Alright. It's 10:00. Let's go on the record. Good morning, everyone. This is the time set for the public comment and evidentiary hearing in the matter of the application of Nav Apache Electric Cooperative Inc, an Arizona nonprofit corporation for determination of the current fair value of its utility plant and property, and for the establishment of just and reasonable rates and charges designed to realize a reasonable rate of return on the fair value of its plant and property, and for related approvals. Docket number E01787A240278.
I'm Administrative Law Judge Chris Nichols and I have been assigned to preside over this matter. I'll now take, appearances for the parties beginning with the applicant NEC. Thank you, your honor. Megan Graeple from the law firm Osborne Maladon, for Nat Napopatchy Electric Cooperative. And with me at council table is my colleague Elias Ancharski. Good morning. And for staff. Good morning, your honor. Bridget Humphrey and Robert Reidenour on behalf of staff. Present today is our primary witness, Bernell, Paladino. The, some of the other are present in the back of the room if if you feel you have questions for them, but they're not at counsel tables.
Thank you, and good morning all. Alright. As for procedural issues, I did see that an issues matrix was filed in the docket this morning, so thank you for that. Any of the procedural issues that we need to address before we move on? Miss Grable? No, your honor. Miss Humphrey? From staff. Great. Alright. We'll move on to public comment. So this is the time scheduled for any any member of the public who wishes to do so to come forward and provide comments regarding this matter. Is there anyone in the hearing room today who wishes to provide public comment?
Seeing and hearing none. Do we have anyone on the line who wishes to provide comment? And it would not appear so. Alright. So that concludes our public comment this morning. So that brings us to opening statements. Miss Grable, would NEC like to make a an opening statement this morning? I would. Thank you, your honor. So again, good morning. On behalf of Nav Apache Electric Cooperative, which we refer to as NEC or Nav Apache, I want to thank staff and your honor for the time you've spent on this matter. As you are aware, Nav Apache and staff have worked diligently to prepare a settlement agreement that was the
culmination of open communications and good faith negotiations. Both parties to the settlement kept the lines of communication open throughout the rate case, and worked together to resolve the very limited number of disputed issues between the parties. The result is a settlement agreement that we believe is a fair outcome for Natapatchie staff and Natapatchie's members, and we respectfully request a recommended opinion in order recommending its approval. And just by way of background, NEC is a class a member owned nonprofit rural electric distribution cooperative with its headquarters in Lakeside, Arizona. Nav Apache provides electric service to approximately 44,000
members in its 10,000 square mile service territory, which covers East Central Arizona and West Central New Mexico. Importantly, as a member owned cooperative, profits are returned to members. And as such, NEC does not have any incentive to overinvest in infrastructure or initiate projects that are not not absolutely necessary for the provision of safe and reliable utility services. Thus, Nav Apache does not take lightly the requested rate relief. But demand growth as well as necessary infrastructure investments since the last Larray case, which was in 2018, have substantially increased operating and revenue requirement needs.
For these reasons, as well as others that you will hear from witnesses today, we respectfully request the issuance of a rue approving the settlement agreement. We also ask that you that the rue be issued in time so that the commission can consider this matter in sufficient time for new rates to take effect by 01/01/2026. Napopatchy has two witnesses available today. The first, seated to my right, is mister Josh Adams, chief financial officer for Napopatchy Electric Cooperative. He will provide an overview of the cooperative as well as the settlement agreement, and we do intend to pit put mister Adams on in our direct case.
And second, online for us is miss Rebecca Payne, Navapatchy's regulatory consultant, and she's available to answer any detailed questions your honor may have about the rate case schedules or revenue requirement calculation, but we do not intend to present her as part of our direct case unless you have questions. We therefore look forward to participating in this hearing, and thank you again for your time. Thank you, miss Graebel. Miss Humphrey, would staff like to make an opening statement as well? Hopefully, your honor. Staff would also thank Manab Apache for the for its efforts in this case. This was a very smooth process. As typical is typical with with, settlement agreements and settlement conferences.
The lines of communication were open, and, both parties had a reasonable opportunity to present their their version of of of facts and events in this case. And, as you may have noted from the issues matrix that was filed, virtually all of staff's recommendations were accepted by the company. As a result, staff believes that the, that the settlement agreement in this case is just fair and reasonable and in the interest of the both the customers and the public generally. And we do support the settlement agreement and request that your honor, enter adopt that as part of your rue and and and part of the decision
in this case. As I said earlier, miss Palladino will be our witness. We do have other witnesses to, answer any questions you may have. I would note that staff witness Adam Beckerman is out today and but we do have a a person from engineering who can, provide answers to questions if you have any. Thank you. Thank you, miss Humphrey. Alright. Missus Grable, is mister Adams ready to Yes. Thank you. Connor. Mister Adams, will you take the witness stand? Good morning, mister Adams. Good morning. Will you please state your name and business address for the record?
Yes. Josh Adams. 1875 West Commerce Drive, Lakeside, Arizona 85929. By whom are you employed and in what capacity? Napopatch Electric Cooperative, and I'm the chief financial officer. Do you have in front of you a book of exhibits Yes. That are from Napopatchie? Yes. Correct. Will you please turn to exhibit NEC one? Okay. Please identify that document for the record. This is the rate application including testimony and supporting schedules. And the testimony that is included is, from yourself as well as our consultant, Rebecca Payton. Correct?
Yes. Was that rate application prepared by you or under your direction and control? Yes. Do you have any corrections or modifications you would like to make to exhibit NEC one? No. And if you'd please turn to exhibit NEC two. Is exhibit NEC two the confirmation that the cooperative provided notice of the rate application as required by his honors 02/21/2025 procedural order? Yes. Notice was mailed to all customers on 03/21/2025. The notice has been up uploaded to NEC's website on March 20,
2025. Additionally, the notice was published in the White Mountain Independent, a newspaper in circulation, in the affected service area on March 2025. Thank you. And if you please turn to exhibit NEC three and identify that document for the record. That is the settlement agreement. Thank you. And exhibit NEC four is an updated settlement agreement. Correct? That's correct. What is the difference between the updated settlement agreement contained in NEC four and the settlement agreement in NEC three?
Clerical updates on the table of contents. So there's no substantive change. We just made some administrative corrections. Correct? That's correct. Were you involved in the development of the settlement agreement? Yes. I was. And was commission staff also involved in the preparation of the settlement agreement? Yes. Do you believe that the provisions of the agreement, including the proposed rates, are the result of a compromise between NEC and staff? Yes. And did you file written testimony in support of the settlement agreement? Yes. Is a copy of that testimony marked as exhibit NEC five? Yes. And do you have any corrections or modifications to exhibit NEC five?
No. I don't. Alright. Thank you. And and your honor, we did stipulate to the admission of the exhibits. Do you still want me to move them? Or are we Sure. Why not? Thank you. I would like to move then for the admission of exhibits NEC one through five. And, miss Humphrey, I presume we have no objection. Alright. NEC one through NEC five are hereby admitted. Thank you. Mister Adams, will you please briefly describe the settlement agreement? Yes. We met with staff. They had some, adjustments regarding, some of the base rate, areas. NEC did approve, agree with them, and we agree agreed to, to those adjustments.
We did have discussions regarding the classifications of some radio and computer equipment. We did agree to go ahead and accept those adjustments to the rate, but we did stipulate that we would continue to follow our board policy regarding capitalization thresholds of $2,500. Additionally, we also had conversations regarding tracking, detailed tracking of contributions in aid of construction. We did have some discussions regarding that and we agreed that going forward NEC would provide an estimated annual line extension to staff in future rate cases.
Thank you. Do you believe that it would be in the public interest for the commission to approve the settlement agreement? Yes. Were you involved in the development of the settlement agreement and supporting schedules? Yes. And what is the overall impact to the revenue requirement that results from the settlement agreement? Navapati shall receive a revenue requirement of $67,460,002.20, which is an increase of $5,078,004.19 or approximately 8.14% over adjusted test year revenue. Thank you. And the cooperative is requesting that the rates proposed in the agreement take effect no
later than 01/01/2026. Correct? Yes. So to clarify, do we need those new rates to apply to bills rendered on or after January 1? Yes. Okay. Thank you. Do you have any other testimony you would like to make today? Just like to thank staff for their time and effort, your honor for for being here and, of course, ALJ for, all your efforts. I turn the witness over for cross examination. I don't have any questions. Oh, I have no questions with this witness. I'll jump in. Good morning, mister Adams. Good morning. I just have a few questions. They are, rate design related, but, I I'm confident you can you can handle them,
so we don't have to bother miss Payne. If you could turn to exhibit NEC one at base number, Navapai Navapace 303. It's part of schedule h three point zero. Can you repeat the page, please, your honor? It's, at the bottom right, it's Bates labeled Nav Apache 303. Sorry. I'm having a hard time finding it. Sorry. No problem. Would you like mister Ancharski to help you? It'd be great. Oh, god. Okay. Yes. If you look towards the bottom, it has, it has rates for commercial and industrial service above,
above 50 kilovolt amperes. There are separate rates for, primary service versus secondary service. Could you clarify the difference between those two? Yeah. I'm sorry your honor. I I don't know that that I can do that. That might be a, a question for miss Payne. No problem. Well since I'm gonna have to drag, miss Payne up here anyway, I think I'll save my other questions for her. So I don't have any additional questions of mister Adams. Miss Graebel, any additional questions from NEC? No. Thank you, your honor. Miss Humphrey? No questions, your honor. Alright. Thank you, mister Adams.
Alright. So, I would request that, miss Payne Certainly. Appear and be sworn. Miss Payne, can you put your camera on? Good morning. Hi. There we are. Thank you. Good morning, miss Payne. Will you please oh, let's let be sworn in by the court reporter. My apologies. Thank you. Miss Payne, if you wanna go ahead and raise your right hand. Do you solemnly swear or affirm that the testimony you're about to give at this time and place will be the truth, the whole truth, and nothing but the truth? Yes. I do. Thank you very much. Miss Payne, please state your name and business address for the record. Yes. My name is Rebecca Payne. My business address is 5555 North Grand Boulevard,
Oklahoma City, Oklahoma 73132. And will you please describe your role in this matter? Yes. I was, hired by, Nab Apache to be their rate consultant. I developed the revenue requirement analysis, the cost of service analysis, the rate and the rate design proposal. Thank you. I believe his honor has a few questions associated with the rate design. So with that, I'll let him well, I guess I'll I'll tender for cross examination by staff just in case. Miss Humphrey? Good morning, miss Payne. Good morning. So I'm not sure if you were, if you were locked into to the the questioning of mister Adams,
but, in case you weren't, if you could turn to exhibit NEC one at page NAV Apache three zero three. Yes. Alright. So I'll I'll I'll ask my same, question again. If you turn to the rates towards the bottom of the page for commercial and industrial service, there are two sets of rates. One is for primary service and the other is for secondary service. Can you clarify the difference between those two for the record? Yes. Primary service accounts would mean that the consumer owns the transformer.
So the transformer the metering point is at, before the transformer, for secondary and after the transformer for primary. So any line line losses or operations and maintenance from a primary meter transformer are the responsibility of the, consumer and not the cooperative. Okay. And is is that distinction responsible for the the difference in, the customer charge? Yes. It's the it's the distinction for all of the the variation in all of those components. Just a different metering point and the implications of that.
Thank you. And just to go through, these different aspects of the rate design, they yeah. They're consistent not only with, with the commercial and industrial service rate design, but with others as well, but, I just wanted to get a little testimony on these. So the customer charge is a a fixed charge. It's basically an access charge to have, to have service available. Is that right? Correct. And can you please, provide some testimony regarding the difference between a demand charge and an energy charge? Sure. The inter the demand charge is intended to recover, well, I I guess let me clarify.
Let me start with, what a fully cost based demand and energy charge should be. So a fully cost based demand charge would recover all of the capacity related costs that now Apache incurs to serve its members. All of now Apache's costs are fixed in nature. So either fixed related to number of customers, it serves or fixed related to capacity it serves. The energy charges, the only energy charge that now the that that the only cost that now the
patchy incurs based on energy consumption is the kilowatt hour purchases from its wholesale power provider. So fully cost base rate, the energy charge would just recover the wholesale power energy purchases, and the demand charge would recover the cap now Apache's distribution system fixed cost to serve. So the reality in the rates is we don't have fully cost based rates, so some of the fixed cost recovery gets shifted into the energy charge. Okay. So it sounds like you're you're providing some testimony about, the the cost that Nav Apache incurs with respect to providing service.
The the rates on on in schedule h three point o, those are the rates that NEC charges to members. Correct? That's correct. Okay. So can you provide some additional testimony just regarding, how it is that the the demand charge and energy charge are determined and what those represent? Yeah. So the demand and energy charge charges would be, determined from the cost allocation that's provided as part of the rate application. Specifically, that would be schedule g six, the unbundled cost components.
So that becomes the basis, for justifying what the, ultimate rates could be. We take that in combination with where Nav Apache's existing rates are, where they should be, the concept of gradualism and member impact to make the decisions on the currently proposed rates. Okay. I I think I understand the question that you're answering and that is, like, how those how those figures are determined. I guess what I'm more getting at is an an even simpler question, which is for purposes of billing the members, what is a billing KVA or or kilowatt ampere ampere?
Okay. I got you. I'm sorry, for not understanding your question. Yeah. The, it is a the maximum, and I might have to this is subject to clarification, but I believe it's the maximum, fifteen minute demand interval. And that's typically a a standard either fifteen or thirty minute maximum demand. I I'm not sure, subject to check whether now the Apaches is fifteen or thirty minutes. But it's the maximum demand for any fifteen minute interval if that's the appropriate interval. The energy charges are the the total consumption over, so over the hour versus the maximum in a in,
the maximum interval would be the demand. Over the hour would be the kilowatt hours. The kilowatt hours are the total consumption over the billing period, and the n c the demand is just the highest interval whenever that occurs. Okay. So if we were going to analogize this to something like water, would the demand charge be analogous to the the flow rate in terms of, you know, gallons per minute or gallons per second, whereas the energy charge would be analogous to the the volume of water used in
in gallons over a a period of time? I am not a water expert, but that seems like a reasonable analogy. Okay. Thank you. In terms of the rate design, I did notice that there were some rates and charges that, did have, meaningful increases associated with them in in the proposed rates, and others were, left constant. Can you explain a little bit as to, how how the company determined what ought to be increased versus what ought to be just, left static? Yes. That would be based on the cost of service
model schedules either, really based on two outputs of the cost of service. One is the rate, rate cost class cost of service. So that is how each of the right classes are performing. Some right classes in performing. Some right classes in total need a larger increases than others. So that would be one guiding principle. The second would be the unbundled cost component that I referenced just a few minutes ago, that schedule g six that identifies what the individual cost components and and the billing unit for which each of those should be recovered. That would determine then so one,
we determine how much we should be our Navapatchi should be recovering from the class, and then the second piece is how much they should be recovering from each of the individual consumers in the class. So, those two schedules from the cost of service would be the guideline for the proposed rate designs. Thank you, miss Payne. And I do have one more question. Jeez. I suppose I probably should ask this of of mister Adams, but I'll give you a crack at it. Are you are you relatively familiar with the settlement agreement and the the schedules that it contains and those that it doesn't? Yes. Okay.
In the settlement agreement, I did see that there were, schedules that did have, I think most of the, most of the rates, I think they were schedules h four point o. I didn't see anything in the settlement agreement, that was, an agreed upon version of, schedule h three point o. And I was just wondering if you knew why that is. There were no changes to schedule h three point o from the initial rate application to the settlement agreement. Okay. Alright. Miss Payne, that's all the questions I have for you. Thank you very much. And I'll, I'll give the parties, an opportunity to to clean up any of the questions that I asked.
Miss Grable, any questions for miss Payne? No, your honor. No redirect. Alright. Miss Humphrey? No questions. Thank you. Alright. Thank you very much, miss Payne. You're excused. Thank you. Alright. Miss Grable, anything further from the co op? No. Thank you, your honor. The co op rest. Great. Miss Humphrey, floor is yours. Staff calls Renell Palladino. Good morning, miss Palladino. Would you state your name and your business address, please? Good morning. My name is Renell Paladino. My business address is 1200 West Washington, Phoenix, Arizona 85007. By whom are you employed and in what position?
I work for the Arizona Corporation Commission as a codirector in the utilities division. Can you briefly describe your duties in that position? Sure. As a codirector, I have responsibility for a group of analysts who are assigned to telecom, natural gas, electric, propane applications that come in from the utilities. I also have, a group of analysts who work with consumers when they call in with complaints. In this case, did you oversee all of the pre filed testimony in this case, make final decisions as the staff's recommendation, attend the settlement meeting, and execute the settlement agreement?
Yes. I did. Are you able to provide testimony on most, if not all, of the issues in this case? Yes. I am. If you are not if you are not able to answer any of the questions, do we have other witnesses available, who can do so? So? Yes. We do. And that would be all of the witnesses who filed, pre filed testimony except mister Beckerman. Is that correct? That's correct. Alright. And we do have somebody here who can answer engineering questions if necessary. We do. I'm would ask you to take a look at the, the notebook that has all of the exhibits in in it.
You have should have that in front of you. And I would direct your attention to exhibit s one. That should be your settlement testimony. Yes. It is. Was that prepared by you or at your direction? Yes. Do you have any changes or modifications to that testimony? No. I don't. And are you adopting it as part of your testimony here today? Yes. And as the co director of the of utilities, did you also direct and see all of the all of the remaining pre filed testimony and staff? Yes. I did. So let's take a look at those number exhibit number s two should be the
direct testimony of Jacob Vaughn. Is that correct? That's correct. S three should be the direct testimony of mister Beckerman? Yes. That's correct. And s four, the direct toe testimony of Taylor Shell? Yes. S five, the rate design testimony of Adam Beckerman. Yes. And s six, the rate design testimony of Taylor Shell. That's correct. And as to all of those, you have reviewed those and are familiar with their contents. Yes. I am. Do you have any changes or corrections to make in any of those testimonies? No. And are you adopting those as part of your testimony here today?
Yes, I am. Your honor, we would move staff exhibits s one through s six. Miss Gravel? No objection, your honor. Exhibits s one through s six are hereby admitted. Miss Paladino, how would you characterize the settlement process in this case? I would say the settlement meeting was open, transparent. Everyone had the opportunity to participate. The staff believe that the terms of the settlement agreement that were that was entered into, are just reasonable and in the public interest? Yes. Are there any particular provisions of the settlement agreement that you would like to point
out in that to support that's that position? I think it's helpful in the settlement agreement that there is a provision for the export rate going forward for customers who are not net metered. I think it's also good to clarify that the base cost of power is not changing, so customers, are not misunderstanding the actual increase that they're seeing on their bill. I think the acceptance of the rate based adjustments that staff had was also, something that we were in favor of. And, I noted in my opening that it appeared to me that,
essentially, the the coop adopted or accepted all of staff's recommendations with possibly one exception. That's correct. Thank you. Did you hear the testimony the witnesses on behalf of NAC this morning? Yes. And generally speaking, do you agree with with the the testimony that was given with regard to the settlement and the terms of the agreement? Yes. I do. Do you have anything that you'd like to add? No. I have no further questions your honor. Miss Paladino is available for cross. Thank you miss Humphrey. Miss Gravel. No cross examination but thank you for no.
Good morning miss Paladino. Good morning. I do have a few questions. I don't, they are, with respect to the rate base adjustments. So I don't know if if there's someone better to answer them, but, let's let's take a crack at them. So in response to the application, staff recommended five adjustments to rate base. That's correct. And, two of the adjustments were capitalized costs associated with certain radio and computer equipment, that has a useful life of longer than one year. And as for the other three adjustments, one was to remove unsupported costs associated with a derby car, and one was to remove costs associated with an office building,
and the last was to reduce, accumulated depreciation to reflect the elimination of, of the the portion of the derby car in the, the office building from, rate base. Is that right? That's correct. So I noticed that, unless my math is wrong, the the recommended adjustment to accumulated depreciation was the same as the sum of the adjustments for the Derby car in the office building. Does that sound correct to you? You'd probably need to talk to mister Vaughn for that question. Alright. I guess I'll just cut straight to the chase. Did did you, are you aware of whether the the Derby car and the office building,
are fully depreciated at this point? I I'm not aware that they are, but I'm sure that mister Vaughn could clarify that. Okay. I suppose I'll just, save save my few remaining questions for other witnesses, but I I appreciate the attempt to answer, miss Palladino. Thank you. Miss Humphrey? Further questions, your honor. Miss Grable? No, your honor. Thank you, miss Palladino. Staff would then call Jacob Vaughn. In a minute. Great. Thank you. Good morning, mister Vaughn. Would you state your name and your business address for the record? Are you where are you employed and in what position?
I'm employed with the Arizona Corporation Commission as a public utility analyst. And as part of your duties, were you assigned to evaluate the application of NEC in this matter? Yes. And did you prepare a staff report in the or pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre pre that free file testimony as it as it was submitted initially? Yes. Thank you. Your honor,
I don't have any further questions. If you would like to have him available for the cross and ask him your questions, that would be great. Thank you, miss Humphrey. Miss Gravel, any questions for mister Vaughn? No questions, your honor. Good morning, mister Vaughn. Good morning, your honor. So I trust that you were, here and, paying attention for me, clumsily asking my questions of, miss Paladino regarding the adjustments the staff recommended to rate base? Yes. Alright. So is is my math correct that the, the recommended adjustment to accumulated depreciation is the sum of the recommended adjustments to,
the Derby car and the office building? Yes, sir. Okay. I suppose the only way that that makes sense to me is if they've been, fully depreciated. Is that right? It would be. Yes, sir. Okay. So the the off not that I suppose it matters at this point because, well, the the office building has not included a rate base according to the settlement agreement. Right? Yes, sir. Alright. So I suppose to the extent that it's relevant, it's just relevant with respect to the Derby car. So, what information were you provided regarding the the Derby car?
So, the dir excuse me, your honor. The derby car was an item that I noticed in my audit. It's also an item that we noticed on our site visit. We requested invoices derby car, it was past its useful life? Not not entirely. No, your honor. The specific adjustments related to the derby car were related to the non support of the total cost of the Derby car. Understood. But the the portion of the portion of costs that were supported with respect to the Derby car were included
in a rate base and were included in accumulated depreciation. Correct? Yes, sir. Okay. So wouldn't that mean that the Derby car is fully depreciated? Could you state the question again? You know, we're we're we're only talking about $2,000 here, so, I I don't wanna I don't wanna, beat a dead horse. So I'll I'll just move on. I just have one more question on this issue. Of course. So being that the Derby car was included in a rate base, staff determined that the Derby car was used and useful? Yes. How did staff go about making that determination? Okay. So, in the case of a cooperative, staff, I would say,
takes a more charitable approach as to the the dollars spent for cooperatives, community involvement. My understanding moving through this case was that a lot of that has to do with the lack of a profit motive for the cooperative. Company is reinvesting in their members and in their involvement that in an investor owned utility, we would take more of a critical view of, but because there's the lack of a profit motive, we would generally allow. Understood. Alright. I think that's all the questions I have. Yeah. Miss Humphrey,
any redirect? Questions? Thank you. Miss Gravel? None. Thank you, your honor. Thank you very much for clearing that up, mister Vaughn. And that concludes staff's case, unless you have questions for any of our other offices. I don't believe I have any additional questions. Thank you. Alright. For exhibits. Miss Grable, would NEC like to make a closing statement today? No. Napopatchu will waive its closing. Thank you, your honor. Staff would waive a closing statement as well. Alright. Great. Any, any procedural issues we need to address before we adjourn? I don't believe so. Thank you, your honor. None from today.
Alright. As for briefs, I I can't imagine that we need them in this case, but I I do wanna give the parties an opportunity just in case there's something that came up that they do wanna brief, miss Graebel. I don't believe it's actually being necessary, your honor. Great. And so I don't believe a brief is is necessary, and I I would note that I think the settlement agreement in this case is very clearly and, relatively simply set forth. It it it I think it's a very good description of of everything of all the issues. So, I would hope that the brief would not be necessary for you. Thank you. Thank you, miss Humphrey. Yeah.
I I do believe that briefs will not be necessary in this case. Alright. Well, I think that's it. That's our forty minute class a rate case hearing. Thank you very much all for your participation. Thank you for a a comprehensive settlement agreement that made this hearing, quite a bit more streamlined. And, I'll take this matter under advisement, and I will issue a recommended opinion in order as quickly as possible for the commission to consider the future open meeting. Thank you all. Thank you, your honor.