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28:59good morning
29:02we're back in the Public Service Company
29:05in Colorado Gaz rase 24
29:11al-49 G is the court reporter Miss Boule
29:16are you
29:17ready I am
29:19ready um Miss
29:22Brahma miss mclin any preliminary
29:25matters or are you guys ready to jump
29:28into uh Miss
29:30O'Neal just one quick preliminary uh
29:33matter Mr chair we are um uh having some
29:37conversations with UCA about that may
29:39affect uh potentially whether we have
29:42crossed from Mr Sak or how much um so we
29:45are we'll report back but hopefully we
29:47can shorten that up for you quite a bit
29:49or Al together so just waiting to hear
29:52God
29:54speed uh uh missel do you remember
29:58uh do you recall that you're still uh
30:00under oath
30:02yes Miss Brahma you're up I have uh 60
30:07minutes thank you I I hope not to use
30:09all of that I'm sure everyone would like
30:10to be finished um good morning Miss
30:12O'Neal thanks for uh helping us with
30:14them preliminaries yesterday and coming
30:16back today I'd like to talk a little bit
30:18about your um uh your what we've been
30:22calling your differentiated Roe proposal
30:24the fact that um the the staff is is
30:28proposing that the commission should
30:29apply a lower Roe and whack to new
30:31business and capacity investments in
30:33this case than it applies to other
30:34investments in the case uh is that a
30:37fair characterization of that proposal
30:40yes I think that's a fair
30:41characterization okay um and your
30:44proposal is that the commission should
30:46not apply whatever it sets as the
30:48authorized Roe to new business and
30:50capacity Investments um which staff
30:53proposes to be 9% but where rather
30:55should reduce the Roe for those
30:57Investments to somewhere between 3.25
31:00and
31:017.71% is that right so I think the thing
31:04that's important um about the proposal
31:06is that the intent here is to say that
31:09the commission should set the Roe for
31:12new business and comp capacity expansion
31:15at the lowest the lowest end of the
31:18range of what the commission deems to be
31:19reasonable the numbers that that you
31:22referenced are what staff witness Depo
31:25calculated as sort of you know the top
31:27end of that range is the the bottom of
31:30his modeled range of what his model
31:33suggested would be reasonable um as an
31:36Roe range for the company's assets um
31:39and the intent of my recommendation is
31:41to say that the commission should set
31:42the the Roe for new business at the
31:45lowest end of the you know whatever the
31:47commission determines to be the
31:49reasonable range okay so to be fair
31:51though Dr deo's recommendation as we
31:54discussed yesterday is 99.0% within a
31:57range of 8.7% to
32:009.25% correct that's what he recommended
32:03to to the commission his modeling
32:05suggests that the commission could um
32:09and that that he believes that the
32:11capital markets would support a lower
32:13Roe okay I'm if we could pull up please
32:16um exhibit uh hearing exhibit 402 Dr
32:20deo's recommendation or answer
32:22testimony uh particularly page 70
32:28sorry did you say seven or 7D uh page 70
32:31hearing exhibit 402 thank
32:43you so here on the screen we have Dr
32:46deo's recommendations which state uh on
32:50lines four to five staff's final
32:52recommendations are as follows approve
32:54Roe of 99.0% or range of Roe from 8.75
32:58to
32:599.25% did I read that correctly you did
33:03okay and that is Dr deepo would say if
33:06he had a different recommendation in his
33:07testimony presumably
33:09correct you would say if he had a
33:11different recommendation okay so we can
33:14take this down um but turning to your
33:18testimony um Miss O'Neal um then
33:247.71% maybe it would be helpful if we
33:26pull up uh answer testimony hearing
33:29exhibit
33:30401 at page
33:3516 thank you so um looking at the line
33:42um that says Roe growth on this table
33:45eto3 in your answer
33:48testimony um those are the Min Roe
33:52growth and the long-term debt growth
33:54rates that you identify as uh
33:57potentially appable to new business and
33:59capacity Investments under staff's
34:01proposal correct
34:04correct um and the
34:097.71% are you aware that it's based on
34:11the average results of two different
34:14models which were themselves the average
34:15of multip of other modeling calculations
34:19that were further
34:21averaged um yes I am not the Roe witness
34:25so that is not my testimony but but yes
34:28I understand that that was Mr Depo Dr
34:30depo's method okay so if any of those
34:34averages was based on an incorrect
34:36methodology or calculation that affected
34:39the
34:397.71% that would also affect the number
34:42in your testimony is that
34:44right if it were demonstrated that that
34:48there was an error in one of those it
34:49would change the math yes in either
34:52direction I appreciate that just
34:54exploring the relationship between his
34:56recommendations and yours
34:58and the
34:593.25% is based on what witness Deo calls
35:02the company's effective interest rate
35:04rather than the company's um observable
35:07total cost of long-term debt is that
35:10right um can you point me to where that
35:13he makes that statement in in testimony
35:16sure um let me just find it real quick
35:27if we go back to Dr deo's
35:31um uh hearing exhibit 402 at page
35:3948 this is what he calls the effective
35:42interest rates on borrowings and for
35:45fiscal year 2023
35:473.25% is that
35:49right uh that is how it is labeled yes
35:52okay so if he were incorrect about this
35:56being the company's actual cost of
35:58long-term debt again would you agree
36:00that that would change the actual cost
36:02of long-term debt in your Roe growth
36:04rate in your
36:05testimony yes that was intended to
36:07reflect his recommendation and or
36:10whatever is determined to be the
36:11appropriate long-term cost of debt um
36:13with company okay thank you um could we
36:17go back to hearing exhibit uh 401 Miss
36:20O'Neal's answer testimony and that chart
36:23uh table E3 thank you um so coming back
36:27to your um recommendations or or numbers
36:30in this table the
36:337.71% Roe growth equates ultimately to a
36:37proposed composite Roe of
36:408.89% is that
36:42right yes although to be clear as you as
36:45you sort of articulated my proposal in
36:48the beginning the intent is to apply a
36:50different Roe to different investment
36:53the result is you know works out as a
36:56composite Roe but the intent isn't to
36:58just apply a single Roe it's to have a
37:01different differentiated Roe for
37:03different
37:04Investments understand but the effective
37:06outcome in terms of the company's
37:08Revenue requirement whether you split
37:10them out or whether you apply a
37:11composite Roe is effectively the
37:14same is that
37:16correct I think it depends on how how
37:19big you're asking the question so in
37:21terms of the revenue requirement that
37:22the company is allow you know is
37:25authorized or you know the basis for its
37:27rates yes in terms of the incentive to
37:30the company I would say no that the fact
37:33that the lower Roe is tied to business
37:37to new business and growth um hopefully
37:40the intent is to provide an incentive
37:42for the company to address those kinds
37:44of Investments so in terms of the
37:45revenue requirement calculation yes the
37:48composite Roe reaches the same result in
37:51terms of what is intended as a long-term
37:53Focus for the company in terms of
37:55thinking about its Investments and and
37:58other actions no is it your intention
38:01then to disaggregate the incentive from
38:03the financial impact to the
38:08company I think the incentive is a
38:10financial impact to the company so I'm
38:12not sure how they would be
38:16disaggregated that's I think that maybe
38:19is um fair but it comes back to the
38:21issue of at the end of the day whether
38:24you calculate the Roe as a composite 8
38:2789 or
38:288.5 versus calculating it one Roe for
38:32certain C assets and a different Roe for
38:34other assets the financial impact to the
38:36company is the same
38:38right I I think that's what I at least
38:41meant to say that yes the the math and
38:43the revenue requirements will work out
38:45the same okay um can you I did not find
38:51in your testimony anywhere where you
38:52showed the specific math behind the
38:558.89%
38:58um but it so I'd like to talk about that
39:02a little bit um with you
39:07um specifically I think we talked about
39:09this earlier but at a high level again
39:11we're applying
39:129.0% to all capital Investments other
39:15than new business and capacity where
39:17we're applying the
39:197.71% at least as it relates to the
39:22higher of your composite Roes right
39:25correct it's intended to be a weighted
39:26average of the new and expansion growth
39:29you know since the last rate case and
39:32all other uh rate base would be at the
39:35the higher part so I'd like to just talk
39:39about the math involved in your
39:40calculations so if we could pull up
39:42hearing exhibit
39:44156 from uh the company's box please
40:06okay so if we could scroll down just a
40:08little bit so miss O'Neal can see what
40:09this
40:10is um here we have on the screen uh the
40:14company's Discovery request uh 7-1 to
40:17staff um and uh staff's response and if
40:21we could scroll down just a little bit
40:23so miss O'Neil can see the responder on
40:26this
40:32could we could we scroll down to see the
40:34signature uh line just so she can see
40:36the complete document and you're the
40:39sponsor of this response correct Miss
40:40O'Neal correct do you recognize this um
40:44Discovery response I do uh do you need a
40:48moment to take a look at it to refresh
40:49your memory of what it
40:51says uh sure if you could scroll back up
40:54to the main uh section the previous page
41:18okay okay so here you show your math is
41:22multiplying uh 366 million time the 7.71
41:271% and then to the result of that
41:31multiplication you add um the result of
41:33multiplying 3.81 or uh 3,811 million uh
41:39times uh 9% and then divide that by
41:42total rate base to get your 8.89% is
41:44that right that's correct okay
41:48so I'd like to
41:51um just in the second paragraph here
41:54below the actual
41:56calculation uh you note that the 366
41:59million of rate base is found in the
42:02direct testimony of company witness
42:04Gardener hearing exhibit
42:06105 at page 13 and table ARG D1 correct
42:12correct could we please pull up hearing
42:14exhibit 105 at page 13
42:21briefly M I'm going can you um tell me
42:24the name of the witness that's with that
42:26sometimes helps me find it a little
42:27quicker yes of course sorry about that
42:29Ray Gardner the a ray Gardner thank
42:51you and we are going to page 13
42:58okay so here is the source of that
43:02366 million I believe um that you
43:07referenced in that Discovery response
43:09and if I understood it correctly you
43:11were saying that the 366 million is the
43:14addition of uh the
43:172 uh
43:1938.1
43:21million maybe just to back up one second
43:23the 300 first of all we're going to look
43:25at the total addition since 2020 21 test
43:27year column so I'll direct your
43:29attention there and my understanding is
43:33that your uh 366 million is the sum of
43:38the 238.9 million for new business plus
43:41the 127.66
43:57and so if we scroll up to page 12 and
44:00the question that this table is in
44:03response to it says please summarize the
44:06capital additions included in this rate
44:08case with respect to Mr Gardner is that
44:11correct that's correct okay
44:15so to be clear we're talking about
44:18Capital additions in Mr Gardner's table
44:22that forms the basis for your
44:23calculation correct correct okay
44:27so then the second part of your
44:29calculation of an 8.89% Roe is to apply
44:33the recommended 99.0% Roe to the total
44:36rate base estimate in witness freedus is
44:39cost of service minus the capacity in
44:41the business projects right correct okay
44:45so miss O'Neal you've been around cost
44:48of service for quite a long time I
44:50imagine it's been a while okay but there
44:53are components of capital Investments
44:55that appear in rate base but not in
44:57capital additions such as rhip and afudc
45:00correct that's correct and so the
45:04reality is that if you're subtracting
45:06Capital additions without the offsetting
45:08afudc and R whip from Total rate base
45:11that includes those
45:13items uh you have a mismatch between
45:16Capital additions and rate base don't
45:18you yes I do and so if you were properly
45:22comparing rate base to rate base or
45:24Capital additions to Capital additions
45:27the dollar value to which you applying
45:29that lower
45:307.71% Roe would also be lower is that
45:33correct correct okay and so then
45:37ultimately that means the portion you
45:39applying the 99.0% would be higher and
45:42the total 8.89% composite whack should
45:45also be a higher composite is that
45:48correct okay adjusted and without taking
45:51you through the whole analysis with
45:53respect to your Roe growth uh in the 3
45:57to 5% and the 8.5% composite Roe we'd
46:01have the same result with the same math
46:02is that
46:05right maybe that's not a fair
46:08question issue we have the same concern
46:11or the same issue with how the 88.5% was
46:13calculated we're comparing Capital
46:15additions to rate base and if done
46:17correctly rate base to rate base the
46:198.50% would ultimately be higher as well
46:23yeah the the intent was to to calculate
46:25the weighted average of the the the rate
46:27based impact of these Capital additions
46:30okay and and all of this is sort of
46:32independent of whether the long-term
46:34debt rate in your um long-term debt
46:38growth comparison is is accurate or or
46:40is too low
46:43correct okay they seem like different
46:45issues yes yes okay um I'd like to go
46:50back to your answer testimony please um
46:54and if we could go to uh Miss oal answer
46:58testimony hearing exhibit 401 at page
47:0812
47:11so I'd like to talk about um your
47:14comment uh on page 12 lines 15 to 17 so
47:17the second Q&A on this page and your
47:21comment that staff's analysis found that
47:23the investments in um in uh new business
47:28and uh and and capacity expansion are
47:32increasing would you agree with me that
47:35in the 2020 uh maybe I'm sorry scroll
47:38down just a little bit further if we
47:39could to the next
47:41page like to look at table
47:44eto2 thank
47:46you would you agree with me that in the
47:492020 case roughly 39% of the company's
47:53Capital additions were new business by
47:55this table
47:59um I will accept your math you're can
48:02you clarify which two lines you're
48:03comparing to get to the 39% sure I'm I'm
48:07looking at the
48:08323.2 million divided by the 83.2
48:12million in the
48:1420-49 G
48:16column okay I see that and that's
48:19roughly 39ish
48:22percent that sound right yes sounds
48:25right thanks um and if we looked at the
48:28same data for
48:302024 uh we would see that new business
48:33additions are
48:35238.9 million as compared to a total of
48:39about 102 million or 24ish percent does
48:44that sound right that sounds right okay
48:48now if we could go on page uh 13 below
48:52this table to the next
48:55Q&A you you the question is asked why is
48:58Staff highlighting new business and
49:00capacity expansion Pro projects and you
49:03say in part these Investments are
49:06largely driven by new and increasing
49:08demand for natural gas as opposed to the
49:10projects needed for compliance with
49:11Federal safety standards or mandatory
49:14relocations did I read that correctly
49:16you read that
49:18correctly uh thank you and and just
49:20pausing there for a moment by demand uh
49:23presumably you mean customer demand is
49:25that right that's correct and so just to
49:29put a finer point on it of course demand
49:31comes from customers whether they be
49:33homeowners business owners industrial
49:35customers whomever it may be that that
49:37is uh demanding gas service is that
49:40right that's right is Staff suggesting
49:44that the company can or should simply
49:47decline to provide natural gas service
49:49to a customer in IT service
49:52territory um I believe I had a question
49:54in here that specifically asked whether
49:56the staff is challenging the company's
49:59obligation to serve and my answer was no
50:02the staff is not suggesting that the
50:03company or that the the the company
50:06should not have an obligation to Ser
50:07serve or that the commission should do
50:09anything um that is in opposition to
50:12that okay so and that's just on the next
50:15page we can scroll down to that question
50:17on page
50:1814 uh and and where you say doesn't the
50:21company have the obligation to serve
50:23customers requesting natural gas service
50:25and your answer is yes I'm not a lawyer
50:27but staff is not disputing the company's
50:29obligation to serve customers requesting
50:31natural gas service is that what you
50:33were referring to correct okay thank you
50:36um if we could go back to table eto2 on
50:39page 13 for a moment I have one other
50:41issue with this table I just would like
50:43to talk about for a moment um was it
50:46your intention in this table first of
50:47all to only show actual as opposed to
50:49forecasted Capital additions for each of
50:51these time
50:54periods um
50:59the my intent would be almost always
51:02miss rahma to to show actuals rather
51:04than then forecasted information I would
51:06have to go back and look at the the
51:07underlying data sources to make sure
51:10that that was what is presented here but
51:11that was the intent okay I'd like to we
51:14can let's talk about that for just a
51:15minute I'd like to direct your attention
51:17in particular to the the second column
51:20of numbers the 22
51:23al46 G column from the company's 2020 to
51:27gas rate case um and in particular the
51:32time period identified for this
51:34particular Cas is October of 2019
51:37through June of 2021 is is that correct
51:40that's correct so that's slightly less
51:42than a two-year period listed here that
51:46that's correct so your comment here or
51:49or I would say comment but the the
51:51number in this column for new business
51:53is 22.8 million over that time
51:57period is that right that's correct and
52:01then by your math that's about 90.1
52:03million or so per year over that time
52:06frame yes okay and if this amount were
52:10actually um less than two years the
52:13amount per year wouldn't be um less than
52:16half the total of that $22 million would
52:23it so it's slightly more than two years
52:27right so we've we're saying so from the
52:39sorry I guess that's right I would have
52:41to check my underlying math I thought I
52:42had adjusted for that correctly that the
52:44intent was to account for the fact that
52:46you know the actual length of time of
52:48those periods but I would have to go
52:50back and check the work paper okay and
52:52actually let's bring that up if we could
52:54if we could um look at um same hearing
52:58exhibit 401 but attachment
53:04et2 and if we could while while she's
53:06bringing that up just bear in mind that
53:0810 October of 2019 to June of 21 time
53:11frame and that $22.8 million that you
53:14had for new business so we don't lose
53:17that in our
53:24head okay so we're going to need to uh
53:27first of all this is your attachment
53:28eto2
53:30correct correct and if we could scroll
53:32down to the second table
53:36here this is your underlying data from
53:38proceeding number 22 al49 G
53:43right correct
53:46so this is the 2022 ratee information on
53:51which you relied for the table in your
53:53testimony that we were just discussing
53:55is that right
53:57that's right so directing your attention
54:00to the new business
54:02row and keeping in mind that 22.8
54:06million in new business Capital
54:07additions that you said was over the
54:10less than two years from October of 2019
54:12through June of
54:1421 if we look at the two new business
54:18data points
54:20here that cover that time
54:24frame which would be the 59.6 million
54:28plus the
54:3091.4 million those don't add up to 22.8
54:34million do
54:47they um I think Miss brah and perhaps I
54:51needed to be B more clear in my
54:53testimony I would have to go back and
54:54review the numbers but I think part of
54:55what happen happen was that there was
54:57reclassification regarding what was
55:00reliability versus new business versus
55:03you know non-psa related issues and I'm
55:06not sure if that's the the distinction
55:08in the numbers here I I would have to go
55:10back and and review my notes and think
55:12about you know where where the CL
55:15categories came from I can perhaps help
55:17with that if and I understand this is
55:20going to be a little bit of math on the
55:21stand so um hopefully it's not too
55:23troubling but if you add the column
55:27the for the new business the
55:2959.6 the 91.4 and the
55:3351.8 would that total up to $22.8
55:39million uh that looks like it would add
55:42up to $22 million yes okay and if I'll
55:45just represent you that was my math so
55:49hopefully we're reaching the same uh
55:50outcome there okay so just to be clear
55:53then at the end of the day um we the
55:5722.8 million in the table in your
56:00testimony is actually the time period
56:02from October of 2019 through the end of
56:05December 31
56:072021 and includes roughly six months of
56:10forecasted data is that right yeah it
56:14looks it looks like that label in my
56:16testimony was uh in incorrect in terms
56:19of what the time time frame reflected
56:22and that it should have been through
56:23December of 2021 okay and so we'd have
56:25to take take that all into account when
56:27we uh look at how you're uh presenting
56:30the growth of capital additions for this
56:33category over that those time periods
56:36right yes um though this might suggest
56:40that the underlying math is was right in
56:42terms of time frames just that the label
56:44was wrong and should have included in
56:46the additional six Monon period but okay
56:49um so and and of course that it's we
56:52included some forecasted data not not
56:54completely actuals correct
56:56okay
56:59um I'd like you know for this table as
57:02that we're looking at on the screen here
57:04as well as the one in your testimony
57:05we're looking at again Capital additions
57:08as opposed to expenditures or rate base
57:10is that right that's correct and capital
57:13additions reflect when plant is placed
57:16in service not when the dollars are
57:18actually spent to work on that project
57:21for example is that right that's correct
57:24so for example we might have a project
57:26that was um in construction over a
57:29couple of years spending a certain
57:31amount each year but the total cost of
57:33that project won't show up in rates
57:35until the project is placed in service
57:37is that right yes I think as was has
57:39been discussed earlier in this
57:41proceeding Investments can be lumpy and
57:44you know placed in service at different
57:45times okay so that can contribute to
57:47kind of what we're seeing on a period by
57:49period basis when we look at Capital
57:51additions right sure okay and further
57:56whether Capital additions or
57:58expenditures there can be causes for
58:00increase in um in spend other than you
58:04know the increased number of Investments
58:05for example items like inflation affect
58:08uh ultimate costs and incurred is that
58:11fair that's
58:13fair and as you said earlier uh the
58:17company's obligation to or the company's
58:19new business is in part driven by
58:21customers demand and the obligation to
58:23connect those customers right
58:26that's
58:27correct and the company also has an
58:30obligation to implement capacity
58:32Investments where necessary to ensure
58:34reliable service to new or existing
58:37customers is that right that's correct
58:41okay so in general we can have drivers
58:44of capital additions that might include
58:46some or all of timing of projects being
58:49placed in service inflation the
58:52obligation to connect customers upon
58:55their choice and the obligation to
58:57ensure adequate capacity for customers
58:59who choose to rely on gas is that all
59:01correct that's all correct
59:05okay um turning back to we can take this
59:08um exhibit down at this
59:15time given on your proposal with respect
59:18to um the differentiated Roe proposals I
59:23I'd like to um turn to page 14 of your
59:27answer
59:29testimony going back to hearing exhibit
59:35401 now
59:39um staff has not pointed out any
59:41individual new business
59:43Investments that are included in the
59:45rate requests in this case that were
59:47individually uh avoidable or or should
59:50not have been undertaken right staff no
59:54correct staff does not have any such
59:56examp okay and um on page uh 14 here
1:00:02lines 11 through 14 of your testimony
1:00:05you say given the company's obligation
1:00:08to serve staff is not suggesting a
1:00:10disallowance from rate base of new
1:00:12business or capacity expansion
1:00:15projects is that uh your position that's
1:00:18correct
1:00:23okay um Miss O'Neal I do we I'd like to
1:00:26turn to a completely different subject
1:00:28at this time um and I going to need to
1:00:31turn to um M
1:00:34gaber's uh answer testimony I apologize
1:00:37I Stumble over that each time and I try
1:00:39not to but that would be hearing exhibit
1:00:42400
1:00:58so the the topic I'd like to talk about
1:01:01um briefly missal and and I think we're
1:01:03going to finish well under our time
1:01:05today is um whether um is that staff
1:01:09proposed several adjustments to reduce
1:01:11the companies's costs associated with
1:01:13compensating its
1:01:15employees uh specifically in section
1:01:17five of of this hearing exhibit 400 is
1:01:21that right that's correct and those
1:01:24adjustments that staff proposed relate
1:01:26to incentive programs recognition
1:01:28programs and pension expense is that
1:01:30correct that's correct um the staff take
1:01:35into account in these um in considering
1:01:39the the proposals in this case that the
1:01:43incentive compensation and and pension
1:01:46programs are providing and and the total
1:01:50company uh costs of compensation are
1:01:52providing real jobs to utility employees
1:01:54who serve customers
1:01:57absolutely and I would argue that staff
1:02:00took no issue with the company's known
1:02:03and measurable adjustment for the
1:02:04bargaining pay for a customer for for
1:02:07most of the the company's bargaining
1:02:09employees staff is absolutely cognizant
1:02:13of the very important work and the
1:02:15appropriate compensation that should be
1:02:16provided for the you know for the the
1:02:20the
1:02:21utilities um employees staff takes issue
1:02:24with certain bonus um executive
1:02:27compensation programs as executives are
1:02:32um incentivized to provide safe and
1:02:34reliable service and also to provide um
1:02:38earnings and benefits to shareholders
1:02:40and staff believes that for certain
1:02:42executive compensation programs those
1:02:44should be a shared um expense between
1:02:47shareholders and rate payers as they
1:02:49both benefit from those um Executives do
1:02:53you acknowledge Miss O'Neal that AIP
1:02:56incentive annual incentive programs and
1:03:00the pension expense that might be
1:03:02affected by staff's proposals with
1:03:03respect to AIP are not solely applicable
1:03:06to Executive employees of the company
1:03:08they incentive pay for multiple levels
1:03:11of employees throughout the company yes
1:03:13and the company and staff again is
1:03:15trying to find a reasonable balance by
1:03:17capping it 15% staff is not saying there
1:03:20should be no incentive pay just that it
1:03:22is a reasonable compromise okay um we
1:03:26could turn to page 83 of this hearing
1:03:28exhibit 400 uh that would be
1:03:32great thank you and I think building on
1:03:35the discussion we've been having um this
1:03:38testimony notes what is staff's overall
1:03:40reaction and recommendation to costs
1:03:42associated with regular pay uh and it
1:03:45the initial part of the response is um
1:03:48well before we get to that just
1:03:49holistically with this Q&A staff notes a
1:03:52rationale that because costs of base pay
1:03:54are going up the commission should
1:03:56particularly disallow certain incentive
1:03:58compensation is that a fair
1:04:00characterization of this paragraph um
1:04:02can you just give me a moment to refresh
1:04:04my memory absolutely
1:04:27so I think the the point of this
1:04:29paragraph is to say since all of pay is
1:04:32increasing and again staff did not take
1:04:34issue with you know with argue most of
1:04:37the adjustments including known
1:04:38immeasurable forward-looking adjustments
1:04:40for bargaining pay um and that AIP and
1:04:43certain things are calculated on a
1:04:44percentage basis the total dollar impact
1:04:47as the sort of the
1:04:49underlying um base pay
1:04:52increases those for more and more
1:04:54dollars to be recovered through those
1:04:56percentage programs and it just makes
1:05:00capping that or having that at a
1:05:02reasonable shared level more important
1:05:04because the dollars become higher okay
1:05:08so with that the first sentence of this
1:05:12response says staff understands the need
1:05:14to have attractive regular pay and the
1:05:16need to adjust rates to stay competitive
1:05:20correct
1:05:21correct um and I'm sure the company
1:05:24appreciates the staff recognition that
1:05:26it is necessary to adjust rates to stay
1:05:28competitive um but isn't it also true um
1:05:34uh Miss O'Neal that staff has not
1:05:35conducted any studies comparing the
1:05:37total compensation paid by the company
1:05:39to its employees to the total
1:05:42compensation amounts paid by other
1:05:43utilities or publicly traded companies
1:05:46with whom Public Service competes for
1:05:49employees staff has compared our
1:05:53recovery programs versus other utilities
1:05:55particularly one other subsidiaries of
1:05:57the company to make sure we're you know
1:05:59to provide the commission with
1:06:01information about how that the the
1:06:03recovery piece of it Compares but staff
1:06:05has not done an independent analysis um
1:06:08of what it of what it the company should
1:06:11be paying its employees okay uh and to
1:06:14that uh point if we could please pull up
1:06:16um Public Services hearing exhibit um uh
1:06:20129 which is the testimony of Michael
1:06:24desich
1:06:26attachment MPD
1:06:5013 so we have here um the staff's respon
1:06:55response uh to public service companies
1:06:59U Discovery request 2-10 to staff and if
1:07:03we could scroll down so that U Miss
1:07:04O'Neal can see the um
1:07:09response having adopted uh Miss gabre
1:07:12gabia Beer's uh answer testimony you
1:07:15also responded to Discovery on the
1:07:17topics and her testimony correct Miss
1:07:19O'Neal sure and is this staff's response
1:07:22to psco uh 2-10
1:07:25I would like to just note that we were
1:07:27going to preserve our objection
1:07:29here it's listed on the Discovery
1:07:32response so
1:07:34noted um but with that the company would
1:07:38like to move for admission of of well we
1:07:40don't need to for this one it's already
1:07:41attached to testimony I do actually
1:07:43before we continue with this one though
1:07:45I realized I did not move to admit
1:07:47hearing exhibit 156 which was staff's
1:07:50response to psco um Discovery response
1:07:53or Discovery request 7-1 so I'd like
1:07:55move for admission at this time to take
1:07:57care of that any objection Miss
1:07:59McLaughlin no objection so moved thank
1:08:03you um so this is the the question if we
1:08:08could just see the whole question and
1:08:09response maybe make it a little bit
1:08:12smaller hopefully that's still
1:08:14readable um in the first paragraph here
1:08:17because we'll acknowledge the second was
1:08:19just an error a copying and paste error
1:08:21in the second paragraph of the question
1:08:23but the the first part is to please
1:08:25provide any studies or analysis
1:08:27conducted by staff to compare the total
1:08:29compensation amounts paid by the company
1:08:30to its employees to the total
1:08:32compensation amounts paid by other
1:08:34utilities or other publicly traded
1:08:36companies correct you read that
1:08:39correctly and the response did not say
1:08:42we do or do not have that instead this
1:08:45the response pointed us to um Miss gabre
1:08:49Beer's uh attachment 20 to her answer
1:08:51testimony
1:08:54correct and and I'm going to have to ask
1:08:56if we could please pull up uh attachment
1:09:00ntf2 to hearing exhibit
1:09:18400 all right you meant ntg right NT oh
1:09:22yes I'm sorry typle on my my page ntg
1:09:31okay so to your point um Miss O'Neal
1:09:34this is not a study of how the company's
1:09:37compensation of its employees compares
1:09:40to comparable companies it's a
1:09:42comparison of how the company's recovery
1:09:45of those costs Compares specifically in
1:09:49the jurisdictions where Excel Energy uh
1:09:52is rate regulated is that right
1:09:55correct I think believe that's
1:09:56consistent with what I indicated
1:10:00earlier I think so and but this is not a
1:10:03comparison even to entities other than
1:10:06XL Energy is
1:10:09it
1:10:14um I mean this is comparison versus
1:10:17other electric utilities that operate in
1:10:20the same States as as um Excel Energy
1:10:24well we're talk
1:10:26I apologize I didn't mean to interrupt
1:10:27for you no I'm sorry I'm re making
1:10:31refamiliarizing myself with this
1:10:33document let me know when you're done I
1:10:35don't want to rush you could we maybe
1:10:38make this document a little bit
1:10:42bigger thank
1:10:51you right and I apologize what was what
1:10:54what is your question this is all solely
1:10:57Excel Energy rate regulated utility
1:11:01outcomes it does not compare to other
1:11:04utilities or other outcomes in either
1:11:08these or other states is that right that
1:11:10is correct okay and isn't it also
1:11:14correct that if we looked at the um
1:11:17recovery approved or settled we see uh
1:11:20settlements for a lot of these items uh
1:11:23including
1:11:25Minnesota uh oh I I won't go through the
1:11:28list but we see settlement here
1:11:29Minnesota gas um uh North Dakota gas
1:11:34settlement South Dakota Electric
1:11:36settlement Etc is that right that's
1:11:40correct and um isn't it also true um
1:11:45Miss O'Neal that in looking at this
1:11:49document we can see that Minnesota
1:11:52electric Minnesota gas North Dakota
1:11:55electric North Dakota gas Wisconsin
1:11:58Electric and Gas and Michigan and
1:12:00electric and gas all are allowed future
1:12:02test years isn't that
1:12:07right um I would have to go through each
1:12:10one just when you say you the words word
1:12:13allowed it's not clear to me what that
1:12:14means if that's a a settlement and
1:12:16something that parties have agreed to or
1:12:18the commission decision then but but yes
1:12:20there are future test years used in
1:12:21certain other jurisdictions okay fair
1:12:24enough but if we look at the column that
1:12:25says test year here and
1:12:28fty fty designates or indicates future
1:12:32test year um for each of these outcomes
1:12:34correct correct okay
1:12:38um and isn't it also true um that in
1:12:442019 the Texas legislature passed a law
1:12:47that requires utility
1:12:49employees
1:12:51um or requires the Texas commission
1:12:53excuse me to Pres resume reasonable the
1:12:56total compensation which would include
1:12:58incentive
1:12:59compensation the uh amounts paid to gas
1:13:02utility employees so long as that pay
1:13:04was consistent with recent Market
1:13:06compensation studies objection this is
1:13:08outside the scope of Miss O'Neal's
1:13:10testimony and the adoption of Staff
1:13:13witness G Breg Air's testimony as well
1:13:16if I may this testimony speaks to what
1:13:18is happening in other jurisdictions and
1:13:20if we uh scroll down just to confirm the
1:13:23whole document
1:13:27there's Texas on the
1:13:29document over
1:13:33World um I have no knowledge of that I
1:13:37have not reviewed that decision and I um
1:13:40yeah I I have no basis to comment on it
1:13:44that that's fine um but in here in
1:13:47contrast to the company staff offered no
1:13:50studies demonstrating that the company's
1:13:52total compensation was not competitive
1:13:54with other
1:13:55uh comparable companies did
1:13:58it uh correct staff is commenting on
1:14:01what is reasonable justtin reasonable to
1:14:03be recovered from public service rate
1:14:06payers okay so let's talk about that a
1:14:08little bit if we could turn back to
1:14:10hearing exhibit
1:14:12400 at page
1:14:2085 and uh I think we need to scroll down
1:14:23a little bit
1:14:28there we go on lines 17 through
1:14:31[Music]
1:14:3419 and there the testimony States for
1:14:37several years staff has argued that the
1:14:39commission should limit recovery of AIP
1:14:41expenses to no more than 15% of base
1:14:44salary applied to an employee by
1:14:46employee a basis staff has argued that
1:14:49an AIP amount beyond that 15% threshold
1:14:51is likely more than what is necessary to
1:14:54attract retain and motivate skilled
1:14:57workers and what is appropriate to
1:14:58include in just and next page I believe
1:15:02says reasonable rates did I read that
1:15:04correctly you read that
1:15:06correctly okay
1:15:10now we understand that it's staff's
1:15:13argument that AIP above the cap should
1:15:16not be included in
1:15:18rates but we did ask staff for any and
1:15:21all compensation studies or other
1:15:22analysis relied on to support staff
1:15:25recommendation um that the commission
1:15:29should limit recovery of AIP expenses to
1:15:31no more than 15% of base salary because
1:15:35as is stated here an AIP amount beyond
1:15:38that 15% threshold is likely more than
1:15:40what is necessary to attract retain and
1:15:42motivate skilled workers do you recall
1:15:44that Discovery
1:15:46request
1:15:48um no if you could pull it up in well
1:15:51the one we just discussed a moment ago
1:15:54no different one I I'm happy to pull it
1:15:56up um it will be hearing exhibit 129
1:15:59attachment MPD 4
1:16:27okay uh do you see here miss O'Neal we
1:16:29have um Public Service uh company's
1:16:32Discovery request 2-7 to staff and
1:16:35staff's response and if we could scroll
1:16:38down a bit we can see the question and
1:16:40answer and uh the
1:16:47sponsor so it just to give you the
1:16:50complete look and then we can go back
1:16:51and give you a chance to read it if that
1:16:53would be helpful that would be helpful
1:16:55thank you
1:17:26okay
1:17:27okay now um the question I think rather
1:17:31than reading the whole thing again is
1:17:33the question consistent with um what I
1:17:36was asking you earlier about the the
1:17:38company's probe into whether um staff or
1:17:41the basis for staff statement um that
1:17:45the compan has provided no evidence or
1:17:47correlation between the cap and the
1:17:49company's ability to retract and
1:17:50motivate
1:17:51workers before you answer Miss O'Neal
1:17:54I'd like to preserve the objection that
1:17:55we listed in this discovery response so
1:17:58preserved thank
1:18:00you and I apologize Mr Romy can you can
1:18:02you repeat or restate the question I'm
1:18:05not sure I understood what you were
1:18:06asking sure so you recall from the
1:18:09testimony we're looking at a moment ago
1:18:11there was a statement in there that um
1:18:15staff's recommendation to limit AIP res
1:18:18uh expenses to no more than 15% of base
1:18:21salary was because an AIP amount AIP
1:18:24amount beyond that 15% threshold is uh
1:18:27likely more than what is necessary to
1:18:29attract retain and motivate skilled
1:18:31workers that was the testimony right I
1:18:34recall that yes and we asked you in this
1:18:36discovery resp request what is the basis
1:18:40for the question that it's likely more
1:18:41than what is necessary to attract retain
1:18:43and motivate skilled workers because we
1:18:46understand the B your arguments with
1:18:48respect to what's injust and reasonable
1:18:49rates we're just asked this question is
1:18:51about what's necessary to attract retain
1:18:53and motivate skilled workers correct
1:18:55correct okay so and staff's response
1:18:59here if we could maybe go to the
1:19:01beginning of the
1:19:04response is that the commission has
1:19:06limited recovery of AIP expenses to no
1:19:08more than 15% base pay over the years
1:19:11and as staff asserts this cap has not
1:19:13prevented the company from attracting
1:19:15retaining and motivating skilled workers
1:19:18as the company has we could move
1:19:22forward provided no evidence or
1:19:24correlation between this cap and its
1:19:27ability to retrain retain attract and
1:19:29motivate skilled workers did I read that
1:19:31correctly you did so the company has
1:19:35continued to pay AIP compensation it
1:19:38believes is necessary to stay
1:19:39competitive with other companies despite
1:19:41the cap to date
1:19:44right uh I yes I believe that's correct
1:19:48and in that regard it's not very
1:19:50surprising that the cap itself has not
1:19:52affected whether the compensation
1:19:54offered affects the ability to retain
1:19:56attract and motivate skilled workers
1:19:59right
1:20:01correct is Staff suggesting that the
1:20:04company should limit
1:20:07AIP um in accordance with a commission
1:20:10decision to limit uh AIP cost recovery
1:20:13and reduce EXL Energy's uh compensation
1:20:17to its employees
1:20:18accordingly staff is not recommending
1:20:22that the company should or should not do
1:20:23that staff is merely recommending what
1:20:26it thinks is just un
1:20:28reasonable um for in terms of of
1:20:32incentive compensation to be recovered
1:20:35from Colorado rate cares so it's not a
1:20:38question is it Miss O'Neal of whether
1:20:41the
1:20:41company needs to spend this money in
1:20:44order to attract retain and motivate
1:20:46skilled workers it's just a question
1:20:48whether staff thinks that the amount
1:20:50should be in rates or not in general
1:20:54it's a matter matter of whether staff
1:20:56believes it is a reasonable compromise
1:20:59to have um
1:21:04yes it is I'm I'm sorry now I've lost my
1:21:08train of thought um can you repeat the
1:21:10question I apologize well I I think
1:21:12you've already answered it so I I think
1:21:14I can move on uh accordingly but is
1:21:17staff at all concerned about what an
1:21:20actual reduction in total compensation
1:21:22to align with an AI pcap as staff
1:21:25recommends would do to employee
1:21:27retention and whether it would hurt jobs
1:21:30or service to
1:21:32customers through Exel energy employees
1:21:36I think staff has seen no convincing
1:21:38evidence that
1:21:40limiting compensation to you know 15%
1:21:44above base pay where base pay has been
1:21:47adjusted um in you know on a forward
1:21:50basis and for a know immeasurable
1:21:51adjustment St has se no evidence that
1:21:54that will impact the company's ability
1:21:56to attract um employees and provide
1:22:00reasonable service so given that the
1:22:03company has provided studies showing
1:22:05that it is necessary to include certain
1:22:08amounts of incentive compensation in
1:22:10order to be competitive and staff has
1:22:12offered no counterveiling
1:22:14studies are we left with waiting to see
1:22:17whether implementation of a 15% cap in
1:22:21actual compensation to
1:22:23employees hurts employees and service to
1:22:27customers in order for staff to believe
1:22:30there's sufficient evidence to uh not
1:22:32have a cap on
1:22:34AIP G object to the compound nature of
1:22:37that
1:22:39question if you can rephrase Miss Brahma
1:22:42sure in light of the only studies in the
1:22:45record that show it's necessary uh and
1:22:48what is competitive pay for ex energy
1:22:51employees the staff believe it would be
1:22:53necessary for the company to actively
1:22:56Implement a cap on AIP compensation paid
1:23:01in order for the company to show that a
1:23:04cap is harmful to the company's ability
1:23:07to retain attract and motivate skilled
1:23:10workers that is not what staff
1:23:12suggested okay thank you very much uh
1:23:16that's all I have for you
1:23:19missal uh commission Council any
1:23:22questions for missio
1:23:26no
1:23:27questions uh commissioner
1:23:29Gman hi good morning Miss Anil good
1:23:32morning
1:23:33commissioner um okay so I guess we we'll
1:23:37stick on the AIP cap just for a
1:23:40minute um I believe staff's position on
1:23:44incentive pay is both kind of an
1:23:48immediate cap on the pay for concerns of
1:23:51impacts of cost but also um um concerns
1:23:55about the eventual increase in um
1:23:59retirement expenses and the like with
1:24:01the increase in total pay is that fair
1:24:05yeah that's right sorry you're referring
1:24:07to the to the impact on the pension
1:24:09expense correct yeah I think the way to
1:24:12think about that right is that if if the
1:24:14commission limits the the pay that is
1:24:17recoverable from rate payers to the 15%
1:24:20on an employee basis and the company
1:24:23chooses to continue to compensate people
1:24:26above that 15% that creates a pension
1:24:29impact right the the total amount of
1:24:31compensation or you know pension
1:24:33benefits are tied to that total
1:24:35compensation so increasing the total
1:24:37compensation also increases the pension
1:24:40benefit that's paid out so staff is just
1:24:42suggesting there should be some
1:24:43adjustment to that for those to be
1:24:46consistent that the obligation to you
1:24:49know on the the pension fund should
1:24:51match the obligation on the the base pay
1:24:55and that that would be limited to the
1:24:5615%
1:24:58impact okay and as you understanded the
1:25:01company's position on incentive pay is
1:25:04essentially no
1:25:06limit uh my understanding is that the
1:25:09the company is saying that their
1:25:12recommendation was that they have the
1:25:15ability to compensate people up to 150%
1:25:19of a Target and that they would recover
1:25:21up to 100% of the target from from custo
1:25:25uh yeah from rate payer so I think there
1:25:27is some small um uh limitation that the
1:25:32company is recommending on incentive on
1:25:35incentive program in terms of what
1:25:37they're proposing to recommend from rate
1:25:40payers okay um all right switch gears to
1:25:43your differentiated Roe
1:25:47proposal
1:25:48um so um looking at uh implementation
1:25:54the gift and the clean heat plans and
1:25:57kind of the new paradigm you're in um
1:26:01with gas policy are moving to with gas
1:26:04policy um help we understand kind of the
1:26:07timing of when these Investments were
1:26:09made and if it really is appropriate to
1:26:13Institute a differentiated R we on a
1:26:162023 test year when for example we
1:26:19hadn't litigated our first giip or um
1:26:22clean heat plan at that point yeah
1:26:24that's a great question so I think as
1:26:27staff use it that um all those
1:26:30legislations the clean heat plan the new
1:26:32DSM standards um the be you know
1:26:36legislation were all passed in
1:26:392021 um we had a 2022 rate case um that
1:26:43rolled in you know rate base as of that
1:26:46time and so all the Investments that
1:26:48have occurred since then that are sort
1:26:50of the the subject of the capital
1:26:52additions in this proceeding all
1:26:54occurred after all of that legislation
1:26:56was passed so that was already State
1:26:59Statute and um you know staff looking
1:27:04back feels like that was appropriate the
1:27:07commiss the company knew that the
1:27:09state's policy objectives were to um
1:27:14work towards reducing the carbon
1:27:16emissions from the gas system and that
1:27:20the new business Investments capacity
1:27:23expansion are counter to that objective
1:27:25from the state and so in staff's view
1:27:29you know the timing makes sense that all
1:27:32this investment that we're looking at in
1:27:34this proceeding um occurred after those
1:27:37statutes were passed and there's not a
1:27:39reason the company needed to wait until
1:27:41it got a a rebate and a clean heat plan
1:27:44to start working on efforts to reduce
1:27:47those new
1:27:48Investments um and then I think if you
1:27:50look at the clean heat plans right the
1:27:52the company is now today getting bonuses
1:27:55and you know incentives around its
1:27:58actions that there should also be some
1:28:01um symmetric consequence if they're are
1:28:06not successful in reducing um new
1:28:09Investments so I think in staff's view
1:28:11at the same time we're implementing
1:28:12those incentives there should be some
1:28:15symmetric implementation of a you know
1:28:18disincentive for that new
1:28:21business okay um
1:28:25and generally in in these discussions on
1:28:29Roe you know looking at equivalent risk
1:28:32and things can come into play so I just
1:28:35want to talk about that for a minute so
1:28:37for new business projects kind of in
1:28:41particular with the obligation to serve
1:28:44that the company regularly refers to as
1:28:47the legal basis for the reasoning of the
1:28:49necessity of the
1:28:51projects um based upon that how risky
1:28:55would you say these Investments really
1:28:57are for the company in terms of Jeopardy
1:29:00of um you know uh disallowances or cost
1:29:04recovery on new business projects based
1:29:07on the obligations
1:29:08Ser um I guess I would say I'm not sure
1:29:11that they are any different from the
1:29:13rest of the company's rate Bas um that
1:29:16once they're placed in service and part
1:29:18of a revenue requirement in a in a
1:29:20proceeding no Putin's challenge has
1:29:22occurred on them that they would have a
1:29:24you know similar risk profile to
1:29:27existing
1:29:29infrastructure okay um how risky you
1:29:32perceive new business Investments for
1:29:34rate payers who ultimately bear the
1:29:38cost
1:29:43um I wish I'm sorry can you repeat the
1:29:46question sorry yeah do you think there's
1:29:49a distinct risk on new business
1:29:51Investments for rate payers um as a
1:29:54whole who will bear the cost for those
1:29:58projects um I think there's a risk in
1:30:00the sense of that that that new
1:30:03investment um is expensive because it
1:30:06hasn't been depreciated and as has been
1:30:08shown in this proceeding that you know
1:30:11there are at least some instances where
1:30:12that new business is not paying its own
1:30:15way and so I think there is a risk to
1:30:16existing customers um from those new
1:30:20additions um and that they will be
1:30:23increasing their you know obligation um
1:30:26or you know what they're needing to pay
1:30:28as a result of that new investment that
1:30:30causes creates a risk for existing
1:30:32customers okay um I want to talk about a
1:30:35couple of those new business projects
1:30:37not in you know to too tedious of detail
1:30:43um but if you've been listening to the
1:30:46hearing over the past few days I went
1:30:48over with Mr matley and Mr pet um The
1:30:53Canyons development and Cole Creek pin's
1:30:55projects in particular were you
1:30:57listening for any of that I listen to
1:30:59most of that yes okay so um The Canyons
1:31:05development um for which the company and
1:31:07and essentially um passing on to rate
1:31:10payers will be covering uh about $2.8
1:31:13million of that new business project the
1:31:17Cole Creek Canyon Pines that one's a
1:31:20mouthful um uh has a about a $4.3
1:31:25million company or socialized uh cost to
1:31:30support that project so I talked with
1:31:33them a bit about how those projects
1:31:35might look different under the new
1:31:37paradigm of line extension
1:31:39allowances um and SB uh
1:31:4323291 um requirement to remove
1:31:45incentives for new customers are you
1:31:47familiar with that discussion at all I
1:31:50am okay um and I'm nervous I have my
1:31:53numbers flipped cuz I he gave me two
1:31:56numbers and then switched them so anyway
1:31:58for one of the projects it was about
1:32:00$200,000 less you thought would be the
1:32:03company contribution and for the other
1:32:05$900,000
1:32:07less um so I know I know you're not a
1:32:11lawyer but as we consider SB uh
1:32:1623291 um which indicates a gas utility
1:32:19should not provide an applicant an
1:32:21incentive to establish service to the
1:32:24property uh under the company's vision
1:32:27of how this would work today we'd still
1:32:29have millions of dollars to support the
1:32:32connections of these new customers in
1:32:35particular um do you think that's
1:32:37problematic or do you think that sounds
1:32:40like it fulfills the objective of the
1:32:42legislation in your
1:32:44opinion um I would consider that to be
1:32:48problematic I I think that is counter to
1:32:50the intent of the the legislation to
1:32:53remove the incent incentives um for new
1:32:56gas
1:32:56hookups okay um andb uh 291 also
1:33:02directed the commission to conduct uh a
1:33:05study to examine tariffs interconnection
1:33:08policies and practices um to look for
1:33:11things that might pose a barrier to
1:33:13beneficial electrification of
1:33:15distributed energy resources um are you
1:33:18generally familiar with that as well I
1:33:21am generally familiar with that yes okay
1:33:24um so that study was completed under
1:33:26proceeding 23 m-
1:33:290464 EG and one of the things that came
1:33:32up with stakeholders who include a lot
1:33:34of Builders and developers and others um
1:33:38as something they saw as a barrier um
1:33:40was a a current difficulty um for new
1:33:43and perspective Public Service Company
1:33:46um electric customers to connect to the
1:33:49Electric System um in several instances
1:33:52that was going to be um several million
1:33:54dollarss or several years to get
1:33:57connected to the system um and one of
1:34:00the things that came up with that group
1:34:02was they did not necessarily see a
1:34:04corollary in how costs are allocated or
1:34:08waiting time generally to join the gas
1:34:12system uh similarly so I was wondering
1:34:14if you had any thoughts um is there also
1:34:18a cost allocation issue here with
1:34:21respect to how we are a able to allocate
1:34:24costs imposed by new customers on the
1:34:27system and Upstream
1:34:31impact I guess that my my initial
1:34:33reaction to that was sort of you know
1:34:36that is and I make referen to this in my
1:34:39testimony that um there's been a lot of
1:34:43focus and emphasis including new
1:34:45legislation you know trying to encourage
1:34:47more investment on the utilities
1:34:49electric distribution side including you
1:34:53know current recovery and sort of you
1:34:55know pre-ordering of equipment and all
1:34:57sorts of of things
1:34:59encouraging um investment on the
1:35:01distribution side that that again I
1:35:03think are um rewards for the company or
1:35:07were benefits right that that they would
1:35:09get more extraordinary and concurrent
1:35:11cost recovery for all those electric
1:35:12distribution Investments um which is
1:35:16fine that that's a statutory you know um
1:35:20passage but again going back to the
1:35:22timing of that right at the the same
1:35:24time continuing to get you
1:35:26know anything above the bare minimum of
1:35:29the Roe for new investment on the gas
1:35:31side seems counter to that the
1:35:33objectives of all these things are to
1:35:34try to reduce the barriers for electric
1:35:38investment and to eliminate any
1:35:40incentives for gas investment and
1:35:44um it's not quite as answering your
1:35:46allocation question I think it's sort of
1:35:48a focus of the business um you know
1:35:52trying to create structures and um
1:35:55incentives for the company to to do the
1:35:58the the work needed to be ready for that
1:36:00beneficial electrification and I think
1:36:02there's been a lot of you know progress
1:36:04and and you know efforts to create those
1:36:07incentives for the companies and that
1:36:10staff's proposal is pushing on the other
1:36:12side of that of pushing down the
1:36:14Investments on the gas side and trying
1:36:16to remove not just customer incentives
1:36:19for new business but the company's
1:36:20incentive to invest in new business yeah
1:36:23not sure I really answered your question
1:36:25but I um well it's hard because it's
1:36:27this blend of how things work on the
1:36:29electric and how things work on the gas
1:36:32but um would it be advisable for the
1:36:34commission to take a look at Cost
1:36:37allocation which at least in the
1:36:39company's view under the new um line
1:36:43extension allowance and planning
1:36:45Paradigm would still leave millions of
1:36:47dollars for new business projects um
1:36:51being socialized over customers
1:36:53including
1:36:54regulator stations specifically to serve
1:36:56them uh upsizing of immediate Upstream
1:36:59pipes to size them um is it possible
1:37:02that that cost allocation scenario that
1:37:05they're envisioning even under the new
1:37:07paradigm
1:37:09REM continues to provide an incentive to
1:37:12people to join the system but also
1:37:14importantly continues to provide the
1:37:16company an incentive to invest in those
1:37:19things because of course they get the
1:37:21ability to rate base and make a return
1:37:23on whatever Investments end up um being
1:37:27their responsibility which is then
1:37:28socialized among rate
1:37:30payers yes that is exactly I think what
1:37:33the staff's intent was in this was to
1:37:35try to remove that incentive and to um
1:37:40you know staff does not consider I think
1:37:41that the company used the word
1:37:43confiscatory on my proposal and that was
1:37:45clearly not I I think clearly not our
1:37:47intent the intent was to try to find an
1:37:50Roe that allowed the company to raise
1:37:52the capital that it needs to but to have
1:37:54absolutely no incentive to you know
1:37:57above what it absolutely needs to to
1:37:59satisfy its obligation to serve to
1:38:02support that new investment and to try
1:38:03to focus the company's Investments and
1:38:06attentions on safety and reli you know
1:38:09safety and reliability Investments
1:38:11compliance with fima and new Investments
1:38:14that support beneficial
1:38:15electrification not on business that's
1:38:18supporting or you Investments supporting
1:38:21new business
1:38:23those are my only questions Miss oal
1:38:25thank you uh thank you commissioner
1:38:29Gman um misso on page nine of your
1:38:33answered testimony starting out there is
1:38:36no Financial incentive for the company
1:38:38to actively manage or reduce investment
1:38:41in new gas in infrastructure and no
1:38:45consequence for poor performance and
1:38:47addressing New Growth under current
1:38:50regulation in Colorado are you saying
1:38:53that the company may have a financial
1:38:55incentive to spend Capital independent
1:38:58of the actual value of that spending for
1:39:01its customers or the public
1:39:05interest I'm saying that the company has
1:39:10no incentive to um talk to its
1:39:14developers and explain to them that that
1:39:17electrification is an option and um help
1:39:20them understand what that looks like and
1:39:22prepare for that I think the incentives
1:39:24for the company is to want a new
1:39:26Electric hookup and a new gas hookup
1:39:29because they they benefit and they earn
1:39:31from all of that Capital um and I think
1:39:34I am saying that that you know all of
1:39:37the remaining programs in this sphere
1:39:41clean heat plans DSM plans be plans all
1:39:44provide bonuses for the company in
1:39:47rebates in certain instances to to
1:39:49invest in certain things but there's no
1:39:51disincentive there's no consequence the
1:39:53company is still rewarded by earning a
1:39:55return on new business you can take that
1:39:59down uh given that sales are expected to
1:40:03decline over time are you concerned
1:40:05about the impact of rising Capital
1:40:07spending on long-term rates should we be
1:40:10trying to manage down uh Capital
1:40:13spending yes and I think that's the
1:40:15intent of company of the staff's
1:40:18differentiated
1:40:19Roe um here I I think it if I if I may
1:40:24I'll use a a legal term which is sort of
1:40:26a belt and suspenders kind of approach
1:40:28as I feel like the the company excuse me
1:40:30the commission has spent a lot of time
1:40:32trying to look into the bottoms up
1:40:34details of the planning looking at
1:40:37individual projects looking at line
1:40:38extensions and being doing the very
1:40:40detailed work on how things are
1:40:42allocated and also on the sort of top
1:40:45down incentive structures that the
1:40:46company plans under um and staff is
1:40:50trying to add another tool to that
1:40:52toolbox on the top down piece of it and
1:40:54creating an incentive for the company to
1:40:56manage down its spending by you know a
1:41:00higher return on investments on safety
1:41:04and beneficial electrification and a
1:41:06lower return on new
1:41:08gas is regulatory lag and another tool
1:41:11to accomplish that same objective
1:41:16absolutely uh any thoughts on using a
1:41:18September 30th uh 2024 rate base as a
1:41:21compromised position between a 13-month
1:41:24average and an end ofe rate
1:41:26base um so are you're suggesting that
1:41:29you would use a I mean I do think if you
1:41:33pull up uh the Cory uh SCH act sorry uh
1:41:37testimony there's a table that the
1:41:38company did provide a test year ending
1:41:42with a year end of September is that
1:41:45what what you are suggesting is that we
1:41:47would use a test year that ended in
1:41:48September of 2023 I'm not necessarily
1:41:52I'm more like just trying to split the
1:41:54difference there's an open issue about
1:41:55the 13-month average and an end ofe rate
1:41:59base so uh I'm just trying to see if
1:42:02there's a way to split the difference uh
1:42:05as this commission tries to piss off
1:42:07everybody and satisfy Nobody by finding
1:42:11midd that's my goal understood um I
1:42:16would point out that that I think in
1:42:18staff and uca's view both that that
1:42:21using the 2020 three test year and
1:42:24allowing sort of the company to update
1:42:26you know what had been provided
1:42:28initially as forecasted information with
1:42:31actuals is a compromise already it is an
1:42:34attempt to create a you know less stale
1:42:38more current um test year you know with
1:42:40more current Investments and I realized
1:42:42there is still lag in that and that's
1:42:44that's obviously does help um for our
1:42:47discussion um just a moment ago about um
1:42:50you know disincentives to to
1:42:53investment um but you know I I do think
1:42:57staff and UC I feel like there has
1:42:58already been compromise that we've
1:43:01already moved to a test year that is um
1:43:04more recent and you know had updated
1:43:07information through the course of this
1:43:08proceeding which staff has and UCA both
1:43:10in the past have not been
1:43:13um uh in favor of so um we might argue
1:43:17that we already compromised um on the
1:43:20test year I realize there is still a lot
1:43:22of distance between staff's position and
1:43:25the companies and if we were to try and
1:43:27find that middle ground any advice about
1:43:29how to implement it on this
1:43:33record
1:43:39um I think the commission has broad
1:43:41discretion to do a lot of different
1:43:43things um and that you know the
1:43:46discussion with company witness freus
1:43:48yesterday you all explored some
1:43:51different ways that you could accomplish
1:43:52that um um you know I think staff does
1:43:55have concerns about making sure that um
1:43:59the test year is a
1:44:01consistent um Revenue requirement
1:44:04consistent across revenues on andm rate
1:44:07base um in order to sort of conu
1:44:10construct an internally consistent for
1:44:11accounting and you know sort of
1:44:13principled reasons well in a rising uh
1:44:17Capital spending environment why isn't
1:44:20doing uh a 9 month
1:44:24uh ending more appropriate than a six
1:44:29Monon so the 13-month average isn't a
1:44:33six-month ending right it's an average
1:44:35taking an average of of the amounts of
1:44:38Investments you know it is a it is the
1:44:41accounting equivalent of sort of the
1:44:42average for the OM andm it's intended to
1:44:44reflect the the period across you know
1:44:47each each month how about a weighted
1:44:49average that uh weighs the ending more
1:44:53heavily than the beginning I suppose
1:44:55that's the could be the same all right
1:44:58uh let's follow up on the new business
1:45:00uh discussion and I want to talk about
1:45:02the kle Creek Canyon Pines project I
1:45:05believe that both Mr P and Mr Garder
1:45:09testified that the company's overall $5
1:45:11million plus
1:45:14investment you know if you include the
1:45:16regulator station represented a
1:45:18multi-million dollar to the subsidy to
1:45:21the developer maybe as as much as
1:45:23$80,000 per home assuming you accept
1:45:27that characterization is there any
1:45:29public policy or other justification for
1:45:32this type of subsidy uh you know why do
1:45:34we allow this are there other customer
1:45:37benefits that justify
1:45:40this
1:45:42um I so I think if you look back over
1:45:46the you know sort of History before we
1:45:49got here right there there is a um
1:45:52lumping to the system and a general
1:45:55premise that customers would contribute
1:45:59to the system in the long term that the
1:46:00sales revenues from new business would
1:46:05um help spread
1:46:08those uh infrastructure dollars across
1:46:11more sales right that that the basic
1:46:15infrastructure costs um yeah spread
1:46:18across you know then this was a big pool
1:46:20think of it as an insurance pool right
1:46:22some people went some people lose some
1:46:24people are a little more expensive some
1:46:25people are a little less expensive but
1:46:27this is sort of the premise of how rate
1:46:29making has traditionally been done right
1:46:31we pull people together maybe
1:46:33differentiate by geographic region but
1:46:36that sort of similar to an insurance
1:46:38pool I think your question is going
1:46:40forward is that is that premise correct
1:46:46that new customers are on average
1:46:48contributing enough to the system to pay
1:46:50their way in in a system where we're
1:46:53trying to account for the other
1:46:55externalities of the emissions impact of
1:46:57those new business does that continue to
1:47:00be a reasonable way to do R making um
1:47:03and I think that is the the question in
1:47:04front of the commission right is in the
1:47:06past that has made sense as a pooled way
1:47:09of thinking about customers and going
1:47:11forward it may not um you know and the
1:47:15details of how you start doing this in a
1:47:18different
1:47:19structure um it's a difficult question
1:47:22to
1:47:23answer uh is it fair to say that this I
1:47:26mean it seemed pretty clear that for
1:47:29spending you know 45 million for 90
1:47:32homes uh um is not supported by the
1:47:37additional re revenue is it fair to say
1:47:39that this type of subsidy could skew the
1:47:41customer decision to go all electric
1:47:45absolutely let me bounce an idea off you
1:47:48assume this commission continued the
1:47:50same approach to calculating the cust
1:47:52customer contributions that's an
1:47:55existing tariff but put in a further
1:47:58requirement that ask the company uh on
1:48:01every investment greater than say
1:48:05$250,000 to demonstrate that the
1:48:07revenues from the new customer exceeded
1:48:10the cost including all Upstream costs
1:48:13you know regulator stations design Peak
1:48:16day design demand this showing may be
1:48:19based on the approach developed by Mr
1:48:21matley and it ized exhibits are am1 2
1:48:25and three that assume 30-year
1:48:27depreciation the company whack and npv
1:48:31approach and the company's actual
1:48:33account accounting treatment of REM
1:48:35removal costs including negative net
1:48:38salvage value to the extent that total
1:48:41cost of serving this customer exceeded
1:48:43the revenues then the C customer
1:48:46contribution would have to be increased
1:48:48until there was no cross sub subsidy and
1:48:52expected revenues from that customer at
1:48:54least equal expected all-in
1:48:58costs um so basically existing tariffs
1:49:02would survive as they are but there'd be
1:49:05an overlay coming out of an order in
1:49:07this case that uh required a showing
1:49:11that there was no subsidy and if there
1:49:13was a subsidy the customer contribution
1:49:15would be raised to eliminate that
1:49:17subsidy any advice or guidance about
1:49:21potentially implementing this
1:49:22requirement in our order in this
1:49:26case
1:49:28um interesting concept uh um I'm not
1:49:33sure I think I would would have to go
1:49:36back and look at line extension tariffs
1:49:38and policies and sort of think about
1:49:40whether or not that's consistent with um
1:49:43you know current tariffs or whether
1:49:44anything else needs to be modified in
1:49:46order to implement that um so I think
1:49:49that's a legal question that that I'm
1:49:50not I'm not sure about in terms what
1:49:53would be required from the Tariff
1:49:54standpoint to implement such a thing on
1:49:56this on this record um completely
1:49:59understand the logic right of of trying
1:50:02to do that analysis and
1:50:08um yeah and I guess it seems to me
1:50:14like what you're suggesting is what we
1:50:17often think of is as sort of a gold
1:50:19standard of customer causation right
1:50:22that that you're making sure that the
1:50:24cost you know allocation is consistent
1:50:26with underlying cost causation
1:50:28principles um and I think there's a lot
1:50:31of Merit and support for that um
1:50:35philosophy
1:50:36method and if this commission chose not
1:50:39to um Implement your differential Roe uh
1:50:44proposal this would be another way of
1:50:46helping to manage down these costs in a
1:50:49way that would presumably signific
1:50:53iFly uh protect existing customers and
1:50:58and not
1:51:00um new customers that are building $5
1:51:03million plus
1:51:05houses yeah agree I I think that's right
1:51:08I though I would add that you
1:51:12know part of staff's intent with this
1:51:14differentiated Roe was to work on the
1:51:17the company side of the equation as well
1:51:19right and I understand that the
1:51:21commission's focus and that there's
1:51:23that's what the statute required right
1:51:25the it removed any incentives for
1:51:28customers to um you know to to have new
1:51:32gas hookups um staff was suggesting that
1:51:35commission has a discretion to think
1:51:37about creating an incentive on the
1:51:38company side as well and to say that you
1:51:40know even under that scenario Company
1:51:43still
1:51:43earns um a whack and a you know yeah has
1:51:47earnings associated with that new
1:51:49business so the company itself does not
1:51:51actually have any disin intive to pursue
1:51:53or you know support the new
1:51:56business certainly it would limit the
1:51:58company from using the Su to to promote
1:52:04deals like this um uh it would I mean it
1:52:08would it's a certainly a heavier lift to
1:52:11make that look attractive to a customer
1:52:13when um you know the when the costs are
1:52:15higher for
1:52:17sure um is 2250 the right minimum or
1:52:21would you use something else
1:52:23I don't
1:52:24know any uh advice about how to think
1:52:27about that what would you look
1:52:39at yeah I don't think I don't think I
1:52:41have a good answer for you on that I'm
1:52:43not saying that that's the wrong thing
1:52:44to look at I'm just saying that I I I
1:52:46would have to go back and review to try
1:52:48to provide a robust answer and does a
1:52:51floor seem like a right thing so we
1:52:52don't sweep up you know $5,000
1:52:56investments need some cost benefit
1:52:58analysis you know do you have anything
1:53:00thinking about how like internal
1:53:02resources you know how the savings would
1:53:06compare to the brain damage it do in the
1:53:10analysis so I'm not sure I understand
1:53:11what you're saying so I mean there's
1:53:14work to the company to prepare the
1:53:16spreadsheet look at it um so presumably
1:53:20you wouldn't want to do it on a $200
1:53:22invest
1:53:24um any sense of where that cost benefit
1:53:28ratio so I guess it's probably in the
1:53:30hundreds of thousands of dollars yeah
1:53:33that would be my guess is that it's yeah
1:53:34it's certainly way yeah a lot higher
1:53:37than
1:53:38$250 all right uh of the more than $600
1:53:42million in company Capital spending in
1:53:4620203 how much do you how much of that
1:53:49investment uh may not be particularly
1:53:52just justified by public policy or
1:53:54broader customer benefit like this C
1:53:56Creek Canyon project do you have any
1:53:59sense of that no I really don't I mean I
1:54:01think that it was incredibly helpful to
1:54:04have the examples that that were
1:54:05provided by the by the company but I
1:54:07think it's clear that that's not a a
1:54:09view of all the Investments and that
1:54:10it's it's hard to extrapolate to you
1:54:13know the total cumulative impact of all
1:54:15of the
1:54:17investment I mean you've talked about
1:54:20this some in response to other questions
1:54:23but do you think the company is
1:54:24appropriately transitioning its uh
1:54:27capital investment approaches and
1:54:29business practices to a world that might
1:54:32involve potentially rapidly declining
1:54:36sales um no uh I am concerned that all
1:54:39the the company's proposals around
1:54:42decoupling and things like that are
1:54:45designed to protect the company and
1:54:47reduce the company's risk um through
1:54:49this transition and that more attention
1:54:51needs to be paid to affordability and
1:54:54you know managing down these Investments
1:54:56so that a small number of you know
1:54:59potentially low income or income
1:55:01qualified customers are left holding the
1:55:03bag on a lot of
1:55:06investment uh let's just uh quickly on
1:55:08net salvage value um it sounds like
1:55:11you've reached uh an agreement with a
1:55:13company to explore different approaches
1:55:15to negative net salvage value in the
1:55:17context of a future depreciation study
1:55:19is that fair that's fair in both Mr
1:55:23Johnson's supplemental direct testimony
1:55:26and oral testimony he said that the
1:55:27company is currently acre uh 70 million
1:55:31per year in negative net salvage value
1:55:33and that 400 million uh dollars has been
1:55:36acree so far any reason to to do that no
1:55:40that is consistent with my understanding
1:55:43and I believe he further testified that
1:55:45these urals count as free cash flow that
1:55:48the company can use as it sees fit
1:55:50including to support the company's
1:55:51credit metrics is that consistent with
1:55:54your understanding that is consistent
1:55:56with my understanding and staff has
1:55:58separately uh proposed to accelerate
1:56:01depreciation by 15 million per year
1:56:03which I understand the company does not
1:56:06oppose is that correct that's correct
1:56:09all right assume this commission um
1:56:12asked the company in this case to
1:56:14incrementally manage down the S not so
1:56:17much incrementally managed down but to
1:56:20create a reserve fund that um takes that
1:56:24$70 million out of free cash flow and
1:56:27uses it to fund a reserve fund um uh so
1:56:31basically the free cash flow coming from
1:56:34this uh um accounting um mechanism goes
1:56:39to zero in say five years so not
1:56:42changing the underlying depreciation in
1:56:45any way just saying that instead of
1:56:47putting it free cash flow it flows into
1:56:49a reserve fund so um further assume we
1:56:54offset that lost Cash Flow by
1:56:56accelerating depreciation along the
1:56:58lines of what staff suggest in this case
1:57:02it seemed like this combined approach
1:57:04would start creating a reserve fund now
1:57:07that would grow over time to provide
1:57:09cash for future asset removal it would
1:57:11accelerate depreciation in ways that
1:57:14would reduce future liabilities and it
1:57:17would keep the company's uh uh credit
1:57:20metrics constant um um any
1:57:24thoughts so this is getting out a little
1:57:27get for me a little out over my skis um
1:57:30I I totally understand what what you're
1:57:32saying I think I am not sure what that
1:57:35does to the company's credit metrics
1:57:37because right that is a difference in
1:57:38the you I think that is accounted for
1:57:40and how the market views the company now
1:57:42that that that's you know that that is
1:57:44this is the traditional way to um to
1:57:46treat net salvage value so I think that
1:57:48was why staff was suggesting it may be
1:57:50better to sort of do that in analysis as
1:57:52part of that depreciation study so that
1:57:54we can look at things like that and make
1:57:56sure that we're not having any
1:57:57unintended consequences so I think that
1:57:59is a possibility is just not as clear to
1:58:01me what are all the implications of
1:58:04doing that all right uh for several
1:58:08years now this commission has asked the
1:58:10company to provide long-term rate impact
1:58:13models yet in this case I would suggest
1:58:16that we may have uh got a model that in
1:58:18many key respects uh uh doesn't fully
1:58:22represent the company's actual um uh
1:58:26capital
1:58:27investment um if this commission uh in
1:58:30this in its order in this case asked
1:58:32staff to develop a long-term rate impact
1:58:34model for submission in its answer
1:58:37testimony in future rate cases both
1:58:40electric and gas would staff uh support
1:58:43that
1:58:45request um staff always attempts to
1:58:47support what the commission directs us
1:58:49to do well we haven't directed you to do
1:58:51it so here's your
1:58:55chance um yeah I mean I think it would
1:58:58be very very difficult for staff to
1:59:00develop that sort of grounds up by
1:59:01itself right so I think that you know
1:59:03the the commission has developed you
1:59:05know through through work with a
1:59:07consultant a model on the electric side
1:59:10that that's intended to do that so I
1:59:12think that's something that you know we
1:59:13would need to explore sort of how to go
1:59:15about
1:59:17um you know building a model like that
1:59:20um
1:59:22you know and I think that the model the
1:59:23company provided here could be could
1:59:25form a good basis or we could start with
1:59:27something like the the electric model
1:59:28but I think it would be very difficult
1:59:29for staff on its own to to do that um
1:59:32both time resources all those things
1:59:34that are real constraints um but I I I
1:59:37think it is possible to for us to to do
1:59:39that just may needing to pull in some
1:59:41outside resources to accomplish it and
1:59:43would you see that adding value to this
1:59:47discussion I think it is very valuable
1:59:49to the commission to be able to look
1:59:51longterm and understand sort of where
1:59:53we're going and you know especially I
1:59:56think over time comparing Ray case to
1:59:58Ray case um how spending and projections
2:00:02change and you know the impact of
2:00:04decisions would be helpful for the
2:00:07commission well especially if we're
2:00:09depreciating stuff over 30 40 and 15
2:00:13years um last question as I understanded
2:00:16proposed Roe uh in this case range from
2:00:208.89% on the low side up to 10 1% uh on
2:00:25the high side a range of over 120 basis
2:00:27points likewise the common equity ratio
2:00:30range from 51.4% up to 55% a more than
2:00:34350 basis points Gap given this record
2:00:39and these gaps uh can you understand why
2:00:41this commission might want to continue
2:00:43to adopt a range of Roes and uh common
2:00:46Equity ratios rather than trying uh to
2:00:50pick something uh specific down to a few
2:00:53basis
2:00:54points yes and I I think my my
2:00:57recommendation on differentiated IE sort
2:00:59of try to acknowledge that that I think
2:01:01that there is a sort of to to your point
2:01:03I think a range of just unreasonable
2:01:06obviously we need to have a number to
2:01:09calculate a revenue requirement in order
2:01:10to be able to calculate rates that goes
2:01:13into a tariff but yes understand that
2:01:15that sort of you know there can be a
2:01:17range of
2:01:19reasonableness uh that's all I have why
2:01:22don't we take a break till uh say 10:40
2:01:26and then miss mclaughin you want to come
2:01:28back with any redirect absolutely all
2:01:32right see you at
2:01:5010:40
2:02:20e
2:02:50e
2:03:20e
2:03:50e
2:04:20e
2:04:50e
2:05:20e
2:05:50e
2:06:20e
2:06:50e
2:07:20e
2:07:50e
2:08:20e e
2:09:11Miss uh mlin any
2:09:14redirect yes chair um a few questions
2:09:17here so I want to start a little bit at
2:09:19the end with you miss O'Neal do you call
2:09:21the chair's questions about the
2:09:23hypothetical proposal to impose a
2:09:26threshold above which the company would
2:09:28be required to show that new customers
2:09:31would pay off the costs of adding them
2:09:33to the system yes I recall that would
2:09:36staff have to have more details about
2:09:38such a proposal before offering any
2:09:40position on those merits yeah I think a
2:09:43little bit more time um an analysis
2:09:46would be helpful to to fully understand
2:09:49theuts and do you recall your convers
2:09:51with chair blank asking about endof year
2:09:54rate based 13-month average and
2:09:56something in between yes why does staff
2:09:59believe 13-month average is more
2:10:01appropriate than year end or any other
2:10:04option yeah so I mean I think as as
2:10:08company witness gabre beer lays out in
2:10:10her testimony um you know the the
2:10:1313-month average provides a much more
2:10:16internally consistent way to look at
2:10:18rate making what are the revenues the
2:10:20onm the capital spending over a
2:10:23consistent period of time and that that
2:10:2513 month average provides that I think
2:10:27staff and and UCA worked hard in this
2:10:29proceeding to come to a compromise that
2:10:32had some regulatory lag but but by you
2:10:35know updating through the end of 2023
2:10:37trying to create a less stale but
2:10:40internally consistent test Year and that
2:10:43that 13-month average removes any
2:10:45incentives to try to push investments in
2:10:48at the the end of the period and you
2:10:51know again creates that sort of
2:10:52consistent treatment of rate base and
2:10:56onm and revenues and that that's a
2:10:59principle that staff Lees is appropriate
2:11:01for for right
2:11:02thinking now switching topics um the
2:11:06attorney for the company asked you
2:11:08several questions on the employee
2:11:11compensation and staff's position on
2:11:13that do you recall that line of
2:11:15questioning I do okay now why does staff
2:11:19maintain that only 15%
2:11:22of AIP expenses are appropriate for rate
2:11:25recovery so staff is trying to
2:11:28acknowledge that that um base pay and
2:11:31some amount of of incentives may be
2:11:34needed by the company and is sort of
2:11:37normal practice and that so we're not
2:11:40suggesting that no bonuses of any kind
2:11:42should be um recoverable from from right
2:11:45paays or that the company shouldn't have
2:11:46that as a tool to attract customers
2:11:49we're trying to reach a reasonable
2:11:50balance for the the higher level
2:11:53employees in recognition of their you
2:11:58know obligations to both shareholders
2:12:00and rate payers and you know what we see
2:12:04as reasonable to attract new employees
2:12:07um and have not seen any convincing
2:12:09evidence provided by the company that
2:12:11you know bonuses up to 100
2:12:14150% are are needed and so most of the
2:12:17bonuses you know come within that 15%
2:12:21amount and um you know staff viewed sort
2:12:24of anything more than that as excessive
2:12:26in terms of recovery for workers um it's
2:12:29a reasonable compromise that gives the
2:12:31commission or the company enough
2:12:32flexibility to train customers but isn't
2:12:35creating an undue burden on
2:12:37R is the company free to provide a
2:12:40larger incentive to its employees if it
2:12:42chooses yes and who would pay for
2:12:45anything above 15% under staff's
2:12:48recommendation um that would come out of
2:12:50shareholder
2:12:53um and how does staff's position on the
2:12:5615% compare to its prior recommendations
2:12:59and rate cases yeah this is consistent
2:13:02with both um staff's previous
2:13:04recommendations and commission's
2:13:06decision proceedings like the last gas
2:13:08litigated gas
2:13:11races okay and now I want to turn to the
2:13:14much larg topic of the bifurcated roe
2:13:17with you just give me a second to um
2:13:21organize my notes here
2:13:27um so you were asked by the company's
2:13:31Council several questions regarding new
2:13:34business and capacity expansions based
2:13:37on Dr de's modeling do you recall
2:13:41those
2:13:42and in this proceeding what is the
2:13:45ultimate recommendation for establishing
2:13:47an Roe on new business and capacity
2:13:50expansion
2:13:52yeah my my recommendation is that as
2:13:56sort of the last questions that I that I
2:13:58talked to with with the chairman
2:13:59indicate that um we acknowledge that
2:14:01there can be a range of sort of what is
2:14:04considered just and reasonable and the
2:14:06Roe needed to support the company's
2:14:08business and staff is suggesting that
2:14:10you know that new
2:14:13business um and capacity expansion
2:14:15projects which is get the minimum of
2:14:17that range that it's enough to support
2:14:19the company's obligation to serve we're
2:14:22not suggesting that they take away the
2:14:24the ability for customers to get a new
2:14:26gas hookup just that the the company
2:14:29would only get sort of you know the bare
2:14:31minimum of whatever is the commission
2:14:33determines to be that just and
2:14:35reasonable range and that's the Roe and
2:14:38whack that would be applied to um to new
2:14:41business and capacity expansion
2:14:43Investments okay and you asking
2:14:46questions about whether the long-term
2:14:48debt calculation was incorrect In Dr
2:14:50de's testimony but would that change
2:14:52your recommendation to apply a lower Roe
2:14:55to new business and capacity expansion
2:14:57if that were true um no I mean again the
2:15:01point is the principle of that is
2:15:04whatever the range is that the
2:15:05commission determines that that minimum
2:15:08of that range is what we recommend you
2:15:11know the the calculation of the the debt
2:15:14and Equity would go into that
2:15:15calculation but again based on what
2:15:16whatever the commission
2:15:18determines and you were also asked
2:15:20several questions by the company's
2:15:21Council regarding the math of applying
2:15:24the differentiated Roe and comparing
2:15:27Capital additions to Capital additions
2:15:29amongst various years do you recall that
2:15:32I
2:15:35do and who provides the data to staff
2:15:39about the company's Capital
2:15:40additions uh the
2:15:43company and in your discussion with the
2:15:46company's Council about the calculations
2:15:48of values in table E2
2:15:51we can pull that up if you need but do
2:15:52you recall briefly th those I do I
2:15:56recall okay does the company's Council
2:16:00point about the specific calculations
2:16:02that you used here change anything about
2:16:05staff's policy recommendation for the
2:16:07differentiated
2:16:08Roe no and in fact I mean the intent of
2:16:11that table in the calculation was to
2:16:14sort of provide the back of the envelope
2:16:16as it were um impact um of staff's
2:16:20proposal staff was was trying to to
2:16:21provide the commission some
2:16:23understanding of sort of the order of
2:16:25magnitude dollars that would result as a
2:16:28as a result of staff's um proposal staff
2:16:31was intentionally not trying to sort of
2:16:33do the the bottoms up accounting um of
2:16:37that it was really intended to be um you
2:16:39know as I said to provide the back of
2:16:41the envelope impact so the commission
2:16:43could understand um in a more wholesome
2:16:46way but yeah the impact of staff's
2:16:49recommendation and if there are
2:16:51disagreements about how the specific
2:16:53differentiated ROE should be calculated
2:16:56is it possible that that could be
2:16:58resolved in a technical
2:17:00conference yes I believe
2:17:03so and you were asked questions by the
2:17:06company's Council regarding the
2:17:08composite Roe Illustrated in your
2:17:11testimony is Staff recommending that the
2:17:13commission apply a composite Roe to all
2:17:16assets and rate base no staff is
2:17:19intending to you know apply a lower Roe
2:17:22to um new business and and it's somewhat
2:17:25frustrating that the commission or the
2:17:28company constr it that way again the
2:17:30point of it is to focus on the idea that
2:17:33they should get you remove the incentive
2:17:35on new business and focus their planning
2:17:38and managing down that portion of it so
2:17:42yes it changes the mass and the revenue
2:17:44requirement but the point of staff's
2:17:46objective or you know proposal was to
2:17:48focus on that management piece of it um
2:17:51it wasn't intended to be punitive it was
2:17:53intended to create an incentive for the
2:17:56company to to look at and manage those
2:17:59new
2:18:00Investments and could you please
2:18:02describe a little bit more your intent
2:18:04on providing the commission with the
2:18:06composite
2:18:08Ro um again it really was just to say
2:18:12Here's the the the basic math on on the
2:18:15impact so that the Comm the company
2:18:17would under commission excuse me would
2:18:18understand how large an impact this was
2:18:21you can think about it relative to other
2:18:22incentive programs that that are out
2:18:24there and just sort of give the order of
2:18:26magnitude dollars to the commission um
2:18:29of of implementing such a
2:18:33proposal okay now you were also asked
2:18:36some questions from both the company's
2:18:37Council and commissioner Gilman about
2:18:39the company's obligation to serve and if
2:18:42the company could decline to serve a
2:18:44customer do you remember those I do who
2:18:48has control over what investments are
2:18:50being made
2:18:52um the company does have an obligation
2:18:54to to serve if customers you know so
2:18:57desire um I do think that the company
2:19:00has control over its education programs
2:19:03how it responds to developers what they
2:19:05come how much information it provides
2:19:07people um I think the fact that the the
2:19:10company gets a reward for its rebate
2:19:12programs and clean heat and TP and other
2:19:15things is an acknowledgement of that of
2:19:17that the the company has some influence
2:19:19over customer choices and decisions and
2:19:23this is the flip side of that is that
2:19:25the company also has some influence over
2:19:27you know fully explaining the
2:19:29alternatives to to developers and what
2:19:32you know what all electric homes would
2:19:33look like um and that while maintaining
2:19:37the obligation to serve the company is
2:19:39not without influence um and that is the
2:19:42that is the point here is that yes they
2:19:45have an obligation and so there's
2:19:48there's a limit to that if the customer
2:19:49says no no no no no really really want
2:19:51you know new gas after they've PR been
2:19:53prevented all that information staff's
2:19:55proposal G still gives the company a
2:19:57reasonable return on that investment um
2:20:00but it also acknowledges that the
2:20:02company does have control as well so
2:20:05follow-up question for you on that could
2:20:07you please explain how the bifurcated
2:20:09Roe would still provide the company with
2:20:11a reasonable return on its Investments
2:20:14yeah I mean as I discussed earlier the
2:20:16intent of staff's proposal is to
2:20:19authorize sort of theow
2:20:21you know are we within the reasonable
2:20:24range so whatever the commission
2:20:25determines to be just and reasonable and
2:20:28supportive of the company's um you know
2:20:31Capital needs and uh credit metrics that
2:20:34lowest you know um Roe is what would be
2:20:37applied to new business so staff us that
2:20:40views that as being supportive of the
2:20:42company's need to raise
2:20:44capital and do you recall the questions
2:20:47that the company's Council asked you
2:20:49about whether staff question question
2:20:51the prudency of any investments in new
2:20:53business or
2:20:56capacity could you please elaborate on
2:20:58staff's concern about the risk that even
2:21:00prudent Investments could become
2:21:02stranded
2:21:04assets yeah I mean these these you know
2:21:07new business capacity expansion you know
2:21:09from an engineering perspective these
2:21:10are 70 to 100 year live assets right and
2:21:14the state has policy goals um to get to
2:21:18Net Zero um you know greenhouse gas
2:21:21emissions by 2050 um so something needs
2:21:24to to be done to try to match those
2:21:26things up right so you know and staff
2:21:29has tried to be productive in its its
2:21:31discussions of accelerated depreciation
2:21:33and um you know things like that to try
2:21:37to help minimize um the risk to the
2:21:40company of stranded assets um and part
2:21:43of that is avoiding making the inv
2:21:44Assets in the first place um so you know
2:21:47these brand new very longlived assets
2:21:50from an in perspective um you
2:21:54know I believe have a higher risk of
2:21:57being stranded as they will be less
2:21:58depreciated when we get to those longer
2:22:00term State policy goal time
2:22:03frames and one more followup on that um
2:22:07where you just discussed the planning uh
2:22:09commissioner Gilman also asked you about
2:22:11the Gip in your view how would the bated
2:22:15Roe Aid in the planning of the gas
2:22:18system I'm sorry say that one more time
2:22:21yeah in your view how would the
2:22:23bifurcated Roe Aid in the planning of
2:22:27the gas
2:22:28system yeah um again as I mentioned
2:22:31earlier I mean I think part of staff's
2:22:33objective in this bifurcated Roe
2:22:35recommendation is to make sure that we
2:22:37are continuing to support investment in
2:22:41safety and you know sort of FSA
2:22:43compliant um Investments and and really
2:22:46focusing on things that we could avoid
2:22:50um that you know again if we're going to
2:22:52get to those State policy goals of 2050
2:22:54we need to to stop making Investments or
2:22:57reduce those Investments over time uh
2:23:00and staff's you know intent is to try to
2:23:02continue to support safe and reliable um
2:23:05and we and you know avoid any incentives
2:23:08for new and capacity
2:23:10expansion those are all the questions I
2:23:12have for you miss O'Neal thank
2:23:15you uh you can be excused Miss oal thank
2:23:19you uh
2:23:21is Mr scac
2:23:25there Mr scac can you raise your right
2:23:28hand do you swear to tell the truth the
2:23:31whole truth and nothing but the truth I
2:23:33do you can put your hand down is there
2:23:36anybody uh with you now or communicating
2:23:38with you in any way there is not that
2:23:41changes you'll let us know of course
2:23:44back to you Mr
2:23:45bunker thank you Mr chairman uh Mr
2:23:48scoach could you please State and spell
2:23:51your name for the record Corey scus c r
2:23:55y s KL u z a
2:23:58k and could you please identify your
2:24:01employer and position
2:24:03title um color my employer is the
2:24:06Colorado Office of the utility consumer
2:24:08Advocate and my title is raid
2:24:12analyst and did you caused to be filed
2:24:15hearing exhibit 500 your answer
2:24:18testimony and attachment CWS one through
2:24:23CWS
2:24:25115 on behalf of the UCA in this
2:24:28proceeding
2:24:30yes and is it correct that you revised
2:24:33your
2:24:34testimony and your revised answer
2:24:37testimony hearing exhibit 500 rev one
2:24:41and some revised attachments were filed
2:24:44in this case that's
2:24:47correct and do you have any of other
2:24:50additional uh corrections to make to
2:24:53your answer testimony or attachments
2:24:56no and if I ask you the same questions
2:24:59today as contained in your revised
2:25:02answer testimony would your answers
2:25:03today be the same
2:25:06yes and hearing exhibit 500 Mr sco's
2:25:10answer testimony rev one and his
2:25:13attachment cw1 through
2:25:16cw15 have already been admitted into the
2:25:19record and Mr scoach is available for
2:25:23cross-examination and commissioner
2:25:25questions Miss Brahma I have 60 minutes
2:25:30so uh as the I alluded to earlier this
2:25:32morning the company was evaluating
2:25:34whether or not to proceed with cross
2:25:36with Mr schac and I sorry I tried to
2:25:38jump in earlier and we proceeded to
2:25:40swearing him in uh relatively quickly
2:25:42but at this point the company is uh
2:25:45waving its Cross of Mr skak thank you
2:25:48all right uh commissioner
2:25:51Gman I don't have any question but good
2:25:55morning I'm so
2:25:58disappointed you scared you scared them
2:26:00off Mr scac uh I'd like to ask you the
2:26:03same questions uh I asked uh M O'Neal um
2:26:08under current regulation in Colorado do
2:26:11you think that the company has a
2:26:12financial incentive to spend C uh
2:26:15Capital independent of the actual value
2:26:17of that spending for customers
2:26:24yes uh given that sales are expected to
2:26:28decline over time are you concerned
2:26:30about the impact of rising Capital
2:26:32spending on long-term uh customer rates
2:26:36I'm very
2:26:39concerned uh the office is very
2:26:42concerned if the commission shares your
2:26:45concerns any advice about what we can do
2:26:47about it in this case
2:26:52well I have heard uh the commission and
2:26:54especially you chairman talk a lot about
2:26:56incentives and misaligned incentives um
2:27:00I've tried to lace throughout my
2:27:03testimony uh to address misaligned
2:27:07incentives and so you know I'm not going
2:27:10to rehash everything in my testimony
2:27:13but I I just think
2:27:18that what you know Miss O'Neal talked
2:27:21about using various tools whatever tools
2:27:24are
2:27:25available uh and have been laid out for
2:27:27you use them uh don't be swayed about
2:27:33you know if our actions will mean
2:27:36they're going to come in for another
2:27:37rate case real soon or not don't be
2:27:40swayed by those sort of
2:27:42extraneous uh factors just start tamping
2:27:46down uh the incentives out there for
2:27:50them to continue plowing money into
2:27:53their gas
2:27:54division uh in spite of what the future
2:27:57holds for the LDC industry here in
2:28:01Colorado um that's about what I can give
2:28:04you all right any thoughts on using uh
2:28:09some average that's weighted more
2:28:11towards the end of the year um in a
2:28:14rising capital and uh environment sort
2:28:17of something that works out to September
2:28:193 30th 2023 uh rate base is a compromise
2:28:24between a 13-month average and an
2:28:26end-year rate base uh I know you prefer
2:28:3013mon uh weighted average uh any
2:28:33thoughts on trying to find the middle
2:28:35ground or would you advise against
2:28:37them well first of all I think when you
2:28:39asked Miss O'Neal this you you mentioned
2:28:42September 2024 but you indeed me
2:28:44September 2023 yeah I'm sorry that that
2:28:48was a bit of a curve B but I think I
2:28:50knew what you meant
2:28:52um yes uh so and I think I heard you say
2:28:57yesterday about splitting the
2:28:59baby um so I I usually pissing everybody
2:29:04off I well I usually provide a
2:29:08disclaimer that I am not a practicing
2:29:10attorney I'm also not a practicing Rabbi
2:29:13but uh splitting the baby when Solomon
2:29:16came up with that approach was try to
2:29:20determine or Divine you know who was the
2:29:23true Mo mother who was who was at heart
2:29:26who was going to protect this baby
2:29:29so the way I look at this rate base
2:29:33methodology that's my baby okay uh
2:29:36that's it's a Bedrock fundamental
2:29:38regulatory principle and I don't want to
2:29:41see that baby split because it's going
2:29:43to do violence to the regulatory
2:29:46principle um and I I long advocated uh
2:29:52for a 13-month that's true the office
2:29:55has and I think the weight of the
2:29:57history going back to at least 2002 I
2:30:00don't want to go beyond that but has
2:30:04been decidedly in favor of the 13-month
2:30:06average uh I heard Miss O'Neal say that
2:30:10both UCA and staff have have already
2:30:13compromised and she implicitly
2:30:15referenced my table CWS
2:30:18one uh I don't know if it would help to
2:30:21bring that up I'll leave that to you on
2:30:24redirect okay but I mean I I feel Mr
2:30:29chairman we've already compromised
2:30:31because we very well could have
2:30:33championed uh a 13-month average rate
2:30:35base on the uh on the test year that
2:30:39psco proposed which would have yielded a
2:30:42a much lower Revenue deficiency about
2:30:466.5 6.8 million lower I discussed this
2:30:49in my Tes
2:30:50but out of a matter of principle I
2:30:52thought it' be better to have a full
2:30:532023 hty with all actual updates
2:30:58recognizing that we're sort of going
2:31:01against our constituent interests
2:31:03because it would increase our starting
2:31:05point for our Revenue requirement but
2:31:08you know let's let's put it let's put
2:31:10aside the regulatory principle and
2:31:12everything I I hammered on
2:31:15affordability um and I you know I quoted
2:31:19to the commission the commission's own
2:31:20words on
2:31:22affordability and I mean the fact of the
2:31:24matter is you go with year end uh even
2:31:27if you try to split the difference it's
2:31:30still going to be a sizable increase uh
2:31:3318 million if you go full on year end
2:31:35split the difference I don't know how
2:31:37you're going to split right down the the
2:31:38middle through a through a an adjustment
2:31:42like Mr fridus throughout throughout but
2:31:45it's going to make things less AFF less
2:31:48affordable let's level said here even
2:31:50under the uca's rosiest prediction or
2:31:54projections even if you you say yes to
2:31:57all of our um proposals we're still
2:32:01north of $91 million for a revenue
2:32:04increase that's huge it's
2:32:06massive and you know they got year end
2:32:10last time they got year end 2022 much to
2:32:12my suin but you know they came tring in
2:32:15here 13 months later so I I don't see
2:32:19whether you go 13-month average year end
2:32:21if it's going to dissuade them from
2:32:22coming back in almost immediately for
2:32:24another one but affordability you know
2:32:28the commission has some wonderful
2:32:29language about
2:32:31affordability uh being cognizant of how
2:32:34it uh hits consumers hard but unless you
2:32:37actualize those concerns those are just
2:32:39mere words on
2:32:41paper all right let's probably not what
2:32:44you wanted to
2:32:46hear he certainly didn't help me build a
2:32:49record
2:32:52uh uh let's talk about the C Creek
2:32:54Canyon Pines uh uh project uh um uh I
2:33:00put forward a a suggestion uh to M
2:33:05O'Neal uh about potentially deal dealing
2:33:08with uh that situation let me just read
2:33:10it to you again and see if you uh have
2:33:13any thoughts about um about it assume
2:33:17this commission continued the same
2:33:19approach to calculating the cust contri
2:33:21the customer contribution that's in
2:33:23existing tariffs but put in an overlay
2:33:27requirement that asked the company on
2:33:29every investment greater than say
2:33:33$250,000 to demonstrate that the
2:33:35revenues from this new customer exceeded
2:33:37the cost the showing might be based on
2:33:40the approach developed by Mr matley in
2:33:43his revised exhibits Ram 1 two and three
2:33:46assuming 30-year depreciation the
2:33:49company wack a Net Present Value
2:33:51approach and the company's actual
2:33:53treatment of net salvage value and
2:33:55removal cost uh to the extent cost
2:33:58succeeded net revenues and the customer
2:34:01contribution would have to be increased
2:34:03until there was no cross subsidy and the
2:34:06expected net revenues at least expect uh
2:34:09equal the uh expected net costs and the
2:34:13question is what do you think is that a
2:34:15good idea well my initial impression is
2:34:18it strikes me that it is certainly
2:34:21within uh the statute the Colorado
2:34:24statute to start squeezing out all the
2:34:27internal subsidies um as to the 250,000
2:34:32I don't know I don't know uh you know
2:34:34maybe M Maran Ramos of your staff would
2:34:38be best to figure out separating the
2:34:42wheat from the chaff as you know as far
2:34:45as what the threshold should be so I
2:34:47really don't know and then I already
2:34:51said I'm not a I I don't practice as an
2:34:53attorney but it does strike me as well
2:34:56that I you know first of all I like it
2:34:59all all right we I like it all but I am
2:35:04a little bit concerned that perhaps a
2:35:07better Avenue would be through a Ru
2:35:08making to bring in all of the Gas
2:35:10Utilities not just public service so it
2:35:13could be well thought out well vetted uh
2:35:16and perhaps realize that'll be two years
2:35:18from now well and that's the problem I
2:35:21don't know if you can do it on a uh
2:35:23expedited basis or
2:35:25not um you could I guess get the ball
2:35:28rolling in this stocket but I I I am a
2:35:30little bit concerned
2:35:33that you know I'm speaking for the
2:35:35company now that they haven't had an
2:35:37opportunity to really totally vet this
2:35:39and and push back a little bit or or
2:35:42tweak it around the edges I do have that
2:35:45concern do you think it's appropriate
2:35:47for the regulated system to subsidize uh
2:35:50$5 million homes to the tune of uh $5
2:35:53million and $80,000 house subsidies is
2:35:57that a good
2:35:59idea no I do not especially in light of
2:36:02what what this state is going through
2:36:04and where it wants to go with
2:36:07electricity and natural
2:36:09gas
2:36:11um did you hear my questions to missal
2:36:15yes did you have any comments on trying
2:36:18to uh create a reserve fund to fund
2:36:21future removal costs and try and keep
2:36:24the company whole through uh accelerated
2:36:27depreciation it seems like this combined
2:36:30approach would start creating a reserve
2:36:32fund now that would grow over time to
2:36:34support future asset removal it would
2:36:37accelerate depreciation in ways that
2:36:39reduce future liabilities and it would
2:36:42keep the company's credit uh metrics
2:36:44constant any thoughts well so I'll speak
2:36:48on a personal basis first uh I I'm a
2:36:51former
2:36:52CPA and I and just by the nature of that
2:36:56job it I'm conservative
2:37:00and and you know oftentimes companies
2:37:03will call accumulated depreciation
2:37:05accumulated Reserve that that's sort of
2:37:08a uh archaic concept and that companies
2:37:11really don't create reserves anymore
2:37:14depreciation reserves to replace uh uh
2:37:17equipment but the the the name still is
2:37:19there accumulated Reserve so you're sort
2:37:22of turning back the clock to what that
2:37:25Contra asset known as accumulated
2:37:27appreciation used to be you accumulated
2:37:30money in a reserve Fund in order to
2:37:33replace in the future equipment plant
2:37:37whatsoever so from a personal basis I I
2:37:41really like it however I'm not our
2:37:43depreciation expert Mr Mr uh Kirkendall
2:37:47is and just to be clear I'm not in
2:37:49depreciation instead of turning it into
2:37:52free cash flow I'm suggesting it be put
2:37:55in a reserve that's all I'm doing yeah I
2:37:58I mean I like it I like
2:38:01it it's and I know what you're trying to
2:38:03do you're you don't want customers to be
2:38:06left holding the bag at the end of the
2:38:08day okay uh Mr bunker any
2:38:13redirect uh yes just a a few questions
2:38:16thank you uh Mr scoach remember your
2:38:20discussion with u chairman blank here
2:38:23just a few minutes ago regarding rate
2:38:26based methodology and you referred to
2:38:29your table CWS one which is on page 41
2:38:33of your answer
2:38:34testimony which is uh hearing exhibit
2:38:38500 and uh the chairman said you know we
2:38:42can address this on redirect so
2:38:46um what was what was the the uh
2:38:50discussion you were going to have at at
2:38:52that point regarding this particular
2:38:54table on Revenue requirements and it was
2:38:58also part of the rate based methodology
2:39:02discussion well I was just going to
2:39:05visually show the chairman and
2:39:07commissioner Gilman you know the numbers
2:39:09I guess it isn't necessary I did go over
2:39:11the
2:39:12numbers uh but it's already in my
2:39:15testimony but I wanted to just
2:39:18illustrate the compromise that M uh
2:39:21O'Neal mentioned that both staff and UCA
2:39:24have already baked into their starting
2:39:26point or their revenue requirement we
2:39:29feel like we've tried to reach a balance
2:39:33by uh starting with a higher Revenue
2:39:37deficiency than we could have that's all
2:39:40I was trying to get at okay and that
2:39:43that Revenue deficiency the difference
2:39:45between year end and 13-month average as
2:39:49we see in your in your uh table CWS one
2:39:53and from uh cross-examination and
2:39:57questions is an $18 million difference
2:40:00between the use of yearend rate base and
2:40:0413-month average correct okay I no there
2:40:08might be a little confusion yeah that's
2:40:10the difference between what Pesco is
2:40:12proposing and what we're proposing is 18
2:40:14million what I was alluding to Mr bunker
2:40:17is the difference between
2:40:21152 million and 145. 7 million equals
2:40:256.3 million that's the six that's the
2:40:28amount 6.3 million that we pushed into
2:40:32the middle of the table as it were as a
2:40:35compromise when we could have gone for a
2:40:3913mon average off of Public Services
2:40:42direct
2:40:44testimony uh test year that's what I was
2:40:46alluding to okay thank you for that just
2:40:49to follow up on that that would be the
2:40:51difference between using 9 months of
2:40:55actuals through September 30
2:40:592023 and then uh forecasted data for the
2:41:03last three months October through
2:41:05December of 2023 is that right
2:41:09no maybe we should go to the
2:41:12table okay can we do that I'm sorry I've
2:41:16I've confused things sure U if we could
2:41:18pull up here any is up at
2:41:21500 page
2:41:3041 okay could I walk you through this Mr
2:41:32bunker
2:41:34please and in the future I should
2:41:36probably put uh numbers on the rows and
2:41:40columns that would probably help but
2:41:41anyway uh so Public Services uh proposed
2:41:47direct case
2:41:49uh Revenue deficiency is the third one
2:41:52down it's in red red by the way means
2:41:55stop green means go uh it's in red it
2:41:58was
2:41:5917.7 Million okay that's what they
2:42:02wanted in their direct case uh but
2:42:05theirs was that year end and so in
2:42:07Discovery next row down we asked for the
2:42:1013mon average of their proposed test
2:42:13year Revenue requirement that came out
2:42:15to 145. 7 million now we could have just
2:42:18stopped there
2:42:20and not asked any further Discovery and
2:42:22said and and gone with 145. 7 as our our
2:42:25ending but we wanted staff wanted actual
2:42:312023 data so you're right Mr bunker uh
2:42:36Public Services proposal did uh contain
2:42:40nine months of capital expenditures and
2:42:42then three months of forecasted so we
2:42:44wanted 12 months so we go down to the
2:42:46next one and they provided
2:42:49a full 2023 hty year end yielding 17.2
2:42:54million and then we also asked for the
2:42:5713-month average which is the bottom row
2:43:00and that yield at 152 million so rather
2:43:03than taking the 145. 7 million as a
2:43:06starting point we said the principal
2:43:09thing to do is to use uh fresher data
2:43:13with all actuals and that yield 152 even
2:43:17though it was an extra 6.3 million okay
2:43:22so the compromise that uh staff witness
2:43:25O'Neal was just referring to and that
2:43:27you were referring to is to give up that
2:43:31uh essentially $6.3 Million by saying
2:43:34let's go with the fresh yearend data and
2:43:38that is the uh number in green on the
2:43:40bottom right the 152 million right well
2:43:44that's certainly the compromise I was
2:43:45referring to and I think thank you
2:43:48that's the compromise Miss O'Neal was
2:43:50referring to okay okay U there was also
2:43:55some questions regarding from uh
2:43:57chairman blank regarding the rate based
2:44:01methodology and the debate between
2:44:0413-month average and
2:44:07yearend uh testimony and if we could go
2:44:11to page uh
2:44:1349 of your uh answer testimony here this
2:44:17is this is your table CWS 2 and it
2:44:22continues on to U the top of page
2:44:2750
2:44:28um so can you provide a further
2:44:32explanation with regard to the history
2:44:35of using 13-month average and your
2:44:39recommendation here to you in this case
2:44:42to use the HT ending December 31
2:44:462023 with a 13-month average rate base
2:44:51yeah my history in this chart just goes
2:44:54as of the 2010 case which was a subtle
2:44:57case and you can
2:44:59see uh it was 13-month average and then
2:45:03I I don't need to read everything here
2:45:05into the record uh it brings brings it
2:45:08all the way up to the last rate case
2:45:102022 which was a year-end rate base now
2:45:14I I did mention elsewhere in my
2:45:15testimony prior to 2010 from the period
2:45:19of the 2002 rate case up to
2:45:232010 uh there was uh a series of
2:45:27settlements Public Service in 2002 by
2:45:30the way back then we used to do combined
2:45:32electric and gas rate cases if you can
2:45:35imagine that but uh in that combined
2:45:38electric and gas case back in 2002
2:45:41Public Service agreed to end year end
2:45:44rate base because inflation had gone
2:45:47away and agreed to a third month average
2:45:50and that pretty much Carri forward until
2:45:53uh 2010 now Somewhere in My Testimony we
2:45:56don't need to go there I said there was
2:45:58no there was settlement but no uh no
2:46:02definitive uh outcome from after 2002
2:46:07until 2010 however I found out later
2:46:10that according Public Service uh it was
2:46:14all average rate based from 2002 to 2010
2:46:18and then we pick up here with this table
2:46:21Mr bunker can we not relitigate on this
2:46:25on
2:46:26redirect well keep going keep
2:46:31going uh but thank thank you Mr
2:46:35chairman uh you uh Mr scoach you you
2:46:39mentioned um this
2:46:42200 22 uh gas rate case and it was a
2:46:47combined case right right well I
2:46:50mentioned the 2002 not the
2:46:5320 yes
2:46:562002 and
2:46:59uh is it your understanding that between
2:47:032002 up to where your table starts on
2:47:06page
2:47:0749 that there was uh a use of average
2:47:12rate based during that time period too
2:47:14yes I yeah and and how could we confirm
2:47:19uh what you've just
2:47:21indicated well if the commission wants
2:47:24to confirm it uh they could go to uh the
2:47:282012 rate case
2:47:3112- uh 068 G I think and Miss Deborah
2:47:36Blair was the company witness on rate
2:47:39base and she filed supplemental direct
2:47:41testimony in that case which is the
2:47:43definitive document for the history from
2:47:4620 or 2002 through
2:47:502010 on the use of 13-month average rate
2:47:54base and if we could go into the uca's
2:47:58uh box hearing exhibit
2:48:02556 we could pull that
2:48:13up and this is the testimony by Miss
2:48:16Blair uh a witness for public service
2:48:19that you're referring to her
2:48:20supplemental direct testimony could you
2:48:22scroll down it should be a 2013 date or
2:48:27yeah February 14 2013 that is the
2:48:30testimony yeah and if we could go to
2:48:32page 19 of that uh a
2:48:36document if I could jump in and and
2:48:39object here to this line of questioning
2:48:40this is well beyond the scope of what
2:48:42was asked by the commission um we've
2:48:45tried to you know Let it go for a while
2:48:47but now we're into addition documents
2:48:49that have nothing to do with with
2:48:51sharing or potential splitting the baby
2:48:53on the different
2:48:54methodologies and and well go ahead well
2:48:58Mr chairman I I would say that uh the
2:49:01parties have sat through a lot of oral
2:49:04cuttle testimony by public services
2:49:07Witnesses throughout this case without
2:49:09objecting the introduction of many many
2:49:13documents during that uh redirect
2:49:16examination that there were questions
2:49:19regarding the rate based methodology and
2:49:23year end versus 13-month average and
2:49:28this provides some some further
2:49:30information for the commission's use in
2:49:35determining what rate based
2:49:37methodologies have been used over the
2:49:40years and it would be relevant and
2:49:43helpful to the commission is our
2:49:45view I well miss Brahma you want to
2:49:48respond
2:49:49yes please there there is a significant
2:49:51difference in the course of a hearing
2:49:53between providing redirect that no one
2:49:55objected to that was um prompted by
2:49:59cross-examination by other parties we're
2:50:01of course entitled to respond to that
2:50:02when it's within scope and of course
2:50:04there were no objections to those this
2:50:07is just a different situation where it's
2:50:08well beyond uh the questions that were
2:50:10asked of Mr schak um during the course
2:50:13of uh commissioning
2:50:14questions I guess I agree uh Mr bunker
2:50:19uh the company uh wave cross and this
2:50:22seems uh beyond the scope of The Limited
2:50:26uh questions uh that I was asking so I
2:50:30would sustain that
2:50:35objection okay I'll move on uh there
2:50:39were some disc there was some discussion
2:50:42uh between you and chairman blank Mr
2:50:45scok about the uh concept of splitting
2:50:50the baby and uh do you have any further
2:50:54comments on on that particular issue in
2:50:58terms of finding some
2:51:01uh finding some uh solution if you will
2:51:06to the $18
2:51:09million uh difference between the two
2:51:11rate based
2:51:14methodologies um unfortunately no uh I I
2:51:18I would ask the commission Mr chairman
2:51:21to stick with the principle and use
2:51:2313-month average rate base uh I I know
2:51:27Mr frus came up with a solution um it's
2:51:32essentially a a black box
2:51:34adjustment uh and which makes me
2:51:37uncomfortable so I I can't endorse that
2:51:40at this time however as you the lawyers
2:51:44always tell me our sop is our final word
2:51:48so perhaps that position may
2:51:52change
2:51:55so okay all right thank you and and part
2:51:59of your discussion with uh chairman
2:52:02blank uh you talked about
2:52:06affordability and the need to actualize
2:52:09the great as I think you phrased it the
2:52:13the great
2:52:14wording uh around
2:52:16affordability and that the commission
2:52:19needs to actualize that with its
2:52:21decision here in this case could you
2:52:24elaborate on
2:52:25that uh you know it's all in my
2:52:28testimony uh under the affordability but
2:52:31I mean there are there are specific
2:52:33issues such as uh disallowing the plan
2:52:36held for future use which is the LTE
2:52:39project by the way that was entered into
2:52:41rate base and the very last day of 2023
2:52:44December 31st 2023 for that wireless
2:52:47Spectrum but yet under year year end it
2:52:50gets a full Year's worth of uh value
2:52:53anyway I
2:52:55digress uh but I mean there's certain
2:52:58proposals we have I have that Mr
2:53:01Fernandez has that staff has that can
2:53:04make this more affordable I mean it's
2:53:06all as I said it's already GNA be a
2:53:08massive rate increase and I'm I'm just
2:53:11trying on behalf of our constituents to
2:53:14mitigate that yeah and and when you
2:53:16refer to uh those various items you're
2:53:21talking about things like the rate based
2:53:24methodology the capital structure some
2:53:27of the adjustments the UCA recommended
2:53:30is that right yes okay uh with that
2:53:34nothing further thank you thank you
2:53:37maybe exclus excuse Mr scusi thank
2:53:41you
2:53:43uh Mr Fernandez
2:53:56can you hold up your right
2:53:59hand do you swear to tell the truth the
2:54:01whole truth and nothing but the truth
2:54:04yes I you put your hand down is anybody
2:54:07with you or communicating with you in
2:54:09any way no if that changes will you let
2:54:12us know I
2:54:14will uh back to you Mr
2:54:17bunker thank you you uh Mr Fernandez
2:54:20could you please State and spell your
2:54:21name for the record Ron Fernandez F Na
2:54:28ndez and could you please identify your
2:54:32employer impos
2:54:34title I'm a financial analyst for the
2:54:38UCA thank you and did you cause to be
2:54:41filed hearing exhibit 501 your answer
2:54:45testimony and attachments RAF 1 through
2:54:50rf45 on behalf of the UCA in this
2:54:53proceeding
2:54:55yes and do you have any additional or
2:54:58any corrections uh to make to your
2:55:00answer testimony and
2:55:02attachments
2:55:03no and if I ask you the same questions
2:55:06today as contained in your answer
2:55:08testimony would your answers under oath
2:55:11today be the
2:55:12same
2:55:14yes and hearing exhibit 501 Mr
2:55:17Fernandez's answer testimony and
2:55:19attachments raf1 through
2:55:22rf45 have already been admitted to the
2:55:25record and Mr Fernandez is available for
2:55:29cross-examination and commissioner
2:55:31questions Miss
2:55:36Brahma uh good afternoon uh M or morning
2:55:39still it feels maybe it should be
2:55:42afterno um Mr Fernandez my name is Liz
2:55:45Brahma I know we've met before I
2:55:46represent Public Service Company in this
2:55:49matter uh I'd like to ask you some
2:55:50questions about your testimony good
2:55:53morning I I have a bit of a cold this
2:55:55morning so I will apologize in advance
2:55:57if I have to get some water take more
2:55:59cough medicine absolutely take whatever
2:56:01you need I I uh have no intention of
2:56:04wanting to rush you through anything um
2:56:06when if you're not feeling well so
2:56:07thanks for being here um if we could
2:56:10please um start by uh pulling up hearing
2:56:14exhibit 501 attachment raf5
2:56:18I just have some questions for you Mr
2:56:20Fernandez to to better understand the
2:56:22uca's ultimate recommendations in this
2:56:28case um so attachment raf5 to your uh
2:56:34answer testimony here is is on the
2:56:36screen and um here you show that the
2:56:41results of the range of your four
2:56:44methods of calculating Roe are 9.4 to
2:56:479.7 percent right yes
2:56:52and if we uh turn now to your answer
2:56:57testimony itself at page
2:56:59six hearing exhibit
2:57:06501 here you say uh or you recommend
2:57:09that the commission
2:57:11authorize um let's see I think it might
2:57:14be uh down a little bit further
2:57:16apologies lines 12 through the end of
2:57:19this page yeah um here you say I
2:57:22recommend that the commission authorize
2:57:24a whack of
2:57:266.8% while allowing Pesco select a roe
2:57:31from the range of 9.2 to
2:57:3599.6% correct yes okay so that's a
2:57:39different range than the 9.4 to
2:57:4299.7% identified in your models right
2:57:45both at the top and bottom of that range
2:57:49for the models but if you'll also uh
2:57:51note that uh there is an additional
2:57:54recommendation of uh lowering uh the
2:57:58authorized Roe by 20 voices points to
2:58:019.2 if the commission further reduces
2:58:04the risk of the company by uh granting
2:58:07its uh additional risk reducing items uh
2:58:11such as decoupling so if you look at the
2:58:13the total range of everything that was
2:58:16included in attachment raf5 it was 9.2
2:58:20to 9.7 for an Roe and I have selected a
2:58:25range to recommend to the commission of
2:58:279.2 to 9.6 the top end is is 10 basis
2:58:31points different I will admit that but
2:58:33also as part of this uh recommendation
2:58:35if you look a little bit further I'm
2:58:37also recommending a capital structure of
2:58:40uh 50% to
2:58:4355% and the and the top end of that is
2:58:46higher than my recommendation for
2:58:48capital structure Mr Fernandez I didn't
2:58:50ask you any questions about your capital
2:58:51structure yet we will get there so if
2:58:53you could just focus on the question
2:58:54being asked you know there'll be lots of
2:58:56opportunity here um so to your point
2:59:00about your 9.2 to 9.6 is a little bit
2:59:03different than the 94 to 97 if we go to
2:59:06the next page um or starting I'm sorry
2:59:09on this page apologies at line 20 and
2:59:11continuing to the next page and there
2:59:13you say uh I recommend that if the
2:59:16commission grants psco any significant
2:59:18risk reducing measures such as full rate
2:59:21decoupling the ROE should be reduced by
2:59:2320 basis points in order to balance the
2:59:25interest of shareholders and rate payers
2:59:28uh and this recommendation also
2:59:29recognizes that with lower risks come
2:59:31lower returns and so my question for you
2:59:35is what specific interests of
2:59:37shareholders and rate payers are you
2:59:39balancing in this particular
2:59:43statement the risk of the company I have
2:59:47testified all long that returns should
2:59:49match risks that is uh benefits uh
2:59:54consumers as well as investors and that
2:59:56is a very basic Financial principle okay
3:00:00so you're just speaking to risk here is
3:00:03as opposed to balancing interests of
3:00:05shareholders and rate
3:00:06payers I guess I'm trying to figure out
3:00:08what you're trying to
3:00:11balance to balance the interest by
3:00:15matching risk and reward
3:00:18okay
3:00:21um so if we go to uh you go on to say in
3:00:26this paragraph uca's final
3:00:28recommendation excuse me US uca's final
3:00:31Roe recommendation is that this two
3:00:34should be further reduced by 20 basis
3:00:36points to 99.0% due to affordability and
3:00:40public interest concerns did I read that
3:00:43correctly yes and Mr scac uh um uh
3:00:49excuse me um testified uh as to uh why
3:00:53the U UCA made that further
3:00:56recommendation okay so we have a a model
3:01:00range for you that's 9.4 to
3:01:029.7 and then a recommended range of 9.2
3:01:06to
3:01:089.6 in general or if the commission
3:01:11adopts decoupling
3:01:21well that range for Roe
3:01:26is
3:01:28offered uh concurrently with the range
3:01:32for the
3:01:36uh uh for the capital structure so I
3:01:41would say they go together and I would
3:01:44stick by my recommendation keeping it at
3:01:47$9 .2 to
3:01:499.6 um is regardless of what the
3:01:52commission does with any specific item
3:01:56oh okay so regardless of what the
3:01:58commission does you're suggesting a
3:01:59range of 9.2 to
3:02:039.6 but the final recommendation could
3:02:05be 9.0 or
3:02:089.2 is that where we're at truly I'm
3:02:11trying to make sure we understand what
3:02:12uca's recommendations are
3:02:16here my Rec
3:02:18Commendation for Roe based on my
3:02:23analysis is
3:02:2799.4% if the commission decides to
3:02:29further authorize
3:02:31lowering uh risk reducing items then my
3:02:36recommendation is
3:02:389.2% Mr scac has added another element
3:02:43here that if the commission wants to uh
3:02:46deal with the afford ability of rates
3:02:50then
3:02:51uh his further recommendation is to
3:02:54lower it to
3:02:569% okay and is it uca's position that
3:02:59any reduction in Roe equates to uh more
3:03:03affordable
3:03:08rates mathematically the lower the Roe
3:03:12was lowers the revenue requirement and
3:03:14lowers rates okay um switching topics
3:03:18here I'd like to look at your answer
3:03:20testimony hearing exhibit 50501 at page
3:03:2846 and um if we could scroll down just a
3:03:32little bit to the um uh line 14 and and
3:03:40continuing um in this section your of
3:03:44your testimony Mr Fernandez you asked
3:03:45the question how does your how do your
3:03:47capital structure recommendations comply
3:03:50with Colorado's Supreme Court precedence
3:03:53and there you quote as we can see in
3:03:55footnote 29 uh The People's Natural Gas
3:03:59decision of the Colorado Supreme Court
3:04:02um which uh States or or you state
3:04:06Excuse me while I am not an attorney I
3:04:08would note that the Colorado Supreme
3:04:10Court has stated quote unless it has
3:04:12been demonstrated by a substantial
3:04:14showing that rate payers are materially
3:04:17prejudiced by the actual capital
3:04:18structure which finances utility
3:04:21operations the Pu should use the actual
3:04:24capital structure in calculating rates
3:04:26did I read that correctly yes okay I'd
3:04:29like to look at this particular decision
3:04:31that you cited to provide a little more
3:04:33context could we please pull up hearing
3:04:35exhibit 158 from box.com
3:04:56and if we could turn to page three of
3:04:58the PDF
3:05:03please and we might need to scroll down
3:05:05a little bit because um I need to find
3:05:09exactly where we there we are do you see
3:05:11a the number two here on the left side
3:05:13of the screen uh Mr Fernandez yes it
3:05:18since you cited this decision in your um
3:05:21testimony you're familiar with the whole
3:05:23of it is that
3:05:25fair I have not read the entire thing
3:05:29since I am not an attorney I have relied
3:05:31on uh on uh our attorneys uh uh for
3:05:35information as far as this okay um so
3:05:39the only piece that you're aware of for
3:05:41purposes of your testimony is the single
3:05:43sentence that you cited in your
3:05:45testimony that's the majority of it I've
3:05:48looked at a little bit more of this but
3:05:50uh that's really the believe the the
3:05:52pertinent part okay so just taking a
3:05:55look here at some additional portions um
3:05:58on where it's there's this number two uh
3:06:02in the middle of the page it states um
3:06:05the a guiding principle of utility
3:06:08regulation is that management is to be
3:06:10left free to exercise its judgment
3:06:12regarding the time of entering financial
3:06:14markets and its judgment regarding the
3:06:16most appropriate rate show between debt
3:06:18and equity and the capital structure did
3:06:20I read that correctly yes and if we go
3:06:23to page
3:06:28four and here we have uh in number four
3:06:31just you see that on the left side of
3:06:33the page here first full paragraph it
3:06:36also States um according to the Colorado
3:06:39Supreme Court we agree with the Supreme
3:06:42Judicial Court of massachus
3:06:44Massachusetts that a utility regulatory
3:06:46Authority cannot base rates on a
3:06:48hypothetical rather than the actual
3:06:50capital structure of a utility unless
3:06:53existing Capital structures of regulated
3:06:55companies so unreasonably and un and
3:06:58substantially vary from usual practice
3:07:01as to impose an unfair burden on the
3:07:03customer did I read that correctly yes
3:07:07okay and the words on the page here
3:07:08speak to the capital structure of a
3:07:11utility correct yes okay so now let's
3:07:16turn back to your answer testimony if we
3:07:19could at page
3:07:2511 and at the top of this page uh Mr
3:07:28Fernandez you note that public service
3:07:31is requesting a capital structure in
3:07:33this proceeding consisting of
3:07:3555.0% equity 1.82% short-term debt and
3:07:4143.8% long-term debt as of December 31
3:07:442023 correct yeah
3:07:48and 2023 is the end of the test year as
3:07:51agreed upon between the company staff
3:07:53and UC proceeding correct yes and are
3:07:57you familiar with company witness Paul
3:07:59Johnson's testimony that public service
3:08:01company's actual capital structure for
3:08:03the 2023 test year was approximately
3:08:0855.0% I've heard that okay um now if we
3:08:14turn to your hearing exhibit page 20 two
3:08:18I'm sorry hearing Z 501 page
3:08:2222 and scroll down if we could to the
3:08:26middle of the page a little bit further
3:08:28please oh I may be in the wrong spot one
3:08:38moment H I apologize uh page 11 of the
3:08:42of the uh answer
3:08:46testimony here you say one of your
3:08:48proposals is that the commission should
3:08:51adopt what you call a pass through
3:08:53capital structure do you see
3:08:56that yes and I am also dealing with
3:08:59actual Capital structures uh for excel
3:09:02in this proposal right the actual
3:09:05capital structure for the parent company
3:09:08correct for the entire company Mr
3:09:11Johnson has tried to Cloud that up and
3:09:14uh throw in a few more uh terms about
3:09:17looking at just the headquarters I am
3:09:20talking about the entire company and how
3:09:23it is financed and how they report it to
3:09:25their investors through their 10K okay
3:09:28so you're talking about the Consolidated
3:09:30XL Energy including all utility
3:09:33operating subsidiaries including those
3:09:35outside of Colorado as well as
3:09:37unregulated components of XL Energy
3:09:41correct uh yes uh that is correct okay
3:09:45and
3:09:47so the pass through capital structure
3:09:50involves utilizing the actual capital
3:09:52structure of in your view the
3:09:54Consolidated parent in place of the
3:09:57capital structure of the utility
3:10:01correct and what I have testified to is
3:10:06that the company can allocate any
3:10:08capital structure at once to any
3:10:11subsidiary and I want to get to the
3:10:14actual capital structure that actually
3:10:16Finance ances the company okay so let's
3:10:19go back to hearing exhibit 158 if we
3:10:22could
3:10:24please
3:10:27and um in on the prior
3:10:32page the language we looked
3:10:35at is that the the utility is left free
3:10:40to exercise its
3:10:41judgment regarding the time of entering
3:10:44financial markets and its judgment
3:10:46regarding the most appropriate ratio
3:10:47between debt and equity in the capital
3:10:49structure
3:10:51correct correct and Excel has uh done
3:10:54that uh for the company and uh this does
3:10:57not talk anything about um allocations
3:11:00to subsidiaries oh interesting okay so
3:11:03if we could please turn to page four of
3:11:10five isn't it true Mr Fernandez and
3:11:13maybe you don't know but in this case
3:11:15the utility actually advocated for use
3:11:18of the parents capital structure as
3:11:20applied to the utility and the
3:11:23commission rejected that and the court
3:11:26affirmed the Pu because it's the
3:11:30utilities capital structure that matters
3:11:33because that is what's financing the
3:11:35utility is are you aware of that no I'm
3:11:39not okay so you're also not aware that
3:11:42the court affirmed the Pu capital
3:11:44structure because it reflected in this
3:11:45opinion quote the actual capitalization
3:11:48backing the utility operation as
3:11:50isolated from the non-utility operations
3:11:53and subsidiaries of a parent company
3:11:55you're not aware of that either in this
3:11:57decision I'm not aware of that uh but
3:12:00Excel has uh provided information that
3:12:03they're 98% regulated so their
3:12:06non-regulated piece is a very very tiny
3:12:09uh piece of the company okay but that
3:12:1198% isn't public service right that's
3:12:13all regulated utilities across XL Energy
3:12:16to your point yes okay um I would just
3:12:20move for administrative notice of this
3:12:22document it's a publicly available
3:12:23Colorado Supreme Court
3:12:26decision uh Mr
3:12:28bunker no objection so moved okay so
3:12:33getting back to your conversation or
3:12:35your comments a little bit earlier Mr
3:12:37Fernandez about the comparisons between
3:12:39public service and EXL energy we can
3:12:41take this uh this exhibit down now thank
3:12:46you so if we could go back to Mr
3:12:49Fernandez's answer testimony on page
3:12:5318 hearing exhibit
3:13:01501 so if we scroll down to the table
3:13:09raf5 and looking in particular at the
3:13:122023 line U Mr Fernandez since this is
3:13:15the test year in this case
3:13:17um You referred to an equity percentage
3:13:20for EXL energy of
3:13:2141.0% in 2023 correct yes now to your
3:13:28point earlier this is the EXL energy
3:13:30Consolidated equity percentage
3:13:34right this is how the entire company is
3:13:37financed and this is what they report to
3:13:38investors on their 10K well this isn't
3:13:41actually what they report is it Mr
3:13:43Fernandez because what they report is
3:13:45that it includes short-term debt isn't
3:13:47that
3:13:48correct they report both there are
3:13:51separate lines uh for short-term debt
3:13:53and long-term debt okay so if we could
3:13:55pull up attachment
3:13:58ra13 to hearing exhibit
3:14:09501 and I think we'll need to go to uh
3:14:12page 10
3:14:17oh one more page
3:14:2011 here we go so here is the uh capital
3:14:24structure of EXL energy as of December
3:14:2731 2023 correct yes and this says
3:14:32Consolidated as you noted that's
3:14:36right and this shows short-term debt in
3:14:40the company's Consolidated capital
3:14:42structure as of December 31 2023 correct
3:14:45yes okay so just to make the point this
3:14:48is somewhat different than what you have
3:14:50in your table in terms of uh the company
3:14:52EXL energy
3:14:54Consolidated actual capital structure as
3:14:56of December 31 2023 I did not include
3:15:00short-term debt so that is the
3:15:03difference okay
3:15:07um and isn't it true uh Mr Fernandez
3:15:11that XL Energy Inc alone the parent
3:15:15company uh is capitalized with an equity
3:15:19ratio that is higher than
3:15:2270% I don't know that okay so but if Mr
3:15:25Johnson said that in his rebuttal
3:15:27testimony you'd have no basis then to
3:15:29dispute
3:15:30it I think it's irrelevant to this okay
3:15:34so when you talk about an equity ratio
3:15:37comparison between Public Service
3:15:38Company and an parent company since
3:15:41you're referring to the Consolidated
3:15:43entity we would need to compare public
3:15:45service companies um
3:15:4855% equity ratio let let me rephrase
3:15:51that because I think it's going to be
3:15:53confusing but when you talk about uh a
3:15:56comparison between public service and
3:15:58its parent you consider the parent not
3:16:01to be XL Energy Inc but the entire
3:16:03entity
3:16:05right from a financial standpoint yes
3:16:09okay and let's talk then for a moment
3:16:12about EXL energy if we could please pull
3:16:14up attachment raf4
3:16:18to Mr Fernandez's answer
3:16:31testimony now this particular uh
3:16:34attachment is to different Discovery
3:16:36response and I'd like to go to the
3:16:37second which is at page
3:16:4214
3:16:44so this is um
3:16:47the company's response to attachment UCA
3:16:501-25
3:16:53correct yes and you'll note that this is
3:16:57the XL Energy return on equity for each
3:17:00year from 2014 through 2023
3:17:03correct yes and the footnote here
3:17:07indicates that this is in fact the
3:17:08Consolidated Roe that includes Excel and
3:17:11all operating companies is that also
3:17:13correct yes so if we were going to
3:17:16compare for your purposes the capital
3:17:19structure of XL Energy Consolidated of
3:17:2440.9% by your math we would need to pair
3:17:28that to be properly matched with 10.33%
3:17:31Roe for 20203 for the XL Consolidated
3:17:34entity
3:17:36correct did you repeat that question
3:17:39sure if we are going to look on an
3:17:41Apples to Apples basis between the XL
3:17:43Energy Consolidated cap structure and
3:17:46the XL energy Consolidated Roe we need
3:17:49to be looking at the EXL Consolidated
3:17:51Roe of 10.33% shown on this attachment
3:17:55to your testimony correct yes I I would
3:17:57agree that that matches okay thank you
3:18:01so we've talked a little bit about your
3:18:02pass through uh capital structure
3:18:04recommendation I'd like to turn to your
3:18:06other proposed capital structure which
3:18:09is what you call the economic capital
3:18:12structure of 53.1 4% Equity 4 6.86% debt
3:18:18and then you exclude short-term debt
3:18:20correct yes okay so if we could please
3:18:26um pull this uh attachment
3:18:30down and Mr Fernandez the
3:18:3546.8% debt portion of your economic
3:18:39capital
3:18:40structure includes both short-term debt
3:18:44long-term debt and off-balance sheet
3:18:46debt or OBS
3:18:48correct I took exactly what the uh
3:18:51company provided uh for its economic
3:18:54capital structure from a discovery
3:18:56response so whatever the company
3:18:58included I included okay so if we could
3:19:02perhaps pull up attachment ra16 to your
3:19:05answer testimony
3:19:19and so here you have asked the company
3:19:22uh in in UCA 1-8 for the actual book
3:19:25capital structure regulatory capital
3:19:28structure and economic capital structure
3:19:30for the following regulated subsidiaries
3:19:32of excel uh sites most of them including
3:19:35Public Service Company correct yes I
3:19:38asked for all of them and I included of
3:19:40all of this data from the uh uh response
3:19:43in my testimony okay so is this we can
3:19:47scroll through if you need to see the
3:19:48whole document but is this the document
3:19:50that you reference in your testimony as
3:19:52the basis for the economic capital
3:19:55structure you proposed in this
3:19:57case yes I believe this was the source
3:20:00document okay so if we could um scroll
3:20:04down to page two of this uh
3:20:08document and in particular at the bottom
3:20:10of the three options
3:20:14there this this third um set of numbers
3:20:19on this sheet is the economic credit
3:20:21metrics Gap balances is that right yes
3:20:25okay and and as I discussed a moment ago
3:20:28we can see Public Service Company in the
3:20:30middle of the page including short-term
3:20:33debt OBS debt and long-term debt for the
3:20:36economic capital structure correct yes
3:20:40and so that
3:20:4346.8% debt number appears here in this
3:20:46middle column at the bottom of the page
3:20:48right yes and that
3:20:5146.8% debt includes short-term and off
3:20:55balance sheet or OBS debt that's what we
3:20:58see on the page
3:21:00correct now UCA has proposed using an
3:21:04economic capital structure for psco in
3:21:06the past hasn't it in multiple rate
3:21:10cases as an
3:21:12alternative uh recommendation yes okay
3:21:16and when we look look at this attachment
3:21:18um with respect to the OBS debt for um
3:21:22public
3:21:23service we can see that the numbers here
3:21:26are
3:21:274.21% or
3:21:29771 million is that
3:21:33right yes
3:21:35okay when you added this OBS debt or or
3:21:40recommended an economic capital
3:21:42structure for public service that
3:21:44included the OBS debt did you also add
3:21:47that $771 million to the company's rate
3:21:50base
3:21:56calculation I did not okay and one of
3:22:00the reasons that uh the the commission
3:22:04and alj's have have rejected an economic
3:22:07capital structure in the past is because
3:22:10um including the debt in the capital
3:22:12structure but not reflecting the assets
3:22:14the capital is financing on the balance
3:22:16sheet is a mismatch isn't that
3:22:20right I have not researched it but most
3:22:23of this o o OBS debt is uh PPA
3:22:28agreements so those are not hard
3:22:31assets this that's but this is what the
3:22:34company reports as off-balance sheet
3:22:36debt for purposes of an economic capital
3:22:39structure
3:22:41correct it is reporting that and again
3:22:43the ppas are not hard assets okay okay
3:22:47let's go ahead and look at hearing
3:22:48exhibit 501 attachment
3:22:51ra I'm I'm gonna um need to call a break
3:22:55at about
3:22:57noon um do um I don't know how much more
3:23:01you have but should we if this is a
3:23:04logical breaking point you want to just
3:23:06come back uh after lunch or do you need
3:23:08a few more minutes for a breaking point
3:23:11if I could just have a couple of moments
3:23:13I'll finish this line and then we can
3:23:15come back and take a break if that's
3:23:16okay I'm almost done on question yep so
3:23:19I just need hearing exhibit 501
3:23:21attachment RAF
3:23:2422 22 yes
3:23:40please okay and we need to go to page 90
3:23:43please
3:23:47so first of all Mr Fernandez just to
3:23:49confirm this is an attachment to your
3:23:51answer testimony so you you provided
3:23:53this in the record already correct yes
3:23:56it looks like it okay and um if we
3:24:01scroll down a little bit here to
3:24:03paragraph
3:24:06um uh
3:24:15206 it's says here that the commiss that
3:24:18the alj uh found that OBS and in this
3:24:21case short-term debt shouldn't be
3:24:23included in short in the capital
3:24:25structure and they say that the reason
3:24:27that um
3:24:30uh the the that OBS um should not be
3:24:33part of the capital structure is because
3:24:36staff and OCC admitted at the hearing
3:24:38that they did not include OBS and rate
3:24:41pace and psco has persuasively argued
3:24:44that by including it for purposes of
3:24:45calculating the capital structure the
3:24:48approach advocated by staff and the OCC
3:24:50would lead to mismatches between the
3:24:52assets used to provide service and the
3:24:54capital used to finance those assets
3:24:57that's the finding in this particular
3:24:59proceeding correct yes and I admited in
3:25:02this proceeding I did not include the
3:25:04OBS and rate base because it is
3:25:06inappropriate a
3:25:08PPA um is not an appropriate asset to
3:25:11include in a in a rate base and isn't it
3:25:14true Mr Fernandez that at the time of
3:25:15this same
3:25:17decision was also true that OBS includes
3:25:21both lease payments and power purchase
3:25:23agreements in this particular case it it
3:25:26was not put on the record about uh that
3:25:30the Ops consisted mainly of ppas so if I
3:25:34think that had been included then I I
3:25:37think uh the alj would have a basis to
3:25:41uh revise this particular finding do you
3:25:45understand Mr fern is that the company
3:25:47absolutely uses its capital financing to
3:25:50finance ppas as well as lease
3:25:57obligations well these are uh costs
3:26:00going forward in the future these are
3:26:03not something that you you buy right now
3:26:05and you have an asset sitting in the
3:26:07ground this is these are future payments
3:26:09that the company is obligated to make
3:26:11okay thank you Mr Fernandez I think
3:26:13we'll take a quick break here at the
3:26:15chair's request and and come back so
3:26:18this I'm thinking this is our lunch
3:26:20break and we'd come back at uh 100 p.m.
3:26:23is that right all right uh see everybody
3:26:28at uh 1 pm thank
3:26:45you
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4:30:05is uh Mr Fernandez
4:30:09there uh Mr chairman I just received a
4:30:12message from Mr Fernandez saying he is
4:30:15trying to get into the
4:30:17call and he's not able
4:30:24to uh you want to see if he can uh dial
4:30:27in by
4:30:29sell uh could I potentially have the
4:30:32cell number that I can jot down and pass
4:30:34that on to
4:30:36him uh oh I see Mr Fernandez maybe
4:30:41attaching or connecting here at the
4:30:43bottom of my screen there he is Mr
4:30:46Fernandez welcome back thank you I was
4:30:49having trouble getting admitted to the
4:30:51call yeah no worries
4:30:54uh you ready to continue Mr Fernandez
4:30:57you feeling
4:30:59okay I will get through it let's go Miss
4:31:02Brahma you're
4:31:04up well thank you we don't have a
4:31:06tremendously long amount left to go here
4:31:08Mr Fernandez hopefully we can do them
4:31:10relatively quickly um I'd like to uh go
4:31:14to Mr Fernandez's uh answer testimony
4:31:17hearing exhibit 501 at page 25 if we
4:31:30could so uh here in your testimony uh Mr
4:31:34Fernandez uh you talk about why the
4:31:37company believes that public services
4:31:38credit rating will not be lowered if the
4:31:40commission adopts use A's capital
4:31:42structure recommendation
4:31:45correct um that is correct and I also
4:31:48asked this question of the the company
4:31:51if uh they believed uh that the capital
4:31:54structure would be uh not the capital
4:31:56structure the credit rating would be
4:31:58changed if the commission adopted the uh
4:32:02uca's uh capital
4:32:06structure excuse me um capital structure
4:32:09recommendation which results in a $1
4:32:1214.4 million decrease in its Revenue
4:32:15requirement the company refused to
4:32:17answer this and also
4:32:19Mr all I ask you is what it said on the
4:32:22page so if we could please stick to that
4:32:24your Council will have uh the
4:32:26opportunity to redirect you okay I just
4:32:29was asking you is is this the topic you
4:32:31discuss um in this question and answer
4:32:33of your
4:32:34testimony yes thank you um now it is
4:32:39your um recommendation or or um
4:32:42statement here that a change in um the
4:32:47capital structure for the gas utility is
4:32:50quote too small to move the needle for
4:32:52the credit reporting agencies that
4:32:54that's correct reading of what you said
4:32:56on the page there that is a correct
4:32:59reading and that is based on 10 years of
4:33:01experience uh working with credit
4:33:04reporting agencies yeah when was the
4:33:07last time you worked with a credit
4:33:08reporting agency Mr Fernandez
4:33:132012 okay so it's been it's been a while
4:33:16all right um so if we could please um
4:33:21talk about this this comment uh that um
4:33:25you don't believe it will have the
4:33:26impact portrayed in Mr Johnson's model
4:33:29because the gas business is less than
4:33:3125% of Public Service as a whole um you
4:33:36understand that the company issues debt
4:33:38and equity for Public Service as a whole
4:33:40and not specific the gas or electric
4:33:45business well Public Service doesn't
4:33:47issue Equity that's done at the Excel
4:33:49level okay let me rephrase it this way
4:33:52Public Service issues debt for as a
4:33:55whole uh for the public service it does
4:33:57not Finance assets specific to the gas
4:34:00or electric
4:34:02utility that is true it's a common
4:34:04expense and there are a lot of other
4:34:06common expenses that support uh both the
4:34:09the gas electric and uh steam uh units
4:34:13of Pasco okay and so
4:34:18um is your primary recommendation here
4:34:21is that the commission should authorize
4:34:22a capital structure for Public Service
4:34:24Gas of 51.4% equity and
4:34:2848.6% debt correct yes and your belief
4:34:34as stated on this page is that a change
4:34:35in the gas business equity ratio won't
4:34:38affect the electric business is that
4:34:40also true
4:34:44the authorized capital structure for the
4:34:46electric business is not at issue in
4:34:50this case and whatever the commission
4:34:52decides will not impact uh the
4:34:55authorized uh um equity ratio for the
4:34:58psco electric my question wasn't about
4:35:01the authorized equity ratio for electric
4:35:03my question was if the commission should
4:35:06authorize uh uh your recommended equity
4:35:09ratio for the gas business is it your
4:35:12position that a change in the gas
4:35:13business equity ratio as authorized
4:35:15won't affect the electric business at
4:35:19all as I said before this is a joint uh
4:35:23expense and with any joint expense which
4:35:27there are many many of them um you can
4:35:30argue that uh uh any joint expense uh
4:35:34can impact uh um all of the psco units
4:35:39okay and isn't it also true Mr Mr
4:35:41Fernandez that you recommended an equity
4:35:43ratio of
4:35:4452% in the company's last electric rate
4:35:52case I don't remember off the top of my
4:35:55head but I'll take your word for it okay
4:35:58um if we could just pull up hearing
4:36:00exhibit 159 for a moment please from box
4:36:17and if we could scroll down to um Mr
4:36:20Fernandez's recommendations I
4:36:24believe um I think it might be page four
4:36:27or five I apologize I didn't write down
4:36:28the page number go further down than
4:36:33that here just down to his
4:36:35recommendations thank you
4:36:48okay here we go thank you so much uh for
4:36:51your patience there uh does this refresh
4:36:53your recollection Mr Fernandez that you
4:36:55recommended the following for the hty
4:36:58into December 31 2022 a capital
4:37:01structure of 52% equity and 48% debt yes
4:37:06okay um so basically here you're arguing
4:37:09that the gas capital structure should be
4:37:11lowered because it won't affect electric
4:37:13while at the same time arguing you
4:37:15argued for the same or well very similar
4:37:17cap structure and for the electric
4:37:18utility the last several gas the last
4:37:21several electric rate cases for public
4:37:24isn't that
4:37:26right I've argued uh consistently since
4:37:30I've been at the UCA that Pesco Mains
4:37:34maintains too high of a equity ratio in
4:37:37its capital structure it is
4:37:39inappropriate it is too conservative and
4:37:42too costly so yes I have been very
4:37:45consistent in my recommendations to this
4:37:48Commission on the capital structure for
4:37:50Pasco okay thank you very much if we
4:37:53could please um go back to um Mr
4:37:57Fernandez's um uh answer testimony at
4:38:01page 23 and I'm not going to move for
4:38:03admission of hearing exhibit 159
4:38:05it's there to refresh his
4:38:08recollection um so looking here at table
4:38:12rf7 um Mr Fernandez in your answer
4:38:16testimony your indicator here is that
4:38:19Public Service Company had an equity
4:38:21percentage of
4:38:2256.7% for 2023 that's what the table
4:38:26says
4:38:27correct this is taken directly from data
4:38:31provided uh to me from um Pesco Public
4:38:36Service Company never said it had a
4:38:3856.7% equity percentage in 2023 did it
4:38:41Mr
4:38:43Fernandez this is the data that was
4:38:46provided to me in uh UCA either UCA 1-23
4:38:51or UCA
4:38:5217-1 okay so let's pull up your exhibit
4:38:55raf1 13 which is UCA 1-23
4:39:12okay so this is 1-23 is the Excel end of
4:39:15your capital structure correct it's not
4:39:16the public service just to correct be
4:39:18clear okay so we can take this one down
4:39:20and if we could pull up attachment
4:39:27[Music]
4:39:38raf5 and here's where you asked for the
4:39:40public service company end ofe capital
4:39:42structure for each year from 2014
4:39:44through 2023 correct yes and if we go to
4:39:48page two of this attachment or this
4:39:52question here we see public service
4:39:54companies Gap end ofe cap structure
4:39:58correct yes uh and this is the response
4:40:01to 17-1 that you referenced in your
4:40:03answer testimony also correct yes and so
4:40:08again if we look here at the equity
4:40:10ratio long long-term debt and short-term
4:40:12debt ratio from
4:40:142023 can see that the company told you
4:40:16its equity ratio of 2023 was
4:40:1955.5%
4:40:22correct can you scroll over I can't see
4:40:25it because of the picture for
4:40:312023 this reporting had short-term debt
4:40:36and long-term debt in addition to equity
4:40:38and I just used the long-term debt debt
4:40:41and Equity uh in my table so you just
4:40:45added what was actual short-term debt to
4:40:47your Equity calculation in
4:40:50your I did not include short-term debt I
4:40:54just used the long-term debt and the
4:40:56equity to calculate it but that wouldn't
4:40:58equal 100% right Mr
4:41:02Fernandez if you take long-term debt
4:41:05plus equity and that is the denominator
4:41:09so if you do long term debt divided by
4:41:12long-term debt plus equity and then you
4:41:15take Equity divided by long-term debt
4:41:18plus Equity you get two percentages that
4:41:20will total 100% and that's what my table
4:41:23shows and my table does add up to 100%
4:41:27okay thank you that helps that's that's
4:41:28exactly where I was going Mr Fernandez
4:41:30it makes your table add up to 100% but
4:41:34it doesn't change the fact that your
4:41:35table represents that that is the actual
4:41:37equity ratio of Public Service Company
4:41:39of 2023 and it's not actually Public
4:41:42Services equity ratio as of the end of
4:41:442023 56% plus is not
4:41:49correct that is what Pesco reported to
4:41:54me and that's what I have
4:41:56used what Pesco reported to you is
4:41:58what's on this discovery response not
4:42:00what's in your testimony right Mr
4:42:03Fernandez that is correct and I am using
4:42:06for that table the uh capital structure
4:42:10of only using long-term debt and Equity
4:42:13okay and the
4:42:162023 uh capital structure is not the
4:42:19only year in which Public Service
4:42:21actually carried short-term debt is
4:42:25it no they've had short-term debt in
4:42:28most years in fact every but it hasn't
4:42:30been consistent throughout the year
4:42:32there are many times where they have a
4:42:34quarter or half the year where they had
4:42:35no short-term debt and so that's one of
4:42:37the main reasons why I've been
4:42:39advocating that this Commission should
4:42:41not um include short-term debt in the
4:42:45authorized capital structure and another
4:42:47huge reason why they shouldn't is
4:42:49because of the cost short you why I just
4:42:53asked you what it said on the page what
4:42:55was in there your Council can certainly
4:42:57ask you why but I we understand why to
4:42:59be fair but my my point is Mr Fernandez
4:43:02the company had short-term debt in its
4:43:04capital structure every year from 2014
4:43:07through 2023 except 2017 correct
4:43:11that is true and it's also true well let
4:43:14me ask you this do you understand how
4:43:16the company calculates its short-term
4:43:18debt for purposes of U making a proposal
4:43:21in the rate
4:43:27case I've read the testimony I don't
4:43:30remember off the top of my head okay the
4:43:32testimony will speak for itself okay um
4:43:35one other line here Mr Fernandez again
4:43:37we'll keep this pretty short um could we
4:43:40go back to Mr Fernand his answer
4:43:41testimony hearing exhibit
4:43:43501 and just starting on page
4:43:50116 um do you recall Mr Fernandez that
4:43:54um your uh this is a section of your
4:43:57testimony where you speak to the
4:43:59company's compensation
4:44:01programs I'm just asking generally if
4:44:03that's the
4:44:07topic yes thank you um isn't it true um
4:44:12Mr Fernandez that UCA did not conduct
4:44:15any studies or analysis to compare the
4:44:18total compensation amounts paid by the
4:44:21company to its employees to the total
4:44:22compensation amounts paid by other
4:44:25utilities or other publicly traded
4:44:30companies I I did not uh conduct uh any
4:44:34studies but um I do not agree with uh
4:44:39the way Pesco character IES this they
4:44:42are using um comparisons of what I
4:44:46believe are overinflated compensation at
4:44:50uh Excel and comparing it to other
4:44:53overinflated compensations at other
4:44:55utilities and calling it good so your
4:44:58opinion is that all the utilities or
4:45:02companies including public service to
4:45:05which Public Service Compares itself
4:45:06over inflate their
4:45:09salaries I believe
4:45:11that they have
4:45:16uh I believe utilities uh uh pay
4:45:20excessive uh salaries okay could we
4:45:23please pull up hearing exhibit 160 from
4:45:38box and this is where the company asked
4:45:41if uh UCA had conducted any studies or
4:45:44analysis to compare the total
4:45:46compensation amounts paid by the company
4:45:47to its employees to the total
4:45:49compensation amounts paid by other
4:45:51employees excuse me paid by other
4:45:53utilities or other publicly traded
4:45:55companies and UCA responded UCA did not
4:45:58conduct a special study with respect to
4:46:00this topic is that right that is correct
4:46:03and that was what I just uh answered to
4:46:05your previous question I yes I
4:46:06appreciate that I just thought it would
4:46:08be helpful to have the succinct answer
4:46:09in the in the record
4:46:11um the company moves for admission of
4:46:14hearing exhibit 160 please uh Mr bunker
4:46:18any
4:46:20objection uh no
4:46:22objection uh so moved thank you but we
4:46:26also pull up uh hearing exhibit
4:46:38161 do you recognize this Mr Fernandez
4:46:41is uh uca's response to Public Services
4:46:44Discovery request
4:46:462-10 yes and you are the sponsor of this
4:46:50discovery response yes and here um the
4:46:55company asked that you provide a list or
4:46:58that UCA provide a list of any publicly
4:47:00traded or utility companies that have
4:47:02adopted Mr dreer's maximum ratio of 20
4:47:05to1 for CEO to average worker pay that
4:47:08was the question yes that's what we
4:47:11refer to as the drer principal is that
4:47:14right okay yes and uh again UCA did not
4:47:18conduct any studies with respect to this
4:47:20C is that correct correct thank you that
4:47:23ends my
4:47:25cross-examination and thanks for your
4:47:26patience Mr
4:47:28Fernandez no problem I can stay as long
4:47:31as you want to okay happy to stay as
4:47:33long as the Commissioners want to thank
4:47:35you I should before I leave just ask to
4:47:38look admit hearing exhibit 161 please
4:47:40into the record
4:47:43uh any objection uh Mr bunker no
4:47:46objection so admitted um commission
4:47:50councel any questions for Mr
4:47:54Fernandez no
4:47:56questions uh commissioner Gman I don't
4:47:59have any questions thank you I think Mr
4:48:02Fernandez it's been it's been long
4:48:06week no questions for me either uh Mr
4:48:09bunker redirect
4:48:12uh just uh short couple of questions I
4:48:15think uh Mr chairman thank you uh Mr
4:48:19Fernandez do you recall the conversation
4:48:22with Miss Brahma regarding the capital
4:48:26structure and in particular questions
4:48:30about the the short-term and long-term
4:48:33debt and the equity ratio do you recall
4:48:36some of that discussion yes
4:48:40was there something you wanted to add
4:48:43regarding the uh shortterm the
4:48:46short-term interest rates uh that I
4:48:49believe you were possibly cut off on as
4:48:52you were talking about your uh your
4:48:56discussion on I think it was page 25 of
4:48:58your
4:49:00testimony um yes uh I wanted to uh
4:49:05finish my thoughts about as to why I'm
4:49:08recommending the commission uh not
4:49:11include short-term debt in the
4:49:14authorized uh capital
4:49:16structure
4:49:18um the uh as as we've seen with the
4:49:23the um exhibit that Miss Brahma pulled
4:49:26up that uh Pesco um has not consistently
4:49:30had short-term debt there is one year
4:49:32that they didn't have it and if you look
4:49:33at each of those years there's probably
4:49:36three to four months where there is no
4:49:38short-term uh debt outstanding so
4:49:41short-term debt is not uh has not been a
4:49:44consistent part of the company's capital
4:49:47structure
4:49:50and um excuse
4:49:53me um as I was saying it has not been a
4:49:56consistent part of the the company's uh
4:49:59uh capital structure and uh another
4:50:02reason for not including it in uh the
4:50:05the authorized capital structure is the
4:50:07the volatility of short-term debt it is
4:50:11and as we we've seen here very recently
4:50:14there's been a huge amount of of
4:50:16volatility and uh Mr Johnson did testify
4:50:20that short-term debt uh has uh decreased
4:50:23and which I agree with it's gone down a
4:50:26little bit uh uh further than what what
4:50:30he said I took a look at uh the uh
4:50:34treasury uh yields as of yesterday and
4:50:37the the one month was at 5.18%
4:50:41and the 30- year is uh went below 4% uh
4:50:45for the first time in a long time so we
4:50:48are definitely seeing a decrease in h
4:50:52shortterm rates and Mr Johnson uh
4:50:59uh
4:51:00um uh further went on to say that um he
4:51:05didn't think uh that that the commission
4:51:08uh uh should adjust well first of all he
4:51:12he said he agreed with that if the
4:51:14commission approves it's the short-term
4:51:18uh cost of short-term debt that uh the
4:51:20company has requested uh the company
4:51:23will over recover it since short-term
4:51:25rates have decreased which I also agree
4:51:28and then the last thing that uh Mr
4:51:30Johnson uh uh discussed on this topic is
4:51:33he opined that he didn't think the
4:51:35commission uh should uh change it to
4:51:39more current rates because uh that that
4:51:42would be a tanam out to
4:51:46uh excuse me that would be T amount to a
4:51:50single issue rate making so I want to
4:51:54just kind of build a little bit on his
4:51:55uh comments there and uh say what what
4:51:58he said about the short-term debt uh
4:52:01should also be applied uh to the the
4:52:03long-term debt uh in this case what's
4:52:06good for the goose is a good for the
4:52:08gander and uh as as we know in rebuttal
4:52:13the company has um brought in New
4:52:16Evidence about a debt issue that
4:52:19occurred after their testimony was filed
4:52:22and subsequently uh requested an
4:52:25increase in uh the revenue requirement
4:52:29uh for this new debt issue Mr Johnson
4:52:32said he didn't know uh how much the the
4:52:36the revenue requirement increased for it
4:52:38but I looked it up and based on their
4:52:39models
4:52:41it's about a $3 million uh increase
4:52:46so so I would say the commission should
4:52:49apply the same logic to short-term debt
4:52:52and long-term debt and uh and I'm
4:52:55recommending that not this not be
4:52:57allowed to include uh this new evidence
4:53:01on the long-term debt uh when you
4:53:03consider the uh cost of long-term debt
4:53:06uh Capital that you
4:53:08authorize okay and and just to uh maybe
4:53:12add a finer point to a couple of those
4:53:14uh comments you mentioned uh $3 million
4:53:17increase with this new uh debt issuance
4:53:21and with respect to that you're talking
4:53:23about the 1.2 billion doll Bond issuance
4:53:29in April of
4:53:302024 which we learned of in pesco's
4:53:34rebuttal testimony is that what you're
4:53:36referring to that's what I'm referring
4:53:39to and uh that's the first time I was
4:53:41brought into this case is through a
4:53:43rebuttal
4:53:44testimony and you say that results in a
4:53:47$3 million
4:53:50increase um yes applying the uh new
4:53:53proposed cost of long-term debt in
4:53:56pesco's models it increases the the
4:53:59revenue requirement by approximately $3
4:54:02million okay and then uh stepping back
4:54:05just a second uh or a minute before you
4:54:08were talking about Mr Johnson's
4:54:11uh testimony and I suspect that had to
4:54:13do with uh some of my cross-examination
4:54:17and as I recall the short-term cost of
4:54:21debt was at
4:54:255.81% in in his testimony in his
4:54:29rebuttal testimony
4:54:31right that is correct he did not change
4:54:33that uh from his initial testimony to
4:54:35his rebuttal testimony he has been
4:54:37consistent at 5.81%
4:54:40even as short-term rates have dis
4:54:44declined precipitously and are headed
4:54:48south as the as the Federal Reserve
4:54:51reduces interest rates yeah and as I and
4:54:54as I recall uh he had indicated it was
4:54:57down to roughly
4:55:015.5% from actually I think it was 8.32
4:55:05because it was 32 basis points as my
4:55:07recollection does that sound right it's
4:55:10in the ballpark I don't remember the
4:55:11exact figures okay and you're saying
4:55:14based on what you looked at yesterday
4:55:17you see the cost of short-term debt is
4:55:19now at
4:55:205.18% is that right there are a lot of
4:55:24costs of short-term debt out there this
4:55:26particular one that I pulled was the one
4:55:29month treasury
4:55:31yield
4:55:33okay uh with that I have concluded my
4:55:37redirect and uh thank you Mr Fernandez
4:55:41thank you uh
4:55:43chairman uh thank you Mr Fernandez uh
4:55:46you may be excused and I hope you feel
4:55:48better thank
4:55:50you uh thank you Mr bunker I think that
4:55:54concludes uh the hearing uh while we're
4:55:58still on the record any uh uh final
4:56:02issues thoughts needs uh M Brahma thank
4:56:07you uh chair blank and Commissioners um
4:56:10we uh the company would like to ask if
4:56:12it would be possible to have some
4:56:13additional Pages uh as compared to the
4:56:15usual 30 page uh limit for an sop as the
4:56:19party that has to respond to all the
4:56:20different proposals raised in this case
4:56:22it would be helpful if we could have
4:56:24something closer to 45 pages um to uh
4:56:28address the various issues in this case
4:56:31I think that's okay with me uh Mr bunker
4:56:34Miss McLaughlin any
4:56:36objections well your honor the only
4:56:38thing or Mr chairman the only thing
4:56:40thing I would say is that public service
4:56:43is essentially responding to just UCA
4:56:47and staff uh testimony since none of the
4:56:51other parties uh filed any testimony
4:56:54other than peblo none have done any
4:56:57cross-examination I would think what's
4:56:59uh good for public service ought to be
4:57:01good for for uh UCA and staff as well so
4:57:06oh of course of course I I assumed the
4:57:09request was to increase it for all
4:57:11parties thank you I'd appreciate that um
4:57:16uh that all right with you miss mlin
4:57:18yeah that's fine with us thank
4:57:20you
4:57:21um um Miss Harper or Miss Rosati if
4:57:25you're out there uh do you have a a
4:57:28deadline for um Sops you'd like to
4:57:35suggest yes the deadline that was
4:57:38originally proposed let me just
4:57:41just pull that
4:57:44up uh any while miss Harper is doing
4:57:47that any other uh um final matter is on
4:57:51is the record uh clean Miss Brahma I I
4:57:55believe it is I think our Sops according
4:57:57to the commission's order earlier was
4:57:59requested that they be due within 30
4:58:00days and the commission I believe set it
4:58:02for September
4:58:0326th um so I think that's what we the
4:58:06Assumption we have been operating under
4:58:07with respect to an sop due date does
4:58:10that uh work for you three Mr bunker
4:58:13Miss Brahma Miss
4:58:15mclin I apologize can can you repeat
4:58:17that Miss Brahma I didn't quite catch
4:58:19what you were requesting September 26
4:58:22yeah I wasn't requesting I think the
4:58:24commission had addressed the SOP
4:58:25deadline and its order setting the
4:58:27procedural schedule so I I was just
4:58:29going back to that date that I think the
4:58:31commission previously
4:58:33established given the additional pages
4:58:36and the possibility that the parties use
4:58:38up to 45 we would prefer to have an
4:58:41additional week on top of uh what has
4:58:44already been established but just wanted
4:58:46to throw that out there uh when's the
4:58:48statutory deadline uh M Harper I feel
4:58:53like we're probably under the gun here
4:58:55so right stick to the
4:58:5826th the deadline is November 5th yeah
4:59:02we're gonna stick
4:59:04to all right uh so are you okay Miss
4:59:07Harper if we keep to the what's the 26th
4:59:12the 26th is a Thursday you want to say
4:59:15give the parties to the end of the day
4:59:17on the
4:59:2027th um that's that's fine by
4:59:25me um does I know I I know more is
4:59:30better it's like that old Mark Twain Co
4:59:33quote if I had more time I would have
4:59:35written a shorter letter so we sa if the
4:59:3845 pages uh helps or
4:59:41hurts uh all right let's say end a day
4:59:44on the uh
4:59:4627th um other issues Miss Brahma nothing
4:59:51for the company we appreciate that and
4:59:52and um the both the pages and the extra
4:59:55day it is it is a lot to put into a
4:59:58brief and a couple weeks with h all
5:00:02everything that's happened I would just
5:00:03say it's your deadlines
5:00:07so Mr bunker any any anything else um
5:00:12thank you uh no uh nothing else we
5:00:14appreciate the extra day to September
5:00:1627th and the additional pages to the SOP
5:00:19as well all right miss mclocklin
5:00:22anything else nothing else for Ms thank
5:00:24you again all right I just uh want to
5:00:27thank the parties for uh
5:00:31um uh putting forward their cases uh as
5:00:35always uh I learned a ton and uh greatly
5:00:39appreciate apped the thoughtful and uh
5:00:42respectful uh conversations
5:00:45and deep thanks uh uh to the to the
5:00:50three parties that carried this and uh
5:00:52we got some tough decisions in front of
5:00:54us so uh commissioner Gman anything you
5:00:56want to
5:00:58say no appreciate everybody's work
5:01:01thanks so
5:01:02much all right with that uh the
5:01:05hearing's adjourned the record is closed
5:01:07and uh we'll see everybody in the future
5:01:09future thanks thank you thank
5:01:13you thank you

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