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30:15Good morning. I'm Eric Blank and we're
30:18back on the record in 25-0494E
30:23public service company of Colorado's uh
30:26electric rate case. Uh, as I understand
30:30it, uh, the witness order today is
30:34Pascuchi,
30:35Hansen, Wer,
30:38Bulley, Nickel, and then on to the staff
30:42witnesses, uh, uh, Dr. Dep Pew Lei Dy
30:49uh
30:51uh maybe uh Bonier Dina
30:55on Ste and O'Neal.
30:58So uh just check in make sure that's the
31:01order uh and any preliminary uh matters.
31:05Miss uh Miss Mclacklin.
31:08>> Thank you chair. I just wanted to
31:09clarify if the commission had questions
31:11for Miss Hoe from staff. I believe last
31:14week there was somebody that might have
31:16had questions for her.
31:18>> Uh
31:19I do not have uh uh questions for her.
31:23Commissioner Plant,
31:24>> I do not.
31:25>> Commissioner Gman,
31:33>> sorry, I was looking at all my
31:34documents. Um no, I don't.
31:37>> Okay. Thank you so much. Appreciate it.
31:39I
31:39>> think she can be excused. Thank you.
31:42Uh, any other preliminary matters before
31:46we jump to Mr. Pascuchi?
31:51>> Not on your end or on our end. Sorry.
31:54[laughter]
31:54>> I think I already said that.
31:58Uh, Mr. Pascuchi, uh, can you raise your
32:01right hand?
32:03Do you swear to tell the truth, the
32:04whole truth, nothing but the truth?
32:06>> I do.
32:08>> Put your hand down. Is anybody with you
32:10or communicating with you in any way?
32:12>> No.
32:13>> If that changes, will you let us know?
32:16>> Yes.
32:17>> Uh I think he's ready for cross. Uh uh
32:21should we just jump to cross, Mr. Zmer,
32:23or do you have uh anything for him?
32:27>> No, we can uh we can jump.
32:30>> Okay, Miss Nelson,
32:32>> I have uh what do I got? I got
32:35>> 60 minutes, I think.
32:37Yes. 60 minutes.
32:39>> Thank you. Uh, good morning, Mr.
32:41Pascuchi. This is Michelle Singer
32:43Nelson. I know we've met before, but for
32:45the record, I represent the UCA. Good to
32:47see you.
32:49>> Good to see you, too. Good morning, Miss
32:50Nelson.
32:51>> Um, let's start with um an hearing
32:55exhibit 310 attachment LHS41.
33:01It's an attachment to Miss Henry Seros's
33:05testimony.
33:11And while that's being pulled up, Mr.
33:12Pascuchi, it's the May 2026 monthly
33:16Comanche report,
33:19>> correct?
33:29>> Uh, can we Oh, so will you identify this
33:31for the record, please?
33:34>> Uh, yes. It is the May. It is the
33:37monthly Comanche report filed in
33:38proceeding number 25E0480E
33:42filed on May 15, 2026.
33:45>> Thank you. Can we turn to page four,
33:47please?
33:52Can everybody see that? Is it big
33:54enough? Oh, there you go. Perfect. Thank
33:56you. So uh this table is um uh Comanche
34:02units two and three production reporting
34:06and it shows that with regard to unit 3
34:10that
34:12uh Comanche unit 3 had zero total
34:17megawatt hours of energy production in
34:21the month of April. Isn't that right?
34:24>> Yes, that's correct. the unit was in
34:26outage during the month of April.
34:28>> And each monthly report for unit 3 since
34:31August 2025 has also reported zero
34:35megawws produced.
34:37>> Yes, the unit's been in outage since
34:39August 2025 and is expected to return to
34:42service in August of 2026.
34:47>> Is uh is this Oh, here let's move to
34:51uh the next page, please.
34:57And now this uh these charts table two
35:01shows for the month of April 2026
35:04unit 3 had actual O andM costs for non
35:08fuel 3.5 million. Is that right?
35:12>> Yes, that's correct.
35:14>> And actual O andM costs including or
35:17relating to fuel is 600,000.
35:21>> Yes, that's correct. And the actual
35:24capital expendes
35:26expenditures for nonoutage related um
35:29costs were 700,000. Is that right?
35:32>> Yes, that's correct.
35:34>> Are these numbers for all owners related
35:38to Comanche unit 3 or is it this just
35:41public services share?
35:47>> Do you know?
35:49>> I do. Well, I was just looking. I
35:50thought somewhere on this page or one of
35:52the pages we had footnoted it, but I
35:54believe um might be footnote
35:56[clears throat] um number eight, but one
35:58of the footnotes in here um I believe
36:00states that it is pios only costs.
36:03>> Okay, thank you. Um and then table three
36:07shows um for unit three again uh the
36:11forecasted on&m costs for nonfuel at
36:1527.6 million.
36:18>> That's correct. forecasted on&m cost for
36:21fuel at 7.1 million.
36:24>> That's correct.
36:25>> And forecasted capital expenditures
36:28nonoutage related at 1.1 million.
36:31>> That's correct.
36:34>> Uh can we turn to page six please?
36:41Now, I know you just mentioned that it's
36:44uh
36:47that command sheet 3 is slated for
36:51return to service in August of 2026. Um
36:55so this table shows that the return to
36:58service date is July. Do you have an
37:00update for the commission?
37:04>> Yes. U since filing this report, we've
37:06received additional information from the
37:08manufacturer who's working on the repair
37:10of the turbine to let us know that due
37:12to supply chain delays, um they won't be
37:15able to return the unit or the turbine
37:18to us in time for the remaining
37:21installation and commissioning work to
37:22be done for July. And we now expect that
37:25to be ready in on or about um August 15,
37:282026.
37:31>> Thank you.
37:33Turning to page seven.
37:39Um so this is table five is a summary of
37:42actual costs for unit 3 return to
37:44service month ending April. Um and it
37:48shows the actual capital capital
37:50expenditures for return to service are
37:53300,000.
37:55>> Yes, that's correct.
37:57>> Is that still true or have the costs
37:59increased?
38:00I believe those are costs for that month
38:03alone. Um it's not a cumulative number.
38:06>> That's right. Thank you for that
38:07clarification. That's true. Um so do you
38:10based on what you said um do you expect
38:12the cost to increase for May?
38:18>> Um I I don't know that I expect the cost
38:20to increase. Each month will have a
38:22different cost depending upon the amount
38:25of work that's done or completed um with
38:28respect to the project. So it'll depend
38:29on what what different parts of the
38:32return to service work are completed in
38:34that month. Um I think the overall costs
38:38that you see in table six um I'm not
38:41aware of any change to those total costs
38:43that total range.
38:44>> Okay. And that total range is 8 to 13
38:47million.
38:48>> Yes, that's correct.
38:54I'm sorry just uh sorry for interrupting
38:57but just to clarify the combined cost
39:00would be 10 to 18 million
39:04>> just the capital just the capital cost
39:06for 8 to 13 correct
39:08>> 8 to 13 yes that's correct uh
39:10commissioner plant that is the capital
39:12cost estimate um of the return to
39:14service and again I believe that is the
39:17company's share of that and that number
39:20would be absent any insurance related um
39:24reimbursements
39:26>> that that's also absent on and m correct
39:29so be 10 to it would be 10 to 18 million
39:32total
39:33>> correct yes
39:34>> thank you
39:35>> can I ask one more question too did you
39:37say uh kamanche 3 is now coming back
39:40online August 15th 2026
39:44>> that's the current schedule expectation
39:46yes um chairman blank I was um denoting
39:49from Miss Nelson that since filing the
39:51May report, we have received additional
39:53information that Mitsubishi, who is
39:55repairing the turbine, um has indicated
39:58they will not be able to return it to us
40:00on the schedule they expected, which has
40:02therefore delayed the installation and
40:05commissioning work that is being
40:07conducted at the site. So, we now expect
40:09it August 15th
40:11>> to be in service is the August 15th
40:13date.
40:14>> Yes, that that is the current schedule
40:15for in service and and operation.
40:23Is there any other questions relating to
40:25this? I was going to pull it down. No.
40:29Okay. Thank you. Um, thank you, Mr.
40:31Prescui. We can pull this exhibit down.
40:34Now, let's
40:36um Well, first of all, I'm going to go
40:40to the hearing agreement or the Sorry,
40:45it's early. I'm going to go to the
40:47non-unanimous agreement in a minute, but
40:50before that, um, I understand that 2030
40:54is the last planned year of operation
40:56for the Comanche 3 unit. Is that still
40:59true?
41:00>> Yes, that's still true.
41:01And in your testimony, you state that
41:05once a coal plant is designated for
41:08retirement, the company's capital
41:10investment plan related to the unit will
41:14change to reflect the goal of drawing
41:17down capital investment to where the
41:20depreciable and operational value of the
41:24unit is as close to zero as reasonably
41:28possible. Do you recall that?
41:32>> Was that in my settlement testimony? I
41:34wasn't sure which part of testimony you
41:36were referring to.
41:37>> Hearing exhibit 112 at page 24.
41:41>> Okay. Thank you. Um, yeah, that sounds
41:43like that would have been my direct
41:44testimony then. And yes, do recall that.
41:48And you also state in that same
41:50testimony that the strategy
41:54um relating to coal plants designated
41:56for retirement is designed to maximize
41:59the customer realization of value from
42:02the investment while minimizing ongoing
42:05investment that could create stranded or
42:08undepreciated assets. Do you recall you
42:12saying that in your testimony?
42:15>> Yes. And that's um generally a strategy
42:17for any unit that's retiring is you
42:19don't want to be making significantly
42:21large capital investments into a unit um
42:24shortly before retirement. Um and that's
42:27that's kind of the the way you try to
42:29balance both keeping a unit operational
42:32but also making sure that you're not
42:34overinvesting into a unit with a limited
42:36lifetime left.
42:37>> Thank you. Um, now let's move to hearing
42:41exhibit 155
42:44and we can pull that up please.
42:54Mr. Piscuchi, are you familiar with this
42:56document?
42:58>> Yes.
42:59>> Okay. Can we turn to page 21, please?
43:08All right. Um, if we scroll down a
43:12little bit, the agreement starts
43:13discussing the Comanche unit 3 um,
43:18agreement or the terms relating to the
43:22Comanche unit 3 and then the performance
43:24framework that has been agreed to by the
43:27settling parties. Um so starting at page
43:3039
43:32um this paragraph um shows the proposal
43:36that the settling parties agree that
43:39Comanche unit 3 will be included in the
43:42settlement test year rate base and
43:44revenue requirement. Correct.
43:46>> Yes, that's correct.
43:49And then um starting well paragraph 40
43:52and its subp parts then talk about how
43:55the settling parties agree to the
43:58creation of a unit 3 performance
44:02framework to apply from the date new
44:05rates from this proceeding take effect
44:08through December 31st 2029.
44:12Is that right?
44:13>> Yes, that's correct. I'm going to focus
44:16on um sub paragraph starting at sub
44:19paragraph D. We can go there.
44:24Thank you. Um so here's where you you
44:28talk about the performance framework and
44:30how it'll work. Um, first you say in
44:34subp paragraph D that the framework only
44:37provides for penalties and no incentive
44:39may be earned by the company
44:43and any penalties. The last line there
44:46says any penalties incurred would be
44:48refunded to customers the following year
44:52but subject to true up based on final
44:56penalties and offsets.
44:59You see that?
45:01Yes.
45:02>> Okay. So, pen any penalties
45:04um will be subject to true up based on
45:09something called offsets. Um and a
45:13paragraph sub paragraph E then goes and
45:15talks about overperformance of Comanche
45:193 and it says overperformance during the
45:23performance implement implementation
45:25period can be used as an offset to past
45:29or future penalties. Correct?
45:33>> Yes, that's correct.
45:37Um, and then subpar paragraph F says the
45:41company's best estimate of any
45:43disincentive earned. So that would be
45:46the penalty. Was that right?
45:48Disincentive.
45:49>> Yes.
45:50>> Okay.
45:50>> Yes, that would be the penalty.
45:52>> Um, will be returned to customers
45:54through the ECA beginning with the
45:57second quarterly ECA of the subsequent
46:00year for a period of four quarters. But
46:04then it says evaluation, reconciliation,
46:07and true up will occur as part of an
46:09annual prudence review.
46:13And it at that point, the company's best
46:16estimate of any offsets earned and
46:19applied to potential future
46:21disincentives will be tracked in a
46:23regulatory asset with no carrying
46:26charge. Um, if the company chooses to
46:29apply any offsets earned against prior
46:32disincentives, the company will
46:34incorporate its best estimate of the
46:37offset to its second quarterly ECA
46:40following year end. And this estimate
46:44will be subject to evaluation,
46:46reconciliation, and true up as part of
46:49the next annual prudence review. Did I
46:52read that correctly?
46:54>> Yes, you did. So I I um trying to
46:58understand how this all works together,
47:00those three subp paragraphs. So, it
47:02looks like if in one year um let's say
47:07the company incurs a penalty, let's just
47:10pick a number of $10 million
47:13um and then um the next year
47:19the company
47:21um earns an overperformance
47:24what is it called? an overperformance
47:28>> offset
47:29>> or offset
47:31um of let's say 6,000 or $6 million. In
47:36that situation, then does the company
47:39actually pay the $10 million for the
47:42first year and then um then get a refund
47:47of the $6 million the next year? I I
47:51don't understand exactly how that works.
47:53Could you explain that, please?
47:55>> Sure. Um so in your example where let's
47:58say in um 2027 the company earns a
48:02disincentive of $10 million and then in
48:042028 earns an incentive um or an offset.
48:08I shouldn't call it an incentive because
48:10it's not there's no financial earnings
48:12to the company but um instead earns an
48:15offset of $6 million.
48:19Most likely by that time the $10 million
48:21would have already been refunded to
48:23customers because at year end you
48:26reconcile. We we kind of set aside the
48:28first quarter for us to reconcile um and
48:31calculate what the outcome is. Then
48:33beginning in the second quarter you'd
48:35start the return um with it being a six
48:38$10 million you would amvertise at about
48:41$2.5 million a quarter through the
48:43second, third, fourth and then first
48:45quarter of the following year 2028. Um,
48:49you then take the first quarter of the
48:50next year. You would reconcile that
48:52again. Um, in your example, the company
48:55has earned the $6 million offset. The
48:58company has two choices. It can either
49:01take that $6 million offset, put it in a
49:03regulatory asset, which would earn no
49:06carrying charge. Um, there'd be no
49:08interest on that, and use it to offset a
49:12future
49:13disincentive if one was earned. or could
49:17um seek to reduce the prior year's
49:20disincentive of $10 million resulting in
49:22a net disincentive of $4 million.
49:26>> Okay. So, in that situation, the um
49:30rateayers will not receive the full $10
49:33million for that first year. Is that
49:38right?
49:39>> That's correct. The offset is designed
49:41to incentivize the company to provide an
49:44over to to exceed or I guess in this
49:48case have a an outage factor that's
49:51below the baseline. Um but there's no
49:54world in which the company can receive a
49:56financial incentive for doing so. Um, if
50:00for example there was no disincentive in
50:03year 1 in 2027, but in year two you had
50:06the $6 million overperformance and you
50:09have the offset, the company cannot then
50:11claim a $6 million incentive. U we would
50:15simply hold that with no carrying charge
50:18um to see if future years had a
50:21disincentive.
50:23um is the uh
50:27let's say okay the the company earned
50:30after all of the true ups and offsets
50:33are applied in that example is um any
50:39increase in the um the amount let's say
50:44the offset does it get added to the $105
50:49million of revenue require requirement
50:52that the company earns on unit 3.
50:58>> I'm not sure I understand your question,
51:01Miss Nelson. Um, if if there was a
51:04situation where the company never earned
51:06a disincentive but had $105 million or
51:10sorry, had a $6 million offset in one
51:13year, we would never recover $6 million.
51:16If that's your question, we would not in
51:18in one year say we now have an offset,
51:20we're going to recover that. The offset
51:22can only be used to offset an earned
51:26disinccentive. And the point of the
51:28trueup language that's in there is
51:30really to say the company makes its best
51:32estimate of what that is, parties
51:36through the prudence review have an
51:38opportunity to review and evaluate that.
51:40We wanted to have language in there that
51:42should a party find an error or there be
51:45a disagreement that is litigated around
51:48the company's calculation that there is
51:50a process by which that is chewed up and
51:52reconciled. Um it it's really just
51:55preserving the party's right to to
51:58evaluate the company's calculation.
52:01>> Okay. So the there's not going to be a
52:03situation based on these these balancing
52:06factors in the settlement agreement that
52:09the company would be able to earn more
52:12than $105 million on Comanche 3 in a
52:16year just based on on the uh performance
52:21framework.
52:22>> Correct. The company cannot add the
52:24offset to its revenue requirement to to
52:28get additional revenue. it can only use
52:30it to offset previous or future years.
52:33So I I I guess to to be a bit more clear
52:36here is
52:37>> in your your example of $10 million
52:40disincentive in 27, $6 million of offset
52:45in 28, you would in 29 have more than
52:51$105 million in your revenue
52:53requirement. But that's simply a timing
52:56factor of you can't go back to 2028 when
53:00you're reconciling the or you're you're
53:03crediting the $10 million and reduce
53:06that to $4 million. So there will be
53:09there could be a situation where a
53:11future offset is used to offset a
53:14historic disincentive and so your
53:17revenue requirement may be higher but
53:19it's only if you're offsetting a
53:21previously earned disincentive.
53:25Thank you for that.
53:27>> It's very confusing.
53:30>> It is a complicated mechanism. Um but
53:33complicated in that the the Comanche 3
53:36situation is is quite complicated in
53:38itself.
53:42>> Um
53:44let's see.
53:48I think that takes care of those
53:52questions. Um but
53:56so just for clarification of the record,
54:00the overperformance that's described in
54:03subp paragraph E um is not limited to
54:08Comanche 3 performing at full or 100%
54:12availability in a year. Isn't that
54:14right?
54:16>> Correct. It's a linear um offset that's
54:20earned based upon performance. Um,
54:22perfect performance would get you the
54:24maximum offset. Uh, but performance
54:28above the dead band. Um, between the
54:30deadband and perfect performance would
54:32also earn you an offset.
54:41Um, Mr. Puchi, none of the settling
54:44parties produced a quantitative analysis
54:47in this case showing that allowing
54:50penalty offsets improves plant
54:52performance. Did you?
54:56>> Um, I'm not sure how you'd provide a
54:59quantitative analysis of that. Um I can
55:02say from the company's perspective
55:06the more symmetric or the more
55:09opportunity for incentive that a
55:11performance mechanism has um it provides
55:15not only essentially a a stick but also
55:18a carrot um and provides kind of an
55:22incentive to plant operators to do what
55:24they can um to continue to improve
55:27performance. It's kind of the the
55:29benefit of having a pin that symmetric
55:31provides both carrot and stick.
55:36>> Um, none of the settling parties show a
55:39comparison in this case between the
55:41incentive created by a pure penalty
55:45versus an offset mechanism. Correct.
55:51>> Can you repeat the question?
55:53>> Sure. None of the settling parties show
55:56a comparison
55:58in this case between the incentive
56:00created by a pure penalty
56:04versus an offset mechanism that's
56:07adapted here.
56:11>> Um, no. I guess we didn't do a
56:13calculation that did not have the offset
56:17included
56:19uh in in it. Yes, there's there's no
56:21analysis out there that says there's no
56:23offset, but you look at the company's
56:25historic or backcast analysis,
56:28you have years in which there is no
56:30offset earned and only a disincentive
56:32earned. Um, so I think you can
56:35functionally see the result you're
56:37looking for in that backcast analysis.
56:41Uh but as far as uh the company or uh
56:45any of the other settling parties
56:47actually showing that more incentive is
56:51created by an offset than by a pure
56:55penalty that that is not create is not
56:58present in the record. Correct.
57:02>> Yes. Again I'm not sure how you create a
57:04qualitative analysis that shows
57:06incentive
57:08um from that perspective. the the offset
57:10provides an incentive which from the
57:15company's perspective would be a risk
57:18mitigating factor which is valuable. Um
57:21plant operators would understand that
57:23they have an opportunity to earn an
57:26offset and that offset could be used to
57:29reduce a disincentive. Um, but the real
57:33important part is that at the end of the
57:35day, the company can never increase its
57:38earnings, let's say, as you would under
57:40a typical PIM because of
57:42overperformance.
57:45>> And that Comanche 3 is not included in
57:49the company's um generating asset PIM,
57:53is it?
57:55>> No. Comanche 3 is subject to its own
57:57performance incentive mechanism.
57:59>> And why is that?
58:02uh two factors. One is the limited
58:04timeline of continued operations. Um
58:07when the company proposed the DCA pin,
58:09we had excluded units that were retiring
58:11within I believe it was 5 years. Um
58:14which based upon our analysis of the
58:17time we filed the case, the time we
58:18expected it to be resolved. U there
58:21would have been less than 5 years
58:22available. Um second many parties wanted
58:26a standalone I'll say incentive
58:29mechanism or performance framework for
58:31commande 3 which is the reason why it
58:33has its own here
58:35>> and and the reason for Comanche 3 having
58:38a standalone would be um that it's got a
58:43history of very poor performance. Is
58:46that correct?
58:48I think parties my my understanding of
58:50the party perspectives is Manis3's
58:53historic performance combined with its
58:56um relative size on the company's
58:58system. It's one of our largest units um
59:01warranted its own specific mechanism.
59:05>> Thank you. That's all I have this
59:06morning.
59:08>> Thank you.
59:09>> Thank you. Uh Miss Nelson,
59:13uh City of Boulder, I have 30 minutes.
59:25Hello, Mr. Pascuchi.
59:28My name is Verie Vanim and I'm here on
59:30behalf of the city of Boulder.
59:33>> Good morning.
59:35>> We're just going to talk through a
59:37couple issues today um about the
59:40different performance incentive
59:42mechanisms that are proposed. thing I
59:45would change is the drivetrain. Um, I
59:47would focus on something that is
59:48mountain bik.
59:54>> Sorry about that.
59:56>> Thank you. Um, proposed in the in um and
1:00:01and how they changed during the son of
1:00:04um are you familiar with the answer
1:00:07testimony of Mr. Matthew Lairman?
1:00:10>> I am. Yes.
1:00:12And you reviewed the sections on the
1:00:14dispatchable capacity availability
1:00:16performance incentive mechanism.
1:00:19>> I did. Yes.
1:00:21>> You stated in your direct testimony that
1:00:23the expansion of PIMS continues to
1:00:25warrant a more holistic consideration of
1:00:28the appropriate financial structures to
1:00:31align customer and utility incentives.
1:00:35>> Yes, I did. That's a a position I think
1:00:38the company shared in several
1:00:39proceedings now is we've developed a lot
1:00:41of one-off pimps. Um and part of our
1:00:45thought process and I think the
1:00:46settlement allows for this is that there
1:00:48needs to be more comprehensive reporting
1:00:50and analysis so that all parties can
1:00:52truly understand the number of PIMs out
1:00:54there, the impact of those PIMs and what
1:00:57they they all mean.
1:01:00You you also stated that um a more
1:01:03utilitywide approach to performance
1:01:05incentives is appropriate um as you just
1:01:07described um to fully align the
1:01:10commission's policy goals with
1:01:12operations, provide appropriate
1:01:14flexibility, and ensure more consistent
1:01:16and predictable outcomes. So that's
1:01:18consistent with what you were just
1:01:20saying.
1:01:21>> [snorts]
1:01:21>> Would you agree that um continued pro
1:01:24proliferation of PIMS is increasingly
1:01:27likely to create confusion and
1:01:29unintended consequences
1:01:32>> and unexpected outcomes. Yes, I think
1:01:35that's that remains the company's
1:01:37position is that we want to um be
1:01:39judicious in the continued application
1:01:41of PIMs and expansion of those. And um
1:01:44as we've talked about in the past, a
1:01:46more performance-based rate making or or
1:01:50utilitywide perspective might be more
1:01:52appropriate than individual PIMs.
1:01:56>> Um and public service proposes that the
1:01:59DCA PIM be in effect from 2026 through
1:02:022029. Correct.
1:02:05I believe we said for 3 years or we
1:02:09would have reevaluated it in the next
1:02:10electric rate case. So I think there's
1:02:13potential for it to be at least modified
1:02:16um depending on the timing of the next
1:02:17rate case.
1:02:19>> Okay. Thank you. Um public services
1:02:23capacity position is negative for all of
1:02:262027 and in the winter of 2028. Correct.
1:02:32When we say the winter of 2028, um just
1:02:34to be clear that it would be your
1:02:36December 2027 through I believe it's
1:02:38February of 2028 position. So yes,
1:02:44>> you agree that there is limited capacity
1:02:46available from units not currently
1:02:48serving public service customers.
1:02:53>> I would say
1:02:55there is limited opportunity to bring on
1:02:57new generation um in that time frame.
1:03:00for example, you're you're unlikely to
1:03:01be able to identify a new utility scale
1:03:04project, get it approved and built in
1:03:08time for summer 27. Um, similarly, there
1:03:11are market constraints that are
1:03:13challenging the ability to simply just
1:03:16purchase large quantities of energy from
1:03:18from the market. Yes.
1:03:23And so public service generates earnings
1:03:25on its own generation units even if they
1:03:28are unavailable due to an unplanned
1:03:30outage. Correct?
1:03:34>> Generally, yes, that would be correct.
1:03:37>> There are risks to customers if public
1:03:39service fails to maintain its generation
1:03:41fleet.
1:03:43>> Yes, that's correct. And I think that's
1:03:45one of the reasons for this dispatchable
1:03:47capacity PIM is if the company does not
1:03:50maintain it, there is a significant
1:03:52disincentive
1:03:54um of depending on the situation over I
1:03:57think you get up to about $15 million
1:04:01per year um for underperformance of the
1:04:03fleet.
1:04:06>> And and one of those risks
1:04:09also are is that customers could
1:04:11experience outages. Correct.
1:04:15Um, yes, there is a risk that if there's
1:04:17insufficient generation, you could be in
1:04:19a position where you you can't serve
1:04:22load. Um, I'm not aware of a situation
1:04:25where that's happened in Excel Energy in
1:04:28the last 10 years.
1:04:31Would
1:04:33you agree that if customers experience
1:04:35outages due to the unplanned avail
1:04:38unavailability of public service
1:04:40generation that the cost to those
1:04:42customers could exceed the capped
1:04:44disincentive of the proposed DCM PIM?
1:04:51Sorry, is your question that if the
1:04:53company was unable to serve load because
1:04:54it had insufficient generation that the
1:04:57cost of say a blackout or rolling
1:05:00blackout would exceed the PIM.
1:05:03>> Correct.
1:05:05>> Um
1:05:06I don't know if I can agree with that. I
1:05:08think it would depend on several
1:05:10factors. One, the number of customers
1:05:12impacted, the duration impacted, and how
1:05:15you calculate the costs of the customer
1:05:17impact to it. Um, so I I don't know that
1:05:20I can say for sure that it would or
1:05:21would not exceed that.
1:05:23>> Okay, that's fair. And the cost to
1:05:26customers of replacement power could
1:05:28exceed the disincentive cap.
1:05:31>> Yes, the cost of replacement power
1:05:33could. Again, it would depend on um the
1:05:37number of units, the performance of
1:05:39those, but replacement power costs are
1:05:41also subject to review in the annual u
1:05:44prudence reviews. So there's an
1:05:46opportunity for parties to evaluate
1:05:47those costs as well.
1:05:50>> Okay. Thank you. Is it fair to say that
1:05:54in order to earn an incentive
1:05:5718 of the 22 22 units that were included
1:06:01in the in the DCI PIM must have an X EUF
1:06:06that is between 49 hours per year and
1:06:09144 hours per year.
1:06:13And I can bring up the
1:06:16um
1:06:18attachment if you'd like to see that.
1:06:21>> Yeah, it might be best to bring that up
1:06:23um because the we shifted around some of
1:06:26the different baselines as part of the
1:06:27settlement process. So looking at that
1:06:29might be helpful.
1:06:30>> Okay. Um, can we bring up here in
1:06:33exhibit 155 attachment 7
1:06:37the settlement DCA PIM historical
1:06:39analysis?
1:06:46>> Um, just maybe before we start, are we
1:06:49going to bring up the public version or
1:06:52the confidential version? Um, we're
1:06:54trying to go with the public version,
1:06:57um, to try to keep us out of
1:06:59confidential session if possible.
1:07:14And if we could scroll down,
1:07:22>> Miss Vanki, could I ask you one quick
1:07:24question or ask Mr. Zmer one quick
1:07:26question?
1:07:27>> Um, I know my only question was I I
1:07:30wasn't I couldn't remember exactly if we
1:07:32had um done a revised version of this
1:07:35calculator at some point. I just wanted
1:07:37to see if I could double check my memory
1:07:39of whether or not we had done a revised
1:07:41version before we go through something
1:07:42and realize we may have a rev one to it.
1:07:45I just I couldn't remember that off the
1:07:46top of my head and wanted to pause to
1:07:48make sure we all had the right version
1:07:50first.
1:07:50>> Sure. And from what I saw, I it looked
1:07:53like the 7C had a revised version, but I
1:07:57didn't see one for the public version,
1:08:01but um
1:08:04I don't know if anyone could confirm
1:08:06that for us.
1:08:09I believe
1:08:10>> if we only had a revised version for 7C,
1:08:12I I was trying to remember which had a
1:08:14revised version of of the different
1:08:15attachments. So, apologies. Just want to
1:08:17make sure that we were pulling up the
1:08:18right one.
1:08:19>> Okay. Yep. From my me memory I think
1:08:22it's it's a rev 107c. Okay. So when we
1:08:27look at um
1:08:30the
1:08:32um deadband low of um
1:08:400.56%
1:08:42and if you multiply that by
1:08:458,760
1:08:47hours per year you would get 49 hours.
1:08:51And then if you look at the deadband low
1:08:53of 1.65 65%
1:08:58and you multiply that by 8760 hours per
1:09:02year subject to check um you you would
1:09:06get 144 hours per year. So
1:09:11when you're looking at the historical
1:09:13ana an analysis 18 of the 2020 or 18 of
1:09:17the 2020 22 units um
1:09:22must have an x eo that is between 49
1:09:26hours and 144 hours per year. Would you
1:09:30agree with that?
1:09:33>> That's excluding Yeah.
1:09:35>> Yep. You're excluding Belmont 78. Yep.
1:09:39Creek. Yeah.
1:09:40>> Yes. Yes, that's correct.
1:09:43>> And has public service quantified the
1:09:45benefits to customers if public service
1:09:48earns an incentive payment based on an X
1:09:51EUF that is better than 49 to 144 hours
1:09:56per year.
1:09:58>> I don't think we've calculated that. Um
1:10:01there could be potentially several
1:10:03different benefits. um improved
1:10:07performance of the units and
1:10:08availability of the units does improve
1:10:10the forced outage rate which is an
1:10:12assumption in electric resource
1:10:14planning. It could reduce the resource
1:10:16needs you have. Um it could also mean
1:10:20that especially newer or more efficient
1:10:23units are running more frequently which
1:10:25means older or less efficient units are
1:10:27running less frequently could
1:10:28potentially reduce fuel costs or other
1:10:30associated costs with operating the
1:10:32fleet. So I don't think we've calculated
1:10:34but there at least there are some I
1:10:36think reasonably assumed benefits with
1:10:38associated with better performance
1:10:42>> and has public service quantified the
1:10:44benefits to customers if public service
1:10:46achieves the maximum incentive
1:10:49available?
1:10:52No, I don't think we've we've calculated
1:10:54what that would be. Just as I don't
1:10:56think we've calculated how
1:10:59underperformance what the the relative
1:11:01costs are to underperformance versus the
1:11:04the the
1:11:06disincentive either.
1:11:08>> Yeah. Yeah. My next question was it's is
1:11:10it fair to say that the financial
1:11:12benefit to customers is less than
1:11:15the maximum incentive?
1:11:19>> No, I don't think it would be fair to
1:11:21say that. Um, again, it it would really
1:11:24depend on things like the sustained
1:11:26overperformance of the unit, the total
1:11:29incentives earned, what that offsets as
1:11:32far as incremental resource need and the
1:11:34potential cost of those resources. Um,
1:11:37resources in um, competitive
1:11:40solicitations now are not getting
1:11:42cheaper, they're generally getting more
1:11:44expensive. So, the cost of new
1:11:46generation is getting higher to the
1:11:48extent you can avoid some through
1:11:50improved performance. I can't
1:11:52definitively say it would be better than
1:11:55the maximum, but I think you have a
1:11:57reasonable basis to assume it's not
1:11:59going to be significantly cheaper.
1:12:02>> Okay. Thank you.
1:12:05Under the DCI PIM as revised in the
1:12:08proposed settlement, public service
1:12:10would have earned an incentive in 2025.
1:12:13Correct?
1:12:16>> I believe that's correct. We would have
1:12:17earned an incentive in 2025. There were
1:12:19several years I believe we would have
1:12:20earned a disincentive and on net we
1:12:23actually would have earned I think it
1:12:24was a $6 million disincentive over the
1:12:27historic period
1:12:29>> and in 2025 public service had to ensure
1:12:32its generation fleet was available given
1:12:35the outage at Comanche unit 3 correct
1:12:40>> uh no I wouldn't characterize it as we
1:12:42had to ensure the fleet was available
1:12:43because of command 3 the company seeks
1:12:46to make its fleet available
1:12:48as much as possible under all
1:12:50circumstances. Um because Commanche unit
1:12:533 was offline, I don't think necessarily
1:12:57changes that perspective.
1:13:01>> But uh would you agree that public
1:13:04service was able to ensure its
1:13:06generation fleet was available while
1:13:08commander unit 3 was out of service
1:13:10without a pin?
1:13:15>> I would say yes. there was not a PIM
1:13:18like the DCA PIM. At the same time, the
1:13:20company recognized that with the unit
1:13:22offline, um performance of other units
1:13:25is important. Uh there is still and we
1:13:28knew at the time there was the risk of
1:13:30prudence review and other things
1:13:31associated with Comanche unit 3. Um so I
1:13:35wouldn't say the DCA PIM,
1:13:39the lack of a DCA PIM was a cause or
1:13:43effect of the 2025 results.
1:13:46Okay, thank you. Now, I'd like to talk a
1:13:49little bit about um units that aren't
1:13:52included in the PIM.
1:13:55Um public service may extend the lives
1:13:57of Comanche unit 2, Hayden one, and two
1:14:01until 2030. Correct.
1:14:06The company could seek to extend those
1:14:09unit lives, I guess, through to 2030 or
1:14:12or indefinitely, but it would all be, I
1:14:15think, subject to the commission
1:14:16approving
1:14:18such a plan. And at this time, I'm not
1:14:20aware of the company having any plan to
1:14:22extend these units up to or through
1:14:252030.
1:14:29>> Okay. Um
1:14:33if public service extends those units to
1:14:352030
1:14:37um it it would make capital investments
1:14:39in order to extend those units. Correct.
1:14:43>> Potentially it would depend on the unit
1:14:44and the timing of it. Um but any
1:14:47extension requests I think we submit
1:14:50would come with our forecast of what the
1:14:53associated capital and ONM costs of the
1:14:56extension would be.
1:14:57>> Yeah. My my next question was if public
1:15:00service extends those units to 2030, it
1:15:03incurs on M expenses in order to extend
1:15:05those units as well. Correct. Correct.
1:15:08>> Yes, that's correct.
1:15:10>> And the PIM will be effective for the
1:15:13years 2026 through 2029.
1:15:18>> Yes.
1:15:19>> And the proposed settlement agreement
1:15:21includes a PIM for Comanche unit 3.
1:15:23Correct.
1:15:25>> It does. Yes.
1:15:27So, is it the case that Comanche unit 2
1:15:29and Hayden units one and two may be
1:15:32extended for reliability reasons but
1:15:35would not be subject to a PIM?
1:15:40It's possible those units could be
1:15:42extended um
1:15:45and they would yes not be part of the
1:15:48DCA PIM. Um again, at this time, I'm not
1:15:50aware of any plan to extend those units
1:15:54um to 2030.
1:15:56Okay, thanks.
1:15:59Let's uh switch gears to the command
1:16:02unit three PM.
1:16:06Let's see here. What uh hearing exhibit
1:16:09are we on? We're on 155 attachment
1:16:14seven. Okay, thank you. Um,
1:16:19I'd kind of if we need to like to go
1:16:22between the DCA PIM attachment and the
1:16:24command unit 3 PIM attachment, which is
1:16:28six. So, let's um
1:16:32pull up Comanche unit 3 PIM attachment
1:16:35six to hearing exhibit 155.
1:16:50Not sure if you can see what we're
1:16:52getting at here, but would you agree
1:16:54that unit 3 has experienced at least
1:16:57four significant outages
1:16:59since 2020?
1:17:04It depends I think how you define
1:17:07significant but I think I can agree that
1:17:09there have been multiple outages um at
1:17:13the unit over the last 5 years
1:17:15>> and public service made capital
1:17:17investments to repair unit 3 each time.
1:17:22>> Yes, I believe that's correct.
1:17:25>> Does public service make capital
1:17:27investments to ensure plants continue to
1:17:29operate before an outage occurs?
1:17:33Yes, as part of the routine maintenance
1:17:35and uh of a unit, you would have both
1:17:38capital and potentially O andM all of
1:17:40which those costs would be or the the
1:17:43capital cost of which would be subject
1:17:45to future prudence reviews.
1:17:48>> And is it reasonable to conclude that if
1:17:50the proposed PIM is approved, public
1:17:52service has an incentive to ensure unit
1:17:543 operates?
1:17:58Yes, I believe there is an incentive
1:17:59there for us to ensure it operates as
1:18:01we're sharing um a very significant
1:18:04amount of risk in underperformance of
1:18:05the unit.
1:18:08>> And if capital investment in unit 3
1:18:10would reduce the risk that unit 3 might
1:18:13fail, public service would be
1:18:14incentivized to make that investment.
1:18:16Correct.
1:18:19>> Within some bounds. Yes. Again, with the
1:18:24capital being incurred, it would the
1:18:27recovery of that capital would not begin
1:18:29until the company's next electric rate
1:18:31case. Um, as part of that electric rate
1:18:33case proceeding, parties would be
1:18:34evaluating the company's capital
1:18:36investments. So, it's possible you could
1:18:40make an capital investment in 2026.
1:18:44Um, in 2028, file a rate case and be
1:18:47told that in 2029 you're not going to be
1:18:50eligible to recover those costs. So I
1:18:52would say any capital expenditure there
1:18:54is the inherent incentive that you earn
1:18:57on it but there is clearly risk
1:18:59associated with Comanche unit 3 that
1:19:01investment may not be deemed prudent.
1:19:05>> Okay. Um and it's still the case that
1:19:07public service will retire unit 3 at the
1:19:09end of 2030.
1:19:11>> Yes, that's correct.
1:19:16And so you somewhat made this point
1:19:18already, but is it fair to say that the
1:19:21PIM may create an incentive for public
1:19:23service to make capital investments in a
1:19:25plant that it plans to retire in less
1:19:27than 5 years?
1:19:31I
1:19:31>> think the PIM does
1:19:34the PIM has a disincentive for which
1:19:36deferred or foregone maintenance which
1:19:39would include capital investment is a
1:19:42significant risk. If the company chooses
1:19:43not to make investments that are needed
1:19:46to keep the plant running for the period
1:19:47of time that we've determined um or it's
1:19:50been approved to continue running,
1:19:51there's a clear disincentive. I think
1:19:54there remains some incentive for the
1:19:56company to
1:19:59identify other operational improvements
1:20:01that might include some capital, but
1:20:04those are not risk-free investments the
1:20:06company simply makes knowing that um
1:20:10it's going to now earn more money off of
1:20:12those. There's significant risk, I
1:20:14think, in in recovering any of those
1:20:15costs.
1:20:18And has public service made capital
1:20:20investments to return unit 3 to service
1:20:22from its 2025 outage?
1:20:26>> Yes, it has.
1:20:28>> And does public service earn a return on
1:20:31those investments?
1:20:33>> If the commission was to deem those
1:20:35costs prudent and reasonable, uh, yes,
1:20:38the company could earn a return on
1:20:40those.
1:20:43And has public service compared the
1:20:45total value of earnings from capital
1:20:47investments in unit 3 to return it to
1:20:49service with the penalty it would have
1:20:51paid in 2025 if the PIN was in place?
1:20:57>> Not that I'm aware of, but as I
1:20:59discussed with Miss Nelson, I think the
1:21:02total cost after accounting for any
1:21:05insurance
1:21:06um would be about $5 million. Um, I
1:21:10don't think the company's earnings on $5
1:21:13million of capital investment would be
1:21:15outweighed by a $30 million
1:21:17disincentive.
1:21:22>> Um, you discussed the unit 3 PIM
1:21:24structure with Miss Nelson. Do you
1:21:26recall that?
1:21:28>> I do. Yes.
1:21:29And can you explain why overperformance
1:21:31in any year should be used to offset
1:21:34past or future penalties in the proposed
1:21:37Comanche 3 performance framework?
1:21:41>> This was essentially part of the the
1:21:42settlement give and take. Um the
1:21:44perspective was there the plant
1:21:47operators and employees there. Um, while
1:21:50I don't have a quantitative value of
1:21:53this is what it's meaningful to them,
1:21:55knowing that if they underperformed in a
1:21:58prior year or there's always risk of
1:22:00underperformance in a future year,
1:22:02providing an incentive for them to bank
1:22:05an offset or achieve an offset to reduce
1:22:08that provides meaningful encouragement
1:22:11for them to continue to find ways to
1:22:14improve the unit's performance.
1:22:18But if unit 3 is out of service, public
1:22:20service must find replacement capacity
1:22:22and energy. Correct.
1:22:25>> Depending upon the timing and the
1:22:27company's um balance at that time, yes,
1:22:31we may need to procure replacement power
1:22:34>> and public service would most likely
1:22:36pursue cost recovery from rate payers
1:22:38for that capacity and energy. Correct.
1:22:42Typically those costs would be included
1:22:44as part of u for recovery and would be
1:22:46subject to a prudence review.
1:22:50>> So if I understand correctly a x eof of
1:22:5510.49% or better for unit 3 would
1:22:58generate an offset. Correct? You can see
1:23:01that here on the attachment for the
1:23:03deadband low.
1:23:05>> Yes, I believe that's the point at which
1:23:07you would begin um incurring or or you
1:23:10begin achieving an offset. Yes.
1:23:13>> And can we pull up uh hearing exhibit
1:23:17155 attachment 7 again the DCA PIM
1:23:21historical analysis.
1:23:25So for the DCA pin, the deadband high
1:23:28for Cherokee is 5.4 to 5.65 depending on
1:23:33the unit. Correct.
1:23:35>> Yes, that's correct.
1:23:37So under this uh um proposed command G3
1:23:43PIM framework, public service would
1:23:46acrew an incentive for command unit 3
1:23:48even though the reliability was worse
1:23:51than the deadband high for any of the
1:23:52gas units included in this DCA PIM. Is
1:23:56that correct?
1:23:59>> Um I would say the company doesn't earn
1:24:00an incentive. There's no financial
1:24:03incentive, no additional earnings
1:24:04because of improved performance. The
1:24:06company would earn or achieve an offset
1:24:10which it could use to reduce a
1:24:13disincentive. And yes, the the company
1:24:16could begin incurring that at a level
1:24:18higher than any of the other units,
1:24:20which is reflective both of the
1:24:24the difference between the units, both
1:24:26the historic performance of those units
1:24:28and the expected performance going
1:24:29forward.
1:24:32And this is true even though unit 3 is
1:24:34newer than any of these units. Correct.
1:24:38>> Um, unit 3 is not newer than for Sanrain
1:24:417 or 8, but otherwise I believe that's
1:24:45probably
1:24:46accurate. I'm not sure the exact
1:24:48inservice date of all the units, but I
1:24:50believe Comanche 3 is relatively new
1:24:52compared to several of these units.
1:24:56And so we're still hoping to do this
1:24:58without going into a confidential
1:24:59session, but
1:25:01um would you agree that in the
1:25:04historical analysis included in your
1:25:06testimony for each year the company
1:25:08would have acred an offset
1:25:11[clears throat] for unit 3, the company
1:25:13would have paid a penalty on a gas unit
1:25:16with comparable comparable XOF.
1:25:25Yes, I think that's correct. If the
1:25:27company had the the company's Comanche 3
1:25:29offset begins earning at a level
1:25:34higher than any of the deadband highs
1:25:36for the gas units, but again reflective
1:25:38of the fact that um many of these gas
1:25:41units have had better performance and we
1:25:44expect better performance out of those
1:25:47units going forward.
1:25:49>> And the maximum offset per year is 13.2
1:25:542 million. Correct.
1:25:59>> It is a $10 million incentive um cap,
1:26:04but then there is the fleet incentive of
1:26:082 million.
1:26:09Um, and on the flip side, the
1:26:11disincentive side of things would work
1:26:13with a $10 million disincentive cap,
1:26:15plus the $2 million fleet disincentive,
1:26:18plus I believe Caven Creek itself has a
1:26:22each unit has a $500,000
1:26:25disincentive as well if it does not
1:26:27perform within um the deadband range or
1:26:30or improve performance. So I think
1:26:34you're on the deadband side you're at
1:26:37approximately 13 or sorry on the
1:26:39disincentive side you're at
1:26:40approximately 13 million and on the
1:26:42incentive side you're at approximately
1:26:4412 million.
1:26:46So under the command she pin structure
1:26:49if in all but one year the plant
1:26:52performed reasonably but if it failed
1:26:54and was offline an entire year at most
1:26:58what is the maximum net penalty the
1:27:00company might face
1:27:04>> if unit 3 was offline for an entire year
1:27:09under the performance framework you
1:27:11would you would earn a $30 million
1:27:14disincentive
1:27:16You would also have at risk any of the
1:27:20um one costs to return the unit to
1:27:22service and replacement power cost that
1:27:24would be subject to a prudence review.
1:27:31>> Okay.
1:27:36Is it possible that Command 3 could be
1:27:40completely offline for an entire year
1:27:42and the company would pay no penalty?
1:27:55I guess it's possible. I think it's
1:27:59highly unlikely.
1:28:01um you would have to have a year in
1:28:03which
1:28:04I think you'd almost have to have
1:28:07perfect performance of the unit for
1:28:08multiple years in order to offset that
1:28:11level.
1:28:13>> Okay, thank you. That is all my
1:28:16questions, Mr. Pascuchi.
1:28:19>> Thank you. Uh thank you, Miss Vanim. Uh
1:28:24Sierra Club, I have 20 minutes. Mr.
1:28:28Ghart.
1:28:30>> Thank you, chair. And I'm going to need
1:28:32only a fraction of that time.
1:28:36>> Good morning, Mr. Mscuchi. Good to see
1:28:38you again.
1:28:39>> Good morning, Mr. Ghart. Nice to see
1:28:41you, too.
1:28:43>> So, I have a few questions on Craig one
1:28:47and then after Craig one, we'll
1:28:50transition to Comanche 3. Um so starting
1:28:53with Craig one, the settlement proposal
1:28:58for Craig one costs for the years 2026
1:29:03and going forward is to recover costs
1:29:07through the E to recover fuel costs
1:29:09through the ECA and nonfuel costs
1:29:12through the PCCA.
1:29:15>> Yes, that's correct.
1:29:17>> Okay.
1:29:18And
1:29:21uh your testimony refers to the United
1:29:24States Department of Energy orders
1:29:26requiring Craig One to remain available.
1:29:31>> Yes, that's correct. Um there has been a
1:29:33202C order issued. The unit is currently
1:29:36operating. Um and so the the settlement
1:29:40designs a way for the company to recover
1:29:42those costs associated with the
1:29:44operation subject to review and future
1:29:45princes.
1:29:48And you're generally familiar with those
1:29:51orders. You've read them.
1:29:52>> Yes, I have.
1:29:54>> Okay. Um, could we please pull out from
1:29:58sierra clubsbox.com folder hearing
1:30:00exhibit 208,
1:30:03please?
1:30:28Great. Thank you. Uh Mr. Pascuchi, this
1:30:32is the first of the 202C orders that was
1:30:36issued in December of last year. Um
1:30:40could we please scroll to page four of
1:30:43the document?
1:30:51Great. So in subp paragraph E,
1:30:56it says
1:30:58Tri-State and the co-owners are directed
1:31:00to file with the Federal Energy
1:31:02Regulatory Commission tariff revisions
1:31:04or waiverss to affixuate this order as
1:31:07needed. Rate recovery is available
1:31:09pursuant to 16 USC 824 AC. Do you see
1:31:14that?
1:31:16>> Yes.
1:31:17>> Okay. and
1:31:20the company has not filed
1:31:24a tariff revision or waiver with FK
1:31:27pursuant to this sub paragraph E.
1:31:31>> My understanding is Tri-State as the
1:31:34main owner and operator is in the
1:31:36process of developing um a filing to
1:31:39address this subparagraph. Um, as to the
1:31:42best of my knowledge, I have not seen
1:31:44what Tri-States order looks like, nor
1:31:47I'm aware of anyone within the company
1:31:48who's seen what their proposal would be.
1:31:53>> Um, but you are making you are
1:31:57requesting that the commission act now
1:31:59on Craig one cost recovery
1:32:02prior to Tri-State or the company making
1:32:05a filing
1:32:07at FRK pursuant to sub paragraph E.
1:32:11>> Yes. says we are incurring costs um
1:32:13associated with the continued operation
1:32:14of the unit. Um we are requesting it to
1:32:17be a process to recover those costs. Um
1:32:21and we have said that one those costs
1:32:23would be recovered costs would be net of
1:32:26any recovery that's occurring now since
1:32:28the unit's still in base rates and two
1:32:30would be net of any associated revenues
1:32:32associated with that. So to the extent
1:32:34that there are no costs assigned to PSCO
1:32:38the company would not recover anything.
1:32:40Um and to the extent that net costs are
1:32:44zero or negative um the company would be
1:32:47returning um or crediting customers.
1:32:52>> Um thank you. We can take this hearing
1:32:55exhibit down.
1:33:00>> I'd like to switch topics to Comanche 3
1:33:04and given you CA and Boulder's
1:33:07questions, we'll keep this brief. Um,
1:33:11so
1:33:13I think in your conversations with the
1:33:15UCA and Boulder attorneys, you
1:33:18acknowledged that one way the company
1:33:21could respond to the proposed
1:33:23performance mechanism for Comanche 3 is
1:33:26through increased capital spending at
1:33:29the unit.
1:33:32>> Yes, it's possible that additional
1:33:33capital spending could occur subject to
1:33:35the the future prudence reviews that I
1:33:37discussed.
1:33:39Okay. Uh, do you or another company
1:33:42witness have an estimate of
1:33:46the incremental annual costs needed to
1:33:50hit the target unplanned outage factor
1:33:53in the mechanism.
1:33:56>> Um, to the best of my knowledge, there's
1:33:59no incremental
1:34:02there's no forecast of incremental
1:34:04spend. Um, I'm not aware of the company
1:34:06saying now that we have this performance
1:34:07incentive, here's the extra capital
1:34:09we're going to um, commit to this unit,
1:34:12Mr. Hansen might be the better person to
1:34:14ask that question of though. Um, as he's
1:34:17responsible for overseeing the
1:34:18operations of the units.
1:34:21>> Okay. I can follow with Mr. Hansen, but
1:34:23just to clarify, as far as you're aware,
1:34:28it sounds like you're not aware of the
1:34:31company having estimated in this record
1:34:35It's going to cost X dollars per year in
1:34:37capital spending to achieve the
1:34:40unplanned outage factor target in the
1:34:43mechanism.
1:34:45Sorry, I think what I was trying to say
1:34:47is that the company already has a 5-year
1:34:50forecast of what it expects to incur
1:34:53related to maintenance outages and and
1:34:56other planned work at the unit. What I
1:34:58was I was simply trying to convey is I
1:35:00have I'm not aware of because of the PIM
1:35:04um that estimate being changed. I'm not
1:35:07aware of the company saying now that we
1:35:09know we have this performance framework,
1:35:11here's our increase to our previously
1:35:14planned assessment.
1:35:17>> Okay. But in terms of that five-year
1:35:20capital forecast for Comanche 3,
1:35:23is the company saying
1:35:26we know that under that capital forecast
1:35:28we can achieve the unplanned outage
1:35:31factor target in the mechanism?
1:35:35>> I think that's probably a better
1:35:36question for Mr. Hansen. Again, just
1:35:40what he expects the unit can perform it.
1:35:44>> Okay, great. Um so just a few more
1:35:48questions.
1:35:50Are you aware of a cost benefit analysis
1:35:54of [snorts] the performance mechanism
1:35:58that looks at the expected costs to
1:36:00customers versus
1:36:03the expected benefits to customers?
1:36:07Uh, no. I'm not aware of a costbenefit
1:36:10analysis being run by a party to say
1:36:12this is what the balance of it would be.
1:36:15I would just say I think $30 million is
1:36:18a pretty significant risk share for the
1:36:20company. Um, that, you know, inclusive
1:36:24of that is also the risk on the actual
1:36:27repairs for any outages and any
1:36:29associated replacement power costs that
1:36:31are all still subject to prudence
1:36:32review.
1:36:34>> Okay. But just one last question just to
1:36:36clarify either from the company or from
1:36:39another settling party. There's no
1:36:41quantitative cost benefit analysis that
1:36:43says this is what we expect
1:36:47will be the costs needed or the costs
1:36:50attributable to the performance
1:36:51mechanism and here are the expected
1:36:53financial benefits. There's not that
1:36:56kind of quantitative analysis in the
1:36:58record.
1:36:59>> Yes, I think that's correct.
1:37:02>> Okay. Um, well, I appreciate your time.
1:37:04I have no further questions.
1:37:07>> Thank you, uh, Mr. Garhart, Commissioner
1:37:10Plank. Questions for Miss Pascuchi.
1:37:17Yes. Uh, just a couple of quick
1:37:20questions. Thank you. Good morning, Mr.
1:37:22Pascuchi.
1:37:23>> Morning, Commissioner PL.
1:37:25>> Um,
1:37:27sorry, I got to pull up my notes here.
1:37:30So, uh, going back to, uh, uh, unit
1:37:35three, um, do you know what the total
1:37:37cost of the plant was to customers in
1:37:412025?
1:37:44>> I believe the full revenue requirement
1:37:46was approximately like $110 million. Um,
1:37:51I I recall seeing numbers in that range
1:37:54in in different testimonies, um, but
1:37:56don't have that specifically in mind.
1:37:58And it and it was offline for about 30%
1:38:01of the year give or take.
1:38:04>> Yes, I think give or take it was about
1:38:0530% of 2025 that it was offline.
1:38:08>> So that was cost of 30 something million
1:38:13basically for customers.
1:38:16>> Yes, that the round figure is about
1:38:19right.
1:38:20Um,
1:38:22with respect to the PIM in the
1:38:24settlement, would you agree that the the
1:38:26baseline PIM is based on the existing
1:38:28national average of planned outages
1:38:32came from? I believe
1:38:34>> sorry before you finish.
1:38:36>> I think it came from CEC. Is that right?
1:38:39>> Yes, that's correct. My understanding is
1:38:40that this was as part of the settlement.
1:38:42We identified a baseline number. U we
1:38:44utilize CEC's based upon their analysis
1:38:46of um nationwide performance
1:38:50>> and subject to check does that average
1:38:53age of about of a of that coal fleet of
1:38:56about 44 to 45 years sound about right
1:39:02>> could be yes could be correct um I I
1:39:05honestly haven't calculated that or or
1:39:07verified what CEC calculated there
1:39:10>> and the the age of the the command G3
1:39:15plan is 15 years. Is that right? About
1:39:182010 to 20 25 that' be correct.
1:39:21>> So that baseline is about 13 and a half%
1:39:24is that right before you apply the the
1:39:27the deadband.
1:39:29>> Yes, that's correct.
1:39:31>> And
1:39:33there was in the CPCN that uh PBLO 3
1:39:36unit had an expected planned outage of
1:39:386.7%. Does that sound correct?
1:39:43That sounds right at the time of the
1:39:45CPCN. That seems like a reasonable
1:39:47estimation.
1:39:49>> And then there's a 3% deadband around
1:39:51the 13.5%. So penalties would happen
1:39:54once outages reach 16.5% or more. Right.
1:39:59>> Correct. Yes.
1:40:01>> And that's about two and a half times
1:40:04the planned outage rate in the CPCN.
1:40:09>> Yes. And I think um the reason for that
1:40:11is at the time of the CPCN based upon
1:40:14the information you had you make your
1:40:16best estimate. We now have approximately
1:40:1815 years of information related to the
1:40:20actual performance of the unit. Um and
1:40:23so we're providing a baseline that is
1:40:25reflective of what we think is a
1:40:28reasonable performance for the unit, a
1:40:30reasonable target for the unit. um
1:40:32knowing what we know today
1:40:36>> that I I [clears throat] I agree but the
1:40:39sort of the the deal with the customers
1:40:41is based on what you gave in the CPCN
1:40:44right I mean that's when we evaluated
1:40:46the costs and what the benefits were and
1:40:48how much it was going to cost customers
1:40:50and what they were going to get back and
1:40:51all that sort of thing.
1:40:53>> Yeah, I agree. At the time um that's
1:40:55what we knew and and what we thought. um
1:40:57we use the best information available at
1:40:59the time um to present that. I think
1:41:02we've we've recognized there are
1:41:04challenges with that assumption going
1:41:06forward based upon the operation of the
1:41:08unit though
1:41:10>> and then the offsets for the company
1:41:12would start at about 10 and a half% uh
1:41:16of out 10 and a half% outage time frame.
1:41:19Right. So if you if you did 10 and a
1:41:22half% or better then there would be
1:41:24offsets.
1:41:26Yes. Yep. You'd be able to earn the
1:41:28offset at that point.
1:41:29>> And that's about 150% of the uh planned
1:41:32outage rate that was in the CPCN.
1:41:35>> Yes, that's correct.
1:41:39>> So So does it seem right to you that the
1:41:41the company should be rewarded for
1:41:43exceptional performance when the outages
1:41:45exceed the planned outage rate that was
1:41:48in the sort of the permission to build
1:41:50the the the unit?
1:41:52I think it's reasonable because as I I I
1:41:54noted earlier in our conversation, it's
1:41:57reflecting what we know about the unit's
1:41:59operation today. Um we know that the
1:42:02unit it's unlikely that the unit can
1:42:04operate at that level. Um given what
1:42:08we've seen in performance over the last
1:42:09few years. And so in setting up this
1:42:12performance framework, what we tried to
1:42:14do was balance the interests here to
1:42:16recognize that um you need to set a
1:42:20baseline that is both reasonable and
1:42:21achievable but has significant downside
1:42:24risk to the company. I think Mr. K may
1:42:27have noted this, but in a situation
1:42:29where the unit doesn't perform and the
1:42:31company earns a $30 million
1:42:33disincentive, that wipes out the
1:42:35company's full equity return and most if
1:42:39not part of its debt return as well. Um
1:42:43whereas on the flip side, beneficial
1:42:46performance, you know, above that 10%
1:42:48level, the company still doesn't earn
1:42:50any financial incentive from that
1:42:53shareholders. the company doesn't
1:42:55receive any direct benefit of that. Um,
1:42:58so it remains a fairly asymmetric py
1:43:02even though you recognize that the
1:43:04baseline may not be what we all had
1:43:06thought it would be 15 years ago.
1:43:09>> I I heard you say that the the company I
1:43:12think when you were uh uh responding to
1:43:15the Sierra Club that $30 million is a
1:43:17substantial risk for the company I think
1:43:21is what you said. Yes, I I would fully
1:43:24agree that $30 million in one year is a
1:43:26substantial risk. Um, as as I just
1:43:28noted, it would wipe out the company's
1:43:30full annual equity return and part of
1:43:33its debt return. So, shareholders would
1:43:35only get no in that year, no return on
1:43:38their investment. They would also be um
1:43:42covering some of the debt returned
1:43:44associated with that as well.
1:43:47But in 2025, I think you said that
1:43:49customers paid over $30 million for the
1:43:52plant when it was closed. Correct.
1:43:57>> When the plant was offline, if your
1:44:00revenue requirement that year was
1:44:01roughly 110 million, it was offline for
1:44:04about one quarter to oneird of the year.
1:44:06Yes, you'd have somewhere about a $30
1:44:08million revenue requirement um for that
1:44:11period of time. Now that revenue
1:44:12requirement reflects not only the return
1:44:15um both equity and debt but also just
1:44:17the the cost associated with
1:44:19construction or the depreciation of cost
1:44:21of that asset. So I think
1:44:24>> the cost to the customer the cost
1:44:27>> it's still a cost to the customer. Yes,
1:44:28certainly still a cost to the customer.
1:44:30>> So you know that that cost to the
1:44:33customer is happening is substantial
1:44:35similar to the substantial risk u to the
1:44:39to the uh company. I I wonder why it
1:44:43wouldn't just be easier. You you put in
1:44:46at the end in an electric rate case, you
1:44:48go to you're proposing to the end of
1:44:512025 and adding in all the costs. Why
1:44:54can't you just subtract out the things
1:44:58that people have paid during that time
1:45:02period um for which they didn't receive
1:45:07uh any performance. So that you end up
1:45:11basically backing out those costs rather
1:45:13than creating this sort of a pin that's
1:45:16uh I think we can acknowledge is based
1:45:19off of performance that's not really uh
1:45:23it's based on a national average which
1:45:25isn't really translatable to to uh the
1:45:29PBLO 3 unit. you know, we're picking
1:45:31sort of a band number that we think is
1:45:35reasonable, but it's not really basic.
1:45:36It's just 3%, you know, um I I mean,
1:45:40we're just we're trying to construct
1:45:42something here where we know what the
1:45:44costs are. We know what the commitment
1:45:48was from the company in terms of when
1:45:50when you receive permission just offset
1:45:53the the revenue requirement with things
1:45:55that were paid that weren't received
1:45:57that are associated with that. Is that
1:46:01am I missing something? Why wouldn't
1:46:03that just be simpler? And if the company
1:46:05performs great, then there's no
1:46:07reduction.
1:46:09Um I I heard you discussing this with
1:46:11Mr. Pay a little bit and I I've spent
1:46:13some of the intervening days thinking a
1:46:16little bit on is it easier or not. I
1:46:19don't know that it necessarily is easier
1:46:21or not. Um,
1:46:24one of the the challenges that I thought
1:46:26about as you said that is I think
1:46:28there's still a question of,
1:46:31you know, how long was it offline for?
1:46:33What were the reasons for that? Was that
1:46:35outage prudent? Um, what are the costs
1:46:38associated with that outage? There's
1:46:40still a lot of undetermined pieces
1:46:42there. Um, and I think Mr. K may have
1:46:45said it in that you if the unit is
1:46:48offline and let's say it's offline for
1:46:50three months so one quarter of the year
1:46:52um and for simple numbers it's a $100
1:46:55million um revenue requirement that
1:46:58would be about $25 million that I think
1:47:02under the the proposal you're kind of
1:47:04making we just say hey we're going to
1:47:05credit customers $25 million. I think
1:47:08the challenge with that is it
1:47:10presupposes that the reason the unit was
1:47:12offline is imprudent. That the company
1:47:15simply didn't operate it correctly.
1:47:17There could be several reasons why a
1:47:19unit is offline. Some of which could be
1:47:22related to the company's operation, some
1:47:24of which could not. And so you're not
1:47:27really making it easier is I think
1:47:29there's still going to be needed
1:47:30litigation around why was the unit
1:47:33offline and what was the cause of that
1:47:36and is a return there reasonable versus
1:47:39the framework we have because it's using
1:47:42the NERK um GADS definitions. We've
1:47:46already sort of presupposed whether or
1:47:49not the cause was prudent or imprudent.
1:47:53there's no discussion really of it say
1:47:56for the fact that there is the ability
1:47:58for parties to argue in the future that
1:48:00the company is incorrectly attributed um
1:48:03or that it wasn't reasonable to
1:48:05attribute an outage to one of those GADs
1:48:07codes but you're kind of I think you're
1:48:09kind of reducing some of the litigation
1:48:11risk on this um by
1:48:14>> isn't that what the isn't that what the
1:48:16electric rate case is for anyway it's to
1:48:19demonstrate prudence of expenditures I
1:48:22mean I'm not sure how this is different
1:48:24than anything else. You know, the the
1:48:27company needs to demonstrate that what
1:48:29they spent was prudent. And and you
1:48:33know, there's an assumption that you
1:48:34know that the planned outage, which is
1:48:38about 25 days a year, is prudent. That's
1:48:41part of the that's part of the agreement
1:48:43when when the permission was given for
1:48:45the unit. But anything after those 25
1:48:48days, it's kind of up to the company to
1:48:50demonstrate any kind of prudence. I
1:48:52think the assumption would be that this
1:48:55is the deal. This is what we've agreed
1:48:57to. Beyond that, you you know, you have
1:49:01to demonstrate. Um
1:49:04is that that different from everything
1:49:06else we do in the electric rate case? I
1:49:08mean, you demonstrate that your
1:49:10expenditures were prudent.
1:49:12Um, I think the challenge is if let's
1:49:15say a unit was offline 50 days in a
1:49:18future year, I don't think you could
1:49:21come back in your next electric break
1:49:22case and say, "Hey, it'd be it would it
1:49:26would not be functionally, I think, much
1:49:27different." You'd be coming back in two
1:49:29or three years and saying, "Hey,
1:49:30actually, the 25 of those days were
1:49:33totally prudent and reasonable. The
1:49:35company shouldn't have had to pay that."
1:49:37And now you're kind of after the fact
1:49:39adjudicating it. Um I I that's where I
1:49:42say like I don't know that setting a hey
1:49:45it's 25 days or it's whatever 6.6%
1:49:48comes out to be is the baseline and
1:49:52we're going to evaluate that again in
1:49:54the future. You have an opportunity in
1:49:55the future. You'd have to come up with a
1:49:56process by which the company can say
1:50:00those 25 days were reasonable. The
1:50:03exceedence of the baseline was
1:50:04reasonable.
1:50:06>> Isn't it sad though? I mean the
1:50:08everything we do here is after the fact
1:50:10determination of prudence, right? I mean
1:50:12you're coming in with a rate case.
1:50:13You're looking backwards through the end
1:50:16of 2025 and you're saying that these
1:50:18things that we spent money on were
1:50:19prudent and you're demonstrating why
1:50:22that's kind of what we're talking about
1:50:24here. Well, I think in with respect to
1:50:27mane unit 3, we're talking about the
1:50:28prudence of any incremental costs or the
1:50:32prudence of the historic test year as a
1:50:35proxy for what the f what the rate
1:50:37should be for that cost. But I don't
1:50:40know that we're here discussing the
1:50:44prudence
1:50:45of the initial 2010 decision, which is I
1:50:51think a different discussion than what a
1:50:53rate case is for. Um, a retroactive look
1:50:56at should we have done something in 2010
1:50:59in a 2020.
1:51:01>> I'm not saying I'm not saying we're
1:51:03we're re-evaluating what we did in 2010.
1:51:06I'm saying that the deal for the for the
1:51:09coal plant was based was made in 2010
1:51:12>> and that deal had agreements of
1:51:15performance on the company's side,
1:51:16payment on the customer's side. The that
1:51:19was the deal. That's the contract.
1:51:21That's the agreement. And then
1:51:24that's a baseline of prudency in my
1:51:27mind. You've already made that
1:51:28agreement. That's your baseline. So 25
1:51:31days a year of being offline is prudent
1:51:34according to that that agreement.
1:51:37Anything outside of that, you know, is
1:51:40subject to debate, I think. And that's
1:51:43all I'm saying. Anyway, we don't need to
1:51:45continue. I think you made your point.
1:51:49Um so,
1:51:52uh in in the testimony, you refer to um
1:51:57the an order by a regulatory body with
1:51:58relevant authority. And I assume here
1:52:00you're talking about the Department of
1:52:01Energy in a 202C order.
1:52:05>> Um I I think two orders was considered
1:52:07there. One is the 202C order. Two would
1:52:09be a commission decision authorizing um
1:52:12a continued extension. So for example,
1:52:14you have the 202C order on Craig 1. You
1:52:16also have the commission decision in the
1:52:1825V proceeding 25 Z V0480E
1:52:24that extended Comanche 2 for an
1:52:25additional 12 months
1:52:27>> the end of the year. So, as it relates
1:52:29to the 202C order, you [clears throat]
1:52:31would seek recovery uh based on that
1:52:35federal order,
1:52:38we would seek recovery of the costs
1:52:40associated with our share of plant
1:52:43ownership um through the PCCA. Yes. So,
1:52:46with the unit currently being extended
1:52:48under the 202C order, we are incurring
1:52:51some costs because we are joint owners
1:52:52of the unit and so we're seeking to
1:52:55recover the net costs of those of that
1:52:58operation.
1:52:59>> Th those that that order is being
1:53:02litigated right now. Correct.
1:53:04>> Yes. I believe some parties have have
1:53:06filed a a lawsuit. Yes. And so Tri-State
1:53:10and PRPA
1:53:12both well Tri-State's the operator but
1:53:14PRPA and Tri-State are both part owners.
1:53:17Correct.
1:53:18>> Yes.
1:53:18>> Um why did Excel choose to not join that
1:53:21lawsuit?
1:53:23>> I don't know the answer to that
1:53:24question.
1:53:27>> So we're assuming in your request here
1:53:30that what the federal government has
1:53:32ordered is is legal. that's being
1:53:35debated and they don't have a
1:53:37particularly great credit uh line of uh
1:53:40of performance there. Kind of on the
1:53:42hook in another case for assuming
1:53:45[snorts] that the federal government
1:53:46order was legal when it turned out to
1:53:49not be.
1:53:51So
1:53:53if the commission is der determined
1:53:55already that the public service
1:53:58rateayers have no use for Craig beyond,
1:54:00you know, the end of this extension
1:54:04and the company isn't even challenging
1:54:06the order. Why would the rateayers have
1:54:09anything to do with costs associated
1:54:11with that order? What what's the
1:54:14justification?
1:54:15>> The company remains a part owner of the
1:54:18unit. Um, and so as a part owner of the
1:54:21unit, the agreement does assign costs
1:54:24based upon ownership shares to the
1:54:26company. So when costs are incurred from
1:54:29Tri-State's perspective as the owner and
1:54:31operator, they're still going to pass
1:54:32the cost of that along based upon the
1:54:34ownership agreement is my understanding.
1:54:37Um and so I think the cost recovery is
1:54:42equally about it has been ordered and so
1:54:44there is an agreement in place that was
1:54:46part of the original if we did CPCN's
1:54:49back then for Craig one that said this
1:54:51is how we'll split the cost of those up
1:54:53and so we're simply following that
1:54:55contractual agreement. Um and there Tri
1:54:59is then passing the costs of that
1:55:01operation on to Excel and we're simply
1:55:04asking to recover those costs from
1:55:07customers as we would have done in any
1:55:09previous year.
1:55:10>> Yeah. And I as I said with Mr. P
1:55:14earlier, I I see why that's a cost
1:55:16associated with Excel. I just can't
1:55:18understand why it would be a cost
1:55:20associated with public service rate
1:55:21payers if this is something that we've
1:55:23already determined we don't need. um and
1:55:27were the economic regulators that
1:55:30attribute costs for that uh unit to the
1:55:34rateayers. Why is it a why is it an
1:55:36expense? Why does this have anything to
1:55:37do with public service uh rateayers?
1:55:41>> I think the company is caught between
1:55:44the commission does not want to continue
1:55:45and has ordered the retirement of it.
1:55:47The federal government has ordered that
1:55:49it remains open. Um we're caught in the
1:55:52middle of that. Um, and I think I may
1:55:57say I'm I'm not sure while you say why
1:55:59is it a cost to customers, I'm not sure
1:56:01who your alternative counterparty is
1:56:03that it's a cost to other than the
1:56:05company's shareholders, which the
1:56:07company's shareholders did not order the
1:56:09company to keep it open and operating.
1:56:11So I think we view it as just
1:56:14traditional ratem is that if a unit
1:56:17incurs costs those costs are passed on
1:56:20to customers subject to prudence review
1:56:22and that were they reasonably and
1:56:24prudently incurred.
1:56:25>> Well the but the company also chose not
1:56:28to challenge the lawsuit. Um I mean a a
1:56:32cynical person might look at that and
1:56:34say well they chose not to not to
1:56:37challenge the lawsuit because the
1:56:39customers are going to pay anyway. it's
1:56:40not going to come at any cost to the
1:56:41company.
1:56:44>> A cynical person could look at it that
1:56:46way. My answer to a cynical person who
1:56:48looks at it that way is I don't think
1:56:49that was the conversation. I've never
1:56:51been part of a conversation where the
1:56:53company said, "Oh, well, customers will
1:56:55pay for it." um affordability and
1:56:57customer costs are a strong
1:57:00consideration in every conversation I'm
1:57:03a part of um with with people whether
1:57:06it's related to Craig 1 or Comanche 3 or
1:57:09or any other thing that we do. Um I I've
1:57:13never heard someone say well customers
1:57:15will pay for it no big deal. That's not
1:57:18a conversation that you hear. And you're
1:57:20you're proposing that those costs would
1:57:23be recovered
1:57:25without knowing what they are or why
1:57:27they're happening, right? It's just be
1:57:28it would be a separate process with the
1:57:30federal government outside of
1:57:33um a commission evaluation. So, we
1:57:36wouldn't know how much that is or or why
1:57:39it's happening or what the benefit is to
1:57:41the rateayers. We're just saying that if
1:57:43that's ordered by the federal
1:57:45government, the rateayers would pay the
1:57:46cost.
1:57:48We're saying if it's ordered by the
1:57:49federal government and that remains a
1:57:51lawful order and there are costs
1:57:53associated with the operation. Yes. Um I
1:57:57think one of the challenges in getting a
1:57:58cost estimate for the unit is these
1:58:02short-term extensions make it
1:58:03challenging to truly forecast. Um but
1:58:06the federal government is not the one
1:58:08dispatching the unit. The commitment and
1:58:10dispatch of the unit, my understanding
1:58:11is is done by SP and they have been at
1:58:15times ordering the unit to commit and
1:58:17dispatch within um SP I think would be
1:58:21within the RTO West. Um so it's it's not
1:58:24so much the DOE is just saying you can't
1:58:26retire the unit. It must be available
1:58:28for operation. SP is still making the
1:58:30determination as to whether or not the
1:58:32unit will run. And just to clarify,
1:58:35Excel is not a part of SP West.
1:58:39>> That's correct. We're not. No. Which is
1:58:41why we we put the caveat in there that
1:58:43should there be any market revenues
1:58:45associated with the operation in RTO
1:58:47that are are shared with us, we would
1:58:50credit those to customers as well.
1:58:52>> So this determination of just and
1:58:54reasonable would be made by the federal
1:58:57government, not by the commission.
1:59:01I don't know that it's necessarily made
1:59:03by the federal government. I think the
1:59:05challenge we have is we simply can't say
1:59:09we're not going to follow the law um
1:59:12pending
1:59:14a resolution at district court. So
1:59:17again, it's the company's stuck I think
1:59:19between a rock and a hard place on this
1:59:22one. Fully understand the commission's
1:59:24perspective on the continued need and
1:59:26use of command of Craig Unit One. At the
1:59:29same time, we have what I think you need
1:59:31to presume [clears throat] is a lawful
1:59:33order until a court rules otherwise that
1:59:35says no, the unit must run and there is
1:59:38a market operator who is requiring the
1:59:42unit to operate um on its system. So I I
1:59:45don't disagree with your perspective,
1:59:48um, Commissioner Plant, but from our
1:59:50perspective, we're, as I said, just
1:59:52stuck between a rock and a hard place
1:59:53between these two things of
1:59:56how do you not make anyone mad, but
1:59:59maybe you can't make everyone happy. U,
2:00:02there's just that that ongoing
2:00:04challenge.
2:00:06>> All right. Thank you. I don't have any
2:00:07uh further questions.
2:00:10>> Commissioner Gman.
2:00:12>> Yeah. Do we need a quick break, sir? Um,
2:00:15a court reporter.
2:00:16>> Yeah. Uh, how long do you have, uh,
2:00:18Commissioner going?
2:00:21>> Uh, this is the hardest part. Um, maybe
2:00:26like 15 minutes.
2:00:28>> Yeah, let's take a break. Let's come
2:00:29back at 10:40. Thanks.
2:10:55Mr. Pascuchi, are you there?
2:11:01>> Oh, there you are.
2:11:02>> Yes, ma'am.
2:11:04>> Commissioner Gman, you're up.
2:11:06>> Thank you. Appreciate it. Good morning,
2:11:07Mr. Pascuchi.
2:11:09>> Morning, Commissioner Gman.
2:11:10>> Um, I have several questions for you. I
2:11:13I try my best to have them in order, but
2:11:15then I hear things I want to follow up
2:11:17on. So, I might jump around a little if
2:11:19I confuse you. I apologize. Feel free to
2:11:21ask me to clarify. I'm skipping around
2:11:24too much for you. Yeah.
2:11:26>> Um, so just wanted to follow up on um I
2:11:30think some some things you were talking
2:11:32about with Commissioner Plant. Um, can
2:11:35you clarify for me what percent of 2025
2:11:40uh PBLO unit 3 was available for
2:11:42operation?
2:11:45The there were
2:11:49believe two or three outages in the
2:11:52course of 2025. The major outage that
2:11:55occurred starting in August um took out
2:11:57at least all of September, October,
2:11:59November, December uh plus part of
2:12:02August. The other ones I don't know the
2:12:04duration of. Um that's where I think
2:12:06Commissioner Plant and I said give or
2:12:08take about 30%. Um I think it's probably
2:12:11a little bit more of a a higher number
2:12:14than 30% but I don't have the exact if
2:12:17it's 50% 41% calculated.
2:12:21>> Okay. Um is that information available
2:12:24anywhere?
2:12:30I don't believe the company files
2:12:35um anything into a record anywhere when
2:12:38a unit is offline or when command 3 is
2:12:41offline for a period of time. Um however
2:12:43in a previous I think it was ECA PCCA
2:12:46prudence review settlement the company
2:12:48does inform commission staff and the UCA
2:12:51when a you when command unit 3 is
2:12:53offline for more than 24 hours um for an
2:12:56unplanned outage.
2:12:58>> Okay, got it. Um
2:13:01would it surprise you if I found that
2:13:04the offline date for the most major
2:13:06outage was August 12th?
2:13:09>> No, that sounds about correct. Yes.
2:13:11Okay. So, August 12th through the
2:13:13remainder of the year, um, my
2:13:16calculations indicate is 38.6%
2:13:19of the year.
2:13:20>> Okay. Um, I just we had heard a third
2:13:23and then it kind of crept down to a
2:13:25quarter. I wanted to get our bearings
2:13:27around what percents are we talking
2:13:28about? And then to your understanding,
2:13:30there were at least a handful of other
2:13:33forced outages in the year in addition
2:13:36to the major outage that began August
2:13:3912th. Yes, I believe there was another
2:13:41outage in July and another outage in the
2:13:44spring um that were unplanned. Um so
2:13:48yes, agree with you. 38% I I'll trust
2:13:50that number is correct there. It's
2:13:52probably north of 38% when you account
2:13:54for the other two events that occurred
2:13:56during the year. Um but I don't know the
2:13:59exact dates to be able to tell you how
2:14:01far north of 38% it is.
2:14:04>> Got it. Um, do you know what the X EU
2:14:10would be for PVO3 in 2025?
2:14:14>> I think it should wind up being pretty
2:14:17similar to the number we're talking
2:14:18about here, north of 38%, but not
2:14:21knowing those other dates, let's say
2:14:22it's approximately 38%. Because the way
2:14:24the XEUF works is unplanned outages or
2:14:28D- rates are accounted for in your
2:14:31availability and your availability is
2:14:33then divided by total hours in the year.
2:14:35So I think the same way you're looking
2:14:36at it is a kind of total time in a year
2:14:39divided by number of days. In this case
2:14:41it was offline but we should be roughly
2:14:43in the same same neighborhood.
2:14:45>> Okay. But is that a metric that the
2:14:49company tracks or has been tracking for
2:14:50provo unit 3? the EUF or XEUF. Yes, the
2:14:56company tracks that um because we have
2:14:58to report on that annually to NERK as
2:15:00part of our reporting to them. So that
2:15:02number is both internally tracked and I
2:15:05believe is externally provided to NERK
2:15:07on a on a regular basis.
2:15:09>> Is that publicly available?
2:15:11>> I don't know the answer to that
2:15:13question.
2:15:14>> Okay. So I guess what I'm hearing is
2:15:16there is a value for X
2:15:20EU for 2025 for PBLO unit 3, but it may
2:15:25not be in this record and it may not be
2:15:26publicly available.
2:15:29>> Yes, there's definitely a number. I'm
2:15:31not sure that it is in the record here.
2:15:33Um unless we did it in one of the
2:15:36backcast calculators and I'm just not
2:15:38recalling that. Um but there would be a
2:15:41number. I just don't know. I I don't do
2:15:43the NERK reporting so I'm not sure what
2:15:45designations or what requirements NERK
2:15:47has around the public availability of of
2:15:49that data.
2:15:50>> Understood. And then on a going forward
2:15:53basis for the unit3 PIM that was
2:15:56proposed as part of the settlement um it
2:15:59would use that factor um XEO
2:16:04moving forward as the determination of
2:16:06the performance regarding the PIM. Yes,
2:16:10that was the thought was um the XEUF is
2:16:13what we've used in other pimps. Um it's
2:16:15kind of the internal metric that we're
2:16:17targeting because it reflects unplanned
2:16:20outages. Um and so that was the other
2:16:22benefit of it from a um design
2:16:24perspective is using it for generation
2:16:26related pimps is you're not penalized
2:16:30for planning to maintain the unit. And
2:16:32that's the thing that in discussions
2:16:34both in in this settlement but in also
2:16:36settlements we said is you don't want to
2:16:39provide an incentive for the company to
2:16:42not maintain the unit. You don't want to
2:16:44penalize us for doing the normal and
2:16:46routine maintenance on a unit which is
2:16:49excluded from your XCOF calculation.
2:16:52>> Okay. Yeah. I think what I'm just trying
2:16:55to figure out is in the settlement
2:16:56agreement, it's asking us to use this
2:16:58certain metric that we don't even
2:17:01understand the performance of the unit
2:17:03for the test year with regards to the
2:17:05metric you're asking us to move on a
2:17:06going forward use on a going forward
2:17:08basis. So just trying to align these
2:17:11things in my mind.
2:17:13>> Yes.
2:17:14Um
2:17:16I'm curious with regards to Craig one,
2:17:19has the company been assessed uh costs
2:17:22related to Craig One and and where are
2:17:24those costs shown?
2:17:26>> Yes. Um I believe it's in my
2:17:30I can't recall if we put in my
2:17:31settlement testimony where asked this
2:17:33question in discovery might have been
2:17:34both but um we have been assessed some
2:17:36costs. Um I believe it is not it has not
2:17:40been a lot trying to recall the specific
2:17:43number but I think it was hundreds of
2:17:45thousands of dollars. We're not in
2:17:47millions of dollars or something like
2:17:48that. Uh but we have been assessed some
2:17:50costs with the ongoing operation of the
2:17:52unit because of the 202C order.
2:17:56>> Okay.
2:17:58Um All right. Let's see. Um
2:18:02you had talked about the potential
2:18:03benefits of better performance
2:18:06especially with regard to your
2:18:08dispatchable plants um as it would
2:18:12translate into electric resource
2:18:14planning um performance
2:18:17and I was curious how do the X EU I'm
2:18:23sorry this acronym is so difficult I
2:18:25have to pause every time how do those
2:18:28factors for each plan compared to the
2:18:31assumptions that that company uses in
2:18:33resource planning for the same plan.
2:18:37>> My understanding is in modeling for the
2:18:40electric resource plan, we primarily use
2:18:42forced outage rate which is a component
2:18:44of the XEF. It's probably the most um
2:18:48impactful performance because in my
2:18:51direct testimony I lay out the
2:18:52calculation and what the different
2:18:53calculations are, but there are about
2:18:55four [snorts]
2:18:56different parts in the numerator. um
2:18:58forced outage, there's date hours, um
2:19:02there's a couple other pieces in there
2:19:03and I think forced outage is probably
2:19:05your most impactful and that forced
2:19:07outage rate um or FO is included in the
2:19:12modeling assumptions. And so we're
2:19:15updating as part of resource adequacy
2:19:17planning um and modeling what those
2:19:19force outage rates look like to
2:19:21accurately reflect what we should assume
2:19:24the availability or the the capacity
2:19:26contribution of a unit is that that
2:19:31>> yeah I mean it sounds like it's part of
2:19:34the XO
2:19:36but is not its entirety so I think it's
2:19:39difficult for us to understand in
2:19:41looking across proceedings you
2:19:43Conceivably where we see the value of
2:19:45enhanced um plant performance is first
2:19:49of all in real time reliability and
2:19:51resource adequacy but second of all in
2:19:54ensuring that we are recognizing the
2:19:56benefit of that in resource planning so
2:19:58that these two things align and I'm not
2:20:00seeing how we align them. They're
2:20:02different uh they're different metrics
2:20:05that can't be directly compared to each
2:20:07other. So I'm kind of struggling to
2:20:09figure out is there a better way to
2:20:12compare these so we can understand and
2:20:14realize the value if we do see enhanced
2:20:16performance. It seems to me that's
2:20:18something that should be realized with a
2:20:21value and therefore kind of provided the
2:20:24the savings going forward in replacement
2:20:26resources to customers but it doesn't
2:20:28seem as though we're able to do that.
2:20:32>> I don't know that we can do that right
2:20:34now. Um because as I as I noted if you
2:20:38forced outage rate was what was used in
2:20:39the modeling and if you're using forced
2:20:41outage rate in the modeling and all the
2:20:42phase one assumptions right now are kind
2:20:44of designed around the use of that
2:20:46forced outage rate um we're kind of at a
2:20:49challenging spot to now change it to the
2:20:51EUF or XEO assumptions in the JTS. Now
2:20:57going forward in a future ERP we could
2:20:59look at that. I actually heard you
2:21:01having this conversation I think last
2:21:02week with Mr. K um when he kicked the
2:21:05question to me and have started a
2:21:07conversation with our resource planning
2:21:08team as to why do we use force outage
2:21:11rate versus an XEF number um we just
2:21:15haven't had a chance to convene enough
2:21:18confer enough for me to to fully explain
2:21:20to you the here's X here's why we use X
2:21:22instead of Y um I would just say in this
2:21:24PIM perspective the reason you want to
2:21:27use the XUF is it is evaluating a wider
2:21:30range of outages so where force outage
2:21:33rate is counting forced outages. This is
2:21:35also including things like the D-Rate
2:21:37events as well. So from a PIM
2:21:39perspective, I think it's actually more
2:21:44outages or D- rates because they're both
2:21:47included is more punitive than it is in
2:21:49an ERP, but it is a very good question
2:21:51is is there a better way to align those
2:21:53two considerations?
2:21:56>> Okay, thanks. Um and then
2:22:00sorry um Miss Henry or um Miss um Nelson
2:22:06had up an exhibit previously that was
2:22:09here in exhibit 310. It was um LHS41.
2:22:14So that was the um uh PBLO unit 3
2:22:18report. Do you recall seeing that on on
2:22:21its um operation?
2:22:23Um, and on there it had shown, um, you
2:22:27know, table two in that document shows
2:22:29fuel costs for the unit and it shows
2:22:32$600,000 in fuel costs for um, unit
2:22:36three. As we've discussed, unit 3 hasn't
2:22:40been operating for quite some time. So,
2:22:43I was curious if you could help me
2:22:45understand um why in the May 2026 report
2:22:48we're seeing over half a million dollars
2:22:50in in fuel costs for um public unit.
2:22:54>> That's um honestly probably a better
2:22:56question for Mr. Hansen. Um and the only
2:22:59reason I say that is I'm not 100% s
2:23:02certain. I have a couple of ideas of
2:23:04why, but given that Mr. Hansen oversees
2:23:07the operation of it, he might have a
2:23:08better idea of why. Um, fuel costs might
2:23:11also include like fuel handling. Um, and
2:23:14so there may be kind of fixed costs
2:23:17associated with fuel handling contracts
2:23:19that are incurred regardless, but I
2:23:20can't say for certain and I think Mr.
2:23:22Hansen would be better prepared to
2:23:24answer that for you.
2:23:25>> Okay, no worries. I'll move that to him.
2:23:27Um, then um, with regard to the
2:23:30treatment of the cost related to coal
2:23:33extensions, which I think is basically
2:23:35PBLO 2 and Craig one, does that sound
2:23:37right?
2:23:38>> Yes, that's correct. Those are the only
2:23:39two units that have been extended.
2:23:41>> Um,
2:23:43so I I think you would agree with me.
2:23:45The commission's not yet settled. What
2:23:47all constitutes replacement power costs
2:23:50for the PBLO3 outage? Is that accurate?
2:23:54>> Yes, that's correct. That would be part
2:23:56of the prudence review that I think we
2:23:57set for u to be filed next summer.
2:24:00>> Okay. And in addition to what
2:24:02constitutes the replacement cost, who
2:24:05bears that financial responsibility is
2:24:07also not established at this point.
2:24:09Right.
2:24:11>> Correct. And I think that's one of the
2:24:12points I was trying to make um to to
2:24:14some of the other questions as well is
2:24:16um a full prudence review of this
2:24:19Comanche 3 outage including replacement
2:24:21power costs, including the capital
2:24:23associated with the repair, the on andm
2:24:25associated with the repair, all that is
2:24:27subject to a future prudence review.
2:24:29commission can find all of it, none of
2:24:31it or anywhere in between is prudent.
2:24:34And so similarly, the if Comanche 2 is
2:24:37part of the replacement power cost
2:24:38associated with Comanche 3, the
2:24:39commission will evaluate whether that
2:24:41cost is is reasonable or not.
2:24:44>> Okay, thanks. Yeah, and I wanted to look
2:24:46at that in relation to what um the
2:24:48settlement agreement has for cost
2:24:51recovery in the interim of those
2:24:54incremental costs. So, the settlement
2:24:56says that the nonfuel incremental costs
2:24:58associated with the continued operation
2:25:01of Craig 1 and PBLO 2 uh will be
2:25:04recovered through the PCCI
2:25:06um for the duration of any authorized
2:25:08extension. Does that sound right?
2:25:11>> Yes, that's correct.
2:25:12>> Okay. And I think Commissioner Plann or
2:25:14somebody went through with you
2:25:15authorized extension. I think your
2:25:17assumption is that could be a commission
2:25:19action or potentially a federal action.
2:25:22>> Yes. Yes. That's the company's position.
2:25:25>> Okay. Is that the full universe of what
2:25:27you see in a authorized extension? Like
2:25:30how that would come about?
2:25:33>> I believe so. I'm not sure if there's
2:25:35any other way. I mean, for us to
2:25:37continue operating a unit past its
2:25:38retirement date, you need some form of
2:25:40commission decision. Department of
2:25:42Energy can issue a 202C.
2:25:45I guess in I'm not sure if like NERK or
2:25:50um another like reliability related
2:25:52organization could order it as well, but
2:25:54I think the two main ones that we would
2:25:56be thinking about are really a 202C and
2:25:58a commission decision.
2:26:00>> Okay. Um so if the commission accepts
2:26:04your proposal and um both the and the
2:26:09the the fuel costs would go through the
2:26:11ECI and the other incremental costs um
2:26:16like through O andM and other expenses
2:26:19would flow through PCCA, right?
2:26:22>> Yes, that's correct. And then be subject
2:26:23to the ECA and PCCA have the combined
2:26:26prudence review. I think those are filed
2:26:28August 1st of the following year. So at
2:26:3026 PCA um and PCCA prudence review
2:26:34begins in August of 27.
2:26:37>> Okay. And at that point though the PBLO
2:26:41unit 3 prudency review would not be
2:26:44complete. Correct.
2:26:46>> Would not be complete. But if I remember
2:26:47correctly the filing date for that is
2:26:50July 1st of 27. So it would be filed
2:26:52about a month in advance. They'll kind
2:26:54of be moving in parallel.
2:26:56>> Right. But you wouldn't have resolution
2:26:57as to cost responsibility and what's
2:26:59considered replacement power etc.
2:27:02>> Yes, that's correct.
2:27:03>> Okay. So, um
2:27:08I'm curious not knowing the outcome yet
2:27:11of the prudency review and what is
2:27:13replacement power and who bears the cost
2:27:15and what amount should rateayers seem.
2:27:18It seems the implicit assumption is the
2:27:20rateayers are paying for 100% of the
2:27:23costs associated with the extensions of
2:27:26the plants. Um
2:27:29curious if in that adjudication that
2:27:31wasn't the outcome, how do we sort that
2:27:33out if we were already um recovering
2:27:36those costs from rate payers with the
2:27:38assumption that it was their cost
2:27:40responsibility?
2:27:42I think what that would result in is
2:27:43either a a credit back through whether
2:27:46it's the ECA, the PCCA, some sort of
2:27:48mechanism. Um, let's say, you know, the
2:27:50company came forward, brought forward
2:27:51the costs in the prudence review.
2:27:53Commission determined some portion of
2:27:55that was not prudent. Um, the company
2:27:58would then be crediting back whatever
2:27:59the commission determined was not
2:28:01prudent or not recoverable through you
2:28:04could, I think, do it through the ECA or
2:28:06PCCA. Those would probably be the
2:28:07easiest and fastest um mechanisms to do
2:28:11that through.
2:28:12>> Okay. So essentially those mechanisms
2:28:14could be used to correct for a change in
2:28:17determination of how those costs or the
2:28:20entirety with which those costs should
2:28:21have been one place or the other.
2:28:23>> Yes, I think so. And and while I don't
2:28:26do the ECA and PCCAS, um Mr. K handles
2:28:30those. But um my understanding is there
2:28:32have been credits provided back through
2:28:34those and the way we've structured other
2:28:36proceedings like PIMS is to provide
2:28:38credits through the ECA. Um so we could
2:28:40credit anything back we needed to there.
2:28:42>> Okay. Um and then with regard to the
2:28:45dispatchable PIM or DCA PIM, um it's my
2:28:50understanding from the settlement
2:28:52agreement that that would um be proposed
2:28:55to be effective January 1st of 2026.
2:28:58Does that sound right?
2:29:00>> Yes, correct. Uh that was part of the
2:29:01give and take of the the settlement
2:29:03agreement. Um the company had proposed
2:29:05to make it effective January 1st, 2027.
2:29:08Um and through the settlement agreement,
2:29:10the give and take, we agreed to January
2:29:121st, 2026.
2:29:14>> Understood. Um based on their
2:29:16performance to date of the company's
2:29:18fleet, I was curious if the company
2:29:19anticipates it's likely you'd receive an
2:29:21incentive for 2026 for the DCAP.
2:29:25I don't have an estimate of the overall
2:29:27fleet. Um I think as you know Cabin
2:29:30Creek unit B is out of service right
2:29:33now. Um our estimate on that is that we
2:29:36will be incurring a disincentive on
2:29:38Cabin Creek unit B. But I I don't know
2:29:40the performance of all the other units
2:29:41to know for certain if we they're
2:29:43incentive disincentive or within the
2:29:45deadband.
2:29:47>> That this something that the company
2:29:48would have looked at in um negotiating
2:29:51your position here.
2:29:54um we generally considered it um but
2:29:58didn't fully evaluate it when looking at
2:30:02you know the settlement as a whole. Um I
2:30:06don't think it was a make or break
2:30:08consideration as to hey if this backcast
2:30:11six to 7 months what what do we do? um
2:30:14you would kind of try to take the entire
2:30:16settlement agreement as a whole and look
2:30:18if we we know we have a risk on
2:30:20backcasting it um but on balance how
2:30:23does that risk compare to the other risk
2:30:25we're taking on and some of the um
2:30:28things that we're getting out of the
2:30:29settlement agreement
2:30:30>> okay and then with regard to the unit
2:30:33three PIM um now that's not suggested by
2:30:36the settlement to be effective until the
2:30:39effective date of rates here correct
2:30:42>> yes that's correct
2:30:44Okay. And what's the anticipated
2:30:46effective rates date?
2:30:48>> I believe it's in August. I I think it's
2:30:51towards the second half of August. Um
2:30:54but I'm blanking on the specific date
2:30:55there.
2:30:57>> Okay. And um just earlier this morning,
2:31:00we heard that you revised your
2:31:02assumption on the inservice date for
2:31:05PBLO unit 3 to be right around the same
2:31:08time. Mid August.
2:31:11>> Yes. Uh mid August. August 15th is the
2:31:13current return to service. So, um
2:31:16assuming the commission was to approve
2:31:18the settlement agreement, um there is
2:31:20increasing risk that if the unit is
2:31:22further delayed, uh we will be incurring
2:31:25a disincentive this year.
2:31:28Um
2:31:29and um just to be clear, if a private
2:31:33unit 3 PIM were in place this year, does
2:31:37the company anticipate it's likely you
2:31:39would receive um a disincentive for 2026
2:31:43if it were in place the entirety of the
2:31:45year?
2:31:46>> Yes. I think given um that it has been
2:31:48out of service for the first six plus
2:31:52months of the year, yes, it's it's
2:31:54likely we would have earned a
2:31:55disincentive on that.
2:31:57Okay. Um, and in the rebuttal when you
2:32:01were arguing against essentially the DCI
2:32:04PIM going back to the beginning of 2026
2:32:08as the effective date, you had said the
2:32:11company cannot go back in time and
2:32:13retroactively change its investments,
2:32:15decisions, and management practices that
2:32:18may have differed if a PIM existed at
2:32:20the time. Does that sound um familiar?
2:32:23>> Yes, that's Yep, that's correct.
2:32:26I I'm curious what specifically
2:32:29does the company or would the company
2:32:32plan to change in terms of its
2:32:34investments given the PIM versus life
2:32:37without the PIM?
2:32:38>> Uh, hard to say exactly, but what I was
2:32:41mainly thinking of there is the the unit
2:32:43operators have been operating kind of
2:32:46normal course of business based upon
2:32:48their historic plans, many of which were
2:32:51set years in advance. Um and so if you
2:32:54start putting a financial incentive on
2:32:56it, there could have been um deferred or
2:32:58accelerated maintenance that was decided
2:33:01on earlier this year that you didn't
2:33:04have the knowledge and awareness of a
2:33:06financial impact on. Um and so what I
2:33:09was just trying to make the point there
2:33:10is it's challenging to go back to
2:33:12somebody and say here's new here's
2:33:15something new that I'm going to judge
2:33:16you on that you had no idea I was going
2:33:18to judge you on and you couldn't have
2:33:21done anything. Now you can't do anything
2:33:22different about that. So just trying to
2:33:24point out from a plant operator
2:33:25perspective it's challenging because any
2:33:28information especially in a mechanism
2:33:31like a performance mechanism is valuable
2:33:34information to think about in how
2:33:36they're operating the unit. I don't know
2:33:38that it would have distinctly changed
2:33:41anything anyone did. Uh but
2:33:44not being a plant operator, I wanted to
2:33:46be cognizant of the fact that they do
2:33:49take these things into account.
2:33:51Okay. Um, and I'm curious in being like
2:33:55a a prudent plant operator owner um, of
2:34:00company owned resources.
2:34:04I mean, I understand the introduction of
2:34:06the disincentive or incentive depending,
2:34:08you know, which of these pins we're
2:34:10talking about introduces a different
2:34:11financial layer for you. But isn't it
2:34:14always the company's obligation to make
2:34:17the most prudent financial decisions to
2:34:19optimize the operation of these plants?
2:34:23>> Yes, I think it's always um it's always
2:34:26our obligation to do so. Um the
2:34:28commission and stakeholders regularly
2:34:30review whether those decisions were in
2:34:32fact prudent or imprudent um or were
2:34:35reasonable or not. Um that's sort of
2:34:38when when you think about the way these
2:34:39frameworks are set up with the Comanche
2:34:423 framework having start uh the start
2:34:45date it has with the right effective
2:34:46date but with the full prudence review
2:34:49uh there's still opportunity to review
2:34:51that there's opportunity through um
2:34:56different other processes to look at did
2:34:58the company make prudent decisions with
2:35:00respect to its overall fleet operation.
2:35:02What the PIM I think really does is just
2:35:04provide more real time feedback and a
2:35:09more known quantification of the upfront
2:35:11risk to the company of not maintaining
2:35:15its or or reasonably operating its fleet
2:35:18as well as incentives to improve the
2:35:21operation of its fleet. And improvement
2:35:23doesn't have to be we spend more capital
2:35:27dollars. That can be changing the way
2:35:28you operate the unit. It can be
2:35:31changing, you know, um the way that
2:35:34employees at the plant manage and and do
2:35:37different things. There's continuous
2:35:38improvement that can be driven by both
2:35:40the incentive and disincentive there.
2:35:44>> And that continuous improvement would
2:35:46not be pursued by the company for the
2:35:48benefit of rate payers.
2:35:51>> Oh, sorry. Did you lose me for a second?
2:35:53>> Um I I heard your question. I just also
2:35:55heard the recording in progress. So, I
2:35:56was pausing for a second to make sure
2:35:58>> and I don't know if I like disconnected
2:36:00and reconnected very quickly, but um
2:36:02that continuous improvement that you're
2:36:04talking about would not be pursued and
2:36:06has not been pursued by the company to
2:36:09date absent these incentives and
2:36:11disincentive mechanisms.
2:36:13>> No, apologies if I left you with that
2:36:14impression. That's that's not at all
2:36:16true. Continuous improvement is part of
2:36:18everything we do, whether it's plant
2:36:20operations, field construction,
2:36:23regulatory filings. Um, we're constantly
2:36:25looking to improve. I think the
2:36:28incentive and disincentive mechanism
2:36:30simply provides
2:36:32one more real-time feedback and a more
2:36:35direct financial
2:36:38risk to the company around that. Um, is
2:36:42is more how I think about it. It's like
2:36:44we're we're putting an upfront dollar on
2:36:47hey, you know, it's at least going to be
2:36:49this this amount if you don't continue
2:36:52to do continuous improvement. if you
2:36:54don't see improvements in your
2:36:55operation. Um, so it's it's just kind of
2:36:58giving another price signal to the
2:37:00company.
2:37:01>> Okay. And you're saying up to to date
2:37:04without these PIMS, the main um
2:37:08disincentive or motivation would be that
2:37:10the commission could determine that
2:37:12things were imprudent if there was poor
2:37:14function or uh poorly substantiated
2:37:17investments or whatever.
2:37:19>> Uh, no. And again, apologies if I left
2:37:22you with this impression. I I don't want
2:37:23to leave anyone with the impression that
2:37:25the one and only or the primary driving
2:37:28factor in everything we do is is there
2:37:31going to be a financial penalty to the
2:37:32company. Those are important signals. Um
2:37:35there's no denying that. But continuous
2:37:38improvement um from working with Mr.
2:37:41Hansen and others within our operations
2:37:42is not something that is hey we have to
2:37:44do continuous improvement because
2:37:46there's a financial penalty. Um my
2:37:49perception in working with the
2:37:51operations team is continuous
2:37:53improvement just like safety is part of
2:37:55their culture. Uh that's absent any of
2:37:58the financial considerations, they are
2:38:01always seeking to do better um and
2:38:03improve the financial incentive piece of
2:38:06it really just kind of helps put a
2:38:08dollar on that um and a more known
2:38:11quantification up front.
2:38:13>> Okay. And up till now, the main
2:38:16financial disincentive would be if the
2:38:18commission determined either poor
2:38:20performance or um imprudent expenditure.
2:38:25>> Yes, correct. Up until the
2:38:27implementation of a DCA PIM, the primary
2:38:30way like financial signal you would have
2:38:32had was through a prudence review. U
2:38:34that was the distinction I was trying to
2:38:35make is that's kind of a well, we don't
2:38:39know what it could be. It could be
2:38:41anything. It could be nothing. Um now we
2:38:43know right up front well there is
2:38:45definitely this cost if you underperform
2:38:48in addition to the risk you run on a
2:38:50prudence review.
2:38:51>> Okay. Um looking at the DTA Pam kind of
2:38:56specifically um I know you you all put a
2:39:01baseline for each individual unit um as
2:39:06their expectation their expected
2:39:08performance.
2:39:09Um and I was curious if you have any
2:39:12bearings for us on how those um how
2:39:17those rates compare to uh performance of
2:39:20other resources by type like including
2:39:22PPA resources
2:39:25of similar ages.
2:39:27>> I don't know how they would compare to
2:39:30another resource PPA resource or another
2:39:33utilities resource. Um what I can tell
2:39:35you is as originally proposed the
2:39:39company had targeted second quartile
2:39:41percentage uh performance for those
2:39:43units through both answer rebuttal and
2:39:47the settlement negotiation process those
2:39:51um performance targets
2:39:53decreased meaning that we went from say
2:39:56a four to a three um as the baseline. So
2:40:00those have gotten more stringent and I
2:40:03think if they're not into the first
2:40:04quartile they're approaching first
2:40:06quartile.
2:40:08>> Okay. But we don't have on this record
2:40:10any way to understand how the
2:40:12performance of your units of a similar
2:40:15type similar age um the expected
2:40:18performance in this baseline would
2:40:21compare to like PPA resources for
2:40:23example.
2:40:25not in that direct way of saying take
2:40:27this EPA gas plant and compare it to
2:40:31this utilityowned what is this baseline
2:40:33versus that one. Um what I think the
2:40:35quartortiles does though is kind of give
2:40:37you an idea of where the company falls
2:40:40on average or is targeting on average
2:40:42versus um other units and that average
2:40:47is like a nationwide average is my
2:40:49understanding.
2:40:50>> Okay. And can you help me understand um
2:40:53I understand the penalty you suggested
2:40:55here is $2,500 per basis point below the
2:41:00deadband. Um so it doesn't pivot off the
2:41:03baseline itself. It pivots off the
2:41:05bottom of the of the um uh deadband.
2:41:10Um or I guess top if the pi numbers bad.
2:41:13>> Yeah.
2:41:14>> Okay. Um, and I was curious, uh, you
2:41:18know, do you understand or can you tell
2:41:20us the general structure of penalty for
2:41:24poor performance or unavailability for
2:41:26PPA projects? Um, just for comparison
2:41:29purposes, like how does that structure
2:41:32generally work if they are unavailable
2:41:35when they were supposed to be available?
2:41:38>> Yeah. Um, there's two ways in which I
2:41:40think a PPA is reflected there. First is
2:41:43there's the energy payment. Whenever um
2:41:45they are operating and dispatching, they
2:41:47are paid an energy price. Um but that my
2:41:50understanding is is smaller than what
2:41:52their capacity
2:41:54um payment is. Their capacity payment is
2:41:57made essentially based on you have x
2:41:59amount of capacity that we assume is
2:42:01going to be available. Um in some cases
2:42:03that's measured over a period of time to
2:42:05determine what an average availability
2:42:07is versus a baseline. Um, for example,
2:42:10you know, you could have a unit that
2:42:12it's calculated over six months. So, if
2:42:14a unit is completely unavailable for six
2:42:16months, um, it would take 6 months for
2:42:19you to get to a point where there's no
2:42:21longer a capacity reservation payment or
2:42:23capacity payment being made because
2:42:25you're averaging all the prior six
2:42:27months in that kind of rolling basis.
2:42:28So, I think each PPA might be a little
2:42:31bit unique. Uh but generally you have it
2:42:33again broken down into that paid by
2:42:35energy when it operates but more
2:42:37importantly paid that capacity
2:42:38reservation payment which is my
2:42:40understanding typically evaluated over
2:42:42an average availability over a prior
2:42:45period of time.
2:42:46>> Okay. And then how would those um
2:42:50penalties apply or they just don't get a
2:42:52capacity payment which you had said is
2:42:54the majority of their payment structure
2:42:57if they're below a certain level. Yes,
2:43:00that's that's effectively how it is.
2:43:01Again, in that example of um a PPA
2:43:03that's unavailable for six months, the
2:43:05way I understand the structure would
2:43:06work is they would continue getting a
2:43:09payment but a declining payment on that
2:43:11capacity payment until the point where
2:43:14it now is the the availability factor is
2:43:17zero and then they're not getting a
2:43:18payment. Now, at the same time, if it's
2:43:21declining and then it's improving, let's
2:43:23say they had a forced outage for a
2:43:24month, they were offline, it's not you
2:43:27get zero dollars for that month you're
2:43:29offline, we would they would see a
2:43:32reduction in their payment, but as soon
2:43:34as it came back online, um that rolling
2:43:37average would start picking back up
2:43:38again and their payment would increase
2:43:39again.
2:43:40>> Okay. Do you have any concept of um
2:43:46like how these things compare? You know,
2:43:49I'm looking at $2,500 per basis point
2:43:52below a deadband that's below a baseline
2:43:56set for a particular unit. I'm trying to
2:43:59understand if this is on par with the
2:44:03sort of penalty a PPA would experience
2:44:05if it experienced a similar level of
2:44:08outages of a utility plant.
2:44:12>> I don't know that. Um I I don't I don't
2:44:16know how it would compare. I think it
2:44:18would be potentially a little bit unique
2:44:20by plant depending upon what their terms
2:44:22were. Um the other thing I know has come
2:44:25up in conversations when negotiating
2:44:27around these is the other piece that the
2:44:30company looks at and and I think we've
2:44:32had with the settling parties is it's
2:44:34challenging to compare a PPA to a
2:44:36utility owned generator as our
2:44:39generation
2:44:40we are rate regulated. Our return is
2:44:43regulated versus PPAs don't have that
2:44:46same regulated structure. So they can
2:44:48bake things in differently there. It's
2:44:50hard to ever have a perfect apples to
2:44:52apples risk comparison of an IP and a
2:44:56PPA to a regulated utility because the
2:44:59business models are different. Uh that
2:45:01said there are penalty structures in
2:45:04place for both. Um and I think both have
2:45:06a clear incentive of increased
2:45:09availability is financially more
2:45:12beneficial
2:45:13um both of them. So there is like
2:45:16general alignment in that area.
2:45:18>> Okay. Um and if the availability of like
2:45:21a PPA resource is better than expected
2:45:25in their bid, do they receive um like
2:45:28bonus or additional um payment for that
2:45:31availability?
2:45:33>> I don't believe there's a bonus. Um but
2:45:36I I would think my understanding being
2:45:39that the structure of that would allow
2:45:41for an increased capacity payment with
2:45:44increased availability but um haven't
2:45:47negotiated a lot so I'm using my highle
2:45:50understanding of what those those terms
2:45:52are.
2:45:54>> Okay. Um
2:45:57sorry.
2:45:59Um and then if a um PBA project had
2:46:03trouble performing at its intended
2:46:06availability and they had to invest
2:46:08additionally in the plant um who would
2:46:10be responsible for that um rateayers
2:46:13through the the cost they're charging um
2:46:17to public service company of Colorado or
2:46:19would the um owner of that plant just be
2:46:22responsible?
2:46:24Yeah, that's again one of those
2:46:25differences in the business models is um
2:46:28they bear the risk typically if a unit
2:46:30goes out of service that they would need
2:46:33to incur those costs. They typically
2:46:35can't come back and say okay we need to
2:46:37modify our PPA price for this. Um it's
2:46:40one of those inherent things. There is I
2:46:41think to some degree a different risk
2:46:44calculation on the side of a PPA. Um but
2:46:47also a different reward calculation as
2:46:49well um compared to to a utility.
2:46:53>> Okay. Um, and then for it's my
2:46:56understanding that you have the
2:46:58individual DCA the pimps for each
2:47:02individual DCA unit and then this
2:47:04fleetwide
2:47:06>> determination. And if those are of
2:47:09opposite direction, they kind of cancel
2:47:12and nothing happens. If they're of the
2:47:14same direction, both incentive, both
2:47:17disincentive in the same year, you get
2:47:20whichever one of those. Is that a fair
2:47:22understanding?
2:47:24Yes. And the the intent behind that and
2:47:27the design was to ensure that the
2:47:29performance of one singular unit or a
2:47:31small subset of units couldn't drive
2:47:33incentive or disincentive. That you
2:47:36couldn't have one unit that performed
2:47:38poorly, but all units performed well and
2:47:43now you're you're
2:47:46not getting an incentive for
2:47:47performance. Conversely, the opposite
2:47:49happens where you could have one unit
2:47:51perform really, really well or a small
2:47:53subset performs really, really well, but
2:47:55your overall fleet declines. You can't
2:47:57earn an incentive in that. It was just
2:47:59there to kind of balance against the the
2:48:04say maybe outside risk that a small
2:48:07subset of units could drive uh financial
2:48:10performance that wasn't really
2:48:12reflective of the overall performance.
2:48:15>> Okay. And when you refer to fleet in
2:48:18that sense, that is the fleet of the
2:48:21discrete DCA PIM eligible plants or is
2:48:26it a wider fleet? Just so I'm clear,
2:48:30>> it is the fleet that's subject to the
2:48:31PIM. Um, which includes pretty much all
2:48:34units that are not slated to retire or I
2:48:37shouldn't say, it includes all units
2:48:38which are not slated to retire within 5
2:48:41years or are not Comanche 3 since it's
2:48:43subject to its own. So there's very
2:48:45limited exclusions from that fleet py.
2:48:48It's really, you know, the coal plants
2:48:50that are slated to retire within the
2:48:52next two to two years basically. And
2:48:55then some very old gas plants which
2:48:57we've done very limited extensions on um
2:49:00units that were expected to retire in 25
2:49:02and are now slated to retire in 27 or
2:49:0528.
2:49:07>> Okay, got it. And then um within the DCA
2:49:11um individual um PIM area, there's a
2:49:15waiting there. And it looks to me that's
2:49:17just simple capacity math. That's the
2:49:20percentage capacity of the whole thing
2:49:23that that unit represents. Is that
2:49:25accurate?
2:49:26>> Yes, that's largely largely correct. is
2:49:29that the waiting in there is based upon
2:49:31capacity thinking the larger unit the
2:49:33more capacity it has the more individual
2:49:36contribution it has to system
2:49:38reliability and resource adequacy. Um I
2:49:40will note cabin creek does have um the
2:49:44unique factor of it has its own um
2:49:47associated disincentive so
2:49:49underperformance there um incurs
2:49:51different disincentives than the other
2:49:53units as well.
2:49:55>> I saw that. Thanks. Um, and is there it
2:49:59seems there's no consideration for kind
2:50:01of like this I guess in the anticipate
2:50:04factor level though like the age or or
2:50:07capacity. I get there is capacity but
2:50:09age. I'm curious also on locationational
2:50:13value. Um it seems the these are
2:50:16essentially all treated the same on a
2:50:17per capacity basis when they're located
2:50:20in different places that could lead to
2:50:22different impacts in terms of energy
2:50:25flow on the system. And I was just
2:50:28curious if if there are you know
2:50:30different values per capacity for the
2:50:32use of different plants because that
2:50:34doesn't appear to be um included here.
2:50:38um to a a I think statement you made
2:50:41earlier, but to to clarify around that
2:50:43first was um age is to some degree
2:50:46captured in this of the plant in what
2:50:48the baseline is. Um older plants if you
2:50:50look at that do tend to have a higher
2:50:51XCOF just recognizing that the older a
2:50:54plant is just like a um the older it is
2:50:57the less reliable it may be. Um it's
2:51:00just aging. Now to your question of is
2:51:03location factored in there? No, we
2:51:06didn't factor that in as I think it's to
2:51:08some degree a bit of a challenge. Some
2:51:09of those location decisions now have
2:51:11been made decades ago. Um, and it's not
2:51:14something that we can directly control.
2:51:16Um, or you know can directly be
2:51:19influenced by the pen. Um, so try to
2:51:22recognize what is within the operator's
2:51:24control versus what is outside the
2:51:26operator's control.
2:51:28>> Okay. Yeah. And and thank you on the age
2:51:30bit. I I generally understood that. Um,
2:51:34I guess what I was saying was, um, it's
2:51:36just a straight capacity waiting. So, if
2:51:40we knocked a unit's X EO F because it's
2:51:45older,
2:51:46um, it's still weighted now, it has a
2:51:49lesser expectation on it, but it, let's
2:51:51say it's like a very large old plant.
2:51:54Um, the waiting still weights it um,
2:51:59higher. So like it's um even if it has
2:52:03an easier um benchmark to hit basically
2:52:06because of its age.
2:52:08>> Uh yeah, I think that is true. Since it
2:52:10is just weighted just on capacity um you
2:52:13could be a larger older unit with a
2:52:16higher EU um XUFF. So you would have
2:52:19that challenge there of or not challenge
2:52:22but you'd have that situation where it's
2:52:24still weighted just as high but as you
2:52:26know it has the higher baseline. Now, I
2:52:30would say that higher baseline is
2:52:31reflective of the fact that the unit is
2:52:33older. So, it doesn't necessarily make
2:52:35it easier to achieve um just because
2:52:38that number is higher. It's more
2:52:40reflective of what reasonable
2:52:42performance going forward on that unit
2:52:44should be u relative to its age and its
2:52:48historic performance as well.
2:52:50>> Okay. And then I saw um in the
2:52:52settlement agreement that um the DCA PIM
2:52:57should recognize extraordinary
2:52:59circumstances.
2:53:00Um I I would assume as exclusions to
2:53:04what should count against performance of
2:53:06the plant. And I was curious if there's
2:53:08a definition or a reference to that to
2:53:10understand what um the settling parties
2:53:12understand to be included in
2:53:13extraordinary circumstances.
2:53:16Um the extraordinary circumstances
2:53:18language is something we've included in
2:53:20all of the recent performance incentive
2:53:22mechanisms. So the cost to construct the
2:53:24operational and the availability PIM
2:53:27from the ERP PIM proceeding u believe
2:53:30there is similar exclusions from say the
2:53:32pathway um cost to construct PIM that
2:53:35the company may argue extraordinary
2:53:37circumstances in those pins. We've never
2:53:40specifically defined what extraordinary
2:53:42circumstances means. Um but that's where
2:53:45really then the burden falls on the
2:53:46company that if we are going to claim
2:53:48there's an extraordinary circumstance we
2:53:50need to very clearly delineate what was
2:53:53the circumstance why it's extraordinary
2:53:55and why it was outside the company's
2:53:57control. So I think the burden really
2:53:59falls on the company in that case um and
2:54:02the language is structured has always
2:54:04been structured in a way that the
2:54:05company claiming extraordinary
2:54:07circumstances does not preclude any
2:54:09other party from taking whatever
2:54:11position they want on it. Uh, so just
2:54:14trying to account for the fact that
2:54:15there would be random things. You know,
2:54:18the very easy example I could give you
2:54:19is a a meteor strike. If a meteor strike
2:54:23hits a plant, that really wasn't the
2:54:24fault of the plant operator. He couldn't
2:54:26have done anything about that. That's
2:54:28extraordinary. Um, and so there's a wide
2:54:31range of these kind of unknown risks
2:54:34that the company just wanted to have the
2:54:36ability to argue were outside of our
2:54:39control, but all parties can simply
2:54:41argue absolutely not. Those are totally
2:54:42within your control.
2:54:47Commissioner Gman, you're muted.
2:54:49>> You um how do you see extraordinary
2:54:52circumstances in this um example
2:54:55comparing to say um force majour terms
2:54:59in a PPA contract in terms of your
2:55:01expectations on them to operate the
2:55:03plant?
2:55:05>> I don't know that they're wildly
2:55:07different. Um I just don't know that
2:55:09I've ever also seen a completely uniform
2:55:12and consistent definition of force
2:55:13majour. Um and that's kind of the other
2:55:16thing you know to the extent of force
2:55:18majour an act of God sure probably falls
2:55:20under both force majour and under um
2:55:25extraordinary circumstances. I just
2:55:27don't know that they're perfectly
2:55:29overlapping in the definition. Um and so
2:55:31that's why rather than try to very
2:55:33narrowly define it or specifically
2:55:35define it already said let's allow that
2:55:38there are extraordinary things that can
2:55:39happen but company it's your burden to
2:55:42prove that those were extraordinary and
2:55:43outside your control uh not a simple you
2:55:47check the box and we say that fits so I
2:55:50actually think under an extraordinary
2:55:51circumstances if we've structured it
2:55:54it's probably a higher burden than a
2:55:56defined force measure would be Okay. Um,
2:56:01just a couple more questions. Um, as we
2:56:04look at the potential for increased O
2:56:06andM or capital expenditures on the
2:56:09company's part really to achieve either
2:56:11of the PIMS, the PBLO unit 3 or the TCA
2:56:14PIMS. I'm curious if the company has in
2:56:18mind a ratio or a cost effectiveness
2:56:22threshold with which you would use to
2:56:24plan to understand what uh prudent
2:56:27expense may look like.
2:56:29um in improving the performance of the
2:56:31plants.
2:56:34>> So I don't know that I've seen anyone
2:56:36conduct um a CVA like that or analyze
2:56:39it. But the things that I think about
2:56:41that as we've talked about this well
2:56:43isn't there an incentive for the company
2:56:45to just spend more money is one because
2:56:47we have a historic test year the on&m
2:56:50associated with operating these plants
2:56:52is based upon the historic O andM cost
2:56:55of those units. So we're looking at in
2:56:572027 or 2028 the on andm budget
2:57:01allocated to those plants based upon the
2:57:03historic test year is reflective of the
2:57:052025 costs of those units. Um we could
2:57:09go and increase the on andm for those
2:57:11units. Customers will never pay for that
2:57:13because the revenue requirement is set
2:57:15with the historic test year. Uh
2:57:18similarly as I've talked about with some
2:57:19of the other
2:57:20>> I want to follow up right there.
2:57:22>> Oh yeah please. Sorry. If that O&M cost
2:57:25is in a new test year for a new rate
2:57:27case, wouldn't customers end up paying
2:57:30for it conceivably? I mean, you said
2:57:32customers never pay for it. If the
2:57:34company increases their on andm when you
2:57:36come in for another rate case
2:57:37>> and show that in a test year, don't
2:57:39customers end up incorporating that
2:57:42>> going forward? Yes. If that was the if
2:57:46that test year and that on M assumption
2:57:48was approved, they would. But that's
2:57:50that's where I say there's no way for
2:57:52the company to increase its on andm
2:57:55between rate cases um and simply
2:57:58customers pay that there is an inherent
2:58:01customer protection in the use of the
2:58:03historic test year that let's say just
2:58:05to use a simple number the on andm in
2:58:08the 2025 test year is a million dollars
2:58:11if the company goes and spends $10
2:58:12million a year now every year in O andM
2:58:16customers never pay that incremental
2:58:19nine it doesn't flow back. There's no
2:58:21rate adjustment for that. Now, in the
2:58:23next rate case, it could get captured in
2:58:26the test year, but again, parties would
2:58:28have very reasonable opportunity to look
2:58:30and say, why did you spend $9 million
2:58:34more a year? And is that truly
2:58:36reasonable
2:58:38um based upon this? So from an O andM
2:58:41perspective that I think is is the
2:58:43important thing to consider is no matter
2:58:44how much more O andM the company spends
2:58:47our revenue requirement only collects
2:58:49what the historic tester year had in it.
2:58:51Um and it can never just increase
2:58:54without an official act from the
2:58:56commission approving the increase to
2:58:58that. Uh similarly the capital was the
2:59:01same thing is we may have budgeted for a
2:59:05certain amount of capital in our 5-year
2:59:06plans. None of that future capital
2:59:09investment is included in rates now. A
2:59:11revenue requirement is not collecting
2:59:13any of the future five-year plans there.
2:59:16U and to the extent that we meet, exceed
2:59:19or come in under that forecast we have
2:59:22right now, that's all subject to a
2:59:24future rate case, the commission
2:59:26evaluating those costs, determining
2:59:27whether they are prudent or not, and
2:59:29then allowing the company to recover
2:59:30whatever is prudent. So this this kind
2:59:33of question of doesn't the company just
2:59:35have an incentive to spend more money.
2:59:38Yes, but it's very risky to do so
2:59:42because you're not going to get your onm
2:59:44if you spend more and your capital is
2:59:47subject to review. So you don't know
2:59:50that you're going to get that capital.
2:59:52Um and I think it's clear to the company
2:59:55that the commission is very active in
2:59:57evaluating our capital spend. I don't
3:00:00think that anyone has looked at this as
3:00:02a great, we can just put a bunch of
3:00:04capital dollars at this because we hear
3:00:07time and again from you, Commissioner
3:00:09Gilman, from Commissioner Plant, from
3:00:10Commissioner from Chairman Blank that
3:00:12you're all very aware of and cognizant
3:00:14of capital growth. So, I think we know
3:00:17there's significant risk there.
3:00:19>> Um, thanks. I I just had one last
3:00:22question. And I was asking you
3:00:23previously about um the 2025 performance
3:00:27of uh public unit 3 and I will say there
3:00:31is a table, it's a confidential table,
3:00:33so we're not going to bring it up, but
3:00:34there is a table in Miss Henry Seros's
3:00:37um direct testimony that lists out um
3:00:41unplanned outage hours by year. Um it's
3:00:45on page 13 of her confidential
3:00:47testimony. And I just want to see if I
3:00:51don't believe the company has disputed
3:00:53those figures, but I just wanted to um
3:00:56confirm that.
3:00:59>> I don't believe we disputed any of
3:01:01those. And um without
3:01:04seeing the testimony, which understand
3:01:06let's not go into a confidential session
3:01:08for just this. Um my guess is those
3:01:11calculations are likely based off of our
3:01:14EUF numbers. So you could have easily
3:01:16taken a historic backcast of percentage
3:01:20um divided by the 80 of 760 and said
3:01:22this is how many hours or days um a unit
3:01:24was out historically.
3:01:26>> Okay. Um thanks. Those are my only
3:01:28questions. Appreciate it.
3:01:30>> Thank you.
3:01:31>> Uh thank you Commissioner Gman. I do not
3:01:33have any questions for Mr. Piscuchi. So
3:01:36Mr. Zmer uh redirect.
3:01:39>> Thank you Chair Blank. Um, I think we'll
3:01:42pick up off with your last question with
3:01:45uh, Commissioner Gilman. Could we pull
3:01:47up uh, settlement agreement attachment
3:01:53six, I believe?
3:01:57Sorry. Yeah, exhibit 155 attachment six.
3:02:28Mr. Pesco, is it your understanding that
3:02:30the actual XEF for Comanche unit 3 for
3:02:342025 is available in the confidential
3:02:36version of this document?
3:02:39Yes, the action would be available in in
3:02:41the confidential version of there for
3:02:43the historic performance
3:02:45>> and for each of those years listed.
3:02:48>> Yes.
3:02:50>> Okay. Um you also could we pull up uh
3:02:55hearing exhibit 112,
3:02:57Mr. Pasco's direct testimony?
3:03:14and go to page 24
3:03:21if we can scroll down a little bit.
3:03:29Um,
3:03:30right here. So, Mr. Pasco, you had a
3:03:33discussion with uh Commissioner Gilman
3:03:35regarding the units that are not
3:03:36included in the DCA PIM. Do you recall
3:03:38that?
3:03:39>> Yes, I do.
3:03:41>> Um, and you mentioned that uh the
3:03:44mechanism excludes certain units that
3:03:46are nearing retirement. Do you recall
3:03:47that?
3:03:48>> Yes, I do.
3:03:50>> Are there some other units that are also
3:03:52excluded?
3:03:54>> Yes. Uh as you can see beginning on line
3:03:5620 I state next all power plants that
3:03:58have capacity of less than 20 megawatts
3:04:01were removed as their contribution to
3:04:03the overall PIM would be marginal
3:04:08>> and is it also because there is not uh
3:04:11NERK GADs data for those facilities?
3:04:14>> Yes, that's correct. It says
3:04:15additionally NERK only requires the
3:04:16reporting of GADs data for facilities
3:04:18that are 20 megawatts or more. Um so
3:04:21part of the reason is again trying to
3:04:22stick with what is reported to NERK um
3:04:25what is required by NERK um gave us kind
3:04:28of a good firm bench benchmark for
3:04:30these.
3:04:32>> Okay. Um could we please switch back to
3:04:35hearing exhibit 155 the settlement
3:04:37agreement
3:04:42>> and can we go to page 29?
3:04:59Sorry, page 17.
3:05:09You had a discussion with Commissioner
3:05:10Gilman about the rate effective date and
3:05:14some wasn't quite sure when in August it
3:05:16is. If you read review paragraph 29,
3:05:18does that help refresh your recollection
3:05:20on that?
3:05:22>> Yes, it does. August 29, 2026 is the
3:05:24current rate effective date.
3:05:28Uh you also had a discussion about the
3:05:30application of the Comanche3 performance
3:05:32framework uh and a return to service of
3:05:34August 15th and that that performance
3:05:38framework is forward looking from the
3:05:40rate effective date. Do you recall that?
3:05:42>> Yes, I do.
3:05:44>> And if the unit is not in service uh on
3:05:48August 29th or times forward, is that
3:05:50accounted for in the 2026 calculations
3:05:54of the performance framework?
3:05:56Yes, it would be. That was uh part of
3:05:58the point I was I was trying to make in
3:05:59discussing this with Commissioner Gilman
3:06:01is um given that the new return to
3:06:04service is August 15th, the rate
3:06:07effective date is August 29th, there is
3:06:09significantly less room now for further
3:06:12delays to occur before the company would
3:06:14start um recognizing those outages as
3:06:20a part of the PIM. So um there's
3:06:23increasing pressure I will say on plant
3:06:26operators to get the unit back in
3:06:27service on the schedule that we have set
3:06:30forward now or earlier. Um and the
3:06:32company is at increasing risk if that is
3:06:34further delayed to um incurring a
3:06:37disincentive position.
3:06:43>> Okay. Uh I'd like to return to kind of
3:06:46generally you had a discussion with
3:06:47commissioner um plant but also uh Miss
3:06:52Nelson and Miss Vanim regarding uh
3:06:54Comanche 3 capital additions. Do you
3:06:57recall that?
3:06:58>> Yes, I do.
3:07:00>> Okay. First, are the capital additions
3:07:03associated with the current outage
3:07:06included in the settlement test year?
3:07:08>> No, they're not.
3:07:11Is it your understanding that those
3:07:13capital additions will be subject to
3:07:15review in a future rate case?
3:07:17>> Yes, that's my understanding.
3:07:20>> Is it also your understanding that the
3:07:23costs associated with the current outage
3:07:25are subject to their own prudence
3:07:27review?
3:07:28>> Yes, that's correct. That would be a
3:07:302027 prudence review.
3:07:37You also had a discussion with uh Miss
3:07:40Vanim and Miss Nelson regarding
3:07:42incentives associated with the
3:07:43performance mechanism um encouraging the
3:07:46company to make capital investments at
3:07:48Comanche 3. Do you recall that?
3:07:50>> Yes, I do.
3:07:53>> Is it your understanding that the answer
3:07:55testimony recommendations of some
3:07:56parties in this case would have made the
3:07:59entire Comanche 3 revenue requirement at
3:08:01risk on a going forward basis?
3:08:04Yes, that was my understanding.
3:08:07>> How does that proposal relate to
3:08:09incentives to make additional
3:08:11investments in Comanche 3?
3:08:17I think I think I think that becomes
3:08:20increasingly challenging because with
3:08:22significantly more in the case of um in
3:08:25this case it's $30 million more if it's
3:08:28100 to $110 million at risk I think that
3:08:31incentive does become greater to some
3:08:34degree uh because there is so much more
3:08:36on the table for the company. Uh now at
3:08:39the same time you know there is prudence
3:08:42reviews done on those and so you need to
3:08:44be cognizant of the risk that's there
3:08:47but to the degree one way or another
3:08:49that a disincentive is increasingly
3:08:51large the signal it's sending to the
3:08:54company is it should focus more of its
3:08:57effort towards the performance of that
3:08:59one singular unit because the financial
3:09:02incentive is that high uh or
3:09:05disincentive in that case is that Right.
3:09:09>> One other point of clarification. Is it
3:09:12your understanding that as an a unit
3:09:14approaches the end of its life, it still
3:09:16does require some level of capital
3:09:18investment?
3:09:19>> Yes. Um, for certain that all units
3:09:22require some capital investment, just as
3:09:24I think I tried to make the car analogy
3:09:26with Commissioner Gilman, that you still
3:09:28have to maintain a car no matter what
3:09:30its age is. Um, the difference is you
3:09:34probably don't make the same level of
3:09:37investment in a new or car in the middle
3:09:40of its life just like a unit as you
3:09:42would at the end of its life. Um, you
3:09:44just want to reflect that you want to
3:09:45get good value for your investment when
3:09:47you're you're making it. That that
3:09:49principle applies to a unit um a
3:09:52generation unit as well.
3:09:55>> Could we return to hearing exhibit uh
3:09:58155 attachment six?
3:10:12Um could you just provide a high level
3:10:15description of what this attachment is
3:10:17showing?
3:10:19Yes, this is a historic backcast um or
3:10:22historic analysis of if the Comanche 3
3:10:27performance framework had been in effect
3:10:30in prior years, what would have been the
3:10:33penalty and offset outcome of that of of
3:10:36that historic performance?
3:10:40>> And without getting into the
3:10:41confidential information, this is
3:10:43showing approximately $94 million of
3:10:46penalties over this analytical period.
3:10:49That's correct. Yes, it was just over
3:10:50$94 million in total penalties that were
3:10:53incurred between 2016 and 2025.
3:10:57>> And that calculation is performed at the
3:11:00XEF baseline that is reflected in the
3:11:03settlement agreement.
3:11:04>> That's correct. Yes.
3:11:07>> What does that tell you about the
3:11:09difficulty of achieving uh that
3:11:11baseline?
3:11:13Given that the total penalty is 94
3:11:17million um and the offsets amounts to
3:11:19less than 30 million 28 million um a net
3:11:23penalty of 66 million is going to be
3:11:25extremely challenging for us to achieve
3:11:28on an annual basis. Um, for the most
3:11:31part, obviously, disincentives have
3:11:33outweighed the potential offsets. Uh,
3:11:36it's not something where I think the
3:11:38company is set up for easy success. That
3:11:42this baseline is relatively low. The
3:11:44company's always going to wind up within
3:11:45the dead band. Um, $66 million net
3:11:49penalty to the company, I think, shows
3:11:51that this is this is a pretty rigorous
3:11:54um, PIM and fairly risky for the
3:11:56company. Also
3:12:03on this uh page, can you explain the max
3:12:07incentive XEF begins value of 43.87%.
3:12:16>> Yes, sorry. The uh max disincentive XUF
3:12:19u begins at the 43.8%.
3:12:22That is just reflective of the I think
3:12:23the one singular worst year that we had.
3:12:27um we tried to calculate where you know
3:12:29the the most subpar performance could be
3:12:31and try to benchmark off that.
3:12:36>> Is it your understanding that there's
3:12:37more room for um disincentive as it
3:12:42relates to the baseline that it is to
3:12:45incentive?
3:12:47>> Yes, for sure. because the company only
3:12:49has the ability to go up from about 10%
3:12:53um about 10 1.5% to 0% versus the
3:12:57opportunity to go down from 16 1.5% to
3:13:0043.87 is much larger. there is much more
3:13:05um disincentive at risk on an annual
3:13:08basis than potential offset kind of
3:13:10going to I think the question I had had
3:13:12with Miss Van Gem is isn't it possible
3:13:15that the company could never have a
3:13:18disincentive due to bad performance is
3:13:20one year of bad performance results in
3:13:23approximately $30 million of
3:13:25disincentive. It would take three years
3:13:27of perfect performance to offset that.
3:13:30Um that is in and of itself I would say
3:13:33a near impossible thing to do to have 3
3:13:37years of perfect performance on any unit
3:13:40uh before you could even begin to offset
3:13:43one year of poor performance.
3:13:53Thank you. I'm just checking my list
3:13:54here.
3:14:03Uh, could we pull up?
3:14:11Hearing exhibit 112 again.
3:14:28And if can we go to page seven?
3:14:36Can we scroll down so Mr. Piscuchi can
3:14:38review uh this first Q&A here?
3:14:45>> Yes, I've reviewed it
3:14:47>> and maybe the next one as well.
3:14:59if you could scroll down just a little
3:15:01bit more. Thank you.
3:15:07>> Yes, I've reviewed it.
3:15:10>> Um, after reviewing those, can you
3:15:11provide the background of the company
3:15:13bringing forward the DCA PIM proposal in
3:15:15this proceeding?
3:15:17>> Yes. Um bringing the proposal here is
3:15:20kind of the result of several um other
3:15:22attempts. Um commission staff has
3:15:24indicated a long interest in bringing
3:15:26this forward. Um it had been been punted
3:15:29out of several other proceedings
3:15:32um to eventually this proceeding. So the
3:15:35company bringing it forward here was one
3:15:36a requirement out of prior settlements
3:15:39that the commission has approved that we
3:15:40needed to bring forward this pimp. Um,
3:15:42two, it reflects kind of ongoing
3:15:45cooperation between the company and
3:15:46commission staff. Um, that recognizing
3:15:48they have an issue, an interest in this,
3:15:51that we need to bring forward something
3:15:52thoughtful. I would say unwritten here
3:15:55um is I think it's clear to us that the
3:15:58commission likes to see performance
3:16:00incentive mechanisms. If I can steal
3:16:03Chairman Blank's kind of statements that
3:16:06he makes is he wants to see when when
3:16:08customers win, the utility wins. When
3:16:10customers lose, the utility loses. I
3:16:12think I'm paraphrasing that fairly
3:16:15reasonably.
3:16:16>> That's okay. You got it. [laughter]
3:16:18>> Okay. Um, this is another situation
3:16:20where we are bringing forward something
3:16:21that where the company's fleet
3:16:23underperforms and its operation of the
3:16:25of its units have a negative impact on
3:16:27customers. The company has risk. They
3:16:29have skin in the game. Um, we may lose.
3:16:32Now to the extent that we can do better
3:16:34um it reflects again that commission
3:16:36desire to see if things are operating
3:16:38better that customers are receiving more
3:16:40benefit that the company should see some
3:16:43some benefit from that improved
3:16:44performance as well.
3:16:47>> Thank you. Could we transition to
3:16:50hearing exhibit 158?
3:17:00And I believe uh can we go to page
3:17:04eight?
3:17:16Can we All right, let me pull up my
3:17:42Sorry. Can we go to page 12?
3:17:53and scroll down
3:17:55for just a second
3:18:00there. That Q&A at um 8 through 16. Can
3:18:05you review that, Mr. Kresco?
3:18:07>> Yes,
3:18:11I've reviewed it.
3:18:13>> [clears throat]
3:18:14>> Okay. You had a discussion with um Miss
3:18:17Van Gin about the incentive uh the
3:18:20backcast associated with the DCAPM
3:18:22structure. Do you recall that?
3:18:24>> Yes, I do.
3:18:26>> And most of that discussion was focused
3:18:28on 2025 results. You recall that?
3:18:32>> Yes.
3:18:33>> What is the entirety of the backcast
3:18:35show from the DCA PIM uh analysis?
3:18:39the entirety of the backcast shows that
3:18:41the company would have returned over $6
3:18:43million to customers if you look over
3:18:45that kind of five six year previous
3:18:47period. Um that was sort of the point I
3:18:50was I was trying to make is that you
3:18:51can't take one year in isolation and say
3:18:54well this year it was positive therefore
3:18:57you don't need an incentive um or a
3:18:59disincentive. you need to look at the
3:19:02full basis and I think what the
3:19:04settlement has done here um also denoted
3:19:07in this is really pushed a lot of the
3:19:09risk of the future operation of these
3:19:12units to the company um historically we
3:19:16would have paid a disincentive. We've
3:19:18reduced a lot of the unit baselines.
3:19:20We've increased some of the c the
3:19:22penalties associated with the units um
3:19:25the disincentives. So, this is really a
3:19:27thing that should continue to thrive
3:19:30that continuous improvement. Um, and you
3:19:32need to look at it on the whole, not as
3:19:34just a one-off.
3:19:38>> You mentioned with I believe it was
3:19:39Commissioner Gilman that moving some of
3:19:41those baselines lower uh move them
3:19:44closer to the first quartile overall. Is
3:19:46that your recollection?
3:19:48>> Yes, that is.
3:19:50So how would you characterize the type
3:19:52of performance that's needed in order to
3:19:54earn incentive over the DCA through the
3:19:57DCA pin
3:19:59>> relative to historic performance and
3:20:01relative to where the company proposed
3:20:03indirect
3:20:05the for many of the units performance
3:20:07now has to be significantly better than
3:20:10what we were anticipating
3:20:12um in order to to achieve incentives. So
3:20:16it is much more challenging on both the
3:20:18DCA PIM like the Comanche 3 PIM to earn
3:20:21an incentive than it is to earn a
3:20:23disincentive. I think that that puts a
3:20:25lot more risk on the company than
3:20:27standard business practice has.
3:20:32>> Okay. Now I'm going to return to uh the
3:20:34beginning of the morning. So um you had
3:20:37a conversation with Miss Nelson
3:20:39regarding the Comanche 3 performance
3:20:41framework. I just wanted to ask a few
3:20:44clarifying questions associated with
3:20:46that. Um, first, is it your
3:20:49understanding that the Comanche 3
3:20:51performance framework disincentive
3:20:53payments all occur through the ECA?
3:20:58>> That is my recollection. Yes. That if we
3:21:00incur the disincentive, it gets returned
3:21:02back through the ECA.
3:21:06>> And there's a true up process for the
3:21:08ECA.
3:21:10Yes, there's a true up and a prudence
3:21:12review process. Um so for example the
3:21:15end of 2026 um the company will file in
3:21:18August of 2027 for its annual ECA PCCA
3:21:23um prudence review process at which
3:21:25point parties will evaluate um the
3:21:29standard parts of that but would also
3:21:30have an opportunity to evaluate the
3:21:31company's calculation of the Comanche 3
3:21:35u performance framework
3:21:38>> and when base rates are established in
3:21:40this case is it your understanding
3:21:42saying that would reflect the settlement
3:21:44test year revenue requirement.
3:21:46>> Yes, it would.
3:21:48>> And those base rates won't change until
3:21:50there's a future rate case.
3:21:52>> That's correct.
3:21:57>> If we could return to uh hearing exhibit
3:22:01155, attachment six.
3:22:12You also had a discussion with Miss
3:22:14Nelson regarding uh quantification of
3:22:17penalties under the Comanche 3
3:22:19performance framework. Do you recall
3:22:20that?
3:22:21>> Yes, I do.
3:22:23>> And does this attachment identify those
3:22:25uh a backcast associated with those
3:22:27penalties?
3:22:30Uh yes, you have the backcast of the
3:22:34penalties in the column penalty. Um
3:22:39guess it's the fifth from the left
3:22:44>> and attachment MVP7 to your settlement
3:22:47testimony. Was that a uh live model
3:22:51associated with the Comanche 3
3:22:53performance framework?
3:22:56>> Yes. Yes, we we have filed live models
3:22:58for both the command G3 and the DCA PIM.
3:23:01>> And does that model allow parties to put
3:23:05in assumptions regarding uh actual XE XE
3:23:12that would be achieved to calculate
3:23:14associated penalties?
3:23:17>> Um yes, a party could could adjust
3:23:20really any of the factors in the model.
3:23:23Um, you could change the actual XCOF to
3:23:26see what the result you wanted to assume
3:23:29would be. Um, you you could change
3:23:31really any of the inputs in there.
3:23:38Okay, one final set of cleanup I
3:23:41believe. Could we bring up uh hearing
3:23:43exhibit 310 attachment LHS41?
3:24:19If we can go down to page five, please,
3:24:25and actually scroll down a little bit
3:24:26further so we can see footnote six
3:24:38and footnote 10. So m Mr. Priscuchi,
3:24:41there was just some questions about
3:24:43whether these reflected public service
3:24:44costs. Uh does reviewing these footnotes
3:24:47help clear that up?
3:24:49>> Yes, I think at the time it said it, I
3:24:50believed that they were public services
3:24:52share of costs only. And um footnote
3:24:55six, you can see says costs reflect
3:24:57public services share of costs inclusive
3:24:59of common costs. And footnote 10 says
3:25:01forecasted costs reflect public services
3:25:03share of costs.
3:25:06And these are all costs associated with
3:25:09the current outage at Comanche 3.
3:25:13>> Yes, that's correct. This reporting is
3:25:15reflective of the costs incurred both to
3:25:17return Comanche 3 to services um well as
3:25:20costs and and production associated with
3:25:22Comanche unit 2 due to the extension.
3:25:25>> And it's your understanding that these
3:25:27are all within the uh prudence review
3:25:30agreed to as part of the settlement
3:25:32testimony.
3:25:34Yes, I would agree that the Comanche 3
3:25:36prudence review would be fairly wide
3:25:37ranging to look at um the full costs of
3:25:40the return to service of Comanche unit 3
3:25:42as well as any costs associated with
3:25:44replacement power or um other costs
3:25:47incurred related to the Comanche unit 3
3:25:49outage.
3:25:54>> Thank you, Chair. I'm just checking my
3:25:56notes.
3:26:06Uh, I believe that's all I have for
3:26:08redirective. Mr. Pascuchi, thank you.
3:26:11>> Uh, thank you, Mr. Pascuchi. You may be
3:26:14excused.
3:26:15>> Thank you.
3:26:17>> Uh, let's take a break till about 12:45.
3:26:2012:45 and we'll uh start back with uh
3:26:25Mr. Hansen and uh just to let my
3:26:29colleagues know for Mr. Wer uh I'm going
3:26:32to ask some questions uh on behalf of
3:26:35advisors and maybe go first for Mr.
3:26:38Wener, let you guys go and then uh ask
3:26:42my remaining questions. So just a heads
3:26:45up uh on uh some questions for advisors
3:26:50uh with that. Anything else uh before
3:26:53lunch? Commissioner Gman,
3:26:55>> are you planning any confidential
3:26:57questions for Mr. Winner? Because I have
3:26:59some that may go that direction, so I'm
3:27:01just trying to work out. I feel like I
3:27:03could ask them at any point, like it
3:27:05doesn't have to be in my right spot if
3:27:08it's time for a break or whatever.
3:27:10>> I I don't have confidential questions
3:27:12for Mr. Wer. Uh
3:27:15>> um I'll work on that over lunch, but I
3:27:18may need to do some confidential
3:27:20questions. So much case I'm saying I
3:27:21could go out of order for those to just
3:27:24make it work with a break.
3:27:27>> Uh
3:27:33uh
3:27:35uh can you say what substance area your
3:27:38questions are on?
3:27:39>> Uh on the levers model which was
3:27:42entirely considered confidential by the
3:27:44company.
3:27:46>> Uh all right. Uh why don't we uh uh let
3:27:52me think
3:27:54you uh Mr. Zmer you'd like to take Mr.
3:27:56Hansen next.
3:27:58>> Uh yeah, I believe so.
3:28:00>> That was Cor's request
3:28:01>> and Core I believe it asked for that. Um
3:28:04>> okay. Okay. So we'll we'll take uh Mr.
3:28:07Hansen uh first. Uh we'll go through the
3:28:10cross of Miss Mr. uh winner and we'll
3:28:13just have to figure out what to do on
3:28:15confidential session when we get there.
3:28:18And just so you know, Mr. Zmer, I guess
3:28:20I do have some questions on the uh
3:28:22Moody's uh reports. I was thinking we
3:28:25wouldn't have to go on this session
3:28:27because I could just uh read them, but I
3:28:29guess I could just do it in confidential
3:28:31session, too.
3:28:32>> Yeah. what on on the Moody's reports. I
3:28:35mean, typically th those are treated as
3:28:37confidential because they're third party
3:28:39work product and we're required to, but
3:28:41typically the text within them, I mean,
3:28:43we quote it in a public way.
3:28:46>> So, um, that I think we can work around.
3:28:49Commissioner Gilman. Um
3:28:52I I think if we bring up the models, we
3:28:55may have some issues, but in terms of
3:28:57talking about how they function or the
3:28:59re the results are have been included on
3:29:01a public basis. And so um but we we'll
3:29:05work through that.
3:29:06>> I can definitely try them public and
3:29:08just be a little more cryptic
3:29:11um about some of the details and then
3:29:14see if we get there.
3:29:16>> Okay. Right. So, let's uh let's do this.
3:29:19We'll uh start after lunch with uh Mr.
3:29:22Hansen. Uh we'll go to Mr. Wer. We'll go
3:29:26through the cross of Mr. Wer. I'll ask
3:29:28the advisor's questions. We'll go to
3:29:31Commissioner Plant Gilman. We'll see if
3:29:33we need a confidential session. Um does
3:29:36that work for you, Miss Chartran?
3:29:41>> Yes, it does, Chairman Blank. Thank you.
3:29:44>> All right, we'll start with you and Mr.
3:29:45Hansen. 12:45. Thanks everybody.
3:29:48>> Thank you.
4:15:19Good afternoon. I'm Eric Blank and uh
4:15:23this is the uh uh we're back on the
4:15:26record in 25-0494E
4:15:29the public service company of Colorado
4:15:31rake case. Uh Mr. Hansen, can you hold
4:15:34up your right hand? Uh, do you swear to
4:15:37tell the truth? All truth, nothing but
4:15:39the truth?
4:15:40>> I do.
4:15:41>> Put your hand down. Is anybody with you
4:15:43or communicating with you in any way?
4:15:46>> They are not. And no.
4:15:48>> Uh, if that changes, will you let us
4:15:50know?
4:15:51>> I will.
4:15:52>> Uh, unless you have anything
4:15:54preliminary, Mr. Simper, we'll jump to
4:15:57Miss Miss Chartran.
4:15:58>> Uh, reading the room, the witness is
4:16:00available for cross.
4:16:02>> Thank you. Uh, Miss Chartran. Uh, thank
4:16:06you. Uh, chairpin uh blank, prior to my
4:16:09cross of Mr. Hansen, I just wanted to
4:16:12inform you that we're going to wave um
4:16:14our cross time with uh staff witness
4:16:18O'Neal.
4:16:20And in light of that, if acceptable to
4:16:22you, I would like to use that five
4:16:24minutes um in addition to my original
4:16:26five minutes to cross Mr. Hansen.
4:16:29>> Yeah, you've waved a bunch across. Uh I
4:16:32think you're entitled to the time you
4:16:33need, M.
4:16:34>> I appreciate. Thank you. Um, Mr. Hansen,
4:16:37thank you for your time today. My name
4:16:39is Laura Chartren and I'm here on behalf
4:16:42of CORE Electric Cooperative and CORE uh
4:16:46along with the company and Holy Cross
4:16:48are co-owners of Comanche 3. The
4:16:51majority of my questions will focus on
4:16:53your rebuttal testimony which is hearing
4:16:56exhibit 143.
4:16:59And if we could bring up hearing exhibit
4:17:02143, then we can get started with my
4:17:05questions.
4:17:12And if we could go to Mr. Hansen's
4:17:15portion of his testimony on page 8, line
4:17:1812.
4:17:24And Mr. Hansen, um, can you see this
4:17:28exhibit? and rebuttal testimony.
4:17:31>> I can.
4:17:32>> Thank you. Um, and here you're asked if
4:17:35the current outage at Comanche 3 was
4:17:38caused by quote a formentioned operating
4:17:41stresses. Do you see that in your
4:17:44testimony?
4:17:45>> I do.
4:17:47>> And your testimony response um was no,
4:17:50that the aforementioned operating
4:17:52stresses did not cause the current
4:17:55outage. Is that correct?
4:17:57It is.
4:17:58>> And for the sake of clarity, could you
4:18:01enumerate for the record what specific
4:18:04aforementioned operating stressors you
4:18:07are referring to?
4:18:09>> Um,
4:18:11when we looked at this, we were talking
4:18:13about the stresses uh that would go
4:18:15along with uh heating up and cooling
4:18:18down and in particular boiler
4:18:21performance um for the unit.
4:18:24And in your testimony, do you recall and
4:18:27and maybe I can refresh your memory if
4:18:30we could go to page seven.
4:18:38And in your testimony um on page seven,
4:18:42you describe this as ramping up and down
4:18:46in order to balance the system because
4:18:49of renewable energy. Is do you recall
4:18:52that? I do.
4:18:55>> And Mr. Hansen, is it correct that the
4:18:58ramping up and down to balance this
4:19:00penetration of renewables was occurring
4:19:03prior to the current Comanche 3 outage?
4:19:08>> It was this has changed over time. As uh
4:19:13renewables penetrate more and more into
4:19:15the market, there is a greater need to
4:19:18I'll say change or manipulate existing
4:19:21units to accommodate for um that
4:19:24increased contribution of the renewables
4:19:26to the overall generation profile.
4:19:31And in your testimony on page seven,
4:19:34line 15,
4:19:36you testify that continued ramping up
4:19:39and down of the unit will contribute
4:19:42negatively to wear and tear, making the
4:19:45unit more difficult to reliably operate.
4:19:49Do you see that in your testimony?
4:19:52>> I do.
4:19:53>> Is this wear and tear limited to the
4:19:55boiler tubes of Comanche 3?
4:19:59No, but that's the primary contribution
4:20:02to the challenge for this particular
4:20:04unit. Um, if you take a look at the the
4:20:07following lines, you do see me talk
4:20:09about the boiler tubes. Um, so that was
4:20:12the primary contributor of the of the
4:20:14challenges of running the unit, but
4:20:16anytime you operate a machine and you
4:20:19cause it to change operating conditions
4:20:21or the operating paradigm, it does
4:20:23stress the individual um components that
4:20:26are that are part of the machine.
4:20:29And at this time, do you anticipate
4:20:32um other significant challenges because
4:20:34of that?
4:20:37>> Need a little help with that question.
4:20:39Uh what in particular are you referring
4:20:41to? So, you just testified that the
4:20:44primary
4:20:46identific identified challenge was the
4:20:49wear and tear to the boiler tubes, but
4:20:53you just testified that it can also
4:20:56cause wear and tear to other components.
4:21:00Can you identify what those other
4:21:03components are that you anticipate the
4:21:05ramping up and down may contribute to
4:21:08wear and tear?
4:21:10Yeah, all all of the components that
4:21:13make up the operating machine in this
4:21:15case the Comanche 3 boiler and turbines
4:21:18that are exposed to differing operating
4:21:20conditions i.e. different t temperatures
4:21:23and pressures are going to undergo
4:21:26various um stresses as they go. And so
4:21:29as a result of operating the unit, you
4:21:31have to take um certain operating
4:21:34conditions or or uh behaviors into uh
4:21:39into account as you operate the machine.
4:21:41So in particular, you may limit the rate
4:21:43at which you raise power or lower power
4:21:46on the machine. You may uh limit the
4:21:50number of times you want to do that so
4:21:52that the materials have a chance to grow
4:21:54and accommodate those changes in
4:21:55operating paradigms. So any of the
4:21:58components within the machine that would
4:22:00be subject to I'll say changing
4:22:02operating conditions will undergo wear.
4:22:07>> Um thank you Mr. Hansen. Um could you
4:22:09also explain the basis for your
4:22:12conclusion that the current3 outage was
4:22:16not attributable to ramping up and down.
4:22:20Um so that particular outage is related
4:22:23to uh the initial discussions on why did
4:22:27the uh why is the unit been difficult to
4:22:30operate and has to come offline for uh
4:22:33I'll say unplanned outages and they've
4:22:36been related primarily to the boiler
4:22:38tubes and their performance over time.
4:22:40Um this particular outage um is related
4:22:44to the fact that we had a liberation of
4:22:46a blade on our turbine um that uh went
4:22:51through both stationary components and
4:22:53through other blading and performed that
4:22:55damage at that point. Um although there
4:22:58is a root cause that has been performed
4:23:00on it, it's my understanding that a
4:23:03primary contributor hadn't been um
4:23:06related to u those stressors. And so
4:23:10this appears to be related to the meter
4:23:12meteor meteorological conditions under
4:23:15which those blades were secured to um
4:23:19the rotating element.
4:23:21>> And Mr. Hansen, have you participated in
4:23:23any part um of the root cause analysis
4:23:27that you just mentioned? I
4:23:29>> I have not. That's
4:23:32>> Have you re Have you had occasion to
4:23:34review the root cause analysis report?
4:23:38Uh, no I have not.
4:23:41>> Mr. Hansen, um, are you aware were you
4:23:45did you listen to um, Mr. Pu Piscus's
4:23:50um, testimony this morning?
4:23:53>> Uh, not all of it, but some of it.
4:23:56Um well on subject to check he at one
4:23:59point he had testified that the current
4:24:02return to service date for Comanche 3 is
4:24:07August 15th.
4:24:09Um does that surprise you?
4:24:12>> It it does not surprise me. I am aware
4:24:14of uh what Mr. Rescui discussed with
4:24:17regard to supply chain challenges and in
4:24:20particular our primary vendor and being
4:24:23able to return both the stationary
4:24:25components and the rotating elements to
4:24:27the site in order for us to have enough
4:24:30time to reconstruct it and then do some
4:24:33initial testing before um placing the
4:24:35service placing the unit in service. And
4:24:38>> and do you believe that Oh, sorry. Go
4:24:40ahead. I didn't mean to cut you off.
4:24:41>> No, that's fine.
4:24:43>> Um Mr. Dr. Hansen, do you believe that
4:24:45the August 15, 2026 will give you um
4:24:49sufficient time to do that testing?
4:24:53>> I do. At this point in time, as long as
4:24:56those components arrive on the sites
4:24:58that we had originally uh uh or that
4:25:01have been updated to us, we'll need uh
4:25:04roughly a month for the reconstruction
4:25:06of the components. and we'll have um a
4:25:09[clears throat] couple weeks to be able
4:25:10to do the operating paradigm testing for
4:25:13the machine to be able to synchronize
4:25:14it, but it uh it will be on or about the
4:25:17the 15th of August.
4:25:19>> So, is it fair to say that there are
4:25:21components that are not yet on site?
4:25:24>> Yes, that is true.
4:25:26[gasps] Are you aware that the company
4:25:29is required to provide monthly reporting
4:25:33um in a a the Comanche 2 variance
4:25:37petition before the commission?
4:25:40>> I am aware of it.
4:25:42>> And subject to check um would it
4:25:45surprise you that in January and
4:25:47February the company expected the return
4:25:50to service date to be June 15th?
4:25:55I I am also aware of those original
4:25:57dates.
4:25:58>> And then subject to check, are you
4:26:01familiar then with the dates of July
4:26:042026 that were reported in March, April,
4:26:08and May?
4:26:10>> I am aware of those dates. And to your
4:26:13knowledge, has any report been filed um
4:26:17through a a
4:26:20proceeding before the public utilities
4:26:22commission that notifies interested
4:26:25parties that the new return to service
4:26:28date is August 15th.
4:26:32>> Um I don't know if that went out in the
4:26:36last report or not. Um, so I'm not
4:26:40certain
4:26:41if and when um the uh commission has
4:26:44been notified officially through our
4:26:46channels.
4:26:47>> Okay, Mr. Hansen, thank you for your
4:26:50time. Um, I don't have any further
4:26:52questions for Mr. Hansen.
4:26:55>> Thank you.
4:26:55>> Thank you, Mr. Chart.
4:26:58Uh, Commissioner Plant, any question?
4:27:01Oh, no. I'm sorry. Sarah Club, Mr.
4:27:03Ghart,
4:27:06>> thank you. Uh, I just have a few
4:27:08questions about Comanche 3. Mr. Hansen,
4:27:13>> nice to meet you. Thank you.
4:27:16>> Good to meet you as well. Um, could we
4:27:19please pull back up Mr. Hansen's
4:27:20rebuttal testimony hearing exhibit 143?
4:27:36And could we please scroll to page
4:27:38seven?
4:27:44Great. Um, so Mr. Hansen, on this page,
4:27:48you're discussing Comanche 3. And if you
4:27:52look down on line 11,
4:27:54there's a sentence that reads, "In
4:27:57addition, the company made certain
4:27:59commitments for Comanche unit 3
4:28:02operations in 2021 through the updated
4:28:05settlement agreement in proceeding
4:28:07number 21A 0141E."
4:28:10Do you see that?
4:28:11>> I do see it.
4:28:13>> Okay. And so this sentence is referring
4:28:17to the annual capacity factor limits on
4:28:21Comanche3 in that settlement.
4:28:26>> I'm sorry I didn't hear the end of your
4:28:27question.
4:28:28>> Sure. Uh so in this sentence when you
4:28:32refer to the commitments for Comanche 3
4:28:36in 21A 0141E
4:28:40you're referring at least in part to the
4:28:43annual capacity factor limits in the
4:28:46updated settlement agreement that the
4:28:48commission approved in that case.
4:28:50>> That is my understanding.
4:28:52>> Okay. Um, I want to ask you a little bit
4:28:57about uh those commitments that you're
4:28:59referring to here. So, you're aware that
4:29:03those annual capacity factor limits went
4:29:07into effect beginning in 2025?
4:29:10>> I am.
4:29:11>> Okay. And Comanche 3 was on outage from
4:29:17August through December of last year.
4:29:21>> That is correct.
4:29:23Is it fair to say uh your understanding
4:29:26is that given that outage
4:29:30in 2025,
4:29:32the capacity factor limits in the
4:29:34settlement did not affect the operation
4:29:37of Kimi3?
4:29:40>> Uh yes, that's correct. That
4:29:42[clears throat] settlement did not
4:29:44impact that outage or was not the result
4:29:46of it or caused it.
4:29:49>> Okay. And
4:29:52would the same be true for 2026 given
4:29:54that Command 3 hasn't operated yet which
4:29:57is to say that the annual capacity
4:30:00factor limit for 2026 has not affected
4:30:03Command 3's operation this year.
4:30:06>> That is correct.
4:30:08>> Okay. So to sum up, as we sit here
4:30:11today, there's no time period over which
4:30:16the annual capacity factor limits have
4:30:18yet impacted Comanche 3's operations.
4:30:24>> Based on what we just discussed, that is
4:30:25absolutely correct.
4:30:27>> Okay. Um, thank you. I have no further
4:30:30questions. I appreciate your time, Mr.
4:30:31Hansen.
4:30:33>> Thank you.
4:30:34>> Thank you, Mr. Garhard. Commissioner PL.
4:30:39>> Hi. Good afternoon, Mr. Hansen.
4:30:42>> Good afternoon, Commissioner.
4:30:43>> I just had a a couple of questions on
4:30:45the the wind farms um and regarding the
4:30:49extension of the depreciable lives of
4:30:51the two wind farms
4:30:54uh from well in the direct testimony
4:30:56from 25 to 35 or 36 and now to 30 in the
4:31:00settlement. Are you aware of any
4:31:02additional costs that would be incurred
4:31:04to extend the lives of the units? Is
4:31:07there the cell replacements or other
4:31:09components that would drive additional
4:31:11capital costs at that 25 year mark?
4:31:14>> Um, I'm not aware of a specific cost
4:31:18because it went from 25 to 30 or 35
4:31:21years. What I am aware of is as machines
4:31:24get older, um, they are going to require
4:31:27more regular or routine maintenance. And
4:31:29so as a result of that, um there's no
4:31:31reason to believe we wouldn't have to
4:31:33continue to perform uh the same type of
4:31:36maintenance that we're doing on those
4:31:37machines to extend their duration,
4:31:40>> but not not a greater amount of
4:31:43maintenance, just kind of what you're
4:31:44doing now or what's happening in the
4:31:46first 25 years.
4:31:48>> Not that I'm aware of. That's correct.
4:31:50Okay.
4:31:51>> And have you evaluated any derating of
4:31:54those units once you get beyond that 25
4:31:56year range? Is there any reason to
4:31:58expect that the units will continue to
4:32:00produce at their existing capacity or is
4:32:04there an expectation of a of a decline
4:32:06in production after that point?
4:32:09>> I'm not aware of an expected decline in
4:32:11the machines, but I do know that the
4:32:13machines will become less efficient and
4:32:15will likely require the same type of
4:32:18normal maintenance that we would have to
4:32:19perform on them. So as a result uh they
4:32:22may need maintenance at a a different
4:32:24frequency depending on the age of the
4:32:26machine and the specific type.
4:32:30>> Um and my my last question is the the
4:32:32Burns and McDonald study uh that was
4:32:35used to to justify the extension of the
4:32:37two wind plants uh was based on the full
4:32:40wind portfolio. Has the company looked
4:32:43at all of the plants and extending their
4:32:46lives in a similar way?
4:32:49uh uh what the savings might and what
4:32:51the savings might be associated with
4:32:53doing something like that.
4:32:55>> Excuse my interruption. I'm sorry. I
4:32:57wanted to make sure I understood the the
4:32:59breadth of the question. When you say
4:33:00the company, do you mean beyond just
4:33:03the Excel company or
4:33:05>> uh Well, looking at PSCO? [laughter]
4:33:08>> Yeah. No,
4:33:09>> I think you were looking at the full
4:33:10breadth of all of the uh the wind
4:33:12portfolio, which would include a lot
4:33:14more than the two plants that we're
4:33:16talking about here. I'm just wondering
4:33:18if uh if the company looked at what
4:33:22annual savings might be associated with
4:33:25extending the lives of those plants and
4:33:27and the and the the payoff of those
4:33:30plants over that period of time as well.
4:33:33>> I personally am not aware of any
4:33:35specifics in terms of savings um other
4:33:38than a planning or or mapping to have to
4:33:41replace equipment at an earlier time
4:33:42frame or replace uh sources of
4:33:45generation at a particular time frame.
4:33:47So, no, I'm not aware of one.
4:33:49>> Well, you're you're I mean, you're
4:33:51looking at an at at annual savings
4:33:54extending the life of the plant, right?
4:33:57And we're talking specifically in this
4:33:59case about two wind farms, but I think
4:34:02the study was looking at
4:34:04>> the entire uh portfolio of wind. And I
4:34:07was just wondering if the company had
4:34:10taken that, if you were to take that
4:34:12same approach and go to 30 years or 35
4:34:15years, whatever it might be, what the
4:34:18the cumulative savings per year might be
4:34:21for rateayers, if that's truly expected
4:34:24to be the life of the units. Um, I can
4:34:29just tell you at this point in time I'm
4:34:30not aware of what those specifics would
4:34:32be, nor has been made aware to me, but
4:34:35I'm certain that we will in the future
4:34:37as we see the performance of these have
4:34:39to do an analysis to determine if and
4:34:42when to replace more components or if
4:34:44indeed it was a savings, but we
4:34:46anticipate there'll be an improvement
4:34:48and that they'll be able to last that
4:34:49long. Okay, thank you. That's all the
4:34:52questions I had. Thanks.
4:34:54>> Thank you, Commissioner.
4:34:56Commissioner Gman.
4:34:58>> Hey, good afternoon, Mr. Hansen.
4:35:00>> Hi, Commissioner. How are you?
4:35:01>> I'm good. Um, I had a couple questions
4:35:06on um some of what we saw in the
4:35:09Comanche 3 report that was um we saw one
4:35:13of these. I think it was um the May
4:35:16report attached to Miss Henry Seros's
4:35:18opposition settlement testimony. Are you
4:35:20familiar with that?
4:35:22>> I am. Um so curious that report showed
4:35:27um $600,000
4:35:29in fuel on and m costs for unit 3 um
4:35:34despite unit 3 being down for n or 10
4:35:37months at that point. So I'm curious
4:35:39what um those fuel costs for unit 3
4:35:42represent.
4:35:44>> So we employ a a company um that that
4:35:47does our coal handling or fuel handling
4:35:49for of us for us. And so periodically
4:35:52the piles that are used by uh both the
4:35:54Comanche 2 and the Comanche 3 units need
4:35:56to be reshaped and and there are costs
4:35:59associated with managing that as well as
4:36:01receiving more coal, but we're not
4:36:03actually burning the coal in unit 3 at
4:36:06this point in time, but we still have to
4:36:07manage that facility. So those costs are
4:36:09related to that.
4:36:11>> Okay. So um and I checked a few of the
4:36:15other reports. The April report um
4:36:18listed $300,000.
4:36:21The March report listed $600,000. The
4:36:25February report listed $800,000. Do
4:36:27those all sound accurate?
4:36:30>> Those sound like reasonable numbers.
4:36:32>> Okay. And so I'm a little confused. So
4:36:35that's not for the delivery of any coal.
4:36:37That is for like managing the coal on
4:36:40site without any new commodity coming
4:36:43in.
4:36:44>> Right. that so we do receive coal and so
4:36:47they go to the site um but we have to
4:36:50manage that pile that coal is coming in
4:36:52for both of the units operation um
4:36:55obviously there was times during that
4:36:57that time frame that you're talking
4:36:59about where command G2 was not operating
4:37:00also um and yet we still maintain a pile
4:37:04so that you have approximately 30 to 35
4:37:07days on site at all times not all of our
4:37:10coal plants use the same amount of coal
4:37:12or maintain it So, um, there are times
4:37:15it gets lower, there are times it gets
4:37:17higher. Just for instance, the Hayden
4:37:19unit maintains a larger pile because
4:37:21it's sometimes harder to get fuel into
4:37:22that site. So, in the event that for
4:37:24some reason we were to suffer, I'll say
4:37:28a problem with receiving coal, it could
4:37:30be a train, problem with a track, could
4:37:32be weather, could be anything, uh, we
4:37:34need to maintain enough fuel on site to
4:37:36still be able to provide an output for
4:37:38the customers in the state of Colorado.
4:37:40So, yep. There's still times where we
4:37:42have to continue to manipulate the coal
4:37:43pile. So, even when we're drawing things
4:37:45off the coal pile. Um, unfortunately,
4:37:48we've had some incidents where you have
4:37:50to keep manipulating the fuel, the coal
4:37:52around, it can get pockets underneath of
4:37:54it. As a result, that can if we had
4:37:56people on the pile cause hazards the
4:38:00machines. So, as we use the coal, it's
4:38:02coming out from underneath. you still
4:38:03have to shape the piles while um we're
4:38:06operating, even if it's only being used
4:38:08from one source. Now, there's less of
4:38:10that necessary um when both the units
4:38:13aren't running, obviously, or when only
4:38:15one unit's operating.
4:38:17>> Okay. And unit 2 has been operating,
4:38:20correct?
4:38:21>> Uh for the better part of the year, not
4:38:22every day, but we have taken it out on
4:38:24purpose to do some maintenance to make
4:38:26sure the unit will run as well as
4:38:27possible.
4:38:28>> Okay. Now, I noticed in the same
4:38:31reports, um, at least those that I
4:38:34checked, which were probably four or so
4:38:37of them, um, it lists $0 for the actual
4:38:41O andM fuel costs for unit two.
4:38:45>> What would be the reason that all the
4:38:47fuel costs are allocated to unit three,
4:38:49none to unit two?
4:38:52>> I I stepped on your question. And so
4:38:54there were times when and I apologize if
4:38:56I get this wrong from a context, but
4:38:58there were times when unit 2 didn't
4:39:00receive any coal during a particular
4:39:03window. Um there are because we have the
4:39:05unit out for over 30 days. We also don't
4:39:08always receive the coal when the unit's
4:39:10operating. So in other words, there are
4:39:12times when the unit may not be operating
4:39:14and receiving coal. There are also times
4:39:15when the unit's operating and I'll
4:39:17receive coal. So it it is much more of a
4:39:20timing on when the trains actually show
4:39:22up with the coal.
4:39:25>> Yeah, I guess the the trend I'm looking
4:39:26at is more consistent than that. In each
4:39:30of the Comanche 3 reports that I've
4:39:33reviewed, the fuel cost, the O andM fuel
4:39:35cost for unit 2 has consistently been
4:39:38zero. It's not like sometimes here,
4:39:40sometimes there. And then the fuel cost
4:39:43has consistently been hundreds of
4:39:45millions of dollars, hundreds of
4:39:47thousands of dollars per unit 3. So I'm
4:39:51not seeing this eb and flow. It looks
4:39:53like the fuel costs consistently during
4:39:56the outage. There are fuel costs being
4:39:58allocated to unit three and zero being
4:40:01allocated to unit two.
4:40:05>> I'm I just want the last part of what
4:40:06you said. There's zero allocated to unit
4:40:08two and it's being allocated to unit
4:40:10three. Is that what
4:40:11>> correct? At least the the Comanche 3
4:40:14reports that I reviewed. I got February,
4:40:18March, April, May here. Um each look to
4:40:22show zero dollars of actual onm cost
4:40:25fuel allocated to unit 2 and each of
4:40:27them show hundreds of thousands of
4:40:29dollars of actual onm cost of fuel
4:40:33allocated to unit three. And I'm curious
4:40:35why we would see that differential,
4:40:38especially if unit 2 is the one that has
4:40:40been operating.
4:40:41>> Unit 2 has been the one that's operating
4:40:43100%. It's been out of service for at
4:40:46least a month um during that period of
4:40:48time that we're discussing. Um it's also
4:40:50just been out of service recently here
4:40:52for a couple weeks. Um so um net result
4:40:55is without looking at the report in more
4:40:57detail. I would have to look at
4:40:59specifically what the listed costs are,
4:41:01but I would expect that the bulk of the
4:41:03fuel receipts would be supporting the
4:41:05operation of Comanche unit 2 and that
4:41:08the on andm costs that you would see
4:41:10toward Comanche unit 3 would have been
4:41:13mostly processing or moving the piles or
4:41:15materials necessary to manage the coal
4:41:18pile.
4:41:20>> Okay. Um, and if unit three is not
4:41:24burning down coal in that interim, it
4:41:28seems as though those costs would be
4:41:29minimal, just managing the pile rather
4:41:31than reallocating new arrivals for the
4:41:34most part.
4:41:34>> That's correct. from a coal standpoint
4:41:36or the fuel standpoint. Um other than
4:41:39the operation of uh of um that coal pile
4:41:44um there would be little that's being
4:41:48used from a fuel at that site other than
4:41:50the coal and it' be the manipulation of
4:41:52the pile um to align it so that it would
4:41:54support the operation that unit when it
4:41:56comes back.
4:41:58>> Okay. Um, and is does the company have
4:42:01now or are you planning to have a higher
4:42:05reserve I guess you would say of coal on
4:42:08site for unit 3 than you had typically
4:42:12operating in 2025 before the breakdown.
4:42:16>> Um, so what I would tell you is that we
4:42:18try to maintain 30 to 35 days of coal at
4:42:21the Comanche site. What that means
4:42:23though is that I'm going to take a a
4:42:26more rapid um in influx of trains. So in
4:42:30other words, instead of getting one
4:42:32train a week or two trains a week, I
4:42:34might go to three or four trains if both
4:42:36units are operating. I'm still trying to
4:42:38maintain the same size pile, but that
4:42:41may require more frequent train visits
4:42:43to the site. So as a result, even though
4:42:46I I don't want to maintain a huge amount
4:42:48in there, 35 days has proven to be very
4:42:51reliable in terms of buffer in case we
4:42:53there's some delay along that supply
4:42:55chain delivery of coal, but there's no
4:42:58reason to make the pile much larger than
4:43:00that because we have serviceable and
4:43:02reliable um supplies of the fuel. Um, I
4:43:05told you from a Hayden standpoint
4:43:07that'll sound different because we
4:43:09normally try to maintain more than that,
4:43:11especially for uh it's more difficult up
4:43:14in the mountains to get the the coal up
4:43:15there. There can be more reasons for
4:43:17things to break down. So, we strive to
4:43:19keep a larger pile at the Hayden site.
4:43:21So, it's not the same at both sites.
4:43:23>> Okay. Um, and then just curious when
4:43:26unit 3 is in operation, what are the
4:43:30typical like monthly O&M costs related
4:43:32to fuel?
4:43:35Um, it's going to be larger than that. I
4:43:37would I would tell you without the the
4:43:39report right in front of me, it's been a
4:43:41while since I've seen it. Um, so I I
4:43:43would hesitate to make a guess right now
4:43:45without a recent report.
4:43:47>> Okay. I'm looking at the Comanche report
4:43:49that um, Miss Henry Seros attached to
4:43:53her testimony, which I think is the May
4:43:55um, report. So, this was anticipating I
4:43:58don't know in May you were anticipating
4:43:59it opened in July. Um it shows the
4:44:03forecasted O andM cost for fuel for unit
4:44:06three 7.1 million and for unit two 1
4:44:09million
4:44:11>> and that is a much closer to a normal
4:44:13operating set of parameters. So remember
4:44:16the units are different size. So um unit
4:44:193 is a 750 megawatt unit. Um unit 2 is
4:44:23closer to 300 just over 300 megawatt. So
4:44:26one will burn or consume if everything
4:44:28was equal roughly twice as much fuel as
4:44:30the other. It's actually more than that.
4:44:32And so, um, there's a reason that they
4:44:35would be significantly different.
4:44:37>> Okay. I mean, maybe there's a reason
4:44:39there would be
4:44:39>> and and that is them running at full
4:44:41power every time all the time.
4:44:42>> Yeah. Um, I mean, the one is is uh is
4:44:46seven times the other one, not double.
4:44:48But, um, so that's like just over a
4:44:51million give or take a month for unit
4:44:53three.
4:44:55>> Yeah. And so, here's what I want to make
4:44:56sure. those units aren't we don't so a
4:44:59base load unit is a unit I would turn on
4:45:02run it up to 100% power and leave it
4:45:04alone so I want to make sure I have that
4:45:06much fuel on site but these units have
4:45:09been cycled so in other words I may come
4:45:11in and only operate at 400 megawws for
4:45:13unit 3 and I may operate something much
4:45:16lower 200 megawatts for unit two so on
4:45:19any given month depending on what the
4:45:20demand is on these high demand months
4:45:22that are coming up we would normally
4:45:24want unit three to run very high So, I
4:45:27want way more coal on that particular
4:45:29unit or available to that unit. Unit two
4:45:31may be the one I actually fluctuate a
4:45:33little bit more and I'll operate it at a
4:45:35lower power level and then bring it up
4:45:36to match what the demand is uh in the
4:45:39service territory at that time. So, we
4:45:41would try to normally get Command 3 up
4:45:43to a high level and let it sit and then
4:45:45adjust other units to try to make up the
4:45:47difference.
4:45:48>> Okay. Typically, when it's operating,
4:45:50but now we're in
4:45:51>> Absolutely. It works way better when
4:45:53it's operating. Yeah,
4:45:55it's quote of the day. Um,
4:45:57>> yes.
4:45:58>> Okay. Thanks. Those are my only
4:45:59questions.
4:46:00>> Not a problem. Thank you.
4:46:03>> Just a one general uh question out of
4:46:06curiosity. Uh what do you think's going
4:46:09on with this uh unit? We keep hearing
4:46:12it's uh going to operate better in the
4:46:16past in the future, but it never seems
4:46:19to. You think it's the construction, the
4:46:21operations? Uh just curious to hear your
4:46:25big picture one sentence or a few
4:46:27sentence summary of what you think's
4:46:28going on.
4:46:30>> Chairman, I want to thank you for this
4:46:31question because I've been wanting this
4:46:32question for a long time. So I'm new to
4:46:35this role here and I've seen the history
4:46:37of this plant, but I'm really excited
4:46:40about the operation of this unit um now
4:46:42that we're we're doing the repair on it.
4:46:44And one of the things that I'm convinced
4:46:47my previous history is with nuclear
4:46:48power. So, I'm used to running baseline
4:46:51units where we would get them up, run
4:46:52them at full power, and keep them there.
4:46:54This unit, I think, will run much better
4:46:56for two reasons. There are two reasons
4:46:58that I've found in my history that units
4:47:00don't run reliably. One is I have bad
4:47:02human performance. I make mistakes. I
4:47:04turn valves the wrong way. I twist
4:47:06things the wrong. I don't follow my
4:47:07procedures. Um, but that tends to be a
4:47:10lesser contributor to the overall
4:47:12performance. The second reason is
4:47:13equipment reliability. And that's what I
4:47:16think we're experiencing with this unit.
4:47:18And so the equipment becomes challenged
4:47:20the more I I put it in dynamic
4:47:22circumstances where I'm changing power,
4:47:24changing the rate at which I want to
4:47:26change loads and the like. So we've
4:47:29worked with our commercial operations
4:47:30organization here at PiSco um to change
4:47:33the operating regime for this unit. I do
4:47:36expect that this unit will run better.
4:47:38Um we we have identified a zone in which
4:47:41we want to maintain the unit so that we
4:47:44can keep the temperatures and the
4:47:45pressures fairly constant so that we're
4:47:47not subjecting the materials to more
4:47:49stress than absolutely necessary. And so
4:47:52um me focusing on two things. One is the
4:47:56people that operate the units are are
4:47:58learning from our operating experience
4:47:59and improving our human performance. But
4:48:01two is we operate that unit within a
4:48:03very specific regime so that that unit
4:48:06be has a chance to to I'll say behave
4:48:08more like a nuke plant which is more
4:48:10like a baseline unit instead of chasing
4:48:12the wind. We want this unit to stay
4:48:14steady and we'll move our other units
4:48:16that are better designed to raise power
4:48:18and change power more quickly on
4:48:20dispatchable ones. So I really do
4:48:22believe this unit will perform
4:48:23differently.
4:48:25>> Just know I've been on this bench five
4:48:27and a half years and this is not the
4:48:28first time we've heard that.
4:48:31>> [laughter]
4:48:31>> Well,
4:48:32>> Mr. You asked me to raise my hand and
4:48:34tell you the truth, and that's what I'm
4:48:35telling you.
4:48:36>> All right. Uh, Mr. Simpson, redirect.
4:48:40>> Uh, nothing, Chair Blank. Thank you very
4:48:42much.
4:48:42>> Uh, Mr. Hansen, you may be excused.
4:48:46Thank you, sir.
4:48:47>> It was a pleasure.
4:48:49>> Uh,
4:48:51Mr. Wer, can you raise your right hand?
4:48:55>> I can.
4:48:56>> Do you swear to tell the truth, the
4:48:57whole truth, and nothing but the truth?
4:48:59>> I do. You put your hand down. Is anybody
4:49:02with you or communicating with you in
4:49:04any way?
4:49:05>> No, there is not. And no, they are not.
4:49:07>> If that changes, will you let us know?
4:49:09>> We'll do.
4:49:11>> Uh unless you have anything, Mr. Zemer,
4:49:13we'll go to Mr. Bunker.
4:49:16Um Mr. Bunker, uh what do I have? Uh 60
4:49:20minutes. Uh 60 minutes. It's 1:20.
4:49:24>> Thank you, Mr. Chairman. Uh good
4:49:27afternoon, Mr. Winner. Good afternoon.
4:49:31>> Uh let's start with your direct
4:49:33testimony and that was uh hearing
4:49:36exhibit 103
4:49:38and at page 8
4:49:41you have table T AW-D
4:49:49I'll give it a moment for the court
4:49:50reporter to catch up with us here.
4:49:53>> Sure.
4:49:54>> There we go. So there's the table in the
4:49:56middle of the page and uh here you uh
4:50:01state in your direct testimony support
4:50:03for a capital structure consisting of
4:50:0755% equity, 43.83%
4:50:11long-term debt and 1.17%
4:50:15short-term debt with an ROE of 9.8% and
4:50:19a whack of 7.46%.
4:50:23Correct.
4:50:25That all sounds correct. Yes.
4:50:28>> Okay. If we could now go to your
4:50:31rebuttal testimony.
4:50:34And on page 14, line one,
4:50:38you have a similar table that you've
4:50:40updated a little bit in your rebuttal
4:50:42testimony. This is table T AW-R2
4:50:47there on the top of the page.
4:50:49>> Yep. And this shows as of December 31,
4:50:542025.
4:50:56So this is all actual data, correct?
4:51:03>> Uh yes, I believe so. Correct.
4:51:05>> Okay. And your rebuttal testimony here
4:51:09supports a capital structure of 55.03%
4:51:1303% equity,
4:51:1643.78%
4:51:17long-term debt, and 1.20%
4:51:22short-term debt with an ROE of 9.8% and
4:51:26a whack of 7.44%.
4:51:30Correct.
4:51:31>> Correct.
4:51:33>> Okay. So in in this table two as
4:51:35compared to your direct testimony we
4:51:38have uh a little slight movement in the
4:51:41equity percentage going up three basis
4:51:43points.
4:51:45The longterm debt going down five basis
4:51:49points. The short-term debt going up
4:51:52three basis points. ROE stays the same
4:51:56and the whack goes down two basis
4:51:58points. Did I get that right?
4:52:02Uh I I think so. Certainly the the net
4:52:05effect going down uh by two basis points
4:52:08is absolutely correct.
4:52:10>> Okay. Let's now go to hearing exhibit
4:52:14155 and this is the nonunanimous
4:52:18agreement.
4:52:19And on page 18
4:52:22in paragraph 33
4:52:26there's the following narrative. The
4:52:28agreement provides the in paragraph 33
4:52:32the settling parties agree that the
4:52:34company's authorized whack will be 7.14%
4:52:39which is based on a capital structure
4:52:41consisting of 5450%
4:52:44equity 4550%
4:52:48debt a roe of 930%
4:52:56and a cost of debt equal to the actual
4:52:59cost of long-term debt for or you have
4:53:02here LTD long-term debt for 2025 of
4:53:064.55%.
4:53:08Is that right?
4:53:09>> I see that as well.
4:53:11>> Okay. Now focusing on the second
4:53:14sentence here, the agreement provides
4:53:18the settling parties agree to 5450%
4:53:23equity ratio for the purposes of this
4:53:26settlement agreement only and
4:53:29acknowledges that this is not the
4:53:31company's actual actual equity ratio as
4:53:35of December 31, 2025
4:53:38which was at five uh make that 55 5.03%
4:53:44as set forth in your rebuttal testimony
4:53:47hearing exhibit 135. Is that right?
4:53:50>> Correct.
4:53:52>> So in the nonunanimous agreement, PESCO
4:53:57agreed to a hypothetical capital
4:53:59structure rather than the actual capital
4:54:03structure. Is that right?
4:54:05Um certainly they agreed to an equity
4:54:08ratio lower than actual at year end in
4:54:12the test year of 2025.
4:54:14Okay.
4:54:16And in paragraph 34 of the agreement it
4:54:21provides settling parties agree that STD
4:54:24or short-term debt will not be included
4:54:28in the authorized capital structure.
4:54:30Right.
4:54:31>> That's correct. So that's that's another
4:54:33change. Only long-term debt costs are
4:54:36included in the settlement, the
4:54:39nonunanimous agreement and not
4:54:42short-term debt. Right.
4:54:45>> I read the same.
4:54:46>> Okay. And then in paragraph 35,
4:54:51the authorized ROE will be 930%
4:54:56maintaining the currently authorized
4:54:59ROE. Is that right?
4:55:01Yes.
4:55:02>> So that's a 50 basis point reduction
4:55:05from what you discussed in your direct
4:55:09and rebuttal testimonies. Right.
4:55:12>> Well, and this point I would maybe make
4:55:14a slight nuance difference is that um
4:55:16certainly I referenced a higher ROE in
4:55:20our case of 9.8% 8% but I I don't um I
4:55:24don't specifically advocate for that
4:55:26number or or provide the supporting
4:55:28documentation or analysis for that as I
4:55:31I focus only on the capital structure.
4:55:33>> Right. And in fact, Miss Balkley was the
4:55:37ROE witness for public service. Right.
4:55:39>> That's correct. Yep. and and didn't her
4:55:42uh I'm going off the top of my head
4:55:44because I'm not going to be
4:55:46cross-examining her, but my recollection
4:55:48is she had an ROE range of somewhere in
4:55:52the range of 10.25%
4:55:56to 11.25%
4:55:58for the ROE. Does that sound right?
4:56:01>> Uh I know that the range was in excess
4:56:03of the company's ask and recommendation
4:56:06here.
4:56:06>> Okay, that's that that's helpful. Thank
4:56:09you.
4:56:12Now in uh if we could go to here in
4:56:15exhibit 135 and that is your rebuttal
4:56:19testimony
4:56:21at page 33
4:56:24and on wines 13 through 15
4:56:28here you discuss
4:56:31UCA witness Mr. Fernandez's
4:56:33recommendation
4:56:35of a hypothetical capital structure
4:56:38consisting of 50% equity and 50% debt.
4:56:42Is that right?
4:56:47>> Yes, I see that as well.
4:56:49>> Okay. And as we just discussed in the
4:56:53nonunanimous agreement,
4:56:56PiSco agreed to a hypothetical capital
4:56:59structure that is 53 basis points less
4:57:02than its actual equity ratio as of
4:57:05December 31, 2025. Correct.
4:57:09>> Correct.
4:57:12>> And at page 33, lines 15 to 17, here you
4:57:16discuss Mr. Fernandez's recommendation
4:57:19that the debt portion should be priced
4:57:22entirely at the cost of long-term debt
4:57:26and that Mr. Fernandez advocates
4:57:28removing short-term debt from the
4:57:30company's capital structure. Right.
4:57:36>> I'm I'm sorry, what's the question, sir?
4:57:39>> Uh I I asked if I uh basically stated
4:57:42that correctly.
4:57:43>> Okay. U that that seems to be correct.
4:57:46Yes.
4:57:48And as we just discussed
4:57:51in the non-unanimous agreement, Piasco
4:57:54agreed the debt portion should be priced
4:57:57entirely at the cost of long-term debt
4:58:00and with the exclusion of the cost of
4:58:03short-term debt. Correct.
4:58:05>> Well, I don't know that actually I would
4:58:07disagree. I I or the company are not
4:58:10saying that we should. we agreed to this
4:58:12as a a way to
4:58:15um to arrive upon a non-unanimous
4:58:18settlement. And so that doesn't mean
4:58:20that all parties get what should be
4:58:22correct or what they want, but it gets
4:58:25us to a place where um we can live with
4:58:28and and believe that we have minimum uh
4:58:31credit support at these levels.
4:58:34>> Okay. So, if I was to change the word
4:58:38should to would in terms of piesco
4:58:41agreed, the debt portion would be priced
4:58:43entirely at the cost of long-term debt
4:58:47and with the exclusion of the cost of
4:58:49short-term debt, you would not have an
4:58:51issue with that sentence or that
4:58:53question, would you?
4:58:55>> That's correct. For the the context of
4:58:57the settlement agreement.
4:58:58>> Okay.
4:58:59>> Agree.
4:59:00>> Okay. And in uh on line 17 through 19
4:59:04and in footnote 62,
4:59:07you discuss the possibility of a decline
4:59:10in PiSco's credit rating.
4:59:13And you state that Pasco's ratings could
4:59:16be downgraded if there's a further
4:59:19deterioration in the credit credit
4:59:22supportiveness
4:59:24of the Colorado regulatory environment
4:59:27including an adverse outcome in its next
4:59:30rate case. Is that right?
4:59:33>> Uh that is what the footnote 62 says and
4:59:36is referring to. Correct.
4:59:37>> Okay. Uh however as we just discussed
4:59:40the non-unanimous agreement
4:59:43uh under that agreement PESCO agrees to
4:59:46use a cap a hypothetical capital
4:59:49structure for equity and debt ratios
4:59:52using only the long-term cost to debt
4:59:55and that debt percentage
4:59:58the exclusion of short-term cost of debt
5:00:03and maintaining the currently authorized
5:00:05930%
5:00:07RO OE is that right?
5:00:11>> Uh that is correct.
5:00:13>> All right. And then if we could go back
5:00:16to the non-unanimous agreement
5:00:19and at paragraph 33
5:00:23[clears throat]
5:00:25here provides the settling parties agree
5:00:28the company's authorized whack will be
5:00:307.14%.
5:00:32Correct.
5:00:35>> Yes, that's correct.
5:00:37And in Piasco's 2022 electric rate case,
5:00:42the commission set Piasco's whack at
5:00:467.0%.
5:00:48Is that right?
5:00:49>> Um I don't know that number off the top
5:00:51of my head. Apologies.
5:00:55>> And I am just clarify I am referring to
5:00:58PiSco's last electric rape case.
5:01:02>> Yes. I'm sorry. I just I don't recall
5:01:04that number off the top of my head.
5:01:06>> Okay, that's fine. Uh would you agree
5:01:10that in Pasco's recent 2024 gas rate
5:01:15case and that was proceeding number
5:01:1824-0049G.
5:01:23The commission set Pasco's whack at
5:01:267.0%.
5:01:30>> Uh I would say subject to check. I could
5:01:33uh accept that. Again, I don't I don't
5:01:35recall the exact number within a basis
5:01:37point of what it is.
5:01:38>> Okay. And would you agree that Pasco
5:01:42appealed several issues from the
5:01:45commission's decision in the 2024 gas
5:01:49rate case, including the commission's
5:01:527.0%
5:01:54whack decision, and the Denver District
5:01:57Court affirmed the commission's 7.0% 0%
5:02:02whack decision.
5:02:04>> I have no idea. I have no no reason to
5:02:07think that that is an incorrect
5:02:08statement.
5:02:10>> Okay. Thank you so much. Uh thank you,
5:02:13Mr. Weiner. I'm done uh with my cross
5:02:16exam. Appreciate meeting you.
5:02:20>> Uh thank you, Mr. Bunker.
5:02:26Uh, I think it's uh up to me and I'm
5:02:30going to ask you some uh questions on
5:02:34behalf of uh advisors. Uh, can we pull
5:02:38up Mr. Freighus' rebuttal testimony
5:02:40hearing exhibit 134 at page 23
5:02:44and let me represent. He shows a series
5:02:46of returns from 2017 to 2025.
5:02:52And I think that the 2025 earned ROE of
5:02:565.73%
5:02:58shown here does not include rider
5:03:00revenues.
5:03:02Uh but that the earlier years do such
5:03:05that there is not a consistent
5:03:07methodology across time. Um is that
5:03:10right or do you think something else is
5:03:12going on here?
5:03:16I mean, again, this isn't my testimony,
5:03:18uh, Commissioner, so it's hard for me to
5:03:21know fully the basis for this. Um, my
5:03:24understanding was this was done and and
5:03:27presented on a regulatory basis. So, I'm
5:03:29not surprised I wouldn't be surprised to
5:03:31learn that it does not include all of
5:03:32the different rider mechanisms and and
5:03:35revenue associated with that. um whereas
5:03:38I typically focus on uh GAP accounting
5:03:41measures which is the same as which uh
5:03:44the credit rating agencies focus on as
5:03:46well.
5:03:47>> All right. And as I understand it, the
5:03:51actual 2025 earned rate of return on
5:03:54equity is around 7.55%.
5:03:58Um that's what uh your investor report
5:04:01hearing except at 1515 at page 53
5:04:05shows. Uh um would it be useful to pull
5:04:09that up or?
5:04:10>> Uh it may be, but that sounds uh like a
5:04:13familiar number quite frankly in the
5:04:15mid7s. Um happy to to review if you'd
5:04:19like to ask more questions about that.
5:04:21>> Yeah. Could you pull up uh 1515 at page
5:04:2453?
5:04:44You see that uh PS got some
5:04:46>> 7.55%.
5:04:50>> Yes, I do. And and agree to that this is
5:04:52on a gap basis, so it should include all
5:04:55revenue writers.
5:04:57>> All right.
5:04:58Uh would you agree that's confusing to
5:05:01see that 5.73
5:05:03uh%
5:05:06uh in in uh the previous uh
5:05:11>> yes
5:05:12>> yeah I would agree that it's um you know
5:05:15it's comparing apples and oranges here
5:05:17um regulatory versus gap there's a there
5:05:20can be large differences
5:05:22>> okay and can we pull up your rebuttal
5:05:25testimony hearing exhibit 135 a page
5:05:27page 50, uh, line six.
5:05:32And I think here you're saying, uh, that
5:05:37the actual earned ROE based on a
5:05:39three-year average 2022 to 2024 was
5:05:427.89%.
5:05:45And is that similar to Mr. Freighus'
5:05:48methodology or can you describe the meth
5:05:51methodology you used as compared to what
5:05:54Miss Mr. Freighus is presenting? Yep.
5:05:57This is uh this reference again is on a
5:05:59gap basis. So this is a comparable
5:06:01number to the the um most recent uh
5:06:06screen you had up from our investor
5:06:08presentation. That 7.89% is a a
5:06:11three-year average 2022, 2023, and 2024
5:06:16for the the actual earned ROE on a gap
5:06:19basis. So that's a comparable number to
5:06:22the 7.55 uh percentage number that you
5:06:25just referenced. Okay. And can you help
5:06:27me understand why the company isn't just
5:06:28presenting consistent data across its
5:06:31witnesses? [laughter]
5:06:32>> Uh there's a there's a lot of reasons. I
5:06:34mean, I guess um
5:06:37there's there's plenty of reasons why uh
5:06:40regulatory basis matters and there's
5:06:42reasons why uh gap bases matters. Um, in
5:06:46the case of credit metrics, I I think
5:06:47it's um
5:06:50much more usable and and more um
5:06:53rational to compare GAP uh accounting
5:06:56bases uh because that's how the credit
5:06:59rating agencies think about it. And so
5:07:01all I can do is um speak to my testimony
5:07:04here. Um, but I know that if if Art were
5:07:07brought back, the witness Freighus uh
5:07:09were brought onto the stand, he I'm sure
5:07:12he has plenty of reasons why he did his
5:07:15analysis in the way he did as well.
5:07:17>> All right, I think that's all I have on
5:07:19this line. Um, uh, Commissioner Plant,
5:07:23uh, questions for, uh, Mr. Wer?
5:07:25>> No questions. Thanks.
5:07:28Uh, Commissioner Gilman, do you want to
5:07:30try? Do you want me to do mine and then
5:07:32we'll take a break or uh and come back?
5:07:34>> I can probably get it not
5:07:37confidentially. So, let me give it a
5:07:39try.
5:07:40>> Okay.
5:07:41>> Um, I have some not confidential
5:07:42questions and then I'll ask the ones
5:07:45about the levers model fairly generally
5:07:48and I think that might get us by. Um,
5:07:51good afternoon, Mr. Weiner.
5:07:53>> Good afternoon.
5:07:54>> Um, okay. So with regard are you
5:07:58familiar with the level levers model
5:08:01which you submitted as attachment T
5:08:03AW11C.
5:08:06>> Uh yes I am familiar.
5:08:08>> Okay great. Um I want to just compare um
5:08:12you provide a value for capitalization
5:08:14as one of your base assumptions in that
5:08:17model. Um do you have uh are you do you
5:08:21have an ability to reference that? Um,
5:08:24this is the 11. Sorry, 11 C. You said
5:08:27>> 11 C, correct? Capitalizations at the
5:08:30very top.
5:08:31>> Yes, I I do.
5:08:34>> Okay, great. Um, I went back and
5:08:37compared um that capitalization value to
5:08:41one that public service reported as its
5:08:432025 uh rate base in an investor
5:08:48presentation made to the AGA forum. And
5:08:51that was a fairly significantly
5:08:53different number um maybe off by 30 40%
5:08:57of what you had reported here in
5:09:00capitalization. So I just wanted to uh
5:09:02happy to tell you um what that investor
5:09:06presentation capitalization value was if
5:09:08that's helpful. Um but it was also with
5:09:10regard to 2025. So I just wanted to
5:09:12understand why there would be a
5:09:14discrepancy in those two values.
5:09:17Well, um I don't know the the second
5:09:19value which you're referencing, but I
5:09:22wouldn't be surprised if there is a a
5:09:24difference in reference value since um I
5:09:27think that 11C was filed at the
5:09:29beginning of the the case and it was
5:09:31referencing a year-end um test year
5:09:35which hadn't yet been completed. And so
5:09:38I'm I wouldn't be at all surprised if
5:09:40there's a differential in the numbers.
5:09:42Now, if it's 30 or 40% as you said in
5:09:45differential, that that sounds um that
5:09:47sounds quite marketked.
5:09:51>> Um yeah, it's it's a a somewhat
5:09:54significant differential. So, I wasn't
5:09:58um clear on what the reasoning for that
5:10:00would be. The capitalization shown in
5:10:02the investor presentation was lower.
5:10:08Um, are you able to reference that
5:10:11document or um
5:10:13>> Yes. Let me see. I didn't give it to the
5:10:15um uh court
5:10:19um to the legal assistance yet, but it
5:10:22listed a um and I believe that's a
5:10:25public document. It listed $23.8 billion
5:10:30um 2025 rate base, not presentation.
5:10:39I can't say that I'm familiar with the
5:10:40document off the top of my head. Um,
5:10:42apologies.
5:10:44Okay. Um, if in the levers model the
5:10:48capitalization value were to change,
5:10:52would that also impact what the company
5:10:54would input for cash from operations
5:10:57excluding income?
5:11:03like is that cash from operations a
5:11:05derivation in any way of the
5:11:07capitalization?
5:11:08>> Um I mean it's an interesting question.
5:11:11I would say that both should stand alone
5:11:13and and should be accurate. Um and so
5:11:17you know if you're referencing a $23
5:11:19billion number versus a $ 31 billion
5:11:22number. Um I I I wouldn't say that it's
5:11:26a direct uh derivation of that. In fact,
5:11:29the both should be um really standalone
5:11:32and based on actuals or if in a
5:11:35projected year, which which may have
5:11:37been the case at the time of the
5:11:38original filing. Um you know, a
5:11:41projected actual for a year end.
5:11:43>> Okay. Um is there a reference you would
5:11:46have on where the cash from operation uh
5:11:49actual could be verified for 2025?
5:11:54Well, it's a it is a little hard um in
5:11:57that u again we're referencing GAP
5:12:00financials
5:12:02um but it's it's not um it's not so easy
5:12:05to pull out directly uh from from our
5:12:0910K either because we we don't have a
5:12:12separate business unit for gas versus
5:12:16electric. Uh they're managed as one and
5:12:18reported as one.
5:12:20>> Okay, got it. And is there any reference
5:12:23to where the company um comes to their
5:12:27derivation of the assumption around the
5:12:30value of regulatory um lag.
5:12:37>> Um I believe that I show some uh math
5:12:40here that supports the the regulatory
5:12:42lag in and if you just give me one
5:12:45minute I think I can find that in my
5:12:46direct testimony. Sure.
5:12:56Um,
5:13:45Sorry, this is where control F comes in
5:13:48handy. Um, you know, I was looking for a
5:13:51page which references I thought that we
5:13:54put in a footnote that supported 155
5:13:57bases of uh basis points of historic
5:14:01regulatory lag that we observed uh in
5:14:05the marketplace between effectively what
5:14:07was actual ROE earned versus the uh
5:14:11regulatory regulatory authorized roe
5:14:14earned.
5:14:16>> Okay. And does that look at the ROE
5:14:19earned um in the version where you
5:14:23include riders or exclude riders?
5:14:26>> So that would be on a gap based. So it
5:14:27would be all in like it it doesn't
5:14:29separate riders whatsoever or
5:14:31differentiate whatsoever. It's it's
5:14:32allin uh income. Um so again on a gap
5:14:38basis consistent with uh the numbers
5:14:40that I discussed with chairman blank
5:14:42earlier.
5:14:43>> Okay. And um
5:14:46in the leverage model there's also an
5:14:49assumption for debt adjustment. Do you
5:14:52see that? Are you familiar with that?
5:14:54>> Uh I am familiar with it. Yes.
5:14:56>> Okay. I was just curious um what that
5:15:00signifies and if that in any way is a
5:15:02derivation of the capitalization or
5:15:04another um entry as well. Well, it's
5:15:07trying to create um again the levers
5:15:12model was created in response to
5:15:14requests from the commission to to be
5:15:16able to try to triangulate and estimate
5:15:19uh what is the impact of changing one
5:15:22input versus the other. Um and again
5:15:26this is uh this is trying to get a a
5:15:30wholesome view a full view of the
5:15:33picture of uh what the credit metric
5:15:36impacts are. And so there are a number
5:15:38of offbalance sheet items that the
5:15:41credit metrics uh are adjusted for based
5:15:44on nothing within our gap financials. Um
5:15:47but the credit rating agencies make a
5:15:50number of uh after uh adjustments after
5:15:53the fact and it shows up as uh imputed
5:15:56debt from PPAs or from leases etc. And
5:15:59so the the leverage model is trying to
5:16:02account for all of those other changes
5:16:04that are not just within a capital
5:16:06structure of 52 and a half% or or
5:16:09something like that.
5:16:10>> Okay, got it. Thanks. Um and then you
5:16:13were talking about the um regulatory lag
5:16:19um derivation at 1.55%
5:16:22right?
5:16:23>> Correct.
5:16:24>> Um and you had said that was a
5:16:26historical view of the past several
5:16:28years.
5:16:29>> Yep.
5:16:30Um and then um as you're aware, a lot of
5:16:34um uh testimony focuses on some of the
5:16:37new riders, especially over the last
5:16:39year or two that have been implemented
5:16:41by the company, including um those
5:16:44supporting the distribution system
5:16:46investment through the GMAC um as well
5:16:48as wildfire mitigation and the clean
5:16:51energy plan. Ryder, are you familiar
5:16:53with those?
5:16:54>> Uh I'm familiar at least a high level
5:16:56with with those. Yes.
5:16:58>> Okay. And so has the company made any
5:17:02adjustments to its regular regulatory
5:17:05lag assumption for the value of that uh
5:17:09based upon the introduction of these new
5:17:11riders?
5:17:13>> Um no they haven't right but um I would
5:17:16say that we could we can make lots of
5:17:18adjustments or run many scenarios with
5:17:20the levers model. Um, but I would I
5:17:24would caution doing so because, you
5:17:27know, if we look at just the most recent
5:17:30uh credit opinion from the rating
5:17:31agencies, it would actually say that
5:17:33despite it would it would show us that
5:17:36despite
5:17:37um your characterizations of
5:17:39improvements in those different riders
5:17:41and the expansiveness of those riders,
5:17:43we've actually seen an increase to the
5:17:46regulatory lag in the last year that's
5:17:48observed. So that would actually run
5:17:50counterfactual to the assumption that
5:17:54you had maybe indicated that we should
5:17:56be including in our model.
5:17:59>> Okay. Um let me just see where I am on
5:18:03my question.
5:18:05Um
5:18:19Um just want to follow up on some of the
5:18:21chair's questions with regards to this
5:18:23difference in the um earned ROE with the
5:18:28inclusion of writers and and without the
5:18:30inclusion of writers. Um is there
5:18:33anywhere in the company's testimony
5:18:36where we can better understand like a
5:18:39description of what is included or is
5:18:41not included? I think it was kind of
5:18:44news news news to some of us how some of
5:18:46these were calculated during this
5:18:48hearing. So curious if this is spelled
5:18:50out anywhere in your testimony.
5:18:53Um
5:18:55I I believe that I make a statement
5:18:58actually um
5:19:00I thought in my direct testimony I make
5:19:03a statement that you know we're I'm
5:19:05referencing uh GAP financials and and
5:19:08that should give you an idea or or um
5:19:11that it's a correlary to say that this
5:19:13is all inclusive of of any rider
5:19:18adjustments that are made through the
5:19:19course of the year. um they are provided
5:19:23on an annual basis and that is um while
5:19:27the credit rating agencies do look at
5:19:29last 12 months on a quarterly basis,
5:19:32they put much more weight in a calendar
5:19:34year because it does take out a lot of
5:19:36the seasonality. I I believe I make
5:19:39mention of that somewhere in my
5:19:41testimony, but I can't find that
5:19:42directly here either. Um although in in
5:19:45looking at this, you know,
5:19:49Commissioner Gilman, it may be worth um
5:19:51just referencing. I did find the 155
5:19:54basis points that I referenced. Uh if
5:19:56you go to the page 20 of my rebuttal
5:20:00testimony,
5:20:01I don't know if this is the primary
5:20:03spot, but in uh in this line of uh Q&A
5:20:07on line 17 of page 20, I I referenced
5:20:12the 155 basis points over the historical
5:20:14period 2022 through 2024, which I
5:20:18observe and we include in our levers
5:20:20model, but I point out that the the
5:20:22witness depot does not um have the same
5:20:26amount of um historical lag referenced
5:20:30in theirs.
5:20:35>> Okay, got it. Thank you. I'll take a
5:20:37look there. Um
5:20:40and then as we look um I guess I'm
5:20:44having trouble figuring out between the
5:20:46tables and your testimony and Mr.
5:20:48Fredus's testimony which do and don't
5:20:50include writers and for what time
5:20:52frames. Um,
5:20:55so I I guess I'll just leave that there.
5:20:58That's it's difficult difficult to
5:20:59figure out at this point, but um
5:21:05let me see. Um
5:21:12with the shift in more revenue coming in
5:21:17for riders particularly riders where the
5:21:21purpose is quite capital intensive like
5:21:25distribution system investments,
5:21:26wildfire investments, uh new generation
5:21:30things like that. would that inherently
5:21:33change what we would see as an earned
5:21:35ROE kind of for the remainder which is
5:21:39more O andM heavy um that would be in
5:21:41base rates
5:21:44>> um I would say that all things being
5:21:47equal a shift uh from base rates into
5:21:52riders um that should help minimize or
5:21:57lower the differential what I'm
5:21:59referring to as regulatory lag or
5:22:01differential of actual ROE versus
5:22:05authorized ROE.
5:22:11Um
5:22:13okay.
5:22:16Um I just want to ask you a couple
5:22:19questions. Um in CC's um testimony, they
5:22:24had argued that the commission should um
5:22:28look more holistically at what would be
5:22:31the lowest cost to consumers. Are you
5:22:34familiar with that argument of theirs?
5:22:37>> Yes, I'm aware of that argument. Um
5:22:41>> I I'll ask you a few specific questions.
5:22:44Um, so
5:22:47I'm curious if the company has done any
5:22:50analysis as to what the cost of a
5:22:55downgrade would look like um, in total
5:22:58and to consumers.
5:23:00>> Um,
5:23:03I guess the short answer is we haven't.
5:23:05And I think the the the the followup uh
5:23:09response is that there's the reason why
5:23:11is it's it's very difficult to do. um uh
5:23:16it's it's really like
5:23:19trying to run analysis on a theoretical
5:23:21that hasn't yet happened or occurred. Um
5:23:24we believe and I I put it in my
5:23:27testimony in numerous places that I
5:23:29believe that would be very negatively
5:23:31received by the investor community um on
5:23:35on both the debt and equity side. Um,
5:23:38but I can't ascertain or point to a
5:23:40specific number uh any kind of precision
5:23:43there. I just I feel like it's um it's a
5:23:46false sense of precision that can't
5:23:49truly be justified absent uh being
5:23:51downgraded and and showing after the
5:23:53fact what that means.
5:23:56>> And in your testimony, you had a figure
5:23:57that showed the yield difference between
5:24:00a single A and tripleB utility bonds. um
5:24:05can that be used in any way as a proxy
5:24:07to try to understand um the cost of a
5:24:10lower credit rating?
5:24:12>> It can it can be um an indicator that
5:24:15there is increased costs uh associated
5:24:18with credit spreads. Um
5:24:21but again I think mileage varies and um
5:24:25I think expectations even amongst single
5:24:28B's or triple B's and single A's I think
5:24:31mileage varies amongst those companies.
5:24:33I do think there's a higher uh bar for
5:24:37power utility companies uh to to have
5:24:41the stability and maintain credit
5:24:43ratings where they current are and I
5:24:45think that there'd probably be
5:24:47qualitatively I would say that there's
5:24:49probably a more of a punitive response
5:24:53uh coming out of a downgrade um on
5:24:56behalf of one or more of the rating
5:24:58agencies than you would see across the
5:25:00board for um you know other corporates
5:25:04not in the sector.
5:25:06>> Okay. But you you all don't have any
5:25:09analysis that in any way tries to
5:25:11approximate that difference.
5:25:13>> No. Again, [clears throat] I think that
5:25:14running any sort of analysis would
5:25:16probably give us a false sense of
5:25:17precision that that really isn't um
5:25:22isn't uh
5:25:24maybe reflective of the the actual.
5:25:27Well, there is no actuals because it's a
5:25:28hypo hypothetical at this point. So, I I
5:25:30just think that it's um it's probably
5:25:32not a great analysis to rely upon if it
5:25:35had been done, and it hasn't.
5:25:37>> Okay. Um Okay. And just to confirm one
5:25:41more time, the roe that you present um
5:25:44in your GAP accounting, that the things
5:25:48in your testimony, specifically you, are
5:25:51based on gap accounting and include
5:25:54rider revenue. Is that accurate?
5:25:56>> Correct. So it it's all of the
5:25:59references in my materials are done so
5:26:02on a gap basis u which is the same
5:26:06starting point that the rating agencies
5:26:08use before they make any of their
5:26:10adjustments. So it is all of the any
5:26:12riders u all of base rates u etc. It's
5:26:16all inclusive.
5:26:17>> Okay. So they all use this roe that is
5:26:20all in looking at actual revenue. The
5:26:22earned ROE that was presented elsewhere.
5:26:25I think in Mr. Freus's testimony that
5:26:27excludes Brighter Revenue
5:26:30is not used otherwise.
5:26:33>> Yeah. So, I would I would say
5:26:35>> figure out why that was presented. It is
5:26:37quite confusing and it doesn't seem like
5:26:39it's actually a useful.
5:26:40>> Again, I think the um I wouldn't I
5:26:42wouldn't it's hard it becomes even more
5:26:44confusing if we call it earned ROE
5:26:46versus earned ROE. I think um uh showing
5:26:49it on a regulatory basis I think it has
5:26:52some um I think it has some meaning on
5:26:55the regulatory framework. I don't think
5:26:57that that is often used by uh either
5:26:59financial analysts or for by the the
5:27:02credit rating agencies. So they would
5:27:04use the GAP uh basis as the start for
5:27:07any adjustments they make afterwards.
5:27:09And that is consistent with the the
5:27:11approach and the references that I have
5:27:13in mind because I am uh clearly very
5:27:16focused on any credit impacts of
5:27:18decisions made here.
5:27:22>> Okay. Thanks uh chairman. I think those
5:27:24are my only uh questions.
5:27:27>> Uh thank you Commissioner Gilman. Um
5:27:31uh I couldn't find it in the settlement
5:27:33testimony. Uh but I went when I input
5:27:36the settlement uh results into your
5:27:38credit metric models, I get 2025 free
5:27:43cash flow over debt ratios of between
5:27:4519.3 and 19.6%.
5:27:48Does that sound roughly right to you?
5:27:51Um it sounds roughly correct uh in that
5:27:55and I would tell you that um by no means
5:27:59do I think that the settlement uh
5:28:02landing spot puts us in a place where
5:28:04we're clearing uh thresholds by large
5:28:07margins or even slim margins. In fact,
5:28:09in 2026, I think that uh S&P in fact may
5:28:13be below their stated 20% ratio. But
5:28:17again, we saw this as a minimally credit
5:28:21supportive
5:28:22uh
5:28:24settlement where we could get to a place
5:28:26where the rating agencies would view
5:28:29this as constructive and not enduring um
5:28:33over the course of the three years uh
5:28:35forward. So, both of those are really
5:28:37critical to not getting downgraded.
5:28:40>> But it sounds like the 19.3 to 19.6 is
5:28:43roughly right.
5:28:46Uh, I don't have the numbers in front of
5:28:48me. I ran the same math and and that
5:28:50sounds roughly correct. I I don't
5:28:52disagree. Subject to check.
5:28:55>> In your rebuttal testimony hearing
5:28:57exhibit 135, and we don't have to pull
5:28:59this up at the top of page 22, you state
5:29:02that the downgrade threshold for Moody's
5:29:04is 19%. Is that correct?
5:29:07>> That is correct.
5:29:09>> Okay. Uh just one quick question on the
5:29:13uh um capital structure and roe. In our
5:29:17prior rate case decisions, the
5:29:19commission has established a range of
5:29:21common equity ratios and roe to
5:29:24highlight that this process is an art
5:29:26and not a science and that exact numbers
5:29:29are false precision. Uh yet the
5:29:31settlement agreement ignored that
5:29:33preference. Is that correct?
5:29:35>> I'm not sure I understand the the
5:29:38>> you didn't set a range. You picked exact
5:29:40numbers for ROE and common equity ratio.
5:29:43Is that correct?
5:29:44>> Well, uh I agree with that. The the they
5:29:47were set at specific numbers.
5:29:49>> Okay. I want to uh shift to uh talking
5:29:52with you about the reports from the
5:29:54rating agencies and if you could pull it
5:29:57up on your screen. Uh perhaps we can
5:29:59discuss uh a handful of quotes without
5:30:03going into confidential session. And
5:30:06let's start out with hearing exhibit 103
5:30:09TAW-7C
5:30:12at page one. And is it fair to say that
5:30:16this is a Moody's credit opinion for May
5:30:197th, 2025?
5:30:21>> Uh yes, I'm seeing the same.
5:30:23>> Okay. And in this opinion, uh if you
5:30:26look at the table on the left, is it
5:30:29fair to say Moody's found PSGO's credit
5:30:32outlook to be stable? Is that is do you
5:30:34see that? I do. Yes.
5:30:37>> Okay. And in the third full paragraph,
5:30:40page one, first sentence, Moody's
5:30:43expresses some concern uh uh that
5:30:48Pasco's about uh PiCO's increased
5:30:51leverage to fund what it calls its
5:30:53elevated investments will reduce its
5:30:56financial flexibility. Do you see that?
5:30:59>> Can you repeat the the paragraph? Sorry,
5:31:01I was trying to follow along.
5:31:03third third full third full paragraph
5:31:05and it says we expect that PESCO's
5:31:07increased leverage to fund its elevated
5:31:09investments will reduce its financial
5:31:12flexibility.
5:31:13>> Did I read that right?
5:31:15>> Yes.
5:31:16>> Okay. Uh can we go uh to hearing exhibit
5:31:21103 TAW6C
5:31:24and let me represent this is a Moody's
5:31:27rating action from November 6, 2025.
5:31:33Do you see that?
5:31:37>> I do. Yes.
5:31:38>> Okay. And do you see that the first
5:31:41sentence says Moody's changed the
5:31:43outlooks of both Excel Energy and Pasco
5:31:45to negative from stable
5:31:48uh from May to n to from May between May
5:31:51to November of uh 2026 but did not
5:31:55downgrade uh public service company. Is
5:31:58that right?
5:31:59>> That's correct.
5:32:01Okay. And is it fair to say that the
5:32:04shift in outlook occurred despite
5:32:06Moody's positive view of the company's
5:32:08decision to settle the 2021 Marshall
5:32:11fire litigation in September of 2025?
5:32:14On page two, for example, in the first
5:32:18sentence of the third full paragraph, it
5:32:21says, "The affirmation of Excel and
5:32:24Pasco's rating also factors in the
5:32:27utilities's ability to enter into an
5:32:29agreement in principle in connection
5:32:30with the 2021 Marshall fire in
5:32:33Colorado." Do you see that?
5:32:35>> I do. Yes. So they viewed the Marshall
5:32:39fire um settlement and presumably our
5:32:41approval of the wildfire mitigation as
5:32:44significantly positive.
5:32:46Is that correct?
5:32:52I don't know if I would characterize as
5:32:54significantly positive. U the fact that
5:32:57they're taking action afterwards um and
5:33:00moving the outlook from stable to
5:33:02negative. I would say that while it may
5:33:05be a positive signal, I I I don't know
5:33:07if I would say significantly positive.
5:33:09Chairman,
5:33:10>> but is but when you read this sentence,
5:33:12it said the fact that they didn't
5:33:14downgrade you, uh the fact that they uh
5:33:18uh kept a current rating
5:33:21uh was in part because you entered into
5:33:24a settlement. Isn't that what it says?
5:33:26More or less.
5:33:27>> Certainly in part. Again, I just don't
5:33:30know if I would agree with uh
5:33:31significantly positively.
5:33:33>> Okay.
5:33:34>> How about positive?
5:33:36>> Uh I believe that they took that into
5:33:38account and and view that very uh I I
5:33:40agree with you that they take it
5:33:42positively.
5:33:44>> Okay. On page one under uh ratings
5:33:48rationale, do you see the second
5:33:50sentence that uh says at the end of
5:33:53October, Excel upset upsized the
5:33:56organization's already elevated capital
5:33:59investment program, particularly a
5:34:01public service company. Do you see that?
5:34:04>> I do. Yes.
5:34:05>> Okay.
5:34:07And if uh and in the last full paragraph
5:34:11on page one, do you see where it says
5:34:14Pasco's updated capital plan projects
5:34:16that the utilities 2026 capital
5:34:19expenditures will be nearly 800 million
5:34:22higher than uh previously disclosed
5:34:25reaching about 6 billion. Do you see
5:34:27that? Did I read that right?
5:34:30>> I believe you did. Yes.
5:34:32>> Okay.
5:34:34And then if we go to page two in the
5:34:36third sentence under factors that could
5:34:38lead to an upgrade or a downgrade of the
5:34:40ratings do you see where it says uh a
5:34:44stabilization of the outlooks of Excel
5:34:46or Pasco is possible is if there is a
5:34:49moderation of the organization's capital
5:34:51expenditure program.
5:34:56>> Do you see that?
5:34:57>> I I think you read half of the sentence.
5:34:59It continues to say there is a credit
5:35:01supportive outcome of PSGO's next rate
5:35:04case and they are able to generate again
5:35:06financial ratios that are supportive of
5:35:08their current credit ratings.
5:35:10>> Fair enough. Uh and then at the bottom
5:35:14right above list of affected ratings. Do
5:35:16you see the prior uh uh sentence it says
5:35:21negative momentum on the ratings is also
5:35:23possible if the utility capital
5:35:25expenditures do not moderate.
5:35:28Do you see that sentence?
5:35:31>> I do.
5:35:32>> All right. So, basically, there was no
5:35:34adverse regulatory decisions between the
5:35:37May 2026 credit opinion and the November
5:35:402026 rating action from Moody's and the
5:35:44only material changes were the
5:35:45settlement of the Marshall Fire claims,
5:35:48which was viewed as highly positive, and
5:35:51the company's upsizing of its already
5:35:53elevated capital spending budget. It
5:35:56looks to me just reading this that
5:35:59Moody's outlook shifted from stable to
5:36:01negative at least in part because of the
5:36:05company's upsizing of its already uh
5:36:07elevated capital spending plans. Um
5:36:11thoughts, comments?
5:36:14>> I would say that that is um that is in
5:36:17part uh certainly part of this uh this
5:36:20announcement that they made in November.
5:36:22I don't think it's the whole um because
5:36:25they they also pro provide plenty of
5:36:27rationale for um corrective action or uh
5:36:33supportive uh regulatory construct that
5:36:36could deter the company from its current
5:36:39path.
5:36:41>> Yeah, I [laughter] think that's the
5:36:43issue in this case uh whether we want to
5:36:46keep going down this path. But there was
5:36:49no adverse regulatory decision between
5:36:51May and November that changed the
5:36:53outlook that you're aware of, was there?
5:36:57>> Uh I wouldn't say a specific uh
5:37:01adverse condition, but they they also
5:37:03have several pages of discussion around
5:37:06the the regulatory
5:37:08uh compact and how they view that. Um, I
5:37:12don't think it's um I don't know if
5:37:15that's like perfectly characterized in
5:37:17your one-s sentence summary, chairman.
5:37:19>> Fair enough. Uh, regarding the credit
5:37:22metrics, is it fair to say that
5:37:24>> one thing the company could do to
5:37:26improve its credit metrics would be to
5:37:28follow Moody's advice and moderate
5:37:30moderate the upsizing of the already
5:37:32elevated capital spending? Said another
5:37:35way, once this case is final and a
5:37:37revenue requirement and rates are set,
5:37:40is it accurate to say that reduced
5:37:42capital spending would help your credit
5:37:43metrics by lowering debt?
5:37:47Um it is accurate to say that um
5:37:50lessening the capital spend
5:37:53um
5:37:55would help the credit metrics as long as
5:37:57the CFO uh the the CFO pre-working cap
5:38:01for Moody's in particular um doesn't
5:38:04decrease as a result as well.
5:38:06>> Fair enough. But between rate cases it
5:38:08wouldn't right. Your rates are set in 20
5:38:11based on a 2025 uh historical test year.
5:38:16uh and uh um uh in 2027 it's fixed. So
5:38:22no matter your your cash flow is your
5:38:26cash flow and you can recre and you can
5:38:28decrease debt by moderating capital
5:38:30spending. So it seems like moderating
5:38:32capital spending could be a powerful
5:38:34tool for maintaining your credit
5:38:35metrics.
5:38:36>> Yes. I guess I maybe I misunderstood
5:38:38your question, but I was thinking that
5:38:40there's a there's a lot of um uh
5:38:43discretion uh still open in this case
5:38:46that could absolutely and would
5:38:47absolutely impact the CFO in in the
5:38:50remaining of 2027.
5:38:53>> I think that's very clear. Over time, in
5:38:56the company's base case, JTS and DSP
5:38:59forecasts, the company projected uh uh
5:39:03retail sales growth averaging seven
5:39:05eight 7 to 8% over the coming years. Uh
5:39:09is it fair to say that sales and revenue
5:39:11growth such as what the company has uh
5:39:15urged us uh to accept could help ease
5:39:18cons uh credit metric concerns between
5:39:21rate cases over time. So assume the rate
5:39:24case is sp uh is set. It sounds like
5:39:28higher growth uh could could help with
5:39:31you on your credit metrics. Is that
5:39:33correct?
5:39:33>> All things being equal, I agree. That's
5:39:35a that's a very fair statement,
5:39:37chairman.
5:39:37>> Okay. And in addition, if the capital in
5:39:40addition, if the company's capital
5:39:42spending plans like its steel for fuel
5:39:45approach uh lowered on&m costs or grew
5:39:48revenue, that'd be another way to help
5:39:50maintain the company's credit matrix.
5:39:53between rate cases. Um, is that fair?
5:39:57>> Yes, I think that's a fair statement as
5:39:58well.
5:39:59>> And in contrast, is it fair to say
5:40:02ordinary course investments don't help
5:40:04the credit metrics?
5:40:05>> I'm sorry, can you repeat that question?
5:40:07I couldn't hear it very well.
5:40:08>> Yeah. Is it fair to say that ordinary
5:40:10course investments in uh, you know,
5:40:13replacing TND equipment or wildfire
5:40:16mitigation don't help the credit metrics
5:40:19compared to cutting costs or growing
5:40:20revenue?
5:40:22Um I would say it's probably less um
5:40:26credit supportive uh capital investment.
5:40:29Um
5:40:30but but again we we think we try to find
5:40:33the right balance in supporting the
5:40:35state and the commission's initiatives
5:40:38um in putting capital to work in the
5:40:40right places.
5:40:42Uh finally, instead of rate basing all
5:40:45your capital spending, would another
5:40:46avenue for improving the credit metrics
5:40:49be to securitize some of the uh elevated
5:40:52capital spending like we did in the
5:40:53wildfire mitigation case?
5:40:56>> Actually, I disagree and I think uh the
5:40:59reason if I may, I'd like to provide the
5:41:02rationale for that. um if you're looking
5:41:05only at the you know numerator and
5:41:07denominator of the credit metrics that
5:41:09may seem like that would be very helpful
5:41:12but again if you look at the Moody's
5:41:13methodology
5:41:15um it's something less than 50% I think
5:41:17it's you know I think it's 40% goes to
5:41:20financial integrity and that's the
5:41:22quantitative uh calculation so there's
5:41:24there's over 60% that is based on you
5:41:27know kind of a a business risk and a
5:41:29business profile for the company and if
5:41:32we were to take um new capital and put
5:41:36all of that into securization. That's a
5:41:39really tough model for any regulated
5:41:41utility. Um and the other is that it's
5:41:43the securization has a time and a place
5:41:46where it makes a lot of sense.
5:41:47Historically, in my view, it has always
5:41:49made a lot of sense for stranded assets
5:41:52where you don't have ongoing risk
5:41:54associated with those assets. And so it
5:41:57makes sense that you would consider a
5:41:58securization and do so you know
5:42:00effectively it does so with all debt uh
5:42:03capital
5:42:05when you put it into new uh resources
5:42:08whether you know anywhere across the
5:42:10business the company still has to
5:42:12maintain they still hold that risk in
5:42:15maintaining that plant that equipment
5:42:18whether it's uh TND u no matter where
5:42:21across the system it it it lives it can
5:42:24get securitized but that risk is still
5:42:26being borne by the shareholders and I
5:42:29don't think that that is a fair or a
5:42:31prudent uh balance of risk versus uh
5:42:35commercial
5:42:37um affordability concerns on behalf of
5:42:40customers.
5:42:42>> I guess nobody's talking about
5:42:44securitizing all capital investment. I
5:42:46think the concern is that there's
5:42:48capital bias in existing uh regulation
5:42:51that may be uh inflating ordinary course
5:42:55uh uh transmission replacement and
5:42:58distribution investment and maybe
5:43:00pipeline safety. So the thought is to
5:43:03securitize uh uh that um and take out
5:43:07the earnings incentive and uh uh and
5:43:11then the commission isn't in the uh
5:43:15unattractive position at trying to
5:43:17determine how much capital should be
5:43:19spent on on reliability or safety. So
5:43:23does uh does that change your answer in
5:43:26any way?
5:43:28you you know I think it probably um it's
5:43:32a a little less clear but I think it's
5:43:34still somewhat problematic. You know, we
5:43:36we received a number of questions from
5:43:38the rating agencies uh in due course
5:43:41post our most recent settlement that had
5:43:44the the securization included and quite
5:43:48frankly they haven't seen this sort of
5:43:50mechanism across the US and they looked
5:43:54at it a a bit pragmatically on a one-off
5:43:58basis as hey we've seen this used for
5:44:00hurricanes, we've seen this used for
5:44:01winter storms, more of it the exogenous
5:44:04problem that's out there. And in that
5:44:06context, when you think about wildfire
5:44:08mitigation, uh they they were supportive
5:44:11of its uh limited use, I don't think
5:44:14that it would be as wellreceived
5:44:18um even by the credit rating agencies if
5:44:20this was um a meaningful part of new
5:44:24capital that was being put to work.
5:44:25again whether it's TND or wildfire on an
5:44:28ongoing basis you know I think that they
5:44:30would say that you know if if the
5:44:32company is taking on risk and investing
5:44:36in long lived assets whatever the case
5:44:38may be uh what you know whether it's
5:44:41lines poles um etc or or plants and
5:44:45generation I think that they would say
5:44:47that that should be uh rate based and
5:44:50the company should have an ability to
5:44:52earn on that um otherwise I I think it
5:44:56it might seem great that uh you know it
5:44:59gets taken out of the capital structure
5:45:01but so does any potential CFO
5:45:03pre-working capital for Moody's because
5:45:05we were just talking about them or FFO
5:45:08to debt for S&P.
5:45:10Uh I agree with you m with that. Uh
5:45:12Moody's may not be uh uh very excited
5:45:16about securization, but could we pull up
5:45:18hearing exhibit uh 1527
5:45:21and uh let me represent to you that this
5:45:24is an SNP uh report on securization.
5:45:32Do you see that S&P global? Uh do you
5:45:35see the title?
5:45:36>> Yes, I do. And can we go to page 11? Top
5:45:40of page 11.
5:45:44Uh, let me just read it because I
5:45:45couldn't figure out how to get the
5:45:47headings right. But it says, "Set S&P
5:45:49global ratings view securization as a
5:45:51positive for the corporate credit rating
5:45:53of the of the originator. Absent
5:45:56securization, a utility would typically
5:45:58recover the associated expenses over a
5:46:00longer time frame, leveraging the
5:46:03utility's balance sheet and weakening
5:46:05its financial performance and credit
5:46:06quality. Furthermore, S&P Global Ratings
5:46:09typically makes an analytical adjustment
5:46:12to the financial statements of the
5:46:13sponsoring the utility that effectively
5:46:16removes utility rated related
5:46:19securization bonds from its balance
5:46:21sheet, thereby improving the utility's
5:46:23credit metrics. In addition, since a
5:46:26utility's risk of default is usually
5:46:28higher than the risk of recovering costs
5:46:29through a non- bypassable charge on the
5:46:31customer's bill, the interest rate for
5:46:34securization is usually lower than a
5:46:37utility independently financing these
5:46:39costs. As such, the impact of the
5:46:42customer bill is less, modestly reducing
5:46:44regulatory risk for the utility. So I
5:46:47guess the question is uh it sounds like
5:46:50S&P views securization as uh uh more uh
5:46:56positive for the corporate credit rating
5:46:58of uh the originator at least compared
5:47:00to Moody's. Uh do you uh disagree with
5:47:03that?
5:47:04>> Certainly in reading this I agree more
5:47:06positive than Moody's. Um again this is
5:47:10page 11 of 19 of which I haven't read u
5:47:13or maybe never seen in my life. However,
5:47:16I would say that uh chairman blank that
5:47:19I think the context matters, right? My
5:47:22expectation is that S&P Global in
5:47:24writing this, they were they were
5:47:26looking at what are what is the use case
5:47:29within the power and utility sector.
5:47:31Again, that use case has been typically
5:47:33for stranded assets for the closing of
5:47:36coal plants that are no longer used and
5:47:39useful. And now you have stranded
5:47:41assets. What do you do with those
5:47:42stranded assets? Um, you know,
5:47:44Wintertorm Yuri is a good example.
5:47:46There's been a number of hurricane
5:47:48related securizations. I think, um,
5:47:50aside from the one that we did in
5:47:52Colorado, uh, the the prepundonderance
5:47:54of case examples are all of that nature.
5:47:58And I I would venture to say that that
5:48:00is the context with which this is
5:48:03written. Not for um any new capital
5:48:06that's invested into a business with
5:48:08long lives and providing um you know
5:48:11useful
5:48:13uh service to its customers.
5:48:17Can we pull up uh hearing exhibit 104
5:48:20AEB uh attachment AEB-
5:48:2410
5:48:32let me represent this is a exhibit of
5:48:34Ms. Balkley's
5:48:36uh that shows uh uh capital spending uh
5:48:41uh I think 2026 to 2030
5:48:45uh um divided by 2024 net plant
5:48:51uh do you see how uh L&T all may be the
5:48:55most capital efficient uh utility and uh
5:49:00uh how public service company um at
5:49:03least by this one metric is uh the least
5:49:06capital efficient utility. Uh any
5:49:10comments uh uh uh about uh
5:49:16um what's going on here? And uh
5:49:21um you know about upsizing already
5:49:24elevated levels of capital spending.
5:49:27Yeah, I guess a number of things could
5:49:29be going on and I again this wasn't my
5:49:31this was neither my exhibit nor do I
5:49:34claim to know everything about each of
5:49:35these companies. However, uh I I think a
5:49:39lot of it depends quite frankly on the
5:49:41regulated construct in which they're
5:49:44serving customers. And so, you know,
5:49:46potentially Alliant doesn't have a lot
5:49:49of policy goals in the state that
5:49:51they're trying to to um to try to
5:49:55support or perhaps there's less of a
5:49:58preference for or maybe there's a
5:50:00preference for the lowest cost uh
5:50:03generation that they're providing. Um we
5:50:06have our own policy goals in the state
5:50:07of Colorado. Those aren't set by the
5:50:10company, but we try to match and mirror
5:50:12and support them in every way that we
5:50:14can. And so, you know, to the extent
5:50:16that you're correct and this is simply
5:50:18reflective of uh less uh efficient cap
5:50:22uh capital intensity,
5:50:24I would maybe hesitate to say that
5:50:27that's reflective of a leadership or
5:50:29management team and and somewhat
5:50:30reflective of the regulated utility in
5:50:33which they serve.
5:50:37>> All right. Uh I think the concern is
5:50:40that capital bias is driving uh upsizing
5:50:44of elevated
5:50:46levels of capital spending. That's the
5:50:49concern.
5:50:50Uh any comment on that?
5:50:54>> Um
5:50:57no no real comment here chairman.
5:50:59>> Okay. Uh Mr. Zemer redirect.
5:51:06>> Uh thank you chair blank. I'll uh I'll
5:51:08go in reverse order. If we could go back
5:51:10to attachment AB10,
5:51:25>> uh Mr. Warner, you just had a uh
5:51:28discussion with Chair Blank about this
5:51:30figure. Do you recall that?
5:51:31>> I did. Yes. Can
5:51:32>> we can we pull up hearing exhibit 104?
5:51:54Can we go to page 59?
5:52:00If we scroll down, can you review the
5:52:02question and answer there beginning at
5:52:03line six down through uh line 15?
5:52:24I have done that. Yes.
5:52:26>> Okay. And so is it Miss Balkley's
5:52:29testimony that the level of capital
5:52:31expenditure as it compares to the proxy
5:52:33group indicates that public service is
5:52:36higher risk than the proxy group?
5:52:38>> Yes, that's correct. Is it your
5:52:40understanding that she's doing this in
5:52:42the context of estimating the cost of
5:52:44equity for public service?
5:52:47>> Yes, I know that she is the ROE witness
5:52:50and um I'm sure she's trying to
5:52:52establish how to ascertain the amount of
5:52:55risk uh borne by public service.
5:53:00And I know you're not the cost of equity
5:53:02expert in this proceeding, but is it
5:53:04your general understanding that higher
5:53:06risk would indicate higher cost of
5:53:09equity for the company?
5:53:11>> Yes. All things being equal, that should
5:53:13be the case.
5:53:15>> Can we return to hearing exhibit uh
5:53:171527, the S&P securization report you
5:53:20had a discussion with with Chair Blank?
5:53:26And can we scroll down just a little bit
5:53:28to this next paragraph?
5:53:32Okay. Um, now I know you said that you
5:53:36hadn't um, reviewed this and we're
5:53:39seeing it for the first time, but can
5:53:40you review the uh, first sentence here
5:53:42is what is our outlook for issuance over
5:53:44the next few years?
5:53:53Um I have
5:53:55>> and is this discussion of use of
5:53:57securization for natural disasters and
5:53:59severe weather events consistent with
5:54:01your understanding of how securization
5:54:03has been used?
5:54:06Yes. Along with the decarbonization uh
5:54:09the example is consistent with uh coal
5:54:12plants that are no longer uh deemed
5:54:14useful for companies. I I think that
5:54:16fits that portion of the sentence as
5:54:18well.
5:54:21>> Okay. Um
5:54:23[snorts]
5:54:26you discussed with uh can we go to
5:54:29hearing exhibit 103
5:54:35at page 26?
5:54:48And can we scroll down a little bit to
5:54:50this uh so we can see the full Q&A at
5:54:52starting at 14. Thank you.
5:54:58Can you just review this Q&A for a
5:55:00second? And
5:55:04>> yes, I did.
5:55:06>> So you had a discussion with Chair Blank
5:55:08about the company being on negative
5:55:09outlook. Is the company still on
5:55:11negative outlook?
5:55:12>> Yes, they are. And is that something
5:55:15that is likely to be maintained for some
5:55:18time or is it normally transitory?
5:55:22>> As a matter of policy, most credit
5:55:25rating agencies give themselves a almost
5:55:28a ticking time clock of no more than 18
5:55:30months before they have to resolve uh a
5:55:33negative outlook. Now, that could result
5:55:35in one of two things. Um but it won't it
5:55:39it almost never results in a a continued
5:55:43negative outlook. So they would either
5:55:45take action and move to uh downgrade or
5:55:48remove it and and return the company
5:55:50back to stable outlook which they were
5:55:52in in May previously.
5:55:55>> You had a discussion with chair blank
5:55:56about the company's capital plan as
5:55:58being a contributing factor to its
5:56:00financial risks. Do you recall that?
5:56:02>> Yes, I do. If you review the question
5:56:05and answer uh at line starting at line
5:56:0823
5:56:09and on to 202 on page the next page if
5:56:13we can scroll down.
5:56:27Yes, I actually think this might be the
5:56:28same sentence that we um we discussed
5:56:31live.
5:56:33>> When Moody's issued the negative
5:56:35outlook, did they specifically identify
5:56:37the result of this case as being one of
5:56:39the factors that will be considered in
5:56:41resolving that action?
5:56:44>> Yes. When it refers to the next rate
5:56:46case, this isn't this immediate case is
5:56:49in fact that next rate case that's
5:56:50referenced.
5:56:52And so you would anticipate that the
5:56:54resolution of this case would contribute
5:56:57to their decision on what to do
5:57:00associated with the negative outlook?
5:57:02>> Yes, absolutely. That is in uh that is
5:57:04part of my testimony. Um and I I
5:57:07maintain that that is absolutely uh it
5:57:10is very critical timing given that we
5:57:12are already in negative outlook and that
5:57:15they will be watching very closely to
5:57:17see just how credit supportive and and
5:57:20what the financial metrics will look
5:57:22like on an ongoing basis as a result of
5:57:24this case.
5:57:26In your supplemental direct testimony,
5:57:29the commission ordered you to expand the
5:57:34uh metrics analysis for the years to
5:57:36cover the years 2027 through 2030. Do
5:57:39you recall that?
5:57:40>> I do recall that. Yes.
5:57:43>> And is that the same approach that you
5:57:45applied in your rebuttal testimony?
5:57:50>> Yes, I do believe so.
5:57:53And you mentioned earlier that you have
5:57:55done an analysis of the credit metrics
5:57:57associated with the settlement
5:57:59agreement. Do you recall that?
5:58:01>> Yes, I do recall.
5:58:03>> And is that looking at results over the
5:58:052027 through 2030 period?
5:58:09>> Yes. each of the four years uh I took a
5:58:12look at the impacts at both uh the the
5:58:16metrics the credit metrics for S&P as
5:58:18well as Moody's
5:58:20>> and generally how would you characterize
5:58:22those results?
5:58:26>> I would characterize the results of uh
5:58:29as being quite borderline uh kuspy I
5:58:32would say. I don't think that's actually
5:58:33a word in the dictionary, but um again,
5:58:37you know, Chairman Blank referenced um a
5:58:3919 I believe a 195 and a 196. The
5:58:42Moody's threshold is 19% but S&P's
5:58:46threshold is 20%. And so they have
5:58:49different thresholds on their different
5:58:51metrics. Um again even the settlement as
5:58:55it stands um the non-unanimous
5:58:58settlement as it stands it has uh a lot
5:59:01of pressure and it does not maintain in
5:59:04my opinion adequate margin in the long
5:59:06run. It is very um it is very tight uh
5:59:09for each of those metrics over the
5:59:11course of the next four years.
5:59:14And if there were modifications to the
5:59:16settlement agreement to uh reduce the
5:59:18outcome either you know lower equity
5:59:21ratio or reduce revenues authorized from
5:59:23this proceeding would that have further
5:59:25pressure on those metrics?
5:59:28>> Yes, it would further negatively
5:59:30pressure those metrics and um
5:59:34potentially tip the scales for the
5:59:37agencies to take action to the downside.
5:59:40You mentioned also that uh financial
5:59:43risk is just one of the components that
5:59:45the agencies use in their evaluation. Do
5:59:48you recall that?
5:59:49>> I do. Yes.
5:59:51>> And you also mentioned that business
5:59:52risk is the other part of the
5:59:55consideration. Do you recall that?
5:59:58>> Yes. in fact a larger portion uh of
6:00:01their total approach at Moody's in
6:00:04particular
6:00:06>> and for a regulated utility like the
6:00:10company are regulatory outcomes the
6:00:12largest factor of business risk?
6:00:14>> Yes.
6:00:17And what is your assessment of how the
6:00:21rating agencies would view uh the
6:00:24company's business risk if the
6:00:26settlement agreement was not was
6:00:27modified in a material way.
6:00:31>> I think they would struggle to be able
6:00:34to consider it a constructive uh
6:00:36regulatory outcome. Quite frankly, uh,
6:00:39in their in their publications, they
6:00:42often refer to a settlement as being
6:00:46constructive in and of itself. Um, and
6:00:50would recognize that the financial
6:00:53metrics associated with the current
6:00:56settlement are at best minimally
6:00:59constructive. And so any deterioration
6:01:02in the um in the settlement agreement
6:01:05that would drive results lower would um
6:01:12would likely or very possibly change
6:01:15their minds from a a constructive regime
6:01:18to uh one where they would want to
6:01:22reflect more of that business risk for
6:01:26the company.
6:01:28And is the converse also true?
6:01:32>> The converse being that if um the
6:01:35settlement were revised in a more
6:01:38positive way whether ROE or equity ratio
6:01:42or riders etc that that that would um be
6:01:47perceived as the positively on the
6:01:49business risk side. Uh no, sorry I was
6:01:52being unclear. If the settlement is
6:01:53approved, would that be viewed as a
6:01:56positive factor for regulatory risk?
6:01:59>> Yes. Uh absolutely.
6:02:03>> Um back to when you discussed having
6:02:06analyzed the credit metrics associated
6:02:08with the uh settlement agreement, did
6:02:12that you are looking over the period of
6:02:152027 through 2030? I believe you
6:02:17testified. Is that right?
6:02:18>> That's correct. Yes. And that's going to
6:02:21reflect the company's base capital plan
6:02:23already.
6:02:25>> Correct. Yep.
6:02:28Um
6:02:36there was also some discussion of uh
6:02:39sales growth being a positive for credit
6:02:41metrics on a going forward basis. You
6:02:42recall that?
6:02:44>> Yes, I do. Is it your understanding that
6:02:47achieving that sales growth requires
6:02:48certain investments?
6:02:51>> Uh yes. Uh generally sales growth
6:02:54doesn't materialize if there's not
6:02:56investments to to help it along and and
6:02:59make sure that it is um
6:03:03it is realized
6:03:05>> and the company's based the there's
6:03:08alignment between the company's uh
6:03:10projected
6:03:11uh sales forecast increase or revenue
6:03:14increases and what the company has in
6:03:16its base capital plans. Is that right?
6:03:19>> Yes. The intent is that the company
6:03:21keeps that very much in line. We we try
6:03:23very hard to do so.
6:03:25>> And so modifying those investment plans
6:03:28uh would implicate the ability to
6:03:31achieve those sales numbers.
6:03:34>> Yes, I think detrimentally implicate um
6:03:36you know otherwise it seems much more
6:03:38like a hope versus a plan to to realize
6:03:42that that sales growth.
6:03:44>> And would it also implicate the ability
6:03:46to execute on other policy goals?
6:03:49Uh definitely it would uh certainly
6:03:52detrimentally impact our ability to to
6:03:55support those policy goals.
6:03:58[cough]
6:03:59>> Um [clears throat] can we return to
6:04:01hearing exhibit 103
6:04:14and can we go to page 30?
6:04:20And if we can just scroll down
6:04:23um
6:04:25and if we we can start here and then
6:04:28maybe just scroll Mr. Winter so you get
6:04:31an opportunity to familiar or get uh
6:04:34refresh your recollection with this.
6:04:38>> I I recall this section of my testimony.
6:04:41Yes.
6:04:41>> Yep. And then if we scroll down, you
6:04:43present the results of these scenarios
6:04:45uh in table TAWW5. Do you recall that?
6:04:48>> I do. Yes.
6:04:52>> And if we can actually move back up for
6:04:55just a minute.
6:05:00Oh, sorry. The last Q&A. I just wanted
6:05:03to have that visible. Uh right there.
6:05:06Yep. Uh these are results for 2027. Is
6:05:09that correct?
6:05:11That's correct. Yes.
6:05:13>> Okay. And then if we can go down to page
6:05:1732
6:05:22right here, this Q&A on the levers
6:05:24model. Uh do you see that?
6:05:28>> I do. Yes.
6:05:30>> And this is the attachment you had the
6:05:31conversation with uh Commissioner Gilman
6:05:33before.
6:05:36>> This is the the the attachment that we
6:05:38discussed. Yes.
6:05:40Now, is the levers model the uh tool
6:05:45that was used to produce those results
6:05:47in table TAWW5?
6:05:50>> Yes.
6:05:52Um, if we could go to
6:06:00uh hearing exhibit 125.
6:06:09And if we could just go to uh page uh
6:06:14five.
6:06:18And here you described that you
6:06:19sponsored attachment TAWW12C which is a
6:06:22financial metrics model. Do you recall
6:06:24that?
6:06:25>> I do. Yes.
6:06:27>> Can you describe the differences between
6:06:29the financial metrics model and the
6:06:31leverage model?
6:06:44you really it's it's trying to uh solve
6:06:47for the same thing. It's supposed to be
6:06:49giving an idea of
6:06:52uh upon changing an input being able to
6:06:55give a an idea of what the the overall
6:06:59impact of that change of the input is.
6:07:12But if we return to
6:07:16uh can we return to hearing exhibit 103?
6:07:40Uh, could you review uh the last
6:07:43sentence here on line 16 through 19?
6:07:54>> Yes, I have reviewed.
6:07:57So is it correct that the levers model
6:08:01uh when you're saying this model is not
6:08:03sophisticated in comparison to the
6:08:05analysis described in table TWWD5 above
6:08:08when you say this model you mean the
6:08:10levers model correct?
6:08:11>> Uh yes that's correct. It it is
6:08:14indicated in that discussion with uh
6:08:17commissioner Gilman. I was trying to
6:08:20show or at least speak to some of the
6:08:23limitations, right? And there was
6:08:25questions and concerns about regulatory
6:08:28lag and how that shows up or doesn't
6:08:30show up in the levers model. And you
6:08:31have to you have to be able to tease
6:08:33some of that out by including some
6:08:36assumptions. Um,
6:08:38you know, in the case uh that we use it,
6:08:43right? I think it can be helpful to
6:08:46consider, you know, whether it's 155
6:08:48basis points of regulatory lag, you can
6:08:52lower the authorized ROE in the in the
6:08:54levers model by that amount and get an
6:08:57idea of of where potential impact may
6:09:00be. But again, it is not sophisticated,
6:09:04but it was uh it was developed in
6:09:07response to the commission's request in
6:09:09prior proceedings.
6:09:12But the [snorts] models in your
6:09:14supplemental direct testimony and your
6:09:16rebuttal testimony are the more detailed
6:09:18models that were used to produce uh the
6:09:21results similar to table DA5. Is that
6:09:24correct?
6:09:25>> Yes. More sophisticated.
6:09:29>> And then regarding the levers model, the
6:09:32data that's in it, is it aligned to
6:09:34produce 2027 results similar to what's
6:09:37shown in table TWWD5?
6:09:42Well, it's really again it's only it's
6:09:43it's trying to compare A versus B. Um
6:09:46when you change an input, uh what is the
6:09:48impact resulting? That is what the
6:09:51levers model is designed to do rather
6:09:53than uh an all-in you know number that
6:09:56you're solving for as far as FO debt
6:09:59metric or your your credit resulting
6:10:01credit metric. But the capitalization
6:10:04numbers are still as of 2027.
6:10:28>> Can you repeat the question?
6:10:31>> Yeah. So we discussed that the levers
6:10:34model here is presented is kind of
6:10:36analogous. It's the more simplified
6:10:38version of the results that are in table
6:10:40DAW T AWD5.
6:10:43You recall that?
6:10:44>> Yes.
6:10:46>> And that TAWD5 is presenting 2027
6:10:51metrics.
6:10:53>> Correct? Yes. And so the underlying look
6:10:56in
6:10:57the levers model is also looking at
6:11:012027.
6:11:04>> Correct.
6:11:06>> Okay.
6:11:17Um,
6:11:20you had some discussion uh with both
6:11:23commissioners Gilman and Blank regarding
6:11:25the difference between the base rate
6:11:29earned return that Mr. Fredus presented
6:11:31and the gap earned return that you
6:11:35presented. Do you recall that?
6:11:37>> I do. Yes.
6:11:40And is all the analysis that you've
6:11:43provided in the credit metrics financial
6:11:45models on the gap
6:11:48roe basis?
6:11:52Yes, I believe that all of the analysis
6:11:54that I provided whether in uh direct or
6:11:58rebuttal testimony is all on a gap basis
6:12:01as I had tried to explain in that
6:12:04questioning.
6:12:08And so that is going to in include the
6:12:11effect of all revenues including those
6:12:13underwriters.
6:12:15>> Correct. It's all inclusive.
6:12:19>> And
6:12:21is it you referenced
6:12:25um
6:12:27I'm trying to find my
6:12:30site here.
6:12:33If we could bring up um
6:12:37hearing exhibit
6:12:40135 again
6:12:46at page 20
6:13:02And if we could scroll down to the last
6:13:04Q&A there,
6:13:09you had earlier discussion about this
6:13:11155
6:13:13basis point observed uh lag. You recall
6:13:17that?
6:13:19>> Yes, I do.
6:13:21Uh,
6:13:24and is it your understanding that there
6:13:26is support for this in
6:13:29the attachments you included in your
6:13:32rebuttal testimony?
6:13:35>> Yes, I do believe so. Um again thisund
6:13:38155 basis points of observed what I was
6:13:42referring to in our discussion is
6:13:44regulatory lag uh was observed as the
6:13:48differential in actual ROE uh on a gap
6:13:51basis versus authorized ROE for the
6:13:54historical 2022 through 2024 period.
6:13:59And so in that the model where it came
6:14:01up I think it was rounded to 1.6% 6% but
6:14:05but it should be 155 15 basis points as
6:14:09the underlying number.
6:14:21Um finally you had some discussion with
6:14:24um Commissioner Gilman regarding the
6:14:27cost of a downgrade. Do you recall that?
6:14:30>> Yes I do recall.
6:14:32Um now qualitatively
6:14:36if a downgrade were to occur what would
6:14:38you expect to happen to the cost of debt
6:14:40all else equal?
6:14:43>> Well the cost of debt is simply based on
6:14:45two components the treasury rate and the
6:14:47credit spreads. Uh credit spreads is are
6:14:50supposed to be reflective of the
6:14:52underlying risk of the company. And so a
6:14:55worse uh credit rating for any company
6:14:59uh should
6:15:01uh result in a in a higher credit spread
6:15:04that is required for investors to buy
6:15:06that debt. So u the result of a a credit
6:15:10downgrade at any of the agencies should
6:15:13qualitatively be expected to increase
6:15:15the cost of debt capital.
6:15:18And does that cost of debt capital apply
6:15:23for the duration of the debt that's
6:15:24offered?
6:15:26>> Yes. So it is um it is established at
6:15:30the time of pricing um and it ma is
6:15:33maintained for that debt instrument or
6:15:36that security through the life or the
6:15:39duration of the instrument. And so, you
6:15:41know, typically we issue a lot of
6:15:4430-year first mortgage bonds. And so,
6:15:46that increased
6:15:49long-term debt cost that is observed at
6:15:52pricing on a new issuance, it would be
6:15:55borne out by customers over the course
6:15:58of the remainder. In this ca in this
6:16:01example 30 years
6:16:06>> would you expect uh a cost of downgrade
6:16:09again qualitative qualitatively to
6:16:12increase the cost of equity capital as
6:16:14well?
6:16:16>> Uh most certainly I would.
6:16:19And then can we go to hearing exhibit
6:16:21135 at page 13?
6:16:40Can you review uh
6:16:45this answer here for a second?
6:16:55Yes, I have.
6:16:57>> I specifically ask about the sentence at
6:17:00lines 6 through 9 uh company's public
6:17:04service obligation to maintain access to
6:17:06capital at reasonable rates and all
6:17:08market conditions.
6:17:10Does a downgrade imp implicate the
6:17:13company's obligation to access capital
6:17:16at reasonable rates and all market
6:17:18conditions?
6:17:22So my expectation is that they would be
6:17:24able to uh access
6:17:28the markets. I don't think they would be
6:17:30able to do so uh again qualitatively at
6:17:33nearly as reasonable of rates as they
6:17:35are today. Should they be able to
6:17:37maintain the current uh credit ratings?
6:17:41So yes.
6:17:47And why is that ability to access
6:17:50capital in all market conditions
6:17:52important?
6:17:55Well,
6:17:57uh it it's important always, but the the
6:18:00example to really highlight the
6:18:02importance is the the exogenous or the
6:18:06market conditions that are out of a
6:18:08company's control uh in which a company
6:18:11has to go out and and access the debt
6:18:14capital markets or the equity capital
6:18:16markets. Um you know, there's a number
6:18:19of examples. They're actually many of
6:18:21them are related to some of those
6:18:22weather events that were discussed with
6:18:24chair chairman blank earlier. Um where
6:18:28you know in response to hurricane to
6:18:30cold weather events, winter yuri um or
6:18:34wildfires uh as another example where
6:18:38the company needs to shore up its
6:18:40liquidity and has to go out and issue
6:18:43debt potentially much more than they
6:18:45would have planned otherwise. And it's
6:18:48important in those moments especially
6:18:50that they're able to do so at reasonable
6:18:52rates.
6:18:54>> And does the company's public service
6:18:56obligation and ability to need to access
6:18:58capital at reasonable rates, does that
6:19:00differentiate it from other companies
6:19:03that don't necessarily have a public
6:19:06service obligation and their need to
6:19:08access and timing of market access?
6:19:12>> Yes. I mean, um, non-regulated utilities
6:19:15don't have the obligation to serve their
6:19:17customers and to meet their needs. Um,
6:19:19if they wanted to, you know, turn off
6:19:22the cell phone towers, uh, they could do
6:19:25so, as an example. Um, we don't have
6:19:28that, um, that luxury and have to
6:19:30continue to serve our customers and and
6:19:32meet them where they, uh, they need our
6:19:36support.
6:19:38And so that is a differentiating factor
6:19:40in terms of when and how you may need to
6:19:43access the capital markets.
6:19:45>> That's correct. Yes. Um and again if we
6:19:47go back to the store the you know storm
6:19:50uh conditions
6:19:52um we could find ourselves or any public
6:19:55utility could find themselves in a place
6:19:57where they may have already met their
6:19:59long-term debt service needs for the
6:20:00year. um a large store wipes out of a
6:20:04portion of their rate base and they have
6:20:06to rebuild that very quickly so that
6:20:07they can meet their customers. If if
6:20:10they're at or near downgrade thresholds,
6:20:14um they don't have the same kind of uh
6:20:18margin or margin of safety to be able to
6:20:21weather that and to be able to access
6:20:23the market. And they may see um
6:20:26immediate response on the behalf of
6:20:29investors in trying to approach the
6:20:31market via the higher or elevated or
6:20:35even exorbitant uh credit spreads.
6:20:43>> Uh thank you very much Mr. Wer. Chair
6:20:46Blank I am through with my redirect.
6:20:49>> Uh I had one uh question on something.
6:20:52Um Mr. Wer said on uh redirect uh and if
6:20:57Mr. Wer can you just pull up hearing
6:20:59exhibit 103 TAW9C
6:21:03and let me uh represent to you this is
6:21:06the S&P October 2025 fiasco outlook. Uh
6:21:11I think it's stated October 9th 2025.
6:21:16Do you have that in front of you?
6:21:18>> I have at least a portion of that
6:21:20report. Yes, it looks like most. Yep.
6:21:23>> Yeah. If you could look on the top of
6:21:24page two to since 2022, the company has
6:21:28increased its capital spending to an
6:21:30average of about 5.5 billion in 2025 and
6:21:342026,
6:21:36which compares with just under two
6:21:38billion in 2022.
6:21:40And then skip down uh two sentences. And
6:21:43then it says overall we expect Pasco's
6:21:46standalone FFF I'm sorry FFO to debt
6:21:50will remain below our 20% downgrow
6:21:54downgrade threshold. Our base case
6:21:56forecast assumes FFO to debt of 16 to
6:22:0018% for the next two years which places
6:22:04the company's financial measures near
6:22:06the midpoint of the range for its
6:22:08financial risk profile category. So, as
6:22:12I read this, it's like if you you have
6:22:15your current whatever it is, tripleB
6:22:18plus rating with a negative outlook, it
6:22:21looks like it S&P expects your FFO to
6:22:25debt ratio to be 16 to 18% for the next
6:22:28couple years. Uh, which is not what you
6:22:31said. You you said the downgrade
6:22:33threshold was 20%, but this looks like
6:22:36it's way lower. So, can you just help me
6:22:38reconcile what this report says uh based
6:22:42on your testimony on redirect because uh
6:22:45you also testified that the settlement
6:22:47agreement puts you at whatever 19 and a
6:22:50half which is way way below way above
6:22:53the forecast range here. So, if you can
6:22:55reconcile that that would be great.
6:22:58>> Sure. I would uh draw your attention to
6:23:00the following page. There's a uh a
6:23:02paragraph that's labeled downside
6:23:04scenario and let me read it.
6:23:07We could lower our rating on PSGO over
6:23:09the next 24 months if its standalone
6:23:11financial measures remain weak,
6:23:14including FFO to debt consistently below
6:23:1620%.
6:23:18We could also lower our ratings in the
6:23:20next 24 months if the company causes
6:23:22significant wildfire or its regulatory
6:23:25risk increases.
6:23:27So I would read this that uh maintaining
6:23:30this at uh levels below 20% over an
6:23:34enduring period. Um and again I think it
6:23:38is a little bit confusing chairman blank
6:23:39when they reference the 16-day pre% but
6:23:41I think the key there is that they're
6:23:44showing that within a very short defined
6:23:46period of time they understand that
6:23:48there's a lot of investments and that
6:23:50these are required and and supported by
6:23:52the policy goals of the state. Um, but
6:23:55it's also [clears throat]
6:23:56uh somewhat dependent on the the nature
6:23:59of the business risk not changing at the
6:24:01same time as well. And the 20% I
6:24:04referenced was in regard to the
6:24:06downgrade scenario. Um, and I I think
6:24:08it's a very valid statement. So if they
6:24:10were to see that to endure over the
6:24:12course of the next three, four, five
6:24:14years, actually I think even beyond the
6:24:17two years that they referenced, I think
6:24:18that they would see that as very
6:24:19problematic and um you know less
6:24:23temporal in nature. But it does sound
6:24:25like the base base case forecast assumes
6:24:28FFO to debt of 16 to 18% for the next
6:24:32two years, which places the company's
6:24:35financial measures near the midpoint of
6:24:37the range for its financial risk profile
6:24:40category.
6:24:42That's what it says, right?
6:24:44>> I I I read the same thing you do. Uh
6:24:46again they're referencing their models
6:24:48internally which I don't have privy to
6:24:50but um I also read the downside scenario
6:24:54is extremely explicit um in my opinion.
6:24:58>> Thanks for the clarification. Any
6:25:00redirect on that request Mr. Z?
6:25:04[clears throat]
6:25:04>> Yes unfortunately. Um Mr. Wer can you
6:25:08look at the uh that same S&P report
6:25:12under outlook?
6:25:15Yes.
6:25:16>> And does that reference the base case
6:25:18scenario assuming FFO to debt between 16
6:25:21and 18% through 2026?
6:25:25>> It does. Um
6:25:30it says that they uh reflect that their
6:25:34expectation is that it does remain below
6:25:36the 20% downgrade threshold which they
6:25:38explicitly state for at least the next
6:25:40two years due to it high capital
6:25:41spending and regulatory lag. Our base
6:25:44case forecast assumes FFO debt of
6:25:46between 16 and 18% through 2026. So
6:25:50again, the starting point was uh 2025 uh
6:25:54through 2026, which is where we find
6:25:56ourselves today.
6:25:59>> And new rates from this proceeding will
6:26:01go into effect
6:26:04later this year.
6:26:05>> Later this year, correct? in the
6:26:08analysis that you've prepared and that
6:26:10the commission directed for supplemental
6:26:12direct was for the years 2027 through
6:26:142030.
6:26:16>> That's correct. So any impact um
6:26:20presumably if you're taking this on face
6:26:22value then any um further degradation
6:26:26below or continued degradation below 20%
6:26:29into 2027 would be seen as a um a
6:26:34potential downside scenario that they
6:26:36outlined in the following paragraph.
6:26:41>> Thank you very much. Nothing further.
6:26:43>> Uh you uh may now be excused. Uh Mr.
6:26:46Wer. Thank you. Uh let's take a break
6:26:49and come back with uh Miss Bley at 305.
6:26:53305.
6:26:55>> Thank you.
6:35:49Miss Bokeley, are you out there?
6:35:55Ah, there you are.
6:35:58Uh, there you are. Mr. Zmer, Miss
6:36:01Bowley, can you raise your right hand?
6:36:04You swear to tell the truth, the whole
6:36:05truth, and nothing but the truth.
6:36:07>> I do.
6:36:08>> Put your hand down. Is anybody with you
6:36:10or communicating with you in any way?
6:36:12>> No.
6:36:13>> If that changes, will you let us know?
6:36:15>> Yes.
6:36:17>> Uh let's see. What do we got? Uh I got
6:36:21five minutes for AARP.
6:36:24Do you have any preliminary? Uh Mr.
6:36:26Zummer.
6:36:28>> No, I thought we were skipping that.
6:36:31>> Yep, we're skipping. Oh, well, I I don't
6:36:33know. Maybe there's changes. Just
6:36:34checking.
6:36:35>> Well, I appreciate it. Uh, m Mr.
6:36:39Kaufman.
6:36:40>> Uh, yes. Uh, your honor, uh, we we wave
6:36:44our, uh, we wave our cross. Thanks.
6:36:47Anyway,
6:36:47>> okay. Thank you.
6:36:49>> City Boulder, it's 30:06 and I have 30
6:36:52minutes. Miss Van,
6:36:56>> um, Boulder will be waving cross of Miss
6:36:59Bley as well. [clears throat]
6:37:02And we were wondering if we might be
6:37:03able to address um, whether Mr. Lman can
6:37:07go out of order due to the availability
6:37:10um whenever it's convenient for the
6:37:12committee.
6:37:12>> Yeah, maybe at the end of the day. Would
6:37:15that work for you, Miss Ben?
6:37:17>> Great. Thank you.
6:37:19>> Uh Commissioner Plank, questions for
6:37:22Miss Bley.
6:37:25>> We have no questions. Thanks,
6:37:27>> Commissioner Gilman.
6:37:28>> I also don't have any questions.
6:37:31>> You're scaring away. You're scaring us
6:37:33away, Miss Balkley. Uh I do have uh some
6:37:37questions. In your rebuttal testimony,
6:37:39you recommend uh a rate of return on
6:37:41equity of 9.8%
6:37:45which I believe your testimony finds is
6:37:47too low based on the evidence. Is that
6:37:49fair?
6:37:51>> Um well, the company's request was 9.8%.
6:37:54In my rebuttal testimony, I presented a
6:37:58range of model results that do that
6:38:00include that 9.8%. If you would refer to
6:38:05uh page 33 of my rebuttal testimony,
6:38:08figure AEBR3
6:38:10summarizes the results of the analysis
6:38:12that I presented. Uh and that ranges
6:38:15from um the low end of the DCF results
6:38:20at 9.3% to the high end at about 1145 on
6:38:26the medians. So pretty broad range.
6:38:30So, and the settlement agreement set the
6:38:33return on equity at the absolute bottom
6:38:35of the range. Is that fair?
6:38:37>> That's correct. Yes.
6:38:40>> Uh, can we pull up hearing exhibit 104
6:38:43AEB16?
6:38:45And let me uh represent that this is the
6:38:48capital structure analysis for the proxy
6:38:51uh group companies.
6:38:53And I think you'll see the average
6:38:55common equity ratio for the project
6:38:57groups is 50.77%
6:39:01and the median is 51.12%.
6:39:05Is that right?
6:39:06>> Yes, that's correct.
6:39:08>> Uh and yet the settlement agreement
6:39:11adopts a common equity ratio of 54.5%
6:39:15which is over 300 basis points above the
6:39:18median and average but still within the
6:39:21range. Is that correct?
6:39:24>> That is correct. Uh, of course, taking
6:39:26into consideration the ROEA being at the
6:39:29low end, it wouldn't be unreasonable to
6:39:31have an equity ratio that was at the
6:39:33higher end.
6:39:34>> Okay, you can take this down. So, is it
6:39:37fair to say the your own testimony in
6:39:40this case would support a lower common
6:39:42equity ratio and a higher uh ROE?
6:39:49So my recommendation in this case was a
6:39:52higher ROE. It was a range of 10 and a
6:39:54quarter to 11 and a quarter%.
6:39:57>> And the evidence that we just looked at
6:39:59would support a lower common equity
6:40:01ratio.
6:40:02>> It would support on average something
6:40:04that would be lower than that.
6:40:06>> All right.
6:40:07>> But within the r the company's number
6:40:09was within that range.
6:40:10>> Yeah.
6:40:11>> The maximum being 58.
6:40:13Can we pull up hearing exhibit 104
6:40:15attachment AEB10
6:40:17tab 2. Uh again this is the slide
6:40:21showing the ratio of 26 to 30 capex as
6:40:24the numerator divided by 2024 net plant
6:40:27for a proxy group of utilities.
6:40:30Uh I've referred to this with other
6:40:34witnesses and they all say it's not
6:40:36their exhibit, it's yours. So I'll try
6:40:39asking you too. Uh you know again based
6:40:43on this it seems like you know Alliant
6:40:46uh maybe the best utility in the in the
6:40:49country in terms of capital efficiency
6:40:52even Dominion which is D and has a bunch
6:40:55of data center growth um seems to be um
6:40:59uh on the lower side than public
6:41:02service. Um any comments uh uh about the
6:41:08capital bias concerns mentioned by
6:41:10multiple parties leading to these uh
6:41:13levels of capital spending ratios that
6:41:16seem well above uh pure utilities.
6:41:21>> Yeah, I would say one thing that's um
6:41:22not captured here uh would be where in
6:41:26the capex cycles these various companies
6:41:28are. So, if you were to have looked back
6:41:30at my testimony in the company's last
6:41:33rate proceeding, for example, Alliant
6:41:35would have been sort of at the midpoint
6:41:37or the high end of this range. Uh, and
6:41:39so I think it's important to recognize
6:41:41that companies are are involved in
6:41:44capital expending plans and programs uh
6:41:47over various time periods, right? And
6:41:49that many of them have have already
6:41:52experienced some higher capital
6:41:54expenditures and uh maybe through that
6:41:57part of that cycle already. So I think
6:41:58that's missing and not captured here. Um
6:42:02and so I wouldn't say that this chart
6:42:04suggests that Alliant is the most
6:42:05capital deficient, but that they as I
6:42:08mentioned in comparing back to my
6:42:10testimony in the last proceeding, they
6:42:12would have been sort of to the middle or
6:42:14the between the middle and the higher
6:42:16end of the range on this very chart. So
6:42:18they would have been experiencing higher
6:42:20capital investment at that time. And so
6:42:23I think what the purpose of this chart
6:42:25is is to demonstrate where the company
6:42:27is in its capital investment cycle and
6:42:29what its needs are. Um and so the the
6:42:31purpose of this chart was to demonstrate
6:42:33that at this time PiSco is in a higher
6:42:35capex cycle relative to the rest of the
6:42:38companies in the proxy group which does
6:42:39create greater risk. Um I know we've
6:42:42talked a lot about the credit rating
6:42:43agencies over time. You know today I've
6:42:45been listening to the testimony. Um in
6:42:47fact, you know, Fitch came out with a
6:42:49report on Friday um downgrading its
6:42:53outlook for the in for the utility
6:42:55sector to uh deteriorating and and the
6:42:59primary basis for that that um downgrade
6:43:02was concerns relating to the political
6:43:05and regulatory risk for the sector and
6:43:07the risk associated with not being able
6:43:10to um you know meet its rate increases
6:43:14that are needed to manage their capital
6:43:15programs was was part of that downgrade.
6:43:17So I think this is a very important
6:43:19thing to consider. U being able the the
6:43:21supportiveness of the regulatory
6:43:23environment at a time when a company has
6:43:24a significant capex plan is crucial to
6:43:26the credit ratings.
6:43:28>> Uh given the timing when you uh filed
6:43:31your direct testimony, is it fair to say
6:43:34that cap uh public service company's
6:43:36capital budget didn't uh reflect
6:43:40uh the generation cost investments that
6:43:43were approved in the near-term? uh uh uh
6:43:48near-term procurement process which I
6:43:51think was uh also included some ga a gas
6:43:54unit and a very large wind farm. So none
6:43:57of that capital spending is
6:44:00uh to the best of your knowledge is that
6:44:02capital spending included in this
6:44:05>> uh if it was capital that was planned
6:44:07over this time period I I don't know the
6:44:09answer to your question to be honest
6:44:11because I don't know specifically what
6:44:12you approved and where it would have
6:44:13been and if it was included in the 2026
6:44:17to 2030 time period for what PESCO was
6:44:20planning for investment I would assume
6:44:22that it's included but I don't know that
6:44:25sitting here at this moment. This was a
6:44:28forecast for that time period.
6:44:30>> Understood. Um, if the commission is
6:44:34concerned that the company's capital
6:44:35spending levels are problematic,
6:44:38particularly when it may be driven in
6:44:39significant part by elevated capital
6:44:41spending on ordinary course projects
6:44:45perhaps driven by uh capital bias. Uh,
6:44:48what are our choices? We can either cap
6:44:50or otherwise limit safety, reliability
6:44:53and other ordinary course spending which
6:44:56is not easy because then we own those
6:44:58decisions or we can try try and lower
6:45:01the returns on capital increase
6:45:03regulatory lag and uh you know put
6:45:08pressure on the company to find ways to
6:45:10moderate its capital spending as Moody
6:45:12said to maintain its credit ratings. you
6:45:15know, set another way is it our job uh
6:45:20to support the company's decision to
6:45:22upsize its already elevated capital
6:45:25spending levels. So, just curious if you
6:45:29have any thoughts on that.
6:45:30>> Well, what I would say is that um I
6:45:33can't speak to the specifics of the
6:45:35company's capital program. I believe
6:45:36that you've spoken with several
6:45:37witnesses on the program itself. Um
6:45:42however to the extent that that capital
6:45:44is actually needed I think um you know
6:45:48the expectation that it will be
6:45:50supported financially and that that the
6:45:52company would be supported financially
6:45:54is of utmost importance at this time. Uh
6:45:56and certainly the certainly the rating
6:45:59agencies and the equity analysts have
6:46:00been paying very close attention to rate
6:46:02proceedings and whether or not um
6:46:05companies have received the support that
6:46:07is needed to fund those plans. This is a
6:46:09problem that is happening across the
6:46:10country. It is not just a PSCO specific
6:46:13concern. There are large capital
6:46:16programs for various operating companies
6:46:18across the country. Um and uh as Fitch
6:46:21noted in the report that they issued on
6:46:24Friday, there is tremendous concern that
6:46:27um concerns about affordability and
6:46:30political pressure is increasing
6:46:32regulatory risk in this sector and is
6:46:34going to make it very challenging for
6:46:35companies to maintain their financial
6:46:37integrity. So I do think it is a very
6:46:39tough position to be in but I think
6:46:42being able to support the companies over
6:46:43the long term um creates the lowest
6:46:47possible cost financing for customers.
6:46:49you know, you you asked a question
6:46:51earlier about um and I may not have been
6:46:55you. I'm sorry. I don't recall exactly
6:46:58who asked the question about how to
6:47:00determine what the change in cost would
6:47:03be for um customers
6:47:06from a downgrade, for example. And I
6:47:08think the answer was that's very
6:47:09challenging to identify. One of the
6:47:11reasons that that's challenging to
6:47:13identify is that what we're trying to do
6:47:15here when we talk about financial
6:47:16integrity is we're talking about
6:47:18maintaining financial integrity in all
6:47:20economic conditions. And as you know
6:47:23from having sat on this this this uh
6:47:26commission for a period of time, these
6:47:27financial conditions change rapidly and
6:47:30without any notice. Um and so so the
6:47:34circumstances that we're trying to
6:47:35protect against is the absolute unknown
6:47:37circumstances when the market turns and
6:47:39then a company needs to go out and
6:47:40access capital. Um and and that has
6:47:43occurred in the past that occurred in
6:47:44the financial market collapse. that
6:47:46occurred in Michigan where companies
6:47:48needed to attract capital uh at
6:47:49unreasonable terms because the market
6:47:52turned very quickly and they had a need
6:47:55for liquidity in the marketplace and
6:47:57those costs stay with customers for an
6:47:59extended time period and become very
6:48:01expensive. So that's the scenario that
6:48:04we're trying to protect against. It's
6:48:05not if we just look at the spread today
6:48:07and say, "Oh, the spread is what it is
6:48:09today. That's the change in cost." It's
6:48:11not. It's the downgrade that occurs and
6:48:13then the event that occurs that creates
6:48:17um instability in the marketplace at the
6:48:19time when companies have to go out and
6:48:21access capital. That's the event that
6:48:23we're trying to protect against by ma
6:48:25maintaining the company's financial
6:48:26integrity.
6:48:28You talk about the national uh situation
6:48:32uh uh but when you look at this graph uh
6:48:37when you benchmark capital spending
6:48:39against 2024 plant and service we're
6:48:42sort of at the uh extreme uh extreme
6:48:46end. Uh you can take this down. Uh Mr.
6:48:49Garrett in his answer testimony hearing
6:48:51exhibit 801 at page 54 to 55 describes a
6:48:56situation where a holding company like
6:48:58Excel has far more debt in its capital
6:49:00structure as compared to the operating
6:49:03subsidiaries. He asserts that this debt
6:49:05is then used to fund equity into the
6:49:08operating subsidiary, a strategy he
6:49:11calls double leveraging. He argues that
6:49:14this is a highly profitable strategy
6:49:16since the cost of debt is notably lower
6:49:18than the cost of equity.
6:49:21Could this double leveraging strategy uh
6:49:24be one reason why the company's capital
6:49:26spending uh uh ratio over 2024 net plant
6:49:31ratio is so much higher than the other
6:49:33uh proxy group utilities?
6:49:36>> No, double leverage is a financing
6:49:38issue. It doesn't have anything to do
6:49:39with the amount of capital that's
6:49:40needed. And I would say that um it is
6:49:43not surprising to me that a parent
6:49:44company that has that operates over
6:49:47multiple jurisdictions and has um
6:49:50diversification of customer bases and
6:49:52regulatory jurisdictions
6:49:55um could have a different leverage
6:49:57profile than a company than an
6:49:58individual operating company that has a
6:50:02set customer base and operates in one
6:50:04regulatory jurisdiction. um
6:50:06diversification minimizes you know or
6:50:08reduces risk right and that would be
6:50:10create the ability to have greater
6:50:12leverage at the parent company than at
6:50:14an operating company level. So it is
6:50:16common across the country to see that
6:50:18all of the operating companies are
6:50:19operating at thicker equity ratios than
6:50:22the parent companies and it is for that
6:50:24reason
6:50:25>> I didn't follow your answer. It seems to
6:50:27me if if you use debt to fund equity it
6:50:30supercharges returns at the holding
6:50:32company uh level. Isn't that uh just
6:50:35mathematically true?
6:50:37>> Well, what we're what the return is
6:50:39based on the risk of the investment. So,
6:50:42so the risk of Excel Energy being a
6:50:45diversified entity is one thing and the
6:50:48risk of an individual operating company
6:50:50is entirely different. And so from a
6:50:52finance perspective, the risk isn't
6:50:54Excel's risk at PS at the PiCO level. It
6:50:58would be PESCO as a holding company on
6:51:00operating as a standalone entity which
6:51:03would have a different risk profile than
6:51:04Excel
6:51:06um having multiple jurisdictions and
6:51:08being diversified across the country.
6:51:10>> Any thoughts of this commission adjusted
6:51:12the settlement agreement by lowering the
6:51:14common ratio somewhat closer to the mean
6:51:17and increased the uh rate of return on
6:51:19equity? That outcome seems to be
6:51:21strongly supported by the record
6:51:23evidence in this case as you've already
6:51:25testified.
6:51:28settlements are gives give and take
6:51:30across all the parties and so uh those
6:51:32are two terms in a settlement that has
6:51:35many other terms associated with it. Um
6:51:38I can't speak to the changing of those
6:51:42two variables in the broader context of
6:51:44a settlement.
6:51:46>> Would you agree that that change would
6:51:48at least be more consistent with the
6:51:50evidence in this case?
6:51:55I think a higher ROE is definitely more
6:51:57consistent with all of the analysis
6:51:59presented in my testimony for certain
6:52:02>> and a lower common equity ratio would
6:52:04also be consistent with national
6:52:06averages
6:52:10>> depending on which meth which analysis
6:52:12you're looking at. I would suggest I
6:52:15think in my rebuttal testimony we
6:52:16demonstrated that on a market basis they
6:52:18were probably more in line with uh
6:52:21PSGO's actual let me just pull that
6:52:23schedule
6:52:25>> I mean I'm just referring to hearing
6:52:27exhibit 104 AEB16 where we already you
6:52:31already testified the averages were
6:52:3250.77%
6:52:34and 51.12%
6:52:37>> right at the operating company level
6:52:38that's true and at the parent company
6:52:40level
6:52:42um if You're looking at
6:52:45exhibit
6:52:51uh hearing exhibit
6:52:53136 AEB 37.
6:52:59Um that demonstrates that the common
6:53:02equity ratio for the
6:53:05companies on a market value basis is
6:53:07right in line with what Pisco is 55.
6:53:12Is that the I I I don't have that in
6:53:14front of me. Let me just uh see if I can
6:53:17find that for one second.
6:53:20>> You like me to share that screen?
6:53:22>> Uh yeah, if you would.
6:53:32>> The font is pretty small. So if there's
6:53:34specific area you want me to zoom in, I
6:53:36can do that.
6:53:38>> Oh, this is the holding. This is a
6:53:40holding company, right?
6:53:41>> This is the market value. Yes. And so if
6:53:43you were to look at the column 20,
6:53:47so the criticism that Mr. Garrett
6:53:49offered in my testimony was that he he
6:53:51felt that we should be using the holding
6:53:53companies. And so if you were to do that
6:53:54and which is what this exhibit
6:53:56demonstrates,
6:53:58um then you get to the um
6:54:01an equity a common equity ratio of about
6:54:0455%. And if you look at column 20, you
6:54:06have to sort of increase the font and
6:54:08then focus on column 20 if you wouldn't
6:54:10mind doing that to make it easier for
6:54:11everybody to read.
6:54:15Ju just to be clear, I'm not suggesting
6:54:17this. I'm suggesting far more modest I'm
6:54:20just asking if far more modest changes
6:54:22would be uh consistent with the uh uh
6:54:26evidence in this record. I'm not going
6:54:30to imposing the holding company uh
6:54:32capital structure on the operating sub.
6:54:34I I understand that. Um that's all I
6:54:37had. Uh redirect.
6:54:42>> Thank you, Chair Blank. Uh could we turn
6:54:44to exhibit 104?
6:54:58And can we go to uh page 73?
6:55:06And if we can scroll down to the next
6:55:09Q&A
6:55:12actually the bottom one here. Uh Miss
6:55:16Balkley you had a discussion with chair
6:55:19blank about uh analyzing the equity
6:55:22ratios of the operating sub subsidiaries
6:55:25of the proxy group. Do you recall that?
6:55:26>> I do. Yes.
6:55:29Can you explain uh how you use that
6:55:32analysis in analyzing the proposed
6:55:34equity ratio?
6:55:36>> Yes. So the operating company's capital
6:55:38structures generally speaking have are
6:55:42the actual capital structures and you
6:55:44know if you were to follow the FK
6:55:45methodology for example the FK would
6:55:47typically say that the actual capital
6:55:49structure is the capital structure to
6:55:53rely on unless it's deemed to be outside
6:55:55the range of the proxy group companies.
6:55:57And so the analysis that I've conducted
6:55:59here is to assess that very thing. Is
6:56:01the capital structure for PSCO outside
6:56:04of the range of the proxy group
6:56:05companies? And as we discussed, it is
6:56:07not. It's um it might be above the
6:56:10median result, but it is well within the
6:56:12range. The top end of that range was
6:56:13about 58%.
6:56:15>> And then if we could scroll down,
6:56:23you have a question here at lines 15 and
6:56:2516. you consider more than the range in
6:56:28assessing reasonleness. Is that correct?
6:56:31>> That's correct. We and we talked about
6:56:32the credit ratings at some level.
6:56:39>> Um so of course the credit ratings are
6:56:41an important factor. Um you know PSCO's
6:56:44credit rating um I think I mentioned in
6:56:47my testimony that they had been the
6:56:49outlook has been downgraded to negative
6:56:51from stable. So again, demonstrating
6:56:54that there's greater credit support
6:56:56needed.
6:56:58>> And in fact, if we can keep scrolling
6:57:00down to page 76,
6:57:10you address that here at line 16.
6:57:12>> That's correct.
6:57:16And so to some you consider the range of
6:57:20operating company equity ratios as part
6:57:22of the analysis but it's not the entire
6:57:24analysis.
6:57:25>> That's correct. Yeah. You have to
6:57:26consider where the company is and what
6:57:28its financial stability is in that
6:57:30moment. There have been many
6:57:32circumstances
6:57:33um recently across the country where
6:57:36companies have needed credit support for
6:57:38v a variety of reasons. Some of them are
6:57:40addressing you know wildfire issues.
6:57:42they're not going to be the mean uh
6:57:45equity ratio wouldn't be reasonable in
6:57:46that circumstance. Uh so there are a
6:57:48variety of reasons uh why it would be
6:57:50reasonable for the credit for the equity
6:57:54ratios to be higher on average than the
6:57:56proxy group companies. One would be uh
6:57:58significant capital plan such as PSOS
6:58:01and the need to support that from a
6:58:02financial integrity perspective.
6:58:05Is your un is it your understanding that
6:58:07the settlement agreement adopts the
6:58:10company's actual capital structure for
6:58:122025?
6:58:13>> Uh no, it's slightly slightly
6:58:17different than 2025 because the
6:58:20short-term debt has been removed
6:58:25>> and it's about a 50 basis point decrease
6:58:28in the equity ratio.
6:58:29>> It is a 50 basis point decrease in the
6:58:31equity ratio. I was just looking for
6:58:32that settlement agreement, but yes, it
6:58:34is 50 basis points.
6:58:36>> And is it your understanding that the
6:58:38settlement agreement uses an ROE that is
6:58:42uh unchanged from the company's last
6:58:45electric rate case? It
6:58:47>> is unchanged from the company's last
6:58:48rate case. And as I provided in my
6:58:50rebuttal testimony, there are market
6:58:53conditions. You know, I looked at the
6:58:55market conditions over time. If you were
6:58:57to look at uh figure AEBR2
6:59:01which is on rebuttal page well exhibit
6:59:05hearing exhibit 136 page 14.
6:59:08Um and in looking at that over time the
6:59:12the the company's
6:59:16the 93 was originally set for the
6:59:18company I believe in a 2019 case and has
6:59:21been held at 93 since that time. And if
6:59:24you were to look at that table
6:59:27previously referenced AEBR2
6:59:30um at that time the yield on the 30-year
6:59:33Treasury bond was about 2.19% whereas at
6:59:36the filing of my rebuttal testimony it
6:59:38was 4.91%. So a significant increase in
6:59:42the yields on the 30-year Treasury bond
6:59:44since that time. And as of Friday I
6:59:45think we had exceeded five where we've
6:59:48been teetering in and around 5% for a
6:59:51period. So obviously those demonstrate a
6:59:53higher cost of equity since the prior
6:59:56case.
6:59:59>> Thank you very much, Miss Bley. That's
7:00:01all I have.
7:00:02>> Uh thanks for joining us. Uh Miss Bley,
7:00:04you may be excused.
7:00:06>> Thank you.
7:00:08>> Uh Mr. Nickel.
7:00:12Uh uh can you raise your right hand?
7:00:14Sir,
7:00:15do you swear to tell the truth, the
7:00:17whole truth, and nothing but the truth?
7:00:19>> I do.
7:00:20>> You put your hand down. Is anybody with
7:00:22you or communicating with you in any
7:00:23way?
7:00:24>> No to both questions.
7:00:26>> If that changes, will you let us know?
7:00:28>> We'll do.
7:00:30>> I have 15 minutes for a AARP. Mr.
7:00:35Kaufman,
7:00:41let me see. Just a just a second. I
7:00:44think um
7:00:48um yes, I can wave uh I can wave this
7:00:50witness to you. Thank you.
7:00:52>> Uh thank you uh Commissioner Plank.
7:00:55Questions for Mr. Nickel.
7:00:57>> Thank you. Good afternoon, Mr. Nickel.
7:01:00>> Good afternoon.
7:01:01>> Um I just had a couple of quick
7:01:03questions. In in your rebuttal testimony
7:01:06on page nine, you said
7:01:09uh said differently, the Aegis CPCN
7:01:12record made clear that stranded asset
7:01:14costs would occur because the AMR meters
7:01:17were at the end of their useful lives
7:01:19due to technological obsolescence
7:01:22and needed to be replaced. Not that the
7:01:24AMR meters were at the end of their
7:01:26depreciable lives. But at the 2017
7:01:30hearing, Miss Jackson for the company
7:01:32said, "So back in 1994 when we started
7:01:36deploying AMAR meters on our system,
7:01:37those were deployed between 94 and 98.
7:01:40Those meters have an average life
7:01:41depreciation of 25 years is what we've
7:01:44been looking at. If you do the math, we
7:01:47are at 25 getting pretty close to the
7:01:50end of that deployment time frame where
7:01:52the 25 years would be reached. So how do
7:01:54you how do you resolve these two
7:01:56statements?
7:02:00I think I think they're really two
7:02:02different statements representing two
7:02:04different things. Um, so I I think we
7:02:07heard a lot of or we saw a lot of
7:02:08discovery questions that represented
7:02:11that each individual meter was the
7:02:15consideration around whether meters were
7:02:18at their end of their depreciable life
7:02:20or not. and we were trying to represent
7:02:23the company's perspective just around it
7:02:25was really the technology in um in
7:02:28general. Um the other piece as well I I
7:02:31think when I look back at the reference
7:02:33from the hearing um you know I think
7:02:36very similar to what we did from our
7:02:37transition from our legacy meters to AMI
7:02:40meters there was a deployment of mass
7:02:43deployment of those meters but the
7:02:45deployment of AMR meters um and I I
7:02:48don't know if it was directly clear in
7:02:50Mrs. Jackson's testimony but meters
7:02:54continued to to be deployed after that.
7:02:56Obviously, we've seen a significant
7:02:58amount of growth since 1998 uh now in
7:03:01the state of Colorado and meters are
7:03:04predominantly deployed for two different
7:03:06reasons. First is to serve new
7:03:08customers. Um so anytime we have new
7:03:11customers on our system, we have to
7:03:12purchase and install a new meter or if
7:03:15we do have a meter that fails, um that
7:03:17would be really kind of a similar
7:03:19purpose. So I think if you're
7:03:20representing that we only deploy those
7:03:22meters during that period, um that's
7:03:24certainly not the case. We continue to
7:03:26deploy meters and a regular course of
7:03:28meters to serve new customers to replace
7:03:30meters that have failed.
7:03:32>> Was I mean I'm sure you weren't I don't
7:03:36know if you were there at the time but
7:03:37[laughter]
7:03:38was Miss Jackson in your view
7:03:41uh referring to the bulk replacement of
7:03:45meters happened between 94 and 98 and
7:03:48then from that point forward you would
7:03:51have a sort of a feathering in of
7:03:53growth. Is that kind of what you're what
7:03:57you're
7:03:57>> Yeah, I believe that's what she was
7:03:59representing that Yeah, you had the I
7:04:01guess bulk replacement of meters during
7:04:04that time period from 94 to98 and then
7:04:07you had kind of normal course of
7:04:08business serving new customers,
7:04:10replacing failed meters um really beyond
7:04:12that period. So I I think she was really
7:04:15trying to represent when we started
7:04:17deploying those meters in scale. Um but
7:04:19then certainly was not representing that
7:04:22we did not continue to invest and
7:04:23purchase meters after 1998.
7:04:27>> One of the things that uh Miss Jackson
7:04:29said in response to Commissioner
7:04:30Consilia was that rep commissioner
7:04:34Consilia asked rateayers are going to be
7:04:36paying for a period of time for two
7:04:38meters and Miss Jackson responded for a
7:04:41short period. I would say yes. And yet
7:04:44today we're looking at 15 additional
7:04:46years. So why is there such a mismatch
7:04:49with the company's testimony at the time
7:04:52of the CPCN and then the situation that
7:04:55we're in today?
7:04:56>> Yeah, I I can't specifically represent
7:04:59that. That would have been a better
7:05:00question for I think you did ask that
7:05:02question of Mr. Mohler. Um
7:05:04>> he kicked it to you.
7:05:05>> He kicked it to me. Okay, [laughter]
7:05:06there you go. Yeah. I you know I I think
7:05:10when I'm thinking back to the age of
7:05:12CPCN what I recall is there was a
7:05:14general construct that the depreciation
7:05:17period was going to be shorter um and
7:05:19now it's it's later during this
7:05:22proceeding our proposal is later. So I I
7:05:24think that's the difference between what
7:05:26was represented back then and what is
7:05:28being represented now.
7:05:31So,
7:05:33I guess well I guess I could ask about
7:05:36do you know how many AMR meters were
7:05:38installed after that CPN after the
7:05:42commission approved AGIS?
7:05:44>> Um I do know that Miss O'Neal did
7:05:47represent I believe it was page 84 or 85
7:05:51just within her answer testimony. Um she
7:05:54did just based on some of the
7:05:55information the company company
7:05:57provided, she did support the number of
7:06:00AMR meters that we purchased um over the
7:06:03over the different years.
7:06:06>> So I should look to um uh Miss O'Neal's
7:06:09testimony that
7:06:10>> Yeah, if you pull Yeah, if you pull up
7:06:12your testimony, we could walk through
7:06:13that if we
7:06:14>> So that would show me of those
7:06:17installations, how many remain a part of
7:06:19the stranded balance?
7:06:24um not not necessarily that that'll just
7:06:27represent the number of meters purchased
7:06:30during those time periods. Um but it it
7:06:33wouldn't necessarily represent the
7:06:35balance at the point in time. Um, I do
7:06:38know that the different references
7:06:41that I I think would be helpful for you
7:06:43over time is in her in the hearing, Miss
7:06:49Jackson did represent that in 2018
7:06:53that balance would be 72 million and
7:06:56then in both the Aegis rider and then
7:06:59the 2021 electric rate case the actual
7:07:03balance before we started deploying AMI
7:07:07meters in 2020 was roughly 79 million.
7:07:11So I I think th those would be I guess
7:07:14the two points in time that I think
7:07:16would be helpful for you. um because
7:07:18before we started deploying AMI meters
7:07:22and had the opportunity um to meet all
7:07:25the prerequis prerequisites before we
7:07:27had started that um yeah I think it's
7:07:29really the 79 million um in 2020 that
7:07:33represents that point in time that it
7:07:35was really kind of normal course of b
7:07:37business um prior to the start of the
7:07:40AMI deployment.
7:07:41>> So um sort of guess my next question. So
7:07:45when if I were to say what percentage of
7:07:47the 83.9 million balance is attributable
7:07:51to AMR meters installed after the
7:07:54commission approved the transition.
7:07:56You're saying it would be the difference
7:07:58between the 72 was it and 83.9.
7:08:04>> Yeah. I think in 2018 it was the 72
7:08:07million, 2020 the actual balance was 79
7:08:10million and then the amount now in this
7:08:13proceeding is the 83 million.
7:08:17One of the um things at at at the
7:08:21hearing back in 2017, Miss Jackson
7:08:24outlined the cost and said that the
7:08:25hardware costs were about $221 for the
7:08:29commercial AMR and about $47 for the
7:08:31residential meters, then another 45 or
7:08:34so for installation. You indicated that
7:08:36the residential customers were targeted
7:08:39first. Um, did opting for the
7:08:42residential replacement first mean that
7:08:45the company had to then purchase more of
7:08:47the more expensive commercial meters
7:08:49during the interim period?
7:08:53Um, not necessarily more of those meters
7:08:57um just because the percentage of
7:09:00customers that we have on our system um
7:09:02it's predominantly residential
7:09:04customers. Um so I think in terms of
7:09:07quantities there are less commercial
7:09:10customers so there would have been less
7:09:12commercial purchases during that time
7:09:14period. Obviously there is a cost
7:09:16differential between a residential type
7:09:19meter and a commercial type meter.
7:09:22>> Uh thank you. Those are all the
7:09:23questions I had Mr. Chairman.
7:09:25>> Thank you Commissioner Plant.
7:09:27Commissioner Gman.
7:09:28>> No I don't have any questions.
7:09:30>> Uh nor do I. Uh Mr. Simper redirect.
7:09:34>> Yes. Uh just very quickly, can we bring
7:09:37up hearing exhibit 400 uh page 86
7:09:55and and and this is this is the exhibit
7:09:58that uh you were talking about. Is that
7:10:00correct, Mr. Nickel? This chart.
7:10:02>> That is correct. Yes. And what you're
7:10:05seeing here is um 45,000 meters
7:10:10purchased in 2017. That goes up to 76
7:10:13then to 70 and then it starts to wean
7:10:15down until it's 827 and 25. Am I reading
7:10:19that chart correctly?
7:10:20>> That is correct.
7:10:21>> And when you're looking at this, why was
7:10:25there uh such large meter purchases from
7:10:27181 19 and 20?
7:10:31Yeah, that that is what I described as
7:10:33really kind of the continue of normal
7:10:35course of business. Um, so I I think I
7:10:38talked about in my testimony to pro to
7:10:42provide additional context around some
7:10:43of the prerequisites to before we could
7:10:46start to deploy AMI meters. You know, I
7:10:49think generally speaking, um, there's
7:10:52really three main categories. The first
7:10:54being obviously the meter itself,
7:10:56purchasing that. The second is how you
7:10:58read that meter. And then the third is
7:11:01all the IT and billing work so we can
7:11:03ultimately produce a bill for customers.
7:11:05And as it relates to AMI meters, there's
7:11:08also a significant amount of software
7:11:09and integration work to enable the
7:11:11additional capabilities. Um, so a lot of
7:11:14that work took place after the
7:11:16commission decision decision and before
7:11:19we installed our first AMI meter. Um
7:11:23and you know I think the importance of
7:11:25that is because before we could install
7:11:28that first meter we had to really
7:11:30continue normal course of business to
7:11:32continue to purchase and install AMI
7:11:35meters broadly across our service um
7:11:38service territory. So you know I think
7:11:40as you as you look at the years the
7:11:43importance of it is it was normal course
7:11:45of business really leading up to 2020
7:11:48and then in 2021 when we had met all
7:11:52those prerequisites to start to deploy
7:11:55AMI AMI meters to residential customers
7:11:58you start to see that number drop pretty
7:12:01significantly. Um I also talked about
7:12:04the efforts that the company took to
7:12:06reuse those meters um particularly with
7:12:10the residential type meters um before we
7:12:13started deploying commercial meters. Um
7:12:15you can see just how that impacted the
7:12:18amount of meters that we had to purchase
7:12:20ultimately leading up to 24 and 25 where
7:12:22that number was very small. And this
7:12:25this business as usual time frame
7:12:27essentially between the end of the ages
7:12:30CPCN proceeding and the and the time the
7:12:33company was able to put in all those
7:12:35prerequisite items that was always
7:12:37intended and planned for. Is that
7:12:39correct?
7:12:40>> That is correct. Yes.
7:12:41>> Um and then as soon as the CP as soon as
7:12:44the meters the AMI meters were being
7:12:47implemented the ones you were take the
7:12:49AMR meters you were taking out of
7:12:50service you were reusing. Is that
7:12:52correct?
7:12:53>> That is correct. Yeah. And I I think the
7:12:55other kind of important con concept as
7:12:57well is there are different service
7:13:00voltages and different types of meter
7:13:03that are defined by an ANIE standard ANI
7:13:05standard C12. So when we take a
7:13:09residential meter out of service, we
7:13:12cannot use that for say a commercial
7:13:14customer or even potentially like an
7:13:17apartment building. So, but the company
7:13:20did make substantial efforts to make
7:13:22sure that we could reuse meters that
7:13:24were taken out of service and were still
7:13:26functioning properly. And then can you
7:13:28just confirm for the record the the um
7:13:33the estimated amount of non-depreciated
7:13:36meters that Miss Jackson used? That was
7:13:38an amount that was assumed at the end of
7:13:41the AMI installation. Correct.
7:13:44>> The 72 million. Is that where you're at?
7:13:47Um I I believe it was a 2018 value.
7:13:51>> Okay. But but the idea was that that was
7:13:54the amount that you would expect to have
7:13:56been the stranded costs.
7:13:57>> Correct. Yes.
7:13:58>> Okay. Nothing further.
7:14:00>> Yeah.
7:14:01>> Uh you can take this down. U Mr. Nickel,
7:14:04thanks for joining us. And you may be
7:14:06excused, sir.
7:14:07>> All right. Thank you. Appreciate it.
7:14:09>> Thanks. Uh I think that concludes the
7:14:13customer's case and let's uh jump to Mr.
7:14:18Lei. You out there, sir?
7:14:21>> Oh, Mr. Zummer.
7:14:23>> Yeah, sorry. Um just before since we are
7:14:26at the end of our witnesses here. Um we
7:14:29have a few box.com exhibits. Do you want
7:14:32to handle those now or do you want to
7:14:34maybe at the end of the day?
7:14:36Uh I think now actually would be a good
7:14:38time in case we need a witness.
7:14:40>> Okay. Uh so in the company'sbox.com we
7:14:45have what's been marked for
7:14:46identification as hearing exhibit 157
7:14:49which is the revised revenue requirement
7:14:52model uh that Mr. Fredus discussed with
7:14:55commissioner Gilman
7:14:57and we have both the uh PDF and
7:14:59executable versions of that.
7:15:03And have the parties seen that?
7:15:07>> Not yet. So, we can if you'd like us to
7:15:10circulate everything to parties in
7:15:11advance, we can do that.
7:15:13>> Yeah. Why don't you circulate it to the
7:15:14parties and why don't we take this up uh
7:15:17first thing tomorrow and uh I mean, I
7:15:19have no idea if we'll need a witness,
7:15:21but if you can just have somebody
7:15:22standing by if we do, that'd be great.
7:15:25>> Excuse me, chair. This is Stephanie. Um
7:15:27it's actually 157 attachment APF-29.
7:15:31Is that the one that you're talking
7:15:32about?
7:15:33Yes, that's correct. We'll circulate
7:15:36those with folks. Uh, and we'll do this
7:15:38tomorrow.
7:15:39>> That'd be great if you'd be willing.
7:15:42>> Can you also circulate that to
7:15:44commission council just so we can get an
7:15:46opportunity to see it before we'll
7:15:49discuss it?
7:15:53>> Uh, sure.
7:15:55>> Okay. Um,
7:15:57>> yeah, go ahead.
7:15:58>> Go ahead, Commissioner.
7:16:00>> No, I have one other question. um uh
7:16:03regarding the the earned ROE numbers and
7:16:06just a request do you offer
7:16:07clarification that may be part of this
7:16:09as well if that's helpful.
7:16:11>> Um yeah and I was it's probably just
7:16:14easier to do it now. There's a tab in
7:16:17attachment T AW14C
7:16:20and it's called uh PSCO ROE
7:16:25>> and that has the reconciliation of the
7:16:28uh
7:16:30155 basis points
7:16:34>> for the regulatory lag component.
7:16:37>> Correct.
7:16:38>> But uh can you just say that I I lost
7:16:40you? What's the hearing exhibit number
7:16:43>> and attachment?
7:16:45Yep. I'm just pulling it up. Sorry.
7:16:48It's hearing exhibit 135.
7:16:53Executable attachment T AW17
7:16:57C.
7:16:59>> Okay.
7:16:59>> And there's a tab called BSCO ROE.
7:17:03>> Thank you.
7:17:05And then um just in terms of things to
7:17:08potentially circulate in advance or just
7:17:10with parties, the the other things that
7:17:12we have available is the uh sales
7:17:16comparison that was requested
7:17:19and uh supplemental report on the
7:17:23disconnection survey results.
7:17:26>> Oh yeah, if you could circulate that
7:17:28tonight, uh that would be great.
7:17:31>> Okay.
7:17:33Um my other question was um on Friday I
7:17:36had talked to Mr. Freighus about the
7:17:382025 um earned return portraying his
7:17:43testimony as 5.73%
7:17:45which was from table APF R4
7:17:50um in his rebuttal and this was also
7:17:53discussed in Mr. K's rebuttal and how it
7:17:56didn't include the impact of riders. Um,
7:17:59and we talked a lot about that today as
7:18:01well with regard to the difference
7:18:02between regulatory and gap earned
7:18:05return. So, I just wanted to clarify if
7:18:08the company could make available a
7:18:10version of that table that shows that
7:18:13value with the impact of riders or if
7:18:16that is one and the same with what's
7:18:17been presented elsewhere. Um, and then
7:18:20also wanted to confirm on the dates. um
7:18:24previous to 2025 back to 2017
7:18:28if those values include the impact of
7:18:30writers or do not include and if they
7:18:33don't include the impact of riders if we
7:18:36could see a version that does include
7:18:37those consistently.
7:18:39>> Um I can start with by clarifying that
7:18:43Mr. Freighus' table as he explained is
7:18:45based on the appendix A's and so that's
7:18:47going to be on a regulatory accounting
7:18:49basis and not include the effective
7:18:51writers. Correct.
7:18:54>> For all of the years, correct?
7:18:56>> So, it's all appendix A basis. Mr.
7:18:59Wner's uh analysis that's in in 14C is
7:19:03the gap roe analysis which includes the
7:19:06effective writers.
7:19:09So, that's got 22 through 24 in it.
7:19:13And so, okay.
7:19:14>> Is the request for more history of the
7:19:17gap ro?
7:19:20Well, I'm really trying to understand if
7:19:21there is any daylight then between if
7:19:24you take the regulatory earned ROE
7:19:27calculation the company did and include
7:19:29the impact of riders. Is there any
7:19:32difference between that and what is
7:19:33being shown as the gap ROE or are those
7:19:36one and the same at that point? um they
7:19:38wouldn't be exactly the same, but it
7:19:40would be more encompassing for sure to
7:19:43use the GAP ROE approach because it's
7:19:45going to have alternative sources of
7:19:47revenue as compared to the appendix A.
7:19:51>> Can I just ask why the regulatory
7:19:55numbers were even shown?
7:19:57>> What possible use does that have other
7:20:00than to confuse the record?
7:20:03Everybody's relying on the gap numbers
7:20:05and what the investor community sees. So
7:20:08I was really confused by why that was
7:20:10even in front of us.
7:20:12>> Yeah. Um Mr. Fredus is probably the
7:20:16right person, but I can at least start
7:20:17at a high level. Uh there's a couple of
7:20:20things. One, you know, that comes out of
7:20:22a mandatory report for the commission
7:20:25based on appendix A requirements. Uh
7:20:28two, just from a general perspective, it
7:20:30does provide information about the
7:20:32differential between what your base rate
7:20:35recovery is and what your authorized ROE
7:20:37is for that base rate component
7:20:42seem to uh create more uh ob uh seem to
7:20:48obiscate more than throw lights. So, um
7:20:52I do any other requests, Commissioner
7:20:53Gilman, or uh are you happy with how
7:20:57that all landed?
7:20:59>> Um I think that's fine. I can look um
7:21:02there and refer to the to the gap values
7:21:05of the company's saying those are the
7:21:06most accurate. Um and yeah, would just
7:21:10uh again ask for those things to be um
7:21:12circulated including commission council
7:21:14so we can get our eyes on them before
7:21:16tomorrow morning as well. the other
7:21:17items.
7:21:19>> Understood. Thank you.
7:21:21>> Uh thank you, Mr. Zemer. And we'll start
7:21:24tomorrow off uh with those exhibits.
7:21:27Um
7:21:29Mr.
7:21:32Dr. Deio, are you out there?
7:21:41>> There you are.
7:21:42>> Yes, I am.
7:21:43>> Uh you can leave that right hand up. Uh,
7:21:46do you uh swear to tell the truth, the
7:21:48whole truth, and nothing but the truth?
7:21:49>> Yes, I do.
7:21:51>> You can put your hand down. Is anybody
7:21:52with you or communicating with you in
7:21:54any way?
7:21:56>> No.
7:21:57>> If that changes, will you let us know?
7:21:59>> Sure. Yeah, I will.
7:22:01>> Uh,
7:22:03I think uh it was only commissioner
7:22:06questions. Uh, Commissioner Plant.
7:22:09>> Yeah. Thank you, Mr. Chairman. Good
7:22:11afternoon, Mr. Deoo.
7:22:13>> Good afternoon. Um, in just a couple of
7:22:16quick questions. In your answer
7:22:17testimony, uh, staff presents a
7:22:20scientific analysis of CGDCF, MSDCF,
7:22:23CAPM, ECAPM
7:22:26to determine a reasonable ROE. And the
7:22:28results are that the staff considers
7:22:308.05 a reasonable level, but thinks
7:22:33lowering from 9.3 to 8.05
7:22:38could cause rate shock for the company.
7:22:41in in this context what what is rate
7:22:44shock and and how does it manifest?
7:22:48>> Yeah. So it's um significant change in
7:22:52in
7:22:53uh the total revenue requirement from
7:22:56currently authorized rates of 9.3 to 8%
7:23:00even though scientific approach like I
7:23:03mentioned in my answer testimony that
7:23:05would be the fair and reasonable rate of
7:23:08return. uh but given that there's 130
7:23:13basis point difference applied on a
7:23:16large rate pace uh that could mean a
7:23:19substantial reduction in revenue
7:23:21requirement for the company. So that the
7:23:24staff consider to be a rate shock.
7:23:28So, so, so rate shock would be the the
7:23:32not necessarily an impact on investment
7:23:36into the company, but an impact on
7:23:38return to the company.
7:23:41>> Yes.
7:23:41>> Is what you're saying. And um
7:23:45in table
7:23:48uh in the table on page 64 of your
7:23:50answer testimony, you talk about the
7:23:52market to book ratio variety of pure uh
7:23:56utilities and you say that a ratio above
7:23:591.0
7:24:01suggests that the regulatory return is
7:24:03excessive. Yet every utility you listed
7:24:07had a return above 1.0 with Excel I
7:24:10think over 2.0. So what does that tell
7:24:14you?
7:24:15>> Yeah. So uh this is not my observation.
7:24:18I have referenced it to Bon Bright. And
7:24:22um the reason that he um specifically
7:24:25mentions this ratio as an indicator for
7:24:29how uh the rates of returns are computed
7:24:33and in in relation to the investor's
7:24:36expectation is to show that if the ratio
7:24:40is close to one, the company is being
7:24:43provided the normal economic rate of
7:24:46return which then does not lead to
7:24:49inflation of market value over book
7:24:51value. So that's his logic and I think
7:24:57this is where uh I have had concerns
7:25:00about my uh you know I I have had
7:25:04concerns about the industry trends being
7:25:09uh the anchor for determination of
7:25:11return on equity because like I like you
7:25:14observed in that table most of the
7:25:17companies have their market to book
7:25:19value ratios higher than one. So
7:25:22essentially the whole industry has had
7:25:24this kind of a challenge that their
7:25:27rates of returns are in excess of what
7:25:31the market expects from them.
7:25:33>> And have you [clears throat] noticed the
7:25:35trend of those markettobook values
7:25:37increasing
7:25:38year to year? I mean was it at one point
7:25:40at at one and [laughter] and and now
7:25:43we've gotten to places where some of
7:25:45them were at three over three. I would
7:25:48suspect so but I haven't because I think
7:25:51some of these companies have been in
7:25:52existence for close to 40 years or
7:25:55sometimes even more. So I haven't had a
7:25:59look at any study that compares the book
7:26:02value to market value over these periods
7:26:04of time but I suspect that it has been
7:26:06rising
7:26:08>> and given that your analysis of these
7:26:10peer utilities would point to an ROE of
7:26:138.05 5 and and none of them are at one.
7:26:16Um would an ROE of 8.05 be expected to
7:26:20reduce Excel below one?
7:26:24>> Not necessarily because uh 8.0 is what I
7:26:29consider to be and and based on the
7:26:32models that I have used consider to be
7:26:34fair and reasonable. So if it goes to 8,
7:26:38it should bring back the ratio from 2 to
7:26:411
7:26:43and I guess it will not be something
7:26:46that um typically reflects overnight but
7:26:50it would happen over the years. So what
7:26:53you were and and again I know this has
7:26:56changed but what you were recommending
7:26:59in your answer testimony
7:27:01essentially was that the commission take
7:27:06I I don't know how long a decade sort of
7:27:09look or what what's the and move
7:27:12ourselves from where we are at 9.3
7:27:15towards 8.05 over a period of time. what
7:27:19what is your what was your thinking
7:27:22around that like
7:27:24yeah so I we haven't really thought
7:27:27about a concrete plan to get there but
7:27:30it looks like the frequency of uh rate
7:27:33cases is once in two years and if we
7:27:36were to if you if you look at my final
7:27:39recommendation of 9% roe which reduces
7:27:4330 basis point from the current
7:27:45authorized rate it would take about
7:27:48three or for rate cases and I think
7:27:52given that frequency or cadence of once
7:27:55every two years it might be about 6 to 7
7:27:58years kind of a path
7:28:00>> and so that uh the settlement uh remains
7:28:04at 9.3 so if the commission wanted to
7:28:08adopt this
7:28:11but stick with the settlement basically
7:28:13we would be pushing out that movement
7:28:16for another couple of years until the
7:28:18tax rate case.
7:28:20>> Yes. Uh that seems to be the case. But I
7:28:23think um when we look at the settlement,
7:28:26we have to consider all other
7:28:29compromises that the company and other
7:28:31interveners have made. So given those uh
7:28:35consideration, I still believe that
7:28:37keeping it static at 9.3% for this time
7:28:40around is still reasonable.
7:28:44>> Thanks. And just uh last question the
7:28:47the
7:28:49um marketto book ratio of 1.0 1.0
7:28:53represents a fair market return.
7:28:56>> Should we consider
7:28:58above 1.0 unfair?
7:29:03Um so I would I would say that
7:29:09um there are some instances of some of
7:29:11the utilities having generated
7:29:14internally
7:29:16uh some intangible ass assets which are
7:29:19not recorded in their book values and
7:29:21sometimes not reflected in their rate
7:29:23basis. So a marginal higher ratio say
7:29:281.2 two or 1.3 might be the reasonable
7:29:32place to land.
7:29:34>> So 20 25 30% band around the 1.0.
7:29:39>> Yes.
7:29:39>> But above that we should consider that
7:29:43according to Bombbrite fundamentally
7:29:44unfair.
7:29:45>> Yes.
7:29:46>> Okay. Thank you.
7:29:48>> These are again the the um arguments
7:29:51that Bombbrite makes. I have just
7:29:53adopted those.
7:29:54>> Understand? Uh that's uh all the
7:29:56questions I have Mr. Chairman. Thanks.
7:29:58Thank you,
7:29:59>> Commissioner Gman.
7:30:01>> No question. Thank you.
7:30:02>> Uh nor do I. Mr. Larson, redirect.
7:30:06>> Um no, no to redirect. Thank you, Mr.
7:30:08Chair.
7:30:09>> Uh thank you, Dr. Depw.
7:30:12>> Thank you.
7:30:12>> Um Mr. Lei, are you out there?
7:30:18Keep that hand up, sir. Uh do you swear
7:30:21to tell the truth, the whole truth, and
7:30:22nothing but the truth?
7:30:24>> I do.
7:30:25>> Put your hand down. Is anybody with you
7:30:27or communicating with you in any way?
7:30:30[clears throat]
7:30:32If that changes, will you let us know?
7:30:35>> Absolutely.
7:30:36>> Uh Mr. Bunker, I got 30 minutes and it's
7:30:40four o'clock.
7:30:41>> Mr. Chair, I'm sorry to interrupt. I did
7:30:42want to go through the list of
7:30:44introductory questions really quick if I
7:30:45may.
7:30:46>> Yeah, right. Uh I think you had some
7:30:48exhibits or something. Go ahead, Miss
7:30:49Chong. Thank you. Thank you. Ailen
7:30:51Chong, assistant attorney general here
7:30:52on behalf of trial staff. Uh good
7:30:54afternoon, Mr. Lei.
7:30:56>> Hello.
7:30:57>> Can you please state and spell your name
7:30:59for the record?
7:31:00>> Yeah, it's Ronald Lei. R O N A L D L A
7:31:04Y.
7:31:05>> By whom are you employed and in what
7:31:07capacity?
7:31:08>> Uh with the PUC as a a staff senior rate
7:31:11analyst.
7:31:13>> Did you cause to be filed in this case
7:31:15hearing exhibit 404 rev one which is
7:31:18your answer testimony?
7:31:20>> Yes, I did. And did staff enter into the
7:31:23comprehensive settlement agreement with
7:31:25the company and a few other interveners?
7:31:27>> Yes, they did.
7:31:29>> Miss O'Neal filed settlement testimony
7:31:32um on behalf of staff. Is her settlement
7:31:34testimony staff's current position on
7:31:36the issues in this proceeding?
7:31:38>> Yes, it is.
7:31:39>> Thank you. Mr. Lei is available for
7:31:41cross-examination.
7:31:42>> Yes. Sorry for uh [laughter]
7:31:45the uh too abrupt transition. Uh Mr.
7:31:49Bunker, I have 30 minutes for you.
7:31:51You're up, sir.
7:31:52>> Thank you, Mr. Chairman. Hello, Mr.
7:31:54Lelay.
7:31:55>> Hello, Mr. Bunker.
7:31:57>> Uh, you filed answer testimony on behalf
7:32:00of the commission staff in this case,
7:32:02correct?
7:32:03>> Yes.
7:32:04>> And that answer testimony is hearing
7:32:06exhibit 404.
7:32:10>> If we could pull that up, please.
7:32:26And I think I cut you off when I said uh
7:32:28your answer testimony is exhibit 404.
7:32:32Sorry about that.
7:32:33>> That's correct. That's correct.
7:32:36[clears throat]
7:32:36>> If we could go to page four,
7:32:39lines 13 and 14.
7:32:42Here you indicate you present staff's
7:32:45recommendation
7:32:47uh regarding using the [clears throat]
7:32:502025
7:32:52calendar HTY
7:32:54using a 13-month average rate base. Is
7:32:57that correct?
7:32:58>> That's correct.
7:33:00And on page 25
7:33:06[clears throat]
7:33:06on lines 2 through 7
7:33:10here, you indicate staff supports the
7:33:12use of an HTY in this proceeding.
7:33:16Specifically, staff recommends using an
7:33:19HTY ending December 31, 2025
7:33:24in PNS, the 2025
7:33:27calendar HTY
7:33:30based on a 13-month average ratebased
7:33:33method with limited, known, and
7:33:35measurable changes. Is that right?
7:33:37>> That's correct.
7:33:39Now, if we could turn to the
7:33:41nonunanimous agreement, that's here in
7:33:44exhibit 155.
7:33:47And if we can look at page three,
7:33:51staff is identified as one of the
7:33:54parties to the non-unanimous agreement.
7:33:56Is that correct?
7:33:59>> That's correct.
7:34:02And if we now turn to page 17, paragraph
7:34:0631,
7:34:09the agreement provides the settlement
7:34:12test year revenue requirement is
7:34:14calculated on a year-end basis for all
7:34:18plant and plant related balances
7:34:20included in rate base. Is that correct?
7:34:23>> That's correct.
7:34:25Would you agree that the only party to
7:34:29specifically advocate using the year-end
7:34:32rate method in this case was Pasco?
7:34:41>> I I believe so.
7:34:44So the non-unanimous agreements
7:34:46provision which staff agreed to is with
7:34:50respect to the ratebased methodology to
7:34:53be used in this case and it is directly
7:34:57opposite to the position you espoused in
7:35:00your answer testimony. Right.
7:35:02>> Correct.
7:35:05And in your answer testimony on page 26,
7:35:12starting at line 15
7:35:15through page 28, line 14,
7:35:19here you state,
7:35:22staff advocates for a 13-month average
7:35:24ratebased method for three main reasons.
7:35:28And then on pages 28 through31
7:35:32here you provide your support for these
7:35:35three main reasons to use 13-month
7:35:38average rate base. Is that right?
7:35:40>> That's right.
7:35:42>> Do you continue to agree with the
7:35:45ratebased methodology testimony that you
7:35:48wrote in your answer testimony?
7:35:50>> Yes. Uh staff we I still maintain the
7:35:53same position.
7:35:54>> Okay.
7:35:56Is it your understanding that the
7:35:58commission ordered the use of 13-month
7:36:01average ratebased method in the PiSco
7:36:06most recent 2024 gas rate case?
7:36:11>> Uh I know that they asked for it. Yes.
7:36:14>> Okay. And is it your understanding the
7:36:17commission ordered the use of the
7:36:1913-month average rate base in the recent
7:36:24Atmas 2025
7:36:27gas rate case decision that was issued
7:36:29about a month ago?
7:36:32>> Not familiar with it, but I was not
7:36:33involved.
7:36:34>> Okay.
7:36:37Is it your understanding that when
7:36:40changing Pasco's proposed ratebased
7:36:43methodology from year in to 13 month
7:36:4713-month average,
7:36:50this results in about $60.6 million less
7:36:55in Piasco's revenue deficiency.
7:36:59>> That sounds right.
7:37:00>> Okay. And with that, Mr. Lei, I have no
7:37:04further questions. Thank you for your
7:37:05time today.
7:37:07>> Thank you.
7:37:07>> Uh thank you, Mr. Bunker. Uh
7:37:10Commissioner Plant. Uh let me just
7:37:12check.
7:37:14>> Yeah, Commissioner Plant. Questions for
7:37:16Mr. Lee?
7:37:17>> That was the fastest 30 minutes in
7:37:19history.
7:37:20[laughter]
7:37:22I uh I don't have any questions for Mr.
7:37:24Le.
7:37:24>> Uh Commissioner Gilman.
7:37:27>> No questions.
7:37:28>> Uh nor do I. Uh Miss Chong, redirect for
7:37:32Mr. Lei. Uh yes, your honor. Briefly, uh
7:37:36Mr. Lei, just to go back to um a
7:37:38conversation that you had with Mr.
7:37:40Bunker, um staff ultimately agreed to a
7:37:43year and ratebased methodology in the
7:37:45settlement. Correct.
7:37:47>> That's correct.
7:37:48>> And you are not the settlement um
7:37:49witness in this proceeding. Correct.
7:37:52>> Correct. to your knowledge, um, why did
7:37:55staff agree to a year-end base
7:37:57methodology, um, when in answer
7:38:00testimony, you originally went with
7:38:0213-month average?
7:38:03>> Yeah, you know, I just, I believe it was
7:38:04just a concession made, you know, to get
7:38:06to some, you know, in the spirit of
7:38:08negotiations to get to a settlement
7:38:11settlement agreement.
7:38:13>> And who would Miss O'Neal be the correct
7:38:15witness to um, explain the details of
7:38:18those concessions made?
7:38:19>> Yes, absolutely.
7:38:20>> Thank you, Mr. No further questions from
7:38:22staff.
7:38:24>> Uh, Mr. Lei, you may be excused.
7:38:27Uh, Dr. Doy, are you out there? There
7:38:31you are. Keep that hand up, sir.
7:38:34[laughter]
7:38:34Uh, do you swear to tell the truth, the
7:38:36whole truth, and nothing but the truth?
7:38:38>> I do.
7:38:39>> Put your hand down. Is anybody with you
7:38:41or communicating with you in any way?
7:38:44>> No.
7:38:45>> If that changes, will you let us know?
7:38:47>> Yes, I will. Uh, Miss McLaclin, uh, over
7:38:51to you.
7:38:53>> Um, thank you, Chair. Dr. Dulkkey, could
7:38:56you please state your name and spell it
7:38:58for the record?
7:39:00>> Yes, my name is Steven Dulkkey. SEN,
7:39:04last name D A H L K E.
7:39:08>> And by whom are you employed and in what
7:39:10capacity?
7:39:11>> I'm employed by the Colorado Public
7:39:13Utilities Commission as a senior
7:39:15economist. And did you cause what has
7:39:18been marked as hearing exhibit 405, the
7:39:21confidential and public version of the
7:39:23sta the testimony of staff witness Dr.
7:39:25Dulki?
7:39:26>> Yes, I did.
7:39:28>> And did staff enter into a comprehensive
7:39:30settlement agreement with the company
7:39:32which has been previously entered into
7:39:33evidence hearing exhibit 155?
7:39:37>> Yes, we did.
7:39:39>> And Miss O'Neal filed testimony on
7:39:41behalf of staff. Is Miss O'Neal's
7:39:43settlement testimony staff's current
7:39:44position on the issues in this
7:39:46proceeding?
7:39:47>> Yes.
7:39:48>> And is that also the current position on
7:39:50the framework for uh Comanche 3?
7:39:54>> Yes, that's staff's current position on
7:39:56the Comanche 3 framework.
7:39:58>> Dr. Doy is available for cross.
7:40:01>> Um Nelson 30 minutes.
7:40:04>> Thank you. Good afternoon, Dr. Dulki.
7:40:07I'm Michelle Singer Nelson representing
7:40:09UCA. Good to see you. Good afternoon.
7:40:12Likewise.
7:40:14>> Uh, do you understand that UCA's
7:40:16position in this case is that the
7:40:18commission should remove Comanche 3 from
7:40:21rate base or otherwise diminish the
7:40:25revenue requirement because of Comanche
7:40:283's performance issues?
7:40:32>> Yep.
7:40:33And UCA also recommends that the
7:40:36commission ensure that shareholders, not
7:40:39customers alone, bear a meaningful
7:40:42portion of the operational performance
7:40:44risk associated with Comanche 3 because
7:40:48of the performance issues.
7:40:52>> I understand that's CCA's position. Yes.
7:40:55and uh your answer testimony proposed
7:40:58cost recovery for Comanche 3 on a
7:41:02availability based cost recovery
7:41:05methodology or you um hyphen or you uh
7:41:09use the acronym CACR is that correct
7:41:13>> that's right
7:41:15>> and UCA supports your CACR cost recovery
7:41:20methodology and its answer testimony
7:41:22correct
7:41:25Uh yes.
7:41:28>> Uh the non-unanimous agreement does not
7:41:30adopt your recommendation for cost
7:41:32recovery for Comanche 3. Correct.
7:41:38It it adopts a framework that
7:41:40substantially is actually quite similar
7:41:42to to what was proposed um in my answer
7:41:46testimony with with some
7:41:49differences in in magnitude, but in
7:41:52large part it it does adopt um an
7:41:55availability based cost recovery
7:41:57framework for the parameters specified
7:42:00in the agreement. So, I don't think I
7:42:02would necessarily say that it it does
7:42:05not adopt the proposal. There's it's
7:42:07certainly different uh on some important
7:42:09parameters, but there's also many
7:42:12um characteristics of what is was
7:42:15adopted in the settlement agreement that
7:42:16was consistent with what staff proposed
7:42:18in our answer testimony.
7:42:20>> Uh the agreement permits a public
7:42:23service to receive um offsets for
7:42:26overperformance. Correct.
7:42:29>> Yes.
7:42:30Did you propose that in your cost
7:42:32recovery methodology?
7:42:36>> No, we didn't specifically propose the
7:42:38concept of offsets in our answer
7:42:40testimony. That was um part of the
7:42:43methodology that we developed alongside
7:42:46other parties through the settlement
7:42:47negotiations.
7:42:49>> Are you familiar with Miss Henry Seros
7:42:52answer testimony where she discuss
7:42:55discusses used and use
7:42:59useful as as that doctrine is used in
7:43:03ratem.
7:43:06>> I'm I'm familiar at a high level with um
7:43:08Miss Henry Seros's answer testimony. So
7:43:10yes, I do recall um to discussion along
7:43:13those lines.
7:43:15>> Would you describe the used and useful
7:43:17doctrine as one which is concerned with
7:43:20whether the plant in question is
7:43:21actually providing utility service?
7:43:27Could you repeat your question please?
7:43:29>> Sure. Would you describe the used and
7:43:32useful doctrine as one which is
7:43:36concerned with whether the plant in
7:43:38question is actually providing utility
7:43:41service?
7:43:43>> Yeah, I would think that's a relevant
7:43:45component of determining whether
7:43:46something like this asset is used as
7:43:49useful. I agree. And do you agree that
7:43:52with regard to cost recovery for
7:43:54Comanche 3 that the commission should
7:43:56consider whether it's actually providing
7:43:59service during extended outage periods?
7:44:04>> Yes, I would.
7:44:05>> And uh would you also agree that the
7:44:07commission con should consider whether
7:44:10it's delivering reliability value
7:44:13commensurate with its cost
7:44:14responsibility?
7:44:17>> Yes.
7:44:20Um, can we go to your uh answer
7:44:23testimony hearing exhibit 405 at page
7:44:2610?
7:44:34And this is I think um can you scroll up
7:44:36a little bit just to the section where
7:44:40uh the Q&A Oh, scroll down I guess. No.
7:44:43Um, page 10, line starting at line
7:44:47eight. Thanks. Okay. So, I'm just going
7:44:51to ask you a a series of questions, uh,
7:44:54Dr. Dulky, that relate to your testimony
7:44:58here. Um, and I think it might continue
7:45:00a little bit on the next page, but would
7:45:03you agree with me that Comanche Unit 3
7:45:05has experienced chronic and well
7:45:08doumented maintenance issues and
7:45:10operational problems?
7:45:13>> I would agree.
7:45:16And you quote a 22 2022 article by Kevin
7:45:20Clark entitled Poor Maintenance and
7:45:23Costly Breakdowns, the troubled history
7:45:26of Comanche Unit 3, which documented
7:45:29poor maintenance practices, costly
7:45:32equipment breakdowns, and lengthy
7:45:34outages.
7:45:38>> I did quote that article. Yes.
7:45:41Uh you also cite to a lawsuit where core
7:45:44power criticized Comanche 3 stating that
7:45:48the plant significantly underperform
7:45:50peer facilities in net output,
7:45:53availability and outage rate and will be
7:45:56retired nearly 40 years short of its
7:45:59planned production life and that PCO
7:46:02permanently damaged the generator by
7:46:04imprudently operating the plant. Did you
7:46:07quote that? I think it moves on to page
7:46:1011 where you discuss the core
7:46:13litigation.
7:46:16>> Those look like the words on the screen.
7:46:18Yep.
7:46:20>> And core was awarded more than $26
7:46:22million in that lawsuit. Correct.
7:46:27>> Looks like that's line six of the
7:46:29testimony on the screen. Yes.
7:46:32um going down to uh page starting at
7:46:36page 11, line nine, and it actually goes
7:46:39through uh page 14. Um but I'm just
7:46:44going to walk through uh a few
7:46:47additional points that you made on those
7:46:49pages and um if you need to reference
7:46:53specific lines in your testimony, just
7:46:55let me know. But uh Comanche 3's
7:46:58unavailability from 2016 to 2026 was
7:47:02approximately 68%. Correct.
7:47:09>> Um subject to check it. Sure. I'll take
7:47:12your word for it.
7:47:13>> Can you look at um lines 10 and 11 on
7:47:17your testimony?
7:47:19>> There it is. Thank you. Yep.
7:47:22>> Okay. Would you consider 68 availability
7:47:26average for a 15-year-old coal plant?
7:47:30Um, would you consider 68%
7:47:34average for a coal plant like K Comanche
7:47:383 which is only 15 years old?
7:47:42>> No, I wouldn't in terms of an average
7:47:44availability expectation. No, I I would
7:47:48not consider that um consistent with the
7:47:51average across the industry.
7:47:53Is it below average?
7:47:57>> Yes. Yeah. Particularly if you if you if
7:48:02you compare it to
7:48:04a set of the set of operating coal
7:48:06plants nationally. Um yes, it's below
7:48:09average. Um most of those coal plants
7:48:13are significantly older than Comanche 3
7:48:15by by multiple decades. Um, and if you
7:48:19compare it to a smaller peer group of of
7:48:21the smaller number of of coal plants
7:48:24that are of a similar age as to Comanche
7:48:263, it's it's um more significantly
7:48:29below average. Um, if you look at that
7:48:32kind of smaller peer group um corrected
7:48:34for relative age.
7:48:39>> Thank you. And then here on um P lines
7:48:4211 through 13, you say um that Comanche
7:48:473 was unavailable for nearly all of 2020
7:48:51as well as significant portions of 2021
7:48:55and 2022
7:48:56for turbine performance and replacement
7:48:59issues. Correct.
7:49:02>> Yes, I said that. And then you note the
7:49:05extended outage that began in August
7:49:082025, which we learned now will continue
7:49:12through at least mid August 2026.
7:49:16Correct?
7:49:17>> Yes.
7:49:20>> So this is um another year of
7:49:22unavailability, correct?
7:49:26>> Uh at least partial unavailability,
7:49:29correct?
7:49:30from August 2025 until August 2026.
7:49:36>> That's a full year. Yes.
7:49:38>> Thank you.
7:49:41>> Now, during Comanche's months and years
7:49:43of unavailability,
7:49:45rateayers have paid for Comanche's
7:49:48costs, including profit margins to the
7:49:50company and its shareholders. Correct.
7:49:54>> Yep. Yes.
7:49:56>> And you state that in your testimony.
7:50:00lines two and three.
7:50:02>> Yes.
7:50:05>> Um, in the company's JTS proceeding, the
7:50:08company's planning model assumed
7:50:10Comanche's equivalent
7:50:13availability at 76%.
7:50:16Isn't that right?
7:50:19>> Points to the line if you want me.
7:50:21>> Sure. It's page 12, lines 12 and 13.
7:50:25Yep, I see it.
7:50:29And then going on to page 14, line four,
7:50:32in your answer testimony, you propose
7:50:35cost recovery for Comanche, as we talked
7:50:38about, on an availability based cost
7:50:41recovery basis or C AR.
7:50:45>> Yes.
7:50:47>> And the formula is described on page 14,
7:50:51including the the formula at line 8. Is
7:50:54that right?
7:50:55>> Yes.
7:50:57And um
7:51:00so your recommendation in your answer
7:51:02testimony was to um calculate the
7:51:07availability factor which is the ratio
7:51:10of actual availability to the baseline
7:51:13availability expectation. Correct.
7:51:18>> Yeah. This was the proposal and answer
7:51:20testimony at that time. Correct.
7:51:23And um to determine cost recovery, you
7:51:26multiply the availability factor by the
7:51:29revenue requirement to determine the
7:51:31cost recovery for Comanche 3.
7:51:34>> I'm just going to object because as we
7:51:36stated earlier, this is no longer
7:51:38staff's position and our position has
7:51:41changed since the settlement agreement.
7:51:44>> Correct.
7:51:45>> Miss Nelson, uh any comments on that?
7:51:50>> Um sure. I don't know what the objection
7:51:51is. Are you objecting to me even asking
7:51:54these questions?
7:51:56>> Um, I'm objecting because this is no
7:51:58longer staff's position. Our position
7:52:00has since changed,
7:52:02>> right? And so the point of the
7:52:04cross-examination then is to um
7:52:08demonstrate the inconsistency between
7:52:12staff's previous testimony and its
7:52:15current position.
7:52:17>> Yeah. The uh objections overworld. Keep
7:52:19going. Miss Nelson,
7:52:21>> thank you. Can we go uh just I think if
7:52:24we can scroll up so we go further down
7:52:27on page 14, it'll it'll further describe
7:52:30There you go. further describe how the
7:52:33CACR operated.
7:52:36Um
7:52:37so you say if Comanche 3 performs as
7:52:41expected, the factor equals 1 and the
7:52:44company earns its full revenue
7:52:46requirement. Correct?
7:52:50Yeah. Yes.
7:52:54>> And if however Comanche 3 is only
7:52:56available for half of its baseline a
7:52:59availability the factor is point or 0.5
7:53:05and the company would only earn half of
7:53:07the revenue requirement attributable to
7:53:09Comanche 3. Is that correct?
7:53:14>> Yes.
7:53:17just the basic mechanics of what we
7:53:18proposed in answer testimony.
7:53:20>> Sure. Um
7:53:23and then at U exhibit or the at your
7:53:27testimony at page 19 through page 20
7:53:31line six. So I think we start at um line
7:53:36nine. on page 19
7:53:39uh the Q&A the question is how has the
7:53:42commission handled cost recovery in the
7:53:44past when a utility asset failed to
7:53:47perform reliably do you see that
7:53:50>> yes
7:53:51>> and you explained that the Fort Strain
7:53:54nuclear plant similarly had operational
7:53:57problems and FSB was a firstofits-kind
7:54:03high temperature gas cooled reactor
7:54:05techn technology. Correct.
7:54:08>> I did write that in this testimony. Yes.
7:54:11>> And then you go on to state that the
7:54:15Ford St. Frame nuclear plant can serve
7:54:18as an example of how the commission
7:54:20structured cost recovery for a plant
7:54:23with significant operational plants
7:54:26operational problem.
7:54:30I'm sorry.
7:54:32Correct.
7:54:34Correct.
7:54:38Michelle, I think you might have cut
7:54:39out. If you could repeat your question
7:54:40because I didn't Oh, sure. Here. Stephen
7:54:42might not have.
7:54:44>> You um you testify that the commission's
7:54:47handling of the cost recovery for for
7:54:50Fort St. Brain could serve as an example
7:54:53of how the commission has structured
7:54:55cost recovery for a plant with
7:54:58significant operational problems.
7:55:04Where can you remind me where I said
7:55:06that Miss Nelson?
7:55:07>> Sure. Um well in the Q the question was
7:55:12how has the commission handled cost
7:55:14recovery in the past when a utility has
7:55:16failed to perform reliably and you cite
7:55:20to Fort St. Brain in lines 11 through 12
7:55:27and then
7:55:27>> yeah I don't recall saying those words.
7:55:29Um, I was expecting this to just be
7:55:32another series of quotes to affirm, but
7:55:35I I don't think I I necessarily said the
7:55:37Fort St. Vin is an example we should
7:55:41specifically model this cost recovery
7:55:43on. It was a different plant in a
7:55:46different era. Um, I I brought it up
7:55:49because I do think there's there's
7:55:51valuable lessons um to help inform the
7:55:54appro the proposal, but there were also
7:55:58notable differences in the context um
7:56:02the context of the plant, the legal
7:56:04landscape at that time and and
7:56:07ultimately the the structure of the
7:56:08outcomes. So, I just hesitate a little
7:56:11bit to affirm
7:56:13your paraphrase, proposed paraphrasing
7:56:16of my testimony that it was an example
7:56:18we should follow. I think there's
7:56:20important caveats with that um um that
7:56:24we should keep in mind. And I think I
7:56:26think my testimony is consistent with
7:56:29with with this response.
7:56:30>> Can we go down to page 20 uh line 14?
7:56:39Uh, what lessons can we take from the
7:56:41Fort St. Fraane experience? Do you see
7:56:44that question?
7:56:45>> Yep. Um, and you respond, "The FSV
7:56:49nuclear plants history demonstrates that
7:56:51removing a troubled asset from rate
7:56:53base, providing significant customer
7:56:56refunds, and transitioning to
7:56:59alternative cost recovery are viable
7:57:02tools that the commission has approved
7:57:04in the past as part of a just and
7:57:06reasonable outcome for a large and
7:57:09commercially troubled power plant." Did
7:57:12I read that correctly? Yep, that is an
7:57:15accurate statement.
7:57:17>> Thank you. I have nothing further. Thank
7:57:19you, Dr. Dulki.
7:57:21>> Thank you.
7:57:23>> Uh thank you, Miss Nelson. Uh
7:57:26Commissioner Plank, questions for Dr.
7:57:28Dulky.
7:57:29>> I have no questions. Thanks.
7:57:32>> Uh Commissioner Gilman.
7:57:34>> Hey, Dr. Dulky. I just have a couple
7:57:36questions for you. Good afternoon.
7:57:39>> Good afternoon.
7:57:41Um I don't know if you were on earlier
7:57:43um today when I was talking with Mr.
7:57:45Hansen.
7:57:48>> I listened to most of that exchange.
7:57:50>> Okay. We were looking at some of the
7:57:52reports that have been provided um with
7:57:55regard especially to the unit 3 outage.
7:57:57They're providing monthly reports that
7:57:59show uh some of the expenses. Are you
7:58:01familiar with that?
7:58:04>> Generally, yes.
7:58:05>> Okay. I was just curious if staff has
7:58:08any insights. I understand you're not um
7:58:10the the plant operator here, [laughter]
7:58:13but in your review of these reports and
7:58:15expenses otherwise um you know, we're
7:58:17seeing um between 300 and $800,000 of
7:58:21monthly expenses reported uh for unit 3
7:58:25specifically um for fuel costs while
7:58:27it's not operational and at the same
7:58:30time um seeing zero uh fuel costs
7:58:33reported for unit 2 over the same time
7:58:36period. So, I was just curious if you
7:58:38had any insights or had looked into that
7:58:40issue at all previously.
7:58:43>> Yeah, I I'm aware of it, but
7:58:45unfortunately, Commissioner Gilman, I
7:58:46haven't looked too in depth or thought
7:58:49much in depth about that specific
7:58:52issue. Um, so I'm sorry I can't for
7:58:55anything,
7:58:56>> okay,
7:58:56>> helpful that specific beyond the
7:58:58exchange that that was already had
7:58:59earlier today.
7:59:01>> Okay. Um also you had mentioned that um
7:59:04unit 3 lags in performance especially as
7:59:08it relates to availability to um other
7:59:12coal plants kind of independent of age
7:59:14and then that um lagging of performance
7:59:19gets even more significant when compared
7:59:21to a peer group of a similar age. Does
7:59:25that accurately reflect what you had
7:59:27said before?
7:59:28>> I did say that. Yeah, just one second.
7:59:31Yeah,
7:59:31>> I was curious um if you have any data on
7:59:36that availability average or performance
7:59:39um related to the more relevant age
7:59:42group of um 12 plants.
7:59:46>> Yeah, it's um it's not something we we
7:59:51gathered formally at this point. It's
7:59:53something we probably certainly could if
7:59:55if that would be helpful in in the
7:59:57decision of this case. Just at a high
7:59:59level anecdotally and and subject to
8:00:02check um you know Comanche 3 is is about
8:00:0616 years old was commissioned roughly in
8:00:082010. Um there's there was a small wave
8:00:12of new coal plants built around this
8:00:14same time period across the United
8:00:16States give or take a few years. There
8:00:19was high gas prices in the years, you
8:00:21know, in the first decade of the 2000s
8:00:23contributing to this. Um, small wave of
8:00:27new coal plants. I would say somewhere
8:00:30between roughly five and 10 other P coal
8:00:33plants of comparable size to Comanche 3.
8:00:36Um, most of those plants are performing
8:00:40quite well as you would expect um, you
8:00:42know, newer plants to to perform at
8:00:45least mechanically speaking. Certainly
8:00:47they all they face the same policy and
8:00:49market headwinds that that um you know
8:00:51that all the plants are exposed to um
8:00:54like 90% availability or higher. Um
8:00:58there there's one other coal plant that
8:01:01popped up um in this sample that
8:01:04similarly having troubled
8:01:06performance and I don't can't give you
8:01:08the details of the technology
8:01:10similarities or vendor similarities or
8:01:12differences but I do know you know in
8:01:14terms of having multiple extended
8:01:17outages catastrophic failures of the
8:01:19equipment and so on. Um the the key
8:01:22difference is the one other plant that
8:01:24plant is in a a deregulated market. So,
8:01:27its original owner has already kind of
8:01:30um uh it it basically turned it over to
8:01:33to the banks. Um and I think it'll it um
8:01:36wrote off all the equity it had on it.
8:01:38So, in terms of regulated coal assets, I
8:01:41think command sheet kind of stands alone
8:01:42in that peer group of newer plants. Um,
8:01:46and I would just say prior to like us if
8:01:49if you wanted to cite this data in a
8:01:51testimony, um, I I think me or some
8:01:55staff member would be happy to kind of
8:01:57get it all documented and organized for
8:01:59you. I think that would be pretty thing
8:02:01to do besides just taking kind of this
8:02:03qualitative story I gave. But that's
8:02:05kind of at least at a high level my
8:02:06understanding of that particular peer
8:02:08group of cold plants.
8:02:10Yeah, I mean I I certainly think it
8:02:13would be helpful to my understanding of
8:02:15it. You know, I think one thing that is
8:02:16particularly difficult is we're being
8:02:18asked in the settlement agreement to
8:02:20look at availability factors that
8:02:22largely reference um a much larger group
8:02:26of older coal plants.
8:02:29>> Um understanding that may be a a
8:02:31difficult proxy. Um, so I think it would
8:02:35be very helpful to understand the
8:02:38relative performance of a more similar
8:02:40group of assets, especially age- wise.
8:02:44Um, so that we can better understand the
8:02:47relative nature of the performance. Um,
8:02:50so yes, you have it. I see it as useful.
8:02:55>> Yeah, sounds good. And I agree it's
8:02:58helpful context. You know, I think the
8:03:01um
8:03:02the performance level adopted or the the
8:03:05metric level adopted as the baseline in
8:03:07the settlement was
8:03:10not just like what we thought was the
8:03:13most relevant peer comparison, but it
8:03:15was a level that we felt was a
8:03:17reasonable amount for cost recovery in
8:03:20the settlement. um you know as part of
8:03:22all the other terms in the settlement
8:03:23and that for that reason you know that's
8:03:25why we felt it was um
8:03:28an okay outcome for us. Um so that's all
8:03:31just kind of part of the context um for
8:03:34our discussion here.
8:03:35>> Okay. Thank you.
8:03:38Those are my
8:03:39>> Thank you, Commissioner Gilman. Really
8:03:41just one question. I'll just ask you the
8:03:43same thing I asked Mr. Hansen. Uh, you
8:03:47know, do you have a view about what's
8:03:48going on uh with this plant? You know,
8:03:51we're heading into a summer without
8:03:53Cabin Creek and without Comanche 3.
8:03:57You know, what's causing all these
8:04:00problems? And do you believe the company
8:04:02when uh they say they're going to
8:04:04improve it or you just think there's
8:04:06enough financial incentive finally that
8:04:10uh uh you know we kind of uh align uh
8:04:15align incentives. So just any broader
8:04:18comments about what's going on and where
8:04:21we're headed.
8:04:23>> Yeah. Um so obviously I I I'm not
8:04:26operating that plant.
8:04:28>> I understand. We understand [laughter]
8:04:30>> that caveat. Um, you know, I think when
8:04:34we when we developed our proposal and
8:04:36answer testimony and evolved it as part
8:04:38of a settlement agreement, um, you you
8:04:42certainly if this incentive helps
8:04:45improve operational performance, that's
8:04:48that's a good outcome. Um, hearing the
8:04:51company kind of talk about how that's
8:04:53the primary reason for this kind of a
8:04:57cost recovery framework ring to me is
8:04:59kind of a mixed bag. Um, it it of course
8:05:03we want the plant to operate better to
8:05:05deliver value to the system and and for
8:05:07customers. Um, but as a lot of the
8:05:10questions kind of hinted at it, it's
8:05:12really the company's obligation to
8:05:14always be doing its best to maximize
8:05:17performance of the fleet. And really the
8:05:19the the motiv one of the key motivators
8:05:22for us in developing this kind of a cost
8:05:24recovery framework for this particular
8:05:26plant was was really around um improving
8:05:31the risk alignment of of the cost
8:05:34associated with it. Um
8:05:37as if the plant performs reasonably well
8:05:40going forward um you know cost recovery
8:05:43is assured. If it continues to have
8:05:45significant operational issues um this
8:05:49kind of a framework helps at least
8:05:51allocate the the
8:05:54upfront the risks and then you know
8:05:56expost the actual costs of of
8:05:58underperformance. So, you know, that
8:06:02that was our primary motivator and and
8:06:04improving availability is a secondary
8:06:06benefit if it does that. I believe the
8:06:09company when they say prior to these
8:06:11incentives, they do their best to
8:06:13operate the plant well. Um, but again,
8:06:15for us, it was really around aligning
8:06:18risks of costs um for for this plant
8:06:20going forward.
8:06:22>> Uh, that's all I have. Miss Blackline
8:06:25redirect for Mr. Dy. Dr. Doy.
8:06:28>> Thank you, Chair. just some some brief
8:06:30questions. Um, and I want to start um
8:06:34with one of the questions that
8:06:35Commissioner Gilman gave you. You
8:06:37discussed some other coal plants that
8:06:39were operating or started operating
8:06:41around the same time as Comanche 3. Some
8:06:43of them might have similar issues and
8:06:45you mentioned you could help gather this
8:06:47information. Would this best be done in
8:06:49a sim or some sort of other proceeding?
8:06:53>> I think that'd be an okay venue to
8:06:55provide this information.
8:06:58And when we you were talking to
8:07:00Missinger Nelson, she asked you about
8:07:02the offsets in the settlement agreement
8:07:04for the Comanche 3 performance
8:07:06framework. Can you please describe how
8:07:08this proposal differs from a traditional
8:07:10symmetric PIM structure?
8:07:14>> Sure. the the offsets component
8:07:18uh in particular and and the
8:07:23performance framework and the settlement
8:07:24overall
8:07:26um differs from kind of the traditional
8:07:29PIMs that we've adopted in in other
8:07:31contexts at this commission um for a few
8:07:35reasons but one of the primary ones is
8:07:38that um you know one of the key design
8:07:40features of this of the framework for
8:07:43Comanche 3 and the settlement is that
8:07:45there's no opportunity for the company
8:07:47to earn um a bonus incentive for for
8:07:51above performance or availability that
8:07:55is better than the expectation or the
8:07:56baseline. So offsets can only reduce the
8:08:02penalty um return to customers if if
8:08:06there's overperformance. So if they
8:08:08perform well that can be reduced but
8:08:10there's no opportunity to um earn
8:08:13additional revenue beyond you know the
8:08:16baseline revenue requirement. So there's
8:08:18no bonus as part of this um cost
8:08:21recovery framework and that's one of the
8:08:23key differences I think that's important
8:08:24to note for for this particular um
8:08:28framework.
8:08:30>> Thank you for that answer. And Miss
8:08:32Nelson also asked you about the used and
8:08:34useful principle. Are there any other
8:08:37risks associated with Comanche 3 if it
8:08:39doesn't operate under this performance
8:08:41framework established in the settlement
8:08:43agreement?
8:08:45>> I think so. Yeah. You know, the the
8:08:47performance framework um
8:08:50contemplates an availability or a a
8:08:53range of the proposed XOF metric um that
8:08:59that's quite wide. Um, I know UCA
8:09:02mentioned some concerns in their
8:09:05te testimony and opposition of the
8:09:07settlement,
8:09:08uh, including a hypothetical example
8:09:10that if Commander 3 were to be
8:09:13unavailable for a full year, it would
8:09:16earn, you know, the balance of of the
8:09:19revenue requirement minus the maximum
8:09:21penalty. Um, and that's like true
8:09:24mathematically of this particular
8:09:25framework, but I don't think that
8:09:29that this necessarily is the final word
8:09:32if something extraordinary like that
8:09:34were to happen. Um, if Command 3, for
8:09:37example,
8:09:38suffered another catastrophic breakdown
8:09:40of that magnitude in the few years left
8:09:43on its life, um, certainly the the
8:09:45performance framework we adopted would
8:09:48apply if approved by the commission. Um
8:09:51there's nothing in the settlement that
8:09:53prohibits
8:09:55um the commission from pursuing further
8:09:58investigations and considerations
8:10:00regarding the reasonleness of of of
8:10:03other costs or or prudency if if there's
8:10:06additional you know catastrophic events
8:10:08to commentary going forward. So so all
8:10:12that to say no. I mean, I think it it
8:10:14this is a good framework and I recommend
8:10:15the commission approve it. But if we
8:10:17continue to see, you know, if
8:10:19unfortunately something like that were
8:10:20to happen, it's not the final word um in
8:10:23our from our perspective.
8:10:25>> And if something were to happen and
8:10:27Comanche 33 required some replacement
8:10:30power, how would that be handled under
8:10:31the settlement agreement in this
8:10:33performance framework?
8:10:36Yeah, there I there's requirements to to
8:10:40model and um
8:10:43provide replacement power cost analysis.
8:10:45Um you'd have to ask Miss O'Neal for for
8:10:48more details on on kind of scenarios for
8:10:51for how that might be applied. So I'll
8:10:53punt that one to to Miss O'Neal.
8:11:02And one last question for you.
8:11:09UCA asked you about the ongoing issues
8:11:11with Comanche 3 and the availability of
8:11:13the unit from 2016 to 2026. Could you
8:11:17describe how the performance framework
8:11:18in the settlement agreement is a
8:11:20reasonable solution for the ongoing
8:11:22issues that Comanche 3 currently has?
8:11:26Yeah, I think the um I think the
8:11:28framework and the settlement is a
8:11:30reasonable outcome here on this issue.
8:11:32Um you know, it's it's an extraordinary
8:11:35and unique performance framework for it
8:11:38for one specific plant that has had
8:11:41unique operational history as we walk
8:11:43through um with miss with with um with
8:11:47the UCA um council. I I think, you know,
8:11:53um UCA council mentioned one of their
8:11:56purposes of walking through that was to
8:11:58demonstrate how our proposal answer
8:12:01testimony
8:12:03is substantially different than what we
8:12:04adopted in the settlement. And I I just
8:12:06don't think that's necessarily the case.
8:12:08I think I mentioned that with as part of
8:12:10walking through all this with her, but
8:12:12you know, the settlement agreement is is
8:12:14an availability and performancebased
8:12:16framework. um it it covers, you know,
8:12:20similar scope. We've we contemplated,
8:12:23you know, not covering the whole revenue
8:12:25requirement in in the answer testimony,
8:12:27and that's kind of what we ended up
8:12:29doing as part of the negotiation of the
8:12:31settlement. And um many of the
8:12:34components are substantively similar to
8:12:36the framework that we propose and answer
8:12:40>> and I apologize, I lied. I do have one
8:12:42more question. Um, Miss Sarah Nelson
8:12:45asked you and discussed with you that
8:12:47uh, Commander 3 is expected to return to
8:12:49service in August of 2026. I believe
8:12:52earlier there was testimony that the
8:12:54rates from this rate case are
8:12:56anticipated to go into effect at the end
8:12:58of August 2026. If Commande 3 is still
8:13:02unavailable, when rates go into effect,
8:13:04how will the settlement performance
8:13:06framework come into play?
8:13:09Yeah, if adopted as as proposed, um the
8:13:13settlement framework would uh
8:13:17it it would end up being the case that
8:13:19if Comanche 3 was not in service once um
8:13:22the rates from this proceeding went into
8:13:25effect, then it would start counting
8:13:27against its um availability metric for
8:13:29purposes of the cost recovery, you know,
8:13:31as as described in the settlement.
8:13:34>> Thank you, Dr. Doy. I have no further
8:13:36questions.
8:13:37>> Thank you. Uh thank you for joining us
8:13:40Dr. Dy you may be excused.
8:13:42>> My pleasure. Thank you.
8:13:44>> Uh Dr. Bonina.
8:13:50Hey sir. Uh can you raise your right
8:13:53hand? Do you swear to tell the truth?
8:13:54All truth and nothing but the truth.
8:13:56>> I do.
8:13:57>> Put your hand down. Is anybody with you
8:13:59or communicating with you in any way?
8:14:01>> No.
8:14:02>> If that changes, will you let us know?
8:14:04>> Yes. Uh, I guess over to you, Miss uh,
8:14:09Mccclaclin.
8:14:10>> Uh, yes, briefly, chair. Thank you. Uh,
8:14:13Dr. Boniardina, could you please state
8:14:15your name and spell it for the record?
8:14:18>> Yes. Uh, my name is Nick Boniardina. N I
8:14:22C K, last name B O N G I A R D I N A.
8:14:29>> And by whom are you employed and in what
8:14:31capacity?
8:14:32Uh, I'm employed by the Colorado Public
8:14:34Utilities Commission as an analyst.
8:14:37>> And did you cause to be filed what has
8:14:39been marked as hearing exhibit 406 Rev
8:14:421? They answer testimony of staff
8:14:43witness Dr. Boniardina.
8:14:46>> Yes.
8:14:48>> Did staff enter into a comprehensive
8:14:49settlement agreement with the company
8:14:51which has previously been entered into
8:14:52evidence as hearing exhibit 155?
8:14:55>> Yes.
8:14:56>> And Miss O'Neal was the witness that
8:14:58filed settlement testimony on that?
8:15:00>> Yes, that's right.
8:15:02Dr. Bonjerina is available for
8:15:04commissioner questions.
8:15:05>> I forget. Did there's no cross. So,
8:15:08Commissioner Plant, did you have
8:15:10questions?
8:15:10>> I do not.
8:15:12>> Commissioner Gman.
8:15:13>> Yeah, just a few. Thank you. Um, good
8:15:16afternoon, Director. Bonji and Dina.
8:15:18>> Good afternoon. Nice to see you.
8:15:20>> Um, okay. Just a few questions really
8:15:23primarily on the DCA PIM, the
8:15:25dispatchable U performance PIM. Um I was
8:15:30curious in looking [clears throat] at
8:15:32the appropriate values for the
8:15:34expectations for the plants like the
8:15:36baseline um performance.
8:15:40Did you compare anything outside
8:15:43of just the companyowned plants to look
8:15:47at like similar technology and type of
8:15:49plants um in the market more generally
8:15:52and what performance they're seeing?
8:15:55>> Yeah. So as part of the company's direct
8:15:59case and we obtained the documents
8:16:01themselves through discovery they pulled
8:16:04GA gad's data going back um a number of
8:16:07years depending on you know the age you
8:16:09know the specific units and performed
8:16:12their quartile analysis based on a
8:16:15fairly large number of uh comparable
8:16:18units for each unit type. there ended up
8:16:20being five unit kind of subtypes
8:16:23um that the company used for that
8:16:24baselining analysis to to get that kind
8:16:27of quartortile kind of histogram outlook
8:16:30on their units compared to other units
8:16:33um in the rest of the country.
8:16:35>> Okay. And that's what they're targeting
8:16:36is like the best quartortile
8:16:39comparatively to those other units as
8:16:41well.
8:16:43So what I observed in my analysis uh and
8:16:46kind of the starting point uh for my
8:16:49answer testimony was was the company
8:16:51started with that second quartile but
8:16:54kind of deviated from that in different
8:16:56ways for certain units um based on the
8:17:00company's assessment of their ability to
8:17:02perform at a higher level that their own
8:17:04the that unit's own historical
8:17:06performance. So the the comparison was
8:17:09the historical performance of those of
8:17:12of the company's units to this wider
8:17:14historical performance of other units.
8:17:17Um the the thing I disagreed with in my
8:17:20answer testimony was most of those
8:17:22deviations and even wanting to push uh
8:17:25those baselines a little higher for some
8:17:27of their better performing units so as
8:17:29to minimize the ability uh for the
8:17:32company to earn incentives on units that
8:17:34are already performing fairly well. um
8:17:37and kind of take more of that fleetwide
8:17:40look at pushing the fleet performance as
8:17:43a whole uh higher and encouraging the
8:17:45company to do so. And most of the
8:17:48baselines I proposed are ultimately uh
8:17:51what are in the settlement agreement
8:17:53with a couple exceptions.
8:17:55>> Okay. And then it looks like we're
8:17:58basically between the metrics between
8:18:01what's used in this baseline and what's
8:18:05in the ERP planning context. We've got a
8:18:08little bit of apples and oranges if I'm
8:18:10understanding correctly. So how do we
8:18:14best translate you know if there's a
8:18:16certain performance that the company is
8:18:18clearly targeting and has a disincentive
8:18:22below and an incentive above? you know,
8:18:24how do we look for consistency across
8:18:26proceedings to see is that the same
8:18:28performance that we're anticipating they
8:18:30actually achieve where we're spending
8:18:32all the money to build new generation
8:18:35looking at the expectations of the
8:18:37units. So, how good is that coordination
8:18:39now and how can we improve that
8:18:41coordination especially now that we
8:18:43would have a wider set of benchmark um
8:18:47performance expectations?
8:18:50>> That's a great question. Uh, I have not
8:18:53been involved in the ERP proceedings. I
8:18:56think this might be a better question
8:18:57for Miss O'Neal who has been involved in
8:18:59those in those proceedings, but I very
8:19:02much hear your desire to make sure we
8:19:04are comparing comparable metrics between
8:19:07these different um proceedings.
8:19:10>> Okay. Um, and then I was curious as we
8:19:13look at like the disincentives
8:19:16um, baked into the DCA, Kim, have you
8:19:20looked at all to compare that
8:19:21financially to the disincentives say a
8:19:25PPA project would face if they
8:19:27underperform in a relatively similar
8:19:32way? like looking at the ratios of
8:19:34underperformance,
8:19:36you know, how do those um financial
8:19:38disincentives compare and what the
8:19:40company would look at here versus what a
8:19:42a PPA would look look like.
8:19:46>> Yeah. So, we we didn't look at that. We
8:19:49didn't make that comparison directly.
8:19:52Something I did try to benchmark against
8:19:54in my testimony was looking at the on
8:19:57andm spending for this kind of
8:19:59collection of units that are in the PIM.
8:20:01It's a little difficult to parse out
8:20:03because the on andm spending is parsed
8:20:06out by plant not by unit. So there's,
8:20:09you know, some common costs between all
8:20:12of them. My best estimate was the
8:20:14overall on& and m for all of these units
8:20:17excluding St. Brain 7 and 8 because
8:20:20those are no those are not yet uh in
8:20:22operation was somewhere in the range of
8:20:2560 65 million. So that 10% their 10
8:20:29million cap for the whole PIM kind of
8:20:32came off as reasonable in that context
8:20:35um as a reasonable incentive against the
8:20:37the O andM budget that the company has
8:20:39in the test year.
8:20:41>> Okay. And I'm sure you've heard some of
8:20:43the concerns um probably more acute with
8:20:46the PBLO unit 3 but to some degree on
8:20:48the DCA PIM that we could see
8:20:51significantly increased on and m and
8:20:53capital spending on the units to to
8:20:56achieve this end. Um, and I'm curious,
8:20:59is there any sort of ratio
8:21:02of new spending or increased spending at
8:21:05which point it doesn't make sense to um
8:21:09be allowing in order to um increase the
8:21:14efficiency a certain degree of the
8:21:16plant?
8:21:18>> Yeah, that's that's that's a great
8:21:20question. I think part of the strategy
8:21:23of of this of these pens kind of at a
8:21:26higher level is to give give the company
8:21:31something else to balance against when
8:21:33it's making those decisions.
8:21:35I think I I agree with the general
8:21:38notion that uh they shouldn't need an
8:21:40incentive to run their units well. Uh
8:21:44but I think the evidence shows that that
8:21:46has not been the case and that's why
8:21:47we're having this conversation.
8:21:50um and providing some incentive for the
8:21:53company to better manage that on&m
8:21:56budget and you know potentially some
8:21:58measure of capital spend might go along
8:22:00with that.
8:22:02You know the goal is to to give the
8:22:05company a reason to improve the
8:22:06availability of its units which
8:22:08ultimately does benefit customers when
8:22:10they're not paying for replacement power
8:22:13cost of curtailments.
8:22:15Um there's there's benefits that we're
8:22:17down to customers that are a little hard
8:22:19to see when you just think about the
8:22:21possibility that the company might earn
8:22:22an incentive or a disincentive on an
8:22:25individual unit or at the fleet level.
8:22:27And that's really what we were trying to
8:22:29balance uh when we kind of came up with
8:22:31our counter proposal to the company's
8:22:34direct case and then ultimately the
8:22:35settlement uh agreement.
8:22:38>> Okay. But there's not like a calculation
8:22:39that attempts to look at all of the
8:22:41costs and benefits of one versus the
8:22:43other. So we can understand if we are
8:22:45still in a proper ratio of the costs
8:22:48we're spending to get the benefits.
8:22:51>> Yeah, we we didn't perform that kind of
8:22:53cost benefit and I don't know that the
8:22:56numbers in this record would even allow
8:22:59us to do that. It' be a pretty
8:23:01challenging calculation to do,
8:23:03>> right? Um and just going back to
8:23:07something you had said here and you see
8:23:08in your say in your testimony that
8:23:11essentially it would be ideal if the
8:23:14company did not need additional
8:23:16mechanisms and incentives to oper you
8:23:18know experience a good um performance
8:23:22outcomes on their plants but that does
8:23:24not appear to be the case I think was
8:23:27generally your testimony. Is that fair?
8:23:30>> Yeah that's fair. So, I guess
8:23:32considering that, you know, according to
8:23:35your testimony here, um it looks as
8:23:38though the company needs some additional
8:23:40uh financial incentive and disincentive
8:23:43to enhance the performance of the
8:23:46company-owned fleet. I I know you had
8:23:48said you're not an ERP witness, but you
8:23:51know, in the ERP, we try to look at bids
8:23:54against each other, assuming the costs
8:23:56we're looking at are the costs. And I
8:23:59think here we're hearing, yeah, but
8:24:00really you have to offer the company
8:24:03more money to get decent performance out
8:24:06of their units. So I'm trying to think
8:24:08across these proceedings if there
8:24:11actually are additional costs here to
8:24:14see good performance out of company
8:24:16owned um company owned plans. How do we
8:24:20properly factor that in in the ERP
8:24:22context where we're not necessarily
8:24:26looking at these additional, you know,
8:24:28incentives or carrots that have to be
8:24:30offered just to get good operation out
8:24:32of these units?
8:24:35>> That that's a very good question. Um I
8:24:39at at some level I think that the PIM is
8:24:41designed to be a layer of kind of
8:24:44constant rateayer protection to to give
8:24:47the company more incentive to operate
8:24:49the fleet. Well, I think we also have
8:24:52other venues through prudence reviews to
8:24:54to further look at that to look at
8:24:56replacement power costs. without you
8:24:59being an ERP witness, it's hard to say
8:25:01exactly how that might factor into ERPs
8:25:03in the future, but it might be something
8:25:06worth looking into as the, you know, we
8:25:08we continue through these ERP cycles.
8:25:11>> Okay, thanks. Those are my only
8:25:12questions. Appreciate it.
8:25:19>> I don't have any questions. Uh,
8:25:20redirect, Miss Mclacklin.
8:25:23>> Thank you, Chair. Just one question. Dr.
8:25:26on Gardina. Could you explain why staff
8:25:28is an advocate of this py?
8:25:31>> Yeah, staff's an advocate for this py
8:25:34because um kind of going back in history
8:25:37a little bit before the uh equivalent
8:25:39availability factor py efm the
8:25:42commission had a lot of concerns about
8:25:44fleet performance. that PIM went into
8:25:47effect and we saw fleet performance
8:25:48increase and then that PIM ended because
8:25:52because uh the commission at the time
8:25:55thought performance had improved and the
8:25:58company would maintain that level of
8:25:59performance and we've seen that
8:26:01performance decline ever since. So
8:26:03staff's advocating for this PIM to try
8:26:05to again kind of reinstate that
8:26:07mechanism uh to encourage the company to
8:26:10improve its unit performance again and
8:26:12all the benefits to rate payers that
8:26:13that comes with.
8:26:18It's a drag. That's where we're at.
8:26:21Uh, anything else, Miss McClacklin?
8:26:25>> That's it. Thank you, Dr. Bardina.
8:26:27>> Uh, you may be excused, sir. Um,
8:26:32I guess we'll start tomorrow with Miss
8:26:34Anste. Um, and just a heads up to the
8:26:38parties, we're going to end it for uh
8:26:40for a public comment hearing. Um
8:26:44uh and Mr. Zmer or whoever is
8:26:46representing the company, if you could
8:26:48get those exhibits out tonight,
8:26:50especially the uh um the uh one on the
8:26:54disconnects, I'd love to see that before
8:26:56I talk to Miss uh Anste. So, if you get
8:26:59that out tonight, that'd be awesome. And
8:27:01if council could get it to the
8:27:02commissioners tonight, that'd be great.
8:27:05>> Understood, Chair B.
8:27:07>> Um anything else before we break for the
8:27:10day? Uh, Mr. Po,
8:27:21>> good afternoon. Um, Fred Po for CEC. We
8:27:25had requested that Mr. Garrett get a
8:27:28date certain for tomorrow morning and
8:27:30just wanted to check in to make sure
8:27:32that's still workable.
8:27:34>> Uh, yes. Would you like to start with
8:27:36him first?
8:27:38>> That'd be great.
8:27:40Uh
8:27:43uh any objections from the parties to
8:27:45starting with Mr. Garrett?
8:27:48And uh I think it was just me and I only
8:27:51I only have like a few questions for
8:27:53him, so it'll be quick.
8:27:55>> Thank you, Chair.
8:27:57>> Uh
8:27:58Miss Van,
8:28:02>> um and we are also wondering if Mr.
8:28:04Larman could go tomorrow morning.
8:28:10Uh
8:28:15>> uh what's his uh how early does he have
8:28:18to go?
8:28:20>> Um by noon.
8:28:25>> Uh does staff uh have an objection if
8:28:29Mr. uh or the company have an objection
8:28:32if Mr. Lairman goes second? So it' be
8:28:35Garrett Lairman.
8:28:38None from the company's perspective.
8:28:40Chair Blank,
8:28:41>> that's fine with us. Thanks, chair.
8:28:44>> All right. So, we'll do uh Garrett
8:28:46Lairman.
8:28:50>> Thank you.
8:28:52>> On Steve
8:28:55and then O'Neal.
8:28:59Anything else for tonight?
8:29:03We're journ see everybody 9:00 am uh
8:29:069:00 am tomorrow. Thanks.
8:29:08>> Thank you.

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