usual schedules, but have the commission today approve consolidation based off location so that staff and then and if there were subsequent rounds of testimony, it takes the issue of future consolidation off the table.
So that that'd be my only additional comment on commit but we do support commissioner Lopez's amendment. Thank you. Company? Thank you, chairman, vice chairman, Myers. The company, also supports, commissioner Lopez's proposed amendment. I would just add that, you know, we understand why ALJ Martin did what she did. It's it's hard for an ALJ to to, recommend something that may require a waiver. That's certainly within your discretion, maybe not hers, and she felt that way. So we understand why, she did it. And in terms of the transparency arguments,
those are definitely, very good arguments and supportive of removing it. But, again, we think that this is a unique situation. And in addition to supporting commissioner, Lopez's amendment, we are open to any compromise that staff or the commissioners or the ALJ may come up with today. Great. Thank you. And we'll move to commissioner questions starting with commissioner Walden. Thank you. So I do agree with, judge Martin. I think that our ALJs won't be able to rule on a rate schedule and a consolidation to determine if it's fair,
if there's no stand alone to compare it to. I think that for the commissioners that without that stand alone schedule, it will tie our hands. There is a lack of transparency with that I do appreciate it's gonna create there's there's more work in doing that, but we can't have our hands tied. I'm gonna use Stoneman Lake as an example in a standalone it's a 1900% rate increase and that's that's a huge amount they're gonna get a really really high rate increase as it is, but without that standalone we can't justify having that higher rate increase because we wouldn't
know that without it, it would be a 1900% rate increase. So I do think it's a vital part of these consolidations that we can determine what it is on its own versus consolidating if that's fair and reasonable for all the parties involved. So I won't be supporting the amendment. Commissioner Marques Peterson. No questions. Mister Myers. Yeah. I'm not so sure that we actually can approve consolidation ahead of time and and it wasn't even noticed, so I'm not sure that that would even be something we could do today.
But, I I'm not opposed to finding a compromise solution. I don't know if we can do it today, but, you know, feel free to bring ideas. You know, maybe we can do something in between now and when you have to to deal with those 10. But, I I guess, you know, that doesn't really change my my opinion of what we can do today. So Commissioner Lopez, do you have any questions for yourself? Yeah. So well, I just wanted to make a statement. Amendment introductions here. So, and the primary reasoning I'm introducing these two amendments is,
again, to restore the settlement agreement that was negotiated between staff and Cactus State. So my reasoning is that, that as a commission here, we have the empowered our staff to act on our behalf to negotiate, an alignment of adjusted and reasonable utility rate with a rate of return. So this process in no way is abdicating the responsibility or the powers of the commission, but allowing the institution, allowing the institution to use a tool to streamline and reduce the burdensome cost of these rate cases before the commission with the goal of reducing regulatory lag and the
cost of impact to the rate payers of which I know all of us are advocating for. So I also want to ensure all stakeholders, that these settlement agreements are also still reviewed and scrutinized by all commissioners and in no way is going to be a rubber stamp. Just as the AOJ evaluated and reasoned, changes, we also have in the past and will possibly today or in and the future, no doubt, make slight alterations as we saw earlier today, to be prudent and as as each respective commissioner sees fit. So but in this case, in in in interest of continued desire to empower and encourage settlement agreements for the
future, I am proposing these two amendments to restore the structure of the settlement agreement. In addition sorry. Scrolling too quickly. So in addition to giving the settlement agreement its appropriate way, I find that the specific terms of the settlement agreement to be reasonable as well. And agreed upon ROE was negotiated between the parties and did not include the business risk premium and fell between the recommended ranges of both parties of experts at the 9.95. And second, alleviating the burden on staff and parties for the future consider,
consolidations. While consolidating is not guaranteed, 2.7 does help, reduce that rate case expense and regulatory lag, which, again, we all advocate for. So that's the reasoning behind my, amendment. So, again, for amendment one, the purpose of this amendment again is to revise the recommended, order to approve section 2.7 of the settlement agreement filed on 07/07/2005 between Cactus State Utility Operating Company and Commission Utility staff. Thank you. You know, I'm not necessarily sure that I am comfortable eliminating two section 2.7,
filing requirements. I think, you know, the commission has always been supportive of, streamlining processes, trying to make it as easy as we can for the utilities and for our staff. But I think this is such a substantive change that goes beyond, what we would normally say was streamlining. I think this could set the precedent, for other water companies to do the exact same thing. And, you know, to Judge Martin's, you know, statement earlier, she can't ask what she doesn't know.
And I think, there has to be that transparency in place so she does know what to ask because she does know. You know, she had mentioned earlier that there were 26 systems in this rate case. I know there's another 10 that you're looking at as well. I do I know that it it causes a lot of work, to be put on to staff to have to go through all the schedules and everything else. I I just I don't want to do, something on the fly. I would rather that we sit down and and have the conversation and come up with, something that we can utilize on a go forward basis,
You know, policy wise, that would help our utilities when they're wanting to consolidate. But at this moment, I can't support elimination of Section 2.7. So, I'll be voting no on Commissioner Lopez's amendment number one. So with that, vice chair mayors. Alright. I will move Lopez revised number one for, adoption. Okay. Cast your votes. Oops. Sorry. Dang. Yes. I got it. Wait. Wait. Wait. Wait. Wait. Why am I abstaining? Sorry. Lopez amendment number one fails on a four to one vote with Commissioner Lopez voting
aye. I'll go ahead and ask commissioner Lopez to move, Lopez number two. K. So amendment, Lopez amendment number two. The purpose of this amendment is again to revise the remaking order to approve the settlement agreements, capital structure, cost of debt, and ROE filed on 07/07/2025 between Cactus State and the Commission Utility of the nine point nine five. Judge. Excuse me. Gonna croak. Chairman, vice chairman, commissioners. Again, along the category of the statement from staff and from the company was that it was a the the risk adjustment had nothing to do with the with the settlement.
I don't know that I know that. And I'm not saying I'm not saying they're not telling the truth. What I know from evidence that was presented to me was that there was a range and certainly the 9.95 fits in with the range, but there was also a risk adjustment that staff originally disagreed with and that I also disagreed with based on other circumstances. So I just removed a minimal amount to bring the, ROE into accord with more recent other recent commission decisions, moved it down from 9.95 to 9.8
to a very, slight adjustment to, revenues. Great. Steph. Mister chair, vice chair, commissioner, staff supports Commissioner Lopez's second revised amendment two. And we'll hear from the company. Thank you, your honor. The company also supports, proposed amendment number two. I I would just point out that recently, the commission approved a 9.9 ROE for Sarita Water Company, and, they don't face the challenges certainly the Cactus State does. So thank you. And we'll go to commissioner questions starting with commissioner Walden. Thank you.
I I do wanna clarify that with the return cheap capital and sometimes has to have a higher road to attract investors. I just wanna note that Cactus State does not raise its own capital and receives capital infusions from CSWR, thus the company is not an independent company that's responsible for its own debt and equity financing. I do agree with that in my analysis for buying distress systems, there is an acquisition premium that Cactus has that they've chosen to take in in a deferred debit, that makes up for buying the distress systems and wanna add that our water policy
does not have a risk premium. I think given the structure of the company even 9.8 is too high of a row, but it's a settlement and I will agree with that, but I don't agree with raising it. So I am, erring on the side of, not erring, but agreeing, not erring, agreeing with our ALJ in this this matter. I think that 9.8 is more more than fair. Commissioner Marcus Peterson. No questions. Vice chair Myers. No questions. Commissioner Lopez. No questions for myself. Great. Thank you. You know, I I just wanna thank everyone,
you know, for the work you did in the Roo. Judge Martin, you did a phenomenal job with what you had in front of you. You know, this is one of those tricky ones. You know, I agree with Commissioner Walden but I also agree with, with Commissioner Lopez. I feel like Nick right now on the previous, item, where I'm kind of stuck in the middle hoping that I don't push my button last, or maybe I wait for everybody to push their buttons so I can push my button last. And so, I'm still I'm still you know, part of me wants to go down the path of like agreeing with RALJ.
You know, I think, you know, the 9.8 is sufficient. I think that helps you recover your cost in a timely manner that you've invested. And so, I think I'm going to agree with the ALJ on this and I won't be supporting Lopez Amendment number two. Two. Thank you. With that, Vice Chair Myers. Yeah, so I, move, or I move that, Lopez second revised number two be approved. Your votes. And Lopez revised amendment number two,
fails five to one with Commissioner Lopez voting four to one with Commissioner Lopez voting aye. Vice Chair Myers? Yes. And I move item number two as amended for approval. Item number three. Or item number three. Item three. Sorry. Well, no. It's item two. Item two. It is two. It's item two. It's the third item, but it's item number two. Right. And item passes as amended, five o. So So thank you everyone. I also wanna to, add to Britt's comments earlier. You know, we're coming up on Veterans Day so I really appreciate all of our veterans and
all that they've done for us. And, you know, Britt's also a veteran, Air Force veteran. So, fly, fight, win, baby. Thank you. We are adjourned. Thank you.