20220930Walker Direct with Exhibits.pdf

Preston N. Carter (ISB No. 8462)
Morgan D. Goodin (ISB No. 11184)
Givens Pursley LLP 601 W. Bannock St. Boise, ID 83702 Telephone: [phone]
Facsimile: [phone]
[e-mail] [e-mail]
Attorneys for Veolia Water Idaho, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
VEOLIA WATER IDAHO, INC. FOR AUTHORITY TO INCREASE ITS RATES AND CHARGES FOR WATER SERVICE IN THE STATE OF IDAHO

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DIRECT TESTIMONY OF HAROLD WALKER, III FOR VEOLIA WATER IDAHO, INC.
SEPTEMBER 2022

TABLE OF CONTENTS

INTRODUCTION 4
SUMMARY OF RECOMMENDATION 4
PRINCIPLES OF RATE REGULATION AND FAIR RATE OF RETURN 6
INVESTMENT RISK 7
DESCRIPTION OF VWID 9
THE INDUSTRY 9
COMPARABLE GROUP 12
CAPITAL STRUCTURE 15
EMBEDDED COST RATE 19
FINANCIAL ANALYSIS 20
RISK ANALYSIS 23
CAPITAL COST RATES 7
DISCOUNTED CASH FLOW 14
CAPITAL ASSET PRICING MODEL 26
RISK PREMIUM 29
SUMMARY OF COMMON EQUITY COST RATE 35
OVERALL RATE OF RETURN RECOMMENDATION 36
APPENDIX A A-1

OVERALL RATE OF RETURN TERMS, ABBREVIATIONS AND ACRONYMS

Terms, Abbreviations and Acronyms I Defined
CAPM Capital Asset Pricina Model
Commission Idaho Public Utilities Commission
ComPanv Veolia Water Idaho Inc.
Comparable Companies Water Group Followed bvAnalvsts
Comparable Group Water Group Followed bvAnalvsts
Cost of Capital lnwstor-reauired cost rate
DCF Discounted Cash Flow
DPS Dividend per share
EPA U.S. Environmental Protection Agency's
EPS Earninas per share
Financial Risk Leverage
GICS Global lndustrv Classification Svstem
GO General Obliaation Bonds
IOU lnwstor Owned Utilities
Leverage Fixed cost capital
Lona-term U.S. Treasurv Securities Base Risk-Free Rate
M/B Market-to-Book Ratios
Moodys Moody's lnwstors Service
NARUC National Association of Regulatory Utility
Commissioners
Non-Svstematic Risk ComPan\f-SPecific Risk
PUC Idaho Public Utilities Commission
ROE Return on Equity
RP Risk Premium
S&P Standard & Poor's
SIC Standard Industrial Classification
Svstematic Risk Non-Diversifiable Risk
Value Line Value Line Investment Survey
VUR Veolia Utilitv Resources LLC
VWID Veolia Water Idaho, Inc.
Water Group Water Group Followed bvAnalvsts

WALKER, Di 4 Veolia Water Idaho, Inc.
INTRODUCTION 1
Q. Please state your name and business address. 2
A. My name is Harold Walker, III. My business address is 1010 Adams Avenue, 3
Audubon, Pennsylvania 19403. 4
Q. By whom are you employed and in what capacity? 5
A. I am employed by Gannett Fleming Valuation and Rate Consultants, LLC as 6
Manager, Financial Studies. 7
Q. What is your educational background and employment experience? 8
A. My educational background, business experience and qualifications are provided 9
in Appendix A. 10
SCOPE OF TESTIMONY 11
Q. What is the purpose of your testimony? 12
A. The purpose of my testimony is to recommend an appropriate overall rate of return 13
that Veolia Water Idaho, Inc. (“VWID” or the “Company”) should be afforded an 14
opportunity to earn on its water service rate base. My testimony is supported by 15
Exhibit No. 1, which is composed of 19 Schedules. 16
SUMMARY OF RECOMMENDATION 17
Q. What is your recommended cost of equity? 18
A. My recommendation is that VWID be permitted an overall rate of return of 7.77%, 19
including a 10.80% cost of common equity, based upon the Company’s capital 20
structure at June 30, 2022. My recommended cost of common equity reflects 21
VWID’s unique risk characteristics. 22

WALKER, Di 5 Veolia Water Idaho, Inc.
Q. How did you determine your recommended common equity cost rate? 1
A. I used several models to help me in formulating my recommended common equity 2
cost rate including Discounted Cash Flow (“DCF”), Capital Asset Pricing Model 3
(“CAPM”) and Risk Premium (“RP”). 4
Q. Is it important to use more than one market model? 5
A. Yes. It is necessary to estimate common equity cost rates using a number of 6
different models. At any given time, a particular model may understate or overstate 7
the cost of equity. While any single investor may rely solely upon one model, 8
different investors rely on different models and many investors use multiple 9
models. Therefore, because the price of common stock reflects a number of 10
valuation models, it is appropriate to estimate the market-required common equity 11
cost rate by applying a broad range of analytical models. 12
Q. Please summarize your common equity cost rate recommendation. 13
A. There is no market data concerning VWID’s shares of common stock because 14
VWID shares of common stock are not publicly traded. Accordingly, due to the 15
lack of market data concerning the VWID’s equity, I used a comparable group of 16
publicly traded companies to estimate the common equity cost rate. Based upon the 17
results of my entire analysis, I conclude VWID’s current common equity cost rate 18
is at least 10.80%. The current range of common equity cost for VWID is 9.60% 19
(DCF), 11.60% (CAPM), and 11.30% (RP). Value Line Investment Survey 20
(“Value Line”) is relied upon by many investors and is the only investment advisory 21
service of which I am aware that projects earned return on equity. As a check on 22
the reasonableness of my common equity cost rate recommendation, I reviewed 23

WALKER, Di 6 Veolia Water Idaho, Inc.
Value Line’s projected returns on common equity for comparable utilities. Value 1
Line’s projected earned returns on common equity for my comparable utilities 2
range from 10.6% to 10.8%. The range of the projected returns suggests that my 3
recommendation that VWID be permitted an opportunity to earn 10.80% is 4
reasonable, if not conservative. 5
PRINCIPLES OF RATE REGULATION AND FAIR RATE OF RETURN 6
Q. What are the principles guiding fair rates of return in the context of rate 7
regulation? 8
A. In a capitalistic or free market system, competition determines the price for all 9
goods and services. Utilities are permitted to operate as monopolies or near 10
monopolies as a tradeoff for a ceiling on the price of service because: (1) the 11
services provided by utilities are considered necessities by society; and (2) capital-12
intensive and long-lived facilities are necessary to provide utility service. 13
Generally, utilities are required to serve all customers in their service territory at 14
reasonable rates determined by regulators. As a result, regulators act as a substitute 15
for a competitive-free market system when they authorize prices for utility service. 16
Although utilities operate in varying degrees as regulated monopolies, they 17
must compete with governmental bodies, non-regulated industries, and other 18
utilities for labor, materials, and capital. Capital is provided by investors who seek 19
the highest return commensurate with the perceived level of risk; the greater the 20
perceived risk, the higher the required return rate. In order for utilities to attract the 21
capital required to provide service, a fair rate of return should equal an investor-22
required, market-determined rate of return. 23

WALKER, Di 7 Veolia Water Idaho, Inc.
Q. WHAT CONSTITUTES A FAIR RATE OF RETURN? 1
A. Two noted Supreme Court cases define the benchmarks of a fair rate of return. In 2
Bluefield1, a fair rate of return is defined as: (1) equal to the return on investments 3
in other business undertakings with the same level of risks (the comparable earnings 4
standard); (2) sufficient to assure confidence in the financial soundness of a utility 5
(the financial integrity standard); (3) adequate to permit a public utility to maintain 6
and support its credit, enabling the utility to raise or attract additional capital 7
necessary to provide reliable service (the capital attraction standard). The second 8
case, Hope2, determined a fair rate of return to be based upon guidelines found in 9
Bluefield as well as stating that: (1) allowed revenues must cover capital costs 10
including service on debt and dividends on stock; and (2) the Commission was not 11
bound to use any single formula or combination of formulae in determining rates. 12
Utilities are not entitled to a guaranteed return. However, the regulatory-13
determined price for service must allow the utility a fair opportunity to recover all 14
costs associated with providing the service, including a fair rate of return. 15
INVESTMENT RISK 16
Q. Previously, you referred to risk. Please define the term risk. 17
A. Risk is the uncertainty associated with a particular action; the greater the 18
uncertainty of a particular outcome, the greater the risk. Investors who invest in 19
risky assets expose themselves to investment risk particular to that investment. 20
Investment risk is the sum of business risk and financial risk. Business risk is the 21
1Bluefield Water Works & Improvement Company v. P.S.C. of West Virginia, 262 U.S. 679 (1923).
2Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591 (1944).

WALKER, Di 8 Veolia Water Idaho, Inc.
risk inherent in the operations of a business. Assuming that a Company is financed 1
with 100% common equity, business risk includes all operating factors that affect 2
the probability of receiving expected future income such as: sales volatility, 3
management actions, availability of product substitutes, technological 4
obsolescence, regulation, raw materials, labor, size and growth of the market 5
served, diversity of the customer base, economic activity of the area served, and 6
other similar factors. 7
Q. What is financial risk? 8
A. Financial risk reflects the manner in which an enterprise is financed. Financial risk 9
arises from the use of fixed cost capital (leverage) such as debt and/or preferred 10
stock, because of the contractual obligations associated with the use of such capital. 11
Because the fixed contractual obligations must be serviced before earnings are 12
available for common stockholders, the introduction of leverage increases the 13
potential volatility of the earnings available for common shareholders and therefore 14
increases common shareholder risks. 15
Although financial risk and business risk are separate and distinct, they are 16
interrelated. In order for a company to maintain a given level of investment risk, 17
business risk and financial risk should complement one another to the extent 18
possible. For example, two firms may have similar investment risks while having 19
different levels of business risk, if the business risk differences are compensated 20
for by using more or less leverage (financial risk) thereby resulting in similar 21
investment risk. 22

WALKER, Di 9 Veolia Water Idaho, Inc.
DESCRIPTION OF VWID 1
Q. Please give a brief description of the Company. 2
A. VWID is a private or investor-owned company. VWID is a regulated public utility 3
that provides water service to about 100,000 (12/31/21) customers located in their 4
franchise territories in Boise, parts of Eagle, and unincorporated areas of Ada 5
County, Idaho. The price of service of VWID is regulated by the Idaho Public 6
Utilities Commission (“Commission” or “PUC”). 7
VWID is a wholly-owned subsidiary of Veolia Utility Resources LLC 8
(“VUR”). VUR is the sole source of VWID’s external capital. VUR owns and 9
provides services to water and wastewater utility companies which are located 10
throughout the United States (e.g., VWID). VUR was founded in 1869 and is based 11
in Paramus, New Jersey. VUR is a subsidiary of Veolia Utility Parent, Inc., which 12
is a subsidiary of Veolia North America, Inc. 13
Veolia North America, Inc. is a wholly-owned subsidiary of Veolia 14
Environnement S.A: Veolia Environnement S.A. is a French transnational company 15
with activities in three main service and utility areas: water management, waste 16
management and energy services. 17
THE INDUSTRY 18
Q. Please give a brief overview of the industry in which the Company operates. 19
A. VWID operates in the water supply industry. The water supply industry has a 20
Standard Industrial Classification (“SIC”) code of 4941, has water utilities, and 21
includes establishments primarily engaged in distributing water for sale for 22
residential, commercial, and industrial uses. Government controlled 23

WALKER, Di 10 Veolia Water Idaho, Inc.
establishments such as municipalities, public service districts and other local 1
governmental entities dominate the industry. Private companies or investor owned 2
utilities (“IOU”) are active in the construction and improvement of water supply 3
facilities and infrastructure. There are currently about 11,000 U.S. Businesses with 4
a SIC code of 4941. 5
A comparative industry to the water supply industry is the wastewater 6
supply industry. The wastewater utility industry has a Standard Industrial 7
Classification (“SIC”) code of 4952 (Sewerage Systems), has sewer utilities, and 8
includes establishments primarily engaged in the collection and disposal of wastes 9
conducted through a sewer system, including such treatment processes as may be 10
provided. There are currently about 2,200 U.S. Businesses with a SIC code of 4952. 11
The water supply industry is the most fragmented of the major utility 12
industries with more than 53,000 community water systems in the U.S. (83% of 13
which serve less than 3,300 customers). The nation’s water systems range in size 14
from large municipally owned systems, such as the New York City water system 15
that serves approximately 9 million people, to small systems, where a few 16
customers share a common well. 17
According to the U.S. Environmental Protection Agency’s (“EPA”) most 18
recent survey of publicly-owned wastewater treatment facilities in 2008, there are 19
approximately 15,000 such facilities in the nation, serving approximately 74% of 20
the U.S. population. Ninety eight percent of domestic wastewater systems are 21

WALKER, Di 11 Veolia Water Idaho, Inc.
government owned rather than IOUs. Currently, there are no wastewater utility 1
companies that have actively traded stock.3 2
An estimated 16% of all water supplies are managed or owned by IOUs. 3
IOUs consist of companies with common stock that is either actively traded or 4
inactively traded, as well as companies that are closely held, or not publicly traded. 5
Currently, there are only about nine investor owned water utility companies with 6
publicly traded stock in the U.S. 7
The water utility industry’s and wastewater utility industry’s increased 8
compliance with state and federal water purity levels and large infrastructure 9
replacements are driving consolidation of the wastewater utility and water utility 10
industries. Because many wastewater utility and water utility operations do not 11
have the means to finance the significant capital expenditures needed to comply 12
with these requirements, many have been selling their operations to larger, 13
financially stronger utilities. 14
The larger IOUs have been following an aggressive acquisition program to 15
expand their operations by acquiring smaller wastewater and water systems. 16
Generally, they enter a new market by acquiring one or several wastewater or water 17
utilities. After their initial entry into a new market, the larger investor-owned water 18
utility companies continually seek to expand their market share and services 19
through the acquisition of wastewater and water utility businesses and operations 20
that can be integrated with their existing operations. Such acquisitions may allow 21
a company to expand market share and increase asset utilization by eliminating 22
3Many of the publicly traded water utility stocks also own some wastewater utilities but there are no
publicly traded utility stocks which are comprised solely of wastewater utilities.

WALKER, Di 12 Veolia Water Idaho, Inc.
duplicate management, administrative, and operational functions. Acquisitions of 1
small, independent utilities can often add earning assets without necessarily 2
incurring the costs associated with the SDWA if such acquisitions are contiguous 3
to the potential purchaser. 4
In summary, the result of increased capital spending, to meet the SDWA 5
and CWA requirements4 and replace the aging infrastructure of many systems, has 6
moved the wastewater and water industries toward consolidation. Moreover, 7
Federal and State regulations and controls concerning water quality are still in the 8
process of being developed and it is not possible to predict the scope or the 9
enforceability of regulations or standards which may be established in the future, 10
or the cost and effect of existing and potential regulations and legislation upon 11
VWID. However, as a medium size water system, VWID faces the cost of 12
compliance with less financial resources when compared to larger IOU water 13
utilities. 14
COMPARABLE GROUP 15
Q. How do you estimate the cost of common equity for VWID? 16
A. VWID’s common stock is not publicly traded. Accordingly, I employed a 17
comparable group of utility companies with actively traded stock, to determine a 18
market-required cost rate of common equity capital for VWID. Since no companies 19
4The SDWA, or Safe Drinking Water Act, is the principal federal law in the United States intended to ensure safe drinking water for the public. Pursuant to the act, the EPA is required to set standards for drinking water quality and oversee all states, localities, and water suppliers who implement these standards. The CWA, or Clean Water Act, is the primary federal law in the United States governing water pollution. The CWA’s objective is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters by preventing point and nonpoint pollution sources, providing assistance to publicly owned treatment works for the improvement of wastewater treatment, and maintaining the integrity of wetlands.

WALKER, Di 13 Veolia Water Idaho, Inc.
are perfectly identical to VWID, it is reasonable to determine the market-required 1
cost rate for a comparable group of utility companies and adjust, to the extent 2
necessary, for investment risk differences between VWID and the comparable 3
group. 4
Q. How did you select the comparable group used to determine the cost of 5
common equity for VWID? 6
A. I selected a comparable group of water utilities to determine the cost of common 7
equity for VWID considering security analysts’ coverage. Unlike the other utility 8
industries, only a portion of the IOU water companies with publicly traded stock in 9
the U.S. are followed by security analysts. Coverage by security analysts is 10
important when determining a market required cost of common equity. 11
Accordingly, security analysts’ coverage was considered when selecting my 12
comparable group. I selected my water utility comparable group, Water Group 13
Followed by Analysts (“Water Group”), based upon a general criteria that includes: 14
(1) all U.S. water utilities that are covered by security analysts as measured by the 15
existence of sources of published projected five-year growth rates in earnings per 16
share (“EPS”); (2) with a Standard Industrial Classification (SIC) of 4941 (i.e., 17
Water Supply Facilities and Infrastructure); (3) with a North American Industry 18
Classification System (NAICS) of 221310 (i.e., Water Supply and Irrigation 19
Systems); (4) are not the announced subject of an acquisition; (5) currently pay a 20
common dividend and have not reduced their common dividend within the past four 21
years; (6) have market value of common stock, the product of multiplying the 22
closing stock price by the number of common shares outstanding, greater than 23

WALKER, Di 14 Veolia Water Idaho, Inc.
$500.0 million; and (7) have a total enterprise, the sum of market value, preferred 1
stock and total debt, greater than $700.0 million. 2
It should be noted that the Water Group is also referred to as the Comparable 3
Group and/or the Comparable Companies.5 The names of the utilities that comprise 4
the Comparable Group and their bond or credit ratings are listed in Table 1. 5
Table 1 6
Q. Why did you include not being the subject of an acquisition as a criteria for 7
the Water Group? 8
A. To begin with, there are only about nine investor owned water utility companies 9
with publicly traded stock in the U.S., and some of these companies are very small. 10

5All of the Comparable Companies also provide some wastewater service.

WALKER, Di 15 Veolia Water Idaho, Inc.
As stated previously, the IOU water industry receives only limited exposure on 1
Wall Street. 2
Additionally, the merger activity in the water industry can result in 3
abnormal or “tainted” stock prices in terms of a DCF analysis because premiums 4
are typically paid in corporate acquisitions. That is, when a tender offer is made 5
for the purchase of all the outstanding stock of a company, the amount of that offer 6
usually exceeds the price at which the stock was previously traded in the market. 7
These large premiums are often reflected in the prices of other water utilities that 8
are not currently the announced subject of an acquisition.6 9
CAPITAL STRUCTURE 10
Q. What is required to develop an overall rate of return? 11
A. The first step in developing an overall rate of return is the selection of capital 12
structure ratios to be employed. Next, the cost rate for each capital component is 13
determined. The overall rate of return is the product of weighting each capital 14
component by its respective capital cost rate. This procedure results in VWID’s 15
overall rate of return being weighted proportionately to the amount of capital and 16
cost of capital of each type of capital. 17
Q. Does VWID directly raise or issue its own debt capital? 18
A. No, prospectively VWID does not raise its own capital; rather VUR is the sole 19
source of VWID’s external capital. 20
6 Multiple publications mention these impacts including Research Magazine – April 2010, Barron’s – March 2001, Utility Business – June 2002, and Value Line Investment Survey – April 2013.

WALKER, Di 16 Veolia Water Idaho, Inc.
Q. What capital structure ratios are appropriate to be used to develop VWID’s 1
overall rate of return? 2
A. Consistent with settled rate setting principles, I believe it is necessary to evaluate 3
VWID’s current cost of capital based on VUR’s June 30, 2022 capital structure, 4
which includes 44.43% debt and 55.57% common equity as reflected in Schedule 5
1. These ratios synchronize capitalization with rate base. 6
Q. Is there a set of regulatory and financial principles used in deciding the 7
appropriate capital structure to use for cost of capital purposes? 8
A. Yes. There is a general set of regulatory and financial principles used in deciding 9
the capital structure issue for cost of capital purposes that are consistent with both 10
regulatory and financial theories: 11
1) It is generally preferable to use a utility’s actual capital structure in 12
developing its rate of return. However, in deciding whether a departure 13
from this general preference is warranted in a particular case, it is 14
appropriate to first look to the issue of whether the utility is a financially 15
independent entity. In determining whether a utility is a financially 16
independent entity or self-financing, it is important to look to whether the 17
utility: 18
● has its own bond rating; 19
● provides its own debt financing; and 20
● debt financing is not guaranteed by a parent company. 21
2) When a utility issues its own debt that is not guaranteed by the public or 22
private parent and has its own bond rating, regulatory and financial 23
--

WALKER, Di 17 Veolia Water Idaho, Inc.
principles indicate to use a utility’s own capital structure, unless the utility’s 1
capital structure is not representative of the utility’s risk profile or where 2
use of the actual capital structure would create atypical results. Regulatory 3
and financial principles involve determining whether the actual capital 4
structure is atypical when compared with the capital structures approved by 5
the Commission for other utilities that operate in the same industry (i.e., 6
water utility, gas distribution utility, etc.), as well as those of the proxy 7
utility companies that operate in the same industry. 8
3) For utility subsidiaries without publicly traded stock, the manner in which 9
the utility obtains its debt financing determines whether it does its own 10
financing. Public Utility Commissions generally determine if a subsidiary 11
has financial, operational, and managerial relationships with its parent 12
entity. However, having such ties typically has not led to use of a parent’s 13
capital structure for regulatory purposes, unless the subsidiary utility issues 14
no long-term debt, issues long-term debt only to its parent, or issues long-15
term debt to outside investors only with the guarantee of its parent. 16
4) If a utility does not provide its own financing, Public Utility Commissions 17
often look to another entity. Generally, Public Utility Commissions use the 18
actual capital structure of the entity that does the financing for the regulated 19
utility as long as it results in just and reasonable rates. This generally means 20
using a parent company. 21
5) If the parent’s capital structure is used, because it finances the operation of 22
the utility, regulatory and financial principles require adjustments in the 23

WALKER, Di 18 Veolia Water Idaho, Inc.
utility’s allowed rate of return on equity to adjust for risk differences, if any, 1
between the parent and the regulated subsidiary. If, however, the financing 2
entity’s capital structure is inconsistent relative to the capital structures of 3
the publicly-traded proxy companies used in the cost of equity analysis and 4
capital structures approved for other utilities that operate in the same 5
industry (i.e., water utility, gas distribution utility, etc.), Public Utility 6
Commissions employ a hypothetical capital structure. 7
Once the cost of equity for the proxy companies is determined, thereby 8
establishing a range of reasonable returns, Public Utility Commissions should 9
determine where to set the utility’s return in that range based upon how the utility’s 10
risk compares with that of other utilities that operate in the same industry (i.e., water 11
utility, gas distribution utility, etc.). The risk analysis begins with the assumption 12
that the utility generally falls within a broad range of average risk, absent highly 13
unusual circumstances that indicate an inconsistently high or low risk as compared 14
to other utilities that operate in the same industry (i.e., water utility, gas distribution 15
utility, etc.). Generally, financial risk is a function of the amount of debt in an 16
entity’s capital structure used for cost of capital purposes. When there is more debt, 17
there is more risk. 18
Q. How does your recommended capital structure compare with ratios employed 19
by other investor-owned companies? 20
A. The capital structure I recommend for VWID reflects a common equity ratio of 21
55.6% which is similar to the range of the ratios employed by other investor-owned 22
water companies as shown on pages 1 and 2 of Schedule 2. A comparison of my 23

WALKER, Di 19 Veolia Water Idaho, Inc.
recommendation for VWID’s capital structure ratios to those recently employed by 1
the Comparison Group is shown in Table 2. 2
3
Table 2 4
VWID’s rate making capital structure ratios are reasonable based upon the 5
above information. 6
EMBEDDED COST RATE 7
Q. What embedded cost rates do you recommend be used to calculate VWID’s 8
overall rate of return? 9
A. Consistent with my recommended capital structure ratios I recommend using 10
VUR’s embedded debt cost rate of 3.99% for VWID as reflected in Schedule 1. 11
This embedded debt cost rate of 3.99% is detailed on the Company’s Exhibit No. 12
6. The determination of an embedded cost rate is a relatively simple arithmetic 13
exercise because a company has contracted for this capital for a specific period of 14
time and at a specific cost, including issuance expenses and coupon rate. 15
Comparison of Capital Structure Ratios
Water
Group
At At
12/31/2022 3/31/2022
Debt 44.4 51.9
Preferred Stock 0.0 0.0
Common Equity 55.6 48.1
100.0 100.0
VWID

WALKER, Di 20 Veolia Water Idaho, Inc.
FINANCIAL ANALYSIS 1
Q. Have you reviewed historical financial information of VWID as part of your 2
analysis? 3
A. Yes. On page 1 of Schedule 3, I developed a five-year analysis, ending in 2021, 4
detailing various financial ratios for VWID. On Schedule 4, I performed a similar 5
five-year analysis for the Water Group. Schedule 5 reveals the results of operations 6
for a large broad-based group of utilities known as the Standard & Poor’s (“S&P”) 7
Utilities for the five years ending 2021. This information is useful in determining 8
relative risk differences between different types of utilities. 9
Comparing VWID, the Comparable Group and the S&P Utilities’ coverage 10
of fixed charges and the various cash flow coverage proves that the Comparable 11
Group has experienced a higher level of coverage than the S&P Utilities. 12
Reviewing VWID’s various cash flow coverages shows VWID has had similar but 13
higher levels of coverage than the Comparable Group. 14
Q. What do you conclude from the comparison of all the information shown on 15
Schedules 3 through 5? 16
A. Taken together, these comparisons show that VWID is exposed to risk that is 17
similar in nature but greater in degree compared with the Comparable Groups. This 18
is evident in particular when one considers the size and diversification of VWID, 19
or lack thereof, as compared to the Comparable Companies. Moreover, the 20
evidence from the various financial ratios show VWID’s risks as being similar to 21
the Comparable Companies’ but less than the larger S&P Utilities. Prospectively, 22

WALKER, Di 21 Veolia Water Idaho, Inc.
VWID‘s future construction expenditures will place downward pressure on 1
VWID‘s financial ratios as measured by interest coverage and cash generation. 2
Q. What information is shown on Schedule 6? 3
A. Schedule 6 lists the names, issuer credit ratings, common stock rankings, betas and 4
market values of the companies contained in the Comparable Group and the S&P 5
Utilities. As is evident from the information shown on Table 3, the Comparable 6
Group and the S&P Utilities are similar to each other in risk. 7
Table 3 8
The Water Group’s average issuer credit ratings and common stock 9
rankings are higher than the S&P Utilities. The average beta of the Comparable 10
Group, 0.77, is less than the average beta of the S&P Utilities, 0.88. Beta is a 11
measure of volatility or market risk; the higher the beta, the higher the market risk. 12
The market values provide an indication of the relative size of each group. As a 13
generalization, the smaller the average sizes of a group, the greater the risk. 14
Page 2 of Schedule 6 shows that VWID has generally experienced the 15
lowest return on equity (“ROE”) when compared to the Comparable Companies. 16
Further, VWID’s dividend payout ratio is lower than the Comparable Companies’ 17
dividend payout ratio. 18

WALKER, Di 22 Veolia Water Idaho, Inc.
S&P, the predominant bond rating agency, considers profit to be a 1
fundamental determinant of credit protection. S&P states that a firm’s profit level: 2
Whether generated by the regulated or deregulated side of the 3 business, profitability is critical for utilities because of the need to 4
fund investment-generating capacity, maintain access to external 5
debt and equity capital, and make acquisitions. Profit potential and 6 stability is a critical determinant of credit protection. A company 7 that generates higher operating margins and returns on capital also 8 has a greater ability to fund growth internally, attract capital 9
externally, and withstand business adversity. Earnings power 10
ultimately attests to the value of the company’s assets, as well. In 11 fact, a company’s profit performance offers a litmus test of its 12 fundamental health and competitive position. 13 14
Accordingly, the conclusions about profitability should confirm the 15
assessment of business risk, including the degree of advantage 16 provided by the regulatory environment.7 17
Q. What information is shown on Schedule 7? 18
A. Schedule 7 reveals the capital intensity and capital recovery for VWID, the 19
Comparable Companies and the S&P Utilities. Based upon the 2021 capital 20
intensity ratio of plant to revenues, VWID ($10.97) is more capital intensive as 21
compared to the Water Group ($6.60) and more than the S&P Utilities ($4.78). 22
From a purely financial point of view, based on current accounting practices, the 23
rate of capital recovery or depreciation rate is an indication of risk because it 24
represents cash flow and the return of an investment. VWID’s average rate of 25
capital recovery is higher than the Comparable Group’s, suggesting less risk. 26
The return on equity and depreciation expense provides the margin for 27
coverage of construction expenditures. For a utility company, depreciation expense 28
7Standard & Poor’s Ratings Services, Criteria, Utilities: Key Credit Factors: Business And Financial Risks In The
Investor-Owned Utilities Industry, Nov. 26, 2008, pgs. 8-9.

WALKER, Di 23 Veolia Water Idaho, Inc.
is the single largest generator of cash flow. From a financial analyst’s point of 1
view, cash flow is the life blood of a utility company. Without it, a utility cannot 2
access capital markets, it cannot construct plant, and therefore, it cannot provide 3
service to its customers. 4
RISK ANALYSIS 5
Q. Please explain the information shown on Schedule 8. 6
A. Schedule 8 details the size difference between VWID and the Comparable Group. 7
Company size is an indicator of business risk and is summarized in Table 4. 8
Table 4 9
As shown in Table 4, VWID is much smaller than the Water Group. The size of 10
a company affects risk. A smaller company requires the employment of 11
proportionately less financial leverage (i.e., debt and preferred capital) than a 12
larger company to balance out investment risk. If investment risk is not balanced 13
out, then a higher cost of capital is required. 14
Q. Why is size significant to your analysis? 15
A. The size of a company can be likened to ships on the ocean, since a large ship has 16
a much better chance of weathering a storm than a small ship. The loss of a large 17
customer will impact a small company much more than a large company because a 18

WALKER, Di 24 Veolia Water Idaho, Inc.
large customer of a small company usually accounts for a larger percentage of the 1
small company’s sales. 2
Moreover, a larger company is likely to have a more diverse geographic 3
operation than a smaller company, which enables it to sustain earnings fluctuations 4
caused by abnormal weather in one portion of its service territory. A larger 5
company operating in more than one regulatory jurisdiction enjoys “regulatory 6
diversification” which makes it less susceptible to adverse regulatory developments 7
or eminent domain claims in any single jurisdiction. Further, a larger company 8
with a more diverse customer base is less susceptible to downturns associated with 9
regional economic conditions than a small company. For example, on average, the 10
average company in the Water Group provides water/sewer service in multiple 11
states for about 968,000 customers. The average population of the communities 12
served by the average company in the Water Group is about 3.5 million people. 13
These wide-ranging operations provide the Water Group substantial geographic, 14
economic, regulatory, weather and customer diversification. VWID provides 15
regulated water service to about 100,000 customers (2021). The concentration of 16
VWID’s business in southwestern Idaho makes it very susceptible to any adverse 17
development in local regulatory, economic, demographic, competitive and weather 18
conditions. 19
Further, S&P, a major credit rating agency, recognizes the importance that 20
diversification and size play in credit ratings. S&P believes some of the critical 21
factors include: regional and cross-border market diversification (mitigates 22

WALKER, Di 25 Veolia Water Idaho, Inc.
economic, demographic, and political risk concentration); customer diversification; 1
and regulatory regime diversification.8 2
The size of a company can be a barrier to fluid access to capital markets 3
(i.e., liquidity risk). Investors require compensation for the lack of marketability 4
and liquidity of their investments. If no compensation is provided, then investors, 5
or at least sophisticated investors, shy away. 6
Q. Is the impact of size commonly recognized? 7
A. Yes, the National Association of Regulatory Utility Commissioners (“NARUC”), 8
as well as most good financial texts, recognizes that size affects relative business 9
risk. Liquidity risk and the existence of the small firm effect relating to business 10
risk of small firms are well-documented in financial literature.9 Investors’ 11
expectations reflect the highly-publicized existence of the small firm effect. For 12
example, many mutual funds classify their investment strategy as small 13
capitalization in an attempt to profit from the existence of the small firm effect. 14
As previously discussed, S&P recognizes that size plays a role in credit 15
ratings. 16
Standard & Poor’s has no minimum size criterion for any 17 given rating level. However, size turns out to be 18 significantly correlated to ratings. The reason: size often 19 provides a measure of diversification, and/or affects 20
competitive position. . . . Small companies are, almost by 21
definition, more concentrated in terms of product, number of 22 customers, or geography. In effect, they lack some elements 23 of diversification that can benefit larger companies. To the 24 extent that markets and regional economies change, a 25

8Standard & Poor’s, Corporate Ratings Criteria, Utilities: Key Credit Factors: Business and Financial Risks in The Investor-Owned Utilities Industry, Nov. 26, 2008. 9Banz, Rolf, W. "The Relationship Between Return and Market Value of Common Stocks," Journal of Financial Economics, 9:3-18 1981. For subsequent studies see Fama and French, etc.

WALKER, Di 26 Veolia Water Idaho, Inc.
broader scope of business affords protection. This 1
consideration is balanced against the performance and 2
prospects of a given business. . . . In addition, lack of 3 financial flexibility is usually an important negative factor in 4 the case of very small companies. Adverse developments 5 that would simply be a setback for companies with greater 6
resources could spell the end for companies with limited 7
access to funds.10 8 9 As shown on Schedule 9, size plays a role in the composition of investors, and 10
hence liquidity. In 2021, about 112% of the Water Group’s shares traded while the 11
larger companies comprising the S&P Utilities had a much higher trading volume 12
of 149%. Insiders11 hold more than eight times more, as a percent to total, of the 13
Water Group’s shares than the S&P Utilities. Currently, only about 71% of the 14
Water Group shares are held by institutions12 while the larger companies 15
comprising the S&P Utilities had much higher institutional holdings of 80%. Due 16
to small size and less interest by financial institutions, fewer security analysts 17
follow the Comparable Group and none follow VWID. 18
The lack of trading activity may affect the cost of equity estimates for small 19
entities such as VWID and the Water Group. When stock prices do not change 20
because of inactive trading activity, estimates of dividend yield for use in a dividend 21
cash flow model and beta estimates for use in the capital asset pricing model are 22
affected. In a stock market that is generally up, the beta estimates for the 23
Comparable Companies may be understated due to thin trading. 24
10Standard & Poor’s, Corporate Ratings Criteria 2006; pg. 22. 11An insider is a director or an officer who has a policy-making role or a person who is directly or indirectly the beneficial owner of more than 10% of a certain company’s stock. 12Institutional holders are those investment managers having a fair market value of equity assets under management of $100 million or more. Certain banks, insurance companies, investment advisers, investment companies, foundations and pension funds are included in this category.

WALKER, Di 27 Veolia Water Idaho, Inc.
Q. Do VWID and the Comparable Companies have similar operating risks? 1
A. Yes. From an operations standpoint, VWID and the Comparable Companies have 2
similar risks and are indistinguishable. Both are required to meet Clean Water Act 3
and Safe Drinking Water Act requirements and are also required to provide safe 4
and reliable services to their customers and comply with Commission regulations. 5
Q. Is there any single measure that best shows investment risk from a common 6
stockholder’s perspective? 7
A. No. However, from a creditor’s viewpoint, the best measure of investment risk is 8
debt rating. The debt rating process generally provides a good measure of 9
investment risk for common stockholders because the factors considered in the debt 10
rating process are usually relevant factors that a common stock investor would 11
consider in assessing the risk of an investment. Credit rating agencies, such as 12
S&P, assess the risk of an investment into two categories based on: fundamental 13
business analysis; and financial analysis.13 The business risk analysis includes 14
assessing: Country risk; industry risk; competitive position; and profitability/peer 15
group comparisons. The financial risk analysis includes assessing: accounting; 16
financial governance and policies/risk tolerance; cash flow adequacy; capital 17
structure/asset protection; and liquidity/short-term factors. 18
Q. What is the bond rating of VWID and the Comparable Group? 19
A. Page 1 of Schedule 10 shows the average bond/credit rating Comparable Group. 20
The Comparable Group has an A credit profile and VWID does not have bonds 21

13Standard & Poor’s, Corporate Ratings Criteria, General: Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009 and Standard & Poor’s, Criteria Corporates General: Corporate Methodology, November 19, 2013.

WALKER, Di 28 Veolia Water Idaho, Inc.
rated. VUR has an A credit profile. The major bond rating/credit rating agencies 1
append modifiers, such as +, - for S&P and 1, 2, and 3 for Moody’s Investors 2
Service (“Moody’s”) to each generic rating classification. For example, an “A” 3
credit profile is comprised of three subsets such as A+, A, A- for S&P or A1, A2 4
or A3 for Moody’s. The modifier of either “+” or “1” indicates that the obligation 5
ranks in the higher end of its generic rating category; the modifier “2” indicates a 6
mid-range ranking; and the modifier of “-“ or “3” indicates a ranking in the lower 7
end of that generic rating category. 8
S&P and Moody’s publish financial benchmark criteria necessary to obtain 9
a bond rating for different types of utilities. As a generalization, the higher the 10
perceived business risk, the more stringent the financial criteria so the sum of the 11
two, business risk and financial criteria, remains the same. 12
Q. What are some financial benchmarks applied by credit rating agencies for 13
rating public utility debt? 14
A. S&P describes their range of financial benchmarks as 15
Risk-adjusted ratio guidelines depict the role that financial ratios 16
play in Standard & Poor’s rating process, since financial ratios are 17
viewed in the context of a firm’s business risk. A company with a 18 stronger competitive position, more favorable business prospects, 19 and more predictable cash flows can afford to undertake added 20 financial risk while maintaining the same credit rating. The 21
guidelines displayed in the matrices make explicit the linkage 22
between financial ratios and levels of business risk.14 23 Q. What other information is shown on Schedule 10?24

14Standard & Poor’s Corporate Rating Criteria, 2000.

WALKER, Di 4 Veolia Water Idaho, Inc.
A. Page 2 of Schedule 10 summarizes the application of S&P’s and Moody’s measures 1
of financial risk for VWID and the Comparable Group. S&P’s and Moody’s 2
measures of financial risk are broader than the traditional measure of financial risk 3
(i.e., leverage). Besides reviewing amounts of leverage employed, S&P and 4
Moody’s also focus on earnings protection and cash flow adequacy. 5
As is evident from the information shown on page 2 of Schedule 10, for the 6
five years ending in 2021 and for the year 2021, VWID’s cash flow adequacy ratios 7
were generally higher than the Comparable Companies in most instances. 8
Comparing the VWID and the Water Group’s measures of cash flow adequacy 9
shows that the Water Group has experienced a lower level of cash flow adequacy 10
than VWID, indicating that VWID is a lower investment risk than the Water Group. 11
Prospectively, based upon the Company’s construction program, the Company’s 12
ratios are likely to be strained. Based solely upon VWID’s historical ratios, it is 13
my opinion that VWID’s credit profile is similar to the Comparable Companies. 14
Further, based solely upon VWID’s size, it is my opinion that VWID’s 15
credit profile is lower than the Comparable Groups’. Based on VWID’s small size, 16
it is highly likely that VWID’s credit profile is below BBB (i.e., BB). An analysis 17
of corporate credit ratings, shown on page 4 of Schedule 10, indicates that there is 18
an 90% (100%-0%-1%-6%-3%=90%) chance that VWID’s credit profile falls 19
below BBB based on their small size alone. As S&P has stated, size is significantly 20
correlated to credit ratings. 21
An analysis of corporate credit ratings, summarized on page 4 of Schedule 22
10, found The Berkshire Gas Company (“Berkshire”) to be the smallest utility with 23

WALKER, Di 5 Veolia Water Idaho, Inc.
a credit rating. Berkshire’s credit rating is only A- despite having a capitalization 1
comprised of about $198 million and a common equity ratio of 70%. According to 2
this analysis of corporate credit ratings, the smallest water utility is The York Water 3
Company (“York”). York’s credit rating is only A- notwithstanding having a 4
capitalization of about $301 million and a common equity ratio of 51%. 5
Q. Have you reviewed the Company’s large construction program? 6
A. Yes, the Company estimates their construction program to total $260.8 million (net 7
of advances and contributions) from 2022 through 2026. At year end 2021 the 8
Company’s total capital outstanding was $255.8 million indicating the need for a 9
102% increase ($260.8 million ÷ $255.8 million) in capital through 2026. 10
Q. How does the magnitude of the Company’s large construction program 11
compare to the Comparable Group’s construction program? 12
A. The Company is forecasted to require 102% of additional capital to finance their 13
construction program while the Comparable Group is projected by Value Line to 14
require 58% of additional capital to finance their construction programs. 15
Accordingly, VWID’s capital requirements are about 75% greater than the 16
Comparable Group’s through 2026 indicating more risk for VWID. 17
In order to compete with the Comparable Group for capital, in the future, it 18
will be necessary for VWID to achieve higher returns on equity, and increased cash 19
flow just to maintain a similar credit quality. 20
S&P has stated: 21
... low authorized returns may affect the industry’s ability to attract 22 necessary capital to develop new water supplies and upgrade the 23 quality of existing supplies . . . Traditional ratemaking policy has not 24 provided sufficient credit support during the construction cycle of the 25

WALKER, Di 6 Veolia Water Idaho, Inc.
electric industry over the past 15 years. To avoid a repeat in the water 1
industry, regulators must be aware of the increased challenges the 2
industry faces.15 3
Investors will not provide the equity capital necessary for increasing the amount of 4
common equity in a capital structure unless the regulatory authority allows an 5
adequate rate of return on the equity.16 6
Q. What do you conclude from the various measures of investment risk 7
information you have testified to? 8
15Standard & Poor’s CreditWeek, May 25, 1992 (emphasis added). 16National Association of Regulatory Utility Commissioners, loc. cit.

WALKER, Di 7 Veolia Water Idaho, Inc.
A. A summary of my conclusions regarding the risk analyses discussed previously is 1
shown in Table 5. Overall, the information summarized in Table 5 indicates that 2
VWID has similar investment risk as the Water Group. 3
Table 5 4
CAPITAL COST RATES 5
Q. What information is shown on Schedule 11? 6
A. Schedule 11 reviews long-term and short-term interest rate trends. Long-term and 7
short-term interest rate trends are reviewed to ascertain the “sub-flooring” or 8
Summary of Risk Analyses
VWID Water Group
Fallowed by Analysts
1. Business Risk:
2. Countrv Risk Similar Risk Level
3. lndustrv Risk Similar Risk Level
4. Competitive Position Similar Risk Level
5. Profitability/Peer Group Comparisons Higher Risk Level
6. Capitalization Ratios & Financial Risk (Leveraae)* Hiaher Risk Level
7. Debt Cost Rate* Hiaher Risk Level
8. Relative Size:
9. Reaulatorv Diversification Hiaher Risk Level
10. Economic Diversification Hiaher Risk Level
11 . Demoaraphic Diversification Hiaher Risk Level
12. Diversification of Weather Conditions Hiaher Risk Level
13. Customer Concentration of Revenues Hiaher Risk Level
14. Capital Intensity Hiaher Risk Level
15. Caoital Recoverv Hiaher Risk Level
16. Lower Liauiditv:
17. Institutional Holdinas Hiaher Risk Level
18. Insider Holdinas Hiaher Risk Level
19. Percentaae of Shares Traded Hiaher Risk Level
20. Reauired To Meet Clean Water Acts and Safe Drinkina Water Act Similar Risk Level
21 . Credit Market Financial Risk Metrics Hiaher Risk Level
22. Cash Flow Adequacy Hiaher Risk Level
23. Credit Rating/ Credit Profile Similar Risk Level
* -Based on recommended capital structure for rate making purposes
Comment The terms "Similar Level " indicates same amount of risk and the terms "Higher Level " indicates greater risk.

WALKER, Di 8 Veolia Water Idaho, Inc.
“basement” upon which the Comparable Companies’ common equity market 1
capitalization rate is built. Based upon the settled yields implied in the Treasury 2
Bond future contracts and the long-term and recent trends in spreads between long-3
term government bonds and A-rated public utility bonds available to me at the time 4
Schedule 11 was prepared, I conclude that the market believes that if the 5
Comparable Companies issued new long-term bonds near term, they would be 6
priced to yield about 4.7% based upon a credit profile of “A.” Further, it is 7
reasonable to conclude the market anticipates that long-term government bonds will 8
be priced to yield about 3.2%, near term. 9
Since October 2008, the Federal Reserve has been monetizing US Treasury 10
debt to artificially suppress interest rates through expansionary money policies (i.e., 11
quantitative easing). The Federal Reserve, with effectively unlimited money at its 12
disposal, intervenes at any time it wishes, in whatever volume it wishes, to make 13
sure that Treasury bond and bill prices and yields are exactly what the Federal 14
Reserve wants them to be. The US Treasury bond market, and mortgage market, 15
has become an artificial market with no connection to objective risk and interest 16
rates. 17
In August 2011, the Federal Reserve began “Operation Twist.” Under 18
“Operation Twist,” the Federal Reserve began buying $400 billion of long-dated or 19
long-term US Treasury debt, financed by selling short-term US Treasury debt with 20
three years to go or less. The goal of “Operation Twist” was to try to drive long-21
term rates lower, which the Federal Reserve thought would help the mortgage 22
market. This process has created an artificial demand for the US Treasury debt 23

WALKER, Di 9 Veolia Water Idaho, Inc.
themselves, and easily drives interest rates artificially lower and deceives investors 1
into believing US Treasury debt is safe with wide demand. This has resulted in the 2
entire capital system being impacted by the Federal Reserve’s distortion of the price 3
of risk. 4
In the real world of economics, the borrower pays an interest rate to 5 a lender, who makes money (interest) by taking on the risk of 6 lending and deferring gratification. The lender is willing to not 7
spend his money now. In a free market economy, interest rates are 8
essentially a price put on money, and they reflect the time preference 9 of people. Higher interest rates reflect a high demand for borrowing 10 and lower savings. But the higher rates automatically correct this 11 situation by encouraging savings and discouraging borrowing. 12
Lower interest rates will work the opposite way. When the 13
government/central bank tampers with interest rates, savings and 14 lending are distorted, and resources are misallocated. This is evident 15 in looking back on the housing bubble. The artificially low interest 16 rates signaled that there was a high amount of savings. But it was a 17
false signal. There was also a signal for people to borrow more. 18
Again, it was a false signal. As these false signals were revealed, 19 the housing boom turned into a bust.17 20 21
More recently, in response to COVID-19, the Federal Reserve provided 22
monetary and fiscal stimulus to increase liquidity in the form of new fiscal stimulus 23
programs and rate cuts. “For context, new fiscal stimulus and total fiscal deficits in 24
the US are roughly double the levels seen in 2008-2009, and the US fiscal deficit 25
we project for 2020 of 15%-18% is only matched by deficits seen at the height of 26
WWII in 1942-1943.”18 The combined result of these actions by the Federal 27
Reserve and investors’ flight to quality resulted in artificial and historically low 28
risk-free rates as measured by the 30-year treasury bond yield. 29

17Pike, Geoffrey "The Threat of Negative Interest Rates," Wealth Daily, May 30, 2014, http://www.wealthdaily.com/articles/the-threat-of-negative-interest-rates/5185, (6/03/2014) 18 https://www.jpmorgan.com/jpmpdf/1320748588999.pdf, (5/29/20).

WALKER, Di 10 Veolia Water Idaho, Inc.
Q. What are some of the results from the FED’s monetary and fiscal stimulus? 1
A. The FED’s quantitative easing of expanding its own balance sheet, by buying 2
bonds, and therefore injecting money into the economy, floods the economy with 3
additional cash, keeping interest rates low and impacts equity markets. 4
Additionally, the FED’s uninterrupted and aggressive monetary expansion policy 5
necessarily puts pressure on inflation. The FED’s monetary and fiscal stimulus, 6
which included artificial and historically low interest rates, have produced some of 7
the highest inflation rates in the last 40 years according to CNBC. 8
Inflation rose 9.1% in June, even more than expected, as consumer 9
pressures intensify. 10 11 Shoppers paid sharply higher prices for a variety of goods in June as 12 inflation kept its hold on a slowing U.S. economy, the Bureau of 13
Labor Statistics reported Wednesday. 14
15 The consumer price index, a broad measure of everyday goods and 16 services related to the cost of living, soared 9.1% from a year ago, 17 above the 8.8% Dow Jones estimate. That marked the fastest pace 18
for inflation going back to November 1981.19 19
20
In response to the recent level of inflation rates, the Federal Reserve 21
announced its goal of increasing interest rates as high as needed to get inflation 22
back to 2%. 23
Americans are headed for a painful period of slow economic growth 24
and possibly rising joblessness as the Federal Reserve raises interest 25
rates to fight high inflation, U.S. central bank chief Jerome Powell 26 warned on Friday in his bluntest language yet about what is in store 27 for the world's biggest economy. 28 29
In a speech kicking off the Jackson Hole central banking conference 30
in Wyoming, Powell said the Fed will raise rates as high as needed 31

19 Cox, J. (2022, July 13). Inflation rose 9.1% in June, even more than expected, as consumer pressures intensify. CNBC. Retrieved from https://www.cnbc.com/2022/07/13/inflation-rose-9point1percent-in-june-even-more-than-expected-as-price-pressures-intensify.html, (7/13/22).

WALKER, Di 11 Veolia Water Idaho, Inc.
to restrict growth, and would keep them there "for some time" to 1
bring down inflation that is running at more than three times the 2
Fed's 2% goal. 3 4 "Reducing inflation is likely to require a sustained period of below-5 trend growth," Powell said. "While higher interest rates, slower 6
growth, and softer labor market conditions will bring down 7
inflation, they will also bring some pain to households and 8 businesses. These are the unfortunate costs of reducing inflation. 9 But a failure to restore price stability would mean far greater pain." 10 11
As that pain increases, Powell said, people should not expect the Fed 12
to dial back its monetary policy quickly until the inflation problem 13 is fixed.20 14 15
Prospectively the capital markets will be affected by the upcoming 16
unprecedented large Treasury financings coupled with increased interest rates. 17
Investors provide capital based upon risk and return opportunities and investors will 18
not provide common equity capital when higher risk-adjusted returns are available. 19
Q. Are there other indications that forecasters believe capital costs rates may 20
increase substantially from their current levels? 21
A. Yes, consensus forecasts show that interest rates are expected to increase 22
substantially in the next few years. Table 6 shows the forecasted increase in interest 23
rates published in the June 1, 2022 Blue Chip Consensus Forecasts for the period 24
2023 to 2025. As shown in Table 6, consensus forecasts show interest rates are 25
expected to increase over 70 basis points from current levels. If interest rates were 26
to increase as predicted, investors will not provide common equity capital when 27
higher risk-adjusted returns are available. 28

20 Schneider, H and Saphir, A (2022, August 26). Powell sees pain ahead as Fed sticks to the fast lane to beat inflation. REUTERS. Retrieved from https://www.reuters.com/markets/us/feds-powell-pain-tight-policy-slow-growth-needed-for-some-time-beat-inflation-2022-08-26/, (8/27/22).

WALKER, Di 12 Veolia Water Idaho, Inc.
1
COMMON EQUITY COST RATE ESTIMATE 2
Q. What is the best method of estimating common equity cost rates? 3
A. There is no single method (model) suitable for estimating the cost rate for common 4
equity. While a single investor may rely solely upon one model in evaluating 5
investment opportunities, other investors rely on different models. Most 6
sophisticated investors who use an equity valuation model rely on many models in 7
evaluating their common equity investment alternatives. Therefore, the average 8
price of an equity security reflects the results of the application of many equity 9
models used by investors in determining their investment decisions. 10
The application of any single model to estimate common equity cost rates 11
is not appropriate because the security price for which the equity cost rate is being 12
estimated reflects the application of many models used in the valuation of the 13
investment. That is, the price of any security reflects the collective application of 14
many models. Accordingly, if only one model is used to estimate common equity 15
Blue Chip Financial Forecasts Long-Range Su1vey 8/1/22
Latest Qtr Consensus Forecasts
8/1/22 5/1/22 Long-Term Forecast~
2Q 2022 2023 2024 2025
Interest Rates
Prime Rate 3.94 6.08 5.87 5.65
3-mo. Treasury Bills 1.10 3.03 2.79 2.55
10 Year Notes 2.93 3.52 3.45 3.43
30 Year Notes 3.04 3.81 3.80 3.77
Aaa Corporate Bond Yield 4.30 5.03 4.99 4.89
Baa Corporate Bond Yield 4.97 5.98 5.93 5.79

WALKER, Di 13 Veolia Water Idaho, Inc.
cost rates, that cost rate will most likely be different from the collective market’s 1
cost rates because the collective valuation in the market reflects more than one 2
method. 3
Noted financial texts, investor organizations and professional societies all 4
endorse the use of more than one valuation method. “We endorse the dividend 5
discount model, particularly when used for establishing companies with consistent 6
earnings power and when used along with other valuation models. It is our view 7
that, in any case, an investor should employ more than one model.”21 8
The American Association of Individual Investors state, “No one area of 9
investment is suitable for all investors and no single method of evaluating 10
investment opportunities has been proven successful all of the time.”22 11
In their study guide, the National Society of Rate of Return Analysts state, 12
“No cost of equity model or other concept is recommended or emphasized, nor is 13
any procedure for employing any model recommended . . . it remains important to 14
recognize that alternative methods exist and have merit in cost of capital estimation. 15
To this end, analysts should be knowledgeable of a broad spectrum of cost of capital 16
techniques and issues.”23 17
Several different models should be employed to measure accurately the 18
market-required cost of equity reflected in the price of stock. Therefore, I used 19
21Sidney Cottle, Roger F. Murray and Frank E. Block, Graham and Dodd’s Securities Analysis 5th Edition, McGraw-Hill, Inc., 1988, p. 568 (emphasis added). 22Editorial Policy, AAII Journal, American Association of Individual Investors, Volume 18, No. 1, January 1996, p. 1. 23David C. Parcell, The Cost of Capital - A Practitioners Guide, National Society of Rate of Return Analysts, 1995 Edition.

WALKER, Di 14 Veolia Water Idaho, Inc.
three recognized methods: the DCF shown on Schedule 12, the CAPM shown on 1
Schedule 17, and the RP shown on Schedule 18. 2
DISCOUNTED CASH FLOW 3
Q. Please explain the discounted cash flow model. 4
A. The DCF is based upon the assumption that the price of a share of stock is equal to 5
a future stream of cash flows to which the holder is entitled. The stream of cash 6
flows is discounted at the investor-required cost rate (cost of capital). 7
Although the traditional DCF assumes a stream of cash flow into perpetuity, 8
a termination, or sale price can be calculated at any point in time. Therefore, the 9
return rate to the stockholder consists of cash flow (earnings or dividends) received 10
and the change in the price of a share of stock. The cost of equity is defined as: 11
...the minimum rate of return that must be earned on equity 12 finance and investments to keep the value of existing 13 common equity unchanged. This return rate is the rate of 14 return that investors expect to receive on the Company’s 15
common stock . . . the dividend yield plus the capital gains 16
yield . . . 24 17 18 Q. Please explain how you calculated your dividend yield in the DCF shown on 19
Schedule 12. 20
A. As shown on page 1 of Schedule 12, I used the average dividend yield of 1.8% for 21
the Water Group. The individual dividend yields are shown on page 2 of Schedule 22
12 and are based upon the most recent months’ yield, July 2022, and the twelve-23
month average yield, ending July 2022. The second input to a market DCF 24
calculation is the determination of an appropriate share price growth rate. 25
24J. Fred Weston and Eugene F. Brigham, Essentials of Managerial Finance, 3rd ed. (The Dryden Press), 1974, p. 504 (emphasis added).

WALKER, Di 15 Veolia Water Idaho, Inc.
Q. What sources of growth rates did you review? 1
A. I reviewed both historical and projected growth rates. Schedule 13 shows the array 2
of projected growth rates for the Comparable Companies that are published. 3
Specific historical growth rates are shown for informational purposes because I 4
believe the meaningful historical growth rates are already considered when analysts 5
arrive at their projected growth rates. Nonetheless, some investors may still rely on 6
historical growth rates. 7
Q. Please explain the sources of the projected growth rates shown on Schedule 13. 8
A. I relied upon four sources for projected growth rates, First Call, S&P, Zacks 9
Investment Research and Value Line.25 10
Q. Did you review any other growth rates besides those shown on Schedule 13? 11
A. Yes. I reviewed EPS growth rates reflecting changes in return rates on book 12
common equity (ROE) over time. I summarized recent ROEs on page 1 of 13
Schedule 14, and compared those to the Water Group’s higher levels projected to 14
be achieved by Value Line, as shown on page 2 of Schedule 14. ROEs increase 15
when EPS grows at much higher/faster rates than book value. 16
I also reviewed industry specific average projected growth rates that are 17
published by Zacks for the industries in which the Comparable Companies operate. 18
According to Zacks, the Water Group’s industry is projected to have EPS growth 19
rates that average 10.4% over the next five years. 20
25With the exception of Value Line, the earnings growth rate projections are consensus estimates five-year EPS estimates. These consensus estimates are compiled from more than 1,700 financial analysts and brokerage firms nationwide. It should be noted that none of the consensus forecasts provides projected DPS estimates. Value Line publishes projected Cash flow, EPS and DPS five-year growth projections as well.

WALKER, Di 16 Veolia Water Idaho, Inc.
Q. What do you conclude from the growth rates you have reviewed? 1
A. Table 7 summarizes some of the various growth rates reviewed. 2
Summary of Growth Rates
Projected 5 Year Growth in EPS 6.6
Actual 5 Year Growth in EPS 6.2
Projected 5 Year Growth in DPS 7.1
10.4
Table 7 3
Academic studies suggest that growth rate conclusions should be tested for 4
reasonableness against long-term interest rate levels. Further, the minimum growth 5
rate must at least exceed expected inflation levels. Otherwise, investors would 6
experience decreases in the purchasing power of their investment. Finally, the 7
combined result of adding the growth rate to the market value dividend yield must 8
provide a sufficient margin over yields of public utility debt. 9
Q. What method did you use to arrive at your growth rate conclusion? 10
A. No single method is necessarily the correct method of estimating share value 11
growth. It is reasonable to assume that investors anticipate that the Water Group’s 12
current ROE will expand to higher levels. The published historical earnings growth 13
rates for the Water Group averages 6.2%. Because there is not necessarily any 14
single means of estimating share value growth, I considered all of this information 15
in determining a growth rate conclusion for the Comparable Companies. 16
Moreover, while some rate of return practitioners would advocate that 17
mathematical precision should be followed when selecting a growth rate, the fact 18

WALKER, Di 17 Veolia Water Idaho, Inc.
is that investors do not behave in the same manner when establishing the market 1
price for a stock. Rather, investors consider both company-specific variables and 2
overall market sentiment such as inflation rates, interest rates and economic 3
conditions when formulating their capital gains expectations. This is especially 4
true when one considers the relatively meaningless negative growth rates. That is, 5
use of a negative growth rate in a DCF implies that investors invest with the 6
expectation of losing money. 7
The range of growth rates previously summarized supports the 8
reasonableness of an expected 6.6% growth rate for the Water Group based 9
primarily on the projected five-year growth rates and considering the Water 10
Group’s industry projected EPS growth rates of 10.4%. Like the projected growth 11
rates, this investor-expected growth rate of 6.6% is based on a survey of projected 12
and historical growth rates published by established entities, including First Call, 13
S&P, Zacks Investment Research and Value Line. Use of information from these 14
unbiased professional organizations provides an objective estimation of investor’s 15
expectations of growth. Based on the aforesaid, all growth rates for the Comparison 16
Companies have been considered and have been given weight in determining a 17
6.6% growth rate for the Water Group. 18
Q. What is your market value DCF estimate for the Comparable Companies? 19
A. The market value DCF cost rate estimate for the Water Group is 8.5%, as detailed 20
on page 1 of Schedule 12. 21

WALKER, Di 18 Veolia Water Idaho, Inc.
Q. Are there other considerations that should be taken into account in reviewing 1
a market value capitalization DCF cost rate estimate? 2
A. Yes. It should be noted that although I recommend specific dividend yields for the 3
Comparable Group, I recommend that less weight be given to the resultant market 4
value DCF cost rate due to the market’s current market capitalization ratios and the 5
impact that the market-to-book ratio has on the DCF results. The Comparable 6
Companies’ current market-to-book ratios of 339% and low dividend yields are 7
being affected by the aforementioned policy of the Federal Reserve that has resulted 8
in the mispricing of capital due to artificial interest rates, not DCF fundamentals. 9
Although the DCF cost for common equity appears to be based upon 10
mathematical precision, the derived result does not reflect the reality of the 11
marketplace since the model proceeds from unconnected assumptions. The 12
traditional DCF derived cost rate for common equity will continuously understate 13
or overstate investors’ return requirements as long as stock prices continually sell 14
above or below book value. A traditional DCF model implicitly assumes that stock 15
price will be driven to book value over time. However, such a proposition is not 16
rational when viewed in the context of an investor purchasing stock above book 17
value. It is not rational to assume that an investor would expect share price to 18
decrease 71% (100%÷339%=29%-100%=71%) in value to equal book value. 19
Utility stocks do not trade in a vacuum. Utility stock prices, whether they 20
are above or below book value, reflect worldwide market sentiment and are not 21
reflective of only one element. 22

WALKER, Di 19 Veolia Water Idaho, Inc.
Q. What do you mean by your statement that utility stocks are not traded in a 1
vacuum? 2
A. Utility stocks cannot be viewed solely by themselves. They must be viewed in 3
the context of the market environment. Table 8 summarizes recent market-to-4
book ratios (“M/B”) for well-known measures of market value reported in the 5
August 8, 2022 issue of Barron’s and the Water Group’s average M/B as shown 6
on page 1 of Schedule 14. 7
Table 8 8
Utility stock investors view their investment decisions compared with other 9
investment alternatives, including those of the various market measures shown in 10
Table 8. 11
Q. How does a traditional DCF implicitly assume that market price will equal 12
book value? 13
A. Under traditional DCF theory, price will equal book value (M/B=1.00) only when 14
a company is earning its cost of capital. Traditional DCF theory maintains that a 15
company is under-earning its cost of capital when the market price is below book 16
value (M/B<1.00), while a company over-earning its cost of capital will have a 17

WALKER, Di 20 Veolia Water Idaho, Inc.
market price above its book value (M/B>1.00). If this were true, it would imply 1
that the capitalistic free-market is not efficient because the overwhelming majority 2
of stocks would currently be earning more than their cost of capital. Table 8 shows 3
that most stocks sell at an M/B that is greater than 1.0. 4
Q. Please explain why such a phenomenon would show that the capitalistic free-5
market is not efficient. 6
A. Historically, the S&P 500, which represented the largest 500 companies listed on 7
exchanges in the United States, have not sold at an M/B of 1.0 during the last 24-8
years, 1999-2022. Based upon the traditional DCF assumption, which suggests that 9
companies with M/Bs greater than 1.0 earn more than their cost of capital, this data 10
would suggest that the S&P 500 companies have earned more than their cost of 11
capital while competing in a competitive environment over the 24-year period. In 12
a competitive market, new companies would continually enter the market up to the 13
point that the earnings rate was at least equal to their cost of capital. 14
During this period the S&P 500 sold at an average M/B of 306% while 15
experiencing a ROE of 18.0% over a period in which interest rates averaged 3.9%. 16
It is important to note that during this period the S&P 500 M/B ranged from 192% 17
to 490%, all while competing in competitive markets. 18
Q. What is the significance of S&P 500 m/b and the cost of capital for a water 19
utility? 20
A. As stated previously, utility stocks do not trade in a vacuum. They must compete 21
for capital with other firms including the S&P 500 stocks. Over time, there has 22
been a relationship between M/Bs of S&P 500 stocks and utility stocks. Although 23

WALKER, Di 21 Veolia Water Idaho, Inc.
S&P 500 stocks have generally sold at a higher multiple of book value than utility 1
stocks, both have tracked in similar directions. Because utility and S&P 500 stock 2
prices relative to book values move in similar directions, it is irrational to conclude 3
that stock prices that are different from book value, either higher or lower, suggests 4
that a firm is over-or under-earning its cost of capital when competitive, free-5
markets exist. 6
Q. Does the market value DCF provide a reasonable estimate of the Water 7
Group’s common equity cost rate? 8
A. No, the DCF only provides a reasonable estimate of the Comparable Group’s 9
common equity cost rate when their market price and book value are similar 10
(M/B=100%).26 A DCF will overstate a common equity cost rate when M/Bs are 11
below 100% and understate when they are above 100%. Since the Comparable 12
Group’s current M/Bs average 339%, the DCF understates their common equity 13
cost rate. Schedule 15 provides a numerical illustration of the impact of M/Bs on 14
investors’ market returns and DCF returns. The reason that DCF understates or 15
overstates investors’ return requirements depending upon M/B levels is because a 16
DCF-derived equity cost rate is applied to a book value rate base while investors’ 17
returns are measured relative to stock price levels. Based upon this, I recommend 18
that less weight be given to the market value DCF cost rate unless the increased 19
financial risk, resulting from applying a market value cost rate to a book value, is 20
accounted for. 21
26Roger A Morin, Regulatory Finance - Utilities’ Cost of Capital, Public Utility Reports, Inc., 1994, pp. 236-237.

WALKER, Di 22 Veolia Water Idaho, Inc.
Q. How do you resolve the financial risk difference between market value cost 1
rates and book value cost rates? 2
A. The basic proposition of financial theory regarding the economic value of a 3
company is based on market value. That is, a company's value is based on its 4
market value weighted average cost of capital.27 The American Society of 5
Appraisers, ASA Business Valuation Standards, 2009, and the National 6
Association of Certified Valuation Analysts, Professional Standards, 2007, use the 7
same definition: 8
9 Weighted Average Cost of Capital (WACC). The cost of capital 10 (discount rate) determined by the weighted average, at market 11
values, of the cost of all financing sources in the business 12
enterprise's capital structure. (Emphasis added) 13 14 Accordingly, the market value derived cost rate reflects the financial risk or 15
leverage associated with capitalization ratios based on market value, not book 16
value. 17
As shown on page 1 of Schedule 16, for the Water Group there is a large 18
difference in leverage as a result of the average $5.188 billion difference in market 19
value common equity and book value common equity. This difference in market 20
values and book values results in debt/equity ratios based on market value of 21
26.0%/74.0% (debt/equity) versus 52.0%/48.0% (debt/equity) based on book value 22
as shown on page 1 of Schedule 16. The larger the difference between market 23

27For other examples, see http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/weighted-average-cost-capital-wacc-2905. Also see http://www.wallstreetmojo.com/weighted-average-cost-capital-wacc/ , or http://accountingexplained.com/misc/corporate-finance/wacc .

WALKER, Di 23 Veolia Water Idaho, Inc.
values and book values the less reliable the models’ results are because the models 1
provide an estimate of the cost of capital of market value, not book value. 2
Financial theory concludes that capital structure and firm value are related. 3
Since capital structure and firm value are related, an adjustment is required when a 4
cost of common equity model is based on market value and if its results are then 5
applied to book value. As explained previously, the market value derived cost rate 6
reflects the financial risk or leverage associated with capitalization ratios based 7
on market value, not book value. The authors Brealey, Myers and Allen provide 8
a similar definition of the cost of capital being based on market capitalization, not 9
book value, 10
11
The values of debt and equity add up to overall firm value (D + E = 12
V) and firm value V equals asset value. These figures are all 13 market values, not book (accounting) values. The market value of 14 equity is often much larger than the book value, so the market debt 15 ratio D/V is often much lower than a debt ratio computed from the 16
book balance sheet.28 17
The work of Modigliani and Miller concludes that the market value of any 18
firm is independent of its capital structure and this is precisely the reason why an 19
adjustment is appropriate. The only way for the market value of a firm to remain 20
independent of its capital structure is if the capital cost rates change to offset 21
changes in the capital structure. If the capital cost rates do not change to offset 22
changes in the capital structure, then the value of the firm will change. Clearly an 23
adjustment is required when a cost of common equity model is based on market 24

28Brealey, Myers and Allen, Principles of Corporate Finance, 10th edition, page 216 (emphasis added).

WALKER, Di 24 Veolia Water Idaho, Inc.
value and if its results are then applied to book value because the capital structure 1
is changed from market value capitalization to book value capitalization. 2
Differences in the amount of leverage employed can be quantified based 3
upon the Comparable Group’s leveraged beta being “unleveraged” through the 4
application of the “Hamada Formula”. The details of the model are shown on page 5
2 of Schedule 16. For example, the inputs to the formula for the Water Group 6
market value capitalization consist of their leveraged beta of 0.77, debt ratio of 7
25.5%, preferred stock ratio of 0.1%, common equity ratio of 74.4% and combined 8
tax rate of 25.74%. The group's unleveraged beta is determined to be 0.61 through 9
the use of the following Hamada formula: 10
Bl = Bu (1 + (1 - t) D/E + P/E) 11
where: 12
Bl = observed, leveraged beta 13
Bu = calculated, unleveraged beta 14
t = income tax rate 15
D = debt ratio 16
P = preferred stock ratio 17
E = common equity ratio 18
Applying the unleveraged beta of 0.61 along with the Water Group’s book value 19
capitalization ratios of 51.9% long-term debt, 0.0% preferred stock and 48.1% 20
common equity and combined tax rate of 25.74% results in a leveraged beta of 1.10 21
applicable to the group’s book value capitalization. Based upon the Water Group’s 22
risk premium of 5.5% and the difference between Water Group's market value 23

WALKER, Di 25 Veolia Water Idaho, Inc.
leveraged beta, their book value leveraged beta of 0.33 (1.10 - 0.77) indicates that 1
the Water Group’s common equity cost rate must be increased by 1.82 (0.33 x 5.5 2
= 1.82) in recognition of their book value’s exposure to more financial risk. 3
Q. Is there another way to reflect the financial risk difference that exists as a 4
result of market capitalization ratios being significantly different from book 5
value capitalization ratios? 6
A. Yes, generally speaking. Although it is possible to know the direction of a financial 7
risk adjustment on common equity cost rate, a specific quantification of financial 8
risk differences is very difficult. Although the end result of a financial risk 9
adjustment is very subjective and specific quantification very difficult, the direction 10
of the adjustment is clearly known. However, hypothetically if the Comparable 11
Group’s debt were rated based on market value debt ratios they would command 12
an Aaa rating. The Comparison Group currently has bonds rated A based upon 13
their book value debt ratios. The yield spread on a bond rated Aaa versus A rated 14
bonds averages 45 basis points or 0.45% as shown on page 3 of Schedule 16. 15
The end result of the application of the Hamada Model and the bond yield 16
spread indicates that the Water Group market value common equity cost rate equity 17
cost rate should be adjusted upward by at least 1.1% (1.8% hamada est. + 0.4% 18
yield spread = 2.2% ÷ 2 = 1.1%) since it is going to be applied to a book value. 19
Accounting for the increased amount of leverage between market value 20
derived DCF cost rates and book value cost rates indicates a book value DCF cost 21
rate of 9.60% for the Water Group (8.5% + 1.1% = 9.60%). 22

WALKER, Di 26 Veolia Water Idaho, Inc.
CAPITAL ASSET PRICING MODEL 1
Q. Please briefly describe the theory of the capital asset pricing model. 2
A. The CAPM is based upon the assumption that investors hold diversified portfolios 3
and that the market only recognizes or rewards non-diversifiable (or systematic) 4
risk when determining the price of a security because company-specific risk (or 5
non-systematic) is removed through diversification. Further, investors are assumed 6
to require additional or higher returns for assuming additional or higher risk. This 7
assumption is captured by using a beta that provides an incremental cost of 8
additional risk above the base risk-free rate available to investors. The beta of a 9
security reflects the market risk or systematic risk of the security relative to the 10
market. The beta for the market is always equal to 1.00; therefore, a company 11
whose stock has a beta greater than 1.00 is considered riskier than the market, and 12
a company with a beta less than 1.00 is considered less risky than the market. The 13
base risk-free rate is assumed to be a U.S. Government treasury security because 14
they are assumed to be free of default risk. 15
Q. What risk-free rate and beta have you used in your CAPM calculation? 16
A. The risk-free rate used in CAPM should have approximately the same maturity as 17
the life of the asset for which the cost rate is being determined. Because utility 18
assets are long-lived, a long-term Treasury Bond yield serves as an appropriate 19
proxy. Previously, I estimated an appropriate risk-free rate of 3.2% based upon the 20
recent and forward long-term Treasury yields. I used the average beta of 0.77 for 21
the Water Group as shown on page 1 of Schedule 17. However, as stated previously, 22

WALKER, Di 27 Veolia Water Idaho, Inc.
the Comparable Group’s betas are understated due to their small size which affects 1
their stock price changes. 2
Q. After developing an appropriate beta and risk-free rate, what else is necessary 3
to calculate a CAPM derived cost rate? 4
A. A market premium is necessary to determine a traditional CAPM derived cost rate. 5
The market return rate is the return expected for the entire market. The market 6
premium is then multiplied by the company specific beta to capture the incremental 7
cost of additional risk (market premium) above the base risk-free rate (long-term 8
treasury securities) to develop a risk adjusted market premium. For example, if you 9
conclude that the expected return on the market as a whole is 15% and further 10
assume that the risk-free rate is 8%, then the market premium is shown to be 7% 11
(15% - 8% = 7%). 12
Further, assume there are two companies, one of which is considered less 13
risky than the market, and therefore has a beta of less than 1.00 or 0.80. The second 14
company has a beta that is greater than 1.00 or 1.20, and is therefore considered 15
riskier than the market. By multiplying the hypothetical 7.0% market premium by 16
the respective betas of 0.80 and 1.20, risk adjusted market premiums of 5.6% (7.0% 17
x 0.80) and 8.4% (7.0% x 1.20) are shown for the company considered less risky 18
than the market and for the company considered riskier than the market, 19
respectively. 20
Adding the assumed risk-free rate of 8% to the risk adjusted market 21
premiums results in the CAPM derived cost rates of 13.6% (5.6% + 8.0%) for the 22
less risky company and 16.4% (8.4% + 8.0%) for the company considered of 23

WALKER, Di 28 Veolia Water Idaho, Inc.
greater risk than the market. In fact, the result of this hypothetical CAPM 1
calculation shows that: (1) the least risky company, with the beta of 0.80, has a cost 2
rate of 13.6%; (2) the market, with the beta of 1.00, has a cost rate of 15.0%; and 3
(3) that the higher risk company, with a beta of 1.20, has a cost rate of 16.4%. 4
Q. How did you develop a market premium for your CAPM? 5
A. The average projected market premium of 13.7% is developed on page 2 of 6
Schedule 17. It is based upon Value Line’s average projected total market return 7
for the next three to five years of 16.9% less the risk free rate of 3.2%. I also 8
reviewed market premiums derived from Ibbotson Associates’ most recent 9
publication concerning asset returns that show a market premium of 7.5%. The 10
Ibbotson Associates’ market premium may be on the low side reflective of the 11
higher interest rate environment found during their study (i.e., 5.0%). The Value 12
Line market premium reflects the Federal Reserve’s current artificial interest rate 13
levels while the Ibbotson Associates’ market premiums reflect a higher interest rate 14
environment. 15
Q. How did you adjust for the impact that size has on the Comparable Group’s 16
beta? 17
A. The adjustment is reflected in the CAPM size premium. The CAPM size premium 18
is developed on page 4 of Schedule 17. The size premium reflects the risks 19
associated with the Comparable Group’s small size and its impact on the 20
determination of their beta. This adjustment is necessary because beta (systematic 21
risk) does not capture or reflect the Comparable Group’s small size. I reduced the 22

WALKER, Di 29 Veolia Water Idaho, Inc.
size premium by the ratio of the Comparison Group’s beta to their respective market 1
quartile’s beta. 2
Q. What is the comparison group’s market cost of equity based upon your CAPM 3
calculation? 4
A. The CAPM based on Ibbotson Associates’ historical market returns shows a market 5
cost rate of 10.5% for the Water Group. The CAPM based on Value Line’s 6
projected market returns shows an 15.2% for the Water Group, as shown on page 7
1 of Schedule 17. The Comparable Group’s market value CAPM of 10.5% is based 8
100% on the results of the historical market returns and 0% on the projected market 9
returns. Adjusting the market value CAPM based upon the end result of the 10
application of the Hamada Model and the bond yield spread to account for the 11
difference in leverage between market value capitalization ratios and book value 12
ratios discussed previously indicates a cost rate of 11.6% for the Water Group 13
applicable to book value (10.5% + 1.1% = 11.6%). 14
RISK PREMIUM 15
Q. What is a risk premium? 16
A. A risk premium is the common equity investors’ required premium over the long-17
term debt cost rate for the same company, in recognition of the added risk to which 18
the common stockholder is exposed versus long-term debtholders. Long-term 19
debtholders have a stated contract concerning the receipt of dividend and principal 20
repayment whereas common stock investors do not. Further, long-term debtholders 21
have the first claim on assets in case of bankruptcy. A risk premium recognizes the 22
higher risk to which a common stock investor is exposed. The risk premium-23

WALKER, Di 30 Veolia Water Idaho, Inc.
derived cost rate for common equity is the simplest form of deriving the cost rate 1
for common equity because it is nothing more than a premium above the 2
prospective level of long-term corporate debt. 3
Q. What is the appropriate estimated future long-term borrowing rate for the 4
Comparable Companies? 5
A. The estimated near term long-term borrowing rate for the Comparable Companies 6
is 4.7% based upon their credit profile that supports an A bond rating. 7
Q. What is the appropriate risk premium to be added to the future long-term 8
borrowing rate? 9
A. To determine a common equity cost rate, it is necessary to estimate a risk premium 10
to be added to the Comparable Group’s prospective long-term debt rate. Investors 11
may rely upon published projected premiums; they also rely upon their experiences 12
of investing in ultimately determining a probabilistic forecasted risk premium. 13
Projections of total market returns are shown on page 9 of Schedule 18. A 14
projected risk premium for the market can be derived by subtracting the debt cost 15
rate from the projected market return as shown on page 9 of Schedule 18. However, 16
the derived risk premium for the market is not directly applicable to the Comparable 17
Companies because they are less risky than the market. The use of 85% of the 18
market’s risk is a conservative estimation of their level of risk as compared to the 19
market. 20
The midpoint of the risk premium range is 10.4% and the average for the 21
most recent quarter is 10.5% as shown on page 9 of Schedule 18. Based on this, a 22
reasonable estimate of a longer term projected risk premium is 10.5%. 23

WALKER, Di 31 Veolia Water Idaho, Inc.
Q. How do investors’ experiences affect their determination of a risk premium? 1
A. Returns on various assets are studied to determine a probabilistic risk premium. 2
The most noted asset return studies and resultant risk premium studies are those 3
performed by Ibbotson Associates. However, Ibbotson Associates has not 4
performed asset return studies concerning public utility common stocks. Based 5
upon Ibbotson Associates’ methodology of computing asset returns, I calculated 6
annual returns for the S&P utilities and bonds for the period 1928-2021. The 7
resultant annual returns were then compared to determine a recent risk premium 8
from a recent 20-year period, 2002-2021 and subsequent periods that were each 9
increased by ten years until the entire study period was reviewed (pages 2 and 3 of 10
Schedule 18). 11
A long-term analysis of rates of return is necessary because it assumes that 12
investors’ expectations are, on average, equal to realized long-run rates of return 13
and resultant risk premium. Observing a single year’s risk premium, either high or 14
low, may not be consistent with investors’ requirements. Further, studies show a 15
mean reversion in risk premiums. In other words, over time, risk premiums revert 16
to a longer-term average premium. Moreover, since the expected rate of return is 17
defined as “the rate of return expected to be realized from an investment; the mean 18
value of the probability distribution of possible results,”29 a long-term analysis of 19
annual returns is appropriate. 20
29Eugene F. Brigham, Fundamentals of Financial Management, Fifth Edition, The Dryden Press, 1989, p. 106.

WALKER, Di 32 Veolia Water Idaho, Inc.
Q. What do you conclude from the information shown on pages 2 and 3 of 1
Schedule 18? 2
A. The average of the absolute range of the S&P Utilities’ appropriate average risk 3
premium (i.e., bonds rated AAA to A) was 3.8% during the seven periods studied, 4
as calculated from page 2 of Schedule 18. The credit adjusted longer term risk 5
premiums (i.e., bonds rated A), 1928-2021, averages 4.3%. The appropriate 6
average (i.e., bonds rated AAA to A) longer term risk premiums, 1928-2021, have 7
an absolute range of 4.3% to 5.2%, and averages 4.6%. 8
The aforementioned premiums are based on total returns for bonds; and 9
reflect their price risk. A bond’s price risk is not related to its credit quality and is 10
eliminated when a bond is held to maturity from time of purchase. Using the 11
income returns, page 4 of Schedule 18, for bonds eliminates price risk and better 12
measures an investor’s required return based on credit quality. The appropriate 13
average risk premium (i.e., bonds rated AAA to A) based on income returns was 14
5.5% during the seven periods studied. The credit adjusted longer term risk 15
premiums (i.e., bonds rated A), 1928-2021, averages 4.9%. The appropriate 16
average (i.e., bonds rated AAA to A) longer term risk premiums, 1928-2021, have 17
an absolute range of 4.9% to 5.3%, and averages 5.1%. 18
Q. What information is shown on page 4 of Schedule 18? 19
A. Page 4 of Schedule 18 proves and measures the negative relationship between 20
interest rate levels and the resulting risk premium. That is, risk premiums are 21
generally higher when interest rates are low and risk premiums are generally lower 22
when interest rates are high. This was proven by sorting the 94-year period, 1928 23

WALKER, Di 33 Veolia Water Idaho, Inc.
to 2021, annual returns based on interest rate level from lowest interest rate to 1
highest interest rate and distributing the results into two equal groups, a 47-year 2
low interest rate environment group and a 47-year high interest rate environment 3
group. 4
During the period 1928-2021, the 47 years with the lowest interest rates had 5
an average interest rate of 2.9% and reflected a range of interest rates from 1.4% to 6
4.1%. This period resembles the current interest rate environment of 3.2% 7
discussed previously regarding the CAPM's risk free rate. The risk premium based 8
on total returns during this low interest rate environment produced the appropriate 9
average (i.e., bonds rated AAA to A) longer term risk premium of 6.4% and a credit 10
adjusted longer term risk premium (i.e., bonds rated A) of 5.6%. The annual 11
income return based risk premium during this low interest rate environment 12
produced the appropriate average (i.e., bonds rated AAA to A) longer term risk 13
premium of 7.5% and a credit adjusted longer term risk premium (i.e., bonds rated 14
A) of 7.2%. 15
However, during the period 1928-2021, the 47 years with the highest 16
interest rates had an average interest rate of 7.2% and reflected a range of interest 17
rates from 4.1% to 13.5%. This period is far different from the current interest rate 18
environment of 3.2%. The risk premium based on total returns during the highest 19
interest rate environment produced an average longer term risk premium of 3.0% 20
over bonds rated AAA to A and a credit adjusted longer term risk premium (i.e., 21
bonds rated A) of only 2.9%. The annual income return based risk premium during 22
the highest interest rate environment produced an average longer term risk premium 23

WALKER, Di 34 Veolia Water Idaho, Inc.
of 2.8% over bonds rated AAA to A and a credit adjusted longer term risk premium 1
(i.e., bonds rated A) of only 2.7%. 2
Over time, risk premiums are mean reverting. They constantly move toward 3
a long-term average reflecting a long-term level of interest rates. That is, an above-4
average risk premium will decrease toward a long-term average while a below-5
average risk premium will increase toward a long-term average. In any single year, 6
of course, investor-required rates of return may not be realized and in certain 7
instances, a single year’s risk premiums may be negative. Negative risk premiums 8
are not indicative of investors’ expectations and violate the basic premise of finance 9
concerning risk and return. Negative risk premiums usually occur only in the stock 10
market’s down years (i.e., the years in which the stock markets’ return was 11
negative). 12
When interest rate levels are not considered the credit adjusted longer term 13
risk premium (i.e., bonds rated A), 1928-2021, averages 4.6%, discussed previously 14
regarding pages 2 and 3 of Schedule 18. However, the annual income return based 15
risk premium during the low interest rate environment produced a credit adjusted 16
longer term risk premium (i.e., bonds rated A) of 7.2%. Since this period resembles 17
the current interest rate environment of 3.2%, a reasonable estimate of investors 18
risk premium based on historical returns is based on a 50% weighting on the results 19
of the entire 1928-2021 historical market returns and a 50% weighting on the results 20
of the low interest rate environment to produce a 5.5% historical risk premium. 21
Adding the risk premium of 5.5% for the Comparable Group to the 22
prospective cost of newly-issued long-term debt of 4.7% results in a market value 23

WALKER, Di 35 Veolia Water Idaho, Inc.
risk premium derived cost rate for common equity of 10.2% as reflected on page 1 1
of Schedule 18. Adjusting the market value risk premium based upon the end result 2
of the application of the Hamada Model and the bond yield spread to account for 3
the difference in leverage between market value capitalization and book value ratios 4
discussed previously indicates a cost rate of 11.3% applicable to book value (10.2% 5
+ 1.1% = 11.3%). 6
SUMMARY OF COMMON EQUITY COST RATE 7
Q. What is your Comparable Group’s common equity cost rate? 8
A. Based upon the results of the models employed, the Water Group’s common equity 9
cost rate is in the range of 9.6% to 11.6% as reflected on Schedule 19. Based upon 10
this data, the common equity cost rate for the Water Group is at least 10.80%. My 11
recommendation is based upon the Water Group’s 10.80% common equity cost 12
rate. 13
Q. Do you recommend a cost of common equity of 10.80% for VWID? 14
A. Yes. Based upon the financial analysis and risk analysis, I conclude that VWID is 15
exposed to overall similar investment risk as the Comparable Group. This is 16
evidenced by the factors summarized in Table 5 discussed previously. 17
The results of the three models employed for the Water Group show a 18
current range of common equity cost applicable to book value of VWID of 9.60% 19
(DCF), 11.60% (CAPM), and 11.30% (RP) as shown in Table 9. 20

WALKER, Di 36 Veolia Water Idaho, Inc.
Summary of the VWID’s Equity Cost Rates
Table 9 1
Q. What is your common equity cost rate recommendation for VWID? 2
A. As discussed above and as shown in Schedule 19, I recommend a 10.80% common 3
equity cost rate for VWID. 4
Q. Have you checked the reasonableness of your recommended common equity 5
rate for VWID? 6
A. Yes. Page 2 of Schedule 14 reflects the average projected earned return on average 7
book common equity for the companies in the Comparable Group for the period 8
2025-2027, which is shown to range from 10.6% to 10.8%. Given the large degree 9
to which regulatory lag and attrition impacts water utilities earning, the range of the 10
comparable utilities’ projected earned returns suggests that my recommendation 11
that VWID be permitted an opportunity to earn 10.80% is reasonable, if not 12
conservative. 13
OVERALL RATE OF RETURN RECOMMENDATION 14
Q. What is your overall fair rate of return recommendation for the VWID? 15
A. Based upon the recommended capital structure and my estimate of the VWID’s 16
common equity cost rate, I recommend an overall fair rate of return of 7.77%. The 17
details of my recommendation are shown on Schedule 1. 18

WALKER, Di 37 Veolia Water Idaho, Inc.
Q. HAVE YOU TESTED THE REASONABLENESS OF YOUR OVERALL 1
FAIR RATE OF RETURN RECOMMENDATION? 2
A. Yes. If my recommended overall rate of return is actually earned, it will give 3
VWID ratios that will allow VWID to present a financial profile that will enable it 4
to attract capital necessary to provide safe and reliable water service, at reasonable 5
terms. 6
Q. Does that conclude your direct testimony? 7
A. Yes, it does.8

APPENDIX A
Professional Qualifications of Harold Walker, III Manager, Financial Studies
Gannett Fleming Valuation and Rate Consultants, LLC.
EDUCATION
Mr. Walker graduated from Pennsylvania State University in 1984 with a Bachelor of Science Degree in Finance. His studies concentrated on securities analysis and portfolio management with an emphasis on economics and quantitative business analysis. He has also completed the regulation and the rate-making process courses presented by the College of Business
Administration and Economics Center for Public Utilities at New Mexico State University.
Additionally, he has attended programs presented by The Institute of Chartered Financial Analysts (CFA). Mr. Walker was awarded the professional designation “Certified Rate of Return Analyst” (CRRA)
by the Society of Utility and Regulatory Financial Analysts. This designation is based upon
education, experience and the successful completion of a comprehensive examination. He is also a member of the Society of Utility and Regulatory Financial Analysts (SURFA) and has attended numerous financial forums sponsored by the Society. The SURFA forums are recognized by the Association for Investment Management and Research (AIMR) and the National Association of
State Boards of Accountancy for continuing education credits.
Mr. Walker is also a licensed Municipal Advisor Representative (Series 50) by Municipal Securities Rulemaking Board (MSRB) and Financial Industry Regulatory Authority (FINRA).

BUSINESS EXPERIENCE Prior to joining Gannett Fleming Valuation and Rate Consultants, LLC., Mr. Walker was employed by AUS Consultants - Utility Services. He held various positions during his eleven
years with AUS, concluding his employment there as a Vice President. His duties included
providing and supervising financial and economic studies on behalf of investor owned and municipally owned water, wastewater, electric, natural gas distribution and transmission, oil pipeline and telephone utilities as well as resource recovery companies.

A-2
In 1996, Mr. Walker joined Gannett Fleming Valuation and Rate Consultants, LLC. In his capacity
as Manager, Financial Studies and for the past twenty years, he has continuously studied rates of
return requirements for regulated firms. In this regard, he supervised the preparation of rate of return studies in connection with his testimony and in the past, for other individuals. He also assisted and/or developed dividend policy studies, nuclear prudence studies, calculated fixed charge rates for avoided costs involving cogeneration projects, financial decision studies for capital
budgeting purposes and developed financial models for determining future capital requirements
and the effect of those requirements on investors and ratepayers, valued utility property and common stock for acquisition and divestiture, and assisted in the private placement of fixed capital securities for public utilities.
Head, Gannett Fleming GASB 34 Task Force responsible for developing Governmental
Accounting Standards Board (GASB) 34 services, and educating Gannett Fleming personnel and Gannett Fleming clients on GASB 34 and how it may affect them. The GASB 34 related services include inventory of assets, valuation of assets, salvage estimation, annual depreciation rate determination, estimation of depreciation reserve, asset service life determination, asset condition
assessment, condition assessment documentation, maintenance estimate for asset preservation,
establishment of condition level index, geographic information system (GIS) and data management services, management discussion and analysis (MD&A) reporting, required supplemental information (RSI) reporting, auditor interface, and GASB 34 compliance review.
Mr. Walker was also the Publisher of C.A. Turner Utility Reports from 1988 to 1996. C.A. Turner
Utility Reports is a financial publication which provides financial data and related ratios and forecasts covering the utility industry. From 1993 to 1994, he became a contributing author for the Fortnightly, a utility trade journal. His column was the Financial News column and focused mainly on the natural gas industry.

In 2004, Mr. Walker was elected to serve on the Board of Directors of SURFA. Previously, he served as an ex-officio directors as an advisor to SURFA’s existing President. In 2000, Mr. Walker was elected President of SURFA for the 2001-2002 term. Prior to that, he was elected to serve on the Board of Directors of SURFA during the period 1997-1998 and 1999-2000. Currently, he also
serves on the Pennsylvania Municipal Authorities Association, Electric Deregulation Committee.
EXPERT TESTIMONY
Mr. Walker has submitted testimony or been deposed on various topics before regulatory
commissions and courts in 26 states including: Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Missouri, New Hampshire, Nevada, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia. His
testimonies covered various subjects including: fair rate of return, fair market value, the taking of
natural resources, benchmarking, appropriate capital structure and fixed capital cost rates, depreciation, purchased water adjustments, synchronization of interest charges for income tax purposes, valuation, cash working capital, lead-lag studies, financial analyses of investment alternatives, and fair value. The following tabulation provides a listing of the electric power,

A-3
natural gas distribution, telephone, wastewater, and water service utility cases in which he has been
involved as a witness.

A-4

A-5

A-6

A-7

A-8

Preston N. Carter (ISB No. 8462)
Morgan D. Goodin (ISB No. 11184)
Givens Pursley LLP
601 W. Bannock St.
Boise, ID 83702
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]

Attorneys for Veolia Water Idaho, Inc.

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF
VEOLIA WATER IDAHO, INC. FOR
AUTHORITY TO INCREASE ITS RATES AND
CHARGES FOR WATER SERVICE IN THE
STATE OF IDAHO

)
)
)
)
)
)
)
)
Case No. VEO-W-22-02

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

EXHIBIT 1 TO ACCOMPANY THE

DIRECT TESTIMONY OF HAROLD WALKER, III

VEOLIA WATER IDAHO, INC.
BOISE, IDAHO

RATE OF RETURN

EXHIBIT

TO ACCOMPANY THE

DIRECT TESTIMONY

SEPTEMBER 2022

Prepared by:
Case No. VEO-W-22-02
Exhibit No. 1
Schedules 1 to 19
H. Walker
v!~ GANNETT
~ FLEMING
Veolia Water Idaho, Inc.
Cost of Capital and Fair Rate of Return
At June 30, 2022
Cost Weighted
Type of Capital Ratios*Rate*Cost Rate
(%) (%)
Debt 44.43% 3.99 1.77%
Preferred Stock 0.00 0.00 0.00
Common Equity 55.57 10.80 6.00
Overall Cost of Capital 100.00%7.77%
Before Income Tax Interest Coverage (x) 5.6x
(Based on effective income tax rate of 25.74%.)
*
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 1
H. Walker
Page 1 of 1
Ratios and embedded cost rates are from Exhibit No. 6. The capital structure ratios are those
of Veolia Utility Resources LLC.
Capital Structure Ratios for
The Water Group Followed by Analysts
At 3/31/2022 and Estimated for 2026
Est.(1)
3/31/2022 2026
Water Group Followed by Analysts
Long-term Debt 51.9 % 41.6 %
Preferred Stock 0.0 14.4
Common Equity 48.1 44.0
Total 100.0 % 100.0 %
Notes: (1) Project by Value Line for the period 2025 to 2027.
Source of Information: Value Line Investment Survey, 7/08/22, and S&P Capital IQ
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 2
H. Walker
Page 1 of 2
Capital Structure Ratios for
The Water Group Followed by Analysts
At 3/31/2022 and Estimated for 2026
Actual at 3/31/22
Long-term
Debt
Preferred
Stock
Common
Equity
Water Group Followed by Analysts
American States Water Co 48.4 0.0 51.6
American Water Works Co Inc 58.4 0.0 41.6
California Water Service Gp 47.6 0.0 52.4
Essential Utilities, Inc. 53.5 0.0 46.5
Middlesex Water Co 45.6 0.3 54.1
SJW Corp 59.8 0.0 40.2
York Water Co 49.8 0.0 50.2
Average 51.9 0.0 48.1
Estimated at 2026
Long-term
Debt
Preferred
Stock
Common
Equity
Water Group Followed by Analysts
American States Water Co 52.0 0.0 48.0
American Water Works Co Inc 60.0 0.0 40.0
California Water Service Gp 39.5 0.0 60.5
Essential Utilities, Inc. 53.0 0.0 47.0
Middlesex Water Co 42.0 0.5 57.5
SJW Corp 45.0 0.0 55.0
York Water Co NA NA NA
Average 41.6 14.4 44.0
Source of Information: Value Line Investment Survey, 7/08/22, and S&P Capital IQ
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 2
H. Walker
Page 2 of 2
Veolia Water Idaho, Inc.
Five Year Analysis
2017 - 2021 (1)
Ln #2021 2020 2019 2018 2017
Average
(Millions of $) Ann. Chg(%)
Investor Provided Capital($)
1 Permanent Capital 255.838 218.627 193.554 180.331 168.639 11.1
2 Short-Term Debt 0.000 0.000 0.000 0.000 0.000
3 Total Capital 255.838 218.627 193.554 180.331 168.639 11.1
4 Total Revenue($) 51.098 47.423 46.062 48.406 48.899 1.2
5 Construction($) 33.916 40.179 23.877 19.303 25.430 13.1
Average
Five Year Central
Average Values(9)
6 Effective Income Tax Rate(%) 20.8 (12.5) 30.7 28.7 41.6 21.9 26.7
Capitalization Ratios(%)
7 Long-Term Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0
8 Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
9 Common Equity 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total 100.0 100.0 100.0 100.0 100.0
10 Total Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0
11 Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
12 Common Equity 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total 100.0 100.0 100.0 100.0 100.0
Rates on Average Capital(2)(%)
13 Total Debt NA NA NA NA NA NA NA
14 Long-Term Debt NA NA NA NA NA NA NA
15 Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Coverage - Including AFC(3)(x)
16 PreTax Interest 5.5 4.5 5.3 5.2 4.6 5.0 5.0
17 PreTax Interest + Pref. Div 5.5 4.5 5.3 5.2 4.6 5.0 5.0
18 PostTax Interest + Pref. Div 4.6 5.0 4.0 4.0 3.1 4.1 4.2
Coverage - Excluding AFC(3)(x)
19 PreTax Interest 5.5 4.4 5.0 5.0 4.5 4.9 4.8
20 PreTax Interest + Pref. Div 5.5 4.4 5.0 5.0 4.5 4.9 4.8
21 PostTax Interest + Pref. Div 4.5 4.8 3.7 3.8 3.0 4.0 4.0
22 GCF / Interest Coverage(4)(x) 11.6 6.4 6.7 6.2 5.1 7.2 6.4
23 Coverage of Common Dividends(5)(x) 0.0 0.0 0.0 17.3 13.0 6.1 4.3
24 Construction / Avg. Tot. Capital(%) 14.3 19.5 12.8 11.1 15.3 14.6 14.1
25 NCF / Construction(6)(%) 124.4 54.7 93.0 101.4 65.1 87.7 86.5
26 AFC / Income for Common Stock 1.4 4.5 9.7 5.2 2.3 4.6 4.0
27 GCF / Avg. Tot. Debt(7)(%) NA NA NA NA NA NA NA
28 GCF / Permanent Capital(8)(%) 16.5 10.0 11.5 11.5 10.6 12.0 11.2
See page 3 of this Schedule for notes.Case No. VEO-W-22-02
Exhibit No. 1
Schedule 3
H. Walker
Page 1 of 2

Veolia Water Idaho, Inc.
Five Year Analysis
2017-2021

Notes:

(1) Based upon the achieved results for each individual company based upon the
financials as originally reported.

(2) Computed by relating total debt interest, long-term debt interest and preferred
dividend expense to average of beginning and ending balance of the
respective capital outstanding.

(3) The coverage calculations, both including and excluding AFC, represent the
number of times available earnings cover the various fixed charges.

(4) GCF or gross cash flow (sum of net income, depreciation, amortization, net
deferred income taxes and investment tax credits, less AFC), plus interest
charges, divided by interest charges.

(5) GCF (see note 4) less all preferred dividends which cover common
dividends.

(6) The percent of GCF (see note 4) less all cash dividends which cover gross
construction expenditures.

(7) GCF (see note 4) as a percentage of Permanent Capital (long-term debt,
current maturities and preferred, preference and common equity).

(8) GCF (see note 4) as a percentage of average total debt.

(9) Average of the second, third and fourth quintile values.

Source of Information: Annual Reports filed with the ID PUC

Case No. VEO-W-22-02
Exhibit No. 1
Schedule 3
H. Walker
Page 2 of 2
Water Group Followed by Analysts
Five Year Analysis
2017 - 2021 (1)
Ln #2021 2020 2019 2018 2017
Average
(Millions of $) Ann. Chg(%)
Investor Provided Capital($)
1 Permanent Capital 5,153.338 4,667.439 3,933.051 3,230.128 2,836.135 16.2
2 Short-Term Debt 120.245 278.756 162.140 171.857 188.340
3 Total Capital 5,273.584 4,946.196 4,095.190 3,401.985 3,024.475 15.1
4 Total Revenue($) 1,124.265 1,040.317 899.254 856.759 835.976 7.8
5 Construction($) 511.706 488.708 414.853 386.422 357.285 9.5
Average
Five Year Central
Average Values(9)
6 Effective Income Tax Rate(%) 7.1 8.9 13.4 14.4 32.2 15.2 13.4
Book Capitalization Ratios(%)
7 Long-Term Debt 51.9 51.5 49.3 46.2 45.6 48.9 49.3
8 Preferred Stock 0.0 0.0 0.1 0.1 0.1 0.1 0.1
9 Common Equity 48.1 48.4 50.6 53.7 54.3 51.0 50.6
Total 100.0 100.0 100.0 100.0 100.0
10 Total Debt 52.6 53.8 50.9 48.5 49.0 51.0 50.9
11 Preferred Stock 0.0 0.0 0.1 0.1 0.1 0.1 0.1
12 Common Equity 47.4 46.1 49.0 51.4 50.9 49.0 49.0
Total 100.0 100.0 100.0 100.0 100.0
Rates on Average Capital(2)(%)
13 Total Debt 3.5 3.8 4.4 5.1 4.9 4.4 4.4
14 Long-Term Debt 3.5 3.6 4.2 5.1 5.1 4.3 4.2
15 Preferred Stock 5.8 5.8 5.8 5.9 5.9 5.8 5.8
Coverage - Including AFC(3)(x)
16 PreTax Interest 4.2 4.0 3.6 3.7 4.8 4.1 4.0
17 PreTax Interest + Pref. Div 4.2 4.0 3.6 3.7 4.8 4.1 4.0
18 PostTax Interest + Pref. Div 3.9 3.7 3.3 3.3 3.6 3.6 3.6
Coverage - Excluding AFC(3)(x)
19 PreTax Interest 4.1 3.9 3.5 3.6 4.7 4.0 3.9
20 PreTax Interest + Pref. Div 4.1 3.9 3.5 3.6 4.7 4.0 3.9
21 PostTax Interest + Pref. Div 3.8 3.6 3.2 3.2 3.5 3.5 3.5
22 GCF / Interest Coverage(4)(x) 6.0 5.5 5.1 5.0 6.1 5.5 5.5
23 Coverage of Common Dividends(5)(x) 3.5 3.3 3.0 3.2 4.0 3.4 3.3
24 Construction / Avg. Tot. Capital(%) 12.0 12.9 12.8 13.6 14.4 13.1 12.9
25 NCF / Construction(6)(%) 55.5 48.9 46.7 49.2 62.0 52.5 49.2
26 AFC / Income for Common Stock 3.7 4.3 6.5 3.6 3.7 4.4 3.7
27 GCF / Avg. Tot. Debt(7)(%) 17.2 16.9 17.7 19.3 23.9 19.0 17.7
28 GCF / Permanent Capital(8)(%) 8.8 8.6 8.3 9.1 11.9 9.3 8.8
See page 2 of this Schedule for notes.
Case No. VEO-W-22-0
Exhibit No. 1
Schedule 4
H. Walker
Page 1 of 2
Water Group Followed by Analysts
Five Year Analysis
2017-2021
Notes:
(1)Average of the achieved results for each individual company based upon the
financials as originally reported.
(2) Computed by relating total debt interest, long-term debt interest and preferred
dividend expense to average of beginning and ending balance of the
respective capital outstanding.
(3) The coverage calculations, both including and excluding AFC, represent the
number of times available earnings cover the various fixed charges.
(4) GCF or gross cash flow (sum of net income, depreciation, amortization, net
deferred income taxes and investment tax credits, less AFC), plus interest
charges, divided by interest charges.
(5) GCF (see note 4) less all preferred dividends which cover common
dividends.
(6) The percent of GCF (see note 4) less all cash dividends which cover gross
construction expenditures.
(7) GCF (see note 4) as a percentage of Permanent Capital (long-term debt,
current maturities and preferred, preference and common equity).
(8) GCF (see note 4) as a percentage of average total debt.
(9) Average of the second, third and fourth quintile values.
Source of Information: Standard & Poor's and Annual Reports
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 4
H. Walker
Page 2 of 2
S&P Utilities
Five Year Analysis
2017 - 2021 (1)
Ln #2021 2020 2019 2018 2017
Average
(Millions of $) Ann. Chg(%)
Investor Provided Capital($)
1 Permanent Capital 59,039.068 54,280.519 50,697.412 45,050.361 42,898.567 8.4
2 Short-Term Debt 1,815.962 1,408.252 1,621.474 2,223.236 1,461.341
3 Total Capital 60,855.030 55,688.772 52,318.886 47,273.597 44,359.908 8.3
4 Total Revenue($) 15,294.383 13,917.132 14,471.068 14,271.745 14,075.305 2.2
5 Construction($) 6,793.353 6,330.592 6,233.700 5,465.972 5,017.795 8.0
Average
Five Year Central
Average Values(9)
6 Effective Income Tax Rate(%) 8.6 2.9 8.8 29.7 20.0 14.0 8.8
Book Capitalization Ratios(%)
7 Long-Term Debt 57.4 56.9 55.7 55.8 57.2 56.6 56.9
8 Preferred Stock 0.7 0.9 0.9 0.5 0.0 0.6 0.3
9 Common Equity 41.8 42.2 43.4 43.6 42.8 42.8 42.8
Total 100.0 100.0 100.0 100.0 100.0
10 Total Debt 58.8 58.1 57.2 58.0 58.8 58.2 58.1
11 Preferred Stock 0.7 0.9 0.8 0.5 0.0 0.6 0.7
12 Common Equity 40.4 41.0 42.0 41.5 41.2 41.2 41.2
Total 100.0 100.0 100.0 100.0 100.0
Rates on Average Capital(2)(%)
13 Total Debt 3.5 3.9 4.3 4.2 4.1 4.0 4.1
14 Long-Term Debt NA NA NA NA NA NA 0.0
15 Preferred Stock 1.7 1.9 3.7 5.3 NA 3.1 1.9
Coverage - Including AFC(3)(x)
16 PreTax Interest 3.1 2.7 3.1 3.3 3.3 3.1 3.1
17 PreTax Interest + Pref. Div 3.1 2.7 3.1 3.2 3.3 3.1 3.1
18 PostTax Interest + Pref. Div 2.9 2.5 2.9 2.9 2.8 2.8 2.9
Coverage - Excluding AFC(3)(x)
19 PreTax Interest 3.0 2.7 3.1 3.2 3.2 3.0 3.1
20 PreTax Interest + Pref. Div 3.0 2.7 3.0 3.2 3.2 3.0 3.0
21 PostTax Interest + Pref. Div 2.8 2.5 2.8 2.9 2.7 2.7 2.8
22 GCF / Interest Coverage(4)(x) 5.4 4.8 5.1 5.3 5.2 5.2 5.2
23 Coverage of Common Dividends(5)(x) 3.1 3.1 4.1 3.9 3.2 3.5 3.2
24 Construction / Avg. Tot. Capital(%) 11.4 11.9 12.5 12.6 12.4 12.2 12.4
25 NCF / Construction(6)(%) 63.5 52.8 67.6 60.2 53.3 59.5 60.2
26 AFC / Income for Common Stock 2.4 13.7 5.4 3.5 4.5 5.9 4.5
27 GCF / Avg. Tot. Debt(7)(%) 14.1 14.4 16.9 17.4 17.3 16.0 16.9
28 GCF / Permanent Capital(8)(%) 8.2 8.1 9.4 10.0 9.8 9.1 9.4
See page 2 of this Schedule for notes.
Case No. VEO-W-22-0
Exhibit No. 1
Schedule 5
H. Walker
Page 1 of 2
S&P Public Utilities
Five Year Analysis
2017-2021
Notes:
(1)Market value weighted achieved results for each individual company based
upon the financials as originally reported.
(2) Computed by relating total debt interest, long-term debt interest and preferred
dividend expense to average of beginning and ending balance of the
respective capital outstanding.
(3) The coverage calculations, both including and excluding AFC, represent the
number of times available earnings cover the various fixed charges.
(4) GCF or gross cash flow (sum of net income, depreciation, amortization, net
deferred income taxes and investment tax credits, less AFC), plus interest
charges, divided by interest charges.
(5) GCF (see note 4) less all preferred dividends which cover common
dividends.
(6) The percent of GCF (see note 4) less all cash dividends which cover gross
construction expenditures.
(7) GCF (see note 4) as a percentage of Permanent Capital (long-term debt,
current maturities and preferred, preference and common equity).
(8) GCF (see note 4) as a percentage of average total debt.
(9) Average of the second, third and fourth quintile values.
Source of Information: Standard & Poor's, Moody’s and Annual Reports
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 5
H. Walker
Page 2 of 2
Risk Measures for the Common Stock of
The Water Group Followed by Analysts and the S&P Utilities
Water Group Followed by Analysts
American States Water Co A+ NYSE High (A) 0.65 3,221.423 2 Mid-Cap
American Water Works Co Inc A NYSE High (A) 0.85 28,251.729 1 Large-Cap
California Water Service Gp A+ NYSE Above Average (A-) 0.65 3,265.708 2 Mid-Cap
Essential Utilities, Inc. A NYSE High (A) 0.95 13,442.977 1 Large-Cap
Middlesex Water Co A NasdaqGS High (A) 0.70 1,670.056 3 Low-Cap
SJW Corp A- NYSE Average (B+) 0.80 1,986.062 3 Low-Cap
York Water Co A-NasdaqGS High (A)0.80 612.452 3 Low-Cap
Average A High (A)0.77 3,221.423 2 Mid-Cap
S&P Public Utilities
AES Corporation (The) BBB- NYSE Lower (B-) 1.05 14,839.841 1 Large-Cap
Alliant Energy Corporation A- NasdaqGS High (A) 0.80 15,282.080 1 Large-Cap
Ameren Corporation BBB+ NYSE Above Average (A-) 0.80 24,046.052 1 Large-Cap
American Electric Power Company, In A- NasdaqGS Above Average (A-) 0.75 50,633.621 1 Large-Cap
American Water Works Company, Inc. A NYSE High (A) 0.85 28,251.729 1 Large-Cap
Atmos Energy Corporation A- NYSE High (A) 0.80 16,875.032 1 Large-Cap
CenterPoint Energy, Inc. BBB+ NYSE Below Average (B) 1.15 19,947.232 1 Large-Cap
CMS Energy Corporation BBB+ NYSE High (A) 0.75 19,945.143 1 Large-Cap
Consolidated Edison, Inc. A- NYSE Average (B+) 0.75 35,170.859 1 Large-Cap
Consolidated Edison, Inc. A- NYSE NA 0.75 35,170.859 1 Large-Cap
Dominion Energy, Inc. BBB+ NYSE Average (B+) 0.80 66,581.726 1 Large-Cap
DTE Energy Company BBB+ NYSE High (A) 0.95 25,243.850 1 Large-Cap
Duke Energy Corporation BBB+ NYSE Average (B+) 0.85 84,635.160 1 Large-Cap
Edison International BBB NYSE Below Average (B) 0.95 25,849.646 1 Large-Cap
Entergy Corporation BBB+ NYSE Below Average (B) 0.90 23,414.484 1 Large-Cap
Evergy, Inc. A- NYSE Above Average (A-) 0.90 15,664.187 1 Large-Cap
Eversource Energy A- NYSE High (A) 0.90 30,425.149 1 Large-Cap
Exelon Corporation BBB+ NasdaqGS Below Average (B) NMF 45,569.945 1 Large-Cap
FirstEnergy Corp. BBB- NYSE Below Average (B) 0.80 23,484.346 1 Large-Cap
NextEra Energy, Inc. A- NYSE Above Average (A-) 0.90 166,004.193 1 Large-Cap
NiSource Inc. BBB+ NYSE Below Average (B) 0.85 12,336.263 2 Mid-Cap
NRG Energy, Inc. BB+ NYSE Below Average (B) 1.10 8,957.454 2 Mid-Cap
Pinnacle West Capital Corporation BBB+ NYSE High (A) 0.90 8,302.190 2 Mid-Cap
PPL Corporation A- NYSE Below Average (B) 1.10 21,400.060 1 Large-Cap
Public Service Enterprise Group Incorp BBB+ NYSE Average (B+) 0.90 32,786.330 1 Large-Cap
Sempra Energy BBB+ NYSE Average (B+) 0.95 52,111.724 1 Large-Cap
Southern Co (The) BBB+ NYSE Average (B+) 0.90 81,734.172 1 Large-Cap
WEC Energy Group, Inc. A- NYSE High (A) 0.80 32,745.259 1 Large-Cap
Xcel Energy Inc. A-NasdaqGS High (A)0.80 40,028.826 1 Large-Cap
Average BBB+Average (B+)0.88 25,849.646 1 Large-Cap
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 6
H. Walker
Pa e 1 of 3
Comparative Ratios
For Veolia Water Idaho, Inc.,
For the Water Group Followed by Analysts,
S&P Utilities, and S&P 500
For the Years 2017-2021(1)
Five
Year
2021 2020 2019 2018 2017 Average
Return on Common Equity(2)
Veolia Water Idaho, Inc.6.0 7.8 6.3 6.7 5.5 6.5
Water Group Followed by Analysts 11.3 10.5 9.5 10.1 11.4 10.6
S&P Utilities 8.7 8.1 30.0 11.5 9.9 13.6
S&P 500 20.5 10.3 15.8 15.9 14.0 15.3
Market/Book Multiple(3)
Water Group Followed by Analysts 3.6 3.3 3.4 3.1 3.1 3.3
S&P Utilities 2.6 2.3 2.6 1.8 2.2 2.3
S&P 500 4.4 3.3 3.2 3.2 3.1 3.2
Earnings/Price Ratio(4)
Water Group Followed by Analysts 3.1 3.2 2.7 3.3 3.7 3.2
S&P Utilities 3.9 3.9 5.0 5.2 4.8 4.6
S&P 500 4.7 3.2 4.9 5.1 4.5 4.5
Dividend Payout Ratio(5)
Veolia Water Idaho, Inc.0.0 0.0 0.0 10.2 14.9 5.0
Water Group Followed by Analysts 53.7 57.4 73.2 60.5 54.7 59.9
S&P Utilities 225.8 104.9 101.3 59.9 84.1 115.2
S&P 500 30.2 60.4 42.0 40.4 43.8 43.4
Dividend Yield(6)
Water Group Followed by Analysts 1.7 1.8 1.8 2.0 1.9 1.8
S&P Utilities 3.2 3.5 3.4 3.7 3.5 3.5
S&P 500 1.4 1.9 2.1 2.0 2.0 1.9
See next page for Notes.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 6
H. Walker
Page 2 of 3
Comparative Ratios For
Veolia Water Idaho, Inc.,
The Water Group Followed by Analysts,
The S&P Utilities, and the S&P 500
For the Years 2017-2021 (1)
Notes:
(1)The average of achieved results for the companies in each group. The
information for the S&P Public Utilities is market weighted. The information
for the S&P 500 is based upon per share information adjusted to price index
level.
(2) Rate of Return on Average Book Common Equity - income available for
common equity divided by average beginning and ending year's balance of
book common equity.
(3) Market/Book Ratio - average of yearly high-low market price divided by the
average of beginning and ending year's book value per share.
(4) Earnings/Price Ratio - reported earnings per share yearly divided by the
average of yearly high-low market price.
(5) Dividend Payout Ratio is computed by dividing the yearly reported dividends
paid by the yearly income available for common equity.
(6) Dividend Yield - yearly dividend per share divided by the average yearly
high-low market price.
Source of Information: Standard & Poor's and Annual Reports
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 6
H. Walker
Page 3 of 3
Capital Intensity and Capital Recovery
Veolia Water Idaho, Inc.
The Water Group Followed by Analysts, and S&P Utilities
For the Year 2021
Rate of Capital
Capital Capital Recovery
Intensity Recovery Years
Veolia Water Idaho, Inc. $10.97 4.65% 21.5
Water Group Followed by Analysts $6.60 2.19% 46.6
S&P Utilities $4.78 3.79% 32.1
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 7
H. Walker
Page 1 of 1
Relative Size of
Veolia Water Idaho, Inc.
Versus the Water Group Followed by Analysts
For the Year 2021
Water Group
Followed by
Analysts
Water Group Vs.
Veolia Water Followed by Veolia Water
Idaho, Inc.Analysts Idaho, Inc.
Total Capitalization (000's) $255,838 $5,153,000 20.1 x
Total Operating Revenues (000's) $51,098 $1,124,000 22.0 x
Number of Customers 100,162 968,228 9.7 x
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 8
H. Walker
Page 1 of 1
Institutional Holdings, Insider Holdings and Percentage of Shares Traded Annually for
The Water Group Followed by Analysts, and the S&P Utilities
Water Group
Followed by S&P
Analysts Public Utilities
Percentage of common shares held by insiders (1) 2.5% 0.3%
Percentage of common shares held by institutions (2) 71% 80%
Percentage of Common Shares Traded in 2020 121% 179%
Percentage of Common Shares Traded in 2021 112% 149%
Average Number of Months For All Common Shares to Turnover (3) 11.4 7.7
Notes: (1) An insider is a director or an officer who has a policy-making role or a person who is directly or indirectly the
beneficial owner of more than 10% of a certain company’s stock. An insider may be either an individual or a
corporation. Insiders are required to disclose their purchase/sale transactions to the SEC in which a change in
beneficial ownership has occurred. The filings must be submitted before the end of the second business day
following the day on which the transaction had been executed.
(2) Institutional holders are those investment managers having a fair market value of equity assets under
management of $100 million or more. Certain banks, insurance companies, investment advisers, investment
companies, foundations and pension funds are included in this category.
(3) Based on average turnover (shares traded) over the past five years.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 9
H. Walker
Page 1 of 1
Bond and Credit Ratings for
Veolia Water Idaho, Inc., Veolia Utility Resources LLC and
The Water Group Followed by Analysts
S&P
Credit
Rating
Veolia Water Idaho, Inc. NA
Veolia Utility Resources LLC A
Water Group Followed by Analysts
American States Water Co A+
American Water Works Co Inc A
California Water Service Gp * A+
Essential Utilities, Inc. A
Middlesex Water Co A
SJW Corp A-
York Water Co A-
Average A
* - The A+ bond rating is that for California Water Service, Inc.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 10
H. Walker
Page 1 of 4
Comparison of Credit Measures of Financial Risk
Veolia Water Idaho, Inc. and
For the Water Group Followed by Analysts(1)
Spot in Credit Measures of Trend in Credit Measures of
Financial Risk (For the Year 2021) Financial Risk (Five-Year Average 2017-21)
Water Group Water Group
Credi Followed by Credi Followed by
Implication VWID Analysts Implication VWID Analysts
1. Base Credit Metrics
2. PreTax Interest Coverage(2)(x) Higher 5.5x 0.0x Higher 4.9x 0.0x
3. Total Debt/Total Capital(%) NA NA 4.1% NA NA 4.0%
4. GCF / Interest Coverage(3)(x) Lower 11.6x 52.6x Lower 7.2x 51.0x
5. GCF / Average Total Debt(4)(%) NA NA 6.0% NA NA 5.5%
6. NCF / Construction(5)(%) Higher 124.4% 17.2% Higher 87.7% 19.0%
7. Construction / Average Total Capital(6)(%) Higher 14.3% 55.5% Higher 14.6% 52.5%
8. Standard & Poor's Credit Metrics
9. Funds from Operation / Average Total Debt(7)(%) NA NA 0.0% NA NA 0.0%
10. Average Total Debt / EBITDA(8)(x) NA NA 15.6x NA NA 18.5x
11. FFO / Interest Coverage(9)(x) Higher 11.6x 5.4x Higher 7.2x 4.5x
12. EBITDA / Interest(10)(x) Higher 12.1x 5.5x Higher 8.2x 5.4x
13. CFO / Average Total Debt(11)(%) NA NA 5.7% NA NA 5.6%
14. FOCF / Average Total Debt(12)(%) NA NA 17.2% NA NA 19.0%
15. DCF / Average Total Debt(13)(%) NA NA -5.3% NA NA -6.2%
16. Moody's Credit Metrics
17. Cash Flow Interest Coverage(3) (x) Higher 11.6x 0.0x Higher 7.2x 0.0x
18. Cash Flow / Average Total Debt(4)(%) NA NA 6.0% NA NA 5.5%
19. Retained Cash Flow / Average Total Debt(14)(%) NA NA 17.2% NA NA 19.0%
20. Average Total Debt / Average Adjusted Total Capital(15j(%) NA NA 11.9% NA NA 13.0%
21. Capital Credit Metrics
22. Standard & Poor's Credit Metrics - Adjusted to Total Capital
23. Funds from Operation / Average Total Capital(16)(%) Higher 17.8% 0.0% Higher 12.6% 0.0%
24. Average Total Capital / EBITDA(17)(x) Higher 4.9x 8.1x Higher 6.0x 9.1x
25. CFO / Average Total Capital(18)(%) Higher 17.8% 10.1% Higher 12.6% 8.8%
26. FOCF / Average Total Capital(19)(%) Lower 3.5% 9.0% Lower -2.0% 9.4%
27. DCF / Average Total Capital(20)(%) Higher 3.5% -2.6% Higher -2.3% -3.1%
28. Moody's Credit Metrics - Adjusted to Total Capital
29. Cash Flow / Average Total Capital(21)(%) Higher 17.8% 0.0% Higher 12.6% 0.0%
30. Retained Cash Flow / Average Total Capital(22)(%) Higher 17.8% 9.0% Higher 12.3% 9.4%
See the next page for notes.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 10
H. Walker
Page 2 of 4

Comparison of Credit Market Financial Risk Metrics
For Veolia Water Idaho, Inc. and
The Water Group Followed by Analysts
2017 - 2021
Notes:
(1) Average of the achieved results for each individual company based upon the
financials as originally reported.
(2) Represents the number of times available pretax earnings (“EBIT”), excluding AFC,
cover all interest charges.
(3) GCF or gross cash flow (sum of net income, depreciation, amortization, net deferred
income taxes and investment tax credits, less AFC), plus interest charges, divided by
interest charges.
(4) GCF (see note 3) as a percentage of average total debt.
(5) The percent of GCF (see note 3) less all cash dividends which cover gross
construction expenditures.
(6) Construction expenditures as a percentage of average total capital.
(7) Funds from operations (“FFO”), revenue minus operating expenses, plus
depreciation and amortization expenses (“EBITDA”) less net interest expense less
current tax expense, as a percentage of average total debt.
(8) Average total debt divided by EBITDA (see note 7).
(9) FFO (see note 7) plus interest charges, divided by interest charges.
(10) EBITDA (see note 7) divided by interest charges.
(11) Cash flow from operations (“CFO”), GCF (see note 3) plus changes in operating
assets and liabilities (working capital), as a percentage of average total debt.
(12) Free operating cash flow (“FOCF”), CFO (see note 11) minus capital expenditures,
as a percentage of average total debt.
(13) Discretionary cash flow (“DCF”), FOCF (see note 12) minus cash dividends as a
percentage of average total debt.
(14) The percent of GCF (see note 3) less all cash dividends as a percentage of average
total debt.
(15) Average total debt divided by average of total capital plus deferred taxes (balance
sheet).
(16) Funds from operations (“FFO”), revenue minus operating expenses, plus
depreciation and amortization expenses (“EBITDA”) less net interest expense less
current tax expense, as a percentage of average total capital.
(17) Average total capital divided by EBITDA (see note 7).
(18) Cash flow from operations (“CFO”), GCF (see note 3) plus changes in operating
assets and liabilities (working capital), as a percentage of average total capital.
(19) Free operating cash flow (“FOCF”), CFO (see note 11) minus capital expenditures,
as a percentage of average total capital.
(20) Discretionary cash flow (“DCF”), FOCF (see note 12) minus cash dividends as a
percentage of average total capital.
(21) GCF (see note 3) as a percentage of average total capital.
(22) The percent of GCF (see note 3) less all cash dividends as a percentage of average
total capital.

Source of Information: Standard & Poor's, Moody’s and Annual Reports
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 10
H. Walker
Page 3 of 4
Distribution of Bond and Credit Ratings for
All Companies Contained in S&P's Capital IQ Database (1)
Number of
Companies Range of Reported Permanent
In Each S&P Bond and Credit Ratings Capital By Groupings (Million $)
Grouping Average Median Maximum Minimum Smallest Average Largest
100 B+ B AA- CCC-78.800 544.473 825.300
100 B+ B+ AA- CCC+828.900 1,083.605 1,372.900
100 BB BB- AA- CCC+1,373.800 1,626.344 1,863.900
100 BB BB- A+ CCC+1,874.200 2,209.218 2,529.800
100 BB+ BB AA+ CCC+2,530.100 2,924.806 3,367.400
100 BB+ BB+ AA- CC 3,371.400 3,793.940 4,230.600
100 BB+ BB+ AA CCC+4,232.100 4,783.777 5,428.900
100 BBB- BBB- A+ B-5,434.200 6,113.916 6,972.000
100 BBB- BBB- AA+ CCC+6,982.400 7,883.185 8,827.900
100 BBB BBB AA- CCC+8,827.900 10,215.632 11,612.000
100 BBB BBB AA- B-11,643.000 13,737.919 16,636.600
100 BBB BBB+ AA- CCC-16,681.000 19,887.954 24,031.000
100 BBB+ BBB+ AA+ B 24,061.000 30,156.292 38,223.000
100 BBB+ A- AA+ B-38,230.000 59,444.273 95,309.000
40 A A- AAA BB-98,614.000 170,069.678 375,831.000
Total 1,440
Number of
Companies Range of Reported Permanent
In Each Capital By Groupings (Million $)Distribution of S&P Bond and Credit Ratings By Size Grouping
Grouping Smallest Average Largest AAA AA A BBB BB B CCC CC
100 78.800 544.473 825.300 0% 1% 6% 3%8%74%8%0%
100 828.900 1,083.605 1,372.900 0% 1% 4% 3%28%60%4%0%
100 1,373.800 1,626.344 1,863.900 0% 2% 7% 17%34%36%4%0%
100 1,874.200 2,209.218 2,529.800 0% 0% 5% 22%44%28%1%0%
100 2,530.100 2,924.806 3,367.400 0% 4% 7% 26%36%25%2%0%
100 3,371.400 3,793.940 4,230.600 0% 1% 13% 30%39%13%3%1%
100 4,232.100 4,783.777 5,428.900 0% 1% 12% 35%30%21%1%0%
100 5,434.200 6,113.916 6,972.000 0% 0% 17% 42%32%9%0%0%
100 6,982.400 7,883.185 8,827.900 0% 2% 11% 47%29%10%1%0%
100 8,827.900 10,215.632 11,612.000 0% 3% 24% 46%19%7%1%0%
100 11,643.000 13,737.919 16,636.600 0% 3% 21% 53%18%5%0%0%
100 16,681.000 19,887.954 24,031.000 0% 2% 32% 47%12%4%3%0%
100 24,061.000 30,156.292 38,223.000 0% 3% 37% 49%7%4%0%0%
100 38,230.000 59,444.273 95,309.000 0% 14% 37% 37%7%5%0%0%
40 98,614.000 170,069.678 375,831.000 5% 20% 38% 28%10%0%0%0%
1,440
Note: (1) Includes all non-financial public and private companies located in the US that are contained in S&P's Capital IQ Database that have a S&P bond or credit ratings of CC or higher
and reported permanent capital for the year 2021 (as of 8/12/22). Companies were sorted based on amount of reported permanent capital and then separated into groups of 100
companies from smallest to largest.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 10
H. Walker
Page 4 of 4
.________,________.____. _ __.1 .__1 _ _____.__ _ _____._ __ ..______.
Interest Rate Trends for
Investor-Owned Public Utility Bonds
Yearly for 2016-2020, Monthly for the Years 2021 and 2022
Years Aaa Rated Aa Rated A Rated Baa Rated
2016 NA 3.73 3.93 4.68
2017 NA 3.82 4.00 4.38
2018 NA 4.09 4.25 4.67
2019 NA 3.61 3.77 4.19
2020 NA 2.79 3.02 3.39
Average NA 3.61 3.79 4.26
Jan 2021 NA 2.73 2.91 3.18
Feb 2021 NA 2.93 3.09 3.37
Mar 2021 NA 3.27 3.44 3.72
Apr 2021 NA 3.13 3.30 3.57
May 2021 NA 3.17 3.33 3.58
Jun 2021 NA 3.01 3.16 3.41
Jul 2021 NA 2.80 2.95 3.20
Aug 2021 NA 2.82 2.95 3.19
Sep 2021 NA 2.84 2.96 3.19
Oct 2021 NA 2.99 3.09 3.32
Nov 2021 NA 2.91 3.02 3.25
Dec 2021 NA 3.01 3.13 3.36
Avg 2021 NA 2.97 3.11 3.36
Jan 2022 NA 3.19 3.33 3.57
Feb 2022 NA 3.56 3.68 3.95
Mar 2022 NA 3.81 3.98 4.28
Apr 2022 NA 4.10 4.32 4.61
May 2022 NA 4.55 4.75 5.07
Jun 2022 NA 4.65 4.86 5.22
Jul 2022 NA 4.57 4.78 5.15
Source of Information: MERGENT BOND RECORD
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 11
H. Walker
Page 1 of 7
Credit Risk Spreads of
Investor-Owned Public Utility Bonds
Yearly for 2016-2020, Monthly for the Years 2021 and 2022
Aa A Baa Baa
Over Over Over Over
Years Aaa Aa A Aaa
2016 NA 0.20 0.74 NA
2017 NA 0.18 0.38 NA
2018 NA 0.16 0.42 NA
2019 NA 0.16 0.42 NA
2020 NA 0.23 0.37 NA
Average NA 0.19 0.47 NA
Jan 2021 NA 0.18 0.27 NA
Feb 2021 NA 0.16 0.28 NA
Mar 2021 NA 0.17 0.28 NA
Apr 2021 NA 0.17 0.27 NA
May 2021 NA 0.16 0.25 NA
Jun 2021 NA 0.15 0.25 NA
Jul 2021 NA 0.15 0.25 NA
Aug 2021 NA 0.13 0.24 NA
Sep 2021 NA 0.12 0.23 NA
Oct 2021 NA 0.10 0.23 NA
Nov 2021 NA 0.11 0.23 NA
Dec 2021 NA 0.12 0.23 NA
Avg 2021 NA 0.14 0.25 NA
Jan 2022 NA 0.14 0.24 NA
Feb 2022 NA 0.12 0.27 NA
Mar 2022 NA 0.17 0.30 NA
Apr 2022 NA 0.22 0.29 NA
May 2022 NA 0.20 0.32 NA
Jun 2022 NA 0.21 0.36 NA
Jul 2022 NA 0.21 0.37 NA
Source of Information: MERGENT BOND RECORD
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 11
H. Walker
Page 2 of 7
Interest Rate Trends
Of Long-Term Treasury Constant
Yearly for 2016-2020, Monthly for the Years 2021 and 2022
10-Year 20-Year 30-Year Long-term
Years T-Bond T-Bond T-Bond T-Bond Yield
2016 1.84 2.23 2.60 2.22
2017 2.33 2.65 2.90 2.63
2018 2.91 3.02 3.11 3.01
2019 2.14 2.40 2.58 2.37
2020 0.89 1.35 1.56 1.35
Average 2.02 2.33 2.55 2.32
Jan 2021 1.08 1.63 1.82 1.73
Feb 2021 1.26 1.88 2.04 1.96
Mar 2021 1.61 2.24 2.34 2.29
Apr 2021 1.64 2.20 2.30 2.25
May 2021 1.62 2.22 2.32 2.27
Jun 2021 1.52 2.09 2.16 2.13
Jul 2021 1.32 1.87 1.94 1.91
Aug 2021 1.28 1.83 1.92 1.88
Sep 2021 1.37 1.87 1.94 1.91
Oct 2021 1.58 2.03 2.06 2.05
Nov 2021 1.56 1.97 1.94 1.96
Dec 2021 1.47 1.90 1.85 1.88
Avg 2021 1.44 1.98 2.05 2.02
Jan 2022 1.76 2.15 2.10 2.13
Feb 2022 1.93 2.31 2.25 2.28
Mar 2022 2.13 2.51 2.41 2.46
Apr 2022 2.75 2.99 2.81 2.90
May 2022 2.90 3.26 3.07 3.17
Jun 2022 3.14 3.48 3.25 3.37
Jul 2022 2.90 3.35 3.10 3.23
Source of Information: Federal Reserve Bulletin
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 11
H. Walker
Page 3 of 7
Spread in Average Long-Term Bond Yields
Versus Public Utility Bond Yields
Yearly for 2016-2020, Monthly for the Years 2021 and 2022
Spread in Average Long-Term T-Bond Yields Versus Public Utility Bonds:
Years Aaa Rated Aa Rated A Rated Baa Rated
2016 NA 1.51 1.71 2.45
2017 NA 1.19 1.37 1.75
2018 NA 1.08 1.24 1.66
2019 NA 1.24 1.40 1.82
2020 NA 1.44 1.67 2.04
Average NA 1.29 1.48 1.94
Jan 2021 NA 1.01 1.19 1.46
Feb 2021 NA 0.97 1.13 1.41
Mar 2021 NA 0.98 1.15 1.43
Apr 2021 NA 0.88 1.05 1.32
May 2021 NA 0.90 1.06 1.31
Jun 2021 NA 0.89 1.04 1.29
Jul 2021 NA 0.90 1.05 1.30
Aug 2021 NA 0.95 1.08 1.32
Sep 2021 NA 0.94 1.06 1.29
Oct 2021 NA 0.95 1.05 1.28
Nov 2021 NA 0.96 1.07 1.30
Dec 2021 NA 1.14 1.26 1.49
Avg 2021 NA 0.96 1.10 1.35
Jan 2022 NA 1.07 1.21 1.45
Feb 2022 NA 1.28 1.40 1.67
Mar 2022 NA 1.35 1.52 1.82
Apr 2022 NA 1.20 1.42 1.71
May 2022 NA 1.39 1.59 1.91
Jun 2022 NA 1.29 1.50 1.86
Jul 2022 NA 1.35 1.56 1.93
Comment: Derived from the information on pages 1 and 3 of this Schedule.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 11
H. Walker
Page 4 of 7
Interest Rate Trends for
Federal Funds Rate and Prime Rate
Yearly for 2016-2020, Monthly for the Years 2021 and 2022
Fed
Funds Prime
Years Rate Rate
2016 0.40 3.51
2017 1.00 4.10
2018 1.83 4.90
2019 2.16 5.28
2020 0.38 3.54
Average 1.15 4.27
Jan 2021 0.09 3.25
Feb 2021 0.08 3.25
Mar 2021 0.07 3.25
Apr 2021 0.07 3.25
May 2021 0.06 3.25
Jun 2021 0.08 3.25
Jul 2021 0.10 3.25
Aug 2021 0.09 3.25
Sep 2021 0.08 3.25
Oct 2021 0.08 3.25
Nov 2021 0.08 3.25
Dec 2021 0.08 3.25
Avg 2021 0.08 3.25
Jan 2022 0.08 3.25
Feb 2022 0.08 3.25
Mar 2022 0.20 3.37
Apr 2022 0.33 3.50
May 2022 0.77 3.94
Jun 2022 1.21 4.38
Jul 2022 1.68 4.85
Source of Information: Federal Reserve Bulletin
Case No. VEO-W-22-0
Exhibit No. 1
Schedule 11
H. Walker
Page 5 of 7
Blue Chip Financial Forecasts - August 1, 2022
Third Fourth First Second Third Five
Quarter Quarter Quarter Quarter Quarter Quarter
2022 2022 2023 2023 2023 Average
Prime Rate
Top Ten Average 5.9 % 6.5 % 7.0 % 7.1 % 7.0 % 6.7 %
Group Average 5.5 6.3 6.6 6.6 6.5 6.3
Bottom Ten Average 5.3 6.1 6.3 6.2 5.9 6.0
Three-Month Treasury Bills
Top Ten Average 2.9 3.6 3.9 3.9 3.9 3.6
Group Average 2.5 3.2 3.4 3.4 3.3 3.2
Bottom Ten Average 2.2 2.8 3.1 3.0 2.8 2.8
Ten Year Treasury Notes
Top Ten Average 3.4 3.8 4.1 4.2 4.1 3.9
Group Average 3.1 3.3 3.4 3.3 3.3 3.3
Bottom Ten Average 2.7 2.8 2.7 2.6 2.6 2.7
Thirty Year Treasury Bonds
Top Ten Average 3.5 4.0 4.3 4.4 4.4 4.1
Group Average 3.2 3.4 3.5 3.5 3.5 3.4
Bottom Ten Average 2.9 2.9 2.9 2.9 2.8 2.9
Aaa-Rated Corporate Bonds
Top Ten Average 4.7 5.2 5.5 5.7 5.6 5.3
Group Average 4.4 4.8 4.9 4.9 4.9 4.8
Bottom Ten Average 4.1 4.3 4.4 4.2 4.2 4.2
Baa-Rated Corporate Bonds
Top Ten Average 5.1 5.1 5.1 5.1 5.1 5.1
Group Average 5.4 5.8 6.0 6.0 6.0 5.8
Bottom Ten Average 4.6 4.6 4.6 4.6 4.6 4.6
Derived Public Utility Bond Yield Forecasts Based on Aaa and Baa Corporate Yields
Aa-Rated Public Utility Bonds
Top Ten Average 4.8 5.1 5.2 5.3 5.3 5.1
Group Average 4.8 5.2 5.4 5.4 5.4 5.2
Bottom Ten Average 4.3 4.4 4.4 4.3 4.3 4.3
A-Rated Public Utility Bonds
Top Ten Average 5.0 5.2 5.4 5.5 5.4 5.3
Group Average 5.0 5.4 5.5 5.6 5.5 5.4
Bottom Ten Average 4.4 4.5 4.6 4.5 4.5 4.5
Baa-Rated Public Utility Bonds
Top Ten Average 5.2 5.5 5.7 5.7 5.7 5.6
Group Average 5.2 5.6 5.8 5.8 5.8 5.6
Bottom Ten Average 4.7 4.8 4.8 4.8 4.7 4.8
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 11
H. Walker
Page 6 of 7
Settled Yields on Treasury Bond
Future Contracts
Traded on the Chicago Board of Trade
at the Close of August 10, 2022
Treasury
Bonds
Delivery Date (CBOT)
Sep-21 3.101 %
Dec-21 3.109
Mar-22 3.109
Average 3.107 %
Source of Information: Chicago Board of Trade
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 11
H. Walker
Page 7 of 7
Market Value Discounted Cash Flow for
The Water Group Followed by Analysts
Water Group
Followed by
Analysts
Dividend Yield(1) 1.8 %
Growth in Dividends(2) 0.1
Adjusted Dividend Yield 1.9
Stock Appreciation(3) 6.6
Market Value DCF Cost Rate 8.5 %
Notes: (1) Developed on page 2 of this Schedule.
(2) Equal to one-half the assumed growth in value.
(3) As explained in the direct testimony, the growth in value
is supported by the information shown on Schedules 13 and 14.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 12
H. Walker
Page 1 of 2
Market Value Dividend Yield for
the Water Group Followed by Analysts
For the Twelve Months Ended July 2022
Recent Longer Term
Dividen Dividen Averag
Yields(1)Yields(2)Yields
Water Group Followed by Analysts
American States Water Co 1.7 % 1.7 %
American Water Works Co Inc 1.7 1.5
California Water Service Gp 1.7 1.6
Essential Utilities, Inc. 2.2 2.2
Middlesex Water Co 1.3 1.2
SJW Corp 2.3 2.1
York Water Co 1.9 1.7
Average 1.8 % 1.7 % 1.8 %
Notes: (1) Average of the high and the low dividend yield for the month of
July 2022.
(2) Average of the high and the low dividend yield for each of th
twelve months ended July 2022.
Source of Information: S&P Capital IQ
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 12
H. WalkerPage 2 of 2
Development of Long Term Projected Growth in Value
Based Upon Growth Over The Next Five Years
For the Water Group Followed by Analysts
A B C D E F H
Analysts' Projected Growth in EPS Other Projected Growth
Firs Value Value Value
Cal S&P ZACK's Line Line Line Average Average
EPS EPS EPS EPS DPS Cash Flow EPS Al
Growth Growth Growth Growth Growth Growth Growth Growth
Water Group Followed by Analysts
American States Water Co 4.4 % 6.0 % NA % 5.5 % 9.0 % 5.5 % 5.3 % 6.1 %
American Water Works Co Inc 8.3 8.2 8.8 3.0 8.5 3.5 7.1 6.7
California Water Service Gp 11.7 4.0 NA 6.5 6.5 2.0 7.4 6.1
Essential Utilities, Inc. 6.8 6.6 6.1 10.0 8.0 10.0 7.4 7.9
Middlesex Water Co 2.7 NA NA 4.5 5.0 3.5 3.6 3.9
SJW Corp 9.8 8.0 NA 14.0 5.5 2.5 10.6 8.0
York Water Co 4.9 NA NA NA NA NA 4.9 4.9
Average 6.9 % 6.6 % 7.4 % 7.3 % 7.1 % 4.5 % 6.6 % 6.2 %
Historical 5-Year Growth in EPS
Firs Value
Cal ZACK's Line Average
EPS EPS EPS EPS
Growth Growth Growth Growth
Water Group Followed by Analysts
American States Water Co 7.7 % 8.4 % 8.5 % 8.2 %
American Water Works Co Inc 8.3 8.4 13.5 10.1
California Water Service Gp 7.5 11.8 11.0 10.1
Essential Utilities, Inc. 6.8 4.9 1.0 4.2
Middlesex Water Co 8.5 9.2 11.0 9.6
SJW Corp -1.1 -4.1 -6.5 -3.9
York Water Co 4.2 6.1 6.0 5.4
Average 6.0 % 6.4 % 6.4 % 6.2 %
Source of Information: Value Line Investment Survey, 7/08/22; S&P Capital IQ 8/11/22;
FirstCall 8/11/22; an
Zacks Investment Research 8/11/22
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 13
H. Walker
Page 1 of 1
Recent Payout Ratios,
ROEs, P-E Multiples, Market/Book Multiples, and Market Value
For the Water Group Followed by Analysts
Current
Current Return Market to Current
Dividend on PE Book Market
Payout Equity Mult Mult Value
(Mill $)
Water Group Followed by Analysts
American States Water Co 59 13.3 36.2 4.69 3,221.423
American Water Works Co Inc 34 18.3 22.0 3.79 28,251.729
California Water Service Gp 47 10.0 29.9 2.77 3,265.708
Essential Utilities, Inc. 61 8.5 30.1 2.50 13,442.977
Middlesex Water Co 47 11.5 40.0 4.42 1,670.056
SJW Corp 67 6.2 31.9 1.93 1,986.062
York Water Co 58 11.5 32.8 3.65 612.452
Average 53 11.3 31.9 3.39 7,492.915
Source of Information: S&P Capital IQ
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 14
H. Walker
Page 1 of 2
Value Line Projected ROE Based on Year-End and Average,
Dividend Payout Ratio, and Common Equity Ratio for
The Water Group Followed by Analysts for 2025 - 2027
Value Line
Projecte Value Line Projecte
Value Line Average Projecte Common
Projecte ROE Dividen Equit
ROE (1) Payout Ratio
Water Group Followed by Analysts
American States Water Co 13.5 % 13.7 % 66.2 % 48.0 %
American Water Works Co Inc 10.5 10.7 61.7 40.0
California Water Service Gp 10.0 10.1 49.0 60.5
Essential Utilities, Inc. 8.5 8.8 68.9 47.0
Middlesex Water Co 12.0 12.1 50.9 57.5
SJW Corp 9.0 9.2 48.2 55.0
York Water Co N N N N
Average 10.6 % 10.8 % 57.5 % 51.3 %
Notes: (1) Value Line ROE, which is a year-end ROE, is converted to average ROE by the factor
derived from the following formula: 2((1+g)/(2+g)), where "g" is the rate of growth in
common equity.
Source of Information: Value Line Investment Survey, 7/08/22
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 14
H. Walke
Page 2 of 2
Illustration of the
Effect of Market-To-Book Ratio on Market Return
Ln #Situation 1 Situation 2 Situation 3
1 M/B Ratio 50% 100% 200%
2 Market Purchase Price $25.00 $50.00 $100.00
3 Book Value $50.00 $50.00 $50.00
4 DCF Return 10.0% 10.0% 10.0%
5 DCF Dollar Return $5.00 $5.00 $5.00
6 Dividend Yield 5.0% 5.0% 5.0%
7 DPS $1.25 $2.50 $5.00
8 Dollar Growth in Value $3.75 $2.50 $0.00
9 Market Sale Price $28.75 $52.50 $100.00
10 Total Market Return 20.0% 10.0% 5.0%
"The simple numerical illustration....demonstrates the impact of market-to-book
ratios on the DCF market return....The DCF cost rate of 10%, made up of a 5%
dividend yield and a 5% growth rate, is applied to the book value rate base of $50
to produce $5.00 of earnings. Of the $5.00 of earnings, the full $5.00 are required
for dividends to produce a dividend yield of 5.0% on a stock price of $100.00, and
no dollars are available for growth. The investor's return is therefore only 5%
versus his required return of 10%. A DCF cost rate of 10%, which implies $10.00
of earnings, translates to only $5.00 of earnings on book value, or a 5%
return.....Therefore, the DCF cost rate understates the investor's required return
when stock prices are well above book, as is the case presently."
The above illustration is taken from Roger A Morin, Regulatory Finance -
Utilities' Cost of Capital, Public Utility Reports, Inc., 1994, pp. 236-237.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 15
H. Walker
Page 1 of 1
Differences in Book Value and Market Values for the
Water Group Followed by Analysts
Recent Difference in
Book Value Recent Average Average Market Value
Capitalization Market Value Book Value Market Value and
Ratios Capitalization of Common of Common Book Value
(3/31/22) Ratios Equity Equity Common Equity
(Millions) (Millions)
Water Group Followed by Analysts:
Long Term Debt 51.9 % 25.5 %
Preferred Stock 0.0 0.1
Common Equity 48.1 74.4 $2,303.982 $7,492.915 $5,188.933
Total 100.0 % 100.0 %
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 16
H. Walker
Page 1 of 3
Financial Risk Adjustment Using the "Hamada Model"
Water Group Followed by Analysts
Market Value @ (3/31/22)
Line
No.DEBT PREF CE TAX BETA
1 . (D) (P) (E) (t) (Bl)
2 . 25.5% 0.1% 74.4% 25.740% 0.77
3 . Bl = Bu (1+(1-t)D/E+P/E)
4 . 1-t = 0.7426
5 . D/E = 0.3427
6 . P/E = 0.0013
7 . Bl = Bu * 1.2559
8 . Bu = 0.61
Water Group Followed by Analysts
Book Value @ (3/31/22)
9 . DEBT PREF CE TAX
10 . (D) (P) (E) (t)
11 . 51.90% 0.00% 48.10% 25.740%
12 . Bl = Bu (1+(1-t)D/E+P/E)
13 . 1-t = 0.7426
14 . D/E = 1.0790
15 . P/E = 0.0000
16 . Bl = Bu * 1.8013
17 . Bl = 1.10
Cost Adjustment Based on Risk Premium
18 . Barometer Group's Beta 0.77
19 . Beta difference = 0.33
20 . Risk premium = 5.5
21 . Risk adjustment = 1.82
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 16
H. Walker
Page 2 of 3
Default Spread for
Aaa Rated Corporate Bonds and A Rated Investor-Owned Public Utility Bonds
Yearly for 2016-2020, Monthly for the Years 2021 and 2022
A
Corporate Public Utility Over
Years Aaa Rated A Rated Aaa
2016 3.67 3.93 0.27
2017 3.74 4.00 0.25
2018 3.93 4.25 0.32
2019 3.39 3.77 0.38
2020 2.50 3.02 0.52
Average 3.45 3.79 0.35
Jan 2021 2.45 2.91 0.46
Feb 2021 2.70 3.09 0.39
Mar 2021 3.04 3.44 0.40
Apr 2021 2.90 3.30 0.40
May 2021 2.96 3.33 0.37
Jun 2021 2.79 3.16 0.37
Jul 2021 2.57 2.95 0.38
Aug 2021 2.55 2.95 0.40
Sep 2021 2.53 2.96 0.43
Oct 2021 2.68 3.09 0.41
Nov 2021 2.62 3.02 0.40
Dec 2021 2.71 3.13 0.42
Avg 2021 2.71 3.11 0.40
Jan 2022 3.07 3.33 0.26
Feb 2022 3.25 3.68 0.43
Mar 2022 3.43 3.98 0.55
Apr 2022 3.76 4.32 0.56
May 2022 4.13 4.75 0.62
Jun 2022 4.24 4.86 0.62
Jul 2022 4.06 4.78 0.72
Source of Information: MERGENT BOND RECORD
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 16
H. Walker
Page 3 of 3
Market Value CAPM for
The Water Group Followed by Analysts
Water Group
Followed by
Analysts
Estimation Based Upon Historical Information
Market Premium(1) 7.5 %
x Beta(2) 0.77
Risk Adjusted Market Premium 5.8
Size Adjustment Premium(2) 1.5
Plus Risk Free Rate(1) 3.2
Market Value CAPM Cost Rate 10.5 %
Estimation Based Upon Projected Information
Market Premium(1) 13.7 %
x Beta(2) 0.77
Risk Adjusted Market Premium 10.5
Size Adjustment Premium(2) 1.5
Plus Risk Free Rate(1) 3.2
Market Value CAPM Cost Rate 15.2 %
Market Value CAPM is: 10.5%
Notes: (1) Developed on page 2 of this Schedule.
(2) Developed on page 4 of this Schedule.
(3) Developed on page 5 of this Schedule.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 17
H. Walker
Page 1 of 4
Development of Market Premiums for Use in a CAPM Model
A B C D E F G H
Value Line Forecasted CAPM
Summary & Index Market Stock Price Annual Annual Midpoint Average Projected
Month End Dividend Appreciation Price Total Market Market Market
Edition Yield Next 3-5 Years Appreciation(1)Return(1)Return(2)Return(3)Return(6)
May-22 2.1 % 70 % 14.2 % 16.3 %
June-22 2.2 75 15.0 17.2
July-22 2.3 75 15.0 17.3
16.8 % 16.9 % 16.9 %
Less Risk Free Rate(4) 3.2
Estimated Market Premium Based Upon Projected Information (1) 13.7 %
Estimated Market Premium Based Upon Historical Information (5) 7.5 %
See next page of this Schedule for Notes.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 17
H. Walker
Page 2 of 4
CAPM
The Water Group Followed by Analysts
Notes: (1) A projected market premium is based upon the projected market return rate derived from the
Value Line Summary and Index for the various dates shown. For example, Value Line
projects (Jul-22) that the market will appreciate in price 75% over the next three to five years. Using
a four-year midpoint estimate, Value Line's appreciation potential equates to 15%
annually ([1.75]^.25). Additionally, Value Line estimates the market will have a dividend yield of 2.3%.
Combining the market dividend yield of 2.3% with the market appreciation results in
a projected market return rate of 17.3% (15% + 2.3%).
(2) Mid point of the month-end total market returns in Column E.
(3) Average total market return in Column E.
(4) As discussed in the direct testimony, the risk-free rate is 3.2%.
(5) The historical market premium is based upon studies conducted by Ibbotson Associates concerning
asset returns. Ibbotson Associates' asset return studies are the most noted asset return rate
studies available today. The results are widely disseminated throughout the investment
public. Ibbotson Associates' long-term common stock total market return is 12.33% which, when
reduced by the long-term historic risk-free rate of 4.87% results in a market premium of
7.5% (12.33% - 4.87%).
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 17
H. Walker
Page 3 of 4
Recent Market Values and
Beta Adjusted Ibbotson Associates Size Premiums For
The Water Group Followed by Analysts
1 2 3 4 5 6 7 8
Beta Adjusted
Recent Market Quartile Value Quartile
Market Quartile Market Size Quartile Line Beta Size
Value Name Quartile Premium Beta Beta Ratio Premium
(Mill $)
Water Group Followed by Analysts
American States Water Co $3,221.423 Mid-Cap 2 2.48 1.13 0.65 58% 1.4
American Water Works Co Inc 28,251.729 Large-Cap 1 0.00 1.00 0.85 85% 0.0
California Water Service Gp 3,265.708 Mid-Cap 2 2.48 1.13 0.65 58% 1.4
Essential Utilities, Inc. 13,442.977 Large-Cap 1 0.00 1.00 0.95 95% 0.0
Middlesex Water Co 1,670.056 Low-Cap 3 3.95 1.23 0.70 57% 2.3
SJW Corp 1,986.062 Low-Cap 3 3.95 1.23 0.80 65% 2.6
York Water Co 612.452 Low-Cap 3 3.95 1.23 0.80 65%2.6
Average Mid-Cap 2 2.48 1.13 0.77 69%1.5
Source of Information: 2022 SBBI Yearbook, Stocks, Bonds, Bills, and Inflation, and Value Line
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 17
H. Walker
Page 4 of 4
Market Value Risk Premiu
For the Water Group Followed by Analysts
Water Group
Followed b
Analysts
Prospective Public Utility Bond Yields(1) 4.7 %
Estimated Risk Premium(2) 5.5
Market Value Risk Premium Indicated Cost Rate 10.2 %
otes: (1) Based upon the current and prospective long-term debt cost rates, it is
reasonable to expect that if the comparable group (i.e., Water Group)
issued new long-term bonds, it would both be priced to yield abou
4.7% based upon credit profiles of A for the Water Group.
(2) A 5.5% risk premium is concluded for the Group after reviewing the
tabulation of risk spreads shown on pages 2, 3, 4 and 5 of this Schedule.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walker
Page 1 of 9
Annual Total Returns and Risk Premiums of
S&P Public Utility Stocks and Bonds
for the Years 2002-2021, 1992-2021, 1982-2021, 1972-2021,1962-2021, 1952-2021 and 1928-2021
Annual Total Returns
Public Utility Bonds
Public Utility L-Term AAA
Periods Stock T-Bonds AAA & AA AA A BBB
Average Annual Rates of Return
2002 to 2021 0.1185 0.0725 0.0000 0.0865 0.0865 0.0886 0.0957
1992 to 2021 0.1183 0.0822 0.0916 0.0885 0.0890 0.0876 0.0935
1982 to 2021 0.1396 0.1038 0.1329 0.1096 0.1106 0.1113 0.1178
1972 to 2021 0.1311 0.0861 0.1000 0.0947 0.0956 0.0963 0.1030
1962 to 2021 0.1149 0.0759 0.0799 0.0822 0.0830 0.0838 0.0895
1952 to 2021 0.1236 0.0666 0.0668 0.0726 0.0733 0.0744 0.0799
1928 to 2021 0.1116 0.0577 0.0594 0.0658 0.0668 0.0690 0.0759
Average Risk Premiums
2002 to 2021 0.0460 0.1185 0.0320 0.0320 0.0299 0.0229
1992 to 2021 0.0361 0.0268 0.0298 0.0293 0.0307 0.0248
1982 to 2021 0.0358 0.0067 0.0300 0.0291 0.0283 0.0218
1972 to 2021 0.0390 0.0349 0.0327 0.0319 0.0311 0.0254
1962 to 2021 0.0390 0.0349 0.0327 0.0319 0.0311 0.0254
1952 to 2021 0.0570 0.0567 0.0510 0.0503 0.0491 0.0437
1928 to 2021 0.0539 0.0522 0.0458 0.0448 0.0426 0.0357
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walker
Page 2 of 9
Annual Total Returns, Annual Income Returns and Risk Premiums of
S&P Public Utility Stocks and Bonds
for the Years 2002-2021, 1992-2021, 1982-2021, 1972-2021,1962-2021, 1952-2021 and 1928-2021
Annual Income Returns
Annual
Total Returns Public Utility Bonds
Public Utility L-Term AAA
Periods Stock T-Bonds AAA & AA AA A BBB
Average Rates of Return
2002 to 2021 0.1185 0.0357 0.0000 0.0482 0.0482 0.0501 0.0551
1992 to 2021 0.1183 0.0456 0.0755 0.0578 0.0580 0.0597 0.0639
1982 to 2021 0.1396 0.0588 0.0918 0.0706 0.0709 0.0731 0.0773
1972 to 2021 0.1311 0.0645 0.0924 0.0756 0.0761 0.0784 0.0828
1962 to 2021 0.1149 0.0622 0.0836 0.0726 0.0732 0.0753 0.0795
1952 to 2021 0.1236 0.0581 0.0743 0.0675 0.0681 0.0702 0.0740
1928 to 2021 0.1116 0.0500 0.0609 0.0590 0.0597 0.0623 0.0670
Average Risk Premiums
2002 to 2021 0.0828 0.1185 0.0703 0.0703 0.0684 0.0634
1992 to 2021 0.0727 0.0428 0.0605 0.0603 0.0587 0.0544
1982 to 2021 0.0808 0.0479 0.0690 0.0687 0.0665 0.0623
1972 to 2021 0.0527 0.0312 0.0423 0.0417 0.0396 0.0354
1962 to 2021 0.0527 0.0312 0.0423 0.0417 0.0396 0.0354
1952 to 2021 0.0655 0.0493 0.0560 0.0555 0.0534 0.0495
1928 to 2021 0.0615 0.0507 0.0526 0.0519 0.0493 0.0446
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walker
Page 3 of 9
Annual Total Returns, Annual Income Returns and Risk Premiums of
S&P Public Utility Stocks and Bonds
For the 47 Years of the Lowest Interest Rate Environment and the 47 Years of the Highest Interest Rate Environment
For The Years 1928-2021
Current Interest Rate Environment: 3.2%
Public Utility Bonds
Public Utility L-Term AAA
Periods Stock T-Bonds AAA & AA AA A BBB
Annual Total Returns
Low Interest Rate Environment:
47 Years of the Lowest Interest Rates, Ranging from 1.4% to 4.1% with an Average Rate of 2.9%
Average Rates of Return
0.1121 0.0332 0.0366 0.0500 0.0512 0.0562 0.0679
Average Risk Premiums
0.0788 0.0754 0.0621 0.0609 0.0559 0.0442
High Interest Rate Environment:
47 Years of the Highest Interest Rates, Ranging from 4.1% to 13.5% with an Average Rate of 7.2%
Average Risk Premiums
0.1111 0.0822 0.0788 0.0815 0.0823 0.0818 0.0839
Average Risk Premiums
0.0289 0.0323 0.0296 0.0287 0.0293 0.0271
Annual Income Returns
Low Interest Rate Environment:
47 Years of the Lowest Interest Rates, Ranging from 1.4% to 4.1% with an Average Rate of 2.9%
Average Rates of Return
0.1121 0.0285 0.0340 0.0366 0.0372 0.0401 0.0459
Average Risk Premiums
0.0835 0.0780 0.0755 0.0748 0.0719 0.0661
High Interest Rate Environment:
47 Years of the Highest Interest Rates, Ranging from 4.1% to 13.5% with an Average Rate of 7.2%
Average Risk Premiums
0.1111 0.0716 0.0837 0.0814 0.0822 0.0844 0.0881
Average Risk Premiums
0.0395 0.0274 0.0296 0.0289 0.0267 0.0230
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walker
Page 4 of 9
Annual Total Returns of
S&P Public Utility Stocks and Bonds
for the Years 1928-2021
Annual Total Returns
Public Utility Bonds
Public Utility L-Term AAA
Years Stocks T-Bonds AAA & AA AA A BBB
1928 0.5431 -0.0030 0.0370 0.0388 0.0406 0.0372 0.0392
1929 0.1376 0.0410 0.0209 0.0193 0.0178 0.0163 -0.0076
1930 -0.2149 0.0509 0.0917 0.0892 0.0869 0.0820 0.0378
1931 -0.3193 -0.0782 0.0058 -0.0059 -0.0171 -0.0608 -0.1089
1932 -0.0724 0.1736 0.1073 0.1037 0.1003 0.0685 0.0570
1933 -0.2170 0.0090 0.0142 -0.0145 -0.0401 -0.0686 -0.0601
1934 -0.1743 0.0962 0.1712 0.2000 0.2272 0.3264 0.4593
1935 0.6914 0.0610 0.1053 0.1243 0.1427 0.1760 0.2885
1936 0.2357 0.0691 0.0783 0.0916 0.1046 0.1079 0.1078
1937 -0.3337 -0.0091 0.0290 0.0323 0.0357 0.0272 -0.0626
1938 0.1020 0.0662 0.0720 0.0773 0.0825 0.0884 0.1505
1939 0.1538 0.0692 0.0435 0.0473 0.0510 0.0851 0.0923
1940 -0.1643 0.0910 0.0480 0.0506 0.0532 0.0949 0.1359
1941 -0.3050 0.0234 0.0255 0.0291 0.0327 0.0428 0.0681
1942 0.1079 -0.0735 0.0261 0.0287 0.0313 0.0314 0.0590
1943 0.4750 0.0228 0.0312 0.0346 0.0380 0.0405 0.0564
1944 0.1879 0.0268 0.0343 0.0353 0.0362 0.0303 0.0459
1945 0.5665 0.1075 0.0298 0.0349 0.0383 0.0683 0.0805
1946 -0.0130 -0.0006 0.0233 0.0238 0.0242 0.0267 0.0377
1947 -0.1236 -0.0165 -0.0139 -0.0187 -0.0234 -0.0213 -0.0105
1948 0.0451 0.0202 0.0287 0.0317 0.0347 0.0225 0.0073
1949 0.3074 0.0760 0.0718 0.0746 0.0773 0.0892 0.0757
1950 0.0152 -0.0034 0.0126 0.0131 0.0135 0.0107 0.0233
1951 0.2075 -0.0541 -0.0393 -0.0393 -0.0393 -0.0468 -0.0268
1952 0.1947 0.0101 0.0373 0.0390 0.0407 0.0442 0.0399
1953 0.0918 0.0062 0.0078 0.0063 0.0048 0.0107 0.0037
1954 0.2269 0.0676 0.0668 0.0701 0.0733 0.0745 0.0909
1955 0.1357 -0.0264 -0.0107 -0.0127 -0.0147 -0.0100 0.0146
1956 0.0416 -0.0484 -0.0703 -0.0703 -0.0703 -0.0714 -0.0816
1957 0.0541 0.0472 0.0246 0.0229 0.0213 0.0054 -0.0131
1958 0.3827 -0.0439 -0.0081 -0.0032 0.0017 0.0123 0.0339
1959 0.0958 -0.0320 -0.0231 -0.0234 -0.0237 -0.0120 -0.0102
1960 0.1680 0.1106 0.0764 0.0735 0.0705 0.0791 0.0994
1961 0.3646 0.0135 0.0432 0.0448 0.0464 0.0502 0.0442
1962 -0.0519 0.0650 0.0831 0.0829 0.0828 0.0852 0.0891
1963 0.1261 -0.0022 0.0171 0.0202 0.0232 0.0294 0.0329
1964 0.1685 0.0439 0.0394 0.0391 0.0387 0.0409 0.0396
1965 0.0489 -0.0064 -0.0010 -0.0014 -0.0018 -0.0044 0.0050
1966 -0.0504 0.0085 -0.0501 -0.0509 -0.0518 -0.0602 -0.0990
1967 -0.0216 -0.0650 -0.0525 -0.0539 -0.0553 -0.0592 -0.0271
1968 0.1419 0.0149 0.0268 0.0224 0.0181 0.0286 0.0243
1969 -0.1769 -0.0640 -0.0792 -0.0839 -0.0885 -0.0960 -0.0892
1970 0.1494 0.1537 0.0970 0.0978 0.0987 0.0952 0.0761
1971 0.0050 0.0999 0.1168 0.1241 0.1313 0.1510 0.1681
1972 0.1464 0.0661 0.0912 0.0980 0.1047 0.1103 0.1387
1973 -0.2106 -0.0893 0.0158 0.0138 0.0118 0.0156 0.0150
1974 -0.2135 0.0092 -0.0315 -0.0360 -0.0405 -0.0683 -0.1033
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walke
Page 5 of 9
Annual Total Returns of
S&P Public Utility Stocks and Bonds
for the Years 1928-2021
Annual Total Returns
Public Utility Bonds
Public Utility L-Term AAA
Years Stocks T-Bonds AAA & AA AA A BBB
1975 0.4364 0.0465 0.0915 0.0863 0.0813 0.0872 0.0940
1976 0.3245 0.1955 0.1976 0.2017 0.2058 0.2475 0.2806
1977 0.1076 0.0074 0.0459 0.0545 0.0629 0.0683 0.0903
1978 -0.0174 -0.0189 -0.0083 -0.0055 -0.0027 -0.0026 0.0000
1979 0.1221 -0.0289 -0.0424 -0.0509 -0.0590 -0.0655 -0.0823
1980 0.1275 -0.0804 -0.0782 -0.0778 -0.0773 -0.0702 -0.0649
1981 0.1464 0.0472 0.0616 0.0674 0.0730 0.0416 0.0674
1982 0.2292 0.4323 0.3294 0.3750 0.3942 0.3708 0.3808
1983 0.2372 -0.0049 0.0721 0.0691 0.0763 0.1406 0.1347
1984 0.2219 0.1611 0.1770 0.1796 0.1768 0.1783 0.2075
1985 0.3232 0.3143 0.3473 0.3276 0.3259 0.3143 0.3098
1986 0.3575 0.3692 0.2994 0.2720 0.2698 0.2835 0.2933
1987 -0.0544 -0.1013 -0.1132 -0.0637 -0.0566 -0.0435 -0.0505
1988 0.1849 0.1026 0.2027 0.1615 0.1594 0.1643 0.1919
1989 0.4351 0.2176 0.1770 0.1743 0.1715 0.1692 0.1781
1990 0.0069 0.0482 0.0685 0.0689 0.0722 0.0738 0.0728
1991 0.0931 0.1472 0.1813 0.1647 0.1624 0.1715 0.1878
1992 0.1183 0.1093 0.1264 0.1312 0.1324 0.1355 0.1315
1993 0.1661 0.2162 0.1926 0.2126 0.2190 0.1429 0.1590
1994 -0.0825 -0.1075 -0.0802 -0.0656 -0.0657 0.0065 -0.0351
1995 0.3772 0.3268 0.2860 0.3074 0.3089 0.2164 0.2442
1996 0.0550 0.0020 0.0279 0.0211 0.0214 0.0279 0.0415
1997 0.1959 0.1454 0.1181 0.1157 0.1169 0.1238 0.1496
1998 0.1896 0.1786 0.1431 0.0365 0.0289 0.1074 0.0981
1999 -0.0998 -0.1062 -0.0792 -0.0275 -0.0237 -0.0921 -0.0684
2000 0.5475 0.1922 0.1076 0.1150 0.1146 0.1101 0.1196
2001 -0.2877 0.0596 0.0734 0.0788 0.0873 0.0780 0.0534
2002 -0.2934 0.1362 0.1851 0.1851 0.2461 0.1746
2003 0.2509 0.0488 0.1678 0.1678 0.1529 0.2329
2004 0.2763 0.0861 0.1162 0.1162 0.0782 0.0919
2005 0.2151 0.0520 0.0869 0.0869 0.0732 0.0541
2006 0.2323 0.0421 0.0486 0.0486 0.0596 0.0759
2007 0.1434 0.0814 0.0043 0.0043 0.0143 0.0042
2008 -0.3160 0.2953 0.0733 0.0733 0.0132 -0.1109
2009 0.1801 -0.1460 0.1159 0.1159 0.1662 0.3279
2010 0.0795 0.0755 0.0809 0.0809 0.0871 0.0893
2011 0.2051 0.3271 0.2701 0.2701 0.2505 0.2019
2012 0.1272 0.0622 0.0801 0.0801 0.0955 0.1287
2013 0.1363 -0.1592 -0.0850 -0.0850 -0.0758 -0.0494
2014 0.3017 0.2419 0.1577 0.1577 0.1872 0.1333
2015 -0.0629 0.0115 -0.0031 -0.0031 -0.0227 -0.0682
2016 0.1834 -0.0224 0.0443 0.0443 0.0512 0.1625
2017 0.1966 0.0714 0.1224 0.1224 0.1211 0.1505
2018 0.0644 -0.0579 -0.0566 -0.0566 -0.0477 -0.0680
2019 0.2690 0.2127 0.2209 0.2209 0.2098 0.2471
2020 0.0301 0.1584 0.1505 0.1505 0.1465 0.1557
2021 0.1510 -0.0679 -0.0499 -0.0499 -0.0335 -0.0210
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walke
Page 6 of 9
Annual Total Returns of S&P Public Utility Stocks
And Annual Income Returns of Bonds
for the Years 1928-2021
Annual Total Income Returns
Returns Public Utility Bonds
Public Utility L-Term AAA
Years Stocks T-Bonds AAA & AA AA A BBB
1928 0.5431 0.0329 0.0451 0.0460 0.0470 0.0499 0.0541
1929 0.1376 0.0361 0.0468 0.0479 0.0490 0.0522 0.0578
1930 -0.2149 0.0332 0.0458 0.0470 0.0482 0.0514 0.0591
1931 -0.3193 0.0338 0.0434 0.0449 0.0463 0.0511 0.0635
1932 -0.0724 0.0350 0.0474 0.0504 0.0535 0.0640 0.0815
1933 -0.2170 0.0315 0.0436 0.0468 0.0499 0.0604 0.0833
1934 -0.1743 0.0306 0.0402 0.0436 0.0471 0.0559 0.0713
1935 0.6914 0.0278 0.0351 0.0376 0.0402 0.0466 0.0544
1936 0.2357 0.0273 0.0324 0.0343 0.0362 0.0415 0.0465
1937 -0.3337 0.0275 0.0320 0.0334 0.0347 0.0395 0.0486
1938 0.1020 0.0263 0.0303 0.0316 0.0329 0.0392 0.0510
1939 0.1538 0.0239 0.0286 0.0296 0.0305 0.0360 0.0448
1940 -0.1643 0.0224 0.0277 0.0285 0.0293 0.0331 0.0410
1941 -0.3050 0.0197 0.0269 0.0276 0.0283 0.0304 0.0366
1942 0.1079 0.0239 0.0272 0.0279 0.0287 0.0305 0.0358
1943 0.4750 0.0246 0.0264 0.0269 0.0273 0.0296 0.0338
1944 0.1879 0.0248 0.0265 0.0268 0.0272 0.0294 0.0333
1945 0.5665 0.0229 0.0256 0.0261 0.0266 0.0285 0.0318
1946 -0.0130 0.0208 0.0250 0.0254 0.0257 0.0268 0.0293
1947 -0.1236 0.0215 0.0257 0.0261 0.0264 0.0273 0.0297
1948 0.0451 0.0240 0.0282 0.0287 0.0292 0.0301 0.0327
1949 0.3074 0.0223 0.0270 0.0274 0.0277 0.0291 0.0324
1950 0.0152 0.0216 0.0262 0.0264 0.0267 0.0276 0.0312
1951 0.2075 0.0244 0.0285 0.0288 0.0291 0.0307 0.0334
1952 0.1947 0.0265 0.0300 0.0303 0.0305 0.0324 0.0351
1953 0.0918 0.0300 0.0325 0.0328 0.0331 0.0347 0.0371
1954 0.2269 0.0266 0.0296 0.0298 0.0301 0.0317 0.0348
1955 0.1357 0.0287 0.0307 0.0309 0.0311 0.0324 0.0341
1956 0.0416 0.0310 0.0335 0.0337 0.0340 0.0357 0.0374
1957 0.0541 0.0355 0.0397 0.0400 0.0403 0.0428 0.0452
1958 0.3827 0.0344 0.0384 0.0386 0.0389 0.0414 0.0447
1959 0.0958 0.0409 0.0445 0.0448 0.0451 0.0470 0.0494
1960 0.1680 0.0409 0.0450 0.0453 0.0455 0.0473 0.0489
1961 0.3646 0.0391 0.0442 0.0445 0.0449 0.0462 0.0476
1962 -0.0519 0.0401 0.0434 0.0437 0.0439 0.0450 0.0466
1963 0.1261 0.0403 0.0427 0.0429 0.0431 0.0437 0.0456
1964 0.1685 0.0419 0.0441 0.0442 0.0443 0.0450 0.0466
1965 0.0489 0.0424 0.0448 0.0450 0.0451 0.0458 0.0475
1966 -0.0504 0.0475 0.0513 0.0515 0.0518 0.0531 0.0552
1967 -0.0216 0.0494 0.0553 0.0556 0.0559 0.0576 0.0605
1968 0.1419 0.0543 0.0621 0.0627 0.0633 0.0651 0.0684
1969 -0.1769 0.0624 0.0706 0.0716 0.0725 0.0743 0.0778
1970 0.1494 0.0692 0.0822 0.0833 0.0844 0.0870 0.0913
1971 0.0050 0.0614 0.0766 0.0777 0.0789 0.0825 0.0868
1972 0.1464 0.0601 0.0744 0.0751 0.0758 0.0778 0.0815
1973 -0.2106 0.0701 0.0762 0.0767 0.0773 0.0789 0.0812
1974 -0.2135 0.0800 0.0849 0.0861 0.0873 0.0899 0.0929
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walke
Page 7 of 9
Annual Total Returns of S&P Public Utility Stocks
And Annual Income Returns of Bonds
for the Years 1928-2021
Annual Total Income Returns
Returns Public Utility Bonds
Public Utility L-Term AAA
Years Stocks T-Bonds AAA & AA AA A BBB
1975 0.4364 0.0817 0.0894 0.0912 0.0929 0.0978 0.1057
1976 0.3245 0.0794 0.0864 0.0880 0.0895 0.0928 0.0987
1977 0.1076 0.0765 0.0814 0.0829 0.0845 0.0859 0.0896
1978 -0.0174 0.0840 0.0877 0.0888 0.0900 0.0917 0.0947
1979 0.1221 0.0921 0.0962 0.0978 0.0995 0.1017 0.1064
1980 0.1275 0.1115 0.1182 0.1211 0.1241 0.1271 0.1352
1981 0.1464 0.1349 0.1427 0.1458 0.1489 0.1529 0.1616
1982 0.2292 0.1309 0.1439 0.1448 0.1464 0.1532 0.1610
1983 0.2372 0.1115 0.1247 0.1229 0.1237 0.1298 0.1350
1984 0.2219 0.1247 0.1297 0.1339 0.1341 0.1374 0.1434
1985 0.3232 0.1104 0.1187 0.1179 0.1189 0.1228 0.1270
1986 0.3575 0.0802 0.0908 0.0930 0.0940 0.0973 0.1015
1987 -0.0544 0.0843 0.0934 0.0946 0.0953 0.0985 0.1027
1988 0.1849 0.0897 0.1013 0.1009 0.1014 0.1040 0.1083
1989 0.4351 0.0854 0.0938 0.0949 0.0955 0.0980 0.1001
1990 0.0069 0.0858 0.0943 0.0959 0.0964 0.0985 0.1009
1991 0.0931 0.0818 0.0891 0.0915 0.0921 0.0943 0.0961
1992 0.1183 0.0769 0.0822 0.0860 0.0869 0.0887 0.0897
1993 0.1661 0.0671 0.0737 0.0776 0.0780 0.0805 0.0816
1994 -0.0825 0.0730 0.0794 0.0799 0.0802 0.0826 0.0868
1995 0.3772 0.0708 0.0781 0.0774 0.0776 0.0813 0.0857
1996 0.0550 0.0672 0.0745 0.0742 0.0745 0.0762 0.0805
1997 0.1959 0.0670 0.0746 0.0743 0.0746 0.0747 0.0782
1998 0.1896 0.0572 0.0682 0.0674 0.0677 0.0687 0.0710
1999 -0.0998 0.0592 0.0710 0.0740 0.0748 0.0743 0.0766
2000 0.5475 0.0607 0.0790 0.0817 0.0821 0.0830 0.0839
2001 -0.2877 0.0557 0.0747 0.0777 0.0780 0.0787 0.0810
2002 -0.2934 0.0542 0.0730 0.0730 0.0754 0.0818
2003 0.2509 0.0496 0.0646 0.0646 0.0623 0.0673
2004 0.2763 0.0505 0.0608 0.0608 0.0617 0.0641
2005 0.2151 0.0465 0.0546 0.0546 0.0566 0.0592
2006 0.2323 0.0499 0.0583 0.0583 0.0607 0.0632
2007 0.1434 0.0493 0.0591 0.0591 0.0605 0.0629
2008 -0.3160 0.0448 0.0619 0.0619 0.0650 0.0711
2009 0.1801 0.0401 0.0579 0.0579 0.0610 0.0721
2010 0.0795 0.0405 0.0525 0.0525 0.0548 0.0598
2011 0.2051 0.0375 0.0489 0.0489 0.0514 0.0565
2012 0.1272 0.0256 0.0385 0.0385 0.0416 0.0490
2013 0.1363 0.0302 0.0417 0.0417 0.0441 0.0492
2014 0.3017 0.0316 0.0424 0.0424 0.0435 0.0485
2015 -0.0629 0.0254 0.0397 0.0397 0.0408 0.0496
2016 0.1834 0.0221 0.0373 0.0373 0.0394 0.0474
2017 0.1966 0.0267 0.0386 0.0386 0.0404 0.0443
2018 0.0644 0.0307 0.0404 0.0404 0.0420 0.0460
2019 0.2690 0.0248 0.0369 0.0369 0.0385 0.0429
2020 0.0301 0.0141 0.0285 0.0285 0.0307 0.0345
2021 0.1510 0.0194 0.0293 0.0293 0.0308 0.0334
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walke
Page 8 of 9
Development of the Projected Risk Premium
A B C D E F G H I
Less:
Value Line Forecasted Forecasted Yield of
Summary & Index Market Stock Price Annual Annual Moody's Forecasted Estimated Forecasted
Month End Dividend Appreciation Price Total A Rated Equity Risk Risk
Edition Yield Next 3-5 Years Appreciation Return Industrial Bonds Premium Adjustment Premium
May-22 2.1 % 70 % 14.2 % 16.3 % 4.55 % 11.8 % 85 % 10.0 %
June-22 2.2 75 15.0 17.2 4.68 12.5 85 10.6
July-22 2.3 75 15.0 17.3 4.55 12.8 85 10.8
Midpoint of data 16.8 12.3 10.4 %
Quarter's Average 16.9 12.3 10.5 %
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 18
H. Walker
Page 9 of 9
Veolia Water Idaho, Inc.
Common Equity Cost Rate Summary
Water Group Followed by Analysts
DCF(1)CAPM(2)RP(3)
Common Equity Cost Rate Range 9.60 % 11.60 % 11.30 %
Investment Risk
Adjustments (4) 0.00 0.00 0.00
Veolia Water Idaho, Inc.
Adjusted Common Equity Cost
Rate Range: 9.60 11.60 11.30
Veolia Water Idaho, Inc.
Recommended Common Equity Cost Rate (5) 10.80 %
Check of Reasonableness of
Common Equity Cost Rate (6) 10.6 % to 10.8 %
Notes: (1) From Schedule 12 and explained in the Direct Testimony.
(2) From Schedule 17 and explained in the Direct Testimony.
(3) From Schedule 18 and explained in the Direct Testimony.
(4) As explained in the Direct Testimony.
(5) As explained in the Direct Testimony, the recommendation is only applicable to a
rate making common equity ratio of 55%. (~55.00%)
(6) See page 2 of Schedule 14.
Case No. VEO-W-22-02
Exhibit No. 1
Schedule 19
H. Walker
Page 1 of 1