Alright. Well, welcome everybody to our June 10 open meeting. I'm gonna take another real quick point of, personal privilege here. Today is the the last meeting that and I don't know if I see her in the room, but our our, our CFO or our HR director of administration. Yes. She is, Kim is retiring on June 19. And, so I just wanted to, I guess, wish her well and thank her for the twenty one years of service that she's, provided the commission. She's retiring from the state,
but I guess she's gonna take the summer off before she moves on to whatever next adventure is. So we wish her well and and thank you. Alright. So to start, I guess, would you please rise for an invitation from, chair Walden or vice chair Walden and a pledge from commissioner Thompson. Heavenly father, we're grateful for this opportunity to meet today for this wonderful country and state that we live in and thank thee for the freedoms that we have here. We pray that we will have thy spirit with us and and have discernment and wisdom in our meeting today.
In the name of Jesus Christ, amen. Please join me in our pledge. I pledge allegiance to the flag of The United States Of America and to the Republic for which it stands, Alright. Thank you. First item of business, we do have one item on consent. It's item number 10, that is subject to, ARS forty two fifty two. So if there are any parties to that item that wish to speak, now is a good time to speak up on that. Not seeing any. I'll go ahead and and, ask vice chair Walden or, actually, are there any do any commissioners want to pull any items from the consent?
Everybody good? Okay. So at this point, let's ask vice chair Walden to go ahead and move that. And, I believe there's an amendment on that one. No. No. I was gonna say It's on Yeah. It's on the regular agenda. Yeah. Okay. That's so does. Okay. So let's go ahead and move please. Yes. I move consent agenda for a vote. K. Please cast. And by a vote of five ayes, zero nays, the consent passes. And go ahead. Item number 15 for discussion. K. We will start with staff. Chairman, commissioners, Bob Gray with staff. Item number 15 is Southwest Gas application to set the annual system integrity mechanism surcharge
rate. Staff has reviewed the application and recommends approval of the proposed point o $0.67 per therm SIM surcharge rate with an effective date of 04/01/2026 to remain in effect until otherwise ordered by the commission or the next upcoming SIM surcharge rate filing. I'm available for questions. Thank you. Ruko. Do we have Ruko? Cynthia. Cynthia. There we go. Good morning, Cynthia. Good morning, mister chair, vice chair Walden, and members of the commission. I'm just here in support of the the company's request and the the staff's recommendation.
Okay. Thank you. So the company, Southwest Gas. Morning, chair Myers, commissioners. Matt here with Southwest Gas. Appreciate staff's review and also the supportive comments from Ruko in the stock it. I'm happy to answer questions or provide a overview of kind of what what happened in 2025 with the same if that would be helpful to, to the commissioners. I'm seeing heads some heads nodding. So good. So just to re re recap, the purpose of the SIEM is to mitigate the regulatory lag on pipeline safety investments that are non revenue producing in nature. So the surcharge recovers the surcharge is capped at a revenue requirement of to recover
capital expenditures of $50,000,000. And as we showed in the application, we did about $87,000,000 worth of of capital expenditures supporting the SIM in 2025. The SIM surcharge rate recovers that mitigates that regulatory lag on the $50,000,000 for those projects that were completed. So you may notice the difference in the projects that we proposed versus the projects that were completed. We had shown an estimate of about a $165,000,000 worth of SIM projects and we completed about $87,000,000 The real reason were a lot of the projects and you can appreciate the nature
of kind of our business of working with, you know, 70 municipalities across the state. So some projects were weren't completed in time due to permitting. Some were deferred for for later recovery for future years or other just planning considerations. And that's why the kind of the completed project table of $87,000,000 is is different than what we had proposed in the, original project plan that was approved last November. So we appreciate, again, staff's review, staff support, as well as Ruko and happy to answer any other questions. Alright. Thank you. I don't see any public comments that I have listed.
So, commissioner questions. Commissioner Marcus Peterson. No questions. Thank you. Okay. Commissioner Thompson? No questions, chair. Vice chair Walden? Yeah. Could you take a moment and highlight some of the projects that were of critical importance for Southwest Gas? Chair Myers, vice chair Walden. So it's a it's a great question. So on the on the completed I'm just gonna refer to the completed project table. So what we're what we're showing here are projects across a number of SIM project categories. So, you know, cathodic protection, that's the, you know, coating our steel pipelines to prevent those from corrosion. DIMP, that's our distribution integrity management program.
So that's what really guides all of our pipe replacement activities of knowing our system, understanding the risk of that system. Franchise work, I know we have a a number of former city council members on the on the dais. Franchise work is that's really what that is if we're, you know, doing work in a city or sorry. If a city is doing work and they require us to move our move our facilities to accommodate, you know, any municipal needs, those are our franchise projects. Let's look at, like, the the high pressure distribution. You know, we've talked a lot before about the maximum allowed operating pressure, the safety of gas transmission rules.
So those projects were done to to kind of recon you know, in in in accordance to those pipeline safety rules from PHMSA, similar to those low distribution projects. And then we have the NCDP, so that's the nonconforming Driscoll pipe. So I know we've talked a lot about Driscoll pipe with the commission over the years, You know, that makes up about a third of our system and that work is done with the inactive service and stubs abandonment program looking at those no flow stubs no flow services, no flow stubs as well as, you know, when we have wall thickness that requires that that replacement.
So so we're proud of the work that we did to improve and enhance the safety in Arizona. And, again, that's why the SIM is really critical of, hey. We're doing this work already to to enhance the safety, and this is just timing up that revenue requirement of that $50,000,000 of CapEx. Right. Thank you. Of course. Commissioner Lopez. No questions. Alright. With that, vice chair Walden. I move item number 15 for a vote. K. Please cast your votes. And with a vote of five ayes, zero nays, this item passes. Vice Chairwoman. I move item number 16 for discussion. Alright. It looks like we start with judge Rada.
Good morning. Excuse me. Didn't mean to do that to the microphone. Shake's Corner is a class e utility that is owned by Management Systems and LLC and provides water service to 18 customers in Gila County near Payson. Its current rates were approved in, 2019, utilizing a test year of 2017. This application employs a test year ended 12/31/2023. The commission received five consumer comments in opposition to the requested increase, all asserting that the increase would be a hardship on residents who are on a
fixed income, and four, alleging that repairs have not been completed. Based on an ADWR compliance report, dated 01/08/2026, Jake's Corner is not compliant with ADWR requirements governing governing water providers and or community water systems because the company missed the most recent system water plan update. The company's representative told staff that the company was taking steps to resolve this compliance issue. During staff's visit, Jake's Corner was out of compliance with the ADQ for failing to file a couple of reports, but staff subsequently confirmed that Jake's Corner has come into compliance.
And Jake's Corner is also compliant with all trackable commission requirements. The recommended order adopts all of staff's adjustments except for the $12,500 in management fees paid to management systems. The recommended order finds that the $12,500 is not supported by the record in this matter and reduces the management fees to $8,000 The recommended order adopts a revenue requirement of $39,843 which is an increase of $20,645 or 107.85%
over adjusted test year revenues REU's adopted rates increased the bill of a typical five eighth by three quarter inch meter residential customer with median usage of 3,226 gallons a month from $67.34 to a 138, dollars and 95¢, which is an increase of $71.61 or a 106.34%. Thank you. And I had no perceptions were filed. K. Thank you. And staff? Good morning, mister chair, vice chair, commissioners. Burton Baxter for utilities division staff.
Staff supports the rule as written and is available for any questions. Great. Thank you. And from the company. Make sure the green light's on there. Oh, good afternoon. I'm Mike Armstead from Jake's Corner. And, yeah. So the rate adjustment was called for by by the commissioners in a decision earlier. So that's what started it. And then with the help of ombudsman, they wrote the rate adjustment. And the numbers are the numbers. What's at play here is that is that can management systems, manage the system with the restraints that it has?
I can tell you that in December last year, one controller went out that was $2,500. They had to have another series of filters, which is another $2,000. So it was a $4,250 loss in one month. I don't think that the the the this don't reflect the entire what's going on in Jake's Corner. We have a trailer park that's a nontransient, noncommunity, which in my mind, that's a conflict in itself. It has 31 full time residents
within this CCNN delivering water to a commercial, grocery store for a $100 a month, violating the franchise, the Gila County franchise, violating the CCNN. But yet, we don't readjudicate or look at that. They're a 100 feet away from my wellhead, but yet they don't have an arsenic problem. So I have concerns of of, water quality parameters. And excuse me, I don't speak well in public. Alright. No problem. I fix I fix water. We understand. And you were just talking about that lady retiring. So in May next year,
it's forty years for me. I've been out there fixing. You know? And I wouldn't ask for or think that it it's needed. But you're looking at a system that's had a concurrent loss from the day I purchased it to today. Now what did we do for them? Working with staff, working with WIFA, DEQ. We built brand new facilities. They got variable speed drive pump systems. They got new storage. Right? So we we've done a lot for these folks to bring them in. Now to stay this off, I proposed three years ago that we combine it with another system that I had
so that we could control the rate better because we knew that they were strained, you know, without opening the can of worms of transient noncommunity systems within ACCNN, which is a big problem. It's bigger than you think. With all that said, had we done that, we wouldn't be here today on this. But we can take that even further because Jake's Corner water system, we we created an arsenic filtration system that didn't exist. We got side streaming approved, and we got to be able to fix their seven year MCO violation for less
than $800. That now costs $2,000 a quarter because an outside entity bought the filter company, jacked the prices because they can, causing this restraint. The storage facility that we built for them entirely around this facility is owned by somebody else. They're charging $500 a month for rent for us to set our tanks there. But yet the sign on the outside of the of the it's a storage lot for motor homes and stuff.
Says $25 a month. Once again, gouging a utility. So I don't think to be honest, the judge has her opinion and that's valid. But did the judge cut her salary to look at these 18 people in half? And that's what she's proposing. I think management says my oil change yesterday was $250 to come to here and to service those folks. That came out of my pocket, but I've concurred lost over $70,000 owning this system. And at some point,
we gotta start paying back that return on investment. And I think I sat in one time, open with commissioner, and and I was asked that question. Why don't people come in for rate adjustments? And I have to say now I know the answer. Is that we small systems don't feel that we have a return on our investment. We would rather buy Disney stock than to put money back in the system, if that makes economic sense. But that's about all I got to say. Whatever you guys come up with is what you come up with. I understand that. But I wouldn't ask for it if it wasn't needed.
The other thing is is that in July last year, I did file out an entire application for them to become a domestic water improvement district because I feel this is the best way for these 18 people to go forward with their own controls. They only needed 10 signatures because since five of them were already on the board. And I noticed that out of the five complaints, two of them were their wives of the guys that are on the the DeWitt board. They could have ended this before it started.
I offered it to them. But see, it costs too much to own. So it doesn't make any enough money to sell. It doesn't make enough money to give it away. So I'm stuck with the liability of operating and maintaining it and keeping these people in safe water quality parameters, which I will do. I've been doing it for forty years. So that's all I gotta say. Alright. Maybe some response from the judge and possibly staff on those comments? Thank you, chair. I would just say that my recommendation the only thing I changed from staff's recommendations
was the management fees, because I didn't feel that they were supportive. It was a huge increase from the last rate case, which wasn't that long ago. Costs for maintenance and improvements. I I I know it costs a lot to, maintain these systems, but I only had the record I had. It wasn't a hear it's a non hearing matter. I only had figures that were given to me by the company and staff's adjustments, and those remained. All the contract services that were paid to outside contractors remained as they were.
It also uses a test year of 2023, which is I think was a choice of the company instead of updating it to 2024. If there were additional costs that were included, I didn't know about those. Commission doesn't know about those. K. Steph, any color to add? Mister chair, vice chair, commissioners, I I don't have anything to add beyond what mister Armstead said. Sometimes the numbers are what the numbers are. We're talking about a 18 connection system that has an arsenic issue, so it's gonna be expensive to provide those customers with safe water.
Okay. I may be going out of order here on the questions, but, has there been any talk of consolidation for this company? Mister chair, vice chair, commissioners, what mister Armstead just said, I think, kinda hints at consolidation. That was the first I had heard from it. Happy to help him down that path. He owns two other systems, so consolidating the three systems at some point probably makes sense from an economic standpoint. K. Again, for this item, I see no public comments, so we'll go ahead and go to quick commissioner questions. Commissioner Marcus Peterson? Yes. No. Thank you.
Thank you, mister Armstead, for attending. I think it makes a big difference for us from the dais to hear directly from the owner, to hear your story or understand what's what's occurring. I had lots of questions that you addressed in your in your comments. You know, is this attractive for the sale of this? And, no, if you've been losing for many years, I assume we need to get things straight, and you are dealing with the arsenic issue. I I would encourage you to continue to work with our ombudsman. Thank you for the ombudsman's office. That's exactly why they exist, to work with smaller utilities. This is a very hard situation we're in.
There is no real win win in this case. I was concerned about the opposition letters that we read and wanted to just confirm, and I I heard judge Rada speak to this. So have the repairs been completed? Because one of the letters spoke about that. Yes. We have application of construction, and, everything was done. Plus, we had an on-site inspection by staff and also the engineered staff for the ADEQ. Yeah. All all it's been done for three years. Okay. And is the water compliant with ADEQ right now and drinkable today?
It was compliant when she got her reports. They had not moved the went online and put it in the correct boxes. Oh, I see. Okay. Matter of fact, I showed them on my phone when staff came that that I they were emailing me about those things. It's just that there's a lag between when they ask for the stuff and then it's in the system, but it's not posted to their wherever it's supposed to be in within the ADQ. Yeah. I I guess from my perspective,
this it's harder and harder for their smallest water utilities to operate in this environment. You're right. The cost of service is going up. The cost for supply chain issues. Yeah. Different component parts you need to purchase. When it comes to arsenic, though, I mean, I tackled arsenic for the Jake's Corner immediately. And that's when we ADEQ had hired because I had a different methodology. And that was to oxidize the water at one milligram per liter, and you can remove the arsenic with any one mill one micron filter. They hired Cal at KV's consultants,
a chemical engineer, sent them on-site with me. We did those tests. They passed. Took we removed more than 70% of the arsenic. That was that was cheaper than anything that anybody's doing. You're talking about oxidizing it yourself through disinfection, which we normally do, and removing it with one micron. But more than that is, I after forty years, I don't trust the 10 parts per billion as being true and factual from the from the EPA. And since Chevron has been ruled, has the state of Arizona challenged that?
Because if this moves to 20 parts per billion, we've just cut millions and millions of dollars for consumers if it's truly safe, which I believe after forty years, it is. But we have ASU, U of A, but no one's done these studies. And that's what we should be doing is challenging. I challenge ACC. I challenge DEQ on a daily basis. I don't have a problem with that. I feel that my knowledge does that. But, yeah, we have a state that's not challenging EPA's role at 10 parts per billion.
I think that's certainly something for discussion with ADQ in terms of the quality of the water because that's the area that's did have that discussion. Yeah. Well, I I appreciate you coming here. I mean, there's this is something that's hard to to vote on as a a commissioner, and we wanna see something that is a win win for the customer also. I encourage you to continue to communicate with the 18 connections, and let's do what we can to consolidate or or get this system acquired by our larger systems to to support more efficiencies. But you're Yeah. You're right. That's hard to do with an operating loss. Did try to consolidate,
but the board at the the time, I think it's back when Andy was here. And so, they didn't see it. You know? And, I don't have any further questions. Thank you. Mister Thompson? Sure. You know, this is, one of those situations where I don't think it's hard for me because I don't think, the owner of a utility should lose money operating a utility. But granted, you shouldn't become a millionaire operating a utility either. But this is one of those situations where, you know, I think Judge Rada said that, you know, in her rue that,
that you couldn't fully substantiate your requested $12,000 fee and thus is the reason why she reduced that. Do you have actual receipts in hand No. And everything that shows that what because what we should be doing is basing your rates on actual expenses. Mhmm. And, you know, so it's one thing to say that this is how much money you're spending but if you can't substantiate that you're spending that money,
it's hard for us to agree with you, when we don't have that evidence in front of us. And so, you know, because part of me would say, you know, maybe work with our ombudsman and get those receipts together so that you can substantiate your fee because we don't want you to lose water or money because we want you to be able to provide those 18 individuals with clean drinking water that meets all the requirements and standards for today and into tomorrow as well.
And so, you know, I I I struggle on this one because, you know, I do agree with Judge Rada, that if you can't substantiate then she has to base, you know, her decision on the numbers that are presented. And she's doing her best with the information that she has. But if you have different information then I would 100% come forward and work with our ombudsman and try to present those so that maybe we can do a 4,252 at some point in time and adjust this as needed,
to make sure that you're not losing money because nobody wants you to go bankrupt on a utility, you know, trying to serve 18 individuals. Yes. I mean, let's don't lose fact of why management system was created to begin with. That was an interim management company to solve problems for small utilities that no one else wanted to take on. This system had a ten year backlog of property tax, which wasn't property tax. It's a secondary privilege tax paid to the county, just like the other one was $28,000.
You know? So there was a lot of stuff to resolve. First, health and safety. We dealt with facility, and we dealt with the I think one of the things that that that's being missed right here is my qualifications and years in the business. I'm I'm not just some guy walking off the street. I helped write and did input for the revision of the Safe Drinking Water Act. I was there at the table. Right. But but And what I'm getting at though is we need we can't just arbitrarily give you what you're asking for,
right? You have to come with receipts and show us what your actual expenses are. I mean, I could claim that I'm a rocket scientist, I'm not. Okay. But I could claim that I am and and expect that somebody's gonna pay me a lot of money to be a rocket scientist when I'm not a rocket scientist. And so I have to have those receipts to show what your actual expenses are for you to be able to recover those costs. You mean, like, the $5,000 of of liability insurance we have to have just to have the franchise? Absolutely. Every receipt that's costing you money That's every year,
$5. So that so those are those receipts are what you need to be bringing in so that we can see what your actual costs are. If if your vehicle maintenance is costing you $250, we need that receipt to show that that cut that that expense is what you're spending to operate the utility. Okay. Whatever you guys wanna say, I don't. Vice Chairwoman? Thank you. Thank you for my the questions and and comments from my fellow commissioners. And, mister Baxter, I think, explained this well. You know, we only have eighteen eighteen customers or 18,
water customers with an arsenic problem, and it's expensive. So it it it's difficult. I wish there were, like, more ways we could spread this around. I do, support and, would like to see us explore consolidation of the system. So thank you for for offering that. I don't have any questions, comment is, I did, see, we talked about the ADQ compliance, but, my understanding is the EDWR compliance is still, outstanding. Mhmm. But we we work with staff, and I I think we can make sure that that that gets modified or adjusted.
And then, yeah, I do see that, with the Roo that it it does put you in a in a positive operating margin. So hopefully, that does, again, move towards, like you said, move move towards a a visibility and a perception that, the water utility is is viable and is now, you know, again, operationally in the in in in the black and that you're gonna be able to see some consolidation again as mentioned, by prior commissioners. You know, these are difficult situations. It is a it is a pretty heavy uptick in cost. But, again, it is when you say the numbers are,
it is what it is. So so the roof puts it into the black area? Yeah. But it doesn't it doesn't oh, yeah. Okay. Again, as as mentioned earlier on the as mentioned earlier Yeah. If there are other modifications after this, you know, you you you feel there were other things that were not considered, please reach out to, the ombudsman office and, you get additional documentation up, and we can make some modifications afterwards and do do, again, another revision. So, but, yeah, other than that, I think, again, given the facts that, were given to the to the judge, I think, you know, this is might be in a a well balanced,
approach. And, again, we can open these books up again if if you bring more information. So thank you. And I'll just, add, I guess, support for what my fellow commissioners have said. If you can bring in every oil change, every pipe fitting receipts that you've got, you know, that's what we can base rates on. If you can go back and track them down later, that would be great. I mean, there's there's ways we can deal with this and I'm happy to bring it back up for for reconsideration if you can get all that together and and help us. But,
without the receipts, it's tough to justify. And that's what we're here to do. So I mean, I trust me. I don't wanna see them raise to the even to the room. The fact of the matter is is that we have 31 full time residents living in town living a 100 feet within the system. But does it participate with the system? That's the true problem. Transient noncommunity systems. Think of that. Transient. Right? Transient noncommunity. So they're no they're not community nor they're transient.
What what are they? It's a community system within the community is what it is. And we need to look at that because it's causing in the rural setting, deflection in the economics of operations. And that's all I have to say. Yeah. Well, I I I think we all agree we don't like raising the rates and even to what the ROO is doing now. But at the same time, we wanna make sure the utilities are viable and and in the positive, not, you know, not draining on your your own finances, if you will. So, with that, I think we're we're at the time for let's see.
Yes. Vice chair Walden. I move item number 16 for a vote. K. Please catch your votes. There we go. And with a vote of five ayes, zero nays, this item passes. Thank you. Thank you, guys. We move item number 17 for discussion. Okay. We'll go ahead and start with Judge Kinsey. Good morning, commissioners, Chair Myers and Vice chair Walden. I'm ALJ Kinsey, and I apologize in advance. My allergies are terrible. I'm ALJ Kinsey, and this is a matter, of Tonto Creek Water Company. It involves both a rate application as well as a finance application.
Tonto Creek is a for profit class e utility serving approximately 79 metered residential customers. Company's last rate case and to address improvements the company's last rate case and to address improvements and replacements for its aging water system. The rate application also states that the company's revenues, expenses, and or rate base are significantly influenced by its small consumer base service connections and that Tonto Creek does not expect any growth as the development is
fully built out. The roof finds that for the test year, Tonto Creek had a fair value rate base of $36,827, which is it also its original cost rate base, on operating expenses of $45,956 resulting in a test year operating income of 1,925. With its rate application, Tonto Creek, proposed three different surcharges.
One was an emergency rate surcharge, that the commission approved in decision number 79425, which amounted in a surcharge of $20.81 per month per meter for twenty four months or to allow the company to recover approximately $40,000 whichever occurred first. The in this application, staff proposed revenue requirement does not include in continuing the emergency rate surcharge.
The recommended opinion the recommended order actually finds that the new rates are designed to cover the increased cost that form the basis of the need for the emergency rate surcharge. Tonto Creek also requested an emergency loan surcharge, which was to recover $25,858 that was advanced by its owner to cover operational expenses. Staff opposed the company's request because Tonto Creek failed to seek prior commission approval before
entering into the loan with its owner. The REU adopts staff's recommendation. The third surcharge involved The third surcharge involved a rate case surcharge in which the company proposes to recover $15,000 Staff recommends approval, and the recommended $7 for $7 for various water system
improvements. When staff's staff recommends approval of the, I'm sorry. To staff recommends approval for Tonto Creek to incur debt in an amount not to exceed $985,057 from WIFA at an interest rate of 8% for a term of twenty years. When staff's recommended WIPA loan surcharge of $127.32, per customer per month is included in staff's recommended rate based rates,
a typical residential customer on a five eight by three fourth inch meter would see a total increase of $173.28, an increase of 120 for the total is $173.28, an increase of $127.07. Regarding the revenue requirement, the rue finds that it is necessary to increase staff's recommended annual operating revenues,
excluding surcharges, by $15,000 $15,750 from $54,093 to $69,843, which after operating expenses of $47,623 would yield an operating income and surcharges of $121,977. Without the WIFA surcharge,
these modifications provide the company with a return on revenue of 64.2% on on its fair value rate base. Including the corrected surcharge revenues, these modifications provide the company with a free cash flow for contingencies of $24,795 and a DSC of one one point two five. With the approved with the loan and with the loan surcharge mechanism,
a typical residential customer on a five eight by three fourth inch meter will pay a total monthly surcharge of $127.83. The route authorizes the company to incur debt in the amount of staff's recommended $985,057 through WIFA at a term not to exceed twenty year years and an interest rate not to exceed 88%. When the estimated WIPA loan surcharge of $127.42
is included, the median monthly bill of a residential cup customer on a median usage of 826 gallons would increase from $46 to $186.62, an increase of $140.41. And the total monthly bill, including, the rate case surcharge, would make the bill $189.80. The company filed exceptions.
The hearing division proposed proposed a an amendment to address some of the company's comments and to correct some clerical errors, and no consumers file comments in this matter. K. Thank you. Is that all you wanna say as far as covering the amendment? Or you can go ahead and do that now if you have more. Sure. And it is the revised, proposed amendment if I fail to say that. I'm sorry. It just basically tries to address some of the, the comments that were filed by the company. The main thing was that
the company was concerned that, there was a misinterpretation, I believe, of their rate application regarding its 12 inch meter. And the company did propose in its rate application to include, rates for a 12 inch meter. And the, the amendment actually addresses that and up updates those numbers. There was also a concern about, compliance with ADQ and a a DWWR,
and the Roo also updates that information because it was filed after the company filed its response to the staff report. K. K. Thank you. Staff. Mister chair, vice chair, commissioners. Burton Baxter again for staff. Staff supports the rules written in the revised hearing proposed amendment one and is available for questions. K. Thank you. Is there anybody from the company? Sure. You can either use the podium or have a seat, whatever whichever one you want. Guys. So bear with us. My name is Dan Daylor. I'm the, board president for the Tonner Creek Estates homeowner association.
We also own our water company, Tonner Creek Water Company. So the whole, background of this, for the report, we're trying to fix, sixty year old infrastructure problems update, and then for our objective is to provide our residents with safe, clean, reliable drinking water for the indefinite future. So we went through an emergency rate case 2024. I got implemented to kinda stabilize, the mess. And now we've gotten, dug into the weeds and identified all the issues we need to address and update. And, that's why we're applying for this this permanent rate increase. That'll allow us to replace our,
water tanks that are wearing out, our, 78 meters, the service lines go to those meters, as well as, strategic shut shutoff valves throughout the neighborhood for isolating leaks and that sort of thing. So, that's who we are. We wanna make sure that we have safe reliable drinking water for our our residents and, available for questions. Alright. Thank you. And, again, I don't see any public comments. So, with that, commissioner questions. Commissioner Wrightford. Yes. Thank you, sir. Thank you for coming. And what was your name again? My name is Dan Daylor. Daylor. Okay. Nice to meet you, mister Daylor. Thanks. Really important, I think, when the operator is in attendance,
I understand you're a nonprofit HOA. How long have you been the president or or engaged with the water utility? A couple years now. Yeah. You were here for the emergency rate case? Correct. Okay. And so can you tell us a little bit more, I guess, why the HOA fronted money after that emergency rate case that didn't come before the commission? Were you is there an awareness? Our our pump house basically failed, so we needed to do an emergency repair. So we, basically, spent the money from our HOA loan to the water company to kinda stabilize that situation. And as we're doing that, we're engaging in this application for the rate increase.
Okay. So and so you have an understanding as to how that wasn't through the commission, which is a proper process. Right. We're we're learning this process as we go for sure. Okay. That's fine. Make sure that was clear. Let's end I think 78 customers is what you've you serve in your HOA, and I saw no comments. Are the homeowners completely aware? Have they been notified? Have you communicated with the homeowners? Yes, ma'am. And we have a, a water commit or a committee that we've established from local residents as well to kind of advise and assist subject matter experts to kinda help dig through this, this process. But we've been completely engaged with our our community,
regular notifications. We're talking through we have annual meetings, quarterly meetings for our HOA board, and we bring up these issues every every time. So they're available for comment or questions and engagement. So, it's a it's a small tight knit community. We all know each other. So there's, if there's dissension, there's always questions, critical questions back and forth, that sort of thing. But everyone is on board and and recognizes that we need to to have a a sustainable permanent rate increase, that our rates have been too low for too many years, and that's put us in this in this corner where we need to, basically raise funds to to repair our infrastructure.
Okay. Yeah. Thank you. And and a question for our administrative law judge, if I could, please. Just so I understand, the base rates for the smallest meter, the staff proposed $41, but the order included $52. Can you talk about that difference, please? The well, I I'm sorry. Chairman, and commissioners, the issue that the Roo discovered was that it appeared that under staff's recommended rates, the company was not going to generate enough revenues to meet the WIF alone,
minimum requirement of a DSC of 1.2. So the recommended order increased those revenues to make sure that the company was set up for success with WIPA. Okay. So it was just raising those base rates among the various customer classes. And And I heard the staff say they supported the route. So this and I see Brit nodding his head. Okay. Just wanted to verify that. And so no further questions. Thank you. Thank you. Commissioner Thompson? Has has the utility prioritized the projects or is this kinda like is your list
all inclusive of of bringing the utility all the way up? Because what I struggle with is a 300% increase. It would probably be one of the highest increases that this commission has ever implemented. For sure. And it's a tough pill for me to swallow. I think the first part of that is our rates have been too low for too long, so that's why we're gonna have a huge increase in the percentage rate increase. And then, yes, we've we prioritize, so our basic infrastructure, you know, water or a well up to storage tanks to pressure tank,
top to the distribution lines, to the meters. Right now, our our two water tanks are springing up multiple weeks, so there's metal fatigue that we need to replace. So that's kind of our number one priority. And then from there, we'll work our way down. Obviously, the meters will stabilize our ability to accurately, assess how much water is being used. So that'd be our second priority. And then eventually, the distribution lines further down the road to make sure that, you know, we're fixing 60 year old pipes that are continuously breaking. Do do you know off the top of your head what your, annual water loss is? We're, we're in the process of stabilizing the Zembrick's.
It's been widely misread, or our inability to measure that accurately has been an issue. So we wanna have, we now have kind of a baseline, and we're able to to monitor that more accurately as well. Okay. But we've had a number of leaks where, you know, we've dumped many thousands of gallons of water out until we were able to fix those leaks. We're trying to address that and keep that from happening in the future. Okay. And and I, I did note that we didn't have any comments in the in the docket from customer opposition. So kudos to you going out and talking with the community and getting the community
involved. I just I wish that some of our other utilities would do the exact same, that have been before us recently. So, so thank you for for that. No further questions. Vice, you're welcome. Yeah. So I have some some questions about the loan that wasn't included in the recommended order and opinion. So if the the judge in stack can help, answer this, is there gonna be, sufficient revenue, for this company without including the the repayment of that loan, the principal balance of it,
the one that they're asking to be the one that was excluded, for the one year repayment. I'll I'll start with our our ALJ. Hi. Commissioner Walden, I I believe that the, increase in the revenues, the recommended order actually increases staff's recommended revenues by $15,750. And in the end result, we'll give the company, I believe, a cash flow of $24,795 for contingencies. So if there's,
you know, if they have any, you know, emergency that comes up, they should be able to not only, address any operational issues as well as any contingencies Alright. Thank you. And then, for for staff, do you have any comments on that? Mister chair, vice chair, commissioners, vice chair, I would say that with the revenue requirement in the Roo, and as judge Kinsey pointed out, there'll be some cash available for contingencies. It's possible that the water company will be able to pay some of that loan back to the HOA. I would just,
sitting here today, suggest that they make sure that the water company has sufficient reserves to be able to respond to a a future emergency while they're going through the WIFA due diligence process to get the other projects taken care of. But I believe with the revenue requirement in the Roo, they'll probably be able to pay at least some of that loan back. Alright. And, mister Daylor, do you have any comments you'd like to add? No. Appreciate your time. Thank you. Yeah. Thank you. And, this is a a question for mister Baxter. Is it a possibility that the WIF alone could be partially or fully forgiven?
Mister chair, vice chair, that's always a possibility. Given where this community is, I see it pretty likely. I didn't add the color around the last item. Mister Armstead touched on the infrastructure projects that were done for Jake's Corner and a sister company, Arroyo. Those companies got a 100% forgiven from WIFA. I I don't think that will happen here. This is well above the threshold that WIFA has for 100% forgiven, but I could see a decent amount. There was a ACC regulated system on the FPC agenda yesterday,
and they got 75% forgiven, I believe, with a 5.625% interest rate. So to give the commission some context of what the system could potentially be looking at, that might be somewhat comparable. Alright. Thank you. That's all my questions. Thank you. K. Commissioner Lopez? Taking that a step further, when those forgiveness has come, my assumption is that, again, it's an immediate response by the by the utility to reduce the rate in accordance with when when those forgiveness has come. Do those usually come when the loan is,
a a year into payment, five years? I mean, when when do forgiveness is usually come or is it based on budget every year? So mister chair, vice chair, commissioners, commissioner Lopez, from a WIFA perspective as their staff is doing their due diligence, looking at the the project, the scope of it, if it's addressing it in emerging emerging contaminant, the median income of the the system relative to the state average, WIFA has a matrix that they apply. At the time that they've done their due diligence, they present to the WIFA FPC, which I'm the commission's representative on that committee.
We then make recommendations to the full WIFA board to approve the projects that come before us. Once the full WIFPA board approves it, it's the package that number is in that package. So they'll know as soon as WIFPA board has approved the loan how much is forgiven. Okay. And then that's trickle down to the utility in order to reduce rates accordingly for whatever has been Right. So one once they've got those terms finalized from the WIFA board, this rue has a provision that they, request an implementation of the surcharge.
It's at that point where our staff will be able to look at the actual terms, how much was forgiven, how much the interest rate is, and then how much they'll need to meet the DSC requirements of WIFA through the surcharge. There's a potential with the forgiven, the interest rate, they might not need a surcharge. But once we know those actual terms, we can do the math and present with the commission what we believe is appropriate. Perfect. Yeah. So this is the high watermark of where the rates would be, but, again, with the forgiveness, it could help out those, the the ratepayers. So one of the questions you addressed earlier about the water tank,
again, kinda wondering why I understand that water tanks are old, but but some can last long, but it depends. So it looks like their their show their fatigue is showing and leaks are are are prevalent. So, I understand the replacement need there now. But can you clarify? Because my understanding is that this the utility is listed as a for profit, but then you mentioned it's owned by the HOA. There's a 24,000, $24,000 ish, revenue that's gonna be gotten every where does that money go? Is that going to you? Is that going to the HOA? If it's the HOA owns it, is HOA is a nonprofit. So is this a nonprofit?
I'm trying to understand what the relationship here and where that money would go. You bet. And we just, our HOA gave basically gave an emergency loan to the water company to cover the repairs for our pump house and kinda get us stabilized there. And so we figure out this sort sort through this process and get this stabilized. And then, the intention is to repay the the HOA from the water company. Get our our, Who who owns the company? It's technically the Tonno Creek Estates homeowners association. So the HOA does own the Correct. The company. So the revenues are going to the HOA. Right.
And then in turn, you know, maybe eventually back to the owners if we decide to do that. There's a number of things, you know, a number of projects we wanna do with the with the community, obviously. So, we're sorting through that. Okay. Yeah. It seems yeah. I don't know what oversight we have on it. To me, that causes me a little bit of concern because, again, the owner HOA loaned to the company but owns the company, and now the company is gonna be making money for the HOA. And as we kinda mentioned about keeping those funds available instead of the HOA taking the money to pay back the loan versus Yeah.
You know, maintaining a a again, an emergency fund. Our intent is to have those two entities, obviously separated Okay. Financially. So the part company will be self sustaining, not not feeding into the HOA. It was just a temporary bridge to keep us keep us afloat there. Okay. Yeah. We had to kinda get it just a validation, you know, trust but verify. You bet. Making sure that separation still exists. So okay. That was my only concern. Thank you. My only question. Alright. Thank you. Commissioner Thompson has Yeah. Were the HOA fees ever increased to recover any of the $24,000
loan? No. And we're we're gonna once we get the water company stabilized, we're gonna assess our HOA funds and all that kind of stuff. But, again, our intent is to, balance out the books, make sure that we repay anything that was given to the water company, and then, in turn to the owners. K. Thank you. Here, I have a follow-up question too. Sure. That'd be our end. So, mister Jay, just to clarify, is anyone paid to operate the water utility? No. No. And what is the longevity of your leadership of the HOA if you're the one leading this effort? Because it's almost a million dollar loan you'll be responsible for. Yep. So we're on a,
you know, two year term for our HOA, board, presence. So we're voted every two years, and then, the board votes to elect the president. I've been the president, I think, for two or three years now. So we're there for perpetuity, as long as it takes. Our goal is to see this project through, get us on a self sustaining path and, for the indefinite future. So we'll be there as long as it takes. If not if not myself and somebody else in the community, we'll be the board president and have that continuity. Okay. Because, I mean, similar to commissioner Lopez's comments, I always have concerns with an HOA operating of water utility because that change in
leadership and lack of knowledge. A community that's, you know, it's my grandparents were, you know, some of the original members of this community. It's kinda generational, so we're there for the long term. And the same similar with all the other families in the community. So it's not, there's not a lot of movement in terms of people moving in, moving out, so we have a lot of, longevity there. Okay. Thank you. Any other follow ups? Alright. The only question I have is, you're not you you said you're not paying anybody to Sherpa's water company. So does that mean you're replacing pipe? Sometimes. But we have a we're gonna our plan is to have, you know,
a project manager identified and go through an engineering all the engineering reviews and designs and that kind of stuff to have the correct infrastructure that we need for that neighborhood. Okay. Alright. I think that's all the I'm sorry. With that, we do have a a water operator that does, most of these things and, you know, repairs and then also reading meters and that sort of thing too. So Okay. We contract that out. Good. Thank you. Okay. I think that's it. Vice chair Wallen. I move item number 17 for a vote. Oh, I forgot about the amendment. Thank you. Alright. We'll take that back. Yeah. Take that back.
Strike that. I I've withdrawn. I move hearing division revised amendment number one for discussion. K. We already heard from the judge. Any comment from staff? Any comment from the company? Commissioners? Alright. Alright. I move, hearing division revised amendment number one for a vote. K. Please cast your votes. There it is. And the amendment passes with a five zero vote. Bless your Walden. I move item number 17 as amended for a vote. Okay. Please cast them. And again, with a five zero vote,
this item passes as amended. I appreciate it. Thank you. Cheers. Alright. I believe that is it for this meeting. And let's so thank you, everybody, and we are adjourned.