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29:27e e
30:15good
30:16afternoon this is uh the uh Public
30:20Service Company of uh Colorado uh Gaz
30:24rate case the 24-
30:3049g uh any uh preliminary matters my
30:35understanding is we're about to put on
30:37Mr fedus
30:39frus uh um Miss Brahma PR preliminary
30:44matters we have none today uh chair
30:47blank thank you very much Mr frus is
30:49ready and uh on Zoom uh let me uh fedus
30:54or freedus sorry it's freedus freedus
30:57all right uh do uh commissioner plant
31:00commissioner Gman any preliminary uh
31:03matters before we jump in
31:05nope nothing all right
31:10um uh Mr frus can you hold up your right
31:13hand do you swear to tell the truth the
31:16whole truth and nothing but the truth
31:18yes I do you could put your hand down is
31:21anybody in the room with you or
31:22communicating with you in any way h no
31:25they're not that change is you'll let us
31:27know
31:28absolutely all right uh Miss Brahma back
31:32to you thank you uh good afternoon Mr
31:36frus could you please State and spell
31:38your full name for the record uh yes my
31:41name is Arthur frus a r t
31:45Hur f r eii t a s uh for who do you work
31:51and in what position uh I work for Excel
31:54Energy Services Company as the Director
31:56of Revenue analysis
31:59and did you cause to be uh entered into
32:02the record in this proceeding and filed
32:04um your hearing exhibit uh
32:08117 um and attachments direct testimony
32:12and 136 with attachments your rebuttal
32:14testimony uh yes I did do you have any
32:18additional corrections to your testimony
32:20today I do not with that Mr frus is
32:23available for
32:24cross-examination uh thank you Mr bunker
32:27I have UH 60
32:32Minutes uh thank you uh Mr chairman and
32:36you may recall I had some moments uh
32:39about 15 minutes left with
32:41Mr uh delich I believe it was that I
32:44transferred to Mr frus so by my count I
32:47have 75 minutes oh I gave them to uh
32:51Miss cran yesterday for Mr P but uh all
32:56right uh but it'll be a hard cut off at
32:5975 okay thank you for that right uh I
33:03will do my best if I if I have to plead
33:06for another uh couple of minutes I I I
33:09will when we get there thank you all
33:11right let's let's try we're uh we're
33:13struggling to hit the schedule so I
33:16understand I understand we'll try to
33:19make this as quick as possible won't we
33:20Mr fedus we
33:23will and it's I'm sorry it's frus
33:26correct that's correct freedus all right
33:29I'll try to uh keep that in mind thank
33:32you if we could refer to your hearing
33:35exhibit 136 this is your rebuttal
33:39testimony and if we could go to page
33:4318 and starting on line 7 through 11
33:47here you're talking about the growth in
33:50pesco's rate base
33:52correct uh what lines were those again 7
33:56to 11
34:00okay and you're talking about public
34:02services growth and rate base
34:05right just in general yes okay and is it
34:09your understanding the Colorado
34:11legislature is concerned about the
34:14growth and rate base of Colorado's
34:16regulated Gas
34:19Utilities uh well this section of my
34:22testimony I'm just making General
34:23statements about um the increase in all
34:29the people moving to Colorado and the
34:30increase in um population and
34:34development so I'm not um specifically
34:38referring to anything that the Colorado
34:41legislature uh has said or is is
34:44concerned about okay okay that's fair is
34:48it your general understanding that the
34:51Colorado legislature is concerned about
34:54growth in rate base of Colorado's regul
34:57to Gas
35:00Utilities um it's kind of a general
35:02statement is there a a document or
35:04something that you could refer me to
35:06that would uh show that statement by the
35:09legislature I'm just talking about your
35:11general knowledge uh for example the
35:14last couple of years there have been
35:16several uh House and Senate bills passed
35:19and I'm just asking your general
35:25perspective um well I
35:28don't know that I have a perspective I'm
35:31not up at the capital and and um not
35:35really paying attention to what uh comes
35:39out of the legislature in general um
35:42there's something that's specific to
35:45rate making then um that would catch my
35:49attention but General statements by the
35:51legislature I don't know that I um I can
35:54really speak to what they have or
35:56haven't said
35:58okay uh let's let's look back here at
36:01these lines on uh 7 through 11 on page
36:0518
36:07and if Public Services Gas customer
36:11count stops
36:12growing will that lead to flat or
36:15decreasing plant year-over-year
36:21um it's a little bit hard to to answer
36:24that question just based on that um
36:28hypothetical
36:29because uh changes in depreciation rates
36:33and there's lots of factors that go
36:36into um plant additions and plant
36:39retirements so um customer growth is is
36:44one of them but not the only one so I I
36:46don't know that with just that
36:48information I can really say what would
36:50happen to um rate base or gross plan
36:56service okay we we'll come back to this
36:59topic but let me uh let me ask you to
37:02look at page five of your rebuttal
37:04testimony on lines one through
37:12eight and here you indicate information
37:15regarding the company's rebuttal cost of
37:18service which includes minor corrections
37:21as well as certain updates and
37:23adjustments as compared to your initial
37:27our initial case that is one of the
37:31purposes of your rebuttal testimony
37:33right correct and at lines 4 through
37:36eight you indicate that in the rebuttal
37:39case psco agreed with recommendations
37:42from UCA and staff and the rebuttal cost
37:46of Service reflects a
37:482023 calendar year including 12 months
37:52of actual data albeit with a year-end
37:57rate base is that
37:58right that's correct okay and so to be
38:03clear the company's rebuttal cost of
38:05service and what you refer to in some
38:08places as the updated
38:112023 test
38:13year that is a historic test year or an
38:19hty ending December 31
38:232023 which includes 12 months of actual
38:28data and this compares to public Ser
38:32well let me just is that correct so far
38:36yes okay and this updated uh 2023 test
38:41year that we just talked about ending
38:44December 31
38:462023 that
38:49compares to
38:51what psco filed in its direct case which
38:56was a test year consisting of 12 months
38:59ending December 31
39:022023 but it was based on actual capital
39:06investment through September 30
39:102023 and then the last three months were
39:14forecasted Capital editions through
39:17December 31 2023 is that
39:21right um for the capital yes uh onm and
39:26revenues essentially all the other
39:29components of the revenue requirement
39:30besides Capital were based on actual
39:33data through September
39:362023 okay so all of it was in other
39:40words the first nine months were was
39:43actual data and the last three months
39:46was forecasted data whether it be on
39:50andm Capital
39:52additions uh is that right no let me let
39:56me Che TR this again so um the test year
40:00in the direct case so APF attachment
40:04apf1 was actual data through September
40:08of
40:092023 for all components of the revenue
40:12requirement and then for just Capital
40:18there was an adjustment to bring in
40:21three months of forecasted data so only
40:24capital is what had any amount of
40:26forecast in it everything else besides
40:29Capital was based on actual information
40:32through
40:34September okay thanks for that
40:37clarification uh and is it correct that
40:42while accepting UCA and staff's
40:45recommendation to use an hty ending
40:48December 31
40:512023 with 12 months of actual data in
40:55the company's rebuttal case
40:57Public Service rejected UCA and staff's
41:01recommendation to use the 13-month
41:03average rate based methodology is that
41:06right that's correct and there's a a
41:10large section of my testimony rebuttal
41:11testimony which I'm expecting will'll
41:13get to that discusses why uh my opinion
41:17is that year end is more representative
41:20for this Ray case yep we'll get there if
41:24we could uh take a look at Mr scus
41:28uh here in exhibit 500 this is Mr sco's
41:32revised answer testimony and if we could
41:35go to page
41:4340 starting at line
41:4617 and then on to page
41:5042 you will see a a or 41 rather you
41:56will see a colored uh table see that I
42:01see it yes okay and in this testimony
42:05starting uh just at the top uh or the
42:09bottom rather of page 40 on line
42:1317 uh Mr scok talks about the fact that
42:17there are numerous Revenue requirements
42:20that Pesco either presented in its
42:22direct case or provided in Discovery
42:27and that he has put together a table
42:30that summarizes that uh the various
42:34Revenue requirements and that is table
42:36CWS one do you see that I do okay so
42:41let's let's uh focus on
42:45CWS uh table CWS
42:48one
42:50and excuse me and in this I see six
42:55different Revenue requirements and other
42:58data presented by psco in its direct
43:01case and in response to UCA and staff
43:05Discovery request right yes okay and as
43:10I looked through your rebuttal testimony
43:14I could not find a reference to Mr sco's
43:18table CWS
43:20one so is it accurate to conclude you
43:23agree with the summary of the
43:25information that's in table one c table
43:29CWS
43:34one I'm just looking real quick at the
43:38uh amounts in the
43:55table uh appear to be a accurate
43:59representation of the um amounts in
44:03those test years or cost service models
44:08okay thank you for that and as reflected
44:11in this table CWS
44:13one
44:15uh well let let let me back up one one
44:18moment first uh to this uh is it your
44:22understanding that UCA witness Mr scok
44:25and staff Witness Miss
44:28gabir and I hope I pronounced it that
44:31somewhere close to being right if not
44:33I'm sorry uh each attached uh pesco's
44:38corrected response to cpuc
44:431-31 and corrected attachment
44:46cpu1 D31
44:50A2 which reflected the updated testure
44:54model with a 13-month average rate based
44:57to their respective answer testimonies
44:59is that your understanding I know that
45:03uh Miss gabir did attach both
45:08uh CPU
45:11c1311 and A2 which are the uh in in this
45:16table the the two bottom lines so the
45:192023 full hty on a 13-month average and
45:23year end uh I know that she attached
45:26those to her testimony I I can't recall
45:28if Mr scac did okay well we're talking
45:31about his testimony here so you see the
45:33reference as you just pointed out in the
45:37red line and then the uh green line
45:43or the green part of the chart at the
45:46bottom that here there's a reference to
45:51CPU C
45:541-31 and in the red it is . A1 and in
45:59the green it is uh CPU
46:031-31 A2 agree yes okay and and just to
46:09clarify for for those who might not be
46:12aware the
46:15the the attachment CPU
46:211-31
46:23A2 that is the
46:27full 2023
46:30hty using 13-month average rate based
46:33methodology right that's correct okay
46:37and we see when we look at the green uh
46:40column there and we look to the left
46:43that's what it shows in the first two
46:44columns there uh the test year and and
46:4813-month average in the second column
46:50right yes okay and then just to further
46:54clarify C attachment CPU C
46:591-31
47:01A1 that's the full
47:0420203 hty but that uses the year end
47:09method is that correct correct okay and
47:13that's what uh you and and and public
47:16service rely on in your rebuttal case is
47:20uh the version of the attachment. A1 the
47:25yearend method right
47:28correct and what staff and UCA are
47:32relying on is in the green the uh
47:37attachment CPU
47:401-31 A2 using the 13-month average right
47:45correct
47:50okay now is it your understanding that
47:54Mr Fernandez's
47:58uh attachment
48:00raf2 which is the uca's revenue
48:03requirement
48:05model that it used as its starting point
48:09pasco's corrected Discovery attachment
48:12CU
48:13CPU
48:151-31 A2 with 13-month average rate
48:20base that's my understanding yes
48:25okay and if we look at the uh the last
48:30line on the bottom of Mr sco's table CWS
48:34one the Shaded the column or the line
48:39shaded in
48:40green the updated 2023 testure model
48:44with 13-month average rate base yields a
48:48revenue deficiency in that last column
48:52of about $152 million right yes
48:59and if we
49:02could for just a moment go to your
49:06rebuttal testimony but keep this uh
49:08table handy please miss
49:10Frederico if we could go back to your
49:12rebuttal testimony at page
49:16seven on lines 12 through
49:2017 here you indicate the starting point
49:23for the rebuttal cost of service is the
49:26revenue requirement model provided in
49:30Discovery through the supplemental
49:32response to
49:33CPU uh 1-31 and specifically attachment
49:38cupc
49:401-31
49:42A1 which updates the test your model
49:45with a yearend rate base right yes so
49:49that just kind of confirms what we what
49:51we were just talking about with regard
49:54to this table in Mr sco's test testimony
49:57right yep I agree okay now if we can go
50:01back to page
50:0441 excuse me and uh table CWS
50:08one and if we look at the red shaded
50:13area in the row second from the
50:16bottom this shows the revenue deficiency
50:19using the full
50:2120123 test year with yearend rate base
50:25is about
50:27$70.2 million right yes so when we
50:33compare the revenue
50:34deficiency there in the red of
50:3817.2 million to the uh green which is
50:43the full 2023 hty using 13-month
50:48average the difference is about $18.2
50:53million between using yearend rate base
50:57versus using 13-month average rate base
51:01for the updated 2023 hty correct
51:07yes okay uh a question for you uh
51:12regarding at the top of the table and it
51:15would be the fourth
51:17column from the
51:20right and the acronym EGS on rate base
51:26and is it correct that that is earnings
51:28on rate
51:30base uh we could scroll down to the
51:33footnote 40 I think it is yes that's
51:37that's what Mr scac has indicated EGS
51:41means okay okay thank you and so the
51:45difference in earnings on rate base
51:47between
51:492023 using the updated hty with yearend
51:54rate base versus 13 month
51:57average rate base is about
52:00$16.4 million
52:04right and by that I'm looking at
52:07314.444.4444
52:18[Music]
52:26about which is labeled as earnings on
52:28rate base is
52:31um is in fact return on rate base which
52:35is different than earnings because uh
52:37the return on rate base includes the
52:41return to debt holders whereas my my as
52:45I think of earnings I think of that as
52:49the return to equity holders only I just
52:52want to make that CL clarification just
52:54so that um we're clear that I believe
52:57the back column is return on rate base
52:59as it is shown in um my Revenue
53:03requirement models okay that's a that's
53:06a helpful
53:08clarification and and so the difference
53:10of 18.2 million versus the uh
53:16$16.4 million here in this uh return on
53:20rate base column was about $1.8 million
53:23right
53:27uh I'm sorry could you repeat that kind
53:28of lost sure I'm I'm looking at the
53:31revenue deficiency in the far right
53:3517.2 versus
53:38152 and that difference is about $18.2
53:41million right yes and then what we just
53:45talked about this being return on rate
53:47base the uh the difference uh or the
53:52solution there the sum is about 16 .4
53:57million so the difference between those
54:00two uh sums is about $1.8 million agree
54:05yes okay
54:07so what is the overall
54:11difference uh or what what is the
54:14remainder difference of $1.8 million if
54:18it's not due to earnings what would that
54:21be uh that would be the second to the
54:24column second to the right which is base
54:26rate
54:27Revenue um the well sorry that's the
54:32revenue requirement um the column that
54:34is that is not or the amount that is not
54:37shown that is accounting for that
54:38difference is um base rate revenues so
54:43Revenue at present rates um the revenue
54:47deficiency is defined as the revenue
54:50requirement which is shown in the column
54:53second to the right minus Revenue at
54:56present rates that column is not shown
54:58on this table but that column would
55:01would be the difference between the um
55:05return on rate base amounts and the
55:07revenue deficiency
55:10amounts okay and as we just uh went
55:14through this we we came up with a a
55:19uh or let me ask you this uh let's go to
55:22your rebuttal testimony on page 20
55:29and at lines 18 to9 on the bottom of the
55:33page here you indicate the impact apply
55:37of applying average rate base instead of
55:39yearend rate base is approximately $1 18
55:42million right
55:45correct and as it relates to the rates
55:48to be paid by rate payers a commission
55:51decision to use the 13-month average
55:54rate base method rather than the year
55:57end rate based method is a decision
56:01point with a value of approximately $1
56:0318 million in this proceeding is that
56:06right that's
56:08correct and this $18 million and less
56:12Revenue would incrementally affect the
56:15affordability of Public Services gas
56:18service to its rate payers is that
56:21correct objection vague as to the
56:23definition of affordability
56:26overed I'll let the uh witness
56:32answer I'm not not
56:34sure how you're defining affordability
56:38um I don't discuss affordability at all
56:41in my testimony so um I'm not quite sure
56:45how
56:45to to quantify that that
56:52measure would you would you agree that
56:55if
56:58the charge to ratee payers is $18
57:00million less that would that would be a
57:04benefit to
57:07customers I'm just this is outside the
57:09scope of Mr Fred's
57:12testimony
57:14I uh Overworld he can
57:20answer um not I would say not
57:23necessarily um the
57:26the price that uh customers get charged
57:31would be less but um that doesn't take
57:33into account the value that they receive
57:36for what they're buying which in my in
57:40my uh opinion is is part of what
57:44constitutes
57:47benefit okay let's move on uh if we can
57:51go to your page 11 of your rebuttal
57:54testimony uh here you indicate pesco's
57:58rebuttal case using what you refer to as
58:01the updated 2023 test year is
58:05approximately
58:10$69.69 is that right that's
58:15correct and if we could go back to Mr
58:19sco's uh
58:22table on page 41 and uh
58:27the third row from the
58:35top let me
58:40see the third row from the top for the
58:43revenue deficiency this was the direct
58:47case filed by uh Public Service the year
58:51using the yearend uh proposal or year
58:54end rate based method that Revenue
58:56deficiency was
58:59$170.7 Million right that's
59:03correct and and so the rebuttal
59:06case only reduced the company's Revenue
59:09requirement and revenue deficiency uh
59:12request in this proceeding by about
59:16$1.1 million is that
59:20right uh it's about right
59:23yeah okay
59:28okay let's uh go back to your let's go
59:32back to your rebuttal testimony at page
59:4017 and on wines 10 through 13 here you
59:44argue the decisions that a this is about
59:47rate based
59:48methodology and here you argue the
59:51decisions that establish the Criterion
59:54for when it is appropriate to use year
59:56end rate base are decades old is that
1:00:00correct
1:00:02yes and in these same lines on uh
1:00:07particularly 12 through 13 on page 17
1:00:12here you criticize that staff and UCA
1:00:15selectively point to decisions from the
1:00:18last 10 years to support their argument
1:00:21for average rate base is that correct
1:00:24yes okay let's go to the next page uh
1:00:28page
1:00:3018 and with that
1:00:33criticism about the last 10 years in
1:00:37mind I'd like you to refer to your
1:00:40question on lines
1:00:4218 on page 18 lines 4 through five where
1:00:46you say please summarize the conditions
1:00:48in which public service is currently
1:00:51operating is that right yes and then
1:00:55under that uh question there are four
1:00:59subsequent paragraphs starting at 18
1:01:02page 18 line
1:01:056-19 line 8 and here you discuss pesco's
1:01:10current operating conditions
1:01:12right
1:01:14yes now again with the in mind the
1:01:19criticism about the last 10 years which
1:01:23you which you uh referred
1:01:26to regarding staff and
1:01:29UCA here on wine
1:01:33six you start the uh your answer with
1:01:37over the last 10
1:01:39years and then you discuss Colorado's
1:01:42dramatic increase in population that's
1:01:44contributed to growth in rate base and
1:01:46requests for gas
1:01:48service and the need to make
1:01:52investments and that over that same
1:01:5410year period in interest rates and
1:01:56inflation have remained low is that
1:01:59right yes then in the next paragraph uh
1:02:04starting on line
1:02:0612 here you
1:02:08say uh more
1:02:11recently and then you discuss economic
1:02:13and policy conditions that have changed
1:02:17substantially and you indicate interest
1:02:19rates and inflation rates are
1:02:20substantially higher than what was
1:02:23experienced over the past 10 years is
1:02:26that right
1:02:28yes and then if we go to the next
1:02:31paragraph on uh line 16 and
1:02:3417 here you say in addition to the
1:02:37state's policy
1:02:39goals have shifted to encourage
1:02:42electrification and reduce the growth in
1:02:44gas system and is it correct to conclude
1:02:48this statement also focuses on the
1:02:51period over the last 10 years would that
1:02:54be would that be a correct
1:02:56uh
1:02:57conclusion uh no that statement starting
1:03:01on line 16 is more referring to um
1:03:05what's happened more recently with State
1:03:08policy uh goals shifting going into the
1:03:12future to encourage uh
1:03:16electrification that hadn't really
1:03:18happened over those past 10 years but
1:03:20that's more
1:03:22starting more recently and going forward
1:03:27okay so uh when I started this
1:03:30cross-examination with you I asked you
1:03:33about
1:03:35the your view on is it your
1:03:38understanding that the col Colorado leg
1:03:41legislator is concerned about the growth
1:03:43in rate base of Colorado's regulated Gas
1:03:46Utilities but here on page 18 starting
1:03:49at line 16 you're talking about State
1:03:52policy goals
1:03:54right as it pertains to uh climate
1:04:00control or climate change control and
1:04:03electrification
1:04:05okay
1:04:07so after criticizing uh staff and UCA
1:04:11for looking to the last 10 years to
1:04:13support their argument for average rate
1:04:16base you then rely on two
1:04:21decisions from uh
1:04:231974 and 19 75 in your rebuttal
1:04:28testimony starting at page
1:04:3031 on line 7 is that
1:04:39right uh so in this section of my
1:04:42testimony I provide the uh a little bit
1:04:46of background on um how the commission
1:04:50has uh historically thought about
1:04:54earnings attrition in the cont text of
1:04:56whether to um approve a year end versus
1:04:59average rate base and um based on the uh
1:05:06the decisions that I looked at which
1:05:08were basically all of them
1:05:11from the last rate case through this one
1:05:14these two decisions appeared to provide
1:05:17the
1:05:19uh the most information on context in
1:05:23terms of how commissions have torically
1:05:26thought about uh year end rate base and
1:05:29the
1:05:31conditions when that is appropriate to
1:05:34approve your end rate base so I'm not
1:05:36specifically relying on these two
1:05:41decisions more these are the two
1:05:43decisions that seem to uh provide the
1:05:45most information about how the
1:05:47commission has historically thought
1:05:48about average versus year rate
1:05:52base uh do you happen to know how the
1:05:54commission ruled on the 13-month average
1:05:57versus the yearend rate base issue prior
1:06:01to the 1974 decision that you site I do
1:06:09not and would you agree that if the
1:06:12commission consistently approved a
1:06:1413-month average prior to the 1974
1:06:17decision that you site and rely on would
1:06:20you agree that the history before 1974
1:06:24is just as relevant to the rate based
1:06:26method discussion as are the 1974 and 75
1:06:32decisions
1:06:33um I I
1:06:35think the point of my this section of my
1:06:38testimony was not to recite what the
1:06:42commission did but more to give the
1:06:44context of why they did what they did
1:06:46back then um and so I guess I would
1:06:50answer that question to say um to the
1:06:53extent that those decisions provide Ed
1:06:56uh more context to the to answer the
1:07:01question of why and to explain the
1:07:04conditions the economic conditions that
1:07:06existed at the time and uh why those
1:07:12conditions Justified or didn't justify
1:07:14year end rate base I think that would be
1:07:16helpful but simply just saying well the
1:07:18commission did this back in
1:07:211965 doesn't really provide me with much
1:07:24information because it lacks the context
1:07:26of what was going on at that point in
1:07:28time okay so you did not attach either
1:07:32of these decisions to your rebuttal
1:07:33testimony is that right uh I did
1:07:37not and when the UCA asked you to
1:07:40produce these two decisions and
1:07:43Discovery uh psco did not provide them
1:07:47and
1:07:47instead uh directed UCA to go to the
1:07:51pu's Google Drive and find these public
1:07:54documents themselves is that
1:07:57right uh these were publicly available
1:08:00documents that were uh equally available
1:08:04to both public service and uh UCA okay
1:08:08let's pull up here in exhibit 549
1:08:11please out a box
1:08:26and you will see that this document is
1:08:28pu's response to UCA Discovery request
1:08:32number
1:08:3536-13 and I direct your attention Mr F
1:08:38fedus frus I'm sorry
1:08:41frus sorry about that to the bottom of
1:08:44the page and you are listed as the
1:08:46sponsor of this discovery response
1:08:48correct yes I'd move to admit UCA
1:08:52hearing exhibit
1:08:54549 h no objection so
1:09:00admitted okay thank you uh so we see in
1:09:05the response there that you you indicate
1:09:10the decision can be publicly
1:09:12found from the decision volumes link on
1:09:16the public utilities website at De
1:09:19decision volumes DG gooogle drive right
1:09:23yes
1:09:26and so Mr F frus I will represent to you
1:09:29that UCA followed your uh
1:09:33instructions and I'd like uh the court
1:09:35or um Miss uh freder Rico to pull up UCA
1:09:40hearing exhibit 548 please
1:09:56and I will represent to you that this is
1:10:00the Colorado pu decision number
1:10:0485724 in investigation and suspension or
1:10:08ins docket
1:10:11868 and it's dated 24 uh September 24
1:10:161974 do you see that at the top there
1:10:20yes and I will represent to you that
1:10:23this and we can scroll through it but I
1:10:25will represent to you first this is a 56
1:10:28page PDF
1:10:30document that consists of decision
1:10:34number 8
1:10:3685724 and its
1:10:38appendices which are Pages 1 through 38
1:10:41of the
1:10:43PDF the Arata to the uh decision
1:10:4885724 pages 39 and 40 of the
1:10:52PDF The Descent of commission Henry
1:10:57zarlingo to decision 85724 at Pages 41
1:11:02to 45 of the
1:11:04PDF and then appendix a to The Descent
1:11:08of commissioner
1:11:09zarlingo which in turn is a further
1:11:12descent by commissioner
1:11:15zarlingo to
1:11:18decision uh let's see and that is uh
1:11:21Pages 46 to
1:11:2356 so that
1:11:26is that is the entire 56 page
1:11:35document now let me ask you a a a a
1:11:39question
1:11:43regarding something you you state on
1:11:46page 31 of your rebuttal
1:11:50testimony and and here on
1:11:55page 31 starting at line 8 you you
1:11:59discuss this uh decision number
1:12:0385724 and then you have several
1:12:07quotes starting on lines
1:12:11of you indicate this is where the quotes
1:12:14coming from on line nine and then the
1:12:17quotes um on 11 through
1:12:2013 on down through the bottom of the
1:12:24page and on to uh 32 page 32 line 14 is
1:12:29that
1:12:30right
1:12:32yes and would you agree that given there
1:12:35was a desent to decision
1:12:3985724 that this decision you cited was a
1:12:43non-unanimous
1:12:49decision
1:12:51um I guess that would that would uh
1:12:55would be what a descent would
1:12:58indicate okay thank you uh I would move
1:13:03to admit UCA hearing exhibit
1:13:05548 via administrative notice under rule
1:13:111501c
1:13:12pra I have no objection to um the
1:13:16concept again though I just would like
1:13:18to have the opportunity to make sure
1:13:19that it's a complete
1:13:22document uh let's admit it uh subject to
1:13:26a review by Miss Brahma and if we don't
1:13:29hear from you we'll assume it's good if
1:13:31we do we'll take it up then thank you
1:13:35thanks uh thank you if we could move to
1:13:38page 11 of hearing exhibit 548
1:13:57and you will see at the top of the page
1:14:01there are some some numbered lines 8
1:14:04through
1:14:0613 and what I want to focus on is under
1:14:10the numbered line 13 the second
1:14:13paragraph below it it's the paragraph
1:14:16that states for those familiar with the
1:14:18past commission
1:14:20policy do you see that line Y okay and
1:14:25and here you'll note that the commission
1:14:27States for those familiar with past
1:14:30commission policy it will be noted that
1:14:33today we have departed from past
1:14:35commission policy in two significant
1:14:39respects that is the adoption of a year
1:14:42end rather than average rate do you see
1:14:46that I do or that's average rate base
1:14:50I'm sorry I cut off the last word rate
1:14:53base and uh did I read that correctly
1:14:56you did okay and as we talked as we
1:14:59started this is a decision that's dated
1:15:03September 24
1:15:051974 is that right
1:15:08yes so given the commission's statement
1:15:11that it was departing from past
1:15:14commission policy to adopt a yearend
1:15:17rather than an average rate base would
1:15:20you agree that prior to September 24
1:15:231974
1:15:25the commission's
1:15:27policy was to approve the average rate
1:15:30base method in rate
1:15:33cases I would agree that at least for
1:15:37the case before this one that uh rate
1:15:42base was uh average rate base was likely
1:15:45approved um and then in the next
1:15:48paragraph the commission goes on to
1:15:50explain why and the next two paragraphs
1:15:53which the ones that I cited goes on to
1:15:55explain why the commission departed from
1:15:59its decision in the last in the case
1:16:01prior to this one yes and we will get
1:16:04there thank
1:16:06you uh would you agree that the
1:16:08commission's history on this rate base
1:16:11method issued prior to September 24
1:16:151974 is just as relevant as your
1:16:19citations to the 1974 and 1975 decisions
1:16:24in considering the commission's history
1:16:26on this issue I'll object just because
1:16:29this question has already been asked and
1:16:31answered Mr bunker you want to rephrase
1:16:34a little sure let's uh let's let's just
1:16:38let's just move on to the next
1:16:41uh question I have which is the third
1:16:46paragraph here on this page the middle
1:16:49of the page it's the short two line
1:16:51sentence and here it says with respect
1:16:53to year- end rate base
1:16:55the economic conditions of attrition
1:16:58inflation and growth lead us to conclude
1:17:01that it should be adopted is that right
1:17:04you read that correctly yes yeah and
1:17:07would you agree the commission did not
1:17:09use the word or but instead use the word
1:17:14and for these three economic
1:17:17conditions uh the word and is in there
1:17:20yes okay thank
1:17:23you and if we could go to the uh page
1:17:2812 the third
1:17:32paragraph third full paragraph uh which
1:17:36is about the middle of the page it
1:17:38starts with the word accordingly do you
1:17:39see that yes on page 12 and it reads
1:17:44accordingly we find and conclude that
1:17:46the threefold factors of attrition
1:17:49inflation and growth more than justify
1:17:53and indeed mandate the use of year end
1:17:56rate base in this proceeding is that
1:17:59right that's that says yes
1:18:03yeah and with respect to the inflation
1:18:08Factor uh mentioned here in hearing
1:18:11exhibit
1:18:13548 do you agree that just
1:18:16today the Bureau of Labor Statistics
1:18:20reported that the Consumer Price Index
1:18:22for August increased
1:18:260.2% for the
1:18:28month which was in line with the Dow
1:18:31Jones
1:18:32consensus and that inflation in August
1:18:35declined to its lowest level since
1:18:37February
1:18:402021 I have not looked at uh the
1:18:44financial news this morning so I I don't
1:18:47know what has been
1:18:49reported so you have you have not looked
1:18:52at any any news regarding the inflation
1:18:55report that was released today I have
1:18:58not
1:19:00[Music]
1:19:02okay let's go to Mr
1:19:09sco's answer
1:19:14testimony attachment
1:19:17CWS 29
1:19:30and here you will see that this is
1:19:33a uh I will represent to you that it is
1:19:37an excerpt from Mr sco's
1:19:41testimony in the two
1:19:432017 Public Service Gas rate case and if
1:19:48you go to page
1:19:51two you will see that here his
1:19:55discussion is regarding average versus
1:19:58yearend rate base for the 2016 HT do you
1:20:02see that I
1:20:05do and if we could go to page four of
1:20:09this PDF
1:20:14document and you see here on lines 4
1:20:18through
1:20:2212 here Mr skok discusses the
1:20:261974 rate case that we were just talking
1:20:29about in hearing exhibit
1:20:33548 and he States the specific starting
1:20:37on line five the specific context of the
1:20:411974 case was there was rampant double
1:20:44digit
1:20:46inflation and Pesco electric was
1:20:48installing pollution control equipment
1:20:51on generating
1:20:53stations which wouldn't which would not
1:20:56produce Associated offsetting
1:20:58incremental sales revenue did I read
1:21:01that right yes
1:21:07okay do you have any reason to dispute
1:21:10that discussion by Mr scoach there
1:21:13regarding the
1:21:141974 uh case and the specific context of
1:21:18the
1:21:19case I will note that um the order that
1:21:24we been talking
1:21:25about uh doesn't talk about rampant
1:21:29inflation um it talks about inflation
1:21:33okay I I I don't know that I um agree or
1:21:40disagree with this
1:21:44uh his
1:21:46characterization but I I will note that
1:21:50um rampant double digit inflation does
1:21:53not appear in that
1:21:55uh
1:21:56order okay let's go to Mr sko's answer
1:22:00testimony in this case which is hearing
1:22:02exhibit
1:22:04500 and on page 71 at lines 1 through
1:22:127 and in footnote 92 he he uh States
1:22:17he's quoting from the commission's
1:22:202019
1:22:21decision in public services 20 2017 rate
1:22:26case and as you can see at the top of
1:22:28the page there on lines 3 through five
1:22:31and it's highlighted in in bold in that
1:22:34test in his
1:22:35testimony the commission notes its
1:22:38historic Reliance on these three factors
1:22:41earnings attrition inflation and Capital
1:22:45Growth see that I do okay so would you
1:22:50agree that with respect to the
1:22:52historical use of certain factors which
1:22:54have been enumerated as attrition
1:22:57inflation and Capital
1:23:00Growth that as recently as the
1:23:032019
1:23:05decision in the 2017 rate case the
1:23:10commission indicated these three factors
1:23:13should be present to support the use of
1:23:16your end rate
1:23:18base uh I do agree actually and my uh
1:23:23rebuttal testimony goes on to uh talk
1:23:27about the evidence that has been
1:23:29presented in this case for attrition
1:23:32inflation and Capital Growth so um I do
1:23:36I agree that those are the conditions
1:23:38that the commission historically has
1:23:39looked
1:23:40at okay thank you now if we could go
1:23:43back to hearing exhibit 548 and this is
1:23:46the decision from
1:23:492017 or U I'm sorry 1974
1:23:55and if we could go to page 43
1:24:13please and I see you're there thank
1:24:18you
1:24:20and this is from the uh
1:24:26of commissioner
1:24:29zarlingo and if we actually scroll up if
1:24:33we could for just a
1:24:40moment we uh we we see that um starting
1:24:45on page
1:24:5141 at the top there you'll see that the
1:24:54words I respectfully
1:24:57disent and uh it it then shows a
1:25:04uh a signature
1:25:08block by Commissioners Z lingo on page
1:25:1345 so I just want to make it clear that
1:25:16this is Commissioners
1:25:19zarlingo um
1:25:23descent to to the decision okay so if we
1:25:27could now go back to page
1:25:3543 and you will
1:25:39see let me see if I can easily uh easily
1:25:43spot uh what we where I want to focus
1:25:46your attention and that is under the
1:25:49Roman numeral three on the bottom half
1:25:52of the page
1:25:56commissioner zarlingo States the
1:25:58commission has shifted from the use of
1:26:01an average rate
1:26:03base in parentheses only so recently as
1:26:07February 23
1:26:101973 decision 8241
1:26:13one established and determined by the
1:26:17commission to be proper and legal base
1:26:21for determining rates to a year-end rate
1:26:24base apparently to suit its
1:26:28purposes as the reason for justifying
1:26:31this change remains vague and is
1:26:34unsupported by any competent and factual
1:26:38evidence and I I realize that uh appears
1:26:42to me there's a word or two missing here
1:26:44and there but did I read that
1:26:46correctly yes
1:26:50okay all right thank you uh let's go to
1:26:55your rebuttal
1:26:59testimony that's here in exhibit
1:27:02136 and let's go to page
1:27:1117 and on lines 8 through 10 here you
1:27:16indicate parties of argued that
1:27:18regulatory lag is beneficial to
1:27:21customers and that special circumstances
1:27:24need to exist in order for year-end rate
1:27:26base to be appropriate is that
1:27:29right yes that's what it says okay and
1:27:33so let's let's break this sentence down
1:27:35if we could into two separate issues the
1:27:37first is regulatory lag and the second
1:27:40special circumstances okay
1:27:44okay uh do you agree that regulatory lag
1:27:48is beneficial to
1:27:51customers to a certain point
1:27:54but then too much lag um as I mentioned
1:27:58in both my direct and reel testimony
1:28:01that too much regulatory lag um can make
1:28:05it essentially impossible for a utility
1:28:07to earn its authorized
1:28:12return okay and if we turn to page 22 on
1:28:16lines 3 to
1:28:18five here you say
1:28:23uh or argue that regulatory lag is not
1:28:27an
1:28:28incentive to control costs if the costs
1:28:31are beyond the company's control is that
1:28:34correct it's not the strong
1:28:36incentive okay and what evidence are you
1:28:41aware of that public service is placed
1:28:43in the evidentiary record that would
1:28:45support an argument that its costs are
1:28:47beyond the company's
1:28:51control well as I mentioned uh later in
1:28:54my rebuttal
1:28:55testimony
1:28:57um any improve or any Investments
1:29:01necessary for uh meeting requirements
1:29:04around safety and
1:29:07integrity as you know in order to comply
1:29:09with um any federal or state
1:29:14regulations uh you know Mr Gardner talks
1:29:17about those
1:29:18Investments um any Investments incurred
1:29:23to uh meet customers requests for
1:29:26service we have an obligation to serve
1:29:29that's that's uh what I was referring to
1:29:32in this part of my testimony okay we
1:29:36could go to page 18 of your rebuttal at
1:29:38lines 18 through
1:29:4120 here you state the infl inflationary
1:29:44economic environment is making it harder
1:29:47than ever to control costs when many of
1:29:50the increased costs are simply beyond
1:29:52the company's control is that right
1:29:55which P which lines were those again uh
1:29:5818 page 18 and starting at a line uh at
1:30:03line
1:30:0517 through
1:30:0919 yes I see
1:30:11it okay and as I I just asked you
1:30:16earlier if you were aware of today's
1:30:18news that the uh Bureau of Labor and
1:30:22statistics indicated
1:30:24that uh the inflation rate was was
1:30:27coming down you indicated you had not
1:30:30looked at the financial news today is
1:30:32that right
1:30:33correct would you generally agree that
1:30:37the US inflation rate is coming
1:30:42down uh that is my understanding
1:30:45compared to uh the rates that we saw the
1:30:51inflation rates that we saw uh after the
1:30:54pandemic
1:30:55lockdowns they they've reduced they've
1:30:57come down since then okay uh do you
1:31:02agree that based on the financial news
1:31:05you've read that the first that the US
1:31:09inflation rate is coming down and and
1:31:12therefore it's widely reported the
1:31:15Federal
1:31:16Reserve will begin lowering interest
1:31:19rates during its September 17 and 18
1:31:22meeting this next week would you you
1:31:24generally agree with
1:31:25that um I do not know what the Federal
1:31:28Reserve is going to do if I had that
1:31:31information I certainly wouldn't be
1:31:32sitting here um well would you agree
1:31:35it's widely reported that it's likely
1:31:38that uh the interest rates are going to
1:31:40be lowered by the Federal Reserve next
1:31:44week I would say the market is expecting
1:31:47the FED to act in that manner whether
1:31:49they do or not is yet to be
1:31:52seen okay that's that's certainly Fair
1:31:55Let's uh let's move on to the second
1:31:59part of your uh sentence there on page
1:32:0417 at lines 8 through1 and here uh you
1:32:09indicate special circumstances need to
1:32:13exist in order for year end rate base to
1:32:15be appropriate is that right uh just to
1:32:18clarify that is what parties have argued
1:32:21not what I am arguing
1:32:24uh do do you agree special circumstances
1:32:27need to exist or do you disagree with
1:32:30that um so that sentence that starts at
1:32:35line eight uh parties have argued so I
1:32:39basically summarizing what parties have
1:32:42argued that um regulatory lag is
1:32:45beneficial and that uh special
1:32:48circumstances need to exist that's what
1:32:50the parties have argued that that's what
1:32:52that sentence is is saying
1:32:55right and I ask you if uh do you agree
1:32:59special circumstances need to exist in
1:33:02order for year in rate base to be
1:33:06appropriate
1:33:07uh the rest of my section of my testim
1:33:11then goes on to uh present my arguments
1:33:14that um based on the decisions that
1:33:18we've been looking at and talking about
1:33:21uh the circumstances of attrition infl
1:33:24growth attrition and inflation are uh
1:33:28the conditions to look at um so if you
1:33:32want to call those special um you can
1:33:36but though that is what my testimony
1:33:38goes on to to state is that uh the
1:33:41commission has historically looked at
1:33:42those three factors and I present uh the
1:33:46argument that those
1:33:48factors uh are present in this case and
1:33:53uh try to summarize the information that
1:33:54has been presented in this case for
1:33:57those factors for the existence of those
1:34:00factors okay if we could turn to uh Mr
1:34:05sco's answer
1:34:07testimony that's a hearing exhibit 500
1:34:10and specifically attachment CWS -27
1:34:31and if we could scroll to the bottom of
1:34:34page
1:34:39two you are the sponsor of Public
1:34:43Services response to
1:34:45CPU Discovery request 2- 13 correct yes
1:34:51okay and if we could
1:34:55uh look at sub paragraph C here on page
1:35:01two in this discovery response you admit
1:35:06that regulatory lag is not the only
1:35:10factor that may contribute to under
1:35:12earning is that right
1:35:15yes and in subparagraph D of the
1:35:19response to CPU 2-13 here you
1:35:22acknowledge
1:35:24psco has not conducted any analysis to
1:35:27identify and quantify the specific
1:35:30causes of earnings attrition is that
1:35:33right
1:35:37yes and if we could go back
1:35:40to your rebuttal
1:35:47testimony at page 37
1:35:50please lines 4-9
1:36:00heing your rebuttal testimony you
1:36:03continue to argue the existence of
1:36:05earning nutrition between 2015 to
1:36:102022 is that
1:36:12right I'm pointing out that in my direct
1:36:14testimony I provide a table that
1:36:16compared the uh actual to authorized
1:36:19Roes for that
1:36:20TIY okay and your argu the existence of
1:36:25that earning nutrition between
1:36:282015 and
1:36:312022 due to regulatory
1:36:34lag justifies the use of year end rate
1:36:37base is that
1:36:40right I am pointing out in this section
1:36:42of my testimony that um based on one of
1:36:47the three uh components that that
1:36:52commission decision from 197 before that
1:36:53we've been talking about mentioned
1:36:56attrition and I am summarizing in this
1:36:59section of my testimony that um that
1:37:02evidence was in my direct testimony that
1:37:04showed that Pesco has been under earning
1:37:07over that period okay and if we could uh
1:37:11Focus here on lines 14 and 15 on page
1:37:1537 here you dispute the staff and UCA
1:37:19arguments that the level of under
1:37:20earning by psco gas is not high enough
1:37:23to prove attrition is that
1:37:26right that was staff and uca's
1:37:29arguments you and you disagree with that
1:37:32right I disagree with the
1:37:36um the argument that there is some
1:37:41minimum level of under earning that is
1:37:44required
1:37:47to constitute attrition um I did not see
1:37:52anything in those orders
1:37:54that uh we have talked about that
1:37:57mention any kind of a threshold or
1:38:00minimum level merely that the utility
1:38:03was under earning it's authorized uh Roe
1:38:06okay and in fact on lnes 15 through 17
1:38:11here you indicate nothing in the
1:38:13commission decisions I quoted requires a
1:38:16specific threshold of under earning to
1:38:18be achieved before TR is found is that
1:38:21right yes so the converse of that
1:38:25statement is that Pesco cannot point to
1:38:28a specific threshold of under earnings
1:38:32that does support an attrition finding
1:38:34is that also
1:38:36correct uh I think I might have lost you
1:38:39on that question can you okay so I I'll
1:38:43repeat it and I'll try to make it a
1:38:46little more concise so the converse of
1:38:49this statement is that Pesco cannot
1:38:52point to a specific threshold of under
1:38:56earnings that supports an attrition
1:38:59finding is that
1:39:03correct uh this sentence says that um in
1:39:08the decisions that I reviewed the one
1:39:11from
1:39:121974 I did not see any mention of any
1:39:16kind of a threshold that was necessary
1:39:18in order for attrition to be to exist
1:39:23okay I I I'll move on let's go to page
1:39:25eight please of your rebuttal
1:39:29testimony and here at line 17 through
1:39:3523 uh your testimony regards the
1:39:39reinsertion of certain investor relation
1:39:44expenses is that right it's a correction
1:39:47that was made in the uh in the rotal
1:39:50cost of service yes okay uh you do not
1:39:54provide the amount of this reinsertion
1:39:57in your rebuttal testimony is that right
1:40:01uh it appears on attachment apf1 one uh
1:40:0513617 rebuttal cost of service schedule
1:40:09one
1:40:10apf1 1202 lines 424 through
1:40:17429 and
1:40:21518 what is the amount of this uh of
1:40:25this reinserted amount for investor
1:40:27relations
1:40:34expenses one moment
1:40:45please if you look on uh hearing exhibit
1:40:50136 which is attachment apfc
1:40:5316 uh page two line one the uh Revenue
1:40:59requirement impact of this adjustment is
1:41:08$142,700
1:41:1276069
1:41:19$69 and you reinserted this amount of
1:41:26$142,000 based on your determination
1:41:30that this amount was for expenses that
1:41:32were not prohibited is that
1:41:35correct uh they are uh expenses that are
1:41:40uh necessary to
1:41:42incur
1:41:44by due to the nature of uh Excel Energy
1:41:48being a publicly traded company and so
1:41:50it's things like um
1:41:54uh listing fees to be listed on the
1:41:56stock exchange and other uh costs to
1:42:01comply with regulatory
1:42:03requirements and and those are
1:42:06um just necessary costs that the company
1:42:12incurs and what was the basis for your
1:42:16determination that this
1:42:19$142,000 amount was not prohibited in
1:42:21other words did you look at a Colorado
1:42:26statute did you look at a commission
1:42:30decision what what did you look at to
1:42:31make that
1:42:34determination uh those
1:42:37in those are um more compliance costs if
1:42:41you will rather than uh investor
1:42:45relations meaning and as I understand
1:42:48investor relations that's um marketing
1:42:51the stock to potentially investors you
1:42:54know basically going out and
1:42:55arguing uh or presenting Excel Energy
1:42:59and arguing why the company is worthy of
1:43:02investment that is not what those
1:43:05listing fees or compliance costs are
1:43:07their costs that are incurred because
1:43:10public or Excel Energy is is a publicly
1:43:13traded entity okay okay thank you for
1:43:17that
1:43:18uh on starting on the end of line
1:43:2319 there on page eight you you there
1:43:29indicate that this amount which we've
1:43:33determined is
1:43:35$142,000 of
1:43:38expenses are necessary to comply with
1:43:41applicable legal requirements is that
1:43:45right that's what it says yes okay
1:43:49is and and just to be clear is this your
1:43:54assertion or conclusion or do you have
1:43:56anything to support uh that in terms of
1:44:01uh adding this
1:44:04$142,000 back into the cost of
1:44:07service uh based on my review of the
1:44:11nature of the transactions they appeared
1:44:14they were uh like I said Market listing
1:44:19fees uh other compliance costs like that
1:44:27bunker about 70 minutes in so I just
1:44:31have uh one more short topic I'm gonna
1:44:34make the 75 I think easily all right not
1:44:39let's not get carried away here I could
1:44:41be
1:44:43wrong we have no flexibility after
1:44:46tomorrow so we got to get this in yes I
1:44:48understand thank you I appreciate the
1:44:50heads up on the time uh
1:44:53let's talk about your rebuttal testimony
1:44:56on page
1:44:5812 and at
1:45:08um and in in particular uh here on on
1:45:14lines four and
1:45:17five
1:45:19uh staff and UCA recommended
1:45:23disallowances of a whack return on
1:45:27unadvertised balances of regulatory
1:45:30assets and
1:45:31liabilities uh do do you see that I do
1:45:36yes and and and is it your understanding
1:45:39when we look here on line 17 through 21
1:45:43there on the bottom of the page UCA
1:45:46witness Mr scoach
1:45:49specifically um he recommends that the
1:45:52commission deny a return on the
1:45:54unadvertised balance of the commission
1:45:57fee damage prevention pension expense
1:46:00and property tax referrals correct
1:46:05yes is it your understanding that in
1:46:08public services most recently completed
1:46:122022 gas rate case which was proceeding
1:46:16number
1:46:1822-00
1:46:2046g that in that 20 22 case the
1:46:24commission denied a return on the
1:46:27unadvertised balance of the commission
1:46:29fee damage prevention pension expense
1:46:33and property tax
1:46:35deferrals uh that is my recollection of
1:46:38what the commission decided in that
1:46:40case okay thank you for that and Mr
1:46:44chairman with uh with that I am uh
1:46:48finished with my cross examination with
1:46:50three minutes to spare thank you
1:46:54we'll add the three minutes to the break
1:46:56thank you uh commissioner plant uh
1:47:00questions for Mr frus I have no
1:47:03questions for Mr frus uh commissioner
1:47:11Gan yes just getting my proper screens
1:47:15up um good afternoon Mr
1:47:18fro good
1:47:20afternoon um so I just a question for
1:47:23you um kind of a a rather general
1:47:26question I have been um working with the
1:47:32executable spreadsheet hearing exhibit
1:47:35123 um attachment ra5 which you might be
1:47:39familiar is the 15-year VAP
1:47:41forecast um and I was getting some
1:47:45results and wanted to run them by you to
1:47:47understand if they're reasonable or not
1:47:49from kind of a um Revenue requirement C
1:47:52service standpoint sure um so you may or
1:47:56may not be familiar but within the
1:47:5815-year weate forecast the projections
1:48:01are for um a
1:48:04fairly uh pronounced decline in sales to
1:48:08retail
1:48:09customers um but for um essentially a
1:48:14projected constant sales to transport
1:48:18customers um and so I was just trying to
1:48:20test and understand what um some of the
1:48:23rate projections might look like if we
1:48:25also saw a decline in transport
1:48:27customers within that model um and when
1:48:31I try that within that model um average
1:48:35rates so if I If I decline
1:48:38also um sales for transport customers
1:48:42throughout the the duration of that
1:48:44model um average rates do appear to rise
1:48:48in base rates and in total um but
1:48:51residential rates do not appear to rise
1:48:54and I wanted to understand is that a
1:48:57reasonable outcome or is it reasonable
1:49:00to assume that if we saw fewer transport
1:49:04sales there might be some reallocation
1:49:06that then affects other rate class to
1:49:08cover the fixed cost of the system um so
1:49:11it does make sense that average rates
1:49:13would go up as you reduce sales you're
1:49:16reducing revenues um and so that average
1:49:22rate going up Mak sense
1:49:26um whether or not a decline in one class
1:49:30would CA or a decline in sales in one
1:49:33class would um affect the rates of other
1:49:37classes
1:49:40um that's a little bit of an empirical
1:49:42question and it depends on um the the
1:49:47the class allocation that that is
1:49:48happening sort of behind the
1:49:50scenes um in in this modeling exercise
1:49:55I'm not sure how they modeled the the
1:49:59class allocations happening if they
1:50:00assumed essentially like perfect
1:50:03allocation where um only the costs that
1:50:06are being caused by residential
1:50:08customers are being allocated to them um
1:50:13then it wouldn't because any changes in
1:50:16the uh transport customer class would be
1:50:19confined to just that class um so it's
1:50:23I'm not as familiar with that model to
1:50:26really be able to to uh say whether
1:50:30that's exactly what's going on kind of
1:50:32behind the scenes and if if sort of
1:50:34perfect what I call perfect allocation
1:50:36is happening or not but that's that's
1:50:38how that that condition could happen
1:50:41where uh you change something from the
1:50:45transport class but it does not affect
1:50:47other classes the residential class so
1:50:49it's it's not
1:50:51inconceivable um I just don't know the
1:50:55ins and outs of that model enough to to
1:50:56be able to definitively give you an
1:50:58answer I'm sorry no no worries I've kind
1:51:01of just gotten time to try and test some
1:51:03different assumptions and see some
1:51:05things work and um I I that's why I
1:51:08wanted to kind of understand the general
1:51:11concept with you so I guess taking it
1:51:14the other way all things being equal if
1:51:17transport sales remain the same and
1:51:20residential sales actually decline 40%
1:51:24by 2038 which is what the model utilizes
1:51:27as a base
1:51:28assumption um do you anticipate that
1:51:31would lead to a
1:51:33reallocation of those fixed costs among
1:51:36the classes given a dramatic decrease in
1:51:40a certain set of customers
1:51:43usage uh I think that's reasonable sorry
1:51:47uh I think that is um reasonable to
1:51:50expect because there's going to be
1:51:53some bucket of costs that um will get
1:51:58allocated across all classes and some in
1:52:00some manner whether that's
1:52:02on uh net plant
1:52:06or uh labor or or some allocation method
1:52:11that's internal to the model and so
1:52:17um I can
1:52:19see uh a reduction in
1:52:24uh residential or any other class for
1:52:27that
1:52:28matter triggering some kind of
1:52:30reallocation of this bucket of sort of
1:52:32common costs if you will okay okay
1:52:35that's helpful I was just trying to got
1:52:38check what I'm seeing here with what I
1:52:42anticipate could happen if we saw you
1:52:44know an actual kind of pronounce
1:52:46decrease right and in a lot of uh
1:52:49Revenue requirement models there's what
1:52:51we call internal alloc which are Dynamic
1:52:54and they respond to changes within the
1:52:57model itself and so that's that's sort
1:52:59of gets to what I was talking about
1:53:02before where if this model is is um
1:53:06modeling those Dynamic allocators it's
1:53:08sort of has that perfect allocation
1:53:10built
1:53:11in okay excellent um well that's really
1:53:15my only uh questions for you Mr Freda
1:53:18thanks so much thank you thank you
1:53:21commissioner Gman I may follow up a
1:53:23little bit on that uh but first uh I
1:53:26want to follow up on uh a little bit
1:53:29what Mr bunkar was asking you uh about
1:53:33your rebuttal testimony can we pull up
1:53:35hearing exhibit 169 entitled commission
1:53:39requested capital expenditure data from
1:53:422017 to
1:53:482023 uh maybe uh if you can uh getting a
1:53:53little
1:53:55tighter and yeah there you go uh so do
1:53:58you see this uh Mr frus I do and is it
1:54:02fair to say Capital spending has
1:54:04consistently increased every year
1:54:07sometimes more than others uh but has
1:54:09never gone down at least from
1:54:122017 to
1:54:162023 uh I can yeah what I'm so would I
1:54:21take from this table I agree that uh
1:54:24Capital expenditures have been going up
1:54:28um I will note that it appears that
1:54:32inflation has had quite a material
1:54:35impact on the dollars
1:54:37themselves um just basically looking at
1:54:40the comparing the top table to the
1:54:42bottom
1:54:43one fair enough fair enough and if I
1:54:48represented to you that the again
1:54:51nominal dollar I'll distinguish between
1:54:54real and nominal for you that compound
1:54:57annual growth rate between
1:54:582017 and
1:55:0120123 uh subject to later check uh that
1:55:04it was uh
1:55:067% uh and 99.3% between 20 and 2023
1:55:11would you have any reason to to doubt
1:55:13that I have no reason to uh I'm sure
1:55:17you've done that math properly hopefully
1:55:20uh uh and in 2023 the company spent over
1:55:25$600 million do you see that I do yes
1:55:30all right let's keep this handy but can
1:55:32we pull up the same exhibit that
1:55:34commissioner Gilman referred to it's
1:55:36hearing exhibit 123 attachment
1:55:40ra5 which is the public version of U Mr
1:55:44matti's rate impact
1:55:46forecast um if we and can you uh dig in
1:55:50a little more but I uh
1:55:52uh and I guess I just want to I think
1:55:55you've already agreed to this with
1:55:56commissioner Gilman but in cell um f29
1:56:01it shows sales growth of negative
1:56:043.6% you see that
1:56:07yes all right and I think multiple uh
1:56:10Witnesses uh sort of supported that that
1:56:13was a a reasonably uh likely
1:56:17outcome would would you disagree with
1:56:20that I have no
1:56:23um no basis to agree or disagree that's
1:56:27completely outside of my area of
1:56:29expertise unfortunately fair enough uh
1:56:33all right can we go to the capital c uh
1:56:35Capital
1:56:36Tab and uh if you can zoom in a little
1:56:40if possible do you see uh modified
1:56:43Capital expenditures uh
1:56:46e14 of 448 do you see that I do and do
1:56:51you recall that actual 2023 Capital
1:56:54spending from our prior discussion was
1:56:56over uh 600 million and has R risen in
1:57:00every year for eight years do you call
1:57:02recall that I do yes so given all this
1:57:06do you believe that actual Capital
1:57:08spending in 2024 will be for 448
1:57:13million I don't know that I can speak to
1:57:15that at all um Mr chair um I I am not
1:57:21involved in the budgeting or or the
1:57:24operation side of the business so I I I
1:57:26don't have any context toble to really
1:57:29answer that question either in either
1:57:31direction unfortunately yeah I
1:57:33appreciate that it's je we just got the
1:57:35capital budget yesterday or this morning
1:57:37so yes I understand and I'm the last one
1:57:40standing so yeah last guy standing um
1:57:44and I also heard Mr pqu and Mr matley
1:57:47testify that there is no basis in
1:57:49existing law or practice to assume that
1:57:51Capac expansion and new business uh go
1:57:55to zero as assumed here uh again with a
1:57:58full recognition that you're not the
1:58:00witness uh uh um to aine on that uh
1:58:05would you have any basis uh
1:58:08to
1:58:09um assert that that characterization is
1:58:13wrong uh I have no basis to disagree
1:58:17with either what Mr matley or Mr P have
1:58:20indicated I think they know
1:58:22better than I do okay uh you can take
1:58:26this down uh do you have any long-term
1:58:29rate impact concerns about continuing to
1:58:31grow Capital spending in a declining
1:58:33sales
1:58:36environment
1:58:38um that's a broad question I'm not quite
1:58:40sure
1:58:41to all right
1:58:44Fair advice about how we can help the
1:58:46company manage it down before I give you
1:58:48one suggestion
1:58:54um so I think
1:58:56that um many many of the witnesses have
1:59:00talked about um the importance of
1:59:04maintaining uh the safety of the system
1:59:07and uh that is likely to um require
1:59:14investment
1:59:15um I would maybe caution that uh
1:59:22that is is necessary investment and um
1:59:27managing down
1:59:29investment uh we may want to focus um on
1:59:34areas that are sort of less critical to
1:59:37Public Safety if you will um like the
1:59:40the five million dollar we spent
1:59:44subsidizing 90 Homes at $80,000 a
1:59:48home uh um let me just that all right
1:59:51let me get get to it in your rebuttal
1:59:53testimony you talk about end of year
1:59:55versus 13-month average rate base uh
1:59:58determinations with a historical test
2:00:00year um given the differences between
2:00:03these two approaches has this commission
2:00:05ever picked a date in the middle for
2:00:07example in this case could we set rate
2:00:10base as of uh 930
2:00:142023 I mean it wouldn't satisfy anybody
2:00:18it's sort of a cut the baby in half
2:00:20approach um but it's exactly in the
2:00:24middle of what you're asking for what
2:00:26staff and UC UCA is uh asking for so and
2:00:32it's really what the record
2:00:34says uh in some ways uh any
2:00:38any awareness of whether that's been
2:00:40done here or elsewhere and uh I'll start
2:00:44with that and then ask for your advice
2:00:46about if we did go that way if you had
2:00:48any concerns so any experience with that
2:00:51um a little bit in the 2019 electric
2:00:56rate case um the test year that was
2:01:00ultimately settled on was uh it was a
2:01:03little bit of a hybrid test year it was
2:01:06it was
2:01:07really complex it was
2:01:11um for existing Capital it used year end
2:01:17at yearend rate base but measured at the
2:01:20beginning of the test year and then for
2:01:22Capital additions over the 12 months of
2:01:26September 2018 through August of
2:01:302019 it used uh a 13-month average for
2:01:35those Capital additions um that test
2:01:39year actually turned out to be um really
2:01:44complex and really
2:01:46complicated and
2:01:50uh difficult to to really understand and
2:01:54see what was going on um and that was if
2:01:58I remember correctly that was a testure
2:02:00that was uh kind of picked towards the
2:02:04end of uh the case either during
2:02:07hearings or um through a r and it was
2:02:12again sort of one of these uh can we
2:02:15figure out a compromise in between um
2:02:19and it turned out to be really
2:02:22uh kind of suboptimal because it was it
2:02:25causes problems when you're looking
2:02:27forward and and figuring out well what
2:02:30exactly changed from last case to this
2:02:33case as well as just the difficulty of
2:02:35trying to calculate the revenue
2:02:36requirement itself when you've
2:02:38got you're you're trying to to take two
2:02:41different rate based methodologies and
2:02:44averaging conventions and sort of squash
2:02:45them into one period and trying to
2:02:49separate out um the the investment and
2:02:53apply one averaging method to one bucket
2:02:56of dollars versus another um that was so
2:03:01my my my recommendation and caution
2:03:03would be um definitely avoid some kind
2:03:06of method like that where you're trying
2:03:08to combine two different methodologies
2:03:11in the same test year um that did not
2:03:15work very well at
2:03:16all um as far as just picking a
2:03:21different test year not a different test
2:03:24year so I guess I I hear that but assume
2:03:28we keep the same test year but instead
2:03:30of looking at rate base in June 30th or
2:03:32end of year we just uh look at uh
2:03:36September 30th
2:03:392023 uh and so it's just really simple
2:03:42it's nine months uh would you have any
2:03:46advice or concerns if we did something
2:03:48simple and straightforward like that
2:03:50with a hope that somebody 50 years from
2:03:53now will be talking about this
2:03:57decision um
2:04:00so my my maybe my my cautions would be
2:04:05that
2:04:07um in order if we just pick a a a month
2:04:12inside of the test year um I don't know
2:04:15that we have the information to be able
2:04:19let me step back for a second if we pick
2:04:20let's say June uh or September whatever
2:04:24whatever month is appropriate um we
2:04:27would want to line up you know
2:04:30depreciation expense and some of the
2:04:33other um components of the revenue
2:04:35requirement to line to line up with that
2:04:38period in time that we're choosing for
2:04:40rate base um you know revenues for
2:04:43example um onm and I don't know that we
2:04:47have sufficient
2:04:49information uh in the record to be able
2:04:52to recalculate all of those income
2:04:55statement accounts for basically 12
2:04:57months ended September or whatever point
2:05:01in time we want to pick that that's one
2:05:03concern I would have is um in order to
2:05:06really maintain that matching of um rate
2:05:10base to uh the expenses we would need to
2:05:14move expenses around in time a little
2:05:16bit as well and recalculate those and I
2:05:19don't know that we have that information
2:05:21to be able to do that that would be my
2:05:23concern so because of uca's and staff's
2:05:28Discovery requests and whatnot there's a
2:05:31full record on a June 30th rate base and
2:05:34because of your recommendations there's
2:05:36a full record on a end of year rate base
2:05:41but because this is coming up late in
2:05:43the hearing there may not be a full
2:05:45record and it could cause record and due
2:05:49process problems that may not be solved
2:05:51with a technical conference is is that
2:05:53what I'm hearing that's what I would be
2:05:55concerned about
2:05:58right all
2:06:00right uh that's all I have uh Miss
2:06:03Brahma redirect um chair blank I wonder
2:06:06would would it be okay with the
2:06:07commission if we took a short break
2:06:09right now I think it might be helpful to
2:06:11uh explore a little bit of the issues
2:06:12that um were just raised and and see if
2:06:15there's just give us a moment to think
2:06:17about it and if there's a way to do
2:06:19something that may be useful before we
2:06:21last witness the stand yeah yeah yeah
2:06:24fair enough uh is 10 minutes enough or
2:06:26you need more uh could we have 15 please
2:06:29would that be all right all right we'll
2:06:31come back at uh 250 thank you
2:06:50thanks
2:07:20e
2:07:50e
2:08:20e
2:08:50e
2:09:20e
2:09:50e
2:10:20e
2:10:50e
2:11:20e
2:11:50e
2:12:20e
2:12:50e
2:13:20e
2:13:50e
2:14:20e
2:14:50e
2:15:19e
2:15:49e
2:16:19e
2:16:49e
2:17:19e
2:17:49e
2:18:19e
2:18:49e
2:19:19e e
2:19:52so miss Brahma if you would need a
2:19:56little more time to confer with your
2:19:58client after talking to council I think
2:20:00we'd be willing to go start with the
2:20:03staff Witnesses uh and come back uh I
2:20:06think we'd like to see we get this one
2:20:08right then quick but if you're ready go
2:20:11ahead I I think we're ready uh chair
2:20:14blank but we too would like to get you
2:20:16know to have the right answers so I I
2:20:18have some questions for Mr frus on that
2:20:20topic and if it presents more questions
2:20:21from the commission I think what we
2:20:23would ask then is to let let's find that
2:20:25out and then we can come back and and
2:20:27see if there are any further questions
2:20:29that we need to address um if talk about
2:20:32here doesn't solve what the commission's
2:20:34looking
2:20:36for um so maybe let's just start with
2:20:38that last topic Mr frus um and and the
2:20:41chair's questions about um how sort of
2:20:45how might the commission split the
2:20:46difference if it didn't uh feel
2:20:47comfortable with either a 13-month
2:20:49average or year end rate base should you
2:20:52maybe speak to that a little bit further
2:20:54sure um so we have in the record in my
2:20:58testimony that uh the value between
2:21:02average rate base and year end rate base
2:21:03is approximately $18
2:21:06million
2:21:08um so from a revenue requirement
2:21:11perspective uh one option would be uh
2:21:16the commission could um find a uh an
2:21:21appropriate number in that range of $18
2:21:24million between year end and average
2:21:26rate base and uh order a a ratemaking
2:21:31adjustment to um you know for
2:21:35example bring the revenue requirement
2:21:37down by some amount um from the
2:21:41company's rebuttal cost of service for
2:21:42example so start with what I have in my
2:21:45attachment uh in rebuttal for the
2:21:49rebuttal cost of service
2:21:51and then um order some adjustment that
2:21:54the commission feels appropriate to
2:21:56reflect the balance between an average
2:21:57and year end rate basis that would be uh
2:22:01one way to do it you know just from a a
2:22:04revenue requir revenue requirement
2:22:07perspective are you taking or on behalf
2:22:09of the company are you taking a position
2:22:11on on whether that is uh preferable or
2:22:14the the policy bases for doing that as
2:22:17opposed to um the company's preferred
2:22:20year on rate base uh that is just from a
2:22:24from a purely uh Revenue requirement
2:22:27calculation calculation perspective um
2:22:30how it could be effectuated um I don't
2:22:32know that I'm the proper witness to be
2:22:35able to um speak to uh what the
2:22:39company's policy um preferences
2:22:42are and just from a revenue requirement
2:22:45modeling perspective if you could speak
2:22:48to what what you're suggesting how that
2:22:50would um reflect what's in the test year
2:22:54as for purposes of plant and service and
2:22:56onm and and the other components of the
2:22:58cost of service sure
2:23:01um I would I would maybe recommend that
2:23:06um the commission uh adopt the
2:23:122023 test year that includes all of the
2:23:16um all the the capital and on andm and
2:23:19other costs that are that test year um
2:23:23and then make this as a commission
2:23:26ordered adjustment to the revenue
2:23:29requirement um rather than trying to
2:23:34recalculate uh everything within uh the
2:23:37revenue requirement itself um I think
2:23:39this this approach would be um much
2:23:42cleaner and
2:23:45um it wouldn't raise any I don't think
2:23:49um any issues in terms of well what is
2:23:53what is or isn't in the test year in
2:23:56terms of capital which you know as I
2:23:59mentioned in that 2019 electric case um
2:24:02with that hybrid test year and the two
2:24:04different um two different rate based
2:24:08convention methods a lot of those
2:24:11questions were raised so I think um
2:24:14coming from it from the perspective of
2:24:17picking this test year that was
2:24:20presented in rebuttal and then adjusting
2:24:23through a ratemaking adjustment is is
2:24:26much
2:24:27cleaner is what you're suggesting in the
2:24:30nature of a a Prudence type investment
2:24:32or is it something different than that
2:24:35it's purely a rate making adjustment and
2:24:39and that's it so um we I would include
2:24:43in the calculation of the revenue
2:24:45requirements um some adjustment to
2:24:48adjust to the revenue requirement by
2:24:50down by an amount that the commission
2:24:53feels is
2:24:54appropriate and and if the commission
2:24:56were to take this path starting with the
2:24:582023 test year you know through the end
2:25:01of 2023 cost of service model presented
2:25:04in your rebuttal
2:25:06then where would the company start in
2:25:09terms of looking at capital for its next
2:25:11rate case regardless of when that may
2:25:14happen uh so as far as the next case is
2:25:17concerned um that review would be for
2:25:21the period of uh January 1st 2024
2:25:26forward to whatever um the test year for
2:25:29the next case happens to be so what we
2:25:32would be finding in this case is that
2:25:35the capital has been reviewed through
2:25:38the 20 calendar year 2023 which is the
2:25:41test year in this
2:25:43case um this is rather unusual but I'm
2:25:46going to pause there for a moment
2:25:47because I think we are trying to work
2:25:48with the dialogue with the commission to
2:25:50see if that answers the questions uh
2:25:52before I go to just a few other items of
2:25:54redirect that'll be fairly
2:25:56brief um I think um that's uh that's
2:26:01where it at it's at so I I just keep
2:26:03going okay thank you
2:26:06um so Mr frus um I'd like to if we could
2:26:11just pull up Mr glusac uh answer
2:26:14testimony exhibit 500 uh at page 41
2:26:28so I'm I'm a little bit concerned Mr
2:26:29frus that this table is creating
2:26:33unnecessary confusion here and
2:26:37um first of all can can you identify
2:26:41which of these were provided because
2:26:43staff Andor the UCA asked for additional
2:26:46modeling and
2:26:48Discovery uh um let's see
2:26:53the green line second from the top was
2:26:58provided uh as a result of
2:27:02Discovery uh the fourth line down the
2:27:06green one was
2:27:08provided uh as a result of Discovery and
2:27:12the bottom two um rows were
2:27:15also uh the result of a question we
2:27:19received through discovery
2:27:20okay and and what were the the models
2:27:22that the company proposed or provided
2:27:25not not proposed let's just say provided
2:27:27with its direct
2:27:28case uh the first the top row and uh the
2:27:34third row down in red the proposed
2:27:37piasco those were the two that were
2:27:40included in my direct
2:27:42testimony uh and and just to to clarify
2:27:46one of those is to provide uh 12 months
2:27:48of actual complete actual data and then
2:27:51with not and measurables and the other
2:27:53was with the forecasted three months is
2:27:56that right that's correct okay and then
2:27:58in rebuttal do any of these um represent
2:28:02the company's actual
2:28:04rebuttal U
2:28:06model they do not okay and where would
2:28:10we find that uh that would be in my
2:28:13rebuttal testimony uh attachment APF 17
2:28:18okay so did
2:28:20with the the staff and uca's uh
2:28:23Discovery did um the company go ahead
2:28:27and
2:28:28and um prepare all these models whether
2:28:31or not it agreed with
2:28:33them yes we we responded to the
2:28:37Discovery questions that the party's
2:28:38asked
2:28:40okay um we can take this uh exhibit down
2:28:43thank
2:28:44you um Mr uh Council for UCA um asked
2:28:50some questions about um what in current
2:28:54inflation versus uh inflation in
2:28:57February of 20121 do you recall that
2:29:00discussion I do so do you have any sense
2:29:04of what was happening with inflation in
2:29:06February of 2021 and since that
2:29:09time
2:29:11um
2:29:13just uh start out by saying you know I'm
2:29:16not an economist or an economic
2:29:18forecaster but I do recall just from you
2:29:22know having to buy gas and groceries and
2:29:25things like that that
2:29:27um inflation was really high uh during
2:29:32that time period shortly after the
2:29:34pandemic um I remember the the financial
2:29:38headlines talking about inflation being
2:29:40at historic levels you know 40-year type
2:29:45headlines saying that inflation hasn't
2:29:47been seen in the these levels of
2:29:49inflation haven't been seen in in quite
2:29:51some time I I recall that happening in
2:29:55in that time
2:29:56frame if we have inflation at a rate
2:30:00comparable to February of 2021 now does
2:30:03that equate to decreasing costs or how
2:30:06does that uh how does an inflation rate
2:30:09compared to or relate to the the cost
2:30:11the company has been incurring and
2:30:13continuous to incur um so inflation is
2:30:18uh generally defined as the rate at
2:30:22which prices increase um and so declines
2:30:27in
2:30:28inflation is is that is not declines in
2:30:31prices that is a uh a lowering of let me
2:30:38step it there's couple double negatives
2:30:40in here uh lower inflation means that
2:30:43prices are still increasing but they are
2:30:45just not as incre they are not as
2:30:48increasing as fast as they were at some
2:30:51previous period in time so uh yeah
2:30:55prices are not decreasing with lower
2:30:58inflation that's those two those are
2:31:00different
2:31:01concepts and if inflation rates are not
2:31:04Rising as fast as one might expect do
2:31:06you have any sense of how that tends to
2:31:08relate to interest
2:31:11rates um again I think Mr Johnson's
2:31:14probably a much better witness to be
2:31:16able to address uh the impact of um
2:31:20inflation on interest rates but um my
2:31:25understanding is that uh the two are
2:31:27linked and
2:31:29um infl or interest rates tend to
2:31:33respond to changes in inflation okay um
2:31:37perhaps most importantly since we'll get
2:31:38back to your area a little bit more
2:31:40directly Mr frus but is the company
2:31:43proposing to put plant in service as of
2:31:46today in in relation to today's
2:31:49inflation
2:31:52rate um I mean you can react maybe ask
2:31:56that question a little different I don't
2:31:57think I quite followed it sure is the
2:31:59plant and service included in the
2:32:01company's requested rate increase
2:32:03reflecting plant and service new through
2:32:06today or is it from a different time
2:32:09frame no the um plant and service and
2:32:13other plant costs that are in the uh
2:32:16cost of service reflect costs through
2:32:18the end of 2023
2:32:21[Music]
2:32:24okay
2:32:29um if the com if the commission were to
2:32:32adopt the company's request for year-end
2:32:34rate base uh and the company's test year
2:32:37and other proposals in this
2:32:39proceeding does to what extent will
2:32:41regulatory legs still be part of the
2:32:44rates the company is would be
2:32:46implementing as a result of this case uh
2:32:49there would still be even with um year
2:32:52on rate base as it's proposed in
2:32:55rebuttal um there still would be a fair
2:32:58amount of regulatory lag uh that's
2:33:03affecting the company and actually um in
2:33:06my rebuttal testimony
2:33:09on uh let's see I find it real
2:33:14quick uh I have a graph that kind of
2:33:17demonstrates this
2:33:27think I found it Mr frus were you
2:33:28looking at page 25 yes page
2:33:3125 um figure APF D
2:33:36r-2 um so
2:33:42that so this figure is uh showing uh
2:33:48rate base from this cas so that vertical
2:33:51line is um December 2023 the end of the
2:33:55test year um The Gray Line represents
2:33:59what uh rate base has done since
2:34:03December through uh June of 2024 which
2:34:06was the the last month of of actual data
2:34:09I had
2:34:10available um and then the orange line is
2:34:15uh if if year end rate base was adopted
2:34:18that's the level of rate base that would
2:34:20be incorporated into rates and then if
2:34:2213-month average uh rate base was
2:34:26adopted that blue line below it
2:34:30represents uh what would be incorporated
2:34:33into rates um and also one thing to keep
2:34:36in mind is um if you if you compare this
2:34:41graph to the one just above it in APF
2:34:45R1 um you'll notice the top graph has
2:34:48two vertical lines the first vertical
2:34:50line to the left represents the end of
2:34:52the test year and then the second line
2:34:55uh represents the um basically the
2:34:58implementation of rates um because we
2:35:02haven't reached the rate implementation
2:35:03date yet there's not a a second vertical
2:35:06line on the bottom graph but
2:35:09um in the time between the end of the
2:35:12test year uh in this case to when we put
2:35:16rates into effect uh later this year
2:35:18rate base will have are have continued
2:35:20to increase and so that difference
2:35:23between um The Gray Line and the uh
2:35:27orange and blue lines is going to
2:35:29continue to get
2:35:31bigger and we can take this down thank
2:35:33you um Mr bunker asked you some
2:35:37questions about whether the company had
2:35:39done a quantitative study uh to
2:35:42specifically identify all the components
2:35:45of what might be leading to earnings
2:35:47attrition do you remember that
2:35:48discussion I did
2:35:50how do you know that regulatory leg is
2:35:52the largest contributor to earnings
2:35:54attrition for public service well I
2:35:56think the the graph that we just looked
2:35:58at those two graphs kind of Illustrated
2:36:00it perfectly um regardless of whether a
2:36:04year end or average rate Pac is used
2:36:07there's still a pretty sizable
2:36:09difference between um the
2:36:12actual uh rate based line and the lines
2:36:15that represent the the conventions that
2:36:19are adopted for a Reven requirement
2:36:22calculation um because you can think of
2:36:24those lines as uh The Gray Line
2:36:26represents actual costs incurred and
2:36:30then those horizontal lines whether
2:36:32they're average or year end represent
2:36:35the costs that are embedded in rates and
2:36:37so that difference represents regulatory
2:36:40lag could we pull up hearing exhibit 169
2:36:44uh quickly please and then I will wrap
2:36:46up
2:36:57um Mr frus you had a a brief
2:36:59conversation with uh the chair about uh
2:37:02the
2:37:03increases in capex from between 2020 and
2:37:082023 um I think we we've talked a little
2:37:11bit about inflation um could could you
2:37:14speak to just at a high level how
2:37:17inflation and and perhaps supply chain
2:37:19have affected the company um very
2:37:22holistically because I know you're not
2:37:23the business area witness over the last
2:37:26couple of years sure um well as we just
2:37:30talked about um you know back
2:37:33in uh early 2021 kind of after the
2:37:36lockdowns um you know we were seeing
2:37:40historically High
2:37:42inflation um rates and and that has been
2:37:45impacting these numbers in you know the
2:37:482021 2020 time frame um and then uh you
2:37:53know in addition due to the lockdowns I
2:37:56know that um in and speaking to
2:38:00colleagues um there was uh quite a bit
2:38:04of difficulty in
2:38:07obtaining pipe and other materials that
2:38:09are needed for uh these projects and so
2:38:13uh you know during the pandemic there
2:38:15was a bit of a Slowdown in construction
2:38:18due to supply chain issues and so um as
2:38:22we got caught up some of the capital
2:38:25expenditures that maybe would have
2:38:27happened earlier in this period kind of
2:38:29got pushed to later uh in 21 22 and 23
2:38:34just as you know due to supply chain
2:38:37constraints and as those sort of worked
2:38:39themselves out we were able to do the
2:38:41work that had their not been those
2:38:44things happening um we may have been
2:38:47able to do earlier in time
2:38:50and then lastly Mr frus um just quickly
2:38:53there was a a comparison between the 600
2:38:56million nominal capex here in 2023 in
2:38:59this chart and uh 400 and some million
2:39:03dollars in in one of the schedules that
2:39:05Mr matley provided do you recall that
2:39:07discussion I do are there some
2:39:10additional lines of of costs that are
2:39:12included in this particular chart that
2:39:14were were uh not just not part of that
2:39:18particular schedule with the 400 and
2:39:19some million that Mr matley had look had
2:39:23provided um I know that um you know this
2:39:27this chart includes you know technology
2:39:30and shared services and I believe the
2:39:33capex and Mr matti's
2:39:36um in his uh model might have been just
2:39:40the gas only system so I think there's
2:39:43that disconnect there that is is
2:39:45accounting for some of the
2:39:46difference thank you that's all I have
2:39:50uh thank you m Brahma M Mr fedus you may
2:39:54be excused thank you uh Mr bunker yes uh
2:39:59thank thank you Mr chairman if uh if uh
2:40:03we're finished with public services
2:40:04Witnesses but before they arrest their
2:40:07case uh just a housekeeping matter and
2:40:10that is I see that one of the UCA
2:40:14exhibits that was admitted during my
2:40:18cross-examination of Mr
2:40:20Johnson uh I see that two pages were
2:40:23left out of the document and it perhaps
2:40:27is easiest to pull up the document out
2:40:29of box.com can you um let let's not do
2:40:33this in live hearing can you work with
2:40:35the council uh and see if you can get
2:40:39that fixed offline with the the legal
2:40:42assistance and uh if you have a problem
2:40:45even with uh Public Service Company
2:40:47resting their case we'll get the record
2:40:49fix is that is that would that be all
2:40:51right yes that'd be fine I was just
2:40:53going to replace the document while we
2:40:54were still in public services case but
2:40:57that's fine yeah I mean as long as the
2:41:00records uh Miss Harper as long as the
2:41:02record's open I think uh we can uh do it
2:41:05today tomorrow right yes and if if he
2:41:08has an updated version to move for
2:41:10admission right now we could do that or
2:41:11else if it's more complicated then then
2:41:14we can uh correspond by email and and
2:41:18Miss Harper a comment I do have a
2:41:21updated copy in box.com
2:41:24all right you want to pull it up sure
2:41:27it's here in exhibit
2:41:30509 and this is a discovery uh request
2:41:36UCA
2:41:3828-8 and there were a number of
2:41:40questions
2:41:42to uh Mr Johnson about this and what I
2:41:45found is there were uh there's a
2:41:49supplemental response and page two and
2:41:53Page Six of this document were left out
2:41:56of what I admitted or had admitted so it
2:42:01would be this this language here on page
2:42:03two and then this page on page six that
2:42:07dealt with the uh various uh seven
2:42:12scenarios that were that were in Mr
2:42:15Johnson's
2:42:16testimony and uh this last page uh as it
2:42:21turned out there were two Excel
2:42:23spreadsheets plus a PDF plus the
2:42:26response and I think we got uh three out
2:42:30of the four and and missed the last page
2:42:33of the uh or the second page of the uh
2:42:36response so all I'd like to do is just
2:42:38supplement this document in so that the
2:42:41record's
2:42:42complete any objection Miss Brammer do
2:42:45you need to take a look no no
2:42:47objection so admit
2:42:49thank you Mr Mr bunker yes thank you and
2:42:52thank you for letting me just deal with
2:42:54this real quickly as we were still on
2:42:56the record I appreciate it yep
2:43:00um uh
2:43:06staff Dr thank you yeah goad thank you
2:43:10chair staff calls Dr Depo Dr depes Depo
2:43:14to the stand Dr Deo can you hold up your
2:43:18right hand
2:43:19do you swear to tell the truth the whole
2:43:21truth and nothing but the truth yes I do
2:43:24you can put your hand down is anyone
2:43:27with you or communicating with you in
2:43:28any way no if that changes you'll let us
2:43:32know yes Mr
2:43:35Cox thank you good afternoon Dr de um
2:43:39could you please State and spell your
2:43:40name for the
2:43:42record d i p e s d i p u dpd
2:43:51and by whom are you employed and what is
2:43:54your
2:43:54title by Colorado Public Utilities
2:43:57Commission and my title is Chief Rate
2:43:59Financial
2:44:02Analyst in this proceeding did you cause
2:44:04to be filed answer testimony including
2:44:06attachments uh which has been marked as
2:44:09hearing exhibit
2:44:11402
2:44:13yes and if I asked you the questions
2:44:16contained in your answer testimony um
2:44:18would you your answers be the same today
2:44:21yes all right thank you Dr the Pew is uh
2:44:25available for cross and Commissioners
2:44:28questions uh Public Service I have uh 60
2:44:32Minutes Miss Brahma but you're on
2:44:35mute it is me again um good afternoon uh
2:44:39doctor was it deoo is that how it's
2:44:42pronounced yes thank you my name is Liz
2:44:45Brahma I'm an attorney with the Taff Law
2:44:47Firm representing public Service Company
2:44:49of Colorado in this proceeding it's it's
2:44:51nice to meet you today nice to meet you
2:44:53too I'm going to ask you to speak just a
2:44:56little bit louder because it's a little
2:44:58bit quiet okay okay thank you um I'd
2:45:02like to start with your answer testimony
2:45:04um we don't have to pull it up quite yet
2:45:06um but just with respect to your
2:45:08discussion on on the cost of debt please
2:45:11now you discussed one um number for cost
2:45:15of long-term debt and and another for
2:45:17cost of short-term debt in your answer
2:45:18to
2:45:19testimony um are you aware that
2:45:22commission staff provided corrections to
2:45:24the answer testimony of Staff Witnesses
2:45:26um Aon O'Neal and Luis Rivera Lugo with
2:45:30respect to the calculation of the costs
2:45:32of long-term and short-term debt yes I
2:45:36and uh you're aware for example that uh
2:45:39Miss O'Neal identified in her uh her rev
2:45:44one um answer testimony that uh she what
2:45:48she called the Lo pre-tax long-term cost
2:45:51of debt would be
2:45:523.25% rather than
2:45:542.44% is that
2:45:56correct 3.25% is pre-tax and 2.44 is
2:46:01post tax okay um are you aware though or
2:46:05do you understand uh that the tax shield
2:46:08um that you discuss in your testimony is
2:46:10already included in the revenue
2:46:12requirement through the cost of service
2:46:13model
2:46:15itself um yes I was appointed to that um
2:46:19subsequent to our filing of answer
2:46:22testimonies and uh while examining the
2:46:25direct testimony I couldn't figure out
2:46:28the interest computation in the uh
2:46:32Revenue requirement primarily because it
2:46:34was hardcoded and I do understand that
2:46:38the post tax cost of um debt as it
2:46:43should be in in computation of weighted
2:46:46average cost of capital is what I have
2:46:49proposed and it's actually reflected in
2:46:51the revenue requirement but not stated
2:46:54as such in and bulley's um testimony
2:46:58okay and just to be clear there are
2:47:00actually uh two issues that have been
2:47:03raised with your statement of the cost
2:47:05of debt there is the tax shield uh right
2:47:09which is what we're talking about here
2:47:10is already accounted for in the cost of
2:47:13or in the cost of service study
2:47:15correct so would you agree that the cost
2:47:17of long-term debt and short-term debt
2:47:19should at a minimum be updated to
2:47:21reflect what Miss O'Neal has in her
2:47:23testimony and in Mr Rivera lugo's um
2:47:26cost of service model not really because
2:47:28I think we are talking about the
2:47:30nomenclature and if you look at any
2:47:34textbook on financial management even
2:47:36the textbook suggested by CFA Institute
2:47:39for their
2:47:40certification uh even the way the um
2:47:44investment Community understands
2:47:46weighted average cost of capital they
2:47:49always consider post tax cost of debt
2:47:51and then arrive at the weighted Capital
2:47:54weighted cap cost of capital on post tax
2:47:58cost of equity and post tax cost of debt
2:48:01so what the company has done is to use
2:48:04pre tax cost of debt and mix it with
2:48:09post tax cost of equity which is not the
2:48:12um normal convention used anywhere else
2:48:16okay are you familiar with how rate
2:48:18making is done
2:48:19for you are yes and are you familiar
2:48:23with the fact that this is how the
2:48:25company has shown and and uh provided
2:48:27its cost of debt for many years at this
2:48:30commission and other Commissions in
2:48:32which Excel Energy
2:48:33operates it has but it has a
2:48:38significant um signaling impact on rate
2:48:41payers on investors and also other
2:48:45commissions okay so let's get oh I
2:48:47apologize I didn't mean to to interrupt
2:48:49yeah so essentially what I'm trying to
2:48:51say is that when the company asks for a
2:48:54weighted average cost of
2:48:56capital uh of
2:48:597.5% it doesn't reflect the true
2:49:02approved weighted average cost of
2:49:04capital it is just the pre-tax and post
2:49:09pre-tax cost of debt and post tax cost
2:49:11of equity which is perhaps I mean in
2:49:15financial Community this is never done
2:49:17so all right so that's the financial
2:49:20Community but I'm trying to get to
2:49:22ultimately if we were to take your
2:49:262.44% cost of long-term debt and then
2:49:30reduce the tax reduce it to account for
2:49:33the tax shield when that tax shield is
2:49:35already accounted for in the revenue
2:49:37requirement doing that would double
2:49:40count the tax shield correct well the
2:49:43idea that I'm proposing here is that
2:49:47there would be no change in Revenue
2:49:49requirement but the semantics of how
2:49:51weighted average cost of capital is
2:49:53represented to rate payers investors and
2:49:57other stakeholders needs to be corrected
2:50:01I think that's where we're trying to get
2:50:03to Mr uh Dr deepo that it's a semantics
2:50:06issue we don't further subtract the tax
2:50:08shield from a 2.44% cost of long-term
2:50:11debt right yes okay thank you and the
2:50:14same thing would be true with respect to
2:50:15short-term debt yes okay now
2:50:20um the second piece now Haven gotten
2:50:23that clear with respect to the cost of
2:50:25long-term debt is what that that you
2:50:28call the uh 2.44 or the 3.25 with the
2:50:33tax shield C for is the company's quote
2:50:36effective interest rate is that right
2:50:39yes okay now this is based on the
2:50:42company's total on and off balance sheet
2:50:45debt is that correct Dr
2:50:47deepo that's based on the company's
2:50:50response to my Discovery question okay
2:50:53and that Discovery question asked for um
2:50:57did not ask for the observable line item
2:51:00by line item interest rate on the
2:51:02company's debt
2:51:04right typically when we say effective it
2:51:08should reflect all of those outstanding
2:51:10debts and their respective interest
2:51:13rates and then you compute effective
2:51:15interest rate okay and isn't it correct
2:51:18that that effective interest rate as you
2:51:20asked for it as the company uh explained
2:51:22in testimony includes both on and off
2:51:25balance sheet
2:51:27debt um wasn't that in the rebuttal
2:51:31testimony correct yes but not not before
2:51:36I wrote my testimony okay
2:51:39and isn't it correct to that uh well let
2:51:42me just ask this question did you add or
2:51:45did the staff in calculating its Revenue
2:51:48requirements
2:51:49add those same off-balance sheet
2:51:53obligations to its rate base
2:51:56calculation if you know no I'm not sure
2:52:00okay now did you uh I'm gonna ask if we
2:52:04could please pull up hearing exhibit uh
2:52:07154 please from the company's
2:52:15box are you aware uh Dr deepo that the
2:52:19staff asked that the company provide all
2:52:22discovery responses provided to any
2:52:23party in this case to
2:52:26staff was that a yes yes okay thank you
2:52:30we have a court reporter so we need
2:52:31yeses and NOS to make sure it's
2:52:33effective in the record um did you
2:52:36happen to review this response to UCA uh
2:52:39request 1-8 to the
2:52:43company this seems to have skipped my
2:52:47attention okay um and just noting it for
2:52:50the record this is received February 8th
2:52:52of 2023
2:52:54correct yes and your testimony answer
2:52:57testimony was filed in July of 2023 is
2:53:01that right yes and if we uh go to the
2:53:05attachment to this uh the next
2:53:11page this document shows the um actual
2:53:16observable um debt offerings and
2:53:19interest rates for each of the companies
2:53:21um offerings as of December 31 2023
2:53:27correct yeah it say so okay and that
2:53:31number on the lower right hand side the
2:53:354.05% uh equates to the amount of
2:53:37long-term debt reflected in Mr Johnson's
2:53:40direct testimony is that
2:53:42right well I can't authenticate it but
2:53:45yeah it says so okay and then
2:53:49uh if we could uh well I'll move for
2:53:51admission of this uh document
2:53:53please uh any objection uh Mr
2:53:57Cox uh no objection but one
2:54:00clarification if we could scroll up to
2:54:02the first
2:54:08page I
2:54:10think or if we could maybe scroll down a
2:54:13little
2:54:13bit was a representation that this was
2:54:17the reply or the response was in
2:54:19February it's still on the first
2:54:22page I think that date there says March
2:54:2511th oh thank you for the clarification
2:54:28you're right I was looking at the date
2:54:29received by the company not the date
2:54:30provided by yeah that's what I thought
2:54:32with the confusion was um but yeah
2:54:34beyond that no objection okay thank
2:54:42you I are we okay to have it
2:54:45admitted uh yes sorry so admitted thank
2:54:49you um if we could take this down please
2:54:54and um we could also um pull up um
2:55:01hearing exhibit
2:55:03126 attachment
2:55:06pj4 this would be the rebuttal testimony
2:55:09of uh witness
2:55:13Johnson and while we're doing that Dr
2:55:15deepo are you aware that the company
2:55:18Prov provided a discovery response in
2:55:20April of this year with an update to its
2:55:24long-term debt um as a result of an
2:55:26issuance in April of this year yes okay
2:55:30so if we could take a look at hearing
2:55:31exhibit 126 attachment
2:55:40p24 and again
2:55:43um this shows uh does it not Dr deepo
2:55:46all of the debt issuances from the
2:55:48company um including in offerings in
2:55:51April of 2024 do you see that in the
2:55:54date of offering
2:55:56column yes I see that and do you see on
2:55:59the lower right hand corner of this
2:56:01attachment the
2:56:024.27% cost of long-term debt reflected
2:56:05in Mr Johnson's rebuttal
2:56:07testimony yes okay thank you that's all
2:56:11I have uh on this
2:56:14exhibit so at this point I'd like to
2:56:17turn to your answer testimony Dr Deo um
2:56:21this would be uh hearing exhibit uh
2:56:25402 at page
2:56:3357 if we could uh scroll down a little
2:56:37bit
2:56:43please let me make sure I have my pages
2:56:47right oh I apologize I scrolled too far
2:56:50it should be actually at the the top of
2:56:52the page still same
2:56:54page
2:56:56um so just uh just to clarify for just a
2:57:01moment uh on line four is it correct
2:57:04doctor Deo that staff concluded that an
2:57:06Roe of
2:57:077.40% based on capm is
2:57:10appropriate yes so that is the result of
2:57:13your capm model is that correct yes it
2:57:15is yes okay so we could turn to page 28
2:57:20of your answer
2:57:25testimony and I'd like to look at table
2:57:27dd8 on this
2:57:31page so just to kind of level set what
2:57:34the capm represents uh in your analysis
2:57:37the
2:57:397.40% in this table is the average of
2:57:41four different Roe calculations over
2:57:45five through 20 year periods is that
2:57:47right
2:57:48yes okay so just keep that in mind for a
2:57:52moment and if we could now turn to page
2:57:5431 of your answer
2:58:02testimony and there you say staff uses
2:58:05the DCF method to provide a second
2:58:07methodology for calculating Roe is that
2:58:10correct yes now there's not just one DCF
2:58:16method is that right Dr deepo
2:58:18yeah there are two that I have used okay
2:58:21so in the second question and answer on
2:58:24this page if we scroll down a little bit
2:58:28well you you refer to DCF methods in the
2:58:31plural is that correct yes and that's
2:58:35because there can be um in addition to a
2:58:38constant growth uh DCF a multi-stage DCF
2:58:42there could be a two growth DCF is that
2:58:44right
2:58:46yes now on page 34 of your answer
2:58:52testimony at lines 13 through
2:58:5715 here you express uh that there are
2:59:00dangers in analyzing any single firm
2:59:03stock with the constant growth DCF
2:59:05formula is that right yes so is it
2:59:09correct to say that for that reason you
2:59:11do not consider the constant growth DCF
2:59:13to be as reliable as the multi-stage DCF
2:59:16model yes
2:59:18okay and uh and as we already discussed
2:59:21I I think there is a two growth option
2:59:23but you you don't use two growth DCF you
2:59:26use a three stage multi-stage DCF right
2:59:30yes okay is there any reason why you
2:59:33jump straight from a constant growth DCF
2:59:36to a multi-stage
2:59:40DCF well
2:59:43um the growth rates available for the
2:59:46next uh
2:59:48four or five years sometimes for a
2:59:51decade is available from some of the
2:59:54sources that do estimation of growth
2:59:57rates but for the intervening period
3:00:00which is between say 5 to 10 years or 10
3:00:04to 15 years there's usually no Source
3:00:08available so the Assumption typically is
3:00:11that the growth rate assumed in the
3:00:13first phase tapers off to a long-term
3:00:16growth rate which is expected in the
3:00:19third phase so that's why because of
3:00:22lack of data reliable data I chose
3:00:26this are you aware that there are
3:00:29multiple commissions that
3:00:31rely almost entirely on two growth DCF
3:00:35models no I'm not aware of okay if we
3:00:39could turn to uh page 44 of the same
3:00:42document
3:00:44please now in conducting your modeling
3:00:47and here we're looking at the
3:00:49multi-stage um but at lines uh 13 of
3:00:53this
3:00:57page um you say here that when you are
3:01:00conducting your models um first of all
3:01:03again the multistage is more reliable in
3:01:05your view correct yes and then you also
3:01:08say that you that uh quote the gas
3:01:11utility comp comparable companies are
3:01:13better suited for estimations in
3:01:15comparison to the diversity divers ified
3:01:18utility peer group because the company's
3:01:20business profile is that of a gas
3:01:21utility and not a diversified utility is
3:01:24that right yes okay so let's take a look
3:01:27at your multi-stage model if we could um
3:01:30and we can move to page
3:01:3457 so just briefly here and thank you uh
3:01:38I don't know if we have Miss FICO or
3:01:40Miss kungo but thank you for jumping
3:01:41around with me a bit um your multi-stage
3:01:45model result is 8.02%
3:01:48is that right yes okay so I going to ask
3:01:51you to please jump back to page
3:01:5643 and if we look at um this the table
3:02:02[Music]
3:02:05dd13 to get to your multi-stage DCF
3:02:10outcome first of all this is based on
3:02:12five Gas Utilities Roes as calculated
3:02:15using your multi-stage DCF under three
3:02:18scenarios right yes and then you average
3:02:21the results of each of those three
3:02:23scenarios to come up with three
3:02:25individual averages is that right yes
3:02:29and so you have three averages Each of
3:02:31which is the average of five other
3:02:33calculations did I say that right yes
3:02:36and then you average those three
3:02:38averages each of five other averages to
3:02:40come up with your
3:02:418.02% is that right yes okay and then to
3:02:47get to your final result in this or um
3:02:51at page going back to page 57 one more
3:02:55time in order to um come up with your
3:02:59range you have the
3:03:027.40 um capm to your 8.02 multi-stage
3:03:07DCF those those form the bounds of your
3:03:09range is that right
3:03:11yes um and did you factor in your uh
3:03:16analysis speaking to these models at all
3:03:19actual authorized Roes for Gas Utilities
3:03:23in the United States or um for any of
3:03:26the entities in your proxy group or
3:03:29otherwise um well the straight answer is
3:03:32no but there are reasons for that and I
3:03:35can explain um one of the reasons why I
3:03:39thought um
3:03:41similarities of returns are uh doubtful
3:03:45primarily on account of the way those LS
3:03:48are computed so for example from
3:03:51company's
3:03:53own um um mechanism of how they
3:03:57represent cost of capital by using post
3:04:00tax cost of equity and pre-tax cost of
3:04:03debt whereas the other Utilities in
3:04:07other jurisdictions perhaps use post tax
3:04:10cost of debt and post tax cost of equity
3:04:13so in some sense there is a lack of
3:04:15comparability
3:04:17on account of the ways those are
3:04:20computed and of course there are other
3:04:22things which could be different like the
3:04:25pims the clean plans and
3:04:29DSM uh you know uh some of them have
3:04:32historic test years some of them have
3:04:34future test years so to me it appeared
3:04:38that those merely comparing the
3:04:41authorized returns from various
3:04:44jurisdictions are is not a reliable way
3:04:47it will establish Roe or other returns
3:04:50for this case Okay from from a modeling
3:04:53perspective right because you do talk
3:04:54about investor expectations later in
3:04:56your
3:04:58testimony is that right yes I do but not
3:05:02from modeling perspective yes okay so
3:05:06just to clarify your actual recommended
3:05:09range for Roes in this case is 8.75 to
3:05:169.25% or a point uh outcome of 99.0% is
3:05:21that right yes and we'll get to the
3:05:24reasons why in a minute but isn't it
3:05:26also correct that that range has no
3:05:29overlap with your modeling results set
3:05:31forth here on page 57 lines six through
3:05:34eight of your testimony yes and as you
3:05:37can see on this page itself I've
3:05:40explained the rational behind choosing
3:05:42that range yes we will we will get there
3:05:45um and isn't it also true that that um
3:05:48to the extent your um any of those
3:05:52results um well I'll skip that question
3:05:55um let's go ahead and uh turn to Pages
3:05:5857 to 58 here at the bottom so we'll
3:06:00start with line
3:06:0414 here you discuss
3:06:07um why
3:06:11um um that that the company's the
3:06:14staff's Roe conclusions will not impact
3:06:16the company negatively two reasons so
3:06:19I'd like to just talk through those um a
3:06:21little bit but so the first one here is
3:06:25that investors in the marketplace that
3:06:26look for investments in gas utility
3:06:29industry will find that authorized rates
3:06:31of return for the company are comparable
3:06:33to its peers is that right yes and then
3:06:37the second one is that while the company
3:06:39May contend that lower authorized
3:06:40returns provide a negative signal to
3:06:43investors investors weigh earned Roes
3:06:46more than authorized Roes and the
3:06:47company's historical financial
3:06:50performance indicates that the new
3:06:53authorized Roe recommended by staff will
3:06:55align with the company's earned Roes do
3:06:56you see that yes okay
3:07:01so when we look at this this section of
3:07:04your testimony Pages 57 to
3:07:0658 and then if we also skip ahead just
3:07:09briefly to Pages 62 to
3:07:1363 where you have your reconciliation of
3:07:16findings
3:07:18here you talk through some of these
3:07:20considerations but you don't provide a
3:07:22numeric reconciliation between your
3:07:24models and your recommended range
3:07:27correct Dr
3:07:28deepo yes um these are
3:07:33um more subjective understanding of how
3:07:37the company itself and perhaps the
3:07:40investor community may react to the
3:07:42proposals that I set in the testimony
3:07:45okay now you do the the one part I could
3:07:48find where there was maybe some numeric
3:07:52reconciliation was with respect to
3:07:54flotation costs uh which um account for
3:07:59approximately
3:08:000.90% is that
3:08:02right that's suggested by company
3:08:05withness Bley okay and you reject the
3:08:08concept of including flotation costs in
3:08:10an Roe determination is that right yes
3:08:13but at the end of the day flotation
3:08:15costs are not mathematically added or
3:08:17subtracted to either your DCF or capm
3:08:20analyses right yes so they don't really
3:08:23make up any portion of the difference
3:08:24between your analytical outcomes or your
3:08:27or ultimately your 99.0% R
3:08:30recommendation is that right yes they do
3:08:32not okay so going back to page 57 I'd
3:08:37like to just walk briefly through the
3:08:39two um reasons you give why things don't
3:08:43uh or or why uh your modeled Roes um you
3:08:47don't think would negatively affect the
3:08:49company so taking them each in turn um
3:08:53when you say that investors in the
3:08:55marketplace that look for investments in
3:08:57gas utility industry will find that
3:08:59authorized rates of return for the
3:09:00company are comparable to peers because
3:09:03the returns for the company are computed
3:09:05based on the equity betas of the peers
3:09:08where is your comparison to how your
3:09:1099.0% recommendation compares to other
3:09:13Gas Utilities
3:09:15Roes um Dr still about the model the
3:09:20outcomes of the model here okay so where
3:09:23in your testimony do you explain and
3:09:26show how a
3:09:287.40 to 8.02 range would compare to
3:09:32other uh Utilities in the United States
3:09:35authorized
3:09:38Roes well I think um I'm I meant to say
3:09:43that the com the outcome of the modeling
3:09:47is based on comparable datas of the
3:09:49companies which are in the peer
3:09:51group um I didn't mean to say that the
3:09:55authorized rates of returns for other
3:09:58utilities are comparable to these models
3:10:02okay have you run any comparisons and
3:10:05I'll just say because I didn't see any
3:10:06of how an Roe recommendation of 7.4 to
3:10:118.02 would affect the company's credit
3:10:13metrics or credit ratings I don't they
3:10:16didn't see any numeric mod modeling of
3:10:17that I didn't use the outcomes of the
3:10:21models but my final recommendation of 9%
3:10:25was um was tested on that model which um
3:10:30company witness Johnson provided okay
3:10:33and and you heard Mr Johnson say that
3:10:35the model that he provided assumed only
3:10:39staff's uh changes to the cost of
3:10:41capital and did not take into account
3:10:44the other negative impacts of other
3:10:46recommendations the staff may have
3:10:47offered in this case did you hear that I
3:10:51saw the models that he talked about and
3:10:53I think what he used was 8.89 which was
3:10:57lower than the recommendation that I
3:10:59made okay and yeah and I think he
3:11:04still continue to talk about
3:11:07how in gas industry uh in gas
3:11:12business there would be only incremental
3:11:17um reduction in the credit metrics that
3:11:19he showed uh in his repal testimony okay
3:11:24so while on the topic of that uh
3:11:278.89 could we just take a moment here
3:11:29we're g to come back to Mr Dr deo's um
3:11:32answer testimony but could we please
3:11:34pull up uh hearing exhibit 401 rev
3:11:37one that would be um uh staff witness
3:11:41O'Neal's answer testimony
3:12:06sorry it's taking a second to load no
3:12:16problem uh page 16
3:12:23please so uh Dr deepo do you see uh Mr
3:12:29uh Miss O'Neal's table et3 and hearing
3:12:32exhibit 401 uh before you on the screen
3:12:35yes have you reviewed Miss O'Neal's
3:12:38corrected uh answer testimony yes I have
3:12:42and do you see on the line labeled
3:12:44composite
3:12:45Roe that Miss O'Neal showed a Min Roe
3:12:50growth rate of
3:12:528.89% yes and that assumes a cost of um
3:12:58debt of seven uh
3:13:02um no let me rephrase that that assumes
3:13:05um an Roe high-end applied to certain
3:13:09categories of company Investments of
3:13:127.71% yes and um would you agree uh Dr
3:13:17deepo that in looking at a calculation
3:13:21of credit metrics as a result of the
3:13:25staff's proposed cost of capital
3:13:28regardless of whether it was cap uh
3:13:30calculated on a composite average basis
3:13:33or whether you applied one Roe to some
3:13:35components and one Roe to other
3:13:37components at the end of the day that
3:13:40those two different Roes will be
3:13:41factored into what cash flow the company
3:13:44ultimately brings in
3:13:51um I'm I'm not sure what exactly you
3:13:54mean maybe if I rephrase the question it
3:13:56will help would you agree that whatever
3:14:00Roe singular or plural the commission
3:14:03were to adopt would ultimately factor
3:14:06into the company's calculation or or to
3:14:08credit rating agency's calculation of
3:14:10the company's cash flows and therefore
3:14:12its credit
3:14:13metrics objection calls for speculation
3:14:18Miss
3:14:19Brahma I'm asking for his understanding
3:14:22I'm not asking for him to speculate
3:14:23about specifically what they would do
3:14:25but what in the context of the models in
3:14:27this case with respect to credit metrics
3:14:29well I think the question was whether
3:14:31the credit rating agencies or the
3:14:33company would take how they would take
3:14:35this into account certainly he can't
3:14:39speak for them would you rephrase Miss
3:14:41Brahma sure I'd be happy to Dr de at the
3:14:45end of the day when we're running a
3:14:46model uh like the one Mr Johnson
3:14:49provided in this case if you have one or
3:14:51more Roes those both need to be
3:14:54accounted for to properly represent the
3:14:56company's cash flow metrics and
3:14:59therefore its overall credit metrics in
3:15:01those models
3:15:03correct I think that's what he
3:15:06did and I'm asking isn't that what you
3:15:08would need to do to properly reflect
3:15:11what Roes were actually uh awarded in in
3:15:14this uh case
3:15:22yeah I I I haven't done the computation
3:15:25of cash flows and and uh computation of
3:15:30composite rates of return so I'm not
3:15:32sure if that's something that I can
3:15:35attest to okay maybe let me just try it
3:15:37one other way and then we'll move on but
3:15:40Dr deu don't wouldn't you agree that if
3:15:43the
3:15:43commission adopts let's say a 7.7 1% Roe
3:15:48for some portion of assets and a 9.0%
3:15:51roe for other portions of Assets in
3:15:54order to properly reflect cash flows you
3:15:57need to account for both outcomes that
3:15:59the that the commission were to
3:16:00implement is that right yes okay thank
3:16:03you
3:16:06um and just one other question about
3:16:09this particular chart the long-term debt
3:16:13growth column if you could take a look
3:16:15at that please you see the composite Roe
3:16:18that U Miss O'Neal um calculated or had
3:16:22calculated at
3:16:248.50% yes I see that that assumes an Roe
3:16:29growth um rate of long-term debt of
3:16:343.25%
3:16:35correct yes so would you agree that if
3:16:40if the
3:16:423.25% did not properly reflect the cost
3:16:45of long-term debt of the company at a
3:16:48minimum the composite Roe would need to
3:16:50be increased to reflect the the actual
3:16:53cost of long-term
3:16:55debt if that's the hypothetical case
3:16:58we're talking about yes okay thank you
3:17:03um one other just quick question here um
3:17:07with respect to your we're going to go
3:17:08back to your answer testimony at Pages
3:17:1057 to 58 so we're back to hearing
3:17:13exhibit um 402
3:17:17with this this note that investors in
3:17:19the marketplace um look at authorized
3:17:23returns for the company are comparable
3:17:25uh due to betas
3:17:29um at a minimum we would have to compare
3:17:32Gas Utilities is that
3:17:35correct I have com U compared the Gas
3:17:38Utilities SPS okay and have you looked
3:17:42um at the average authorized Roe for
3:17:45National for Natural Gas Utilities in
3:17:47the United States uh for 2024 year to
3:17:49date for
3:17:51example well like I mentioned earlier
3:17:56because of differences in the way those
3:17:58are computed the numbers the authorized
3:18:01rates of returns are not really
3:18:02comparable to my to my understanding so
3:18:06is it your position that the commission
3:18:08should not consider at all whether the
3:18:10company is awarded an
3:18:12Roe that is reasonably comparable to
3:18:15what it would need to to obtain in the
3:18:18marketplace or or what it's not
3:18:20reasonably comparable to whether it's
3:18:22what investors would require of the
3:18:26utility well if I understand how fair
3:18:29and reasonable returns are computed it's
3:18:32based on companies which are similar in
3:18:36business profile similar in in their
3:18:41businesses so to
3:18:42say they should have similar kind of um
3:18:47uh returns and I think that's what I
3:18:51proposed to do in this testimony okay
3:18:54and I guess at the at the end of the day
3:18:56we can look at your testimony as to
3:18:57whether or not you took into account
3:18:59whether your 9.0 or your Model results
3:19:02how they compareed to other um natural
3:19:05gas utility Roes right it's all in the
3:19:09paper is that fair yes it's a proposal
3:19:12that I have um recommended and of course
3:19:15it it can be be considered by anyone
3:19:18else okay let's turn to your second
3:19:20reason here please um which is
3:19:24uh letter B uh starting on line 18 and
3:19:28I'd like to particularly focus on the
3:19:30second sentence of Part B that says the
3:19:32company's historical financial
3:19:34performance indicates the new authorized
3:19:36Roe as recommended by staff will align
3:19:39with the company's earned Roes do you
3:19:41see that yes so given that belief it
3:19:45follows that red reducing the company's
3:19:47Roe in this case will also reduce the
3:19:50company's earnings or it's earned Roe as
3:19:53a result is that fair no that's not what
3:19:57this says what it says is that
3:20:00historically the company has earned
3:20:03rates of returns or Roe to be more
3:20:06precise uh closer to
3:20:098% which is something that the range
3:20:12that I have computed from from the
3:20:14models suggest okay and I guess what I'm
3:20:18asking Dr deepo is when the company has
3:20:21whatever Roe the company has earned in
3:20:232322 and earlier that was under um an
3:20:27authorized Roe that's higher than what
3:20:29you're recommending now is that right
3:20:32yes okay
3:20:35so you also
3:20:39um you you're also indicating that um
3:20:44the new authorized Ro is recommended by
3:20:47staff will align with the company's
3:20:48earned Roes so I'm going to ask if we
3:20:51could please pull up hearing exhibit 400
3:20:55uh rev one and I can give you a chance
3:20:58to pull it up it's this is um Miss uh uh
3:21:02gber zier's uh answer
3:21:12testimony and if we could go to page 58
3:21:18thank
3:21:19you Dr Deepu do you see uh on table
3:21:23ntg8 on page 58 that in
3:21:272023 Public Service earned an Roe of
3:21:305.01% or thereabouts against a range of
3:21:339.2 to
3:21:3699.5% yes I see that do you consider
3:21:40that to be aligned with an an alignment
3:21:43between the earned Roe and the
3:21:45authorized Roe
3:21:49well if you see the numbers for 2022
3:21:532021 and 2022 those are the numbers that
3:21:57align very well with my computered
3:22:00models okay so by aligned you mean
3:22:02anywhere
3:22:03from oh goodness
3:22:07um 12 basis points to something less
3:22:11than 100 basis points below the
3:22:13authorized Roe that's alignment in your
3:22:15view no I'm not talking about the
3:22:18alignment with the authorized Roes that
3:22:20are presented here I'm talking about the
3:22:23author the Roes that I computed with the
3:22:28eared Roes here okay but again in each
3:22:31of these instances the company's earned
3:22:33Roe is well below its authorized Roe
3:22:36correct yes that's observed here okay
3:22:44um would you agree Dr Deepu that in
3:22:48determining a revenue requirement for
3:22:50establishing rates we apply the Roe that
3:22:54the commission authorizes to the rate
3:22:57base uh from the selected test Year yes
3:23:01would you also agree that Roe modeling
3:23:03is intended to assess a reasonable Roe
3:23:06for the company to enable it to access
3:23:08Capital During the period rates will be
3:23:09in effect yes is that latter reason why
3:23:13you look at long-term growth rates to
3:23:15undertake your multi-stage DCF
3:23:19analysis
3:23:20yes
3:23:22um and specifically use a long-term GDP
3:23:26growth rate as the third me metric in
3:23:28your multi-stage DCF analysis is that
3:23:31right yes so for your DCF models is it
3:23:35correct that you use stock prices as of
3:23:38December 31st
3:23:402023 I've used three candidates that's
3:23:44one of them okay let's let's look at
3:23:48um uh page 41 of uh if we could go back
3:23:52to Dr deo's answer testimony
3:24:03please okay so here you looked at in
3:24:06particular
3:24:08um uh the closing price of the stock on
3:24:10December 31
3:24:132023 yes that's the first candidate
3:24:17okay and your uh and and how F how much
3:24:21further into the future did you go than
3:24:22December 31 2023 and calculating your um
3:24:26DCF
3:24:28models um I didn't get the question how
3:24:31far in future did did you use data more
3:24:35recent than December 31
3:24:382023 well if you see the third candidate
3:24:41which is the analyst estimation of fair
3:24:43market values those are typically future
3:24:46IC and the the expectation of these
3:24:50analysts can vary from 3 months to next
3:24:526 months or so okay
3:24:56so but with respect to the closing price
3:24:58of the stock that particular model uh
3:25:02that was what roughly six months before
3:25:05the date of your answer testimony is
3:25:08that right
3:25:11yes and um
3:25:16if we were to just with that particular
3:25:18analysis isn't it correct that if we
3:25:20were to update those stock prices just
3:25:23to June of
3:25:242024 all else equal your DCF analysis
3:25:28would increase by roughly 45 basis
3:25:31points I'm not sure of the prices on
3:25:35June so I can't say Okay um another
3:25:39major difference between you and Miss
3:25:40bulley in your DCF analyses is the
3:25:42growth rate selected is that correct yes
3:25:46and you use a
3:25:483.80% uh rate whereas both Miss bulley
3:25:51and Mr Fernandez for UCA used growth
3:25:53rates between 5.45 and
3:25:565.5% is that correct yes so if we turn
3:26:01to your answer testimony at page
3:26:0839 you speak to um concerns on line 4
3:26:13through S about using long-term GDP
3:26:15growth rates as Perpetual growth rates
3:26:18in view of the company's financial
3:26:20performance that does not appear
3:26:21consistent over the years is that right
3:26:24yes but you still use the long-term GDP
3:26:26growth rates um in in your um
3:26:30analysis yes
3:26:33okay
3:26:39um so if did you do a further
3:26:42calculation to determine what the
3:26:45outcome would be if if we used updated
3:26:47stock prices to June 2024 and the same
3:26:525.45% long-term growth rate that uh Mr
3:26:55Fernandez
3:26:57uses
3:26:58no so if M bulley did that calculation
3:27:02and determined that the resulting
3:27:03average cost of equity would be
3:27:059.72% under your models you'd have no
3:27:08basis to dispute that
3:27:11calculation well with higher growth
3:27:14numbers for used for
3:27:17perpetuity there would certainly be a
3:27:20higher outcome in terms of rate of
3:27:23return yeah so that is expected but I
3:27:26don't agree with 5.44 being the
3:27:28long-term Perpetual growth rate
3:27:31understood okay um last topic Miss uh Dr
3:27:34deepo um I'd like to talk briefly about
3:27:37your capital structure proposal so if we
3:27:39could turn to uh page
3:27:4254 of this testimony at table d d8 on
3:27:47that
3:27:49page um here you identify debt to equity
3:27:53ratios of gas utility uh what you call
3:27:55comparable companies is that right yes
3:27:58and these are gas utility um holding
3:28:02companies Consolidated is that right
3:28:05these are the same companies which are
3:28:06used for Roe determination as well okay
3:28:10and for Roe determinations we have to
3:28:12use the parent company or the or the
3:28:14Consolidated company because that's who
3:28:15issues Equity
3:28:18right yes and are you aware that public
3:28:21service issues its own
3:28:25debt yes are you aware that public
3:28:28service has a standalone credit rating
3:28:31and credit
3:28:32metrics yes and um Public Service
3:28:36Company also has its own capital
3:28:40structure yes and if we were to use EXL
3:28:43Energy's Consolidated metrics for
3:28:46determining the Roe we'd be looking at a
3:28:49um or for for purposes of determining
3:28:51the capital structure excuse me we'd be
3:28:53looking at a comparable Roe of more than
3:28:5810% uh I'm not sure if that's the
3:29:00correct statement but um I think what
3:29:03you're alluding to is
3:29:05the um excel's comparison to these five
3:29:09companies in gas utilities which is not
3:29:11the case these five utilities are
3:29:13comparable to psco
3:29:16okay and and you're saying that because
3:29:18psco also has unregulated functions in
3:29:22your
3:29:23view well none of these um have been
3:29:27contested as comparable
3:29:29company in your Roe estimation these are
3:29:33the same companies that company witness
3:29:36Miss bulley also used for Miss bulley
3:29:39also used for Roe determining purposes
3:29:43not for cap structure determination
3:29:44correct in in one of her annexures she
3:29:47has done the average capital structure
3:29:51using the same companies but with data
3:29:54from 2020 to
3:29:572022 okay so does so that's what you're
3:30:01referring to when you say the same as
3:30:02what Miss bulley did yes okay you don't
3:30:06come up with the same results do you no
3:30:09because the data that I have used is the
3:30:11recent one it's the financial year
3:30:14ending 2023
3:30:16okay and Miss buley doesn't suggest
3:30:18using gas U holding companies as
3:30:20appropriate comparison does
3:30:23she well she has it in in her testimony
3:30:26and draws conclusions from that but that
3:30:28is not the basis for either her or Mr
3:30:30Johnson's recommendation simply showing
3:30:33uh the math is it but does she does
3:30:37suggest that based on the averages for
3:30:40these companies the average the the the
3:30:44range of 55% is okay
3:30:47okay but again that's that's my
3:30:50understanding of her testimony her okay
3:30:53your understanding so at least with
3:30:54respect to miss bulkley and Mr Johnson
3:30:58they are not suggesting that one should
3:31:00rely on holding Consolidated holding
3:31:04companies as the singular basis to set a
3:31:07capital structure are they yes
3:31:10perhaps I'm sorry yes they are or yes
3:31:13yes you think they are relying on that
3:31:17okay all right let's go back to your
3:31:19analysis Dr Deo
3:31:21um in comparing to your utility holding
3:31:24companies here you you show Pesco at
3:31:270855 do you see that yes okay and can
3:31:32you explain how that relates to an
3:31:34equity ratio when we talk in terms of 55
3:31:37or 52 or 54% as opposed to the the way
3:31:41you've shown it here in terms of 1.2 or
3:31:440855
3:31:47so Deb to equity ratio is um I can do
3:31:52the math or compute the formula it's
3:31:54just when you add debt to equity it will
3:31:57become the total Capital so by adding
3:32:00one to it and then taking the inverse
3:32:03you can get equity
3:32:04ratio okay so it's your conclusion um in
3:32:09looking at these analyses that if we
3:32:13turned back uh to page um uh
3:32:2153 and looking at what capital structure
3:32:23to recommend um you looked at these
3:32:26analytics is that right this is from
3:32:29company's response to the Discovery
3:32:31question okay and you say on line 11
3:32:34that these um staff believes that these
3:32:36ratios indicate Good Financial Health
3:32:39yes okay and these ratios uh at the time
3:32:45that they were calculated are based on
3:32:46the company's current equity ratio of
3:32:4955% is that correct yes and they're
3:32:53based on the company's current Roe of
3:32:579.20% as calculated by the company is
3:32:59that right that's the authorized one and
3:33:02they're also based on the company's
3:33:04current inclusion of its directly
3:33:06observable cost of long-term and
3:33:07short-term debt in its whack
3:33:10correct yes and so going back to one of
3:33:13my earlier questions Dr Deo I don't see
3:33:16any calculation in your testimony of
3:33:20what these metrics would look like if
3:33:22staff's proposals were implemented and
3:33:24applied to Public Service going forward
3:33:26is that
3:33:29right um well these are the actual
3:33:32numbers so I can't recompute the actual
3:33:35numbers based on the current suggestions
3:33:38that or recommendations that I have for
3:33:41Roe but for the credit rating metrics
3:33:46that um witness Johnson provided I used
3:33:50my numbers and that's as a that's
3:33:53provided as an attachment to my
3:33:55testimony
3:33:57okay um and of course these analys these
3:34:00metrics because they're based on actuals
3:34:02also don't take into account the
3:34:04potential effects of implementing a
3:34:0613-month average rate base or other
3:34:08adjustments proposed by staff going
3:34:10forward
3:34:11correct these are just responses of
3:34:14companies actual Financial results so I
3:34:17I don't see that happening okay so it's
3:34:20really not possible to speak to the
3:34:23Future Financial Health of the company
3:34:25if all of staff's recommendations or
3:34:27some portion of them were implemented in
3:34:29this case based on these metrics is it
3:34:33there's there's the credit metric
3:34:37illustration that was provided to us
3:34:40by um um company witness Johnson and I
3:34:44used the same mechanism to test it for
3:34:48my
3:34:48recommendation okay so you use this
3:34:51these metrics to determine the company's
3:34:53current Financial Health but looking
3:34:56ahead to try and test where um the
3:34:59company's Financial Health might turn
3:35:01out you looked at Mr Johnson's metrics
3:35:05after you filed your answer testimony no
3:35:08in as part of my answer testimony I have
3:35:12the same illustration that was used by
3:35:14company Fitness John
3:35:16using my recommendation okay uh thank
3:35:20you very much I appreciate it that's all
3:35:22I have for you
3:35:23today thank you uh thank you
3:35:25commissioner plant uh any questions for
3:35:29uh Dr deia I have a no questions for Dr
3:35:33Deo uh commissioner
3:35:36Gman afternoon I also have no
3:35:39question you uh get a free ride Dr to uh
3:35:45uh you uh I guess uh from at least from
3:35:48the Commissioners uh Mr Cox uh any
3:35:53redirect yeah just a little bit of
3:35:55redirect uh thank
3:35:57you um kind of start at the beginning
3:36:01there um you talked do you remember
3:36:05talking with um the company's Council
3:36:09regarding uh the corrections that were
3:36:12made uh regarding the uh pre tax or the
3:36:17tax shield you recall that
3:36:21yes and um if you
3:36:25could you certainly explained it a
3:36:27little bit but if you could clarify a
3:36:29little around your explanation uh on why
3:36:32you didn't make a change to your
3:36:34particular
3:36:36testimony yeah I think I mentioned that
3:36:40um the mechanism of computation of cost
3:36:43of capital is um post tax cost of debt
3:36:48and post tax cost of equity weighted
3:36:51according to their ratios or proportions
3:36:55in the capital structure that's a
3:36:58industrywide practice and
3:37:00typically uh that's what is understood
3:37:04by cost of capital by the investor
3:37:07community so when the company chooses to
3:37:10mix a set of pre-tax numbers
3:37:14and one post tax number it doesn't
3:37:18reflect the
3:37:21real uh cost or returns that are
3:37:25approved by the commission so I I think
3:37:27it has signaling impact for rate payers
3:37:30and investors and you know even other
3:37:34commissions which might consider the
3:37:36authorized rates of Return by this
3:37:38commission so I I thought it would be
3:37:41good to
3:37:42align um the nomenclature and and the
3:37:46way uh cost of capital is com computed
3:37:49based on what everyone else
3:37:54does and so would you say it was more of
3:37:57a nomenclature thing uh versus your
3:38:00actual numbers uh being different yes
3:38:03like I mentioned
3:38:05um
3:38:07the executable submitted with the direct
3:38:10testimony did not have uh a formula for
3:38:14interest computation in the uh uh
3:38:18Revenue requirement and therefore it led
3:38:20to a bit of confusion but it was pointed
3:38:23out to us later that the number was um
3:38:27inclusive of interest tax shield so in
3:38:30terms of Revenue requirement it did not
3:38:32make any change but in terms of
3:38:34nomenclature and syntax it it certainly
3:38:37is worth
3:38:40revisiting thank you um you also recall
3:38:46talking about uh the differences between
3:38:49your analytical results and your final
3:38:52recommendations and the reconciliation
3:38:54of
3:38:55that yes um if you could kind of walk us
3:39:01through your your thought process of how
3:39:03we get from the analytical results um to
3:39:08your final
3:39:10recommendations uh yes I think to begin
3:39:13with I would like to say that when I
3:39:17looked at this question of how much
3:39:19would be the fair and reasonable return
3:39:21I found two sets of data um which had
3:39:27very significant difference in the betas
3:39:30Equity betas and uh because of that I
3:39:34actually took the step of computing
3:39:37betas myself to find which of these sets
3:39:40of data are more aligned with what I
3:39:44understand to be the true or the right
3:39:46methodology of computation of data so I
3:39:50started using that um as The Benchmark
3:39:54for selection of source of data points
3:39:58and I have used SNP and based on the
3:40:01snp's betas the Returns on Equity are in
3:40:06the range of um as as mentioned in my
3:40:10testimony um 7.4 is um the recommended
3:40:15one one based on capm model then again
3:40:19based on DCF models I I computed the
3:40:22rates of return which are around 8.02
3:40:26that's been the
3:40:27recommendation but knowing that these
3:40:31rates
3:40:32are uh smaller than the currently
3:40:35authorized rates of return for the
3:40:38company
3:40:40and well it may be a bit of a
3:40:42speculation as to how the investor
3:40:44community might react but I thought that
3:40:47there is a possibility of applying the
3:40:50philosophy of
3:40:51gradualism so I've have stated in my
3:40:53testimony
3:40:55that it is
3:40:58um mathematically or
3:41:00statistically correct to use
3:41:048.02 or 7.4 to 8.02 numbers for
3:41:09Roe uh but it might lead to a bit of
3:41:13shock to the system
3:41:15uh because it's relatively lower than
3:41:18even the currently authorized Roes so
3:41:21considering that uh aspect of rate
3:41:24making I thought it would be good to
3:41:26move towards that direction in stepwise
3:41:30fashion and I thought from 9.3 to
3:41:33perhaps 9 would be a good step to begin
3:41:38with and you mention your your final
3:41:42recommendation so you have the 9% as as
3:41:45a point recommendation you also have the
3:41:49um Range which goes up to 9.2 9.25 is
3:41:53that correct yes and a
3:41:579.25 would still be within a range
3:42:00that's that's currently approved for um
3:42:05public service is that correct yes
3:42:07that's
3:42:09correct
3:42:10um and talking about
3:42:16capital
3:42:17structure um you were referenced to the
3:42:22use
3:42:23of comparisons to other to the proxy
3:42:27group and Miss boley's comparison uh
3:42:32when she did her
3:42:33calculations um if we could could we
3:42:35pull up um hearing exhibit 102
3:43:06sorry it's just taking me a second to
3:43:07get there sure
3:43:23I'm looking at uh page
3:43:2890 lines 8 through
3:43:3712 so Dr D If You Could Read uh you
3:43:41don't have to read out loud if you could
3:43:42just read to yourself um lines 8 through
3:43:4512 there starts as as shown
3:43:47in
3:44:04yes did you have a chance to read
3:44:06through that
3:44:08yes okay so this is um the equ equity
3:44:13ratios that
3:44:17Miss bulkley compared um as a as a check
3:44:22to determine whether U per proposed rati
3:44:26the the company's proposed ratio U
3:44:30matched up is that fair to say
3:44:34yes now seeing those ranges would um
3:44:42staff's recommendation of 5 2% uh would
3:44:46that fall within those
3:44:50ranges yes and I think
3:44:54um I may not have represented the debt
3:44:57Equity ratios in in the way it is
3:45:00typically being described here but the
3:45:03averages for Gas Utilities that I
3:45:06presented in my testimony is equivalent
3:45:09to 46% equity ratio so um in my
3:45:15testimony I mentioned that the company's
3:45:18proposal is about
3:45:2055% what I computed from the comparable
3:45:24gas utility companies is 46% so 50%
3:45:28would be something that would be in the
3:45:30midpoint and like the Roe recommendation
3:45:34I suggested that considering
3:45:38gradualism we could move in that
3:45:40direction of moving from 55 to 50% over
3:45:44the over the next few years and the
3:45:47first step would be to perhaps consider
3:45:5052% which still would be in the range of
3:45:54approved Equity ratios currently in
3:45:58place
3:46:00sure thank you we can take this exhibit
3:46:04down U just a two more two more items um
3:46:10you also had a discussion about
3:46:13authorized versus earned
3:46:15um and you you
3:46:17discussed uh you know the alignment
3:46:21question do you do you call that
3:46:23conversation yes
3:46:25um
3:46:28and I think the focus was on um the
3:46:32difference between what was being
3:46:34authorized and what was being earned
3:46:39um but is it fair to say that uh it's
3:46:43not automatic that
3:46:45earned Roe will always be below
3:46:48authorized
3:46:50Roe yes um I think it was discussed in
3:46:56the testimony of some of the company
3:46:57witnesses as well that there have been
3:47:00observations that uh some companies have
3:47:05um earned higher returns than those
3:47:09authorized by their respective
3:47:12commissions and the authorized are we is
3:47:15is the opportunity to earn that is that
3:47:17correct
3:47:20yes um then last I just want to revisit
3:47:23your um table
3:47:26dd17 this is in hearing exhibit
3:47:31402 page
3:47:3553 um and you talk you were talking with
3:47:40uh company Council
3:47:42about um
3:47:45what this represents and and
3:47:49potentially can't say exactly what it
3:47:52looks like in the future um but on lines
3:47:5711 through 12 or line 11 and this was
3:48:00quoted staff believes that these ratios
3:48:03indicate Good Financial Health uh so
3:48:07this would would that would that line up
3:48:11uh in having good Financial Health with
3:48:15the
3:48:16current approved cost of capital uh in
3:48:19the last rate gas rate
3:48:22case
3:48:25yes that is all my
3:48:28questions thank you Dr de you may be uh
3:48:32excused thank you sir thank you
3:48:36uh Mr hagland
3:48:53uh can you hold up your right
3:48:56hand do you swear to tell the truth the
3:48:58whole truth and nothing but the truth
3:49:01yes you g put your hand down uh is
3:49:04anyone with you or communicating with
3:49:06you in any way no that changes you'll
3:49:10let us know
3:49:12yes uh Mr cuffs
3:49:16good afternoon Mr hagland how are
3:49:18you good afternoon I'm good thanks um
3:49:22could you please State and spell your
3:49:23name for the
3:49:25record yes my name is Eric hagland
3:49:28that's e r i c h a g luu n
3:49:33d by whom are you employed and what is
3:49:36your
3:49:37title I'm employed by the Colorado
3:49:40Public Utilities Commission I am the
3:49:42chief economist
3:49:44in this proceeding did you cause to be
3:49:46filed answer testimony including attach
3:49:49attachments that been marked as hearing
3:49:52exhibit 4
3:49:5443
3:49:56yes and if I asked you the same
3:49:59questions that are contained in your
3:50:00answer testimony uh would your answers
3:50:02be the
3:50:03same
3:50:06yes thank you chair Mr Haggin is
3:50:08available for cross and commissioner's
3:50:11questions uh Miss hering I have 30
3:50:15minutes thank you good afternoon Mr
3:50:18Hagin my name is Valerie Herring and I
3:50:20represent Public Service in this
3:50:22proceeding you're doing well I am
3:50:26thanks um Mr agan your answer testimony
3:50:28in this proceeding focuses on the
3:50:30company's proposed Revenue stabilization
3:50:33mechanism or RSM is that
3:50:36correct
3:50:37yes and the company's proposed RSM is a
3:50:41full decoupling proposal for both
3:50:43residential and small commercial
3:50:44customer classes based on a total
3:50:47revenues approach is that
3:50:49correct yes and if we can pull up your
3:50:53answer testimony which is hearing
3:50:55exhibit
3:50:57403 do you have and turning to page nine
3:51:01of your answer
3:51:05testimony and specifically I'm going to
3:51:07draw your attention to lines 12 through
3:51:1315 and here you contrast the company's
3:51:16current decoupling Proposal with the
3:51:18company's decoupling proposal that was
3:51:20proposed as part of the company's last
3:51:22rate case is that
3:51:25correct
3:51:26yes and you note that one of the
3:51:29differences is that the prior mechanism
3:51:31used a revenue per customer method right
3:51:33as opposed to the total revenue method
3:51:35we're proposing here
3:51:37right
3:51:39yes as the company's RSM is a full
3:51:44Revenue a coupling mechanism based on
3:51:46total revenue as opposed to revenue per
3:51:49customer you'd agree that this mechanism
3:51:52removes the incentive for the company to
3:51:54add customers to the
3:52:00system um I don't know that I would say
3:52:02that it entirely removes that incentive
3:52:05I think the company can still justify
3:52:08Capital additions through adding
3:52:10customers to the system um so I don't
3:52:15know that it completely and entirely
3:52:17removes that incentive understood not
3:52:20asking whether or not it entirely
3:52:21removes that incentive but goes towards
3:52:24removing that incentive you would agree
3:52:26with
3:52:27that the way I would put it is that the
3:52:29revenue per customer design encourages
3:52:33the company to add customers and at
3:52:35least that incentive is addressed
3:52:38through a total revenues as opposed to
3:52:40revenue per customer
3:52:43approach I'm understod I think we have
3:52:45an have some agreement there um if we
3:52:48can pull up hearing exhibit 500
3:52:51attachment 12 which is uh attachment 12
3:52:54to Corey Sak's
3:53:07testimony Mr Hagin do you recognize this
3:53:10document as the commission's order in
3:53:12the company's last gas rate case
3:53:22um that's what it appears to
3:53:27be and if we can I don't recognize the
3:53:30the decision number off the top of my
3:53:31head but that's that's what it appears
3:53:33to be yeah yeah I I would be afraid if
3:53:36you had memorized all the decision
3:53:37numbers um if we can turn to page 81 of
3:53:41this decision please
3:53:45and specifically I'd like to call your
3:53:46attention to paragraph uh
3:53:49279 which addresses the company's prior
3:53:52proposed a coupling
3:53:54mechanism and here the commission
3:53:56concludes quote um looking at the second
3:53:59line of that paragraph a potential
3:54:01unintended consequence of HP uh
3:54:0621238 is that Revenue decoupling may
3:54:09cause a utility to focus its Financial
3:54:11growth on maintaining and adding
3:54:13customers
3:54:15which is shown by the record in the
3:54:17proceeding further drives capacity
3:54:19investments in the system do you see
3:54:21that yes I see that so one of the
3:54:25concerns the commission had regarding
3:54:26the company's last decoupling proposal
3:54:29was that it could incentivize customer
3:54:31growth
3:54:33correct that was one
3:54:35concern and you'd agree that the total
3:54:38revenue method proposed here for the r
3:54:41RSM would better address that concern
3:54:45you'd agree with that not obviously not
3:54:47completely but better address it I would
3:54:49say that in terms of the incentive to
3:54:51add customers the total revenues
3:54:53approach is an improvement upon the
3:54:55revenue per customer approach
3:54:58yes and if we can flip back to your
3:55:01answer
3:55:02testimony hearing exhibit
3:55:05403 um let's look at page eight of that
3:55:12testimony and here at the top you site
3:55:15to uh house bill
3:55:1721238 is that
3:55:20right
3:55:22yes um and setting aside the discussion
3:55:25about whether the company's current RSM
3:55:28proposal is predicated on the statute
3:55:31you'd agree that this statute as noted
3:55:33in the excerpt that you have here
3:55:35encourages the commission to quote
3:55:37remove disincentives to the
3:55:39implementation of effective gas DSM
3:55:42programs right
3:55:45I think that the in the context of this
3:55:49bill the the language that's quoted here
3:55:52does um refer to decoupling specifically
3:55:57in the context of um removing the
3:56:00disincentive for conservation andbe and
3:56:03in the commission decision that you just
3:56:06um showed me from that previous rate
3:56:08rate case the the commission quite
3:56:12clearly indicated
3:56:14that they were interested in a
3:56:17decoupling
3:56:18mechanism um that narrowly addressed the
3:56:23disincentive to uh promote conservation
3:56:26and beneficial electrification and not a
3:56:28broader type of
3:56:30decoupling thank you um Mr hegland are
3:56:34you generally familiar with the
3:56:35company's clean heat plan
3:56:38filing yes in fact you were a staff
3:56:41witness in that proceeding right yes
3:56:45and as a result you're generally
3:56:47familiar that implementation of the
3:56:49company's clean heat plan is expected to
3:56:51result in significant reductions in gas
3:56:54sales for public service in the near
3:56:58future um yes although I would add that
3:57:03the company separately addressed the
3:57:05diff
3:57:06disincentive of um the the the
3:57:11commission took a different approach
3:57:12approach to incentivizing
3:57:14beneficial electrification and
3:57:16conservation in the clean heat plan than
3:57:17it has done in its traditional DSM
3:57:21programs and I'm not going to get into
3:57:23the details of the clean heat plan with
3:57:25you um I just wanted to get your clar
3:57:28level set that both you and I agree that
3:57:31that plan will result in significant
3:57:33reductions in gas
3:57:34sales yes I agree with
3:57:37that and if we turn to your answer
3:57:40testimony um at page 13
3:57:45and specifically line
3:57:4819 all the way at the bottom and then
3:57:51continuing to page
3:57:5614 here you testify that quote the
3:57:59long-term reductions in gas sales
3:58:01envisioned by envisioned under many of
3:58:03the clean heat scenarios would make the
3:58:06current approach to cost recovery
3:58:08untenable is that your
3:58:10testimony
3:58:13yes and turning to your answer testimony
3:58:16at page 13 lines uh 12 through
3:58:2413 sorry page
3:58:2613 Going
3:58:29Back okay this is page 13 sorry I
3:58:34was y so turning to lines uh there you
3:58:38talk about the company's current uh
3:58:40demand side management acknowledgement
3:58:43of lost revenues or the DSM ALR is that
3:58:48right I'm I'm sorry I'm not seeing that
3:58:51on the
3:58:52screen just a
3:58:57second I'm sorry that was page 14 you're
3:59:00right page
3:59:0113 thought I okay yes there we are so um
3:59:06at lines 12 through 13 yes in the middle
3:59:09of the page there do you see that now
3:59:11and I can State the question again that
3:59:13the company's you're talking here about
3:59:16the company's Uh current demand side
3:59:19management acknowledgement of lost
3:59:21revenues or DSM ALR
3:59:25correct um
3:59:28yes and if we could pull up hearing
3:59:30exhibit uh 171 from the company's box
3:59:52and Mr hagland does this appear to be an
3:59:54accurate copy of the company's tariff
3:59:56related to the company's DSM
4:00:05ALR um it this I believe that this is
4:00:09the
4:00:10DSM tariff I don't see the ALR
4:00:15referenced in the these pages but it's
4:00:18it's pretty small oh okay I see it there
4:00:23yes and if we could turn to the top of
4:00:26the page um on the final page of this
4:00:29exhibit page
4:00:33three and I'm looking specifically here
4:00:36at um number eight it states the and
4:00:40it's talking about the the residential
4:00:42portion of the DS M ALR it says the Rd
4:00:47SM ALR value is the sum of multiplying
4:00:52the dollar per therm value as approved
4:00:54by the commission for residential
4:00:56service times the annual number of
4:00:58therms lost from all residential
4:01:01programs executed during the program
4:01:03year under consideration do you see
4:01:06that
4:01:08yes and so the calculation here for the
4:01:13DSM ALR is based on an annual amount is
4:01:16that
4:01:18correct um
4:01:22yes uh I'd move admission of hearing
4:01:25exhibit
4:01:27171 uh any objection Mr
4:01:31Cox no objection so
4:01:36moved Mr hgin let's turn back to your
4:01:38answer testimony at page 13
4:01:44again lines uh 12 through
4:01:4713 and here you state that the current
4:01:50DSM ALR is likely the not likely not the
4:01:54best mechanism to relieve the upward
4:01:57pressure on rates going forward is that
4:01:59your
4:02:00testimony
4:02:02yes and moving on to page 16 of your
4:02:05answer
4:02:11testimony here at lines 1 through four
4:02:14you highlight another issue with relying
4:02:16on the DSM ALR as you testify quote it's
4:02:20currently unclear whether public service
4:02:23is authorized to use the DSM ALR for
4:02:26loss revenues associated with DSM
4:02:29activities funded by the company's clean
4:02:31heat plan budget is that
4:02:34correct that's
4:02:36correct and it is also true that the
4:02:40current DSM ALR only removes
4:02:43disincentives associated with DSM
4:02:46programs
4:02:49right
4:02:51um yes that's um that's
4:02:56correct and based on what we've
4:02:58discussed so far here today it appears
4:03:00that staff agrees that given the
4:03:02expected future declines in gas sales
4:03:05and the upward and its corresponding
4:03:07upward pressure on rates current
4:03:10approaches to cost recoveries to use
4:03:12your words are untenable and that
4:03:15something must change
4:03:17right well in my testimony I make a
4:03:20distinction between sort of near-term
4:03:22considerations and longer term
4:03:24considerations so in the near term I
4:03:26think the DSM
4:03:28ALR is completely appropriate for
4:03:32removing the disincentive for
4:03:34conservation and be measures and in fact
4:03:37I quote the company's filing saying
4:03:39exactly that that that the company
4:03:41considers it an effective um
4:03:44way to remove the incentive or the
4:03:46disincentive for conservation be so I
4:03:49think the company and I agree that in
4:03:50the short term the DS DSM
4:03:54ALR um fulfills the this purpose that
4:03:58was the um supposed objective of the
4:04:01company's prop proposed RSM I do agree
4:04:04that in the longer term there is a a
4:04:07bigger consideration a bigger question
4:04:10over what the how the commission is
4:04:12going to address the more significant
4:04:13lost revenues associated with sort of
4:04:16the longer term clean heat plan impacts
4:04:19and I think the com the commission
4:04:21rather than sort of on a on
4:04:24a partial record without a full
4:04:28consideration of all the options
4:04:29available to it should not approve the
4:04:32decoupling measure proposed here but
4:04:35should have a wider range of options to
4:04:37choose from um for that to address that
4:04:39longer term issue and Mr Hagin I think
4:04:43uh
4:04:44the company and staff have a
4:04:46disagreement about whether or not the
4:04:47current DSM ALR is sufficient mechanism
4:04:50in the short term but setting setting
4:04:52that dispute aside um both staff and the
4:04:56company agree that in the long term that
4:04:58something needs to
4:05:01change I I think the way that you and I
4:05:04just discussed is in the long term I
4:05:06think existing approaches to cost
4:05:08recovery makes you know are untenable
4:05:12given the volume de L that we expect
4:05:14under clean heat
4:05:20yes and if we could move to page 17 of
4:05:24your answer
4:05:28testimony and specifically lines 15
4:05:31through
4:05:3718 and here you testify that if the
4:05:40commission is interested in
4:05:42considering the decoupling that the
4:05:44commission should order the company to
4:05:46bring another proposal in either a
4:05:48future Phase 2 rate case or a combined
4:05:51phase one or phase two rate case
4:05:53correct
4:05:55yes and you're generally aware that the
4:05:57company's targeting its next uh gas
4:06:00phase rate phase two rate case uh for
4:06:03the end of 2024 25 excuse
4:06:06me I I believe I heard Mr
4:06:10P say something about that when he was
4:06:13on the stand
4:06:15yes and giving that given that timing
4:06:18you'd agree that um your proposal to
4:06:21delay uh implementation of a decoupling
4:06:23mechanism would result in a delay of at
4:06:26least two
4:06:28years that seem
4:06:30reasonable um I I wouldn't speculate as
4:06:34to the timeline it's it's possible that
4:06:36case could settle and it would be quite
4:06:38a bit less than that um I don't
4:06:41I I believe I heard Mr P say that the
4:06:44phase 2 was anticipated in 2025 I don't
4:06:47know that he said at the end of 2025 so
4:06:50I I think there's a lot of um
4:06:52uncertainty around what that timeline
4:06:54would
4:06:54be I think you and I can agree though
4:06:57that um it would be a delay from whether
4:07:00or not a decoupling mechanism is
4:07:02instituted in this case
4:07:05any correct and but as I've testified I
4:07:08think the dsmr is sufficient in the near
4:07:11term
4:07:14let's turn to your answer testimony at
4:07:16page
4:07:2114 and if we can scroll down to lines 13
4:07:25through
4:07:2916 here you testify that staff's quote
4:07:32primary concern with the company's
4:07:34decoupling mechanism or
4:07:36RSM is it'll put rate increases um on
4:07:41autopilot is that correct
4:07:45I think that the overall trend of rate
4:07:48pressure will be upward and that the the
4:07:51tendency of those quarterly filings will
4:07:53be increases and that those quarterly
4:07:56filings are intended to be non-litigated
4:07:59proceedings so it is likely to result in
4:08:02a series of quarterly filings that more
4:08:06frequently increase rates than decrease
4:08:08them and if we can pull up hearing
4:08:11exhibit 116 um
4:08:14attachment jjp 4 which is an attachment
4:08:18to company witness
4:08:20P's testimony direct testimony
4:08:52you said 116 jjp 4 yes okay
4:09:07please and Mr Hagin did you review this
4:09:10um attachment to Mr P's testimony in
4:09:14developing your answer
4:09:19testimony yes I believe I did but it was
4:09:22quite some time ago understood um and at
4:09:26the bottom of this attachment it
4:09:28outlines the different filings that the
4:09:31company will be making related to the
4:09:34RSM proposal do you see
4:09:36those
4:09:38yes so and this is just providing an
4:09:42example but
4:09:44um it shows four filings each year
4:09:47related to the company's RSM is that
4:09:51correct
4:09:53yes and is it your understanding that
4:09:56these quarterly filings will be advice
4:09:58letter filings made on 30 days
4:10:02notice um I believe they would have to
4:10:05be advice litter filings um I'm not sure
4:10:08about the notice right because they're
4:10:11instituting a rate change
4:10:13yes because they're changing the Tariff
4:10:15right um in other words
4:10:18uh the time period between these filings
4:10:22and their effective date would afford
4:10:24staff UCA and other parties time to
4:10:26review the company's
4:10:29filings before
4:10:31those I'm sorry I apologize my dog was
4:10:34barking and I missed the part of your
4:10:35question there could you repeat it
4:10:36please
4:10:38sure
4:10:40um given the delay between the time that
4:10:44these quarterly filings are made and the
4:10:46time that the rates are implemented that
4:10:48would give staff UCA and other parties
4:10:52time to review these filings and
4:10:54determine whether or not they want to
4:10:56protest the
4:10:59RSM it's true that parties would have
4:11:01the opportunity to review and protest um
4:11:04but
4:11:06I you know generally with um rate
4:11:10adjustment
4:11:12Clauses the are set up with the
4:11:14intention that they not be litigated
4:11:16because the the delays caused the delays
4:11:19to implementation caused by litigating
4:11:21them results in a lot of deferred
4:11:24balances and the need for trups and um
4:11:28you know the it's true that parties
4:11:31would have the ability to protest and
4:11:33ask for ask for a hearing um but the
4:11:36expectation that that will happen tends
4:11:38to be lower for rate adjustment Clauses
4:11:40like this and um my the point I'm trying
4:11:43to make with the not wanting to put the
4:11:47likely rate increases on autopilot as I
4:11:50put it in my testimony is that
4:11:54um it would be unlikely that parties
4:11:57would protest because such increases
4:12:00could
4:12:01follow the approved mechanism from this
4:12:04proceeding I'm not disputing that the
4:12:06company would follow whatever mechanism
4:12:08was approved in this proceeding so it
4:12:10may not justify a protest what I'm
4:12:12saying is that the effect of these
4:12:15likely
4:12:16increases over time is significant and I
4:12:19think the commission should given the
4:12:21uncertainty around how quickly gas sales
4:12:24might Decline and what impacts that's
4:12:26going to have on rates I think the
4:12:27commission wants to keep the commission
4:12:30would be wise to keep this issue sort of
4:12:31in front of it where it can really
4:12:33address these rate increases as they
4:12:35happen and not allow them to occur in
4:12:37the background little bit by little bit
4:12:39before being able to recognize that
4:12:42there's a a problem
4:12:44Mr Hagin as you admitted parties UCA
4:12:48staff would all have the opportunity to
4:12:50review these filings and make a
4:12:52determination about whether or not they
4:12:54want to protest them
4:12:55correct that's true it wouldn't happen
4:12:57automatically okay um and the company's
4:13:01proposed RSM would also be subject to
4:13:03full review and adjustment in any future
4:13:06rate case
4:13:08correct I would expect so yes and this
4:13:11would include both future phase one and
4:13:13phase two rate cases
4:13:17correct
4:13:21um I'm not sure I I it it
4:13:25probably it would definitely happen in
4:13:28phase one because the amount of total
4:13:31revenues that the the RSM is designed to
4:13:35recover are determined in Phase One
4:13:36cases I suppose it
4:13:39would to the extent it came up in phase
4:13:42two at all not sure that it would be a
4:13:43litigated issue because whatever class
4:13:47cost allocations result from a phase 2
4:13:49rate
4:13:51case might just flow into the decoupling
4:13:53me mechanism through a compliance filing
4:13:55I'm not I'm not sure that that would be
4:13:57a litigated
4:13:58issue okay but it could be an issue
4:14:00that's raised by parties in a phase to
4:14:02case you'd agree with
4:14:03that it could
4:14:05be um and you would agree that recently
4:14:08the company's been filing Phase 2 rate
4:14:10cases on a fairly regular Cadence
4:14:15correct
4:14:17um I'm not
4:14:19sure what you characteriz about every
4:14:21two years the company's been filing gas
4:14:24rate cases Phase One Rate cases phase
4:14:27one
4:14:29sorry you'd agree with
4:14:32that and in addition to the quarterly
4:14:34filings and review in future rate cases
4:14:37the commission could also order the
4:14:39company to file any other information it
4:14:41felt was necessary to monitor the
4:14:44implementation and effectiveness of the
4:14:46RSM
4:14:47correct yes it could order
4:14:50that I have nothing further for this
4:14:56witness uh commissioner plant any
4:14:59questions um I do not have any questions
4:15:02commissioner
4:15:04Gman afternoon I don't have any
4:15:07questions either uh nor do I uh any
4:15:11redirect uh Mr Co
4:15:14yes I do have
4:15:16some um Mr Haggin uh do you remember uh
4:15:21we looked at your answer testimony and
4:15:24uh specifically the portion that was
4:15:26talking about
4:15:28hb21
4:15:301238 um about the about removing
4:15:34incentives for DSM do you recall that
4:15:39yes and when you were discussing that
4:15:41portion uh you weren't providing a legal
4:15:45opinion were
4:15:46you
4:15:51no and along those same lines do you
4:15:54recall con the conversation um you asked
4:15:57several questions about um the current
4:16:02proposed decoupling mechanism the
4:16:05RSM and whether that RSM has removed the
4:16:09incentives for adding new
4:16:11customers yes
4:16:14are
4:16:15there can you tell us are there other
4:16:17ways to discourage adding new customers
4:16:19to the company
4:16:21system um well I would certainly point
4:16:24to uh the recommendation of Staff
4:16:28witness O'Neal um which I'm sure will be
4:16:31discussed uh shortly but um I think
4:16:33that's a a a recommendation very uh
4:16:37explicitly targeted at removing the
4:16:39incentive to add new customers um so
4:16:41that would be the main one I would
4:16:45so
4:16:46decoupling would you say is that's not
4:16:48the only
4:16:50way no and and I I would point out that
4:16:53the the company does not
4:16:58um that's not the reason that the
4:17:00company provides for making this
4:17:01proposal here the the rationale the
4:17:04company provides for making this
4:17:05proposal is to remove the disincentive
4:17:08for conservation
4:17:10andbe as I've quoted the company in
4:17:13testimony the company has also
4:17:15explicitly stated that the
4:17:18dsmr effectively removes that
4:17:20disincentive so in my view the company's
4:17:24proposal does not
4:17:26um does not accomplish anything
4:17:29additional in terms of removing that
4:17:31disincentive it has the effect of uh
4:17:34shifting risk of under recovery from the
4:17:37company to rate
4:17:41payers and
4:17:44you also recall talking about the clean
4:17:47heat plan where you were asked if it
4:17:50will reduce sales for the
4:17:52company
4:17:55yes and did the clean heat plan include
4:17:58incentives for the
4:18:00company it did um it allows the company
4:18:04to treat rebates for um DSM and be
4:18:08effectively like Capital expenditures it
4:18:10allows them to amortise those rebates
4:18:12over four years and collect and uh
4:18:16recover the uh unrecovered balanced with
4:18:19a with interest at the company's whack
4:18:23um so that was the incentive that the
4:18:26commission chose to approve for those
4:18:29those um
4:18:31rebates which I think that's also a
4:18:35version of what the company proposed in
4:18:37that proceeding so um I think my
4:18:40recollection of that proceeding is
4:18:44um that was the uh incentive the company
4:18:49needed to uh be motivated to carry out
4:18:52those
4:18:54programs and how much of the rate
4:18:57increase for the clean heat plan was
4:18:59attributed to reduce gas
4:19:01sales according to the modeling that um
4:19:06there were there were several iterations
4:19:08of the modeling in that proceeding um
4:19:10the model that the commission primarily
4:19:12relied on um and references multiple
4:19:15times in its decision
4:19:18um
4:19:20forecasts a
4:19:227% um increase in gas rates I believe
4:19:27this is by
4:19:2820208 I'm sorry if I don't have that the
4:19:31reference is is accurate in my testimony
4:19:33um only one percentage point of which is
4:19:36attributable to the decline in sales
4:19:41volumes um
4:19:43and could you please expl expand on
4:19:45staff's position on what is best for the
4:19:48long term and short term to address cost
4:19:51recovery based
4:19:52on volume
4:19:54declines well I think the long term is a
4:19:58difficult question that that the
4:19:59commission is going to have to put a lot
4:20:01of thought into and consider a wide
4:20:03range of options because I think
4:20:06it's these clean heat plans are really
4:20:09trying something that hasn't been done
4:20:10for Gas Utilities anywhere and so it's
4:20:12really a a qu it's an issue of first
4:20:15impression um like many aspects of the
4:20:17clean hate plan that this this
4:20:19commission is going to have to be kind
4:20:21of a Nation leing voice on on what to do
4:20:24about that and it's a really tough
4:20:25question which is why I think the
4:20:27commission would be um in a better
4:20:31position to consider its options if it
4:20:34had sort
4:20:36of a range of cost recovery options
4:20:39before it um at the same time so I've
4:20:44discussed you know some of those options
4:20:46one option is some version of Revenue
4:20:49decoupling there are rate design options
4:20:52there are options that could involve
4:20:54using some of the electric utilities
4:20:56revenues to offset some gas revenues
4:20:59that are lost um and I would I would
4:21:01think that the company would be best
4:21:03positioned to weigh among those options
4:21:06and potentially combine them or choose
4:21:09one if all of those were presented um at
4:21:12at the same time and I think that that
4:21:14that's why I don't approve um I don't
4:21:17recommend approval of the proposal in
4:21:20this proceeding and also because I think
4:21:22in the near term given the existence and
4:21:25the recent approval of the dsmr the
4:21:28coupling is simply not
4:21:31necessary and do you recall uh when you
4:21:34were asked about the timing of the
4:21:36company's next phase two
4:21:39proceeding
4:21:40yes um
4:21:43and in your testimony are you
4:21:46recommending um that the phase two
4:21:48proceeding be sooner and towards the end
4:21:51of
4:21:532025 I've I've made no recommendation
4:21:55about the timing of that only that um if
4:21:58the company wants to consider or excuse
4:22:01me if the commission wants to consider a
4:22:04decoupling proposal it could order the
4:22:06company to bring a proposal back in a
4:22:09phase two or combined phase one and
4:22:11phase two proceeding
4:22:13that would better allow for it to um
4:22:16consider decoupling alongside some of
4:22:17those other options I I
4:22:20mentioned are you aware of of any other
4:22:23staff Witnesses are recommending a
4:22:25sooner
4:22:29proceeding I am
4:22:32not okay um let's move on to kind of the
4:22:36last part you were talking about uh
4:22:38quarterly
4:22:39filings um do you recall that
4:22:44yes how often uh does the Commission
4:22:47suspend quarterly rate adjustments your
4:22:51experience um it's it's fairly rare um
4:22:56it's fairly rare that they're
4:22:58protested um
4:23:01so like as I was saying I think the the
4:23:04intent of those is to avoid litigation
4:23:09um and you know I think
4:23:12the um the line of question about the
4:23:16opportunity to protest those filings is
4:23:22um it's different than the point I was
4:23:25trying to make in my testimony which is
4:23:27not to suggest that there those filings
4:23:29would
4:23:30be improper or that there would be
4:23:32something necessarily to protest about
4:23:34them but that but that even if correctly
4:23:39implemented in accordance with the
4:23:40commission decision that those filings
4:23:43would likely bring about an accumulation
4:23:47of small rate increases um and that
4:23:49generally I think
4:23:51that rather than have a series of small
4:23:55rate increases happening in the
4:23:56background where they're not likely to
4:23:58get the kind of attention they'll get in
4:24:00a litigated rate case um it would be
4:24:02preferable to have them presented in a
4:24:04rate case
4:24:07um where the commission can can sort of
4:24:09consider the big picture
4:24:14and and based on your experience if the
4:24:17fold decoupling is approved uh would you
4:24:21expect uh the company to file less
4:24:23frequent Ray
4:24:26cases
4:24:28um I think that is one likely outcome um
4:24:33that I think both because of the
4:24:35declining sales volumes because of clean
4:24:37heat and DSM but
4:24:39because um
4:24:44the pressure
4:24:48on um sales resulting from climate
4:24:51change is likely to
4:24:54be it puts the company in a position
4:24:56that they're likely to they're more
4:24:58likely to under recover because of warm
4:25:01Winters than over recover because of
4:25:04cold Winters um and I think that their
4:25:07full
4:25:08decoupling um removes all the weather
4:25:11related risk of under recovery under
4:25:13recovery from the company so that could
4:25:15have the effect of prolonging the period
4:25:17between rate
4:25:20cases thank you Mr haglin no more
4:25:23questions uh thank you Mr Haggin you may
4:25:26be
4:25:28excused um I guess uh um commissioner
4:25:32Gman I think you and I had uh questions
4:25:36for Mr Rivera Lugo but I think I got
4:25:40mine answer do you still have question
4:25:42questions for Mr Rivera Lugo or should
4:25:44we uh let him
4:25:47go I don't but I I didn't write down
4:25:50that public service wave their across so
4:25:52maybe I missed something oh did I get
4:25:55that wrong uh I showed them with 45
4:25:57minutes but I'm not the official Record
4:26:01Keeper uh did you wave your Crosser Mr
4:26:03Lugo or Rivera Lugo or did I get that
4:26:06wrong no we had we had intended uh
4:26:09Commissioners to wave our cross we just
4:26:11needed to have a little bit of
4:26:12preliminary with Miss O'Neal to confirm
4:26:14that but we're quite sure we'll wave our
4:26:18Cross of Miss ver Lugo as soon as that's
4:26:20done all right uh so uh Mr Rivera Lugo
4:26:25you may be free but uh we'll keep you
4:26:28posted uh so I guess uh we'll start with
4:26:32uh uh Miss O'Neal tomorrow uh tomorrow
4:26:35miss Brahma any uh final thoughts before
4:26:38we
4:26:39adjourn the only thought was whether it
4:26:42made some sense to have the
4:26:43preliminaries with Miss O'Neal so that
4:26:45we get that all the way we can get Mr
4:26:46Rivera Lugo waved but if the commission
4:26:48prefers tomorrow that's just fine with
4:26:50us as well oh uh we can do that uh I'll
4:26:54I'll do that in a second uh uh
4:26:57commissioner plan uh commissioner Gan uh
4:27:01I think you had an issue commissioner
4:27:02plant yeah I'm gonna um be out tomorrow
4:27:06but I'll uh follow up with the the
4:27:09recording and uh catch up
4:27:12uh that'd be great uh all right let's uh
4:27:15just uh bring Miss O'Neal on for a few
4:27:18minutes we're not going to try and
4:27:19finish her tonight um misso can you
4:27:22raise your right hand do you swear to
4:27:25tell the truth the whole truth and
4:27:26nothing but the truth I
4:27:28do uh is anybody with you or
4:27:31communicating with you in any way no
4:27:34that changes will you let us know I
4:27:37will uh Miss
4:27:39mlin uh yes this will be very brief
4:27:42um but could you please State and spell
4:27:44your name for the record Miss O'Neal yes
4:27:46my name is Aaron O'Neal first name is
4:27:49Aaron e r i n and last name is o
4:27:52apostrophe n e i l l and by whom are you
4:27:57employed and in what capacity I employed
4:28:00by the Colorado Public Utilities
4:28:01Commission as the deputy director of
4:28:03fixed
4:28:04utilities and did you cause to be filed
4:28:07what has been marked as hearing exhibit
4:28:09401 rev 1 the answer testimony of staff
4:28:18witness um I'm sorry you cut out from m
4:28:21mclin is that happening for anybody
4:28:25else too okay maybe I'll turn my video
4:28:28off and see if that helps with a little
4:28:30bit of the connection are you able to
4:28:32hear me yes okay Miss O'Neal can you
4:28:35hear me yes okay I'll say that again did
4:28:38you cause to be filed what has been
4:28:40marked as hearing exhibit 401 rev one
4:28:43the answer testimony of Staff witness
4:28:46O'Neal yes and are you familiar with
4:28:49hearing exhibit 400 rev one the answer
4:28:52testimony of Staff witness Gabe
4:28:55brear yes and are you adopting the
4:28:57answer testimony of Staff witness gabre
4:28:59zabar yes now if I were to ask you the
4:29:03questions in your answer testimony and
4:29:05the answer testimony of Staff witness
4:29:07ggar today would your answers be the
4:29:10same they would and I have a couple
4:29:13questions for you to help streamline one
4:29:15issue this is what Miss brahmo is
4:29:18discussing um this issue the company and
4:29:22staff are a little bit more aligned than
4:29:23what was originally thought at the
4:29:25beginning of this hearing did you have a
4:29:27chance to listen to company witness
4:29:29Burman testify last week I did so you
4:29:33heard the questions that I asked of him
4:29:35related to net Salvage and a
4:29:37depreciation study I did and you heard
4:29:40the answers he also gave in relation to
4:29:42net Salvage and a depreciation study
4:29:45during the company's redirect of Mr
4:29:47Burman yes and what is staff's
4:29:50recommendation on these
4:29:51issues staff's recommendation is that um
4:29:55all the you know the options regarding
4:29:58net Salvage should be addressed in a
4:30:00standalone depreciation study staff is
4:30:02not recommending a a change to the
4:30:05company's Revenue requirement
4:30:06calculation um for a change in net
4:30:09Salvage methodology in this proceeding
4:30:12staff believes that the commission
4:30:14should have a full analysis of the
4:30:16different methodologies and the impacts
4:30:18of those and that that would be best
4:30:19accomplished through a standalone
4:30:21depreciation study so staff recommends
4:30:24the commission order a depreciation
4:30:26study that presents different options
4:30:29for treatment of the net salvage
4:30:32value and does that align with the
4:30:34testimony you heard of Mr Burman which
4:30:36was provided last week yes I think Mr
4:30:40Burman um acknowledge that that the
4:30:43staff that excuse me that the company
4:30:44was willing to provide such information
4:30:46to the uh to the
4:30:49commission I have no further questions
4:30:52on this issue and I'm assuming that we
4:30:54will start the rest of the Cross
4:30:56examination tomorrow morning but I
4:30:58wanted to make sure uh Miss Brahma had
4:31:01the opportunity to see if that resolved
4:31:03the issues that we
4:31:05had uh thank you uh commissioner Gman
4:31:09any final uh I think uh you're free Miss
4:31:13until tomorrow morning uh no nothing
4:31:16additional uh any final thoughts before
4:31:18we adjourn for the
4:31:21evening the company will officially wave
4:31:23the cross of of Mr Rivera Le Lugo so
4:31:26just thought we put that on the record
4:31:27at this
4:31:28time uh thanks see everybody tomorrow at
4:31:409ine e

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