20241122Direct Harold Walker III_Exhibits.pdf

RECEIVED
Friday, November 22, 2024
Preston N. Carter, ISB No. 8462 IDAHO PUBLIC
Morgan D. Goodin, ISB No. 11184 UTILITIES COMMISSION
Megann E. Meier, ISB No. 11948
GIVENS PURSLEY LLP
601 West Bannock Street
P.O. Box 2720
Boise, Idaho 83701-2720
Office: [phone]
Fax: [phone]
[e-mail]
[e-mail]
[e-mail]
Attorneys for Veolia Water Idaho Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION Case No. VEO-W-24-01
OF VEOLIA WATER IDAHO,INC. FOR A
GENERAL RATE CASE
DIRECT TESTIMONY OF HAROLD WALKER,III
FOR VEOLIA WATER IDAHO,INC.
NOVEMBER 22,2024

TABLE OF CONTENTS
SUMMARY OF RECOMMENDATION ...................................................................................... 1
PRINCIPLES OF RATE REGULATION AND FAIR RATE OF RETURN ............................... 3
INVESTMENTRISK..................................................................................................................... 5
DESCRIPTIONOF VWID ............................................................................................................ 6
THEINDUSTRY............................................................................................................................ 7
COMPARABLEGROUP............................................................................................................. 10
CAPITALSTRUCTURE............................................................................................................. 13
EMBEDDED COST RATE.......................................................................................................... 17
FINANCIALANALYSIS ............................................................................................................ 18
RISKANALYSIS......................................................................................................................... 21
CAPITALCOST RATES............................................................................................................. 30
DISCOUNTEDCASH FLOW..................................................................................................... 38
CAPITAL ASSET PRICING MODEL........................................................................................ 51
RISKPREMIUM.......................................................................................................................... 55
SUMMARY OF COMMON EQUITY COST RATE.................................................................. 60
OVERALL RATE OF RETURN RECOMMENDATION.......................................................... 62
APPENDIXA.............................................................................................................................A-1

OVERALL RATE OF RETURN TERMS, ABBREVIATIONS AND ACRONYMS
Terms, Abbreviations and Acronyms Defined
CAPM Capital Asset Pricing Model
Commission Idaho Public Utilities Commission
Company Veolia Water Idaho, Inc.
Comparable Companies Water Group Followed by Analysts
Comparable Group Water Group Followed by Analysts
Cost of Capital Investor-required cost rate
DCF Discounted Cash Flow
DPS Dividend per share
EPA U.S. Environmental Protection Agency's
EPS Earnings per share
Financial Risk Leverage
GICS Global Industry Classification System
GO General Obligation Bonds
IOU Investor Owned Utilities
Leverage Fixed cost capital
Long-term U.S. Treasury Securities Base Risk-Free Rate
M/B Market-to-Book Ratios
Moody's Moody's Investors Service
NARUC National Association of Regulatory Utility
Commissioners
Non-Systematic Risk Company-Specific Risk
PUC Idaho Public Utilities Commission
ROE Return on Equity
RP Risk Premium
S&P Standard & Poor's
SIC Standard Industrial Classification
Systematic Risk Non-Diversifiable Risk
Value Line Value Line Investment Survey
VUR Veolia Utility Resources LLC
VWID Veolia Water Idaho, Inc.
Water Group Water Group Followed by Analysts

I INTRODUCTION
2 Q. Please state your name, occupation and business address.
3 A. My name is Harold Walker, III. 1 am employed by Gannett Fleming Valuation and Rate
4 Consultants, LLC as Manager, Financial Studies. My business address is 1010 Adams
5 Avenue, Audubon, Pennsylvania 19403.
6 Q. Please summarize your educational background and professional experience.
7 A. My educational background,business experience and qualifications are provided in
8 Appendix A.
9 SCOPE OF TESTIMONY
10 Q. What is the purpose of your testimony?
11 A. The purpose of my testimony is to recommend an appropriate overall rate of return that
12 Veolia Water Idaho, Inc. ("VWID" or the "Company") should be afforded an opportunity
13 to earn on its water utility service rate base. My testimony is supported by Exhibit No. 1,
14 which is composed of 19 Schedules.
15 SUMMARY OF RECOMMENDATION
16 Q. What is your recommended cost of equity?
17 A. My recommendation is that VWID be permitted an overall rate of return of 7.79%,
18 including a 10.80%1 cost of common equity, based upon the Company's capital structure
19 at September 30, 2024. My recommended cost of common equity reflects VWID's
20 unique risk characteristics.
It should be noted that my current analysis contained in Exhibit No. 1 supports a cost of common equity of 10.8%
for the Company. The Company's filing includes an overall rate of return of 7.47%and a 10.20%cost of common
equity for filing purposes to minimize the requested revenue increase.
PAGE 1 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. How did you determine your recommended common equity cost rate?
2 A. I used several models to help me in formulating my recommended common equity cost
3 rate including Discounted Cash Flow("DCF"), Capital Asset Pricing Model ("CAPM")
4 and Risk Premium("RP").
5 Q. Is it important to use more than one market model?
6 A. Yes. It is necessary to estimate common equity cost rates using a number of different
7 models. At any given time, a particular model may understate or overstate the cost of
8 equity. While any single investor may rely solely upon one model, different investors
9 rely on different models and many investors use multiple models. Therefore,because the
10 price of common stock reflects a number of valuation models, it is appropriate to estimate
11 the market-required common equity cost rate by applying a broad range of analytical
12 models.
13 Q. Please summarize your common equity cost rate recommendation.
14 A. There is no market data concerning VWID's shares of common stock because VWID
15 shares of common stock are not publicly traded. Accordingly, due to the lack of market
16 data concerning VWID's equity, I used a comparable group of publicly traded companies
17 to estimate the common equity cost rate. Based upon the results of my entire analysis, I
18 conclude VWID's current common equity cost rate is at least 10.80%.2 The current
19 range of common equity cost for VWID is 10.00% (DCF), 11.50% (CAPM), and 10.90%
20 (RP). Value Line Investment Survey ("Value Line") is relied upon by many investors
2 After developing my recommendation in the current case it was pointed out to me that I recommended the same
common equity cost rate in VWID's last rate case as I do in the current case. The similarity of my recommendation
in the current case to that which I recommended in VWID's last rate case is purely coincidental since the inputs to the
financial models differ,the results of the models employed generally differ,the absolute range of the models' results
are closer together,and the range of the comparable earnings,although similar,also differ.
PAGE 2 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I and is the only investment advisory service of which I am aware that projects earned
2 return on equity. As a check on the reasonableness of my common equity cost rate
3 recommendation, I reviewed Value Line's projected returns on common equity for
4 comparable utilities. Value Line's projected earned returns on common equity for my
5 comparable utilities average 11.1% and the median is 10.8%. The range of the projected
6 returns suggests that my recommendation that VWID be permitted an opportunity to earn
7 10.80% is reasonable, if not conservative.
8 PRINCIPLES OF RATE REGULATION AND FAIR RATE OF RETURN
9 Q. What are the principles guiding fair rates of return in the context of rate
10 regulation?
11 A. In a capitalistic or free market system, competition determines the price for all goods and
12 services. Utilities are permitted to operate as monopolies or near monopolies as a
13 tradeoff for a ceiling on the price of service because: (1)the services provided by utilities
14 are considered necessities by society; and(2) capital-intensive and long-lived facilities
15 are necessary to provide utility service. Generally,utilities are required to serve all
16 customers in their service territory at reasonable rates determined by regulators. As a
17 result, regulators act as a substitute for a competitive-free market system when they
18 authorize prices for utility service.
19 Although utilities operate in varying degrees as regulated monopolies, they must
20 compete with governmental bodies, non-regulated industries, and other utilities for labor,
21 materials, and capital. Capital is provided by investors who seek the highest return
22 commensurate with the perceived level of risk; the greater the perceived risk, the higher
23 the required return rate. In order for utilities to attract the capital required to provide
PAGE 3 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I service, a fair rate of return should equal an investor-required, market-determined rate of
2 return.
3 Q. What constitutes a fair rate of return?
4 A. Two noted Supreme Court cases define the benchmarks of a fair rate of return. In
5 Bluefield 3, a fair rate of return is defined as: (1) equal to the return on investments in
6 other business undertakings with the same level of risks (the comparable earnings
7 standard); (2) sufficient to assure confidence in the financial soundness of a utility (the
8 financial integrity standard); (3) adequate to permit a public utility to maintain and
9 support its credit, enabling the utility to raise or attract additional capital necessary to
10 provide reliable service (the capital attraction standard). The second case,Hope4,
I I determined a fair rate of return to be based upon guidelines found in Bluefield as well as
12 stating that: (1) allowed revenues must cover capital costs including service on debt and
13 dividends on stock; and(2) the Commission was not bound to use any single formula or
14 combination of formulae in determining rates. Utilities are not entitled to a guaranteed
15 return. However, the regulatory-determined price for service must allow the utility a fair
16 opportunity to recover all costs associated with providing the service, including a fair rate
17 of return.
'Bluefield Water Works&Improvement Company v.P.S.C.of West Virginia,262 U.S. 679(1923).
'Federal Power Commission v.Hope Natural Gas Company,320 U.S. 591 (1944).
PAGE 4 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I INVESTMENT RISK
2 Q. Previously,you referred to risk. Please define the term risk.
3 A. Risk is the uncertainty associated with a particular action; the greater the uncertainty of a
4 particular outcome, the greater the risk. Investors who invest in risky assets expose
5 themselves to investment risk particular to that investment. Investment risk is the sum of
6 business risk and financial risk. Business risk is the risk inherent in the operations of a
7 business. Assuming that a Company is financed with 100% common equity,business
8 risk includes all operating factors that affect the probability of receiving expected future
9 income such as: sales volatility, management actions, availability of product substitutes,
10 technological obsolescence, regulation, raw materials, labor, size and growth of the
I I market served, diversity of the customer base, economic activity of the area served, and
12 other similar factors.
13 Q. What is financial risk?
14 A. Financial risk reflects the manner in which an enterprise is financed. Financial risk arises
15 from the use of fixed cost capital (leverage) such as debt and/or preferred stock,because
16 of the contractual obligations associated with the use of such capital. Because the fixed
17 contractual obligations must be serviced before earnings are available for common
18 stockholders, the introduction of leverage increases the potential volatility of the earnings
19 available for common shareholders and therefore increases common shareholder risks.
20 Although financial risk and business risk are separate and distinct, they are
21 interrelated. In order for a company to maintain a given level of investment risk,
22 business risk and financial risk should complement one another to the extent possible.
23 For example, two firms may have similar investment risks while having different levels
PAGE 5 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I of business risk, if the business risk differences are compensated for by using more or
2 less leverage (financial risk)thereby resulting in similar investment risk.
3 DESCRIPTION OF VWID
4 Q. Please give a brief description of the Company.
5 A. VWID is a private or investor-owned company. VWID is a regulated public utility that
6 provides water service to about 107,000 customers located in their franchise territories in
7 Boise,parts of Eagle, and unincorporated areas of Ada County, Idaho. The price of
8 service of VWID is regulated by the Idaho Public Utilities Commission("Commission"
9 or"PUC").
10 VWID is a wholly-owned subsidiary of Veolia Utility Resources LLC ("VUR").
11 VUR is the sole source of VWID's external capital. VUR owns and provides services to
12 water and wastewater utility companies which are located throughout the United States
13 (e.g., VWID). VUR was founded in 1869 and is based in Paramus,New Jersey. VUR is
14 a subsidiary of Veolia Utility Parent, Inc. ("VUPI").5 VUPI is 80% owned by Veolia
15 Water USA, Inc., a subsidiary of Veolia North America, Inc., and 20%by PGGM.
16 Veolia North America, Inc. is an indirect wholly-owned subsidiary of Veolia
17 Environnement S.A., a French transnational company with activities in three main service
18 and utility areas: water management, waste management and energy services.6 PGGM is
19 a Dutch pension company.
5 VUR's intermediate holding company, VUPI, is a separate legal entity with its own capital structure; maintains its
own records;does not commingle funds,assets,or cash flows; and does not participate in a money pool with the rest
of the Veolia group.
6 Veolia Environnement S.A. operates on five continents, in 57 countries, employs 218,000 people,had 113 million
users of its drinking water supply services, 103 million wastewater users, produced nearly 42 terawatt hours of
electricity and recovered 63 million tons of waste(as of 2023).
PAGE 6 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I THE INDUSTRY
2 Q. Please give a brief overview of the industry in which the Company operates.
3 A. VWID operates in the water supply industry and the wastewater utility industry. The
4 water supply industry has a Standard Industrial Classification("SIC") code of 4941, has
5 water utilities, and includes establishments primarily engaged in distributing water for
6 sale for residential, commercial, and industrial uses. Government controlled
7 establishments such as municipalities, public service districts and other local
8 governmental entities dominate the industry. Private companies or investor owned
9 utilities ("IOU") are active in the construction and improvement of water supply facilities
10 and infrastructure. There are currently about 11,000 U.S. Businesses with a SIC code of
11 4941.
12 A comparative industry to the water supply industry is the wastewater supply
13 industry. The wastewater utility industry has a Standard Industrial Classification("SIC")
14 code of 4952 (Sewerage Systems), has sewer utilities, and includes establishments
15 primarily engaged in the collection and disposal of wastes conducted through a sewer
16 system, including such treatment processes as may be provided. There are currently
17 about 2,200 U.S. Businesses with a SIC code of 4952.
18 The water supply industry is the most fragmented of the major utility industries
19 with more than 53,000 community water systems in the U.S. (83% of which serve less
20 than 3,300 customers). The nation's water systems range in size from large municipally
21 owned systems, such as the New York City water system that serves approximately 9
22 million people, to small systems, where a few customers share a common well.
PAGE 7 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I According to the U.S. Environmental Protection Agency's ("EPA") most recent
2 survey of publicly-owned wastewater treatment facilities in 2008, there are
3 approximately 15,000 such facilities in the nation, serving approximately 74% of the U.S.
4 population. Ninety eight percent of domestic wastewater systems are government owned
5 rather than IOUs. Currently, there are no wastewater utility companies that have actively
6 traded stock.
7 An estimated 16% of all water supplies are managed or owned by IOUs. IOUs
8 consist of companies with common stock that is either actively traded or inactively
9 traded, as well as companies that are closely held, or not publicly traded. Currently, there
10 are only about nine investor owned water utility companies with publicly traded stock in
11 the U.S.
12 The water utility industry's and wastewater utility industry's increased
13 compliance with state and federal water purity levels and large infrastructure
14 replacements are driving consolidation of the wastewater utility and water utility
15 industries. Because many wastewater utility and water utility operations do not have the
16 means to finance the significant capital expenditures needed to comply with these
17 requirements, many have been selling their operations to larger, financially stronger
18 utilities.
19 The larger IOUs have been following an aggressive acquisition program to
20 expand their operations by acquiring smaller wastewater and water systems. Generally,
21 they enter a new market by acquiring one or several wastewater or water utilities. After
'Many 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.
PAGE 8 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I their initial entry into a new market, the larger investor-owned water utility companies
2 continually seek to expand their market share and services through the acquisition of
3 wastewater and water utility businesses and operations that can be integrated with their
4 existing operations. Such acquisitions may allow a company to expand market share and
5 increase asset utilization by eliminating duplicate management, administrative, and
6 operational functions. Acquisitions of small, independent utilities can often add earning
7 assets without necessarily incurring the costs associated with the Safe Drinking Water
8 Act ("SDWA")8 if such acquisitions are contiguous to the potential purchaser.
9 In summary, the result of increased capital spending, to meet the SDWA and
10 CWA requirements and replace the aging infrastructure of many systems, has moved the
11 wastewater and water industries toward consolidation. Moreover, Federal and State
12 regulations and controls concerning water quality are still in the process of being
13 developed and it is not possible to predict the scope or the enforceability of regulations or
14 standards which may be established in the future, or the cost and effect of existing and
15 potential regulations and legislation upon VWID. However, as a medium size water
16 system, VWID faces the cost of compliance with less financial resources when compared
17 to larger IOU water utilities.
'The SDWA 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.
PAGE 9 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I COMPARABLE GROUP
2 Q. How do you estimate the cost of common equity for VWID?
3 A. VWID's common stock is not publicly traded. Accordingly, I employed a comparable
4 group of utility companies with actively traded stock, to determine a market-required cost
5 rate of common equity capital for VWID. Since no companies are perfectly identical to
6 VWID, it is reasonable to determine the market-required cost rate for a comparable group
7 of utility companies and adjust, to the extent necessary, for investment risk differences
8 between VWID and the comparable group.
9 Q. How did you select the comparable group used to determine the cost of common
10 equity for VWID?
11 A. I selected a comparable group of water utilities to determine the cost of common equity
12 for VWID considering security analysts' coverage. Unlike the other utility industries,
13 only a portion of the IOU water companies with publicly traded stock in the U.S. are
14 followed by security analysts. Coverage by security analysts is important when
15 determining a market required cost of common equity. Accordingly, security analysts'
16 coverage was considered when selecting my comparable group. I selected my water
17 utility comparable group, Water Group Followed by Analysts ("Water Group"),based
18 upon a general criteria that includes: (1) all U.S. water utilities that are covered by
19 security analysts as measured by the existence of sources of published projected five-year
20 growth rates in earnings per share (`BPS"); (2)with a Standard Industrial Classification
21 (SIC) of 4941 (i.e., Water Supply Facilities and Infrastructure); (3) with a North
22 American Industry Classification System (NAICS) of 221310 (i.e., Water Supply and
23 Irrigation Systems); (4) are not the announced subject of an acquisition; (5) currently pay
PAGE 10 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I a common dividend and have not reduced their common dividend within the past four
2 years; (6) have market value of common stock, the product of multiplying the closing
3 stock price by the number of common shares outstanding, greater than $500.0 million;
4 and(7) have a total enterprise, the sum of market value, preferred stock and total debt,
5 greater than$700.0 million.
6 It should be noted that the Water Group is also referred to as the Comparable
7 Group and/or the Comparable Companies.9 The names of the utilities that comprise the
8 Comparable Group and their bond or credit ratings are listed in Table 1.
Bond and Credit Ratings for
The Water Group Followed by Anal
S&P Credit
Rating
Water Group Followed by Anal
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.
9 Table 1
'All of the Comparable Companies also provide some wastewater service.
PAGE 11 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. Why did you include not being the subject of an acquisition as a criteria for the
2 Water Group?
3 A. To begin with, there are only about nine investor owned water utility companies with
4 publicly traded stock in the U.S., and some of these companies are very small. As stated
5 previously, the IOU water industry receives only limited exposure on Wall Street.
6 Additionally, the merger activity in the water industry can result in abnormal or
7 "tainted" stock prices in terms of a DCF analysis because premiums are typically paid in
8 corporate acquisitions. That is, when a tender offer is made for the purchase of all the
9 outstanding stock of a company, the amount of that offer usually exceeds the price at
10 which the stock was previously traded in the market. These large premiums are often
11 reflected in the prices of other water utilities that are not currently the announced subject
12 of an acquisition.10
13 Q. Why is Veolia Environnement S.A. not included in your comparison group?
14 A. To begin with, Veolia Environnement S.A. does not operate primarily in the U.S. but
15 instead operates on five continents, in 57 countries. Second, VWID is not a wholly
16 owned subsidiary of Veolia Environnement S.A. Instead, VWID is a wholly owned
17 subsidiary of VUR, which is a subsidiary of VUPL VUPI is 80% owned by Veolia Water
18 USA, Inc. and 20%by PGGM. PGGM is a sperate Dutch pension company while Veolia
19 Water USA, Inc. is indirectly owned by Veolia Environnement S.A.11
0 Multiple publications mention these impacts including Research Magazine—April 2010, Barron's—March 2001,
Utility Business—June 2002,Value Line Investment Survey—April 2013,and Wastewater Digest,March 2022.
" Veolia Water USA,Inc. is a subsidiary of Veolia North America,Inc. Veolia North America,Inc. is a subsidiary
of Vigie Groupe S.A.S.,and Vigie Groupe S.A.S. is a subsidiary Veolia Environnement S.A.
PAGE 12 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Third,use of Veolia Environnement S.A. as a comparison company for VWID
2 would not meet the precepts of a fair rate of return, including the comparable earnings
3 standard, and the capital attraction standard. Finally, even if VWID were a wholly
4 owned subsidiary of Veolia Environnement S.A., which it is not, the use of Veolia
5 Environnement S.A. as a comparison company for VWID would not be appropriate
6 because Veolia Environnement S.A.'s is a multination company whose 2023 revenues
7 were generated primarily from solid waste service (32.4%), energy service (27.0%),
8 followed by water and wastewater service (40.6%).12
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 structure
12 ratios to be employed. Next, the cost rate for each capital component is determined. The
13 overall rate of return is the product of weighting each capital component by its respective
14 capital cost rate. This procedure results in VWID's overall rate of return being weighted
15 proportionately to the amount of capital and cost of capital of each type of capital.
16 Q. Does VWID directly raise or issue its own debt capital?
17 A. No,prospectively VWID does not raise its own capital; rather VUR is the sole source of
18 VWID's external capital.
19 Q. What capital structure ratios are appropriate to be used to develop VWID's overall
20 rate of return?
'Z Veolia Environnement S.A.'s 2023 water and wastewater revenues were derived from 113 million users of its
drinking water supply services,and 103 million wastewater users.
PAGE 13 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I A. Consistent with settled rate setting principles, I believe it is necessary to evaluate
2 VWID's current cost of capital based on VUR's September 30, 2024 capital structure,
3 which includes 47.22% debt and 52.78% common equity as reflected in Schedule 1.
4 These ratios synchronize capitalization with rate base.
5 Q. Is there a set of regulatory and financial principles used in deciding the appropriate
6 capital structure to use for cost of capital purposes?
7 A. Yes. There is a general set of regulatory and financial principles used in deciding the
8 capital structure issue for cost of capital purposes that are consistent with both regulatory
9 and financial theories:
10 1) It is generally preferable to use a utility's actual capital structure in developing its
11 rate of return. However, in deciding whether a departure from this general
12 preference is warranted in a particular case, it is appropriate to first look to the
13 issue of whether the utility is a financially independent entity. In determining
14 whether a utility is a financially independent entity or self-financing, it is
15 important to look to whether the utility:
16 • has its own bond rating;
17 • provides its own debt financing; and
18 • debt financing is not guaranteed by a parent company.
19 2) When a utility issues its own debt that is not guaranteed by the public or private
20 parent and has its own bond rating, regulatory and financial principles indicate to
21 use a utility's own capital structure,unless the utility's capital structure is not
22 representative of the utility's risk profile or where use of the actual capital
23 structure would create atypical results. Regulatory and financial principles
PAGE 14 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I involve determining whether the actual capital structure is atypical when
2 compared with the capital structures approved by the Commission for other
3 utilities that operate in the same industry(i.e., water utility, gas distribution
4 utility, etc.), as well as those of the proxy utility companies that operate in the
5 same industry.
6 3) For utility subsidiaries without publicly traded stock, the manner in which the
7 utility obtains its debt financing determines whether it does its own financing.
8 Public Utility Commissions generally determine if a subsidiary has financial,
9 operational, and managerial relationships with its parent entity. However, having
10 such ties typically has not led to use of a parent's capital structure for regulatory
11 purposes, unless the subsidiary utility issues no long-term debt, issues long-term
12 debt only to its parent, or issues long-term debt to outside investors only with the
13 guarantee of its parent.
14 4) If a utility does not provide its own financing, Public Utility Commissions often
15 look to another entity. Generally, Public Utility Commissions use the actual
16 capital structure of the entity that does the financing for the regulated utility as
17 long as it results in just and reasonable rates. This generally means using a parent
18 company.
19 5) If the parent's capital structure is used,because it finances the operation of the
20 utility, regulatory and financial principles require adjustments in the utility's
21 allowed rate of return on equity to adjust for risk differences, if any,between the
22 parent and the regulated subsidiary. If, however, the financing entity's capital
23 structure is inconsistent relative to the capital structures of the publicly-traded
PAGE 15 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I proxy companies used in the cost of equity analysis and capital structures
2 approved for other utilities that operate in the same industry (i.e., water utility, gas
3 distribution utility, etc.), Public Utility Commissions employ a hypothetical
4 capital structure.
5 Once the cost of equity for the proxy companies is determined, thereby
6 establishing a range of reasonable returns, Public Utility Commissions should determine
7 where to set the utility's return in that range based upon how the utility's risk compares
8 with that of other utilities that operate in the same industry(i.e., water utility, gas
9 distribution utility, etc.). The risk analysis begins with the assumption that the utility
10 generally falls within a broad range of average risk, absent highly unusual circumstances
11 that indicate an inconsistently high or low risk as compared to other utilities that operate
12 in the same industry (i.e., water utility, gas distribution utility, etc.). Generally, financial
13 risk is a function of the amount of debt in an entity's capital structure used for cost of
14 capital purposes. When there is more debt, there is more risk.
15 Q. How does your recommended capital structure compare with ratios employed by
16 other investor-owned companies?
17 A. The capital structure I recommend for VWID reflects a common equity ratio of 52.8%
18 which is similar to the range of the ratios employed by other investor-owned water
19 companies as shown on pages 1 and 2 of Schedule 2. A comparison of my
20 recommendation for VWID's capital structure ratios to those recently employed by the
21 Comparison Group is shown in Table 2.
PAGE 16 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

Comparison of Capital Structure Ratios
VWID Water Group
At At Projected
9/30/2024 6/30/2024 2028
Debt 47.2 50.1 43.0
Preferred Stock 0.0 0.0 0.0
Common Equity 52.8 49.9 57.0
100.0 100.0 1QD-Q
1
2 Table 2
3 The VWID's rate making capital structure ratios are reasonable based upon the
4 above information. Moreover, VWID's smaller size justifies the use of more equity
5 capital than the Comparison Group in order to counterbalance some of the risk associated
6 with its size. The size of company is an indicator of risk and is discussed later in my
7 testimony in more detail.
8 EMBEDDED COST RATE
9 Q. What embedded cost rates do you recommend be used to calculate VWID's overall
10 rate of return?
11 A. Consistent with my recommended capital structure ratios I recommend using VUR's
12 embedded debt cost rate of 4.43% for VWID as reflected in Schedule 1. This embedded
13 debt cost rate of 4.43% is detailed on the Company's Exhibit No. 6. The determination
14 of an embedded cost rate is a relatively simple arithmetic exercise because a company has
15 contracted for this capital for a specific period of time and at a specific cost, including
16 issuance expenses and coupon rate.
PAGE 17 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I FINANCIAL ANALYSIS
2 Q. Have you reviewed historical financial information of VWID as part of your
3 analysis?
4 A. Yes. On page 1 of Schedule 3, I developed a five-year analysis, ending in 2023, detailing
5 various financial ratios for VWID. On Schedule 4, 1 performed a similar five-year
6 analysis for the Water Group. Schedule 5 reveals the results of operations for a large
7 broad-based group of utilities known as the Standard&Poor's ("S&P")Utilities for the
8 five years ending 2023. This information is useful in determining relative risk
9 differences between different types of utilities.
10 Comparing VWID, the Comparable Group and the S&P Utilities' coverage of
11 fixed charges and the various cash flow coverage proves that the Comparable Group has
12 experienced a lower level of coverage than the S&P Utilities. Reviewing VWID's
13 various cash flow coverages shows VWID has had similar but higher levels of coverage
14 than the Comparable Group.
15 Q. What do you conclude from the comparison of all the information shown on
16 Schedules 3 through 5?
17 A. Taken together, these comparisons show that VWID is exposed to risk that is similar in
18 nature but greater in degree compared with the Comparable Groups. This is evident in
19 particular when one considers the size and diversification of VWID, or lack thereof, as
20 compared to the Comparable Companies. Moreover, the evidence from the various
21 financial ratios shows VWID's risks as being similar to the Comparable Companies' but
22 less than the larger S&P Utilities. Prospectively, VWID`s future construction
PAGE 18 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I expenditures will place downward pressure on VWID`s financial ratios as measured by
2 interest coverage and cash generation.
3 Q. What information is shown on Schedule 6?
4 A. Schedule 6 lists the names, issuer credit ratings, common stock rankings,betas and
5 market values of the companies contained in the Comparable Group and the S&P
6 Utilities. As is evident from the information shown on Table 3, the Comparable Group
7 and the S&P Utilities are similar to each other in risk.
S&P S&P Value Recent Market
Issuer Credit Quality Line Market Quartile
Rating Ranking Beta Value Name
(Mill $)
Water Group A High (A) 0.85 3,119.810 Mid-Cap
S&P Utilities BBB+ Average (B+) 0.97 28,496.770 Large-Cap
8 Table 3
9 The Water Group's average issuer credit ratings and common stock rankings are
10 higher than the S&P Utilities. The average beta of the Comparable Group, 0.85, is less
11 than the average beta of the S&P Utilities, 0.97. Beta is a measure of volatility or market
12 risk; the higher the beta, the higher the market risk. The market values provide an
13 indication of the relative size of each group. As a generalization, the smaller the average
14 size of a group, the greater the risk.
15 Page 2 of Schedule 6 shows that VWID has recently experienced the lowest
16 return on equity ("ROE") when compared to the Comparable Companies. Further,
PAGE 19 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I VWID's dividend payout ratio is lower than the Comparable Companies' dividend
2 payout ratio.
3 S&P, the predominant bond rating agency, considers profit to be a fundamental
4 determinant of credit protection. S&P states that a firm's profit level:
5 Whether generated by the regulated or deregulated side of the business,
6 profitability is critical for utilities because of the need to fund investment-
7 generating capacity, maintain access to external debt and equity capital,
8 and make acquisitions. Profit potential and stability is a critical
9 determinant of credit protection. A company that generates higher
10 operating margins and returns on capital also has a greater ability to fund
11 growth internally, attract capital externally, and withstand business
12 adversity. Earnings power ultimately attests to the value of the company's
13 assets, as well. In fact, a company's profit performance offers a litmus test
14 of its fundamental health and competitive position.
15
16 Accordingly, the conclusions about profitability should confirm the
17 assessment of business risk, including the degree of advantage provided
18 by the regulatory environment.13
19 Q. What information is shown on Schedule 7?
20 A. Schedule 7 reveals the capital intensity and capital recovery for VWID, the Comparable
21 Companies and the S&P Utilities. Based upon the 2023 capital intensity ratio of plant to
22 revenues, VWID ($11.34) is more capital intensive as compared to the Water Group
23 ($6.81) and more than the S&P Utilities ($4.70). From a purely financial point of view,
24 based on current accounting practices, the rate of capital recovery or depreciation rate is
25 an indication of risk because it represents cash flow and the return of an investment.
26 VWID's average rate of capital recovery is lower than the Comparable Group's,
27 suggesting more risk.
13Standard&Poor's Ratings Services, Criteria, Utilities:Key Credit Factors:Business And Financial Risks In The Investor-
Owned Utilities Industry,Nov.26,2008,pps. 8-9.
PAGE 20 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I The return on equity and depreciation expense provides the margin for coverage
2 of construction expenditures. For a utility company, depreciation expense is the single
3 largest generator of cash flow. From a financial analyst's point of view, cash flow is the
4 life blood of a utility company. Without it, a utility cannot access capital markets, it
5 cannot construct plant, and therefore, it cannot provide service to its customers.
6 RISK ANALYSIS
7 Q. Please explain the information shown on Schedule 8.
8 A. Schedule 8 details the size difference between VWID and the Comparable Group.
9 Company size is an indicator of business risk and is summarized in Table 4.
Number of Times Larger Than VWID
Water Group
Capitalization 19.8x
Revenues 21.9x
Number of Customers 9.1x
10 Table 4
11 As shown in Table 4, VWID is smaller than the Water Group. The size of a company
12 affects risk. A smaller company requires the employment of proportionately less
13 financial leverage (i.e., debt and preferred capital) than a larger company to balance out
14 investment risk. If investment risk is not balanced out, then a higher cost of capital is
15 required.
PAGE 21 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. Why is size significant to your analysis?
2 A. The size of a company can be likened to ships on the ocean, since a large ship has a much
3 better chance of weathering a storm than a small ship. The loss of a large customer will
4 impact a small company much more than a large company because a large customer of a
5 small company usually accounts for a larger percentage of the small company's sales.
6 Moreover, a larger company is likely to have a more diverse geographic operation
7 than a smaller company, which enables it to sustain earnings fluctuations caused by
8 abnormal weather in one portion of its service territory. A larger company operating in
9 more than one regulatory jurisdiction enjoys "regulatory diversification"which makes it
10 less susceptible to adverse regulatory developments or eminent domain claims in any
11 single jurisdiction. Further, a larger company with a more diverse customer base is less
12 susceptible to downturns associated with regional economic conditions than a small
13 company. For example, on average, the average company in the Water Group provides
14 water/sewer service in multiple states for about 970,639 customers. The average
15 population of the communities served by the average company in the Water Group is
16 about 3.5 million people. These wide-ranging operations provide the Water Group
17 substantial geographic, economic, regulatory, weather and customer diversification.
18 VWID provides regulated water service to about 107,000 customers. The concentration
19 of VWID's business in southwestern Idaho makes it very susceptible to any adverse
20 development in local regulatory, economic, demographic, competitive and weather
21 conditions.
22 Further, S&P, a major credit rating agency, recognizes the importance that
23 diversification and size play in credit ratings. S&P believes some of the critical factors
PAGE 22 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I include: regional and cross-border market diversification(mitigates economic,
2 demographic, and political risk concentration); customer diversification; and regulatory
3 regime diversification.14
4 The size of a company can be a barrier to fluid access to capital markets (i.e.,
5 liquidity risk). Investors require compensation for the lack of marketability and liquidity
6 of their investments. If no compensation is provided, then investors, or at least
7 sophisticated investors, shy away.
8 Q. Is the impact of size commonly recognized?
9 A. Yes, the National Association of Regulatory Utility Commissioners ("NARUC"), and the
10 majority of acclaimed financial texts, recognize that size affects relative business risk.
11 Liquidity risk and the existence of the small firm effect relating to business risk of small
12 firms are well-documented in financial literature.15 Investors' expectations reflect the
13 highly-publicized existence of the small firm effect. For example, many mutual funds
14 classify their investment strategy as small capitalization in an attempt to profit from the
15 existence of the small firm effect.
16 As previously discussed, S&P recognizes that size plays a role in credit ratings.
17 Standard& Poor's has no minimum size criterion for any given rating
18 level. However, size turns out to be significantly correlated to ratings.
19 The reason: size often provides a measure of diversification, and/or affects
20 competitive position. . . . Small companies are, almost by definition, more
21 concentrated in terms of product, number of customers, or geography. In
22 effect, they lack some elements of diversification that can benefit larger
23 companies. To the extent that markets and regional economies change, a
24 broader scope of business affords protection. This consideration is
14Standard& Poor's, Corporate Ratings Criteria, Utilities: Key Credit Factors: Business and Financial Risks in The
Investor-Owned Utilities Industry,Nov.26,2008.
15Banz, 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.
PAGE 23 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I balanced against the performance and prospects of a given business. . . .
2 In addition, lack of financial flexibility is usually an important negative
3 factor in the case of very small companies. Adverse developments that
4 would simply be a setback for companies with greater resources could
5 spell the end for companies with limited access to funds.16
6 As shown on Schedule 9, size plays a role in the composition of investors, and hence
7 liquidity. In 2023, about 133% of the Water Group's shares traded while the larger
8 companies comprising the S&P Utilities had a much higher trading volume of 171%.
9 Insiders 17 hold more than ten times more, as a percent to total, of the Water Group's
10 shares than the S&P Utilities. Currently, only about 77% of the Water Group shares are
11 held by institutions18 while the larger companies comprising the S&P Utilities had much
12 higher institutional holdings of 85%. Due to small size and less interest by financial
13 institutions, fewer security analysts follow the Comparable Group, and none follow
14 VWID.
15 The lack of trading activity may affect the cost of equity estimates for small
16 entities such as VWID and the Water Group. When stock prices do not change because
17 of inactive trading activity, estimates of dividend yield for use in a dividend cash flow
18 model and beta estimates for use in the capital asset pricing model are affected. In a
19 stock market that is generally up, the beta estimates for the Comparable Companies may
20 be understated due to thin trading.
16Standard&Poor's,Corporate Ratings Criteria 2006;p.22.
17 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.
"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.
PAGE 24 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. Do VWID and the Comparable Companies have similar operating risks?
2 A. Yes. From an operations standpoint, VWID and the Comparable Companies have similar
3 risks and are indistinguishable. Both are required to meet Clean Water Act and Safe
4 Drinking Water Act requirements and are also required to provide safe and reliable
5 services to their customers and comply with Commission regulations.
6 Q. Is there any single measure that best shows investment risk from a common
7 stockholder's perspective?
8 A. No. However, from a creditor's viewpoint, the best measure of investment risk is debt
9 rating. The debt rating process generally provides a good measure of investment risk for
10 common stockholders because the factors considered in the debt rating process are
11 usually relevant factors that a common stock investor would consider in assessing the risk
12 of an investment. Credit rating agencies, such as S&P, assess the risk of an investment
13 into two categories based on: fundamental business analysis; and financial analysis.19
14 The business risk analysis includes assessing: Country risk; industry risk; competitive
15 position; and profitability/peer group comparisons. The financial risk analysis includes
16 assessing: accounting; financial governance and policies/risk tolerance; cash flow
17 adequacy; capital structure/asset protection; and liquidity/short-term factors.
18 Q. What is the bond rating of VWID and the Comparable Group?
19 A. Page I of Schedule 10 shows the average bond/credit rating Comparable Group. The
20 Comparable Group has an A credit profile and VWID does not have bonds rated. VUR
21 has an A credit profile. The major bond rating/credit rating agencies append modifiers,
19Standard&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.
PAGE 25 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I such as+, - for S&P and 1, 2, and 3 for Moody's Investors Service ("Moody's") to each
2 generic rating classification. For example, an"A" credit profile is comprised of three
3 subsets such as A+, A, A- for S&P or Al, A2 or A3 for Moody's. The modifier of either
4 "+"or"1"indicates that the obligation ranks in the higher end of its generic rating
5 category; the modifier"2" indicates a mid-range ranking; and the modifier of"-" or 643"
6 indicates a ranking in the lower end of that generic rating category.
7 S&P and Moody's publish financial benchmark criteria necessary to obtain a
8 bond rating for different types of utilities. As a generalization, the higher the perceived
9 business risk, the more stringent the financial criteria so the sum of the two, business risk
10 and financial criteria, remains the same.
11 Q. What are some financial benchmarks applied by credit rating agencies for rating
12 public utility debt?
13 A. S&P describes its range of financial benchmarks as
14 Risk-adjusted ratio guidelines depict the role that financial ratios play in
15 Standard& Poor's rating process, since financial ratios are viewed in the
16 context of a firm's business risk. A company with a stronger competitive
17 position, more favorable business prospects, and more predictable cash
18 flows can afford to undertake added financial risk while maintaining the
19 same credit rating. The guidelines displayed in the matrices make explicit
20 the linkage between financial ratios and levels of business risk.20
21 Q. What other information is shown on Schedule 10?
22 A. Page 2 of Schedule 10 summarizes the application of S&P's and Moody's measures of
23 financial risk for VWID and the Comparable Group. S&P's and Moody's measures of
24 financial risk are broader than the traditional measure of financial risk(i.e., leverage).
20Standard&Poor's Corporate Rating Criteria,2000.
PAGE 26 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Besides reviewing amounts of leverage employed, S&P and Moody's also focus on
2 earnings protection and cash flow adequacy.
3 As is evident from the information shown on page 2 of Schedule 10, for the five
4 years ending in 2023 and for the year 2023, VWID's cash flow adequacy ratios were
5 generally higher than the Comparable Companies in most instances. Comparing the
6 VWID and the Water Group's measures of cash flow adequacy shows that the VWID has
7 experienced a higher level of cash flow adequacy than Water Group, indicating that
8 VWID is a lower investment risk than the Water Group. Prospectively,based upon the
9 Company's construction program, the Company's ratios are likely to be strained. Based
10 solely upon VWID's historical ratios, it is my opinion that VWID's credit profile is
11 similar to the Comparable Companies.
12 However,based solely upon VWID's size, it is my opinion that VWID's credit
13 profile is lower than the Comparable Groups'. Based on VWID's smaller size, it is
14 highly likely that VWID's credit profile is below BBB (i.e., BB), based solely upon size.
15 An analysis of corporate credit ratings, shown on page 4 of Schedule 10, indicates that
16 there is an 87% (100%-0%-1%-4%-8%=87%) chance that VWID's credit profile falls
17 below BBB based on its small size alone.21 As S&P has stated, size is significantly
18 correlated to credit ratings.
19 An analysis of corporate credit ratings, summarized on page 4 of Schedule 10,
20 found The Berkshire Gas Company ("Berkshire") to be the smallest utility with a credit
21 rating. Berkshire's credit rating is only BBB+despite having a capitalization comprised
21 Additionally,using VWID's $310.628 million capitalization as a midpoint,I found only 15 companies which had
capitalization of between $210.628 million to $410.628 million with a S&P bond or credit rating. Of these 14
companies,only 36%had bonds rated BBB or higher.
PAGE 27 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I of about $213 million and a common equity ratio of 72%. According to this analysis of
2 corporate credit ratings, the smallest rated water utility is The York Water Company
3 ("York"). York's credit rating is only A-notwithstanding having a capitalization of
4 about $402 million and a common equity ratio of 55%.
5 Q. Have you reviewed the Company's large construction program?
6 A. Yes, the Company estimates their construction program to total $225.8 million(net of
7 advances and contributions) from 2024 through 2028. At year end 2023 the Company's
8 total capital outstanding was $310.6 million, indicating the need for a 73% increase
9 ($225.8 million- $310.6 million) in capital through 2028.22
10 Q. How does the magnitude of the Company's large construction program compare to
11 the Comparable Group's construction program?
12 A. The Company is forecasted to require 73% of additional capital to finance their
13 construction program while the Comparable Group is projected by Value Line to require
14 59% of additional capital to finance their construction programs. Accordingly, VWID's
15 capital requirements are about 23% greater than the Comparable Group's through 2028
16 indicating more risk for VWID.
17 In order to compete with the Comparable Group for capital, in the future, it will
18 be necessary for VWID to achieve higher returns on equity, and increased cash flow just
19 to maintain a similar credit quality.
20 S&P has stated:
zz Perfluorooctanoic acid("PFOA") is a type of perfluoroalkyl and polyfluoroalkyl substance ("PFAS"), a group of
human-made chemicals that are stable and do not break down easily. In April 2024 the EPA issued a Maximum
Contaminant Level ("MCL") for six PFAS compounds. Currently, the Company anticipates that measures will be
needed to comply with the EPA rule and is currently assessing those needs.
PAGE 28 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I ... low authorized returns may affect the industry's ability to attract
2 necessary capital to develop new water supplies and upgrade the quality of
3 existing supplies . . . Traditional ratemaking policy has not provided
4 sufficient credit support during the construction cycle of the electric
5 industry over the past 15 years. To avoid a repeat in the water industry,
6 regulators must be aware of the increased challenges the industry faces.23
7 Investors will not provide the equity capital necessary for increasing the amount of
8 common equity in a capital structure unless the regulatory authority allows an adequate
9 rate of return on the equity.24
10 Q. What do you conclude from the various measures of investment risk information
11 you have testified to?
12 A. A summary of my conclusions regarding the risk analyses discussed previously is shown
13 in Table 5. Overall, the information summarized in Table 5 indicates that VWID has
14 similar investment risk as the Water Group.
21Standard&Poor's CreditWeek,May 25, 1992(emphasis added).
24National Association of Regulatory Utility Commissioners,loc.cit.
PAGE 29 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

Summary of Risk Analyses
VWID Water Group
Followed by Analysts
1. Business Risk:
2. Country Risk Similar Risk Level
3. Industry Risk Similar Risk Level
4. Competitive Position Similar Risk Level
5. Profitability/Peer Group Comparisons Higher Risk Level
6. Capitalization Ratios&Financial Risk(Leverage)' Similar Risk Level
7. Debt Cost Rate* Similar Risk Level
8. Relative Size:
9. Regulatory Diversification Higher Risk Level
10. Economic Diversification Higher Risk Level
11. Demographic Diversification Higher Risk Level
12. Diversification of Weather Conditions Higher Risk Level
13. Customer Concentration of Revenues Higher Risk Level
14. Capital Intensity Higher Risk Level
15. Capital Recovery Higher Risk Level
16. Lower Liquidity:
17. Institutional Holdings Higher Risk Level
18. Insider Holdings Higher Risk Level
19. Percentage of Shares Traded Higher Risk Level
20. Required To Meet Clean Water Acts and Safe Drinking Water Act Similar Risk Level
21. Credit Market Financial Risk Metrics Higher Risk Level
22. Cash Flow Adequacy Higher 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.
1 Table 5
2 CAPITAL COST RATES
3 Q. What information is shown on Schedule 11?
4 A. Schedule 11 reviews long-term and short-term interest rate trends. Long-term and short-
5 term interest rate trends are reviewed to ascertain the"sub-flooring" or"basement"upon
6 which the Comparable Companies' common equity market capitalization rate is built.
7 Based upon the settled yields implied in the Treasury Bond future contracts and the long-
8 term and recent trends in spreads between long-term government bonds and A-rated
PAGE 30 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I public utility bonds available to me at the time Schedule 11 was prepared, I conclude that
2 the market believes that if the Comparable Companies issued new long-term bonds near
3 term, they would be priced to yield about 5.4%based upon a credit profile of"A."
4 Further, it is reasonable to conclude the market anticipates that long-term government
5 bonds will be priced to yield about 4.2%, near term.
6 Since October 2008, the Federal Reserve ("FED") has been monetizing US
7 Treasury debt to artificially suppress interest rates through expansionary money policies
8 (i.e., quantitative easing). The Federal Reserve, with effectively unlimited money at its
9 disposal, intervenes at any time it wishes, in whatever volume it wishes, to make sure that
10 Treasury bond and bill prices and yields are exactly what the Federal Reserve wants them
11 to be. The U.S. Treasury bond market, and mortgage market, has become an artificial
12 market with no connection to objective risk and interest rates.
13 In August 2011, the Federal Reserve began "Operation Twist." Under"Operation
14 Twist,"the Federal Reserve began buying $400 billion of long-dated or long-term US
15 Treasury debt, financed by selling short-term US Treasury debt with three years to go or
16 less. The goal of"Operation Twist"was to try to drive long-term rates lower, which the
17 Federal Reserve thought would help the mortgage market. This process has created an
18 artificial demand for the US Treasury debt themselves, and easily drives interest rates
19 artificially lower and deceives investors into believing U.S. Treasury debt is safe with
20 wide demand. This has resulted in the entire capital system being impacted by the
21 Federal Reserve's distortion of the price of risk.
22 In the real world of economics, the borrower pays an interest rate to a
23 lender, who makes money(interest) by taking on the risk of lending and
24 deferring gratification. The lender is willing to not spend his money now.
PAGE 31 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I In a free market economy, interest rates are essentially a price put on
2 money, and they reflect the time preference of people. Higher interest
3 rates reflect a high demand for borrowing and lower savings. But the
4 higher rates automatically correct this situation by encouraging savings
5 and discouraging borrowing. Lower interest rates will work the opposite
6 way. When the government/central bank tampers with interest rates,
7 savings and lending are distorted, and resources are misallocated. This is
8 evident in looking back on the housing bubble. The artificially low
9 interest rates signaled that there was a high amount of savings. But it was
10 a false signal. There was also a signal for people to borrow more. Again,
11 it was a false signal. As these false signals were revealed, the housing
12 boom turned into a bust.zs
13
14 In response to COVID-19, the Federal Reserve provided monetary and fiscal
15 stimulus to increase liquidity in the form of new fiscal stimulus programs and rate cuts.
16 "For context, new fiscal stimulus and total fiscal deficits in the US are roughly double the
17 levels seen in 2008-2009, and the US fiscal deficit we project for 2020 of 15%-18% is
18 only matched by deficits seen at the height of WWII in 1942-1943."26 The combined
19 result of these actions by the Federal Reserve and investors' flight to quality resulted in
20 artificial and historically low risk-free rates as measured by the 30-year treasury bond
21 yield.
22 Q. What are some of the results from the FED's monetary and fiscal stimulus?
23 A. The FED's quantitative easing of expanding its own balance sheet, by buying bonds, and
24 therefore injecting money into the economy, floods the economy with additional cash,
25 keeping interest rates low and impacts equity markets. Additionally, the FED's
26 uninterrupted and aggressive monetary expansion policy necessarily puts pressure on
27 inflation. The FED's monetary and fiscal stimulus, which included artificial and
25Pike,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)
26 https://www.jpmorgan.com/jpmpdf/1320748588999.pdf,(5/29/20).
PAGE 32 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I historically low interest rates, have produced some of the highest inflation rates in the last
2 40 years according to CNBC.
3 Inflation rose 9.1% in June, even more than expected, as consumer
4 pressures intensify.
5
6 Shoppers paid sharply higher prices for a variety of goods in June as
7 inflation kept its hold on a slowing U.S. economy, the Bureau of Labor
8 Statistics reported Wednesday.
9
10 The consumer price index, a broad measure of everyday goods and
11 services related to the cost of living, soared 9.1% from a year ago, above
12 the 8.8%Dow Jones estimate. That marked the fastest pace for inflation
13 going back to November 1981.27
14
15 In response to the level of inflation rates, the Federal Reserve ("FED") announced
16 its goal of increasing interest rates as high as needed to get inflation back to 2%.
17 Americans are headed for a painful period of slow economic growth and
18 possibly rising joblessness as the Federal Reserve raises interest rates to
19 fight high inflation, U.S. central bank chief Jerome Powell warned on
20 Friday in his bluntest language yet about what is in store for the world's
21 biggest economy.
22
23 In a speech kicking off the Jackson Hole central banking conference in
24 Wyoming, Powell said the Fed will raise rates as high as needed to restrict
25 growth, and would keep them there "for some time" to bring down
26 inflation that is running at more than three times the Fed's 2% goal.
27
28 "Reducing inflation is likely to require a sustained period of below-trend
29 growth," Powell said. "While higher interest rates, slower growth, and
30 softer labor market conditions will bring down inflation, they will also
31 bring some pain to households and businesses. These are the unfortunate
32 costs of reducing inflation. But a failure to restore price stability would
33 mean far greater pain.
27 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-9pointlpercent-in June-even-more-than-
expected-as-price-pressures-intensify,(7/13/22).
PAGE 33 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I As that pain increases, Powell said,people should not expect the Fed to
2 dial back its monetary policy quickly until the inflation problem is fixed.28
3 The Chairman of the Federal Reserve reiterated its goal of increasing interest rates
4 as high as needed to get inflation back to 2%.
5 It is the Fed's job to bring inflation down to our 2 percent goal, and we
6 will do so. We have tightened policy significantly over the past year.
7 Although inflation has moved down from its peak—a welcome
8 development—it remains too high. We are prepared to raise rates
9 further if appropriate, and intend to hold policy at a restrictive level
10 until we are confident that inflation is moving sustainably down toward
11 our objective. . . .
12
13 Restrictive monetary policy has tightened financial conditions, supporting
14 the expectation of below-trend growth. Since last year's symposium, the
15 two-year real yield is up about 250 basis points, and longer-term real
16 yields are higher as well—by nearly 150 basis points. Beyond changes
17 in interest rates,bank lending standards have tightened, and loan growth
18 has slowed sharply. . . .
19
20 But we are attentive to signs that the economy may not be cooling as
21 expected. So far this year, GDP (gross domestic product) growth has
22 come in above expectations and above its longer-run trend, and recent
23 readings on consumer spending have been especially robust. In addition,
24 after decelerating sharply over the past 18 months, the housing sector is
25 showing signs of picking back up. Additional evidence of persistently
26 above-trend growth could put further progress on inflation at risk and
27 could warrant further tightening of monetary policy.29
28 The Federal Reserve considers inflation, employment and the rate of borrowing,
29 among other economic factors when setting their target interest rate levels.
30 The Federal Reserve has decided to hold interest rates steady after its
31 meeting on June 11 and 12, 2024. The federal funds target rate has
32 remained at 5.25%to 5.5% since July 2023.
33
28 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 hM2s://www.reuters.com/markets/us/feds-Powell-pain-ti hg_t-policy. -s�arowth-needed-
for-some-time-beat-inflation-2022-08-26/,(8/27/22).
29 Jerome H. Powell, "Inflation: Progress and the Path Ahead" ("Structural Shifts in the Global Economy," an
economic policy symposium sponsored by the Federal Reserve Bank of Kansas City,Jackson Hole,Wyoming,August
25,2023). (Emphasis added and footnotes omitted)
PAGE 34 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I To combat inflation,the rate was raised 11 times between March 2022
2 and July 2023. Inflation has receded, but the Fed has signaled it wants
3 more positive data before pulling the trigger.
4
5 In March 2024, the central bank predicted three quarter-point cuts by the
6 end of the year. As time goes on, however, that has become less of a
7 certainty.
8
9 The FOMC meets eight times a year to discuss whether to adjust the
10 federal funds rate, a benchmark that governs overnight lending between
11 commercial banks. Led by Federal Reserve Chair Jerome Powell, the
12 group of 12 considers inflation, employment and the rate of borrowing,
13 among other economic factors.
14
15 The FOMC has met four times so far in 2024,but declined to change
16 rates. The remaining meetings this year are:
17 July 30 and July 31, 2024
18 Sept. 17 and Sept. 18, 2024
19 Nov. 6 and Nov. 7, 2024
20 Dec. 17 and Dec. 18, 2024
21
22 Amy Hubble, principal investment advisor with Radix Financial, told
23 CNBC Select she doesn't expect a rate hike in July.
24
25 "That doesn't mean that the Fed is doing nothing, though,"Hubble said.
26 "They're doing their job—while we don't have any weaknesses in the
27 job market, which is the Fed's most important objective, you still see
28 inflation above 3%. That's higher than we want. We have started to see
29 that come down,but we'll see how the summer goes."30
30 On November 7, 2024, the Federal Reserve made its second rate cut of this year,
31 with the decision coming less than two months after the central bank's 0.50 percentage
32 points cut in September. The Fed shaved borrowing costs by 0.25 percentage points, or
33 half the size of its September reduction, according to its Thursday statement. Fed officials
34 have justified the easing mode for policy as they view supporting employment becoming
30 Neubauer,K. and Amond, R. (2024, June 20) "When will interest rates go down?Interest rates have held steady
since July 2023.," CNBC. Retrieved from https://www.cnbc.com/select/when-will-interest-rates-
drop/#:—:text=lnterest%20rates%20have%20held%20steady%20since%2OJuly%202023.&text=The%2OFederal%20
Reserve%20has%20decided,March%202022%20and%20July%202023.(accessed June 28,2024)(Emphasis added)
PAGE 35 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I at least as much of a priority as arresting inflation. "Even with the Fed lowering rates,
2 markets have not responded in kind. Treasury yields have jumped higher since the
3 September cut, as have mortgage rates. The 30-year mortgage, for instance, has
4 climbed about 0.7 percentage point to 6.8%, according to Freddie Mac. The 10-year
5 Treasury yield is up almost as much."31
6 Prospectively the capital markets will be affected by the upcoming unprecedented
7 large Treasury financings coupled with increased interest rates. Investors provide capital
8 based upon risk and return opportunities and investors will not provide common equity
9 capital when higher risk-adjusted returns are available.
10 COMMON EQUITY COST RATE ESTIMATE
11 Q. What is the best method of estimating common equity cost rates?
12 A. There is no single method(model) suitable for estimating the cost rate for common
13 equity. While a single investor may rely solely upon one model in evaluating investment
14 opportunities, other investors rely on different models. Most sophisticated investors who
15 use an equity valuation model rely on many models in evaluating their common equity
16 investment alternatives. Therefore, the average price of an equity security reflects the
17 results of the application of many equity models used by investors in determining their
18 investment decisions.
19 The application of any single model to estimate common equity cost rates is not
20 appropriate because the security price for which the equity cost rate is being estimated
21 reflects the application of many models used in the valuation of the investment. That is,
"Cox,J. (2024,November 7).Federal Reserve cuts interest rates by a quarter point. CNBC.Retrieved from
https://www.cnbc.com/2024/11/07/fed-rate-decision-november-2024.html,(11/8/24).
PAGE 36 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I the price of any security reflects the collective application of many models. Accordingly,
2 if only one model is used to estimate common equity cost rates, that cost rate will most
3 likely be different from the collective market's cost rates because the collective valuation
4 in the market reflects more than one method.
5 Noted financial texts, investor organizations and professional societies all endorse
6 the use of more than one valuation method. "We endorse the dividend discount model,
7 particularly when used for established companies with consistent earnings power and
8 when used along with other valuation models. It is our view that, in any case, an investor
9 should employ more than one model. ,32
10 The American Association of Individual Investors states, "No one area of
11 investment is suitable for all investors and no single method of evaluating investment
12 opportunities has been proven successful all of the time."33
13 In its study guide, the National Society of Rate of Return Analysts states, "No
14 cost of equity model or other concept is recommended or emphasized, nor is any
15 procedure for employing any model recommended . . . it remains important to recognize
16 that alternative methods exist and have merit in cost of capital estimation. To this end,
17 analysts should be knowledgeable of a broad spectrum of cost of capital techniques and
18 issues."34
12Sidney Cottle,Roger F.Murray and Frank E.Block,Graham and Dodd's Securities Analysis 5th Edition,McGraw-
Hill,Inc., 1988,p. 568 (emphasis added).
33Editorial Policy, AAII Journal, American Association of Individual Investors, Volume 18, No. 1, January 1996,
P. 1.
"David C. Parcell, The Cost of Capital-A Practitioners Guide,National Society of Rate of Return Analysts, 1995
Edition.
PAGE 37 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Several different models should be employed to measure accurately the market-
2 required cost of equity reflected in the price of stock. Therefore, I used three recognized
3 methods: the DCF shown on Schedule 12, the CAPM shown on Schedule 17, and the RP
4 shown on Schedule 18.
5 DISCOUNTED CASH FLOW
6 Q. Please explain the discounted cash flow model.
7 A. The DCF is based upon the assumption that the price of a share of stock is equal to a
8 future stream of cash flows to which the holder is entitled. The stream of cash flows is
9 discounted at the investor-required cost rate (cost of capital).
10 Although the traditional DCF assumes a stream of cash flow into perpetuity, a
11 termination, or sale price can be calculated at any point in time. Therefore, the return rate
12 to the stockholder consists of cash flow (earnings or dividends) received and the change
13 in the price of a share of stock. The cost of equity is defined as:
14 ...the minimum rate of return that must be earned on equity
15 finance and investments to keep the value of existing common
16 equity unchanged. This return rate is the rate of return that
17 investors expect to receive on the Company's common stock . . .
18 the dividend yield plus the capital gains yiel . . . 31
19
20 Q. Please explain how you calculated your dividend yield in the DCF shown on
21 Schedule 12.
22 A. As shown on page 1 of Schedule 12, I used the average dividend yield of 2.5% for the
23 Water Group. The individual dividend yields are shown on page 2 of Schedule 12 and
24 are based upon the most recent months' yield, September 2024, and the twelve-month
'SJ.Fred Weston and Eugene F.Brigham,Essentials of Managerial Finance,3rd ed.(The Dryden Press), 1974,p.504
(emphasis added).
PAGE 38 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I average yield, ending September 2024. The second input to a market DCF calculation is
2 the determination of an appropriate share price growth rate.
3 Q. What sources of growth rates did you review?
4 A. I reviewed both historical and projected growth rates. Schedule 13 shows the array of
5 projected growth rates for the Comparable Companies that are published. Specific
6 historical growth rates are shown for informational purposes because I believe the
7 meaningful historical growth rates are already considered when analysts arrive at their
8 projected growth rates. Nonetheless, some investors may still rely on historical growth
9 rates.
10 Q. Please explain the sources of the projected growth rates shown on Schedule 13.
11 A. I relied upon four sources for projected growth rates, First Call, S&P, Zacks Investment
12 Research and Value Line.36
13 Q. Did you review any other growth rates besides those shown on Schedule 13?
14 A. Yes. I reviewed EPS growth rates reflecting changes in return rates on book common
15 equity (ROE) over time. I summarized recent ROES on page I of Schedule 14 and
16 compared those to the Water Group's higher levels projected to be achieved by Value
17 Line, as shown on page 2 of Schedule 14. ROEs increase when EPS grows at much
18 higher/faster rates than book value.
19 I also reviewed industry specific average projected growth rates that are published
20 by Zacks for the industries in which the Comparable Companies operate. According to
36With 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.
PAGE 39 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Zacks, the Water Group's industry is projected to have EPS growth rates that average
2 9.9% over the next five years.
3 Q. What do you conclude from the growth rates you have reviewed?
4 A. Table 6 summarizes some of the various growth rates reviewed.
Summary of Growth Rates
Water
Group
Projected 5 Year Growth in EPS 6.7
Actual 5 Year Growth in EPS 5.4
Projected 5 Year Growth in DPS 6.8
Projected 5 Year Growth in EPS for the industry 9.9
5 Table 6
6 Academic studies suggest that growth rate conclusions should be tested for
7 reasonableness against long-term interest rate levels. Further, the minimum growth rate
8 must at least exceed expected inflation levels. Otherwise, investors would experience
9 decreases in the purchasing power of their investment. Finally, the combined result of
10 adding the growth rate to the market value dividend yield must provide a sufficient
11 margin over yields of public utility debt.
12 Q. What method did you use to arrive at your growth rate conclusion?
13 A. No single method is necessarily the correct method of estimating share value growth. It
14 is reasonable to assume that investors anticipate that the Water Group's current ROE will
15 expand to higher levels. The published historical earnings growth rates for the Water
16 Group averages 5.4%. Because there is not necessarily any single means of estimating
PAGE 40 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I share value growth, I considered all of this information in determining a growth rate
2 conclusion for the Comparable Companies.
3 Moreover, while some rate of return practitioners would advocate that
4 mathematical precision should be followed when selecting a growth rate, the fact is that
5 investors do not behave in the same manner when establishing the market price for a
6 stock. Rather, investors consider both company-specific variables and overall market
7 sentiment such as inflation rates, interest rates and economic conditions when
8 formulating their capital gains expectations. This is especially true when one considers
9 the relatively meaningless negative growth rates. That is,use of a negative growth rate in
10 a DCF implies that investors invest with the expectation of losing money.
11 The range of growth rates previously summarized supports the reasonableness of
12 an expected 6.7% growth rate for the Water Group based primarily on the projected five-
13 year growth rates and considering the Water Group's industry projected EPS growth rates
14 of 9.9%. Like the projected growth rates, this investor-expected growth rate of 6.7% is
15 based on a survey of projected and historical growth rates published by established
16 entities, including First Call, S&P, Zacks Investment Research and Value Line. Use of
17 information from these unbiased professional organizations provides an objective
18 estimation of investor's expectations of growth. Based on the aforesaid, all growth rates
19 for the Comparison Companies have been considered and have been given weight in
20 determining a 6.7% growth rate for the Water Group.
21 Q. What is your market value DCF estimate for the Comparable Companies?
22 A. The market value DCF cost rate estimate for the Water Group is 9.3%, as detailed on
23 page I of Schedule 12.
PAGE 41 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. Are there other considerations that should be taken into account in reviewing a
2 market value capitalization DCF cost rate estimate?
3 A. Yes. It should be noted that although I recommend specific dividend yields for the
4 Comparable Group, I recommend that less weight be given to the resultant market value
5 DCF cost rate due to the market's current market capitalization ratios and the impact that
6 the market-to-book ratio has on the DCF results.37 The Comparable Companies' current
7 market-to-book ratios of 241% and low dividend yields are being affected by the
8 aforementioned policy of the Federal Reserve that has resulted in the mispricing of
9 capital due to artificial interest rates, not DCF fundamentals.
10 Although the DCF cost for common equity appears to be based upon
11 mathematical precision, the derived result does not reflect the reality of the marketplace
12 since the model proceeds from unconnected assumptions. The traditional DCF derived
13 cost rate for common equity will continuously understate or overstate investors' return
14 requirements as long as stock prices continually sell above or below book value. A
15 traditional DCF model implicitly assumes that stock price will be driven to book value
16 over time. However, such a proposition is not rational when viewed in the context of an
17 investor purchasing stock above book value. It is not rational to assume that an investor
18 would expect share price to decrease 59% (100%-241%=41%-100%=59%) in value to
19 equal book value.
37 The impact of the market's current market capitalization ratios on the resultant market value DCF cost rate is
especially evidenced when the DCF result for individual companies in the Comparable Group is considered. For
example, the resultant market value DCF cost rate for two of the individual companies in the Comparable Group
produce cost rates that are more than 2.00 percentage points below the Comparable Group's average cost rate.e.
PAGE 42 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Utility stocks do not trade in a vacuum. Utility stock prices, whether they are
2 above or below book value, reflect worldwide market sentiment and are not reflective of
3 only one element.
4 Q. What do you mean by your statement that utility stocks are not traded in a
5 vacuum?
6 A. Utility stocks cannot be viewed solely by themselves. They must be viewed in the
7 context of the market environment. Table 7 summarizes recent market-to-book ratios
8 ("MB") for well-known measures of market value reported in the October 4, 2024 issue
9 of Barron's and the Water Group's average MB as shown on page 1 of Schedule 14.
M/B
Ratios
Dow Jones Industrials 532
Dow Jones Transportation 404
Dow Jones Utilities 223
S&P 500 520
S&P Industrials 691
Vs.
Water Group 241
10 Table 7
11 Utility stock investors view their investment decisions compared with other investment
12 alternatives, including those of the various market measures shown in Table 7.
13 Q. How does a traditional DCF implicitly assume that market price will equal book
14 value?
15 A. Under traditional DCF theory, price will equal book value (M/B=1.00) only when a
16 company is earning its cost of capital. Traditional DCF theory maintains that a company
PAGE 43 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I is under-earning its cost of capital when the market price is below book value
2 (MB<1.00), while a company over-earning its cost of capital will have a market price
3 above its book value (M/B>1.00). If this were true, it would imply that the capitalistic
4 free-market is not efficient because the overwhelming majority of stocks would currently
5 be earning more than their cost of capital. Table 7 shows that most stocks sell at an M/B
6 that is greater than 1.0.
7 Q. Please explain why such a phenomenon would show that the capitalistic free-market
8 is not efficient.
9 A. Historically, the S&P 500, which represented the largest 500 companies listed on
10 exchanges in the United States, have not sold at an MB of 1.0 during the last 25-years,
11 1999-2023. Based upon the traditional DCF assumption, which suggests that companies
12 with M/Bs greater than 1.0 earn more than their cost of capital, this data would suggest
13 that the S&P 500 companies have earned more than their cost of capital while competing
14 in a competitive environment over the 25-year period. In a competitive market, new
15 companies would continually enter the market up to the point that the earnings rate was at
16 least equal to their cost of capital.
17 During this period the S&P 500 sold at an average M/B of 311%while
18 experiencing a ROE of 19.4% over a period in which interest rates averaged 4.1%. It is
19 important to note that during this period the S&P 500 MB ranged from 206%to 460%,
20 all while competing in competitive markets.
21 Q. What is the significance of S&P 500 M/B and the cost of capital for a water utility?
22 A. As stated previously,utility stocks do not trade in a vacuum. They must compete for
23 capital with other firms including the S&P 500 stocks. Over time, there has been a
PAGE 44 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I relationship between M/Bs of S&P 500 stocks and utility stocks. Although S&P 500
2 stocks have generally sold at a higher multiple of book value than utility stocks, both
3 have tracked in similar directions. Because utility and S&P 500 stock prices relative to
4 book values move in similar directions, it is irrational to conclude that stock prices that
5 are different from book value, either higher or lower, suggests that a firm is over-or
6 under-earning its cost of capital when competitive, free-markets exist.
7 Q. Does the market value DCF provide a reasonable estimate of the Water Group's
8 common equity cost rate?
9 A. No, the DCF only provides a reasonable estimate of the Comparable Group's common
10 equity cost rate when their market price and book value are similar(M/B=100%).38 A
11 DCF will overstate a common equity cost rate when M/Bs are below 100% and
12 understate when they are above 100%. Since the Comparable Group's current M/Bs
13 average 241%, the DCF understates their common equity cost rate. Schedule 15 provides
14 a numerical illustration of the impact of MBs on investors' market returns and DCF
15 returns. The reason that DCF understates or overstates investors' return requirements
16 depending upon M/B levels is because a DCF-derived equity cost rate is applied to a
17 book value rate base while investors' returns are measured relative to stock price levels.
18 Based upon this, I recommend that less weight be given to the market value DCF cost
19 rate unless the increased financial risk, resulting from applying a market value cost rate to
20 a book value, is accounted for.
"Roger A Morin,Regulatory Finance-Utilities' Cost of Capital,Public Utility Reports,Inc., 1994,pp.236-237.
PAGE 45 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. How do you resolve the financial risk difference between market value cost rates
2 and book value cost rates?
3 A. The basic proposition of financial theory regarding the economic value of a company is
4 based on market value. That is, a company's value is based on its market value
5 weighted average cost of capital.39 The American Society of Appraisers, ASA Business
6 Valuation Standards, 2009, and the National Association of Certified Valuation Analysts,
7 Professional Standards, 2007,use the same definition:
8 Weighted Average Cost of Capital (WACC). The cost of capital (discount
9 rate) determined by the weighted average, at market values, of the cost of
10 all financing sources in the business enterprise's capital structure.
11 (Emphasis added)
12
13 Accordingly, the market value derived cost rate reflects the financial risk or leverage
14 associated with capitalization ratios based on market value, not book value.
15 As shown on page 1 of Schedule 16, for the Water Group there is a large
16 difference in leverage as a result of the average $4.048 billion difference in market value
17 common equity and book value common equity. This difference in market values and
18 book values results in debt/equity ratios based on market value of 30.8%/69.2%
19 (debt/equity)verses 50.1%/49.9% (debt/equity)based on book value as shown on page 1
20 of Schedule 16. The larger the difference between market values and book values the
21 less reliable the models' results are because the models provide an estimate of the cost
22 of capital of market value, not book value.
39For other examples,see http://www.investin,ganswers.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://accountingeNplained.com/misc/corporate-finance/wacc.
PAGE 46 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Financial theory concludes that capital structure and firm value are related. Since
2 capital structure and firm value are related, an adjustment is required when a cost of
3 common equity model is based on market value and if its results are then applied to book
4 value. As explained previously, the market value derived cost rate reflects the financial
5 risk or leverage associated with capitalization ratios based on market value, not book
6 value. The authors Brealey, Myers and Allen provide a similar definition of the cost of
7 capital being based on market capitalization, not book value,
8 The values of debt and equity add up to overall firm value (D +E =V)
9 and firm value V equals asset value. These figures are all market values,
10 not book(accounting)values. The market value of equity is often much
11 larger than the book value, so the market debt ratio DN is often much
12 lower than a debt ratio computed from the book balance sheet.40
13 The work of Modigliani and Miller concludes that the market value of any firm is
14 independent of its capital structure and this is precisely the reason why an adjustment is
15 appropriate. The only way for the market value of a firm to remain independent of its
16 capital structure is if the capital cost rates change to offset changes in the capital
17 structure. If the capital cost rates do not change to offset changes in the capital structure,
18 then the value of the firm will change. Clearly an adjustment is required when a cost of
19 common equity model is based on market value and if its results are then applied to
20 book value because the capital structure is changed from market value capitalization to
21 book value capitalization.41
40Brealey,Myers and Allen,Principles of Corporate Finance, 10th edition,page 216(emphasis added).
41 For example,based on the Modigliani and Miller Theorem,the Comparison Group's overall rate of return reflecting
their market capitalization and market value DCF is 8.10% and their net of tax overall rate of return is 7.66%.
Therefore, to support their market value (e.g., stock price), the Comparison Group must produce a similar level of
earnings on their book capitalization which would require a ROE of 10.8%to 11.35%.
PAGE 47 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Differences in the amount of leverage employed can be quantified based upon the
2 Comparable Group's leveraged beta being "unleveraged"through the application of the
3 "Hamada Model."
4 The Hamada equation is a fundamental analysis method of analyzing a
5 firm's cost of capital as it uses additional financial leverage, and how that
6 relates to the overall riskiness of the firm. The measure is used to
7 summarize the effects this type of leverage has on a firm's cost of
8 capital—over and above the cost of capital as if the firm had no debt.42
9 The Hamada Model and its variants (e.g., Harris-Pringle formula) are integral parts of
10 corporate finance today, used by valuation professionals in their determination of the cost
11 of capital and by academics to explain ideal capital structure. The Hamada Model and its
12 variants combines two financial theorems: the Modigliani-Miller Theorem and the
13 CAPM.43 On page 2 of Schedule 16 I used two Hamada Models including the original
14 Hamada formula and the Harris-Pringle formula to account for the 19.3 percentage point
15 (69.2% -49.9% = 19.3%) change in common equity ratio that results from changing from
16 market value capitalization to book value capitalization. The results of the application of
17 the original Hamada formula and the Harris-Pringle formula determine a range of
18 adjustment of 0.61%to 1.10%, and average 0.86%.44 The details of the application of the
19 two Hamada models are shown on page 2 of Schedule 16.
20 For example, the inputs to the original Hamada formula for the Water Group
21 market value capitalization consist of their raw leveraged beta of 0.75, debt ratio of
42 Hargrave, Marshall. "Hamada Equation Definition, Formula, Example," Investopedia. Accessed 3/14/23.
hops://www.investopedia.com/tenns/h/hamadaequation.asp.
43 "Hamada's Equation," Corporate Finance Institute. Accessed 3/14/23.
https:Hcorporatefinanceinstitute.com/resources/valuation/hamadas-equation/.
44 If the firm is assumed to rebalance its debt-to-equity ratio continuously, the Hamada formula is replaced with the
Harris-Pringle formula.
PAGE 48 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

1 30.8%,preferred stock ratio of 0.0%, common equity ratio of 69.2% and combined tax
2 rate of 26.14%. The group's unleveraged beta is determined to be 0.56 through the use of
3 the following original Hamada formula:
4 B1=Bu(1 + (1 -t) D/E+P/E)
5 where:
6 B1= observed, leveraged beta
7 Bu=calculated,unleveraged beta
8 t =income tax rate
9 D =debt ratio
10 P =preferred stock ratio
11 E =common equity ratio
12 Applying the unleveraged beta of 0.56 along with the Water Group's book value
13 capitalization ratios of 50.1% long-term debt, 0.0%preferred stock and 49.9% common
14 equity and combined tax rate of 26.14%results in a leveraged beta of 0.98 applicable to
15 the group's book value capitalization. Based upon the Water Group's risk premium of
16 4.8% and the difference between Water Group's market value leveraged beta, their book
17 value leveraged beta of 0.23 (0.98 - 0.75) indicates that the Water Group's common
18 equity cost rate must be increased by 1.10 (0.23 x 4.8 = 1.10) in recognition of their book
19 value's exposure to more financial risk.
20 The inputs to the Harris-Pringle formula for the Water Group market value
21 capitalization consist of their raw leveraged beta of 0.75, debt ratio of 30.8%, preferred
22 stock ratio of 0.0%, common equity ratio of 69.2% and debt beta of 0.42. The group's
23 unleveraged beta is determined to be 0.65 through the use of the following Harris-Pringle
24 formula:
PAGE 49 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I B1=Bu+ (Bu - Bd)(D/E)
2 where:
3 B1 =observed, leveraged beta
4 Bu=calculated,unleveraged beta
5 Bd=debt beta
6 D =debt ratio
7 P =preferred stock ratio
8 E =common equity ratio
9 Applying the unleveraged beta of 0.65 along with the Water Group's book value
10 capitalization ratios of 50.1% long-term debt, 0.0%preferred stock and 49.9% common
11 equity and debt beta of 0.42 results in a leveraged beta of 0.88 applicable to the group's
12 book value capitalization. Based upon the Water Group's risk premium of 4.8% and the
13 difference between Water Group's market value leveraged beta, their book value
14 leveraged beta of 0.13 (0.88 - 0.75) indicates that the Water Group's common equity cost
15 rate must be increased by 0.61 (0.13 x 4.8 0.61) in recognition of their book value's
16 exposure to more financial risk.
17 Q. Is there another way to reflect the financial risk difference that exists as a result of
18 market capitalization ratios being significantly different from book value
19 capitalization ratios?
20 A. Yes, generally speaking. Although it is possible to know the direction of a financial risk
21 adjustment on common equity cost rate, a specific quantification of financial risk
22 differences is very difficult. Although the end result of a financial risk adjustment is very
23 subjective and specific quantification very difficult, the direction of the adjustment is
24 clearly known. However, hypothetically if the Comparable Group's debt were rated
25 based on market value debt ratios they would command an AAA rating. The Comparison
PAGE 50 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Group currently has bonds rated A based upon their book value debt ratios. The yield
2 spread on a bond rated AAA versus A rated bonds averages about 55 basis points or
3 0.55% as shown on page 3 of Schedule 16.
4 The end result of the application of the Hamada Model and the bond yield spread
5 indicates that the Water Group market value common equity cost rate equity cost rate
6 should be adjusted upward by at least 0.70% (0.86% hamada est. +0.55%yield spread=
7 1.41%-2 = 0.7%) since it is going to be applied to a book value.
8 Accounting for the increased amount of leverage between market value derived
9 DCF cost rates and book value cost rates indicates a book value DCF cost rate of 10.00%
10 for the Water Group (9.3% +0.70% = 10.00%).
11 CAPITAL ASSET PRICING MODEL
12 Q. Please briefly describe the theory of the capital asset pricing model.
13 A. The CAPM is based upon the assumption that investors hold diversified portfolios and
14 that the market only recognizes or rewards non-diversifiable (or systematic) risk when
15 determining the price of a security because company-specific risk(or non-systematic) is
16 removed through diversification. Further, investors are assumed to require additional or
17 higher returns for assuming additional or higher risk. This assumption is captured by
18 using a beta that provides an incremental cost of additional risk above the base risk-free
19 rate available to investors. The beta of a security reflects the market risk or systematic
20 risk of the security relative to the market. The beta for the market is always equal to
21 1.00; therefore, a company whose stock has a beta greater than 1.00 is considered riskier
22 than the market, and a company with a beta less than 1.00 is considered less risky than
PAGE 51 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I the market. The base risk-free rate is assumed to be a U.S. Government treasury security
2 because they are assumed to be free of default risk.
3 Q. What risk-free rate and beta have you used in your CAPM calculation?
4 A. The risk-free rate used in CAPM should have approximately the same maturity as the life
5 of the asset for which the cost rate is being determined. Because utility assets are long-
6 lived, a long-term Treasury Bond yield serves as an appropriate proxy. Previously, I
7 estimated an appropriate risk-free rate of 4.2%based upon the recent and forward long-
8 term Treasury yields. I used the average beta of 0.85 for the Water Group as shown on
9 page 1 of Schedule 17. However, as stated previously, the Comparable Group's betas are
10 understated due to their small size which affects their stock price changes.
11 Q. After developing an appropriate beta and risk-free rate,what else is necessary to
12 calculate a CAPM derived cost rate?
13 A. A market premium is necessary to determine a traditional CAPM derived cost rate. The
14 market return rate is the return expected for the entire market. The market premium is
15 then multiplied by the company specific beta to capture the incremental cost of additional
16 risk(market premium) above the base risk-free rate (long-term treasury securities) to
17 develop a risk adjusted market premium. For example, if you conclude that the expected
18 return on the market as a whole is 15% and further assume that the risk-free rate is 8%,
19 then the market premium is shown to be 7% (15% - 8% =7%).
20 Further, assume there are two companies, one of which is considered less risky
21 than the market, and therefore has a beta of less than 1.00 or 0.80. The second company
22 has a beta that is greater than 1.00 or 1.20, and is therefore considered riskier than the
23 market. By multiplying the hypothetical 7.0%market premium by the respective betas of
PAGE 52 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

1 0.80 and 1.20, risk adjusted market premiums of 5.6% (7.0%x 0.80) and 8.4% (7.0%x
2 1.20) are shown for the company considered less risky than the market and for the
3 company considered riskier than the market, respectively.
4 Adding the assumed risk-free rate of 8%to the risk adjusted market premiums
5 results in the CAPM derived cost rates of 13.6% (5.6% + 8.0%) for the less risky
6 company and 16.4% (8.4% + 8.0%) for the company considered of greater risk than the
7 market. In fact, the result of this hypothetical CAPM calculation shows that: (1)the least
8 risky company, with the beta of 0.80, has a cost rate of 13.6%; (2)the market, with the
9 beta of 1.00, has a cost rate of 15.0%; and(3)that the higher risk company, with a beta of
10 1.20, has a cost rate of 16.4%.
11 Q. How did you develop a market premium for your CAPM?
12 A. The average projected market premium of 7.30% is developed on page 2 of Schedule 17.
13 It is based upon Value Line's average projected total market return for the next three to
14 five years of 10.80% less the risk free rate of 4.2% and the S&P 500's average projected
15 total market return for the next three to five years of 12.25% less the risk free rate of
16 4.2% from S&P Global Market Intelligence. I also reviewed market premiums derived
17 from Ibbotson Associates' most recent publication concerning asset returns that show a
18 market premium of 7.5%. The Ibbotson Associates' market premium may be on the low
19 side reflective of the higher interest rate environment found during their study, which
20 averaged 5.0%. The Value Line market premium reflects the Federal Reserve's current
21 artificial interest rate levels while the Ibbotson Associates' market premiums reflect a
22 higher interest rate environment.
PAGE 53 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. How did you adjust for the impact that size has on the Comparable Group's beta?
2 A. The adjustment is reflected in the CAPM size premium. The CAPM size premium is
3 developed on page 4 of Schedule 17. The size premium reflects the risks associated with
4 the Comparable Group's small size and its impact on the determination of their beta.
5 This adjustment is necessary because beta(systematic risk) does not capture or reflect the
6 Comparable Group's small size. I reduced the size premium by the ratio of the
7 Comparison Group's beta to their respective market quartile's beta and estimated credit
8 spreads for the comparison companies and the quartile companies.
9 Q. What is the comparison group's market cost of equity based upon your CAPM
10 calculation?
11 A. The CAPM based on Ibbotson Associates' historical market returns shows a market cost
12 rate range of 10.6%to 11.3% for the Water Group. The CAPM based on projected
13 market returns shows a range of 10.4%to 11.1% for the Water Group, as shown on page
14 1 of Schedule 17. The Comparable Group's market value CAPM of 10.8% is based
15 50.0% on the results of the historical market returns and 50.0% on the projected market
16 returns. Adjusting the market value CAPM based upon the end result of the application
17 of the Hamada Model and the bond yield spread to account for the difference in leverage
18 between market value capitalization ratios and book value ratios discussed previously
19 indicates a cost rate of 11.50% for the Water Group applicable to book value (10.8%+
20 0.70% = 11.50%).
PAGE 54 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I RISK PREMIUM
2 Q. What is a risk premium?
3 A. A risk premium is the common equity investors' required premium over the long-term
4 debt cost rate for the same company, in recognition of the added risk to which the
5 common stockholder is exposed versus long-term debtholders. Long-term debtholders
6 have a stated contract concerning the receipt of dividend and principal repayment
7 whereas common stock investors do not. Further, long-term debtholders have the first
8 claim on assets in case of bankruptcy. A risk premium recognizes the higher risk to
9 which a common stock investor is exposed. The risk premium-derived cost rate for
10 common equity is the simplest form of deriving the cost rate for common equity because
11 it is nothing more than a premium above the prospective level of long-term corporate
12 debt.
13 Q. What is the appropriate estimated future long-term borrowing rate for the
14 Comparable Companies?
15 A. The estimated near term long-term borrowing rate for the Comparable Companies is
16 5.4%based upon their credit profile that supports an A bond rating
17 Q. What is the appropriate risk premium to be added to the future long-term
18 borrowing rate?
19 A. To determine a common equity cost rate, it is necessary to estimate a risk premium to be
20 added to the Comparable Group's prospective long-term debt rate. Investors may rely
21 upon published projected premiums; they also rely upon their experiences of investing in
22 ultimately determining a probabilistic forecasted risk premium.
PAGE 55 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Projections of total market returns of 11.50% are shown on page 9 of Schedule
2 18. A projected risk premium for the market can be derived by subtracting the debt cost
3 rate from the projected market return as shown on page 9 of Schedule 18. However, the
4 derived risk premium for the market is not directly applicable to the Comparable
5 Companies because they are less risky than the market. The use of 85% of the market's
6 risk is a conservative estimation of their level of risk as compared to the market. Based
7 on this, a reasonable estimate of a longer term projected risk premium is 5.2% as shown
8 on page 9 of Schedule 18.
9 Q. How do investors' experiences affect their determination of a risk premium?
10 A. Returns on various assets are studied to determine a probabilistic risk premium. The
11 most noted asset return studies and resultant risk premium studies are those performed by
12 Ibbotson Associates. However, Ibbotson Associates has not performed asset return
13 studies concerning public utility common stocks. Based upon Ibbotson Associates'
14 methodology of computing asset returns, I calculated annual returns for the S&P utilities
15 and bonds for the period 1928-2023. The resultant annual returns were then compared to
16 determine a recent risk premium from a recent 20-year period, 2004-2023 and subsequent
17 periods that were each increased by ten years until the entire study period was reviewed
18 (pages 2 and 3 of Schedule 18).
19 A long-term analysis of rates of return is necessary because it assumes that
20 investors' expectations are, on average, equal to realized long-run rates of return and
21 resultant risk premium. Observing a single year's risk premium, either high or low, may
22 not be consistent with investors' requirements. Further, studies show a mean reversion in
23 risk premiums. In other words, over time, risk premiums revert to a longer-term average
PAGE 56 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I premium. Moreover, since the expected rate of return is defined as "the rate of return
2 expected to be realized from an investment; the mean value of the probability distribution
3 of possible results,"45 a long-term analysis of annual returns is appropriate.
4 Q. What do you conclude from the information shown on pages 2 and 3 of Schedule
5 18?
6 A. The average of the absolute range of the S&P Utilities' appropriate average risk premium
7 (i.e., bonds rated AAA to A)was 4.5% during the seven periods studied, as calculated
8 from page 2 of Schedule 18. The credit adjusted longer term risk premiums (i.e.,bonds
9 rated A), 1928-2023, averages 4.4%. The appropriate average (i.e.,bonds rated AAA to
10 A) longer term risk premiums, 1928-2023, have an absolute range of 4.4% to 5.0%, and
11 averages 4.7%.
12 The aforementioned premiums are based on total returns for bonds; and reflect
13 their price risk. A bond's price risk is not related to its credit quality and is eliminated
14 when a bond is held to maturity from time of purchase. Using the income returns, page 4
15 of Schedule 18, for bonds eliminates price risk and better measures an investor's required
16 return based on credit quality. The appropriate average risk premium(i.e., bonds rated
17 AAA to A) based on income returns was 5.2% during the seven periods studied. The
18 credit adjusted longer term risk premiums (i.e., bonds rated A), 1928-2023, averages
19 4.7%. The appropriate average (i.e., bonds rated AAA to A) longer term risk premiums,
20 1928-2023, have an absolute range of 4.7%to 5.1%, and averages 4.9%.
45Eugene F.Brigham,Fundamentals of Financial Mana eg merit,Fifth Edition,The Dryden Press, 1989,p. 106.
PAGE 57 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I Q. What information is shown on page 4 of Schedule 18?
2 A. Page 4 of Schedule 18 proves and measures the negative relationship between interest
3 rate levels and the resulting risk premium. That is, risk premiums are generally higher
4 when interest rates are low and risk premiums are generally lower when interest rates are
5 high. This was proven by sorting the 96-year period, 1928 to 2023, annual returns based
6 on interest rate level from lowest interest rate to highest interest rate and distributing the
7 results into two groups, a 48-year low interest rate environment group and a 48-year high
8 interest rate environment group.
9 During the period 1928-2023, the 48 years with the lowest interest rates had an
10 average interest rate of 2.9% and reflected a range of interest rates from 1.4%to 4.1%.
11 This period resembles the current interest rate environment of 4.2% discussed previously
12 regarding the CAPM's risk free rate. The risk premium based on total returns during this
13 low interest rate environment produced the appropriate average (i.e., bonds rated AAA to
14 A) longer term risk premium of 6.7% and a credit adjusted longer term risk premium
15 (i.e., bonds rated A) of 6.2%. The annual income return based risk premium during this
16 low interest rate environment produced the appropriate average (i.e., bonds rated AAA to
17 A) longer term risk premium of 7.4% and a credit adjusted longer term risk premium
18 (i.e., bonds rated A) of 7.1%.
19 However, during the period 1928-2023, the 48 years with the highest interest rates
20 had an average interest rate of 7.1% and reflected a range of interest rates from 4.1%to
21 13.5%. This period is far different from the current interest rate environment of 4.2%.
22 The risk premium based on total returns during the highest interest rate environment
23 produced an average longer term risk premium of 2.7% over bonds rated AAA to A and a
PAGE 58 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I credit adjusted longer term risk premium (i.e.,bonds rated A) of only 2.7%. The annual
2 income return based risk premium during the highest interest rate environment produced
3 an average longer term risk premium of 2.5% over bonds rated AAA to A and a credit
4 adjusted longer term risk premium(i.e., bonds rated A) of only 2.4%.
5 Over time, risk premiums are mean reverting. They constantly move toward a
6 long-term average reflecting a long-term level of interest rates. That is, an above-average
7 risk premium will decrease toward a long-term average while a below-average risk
8 premium will increase toward a long-term average. In any single year, of course,
9 investor-required rates of return may not be realized and in certain instances, a single
10 year's risk premiums may be negative. Negative risk premiums are not indicative of
11 investors' expectations and violate the basic premise of finance concerning risk and
12 return. Negative risk premiums usually occur only in the stock market's down years (i.e.,
13 the years in which the stock markets' return was negative).
14 When interest rate levels are not considered the credit adjusted longer term risk
15 premium(i.e., bonds rated A), 1928-2023, averages 4.7%, discussed previously regarding
16 page 4 of Schedule 18. However, the annual income return based risk premium during
17 the low interest rate environment produced a credit adjusted longer term risk premium
18 (i.e., bonds rated A) of 7.1%. Since this period more closely resembles the current
19 interest rate environment of 4.2%, a reasonable estimate of investors risk premium based
20 on historical returns is based on a 50%weighting on the results of the entire 1928-2023
21 historical market returns and a 50%weighting on the results of the low interest rate
22 environment to produce a 5.9%historical risk premium. However, the projected risk
23 premium is 5.2% (page 9 of Schedule 18) and I recognize that the current interest rate
PAGE 59 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I environment of 4.2% is above the upper end of the low interest rate environment, which
2 ranged from 1.4%to 4.1%, and have lowered my estimate of the risk premium to 4.8%.
3 Adding the risk premium of 4.8% for the Comparable Group to the prospective
4 cost of newly-issued long-term debt of 5.4%results in a market value risk premium
5 derived cost rate for common equity of 10.2% as reflected on page 1 of Schedule 18.
6 Adjusting the market value risk premium based upon the end result of the application of
7 the Hamada Model and the bond yield spread to account for the difference in leverage
8 between market value capitalization and book value ratios discussed previously indicates
9 a cost rate of 10.90% applicable to book value (10.2% +0.70% = 10.90%).
10 SUMMARY OF COMMON EQUITY COST RATE
11 Q. What is your Comparable Group's common equity cost rate?
12 A. Based upon the results of the models employed, the Water Group's common equity cost
13 rate is in the range of 10.00%to 11.50% as reflected on Schedule 19. Based upon this
14 data, the common equity cost rate for the Water Group is at least 10.80%. My
15 recommendation is based upon the Water Group's 10.80% common equity cost rate.
16 Q. Do you recommend a cost of common equity of 10.80% for VWID?
17 A. Yes. Based upon the financial analysis and risk analysis, I conclude that VWID is
18 exposed to overall similar investment risk as the Comparable Group. This is evidenced
19 by the factors summarized in Table 5 discussed previously.
20 The results of the three models employed for the Water Group show a current
21 range of common equity cost applicable to book value of VWID of 10.00% (DCF),
22 11.50% (CAPM), and 10.90% (RP) as shown in Table 8.
PAGE 60 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

Summary of the VWID's
Equity Cost Rates
DCF 10.00
CAPM 11.50
RP 10.90
1 Table 8
2 Q. What is your common equity cost rate recommendation for VWID?
3 A. As discussed above and as shown in Schedule 19, I recommend a 10.80% common equity
4 cost rate for VWID.
5 Q. Have you checked the reasonableness of your recommended common equity rate for
6 VWID?
7 A. Yes. Page 2 of Schedule 14 reflects the average projected earned return on average book
8 common equity for the companies in the Comparable Group for the period 2027-2029,
9 which is shown to average 11.1% and have median of 10.8%. Given the large degree to
10 which regulatory lag and attrition impacts water utilities' earning, the range of the
11 comparable utilities' projected earned returns suggests that my recommendation that
12 VWID be permitted an opportunity to earn 10.80% is reasonable, if not conservative.
PAGE 61 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

I OVERALL RATE OF RETURN RECOMMENDATION
2 Q. What is your overall fair rate of return recommendation for the VWID?
3 A. Based upon the recommended capital structure and my estimate of the VWID's common
4 equity cost rate, I recommend an overall fair rate of return of 7.79%46. The details of my
5 recommendation are shown on Schedule 1.
6 Q. Have you tested the reasonableness of your overall fair rate of return
7 recommendation?
8 A. Yes. If my recommended overall rate of return is actually earned, it will give VWID
9 ratios that will allow VWID to present a financial profile that will enable it to attract
10 capital necessary to provide safe and reliable water service, at reasonable terms.
11 Q. Does this conclude your direct testimony?
12 A. Yes, it does. However, I reserve the right to supplement my testimony as additional
13 issues and facts arise during the course of the proceeding.
46 It should be noted that my current analysis contained in Exhibit No. 1 supports a cost of common equity of 10.8%
for the Company. The Company's filing includes an overall rate of return of 7.47% and a 10.20%cost of common
equity for filing purposes to minimize the requested revenue increase.
PAGE 62 OF 65
WALKER,Di
VEOLIA WATER IDAHO,INC.

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 obtained a license as a 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-1

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.
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. He also served 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 27 states including: Alaska, 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, lead-lag studies, 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,financial analyses of investment alternatives,
and fair value. The following tabulation provides a listing of the electric power, natural gas
distribution, telephone, wastewater, and water service utility cases in which he has been involved
as a witness.
A-2

Client Docket No.
Alpena Power Company U-10020
Armstrong Telephone Company -
Northern Division 92-0884-T-42T
Armstrong Telephone Company -
Northern Division 95-0571-T-42T
Artesian Water Company, Inc. 90 10
Artesian Water Company, Inc. 06 158
Aqua Illinois Consolidated Water Divisions
and Consolidated Sewer Divisions 11-0436
Aqua Illinois Hawthorn Woods
Wastewater Division 07 0620/07 0621/08 0067
Aqua Illinois Hawthorn Woods Water Division 07 0620/07 0621/08 0067
Aqua Illinois Kankakee Water Division 10-0194
Aqua Illinois Kankakee Water Division 14-0419
Aqua Illinois Vermilion Division 07 0620/07 0621/08 0067
Aqua Illinois Willowbrook Wastewater Division 07 0620/07 0621/08 0067
Aqua Illinois Willowbrook
Water Division 07 0620/07 0621/08 0067
Aqua Pennsylvania, Inc A-2022-3034143
Aqua Pennsylvania Wastewater Inc A-2016-2580061
Aqua Pennsylvania Wastewater Inc A-2017-2605434
Aqua Pennsylvania Wastewater Inc A-2018-3001582
Aqua Pennsylvania Wastewater Inc A-2019-3008491
Aqua Pennsylvania Wastewater Inc A-2019-3009052
Aqua Pennsylvania Wastewater Inc A-2019-3015173
Aqua Pennsylvania Wastewater Inc A-2021-3024267
Aqua Pennsylvania Wastewater Inc A-2021-3026132
Aqua Pennsylvania Wastewater Inc A-2021-3027268
Aqua Pennsylvania Wastewater Inc A-2023-3041695
Aqua Virginia-Alpha Water Corporation Pue-2009-00059
Aqua Virginia- Blue Ridge Utility Company, Inc. Pue-2009-00059
Aqua Virginia- Caroline Utilities, Inc. (Wastewater) Pue-2009-00059
Aqua Virginia- Caroline Utilities, Inc. (Water) Pue-2009-00059
Aqua Virginia- Earlysville Forest Water Company Pue-2009-00059
Aqua Virginia- Heritage Homes of Virginia Pue-2009-00059
Aqua Virginia- Indian River Water Company Pue-2009-00059
Aqua Virginia- James River Service Corp. Pue-2009-00059
A-3

Client Docket No.
Aqua Virginia- Lake Holiday Utilities, Inc.
(Wastewater) Pue-2009-00059
Aqua Virginia- Lake Holiday Utilities, Inc. (Water) Pue-2009-00059
Aqua Virginia- Lake Monticello Services Co.
(Wastewater) Pue-2009-00059
Aqua Virginia- Lake Monticello Services Co.
(Water) Pue-2009-00059
Aqua Virginia- Lake Shawnee Pue-2009-00059
Aqua Virginia- Land'or Utility Company
(Wastewater) Pue-2009-00059
Aqua Virginia- Land'or Utility Company (Water) Pue-2009-00059
Aqua Virginia- Mountainview Water Company, Inc. Pue-2009-00059
Aqua Virginia- Powhatan Water Works, Inc. Pue-2009-00059
Aqua Virginia- Rainbow Forest Water Corporation Pue-2009-00059
Aqua Virginia- Shawnee Land Pue-2009-00059
Aqua Virginia- Sydnor Water Corporation Pue-2009-00059
Aqua Virginia- Water Distributors, Inc. Pue-2009-00059
Atlantic City Sewerage Company WR21071006
Berkshire Gas Company 18-40
Berkshire Gas Company 22-20
Bermuda Water Company, Inc W-01812A-22-0256
Borough of Brentwood A-2021-3024058
Borough of Hanover R-2009-2106908
Borough of Hanover R-2012-2311725
Borough of Hanover R-2014-242830
Borough of Hanover R-2021-3026116
Borough of Hanover P-2021-3026854
Borough of Royersford A-2020-3019634
Butler Area Sewer Authority A-2020-3019634
Chaparral City Water Company W 02113a 04 0616
California-American Water Company CIVCV 156413
Citizens Utilities Company
Colorado Gas Division -
Citizens Utilities Company
Vermont Electric Division 5426
Citizens Utilities Home Water Company R 901664
Citizens Utilities Water Company
of Pennsylvania R 901663
A-4

Client Docket No.
City of Beaver Falls A-2022-3033138
City of Bethlehem- Bureau of Water R-00984375
City of Bethlehem-Bureau of Water R 00072492
City of Bethlehem-Bureau of Water R-2013-2390244
City of Bethlehem-Bureau of Water R-2020-3020256
City of Dubois—Bureau of Water R-2013-2350509
City of Dubois—Bureau of Water R-2016-2554150
City of Lancaster Sewer Fund R-00005109
City of Lancaster Sewer Fund R-00049862
City of Lancaster Sewer Fund R-2012-2310366
City of Lancaster Sewer Fund R-2019-3010955
City of Lancaster Sewer Fund R-2019-3010955
City of Lancaster Water Fund R-00984567
City of Lancaster Water Fund R-00016114
City of Lancaster Water Fund R 00051167
City of Lancaster Water Fund R-2010-2179103
City of Lancaster Water Fund R-2014-2418872
City of Lancaster Water Fund R-2021-3026682
City of Lancaster Water Fund P-2022-3035591
Coastland Corporation 15-cvs-216
Commonwealth Edison Company 23-0728
Commonwealth Edison Company 24-0087
Community Utilities of Pennsylvania-Water R-2023-3042804
Community Utilities of Pennsylvania-Wastewater R-2023-3042805
Connecticut-American Water Company 99-08-32
Connecticut Water Company 06 07 08
Consumers Pennsylvania Water Company
Roaring Creek Division R-00973869
Consumers Pennsylvania Water Company
Shenango Valley Division R-00973972
Country Knolls Water Works, Inc. 90 W 0458
East Resources, Inc. - West Virginia Utility 06 0445 G 42T
Elizabeth Borough Municipal Authority A-2023-3038717
Elizabethtown Water Company WR06030257
ENSTAR Natural Gas Company U-22-081
Falls Water Company, Inc. FLS-W-23-01
Forest Park, Inc. 19-W-0168 & 19-W-0269
A-5

Client Docket No.
Hampton Water Works Company DW 99-057
Hidden Valley Utility Services, LP R-2018-3001306
Hidden Valley Utility Services, LP R-2018-3001307
Illinois American Water Company 16-0093
Illinois American Water Company 22-0210
Indian Rock Water Company R-911971
Indiana Natural Gas Corporation 38891
Jamaica Water Supply Company -
Kane Borough Authority A-2019-3014248
Kentucky American Water Company, Inc. 2007 00134
Kentucky American Water Company, Inc. 2023-00191
Middlesex Water Company WR 89030266J
Millcreek Township Water Authority 55 198 Y 00021 11
Missouri-American Water Company WR 2000-281
Missouri-American Water Company SR 2000-282
Missouri-American Water Company WR-2022-0303
Missouri-American Water Company SR-2022-0304
Mount Holly Water Company WR06030257
Nevada Power Company d/b/a NV Energy 20-06003
Nevada Power Company d/b/a NV Energy 23-06007
New Jersey American Water Company WR 89080702J
New Jersey American Water Company WR 90090950J
New Jersey American Water Company WR 03070511
New Jersey American Water Company WR-06030257
New Jersey American Water Company WRO8010020
New Jersey American Water Company WRIO040260
New Jersey American Water Company WR11070460
New Jersey American Water Company WR15010035
New Jersey American Water Company WR17090985
New Jersey American Water Company WR19121516
New Jersey American Water Company WR22010019
New Jersey Natural Gas Company GR19030420
New Jersey Natural Gas Company GR21030679
Newtown Artesian Water Company R-911977
Newtown Artesian Water Company R-00943157
Newtown Artesian Water Company R-2009-2117550
Newtown Artesian Water Company R-2011-2230259
A-6

Client Docket No.
Newtown Artesian Water Company R-2017-2624240
Newtown Artesian Water Company R-2019-3006904
North Maine Utilities 14-0396
Northern Indiana Fuel & Light Company 38770
Oklahoma Natural Gas Company PUD-940000477
Palmetto Utilities, Inc. 2020-281-5
Palmetto Wastewater Reclamation, LLC 2018-82-5
Pennichuck Water Works, Inc. DW 04 048
Pennichuck Water Works, Inc. DW 06 073
Pennichuck Water Works, Inc. DW 08 073
Pennsylvania-American Water Company A-2023-3039900
Pennsylvania Gas & Water Company(Gas) R-891261
Pennsylvania Gas &Water Co. (Water) R 901726
Pennsylvania Gas &Water Co. (Water) R-911966
Pennsylvania Gas & Water Co. (Water) R-22404
Pennsylvania Gas & Water Co. (Water) R-00922482
Pennsylvania Gas &Water Co. (Water) R-00932667
Philadelphia Gas Works R-2020-3017206
Philadelphia Gas Works R-2023-3037933
Public Service Company of North Carolina, Inc. G-5, Sub 565
Public Service Electric and Gas Company ER181010029
Public Service Electric and Gas Company GRI8010030
Presque Isle Harbor Water Company U-9702
Sierra Pacific Power Company d/b/a NV Energy 19-06002
Sierra Pacific Power Company d/b/a NV Energy 22-06014
St. Louis County Water Company WR-2000-844
Suez Water Delaware, Inc. 19-0615
Suez Water Idaho, Inc. SUZ-W-20-02
Suez Water New Jersey, Inc. WRI8050593
Suez Water New Jersey, Inc. WR20110729
Suez Water Owego-Nichols, Inc. 17-W-0528
Suez Water Pennsylvania, Inc. R-2018-3000834
Suez Water Pennsylvania, Inc. A-2018-3003519
Suez Water Pennsylvania, Inc. A-2018-3003517
Suez Water Rhode Island, Inc. Docket No. 4800
Suez Water Owego-Nichols, Inc. 19-W-0168 & 19-W-0269
Suez Water New York, Inc. 19-W-0168 & 19-W-0269
A-7

Client Docket No.
Suez Westchester, Inc. 19-W-0168 & 19-W-0269
Town of North East Water Fund 9190
Township of Exeter A-2018-3004933
United Water New Rochelle W-95-W-1168
United Water Toms River WR-95050219
Upper Pottsgrove Township A-2020-3021460
Valley Township (water) A-2020-3019859
Valley Township (wastewater) A-2020-3020178
Valley Water Systems, Inc. 06 10 07
Veolia Water Idaho, Inc. VEO-W-22-02
Veolia Water Delaware, Inc. 23-0598
Veolia Water New Jersey, Inc. WR23110790
Veolia Water New York, Inc. 23-W-0111
Veolia Water Pennsylvania, Inc. R-2024-3045192
Veolia Water Pennsylvania, Inc. R-2024-3045193
Virginia American Water Company PUR-2018-00175
Virginia American Water Company PUR-2021-00255
Virginia American Water Company PUR-2023-00194
West Virginia-American Water Company 15-0676-W-42T
West Virginia-American Water Company 15-0675-S-42T
Wilmington Suburban Water Corporation 94-149
York Water Company R-901813
York Water Company R-922168
York Water Company R-943053
York Water Company R-963619
York Water Company R-994605
York Water Company R-00016236
Young Brothers, LLC 2019-0117
A-8

Preston N. Carter, ISB No. 8462
Morgan D. Goodin, ISB No. 11184
Megann E. Meier, ISB No. 11948
GIVENS PURSLEY LLP
601 West Bannock Street
P.O. Box 2720
Boise, Idaho 83701-2720
Office: [phone]
Fax: [phone]
[e-mail]
[e-mail]
[e-mail]
18557695.1 [30-264]
Attorneys for Veolia Water Idaho, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION Case No. VEO-W-24-01
OF VEOLIA WATER IDAHO, INC. FOR A
GENERAL RATE CASE
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
EXHIBIT TO ACCOMPANY THE
DIRECT TESTIMONY OF HAROLD WALKER,III

Veolia Water Idaho, Inc.
Cost of Capital and Fair Rate of Return
At September 30, 2024
Cost Weighted
Type of Capital Ratios* Rate* Cost Rate
Debt 47.22% 4.43 2.09%
Preferred Stock 0.00 0.00 0.00
Common Equity 52.78 10.80 5.70
Overall Cost of Capital O.00% 7.790
Before Income Tax Interest Coverage (x) 4.7x
(Based on effective income tax rate of 25.50%.)
* Ratios and embedded cost rates are from Exhibit No, 6,page 1. The capital structure ratios are
those of Veolia Water Resources, Inc.
**
Cost Weighted
Type of Capital Ratios Rate** Cost Rate
Debt 47.22% 4.43 2.09%
Common Equity 52.78 10.20 5.38
Overall Cost of Capital 100.00% 7.47%
**
In order to mitigate rates, the Company will be utilizing 10.2% cost
of common equity for filing purposes.
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 1
H. Walker
Page 1 of 1

Capital Structure Ratios for
The Water Group Followed by Analysts
At 6/30/2024 and Estimated for 2028
Est.(1)
6/30/2024 2028
Water Group Followed by Analysts
Long-term Debt 50.1 % 43.0 %
Preferred Stock 0.0 0.0
Common Equity 49.9 57.0
Total 100.0 % 100.0 %
Notes: (1) Project by Value Line for the period 2027 to 2029.
Source of Information: Value Line Investment Survey, 10/4/24, and S&P Capital IQ
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 2
H. Walker
Page 1 of 2

Capital Structure Ratios for
The Water Group Followed by Analysts
At 6/30/2024 and Estimated for 2028
Actual at 6/30/24
Long-term Preferred Common
Debt Stock Equity
Water Group Followed by Anal
American States Water Co 53.1 0.0 46.9
American Water Works Co Inc 56.6 0.0 43.4
California Water Service Gp 40.5 0.0 59.5
Essential Utilities,Inc. 53.6 0.0 46.4
Middlesex Water Co 45.8 0.3 53.9
SJW Corp 55.0 0.0 45.0
York Water Co 45.9 0.0 54.1
Average 50 11 0 00 49.9
Estimated at 2028
Long-term Preferred Common
Debt Stock Equity
Water Group Followed by Analysts
American States Water Co 45.0 0.0 55.0
American Water Works Co Inc 40.0 0.0 60.0
California Water Service Gp 34.5 0.0 65.5
Essential Utilities,Inc. 55.0 0.0 45.0
Middlesex Water Co 40.5 0.0 59.5
SJW Corp 43.0 0.0 57.0
York Water Co NA NA NA
Average 43 Q M 53A
Source of Information: Value Line Investment Survey, 10/4/24,and S&P Capital IQ
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 2
H. Walker
Page 2 of 2

Veolia Water Idaho,Inc.
Five Year Analysis
2019-2023(1)
Ln# 2023 2022 2021 2020 2019
Average
(Millions of$) Ann.CUM)
Investor Provided Capital($)
1 Permanent Capital 310.628 284.463 255.838 218.627 193.554 12.6
2 Short-Term Debt 0.000 0.000 0.000 0.000 0.000
3 Total Capital 310.628 284.463 255.838 218.627 193.554 12.6
4 Total Revenue($) 56.124 52.379 51.098 47.423 46.062 5.1
5 Construction($) 38.386 43.782 33.916 40.179 23.877 17.4
Average
Five Year Central
Average Values(9)
6 Effective Income Tax Rate(%) 21.1 (2.5) 20.8 (12.5) 30.7 11.5 13.1
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 3.3 4.0 5.5 4.5 5.3 4.5 4.6
17 PreTax Interest+Pref Div 3.3 4.0 5.5 4.5 5.3 4.5 4.6
18 PostTax Interest+Pref Div 2.8 4.1 4.6 5.0 4.0 4.1 4.2
Coverage-Excluding AFC(3)(x)
19 PreTax Interest 3.1 3.9 5.5 4.4 5.0 4.4 4.4
20 PreTax Interest+Pref Div 3.1 3.9 5.5 4.4 5.0 4.4 4.4
21 PostTax Interest+Pref Div 2.7 4.0 4.5 4.8 3.7 3.9 4.1
22 GCF/Interest Coverage(4)(x) 4.7 6.3 11.6 6.4 6.7 7.1 6.5
23 Coverage of Common Dividends(5)(x) 4.4 0.0 0.0 0.0 0.0 0.9 0.0
24 Construction/Avg.Tot.Capital(%) 12.9 16.2 14.3 19.5 12.8 15.1 14.5
25 NCF/Construction(6)(%) 47.7 58.9 124.4 54.7 93.0 75.7 68.9
26 AFC/Income for Common Stock 7.3 3.9 1.4 4.5 9.7 5.4 5.2
27 GCF/Avg.Tot.Debt(7)(%) NA NA NA NA NA NA NA
28 GCF/Permanent Capital(8)(%) 7.6 9.1 16.5 10.0 11.5 10.9 10.2
See page 3 of this Schedule for notes. Case No. VEO-W-24-0 1
Exhibit No. 1
Schedule 3
H. Walker
Page 1 of 2

Veolia Water Idaho, Inc.
Five Year Analysis
2019-2023
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-24-01
Exhibit No. 1
Schedule 3
H. Walker
Page 2 of 2

Water Group Followed by Analysts
Five Year Analysis
2019-2023(1)
Ln# 2023 2022 2021 2020 2019
Average
(Millions of$) Ann.Chg(%)
Investor Provided Capital($)
1 Permanent Capital 6,157.328 5,496.176 5,149.929 4,667.439 3,933.051 11.9
2 Short-Term Debt 106.676 245.325 120.245 278.756 162.140
3 Total Capital 6,264.004 5,741.501 5,270.175 4,946.196 4,095.190 11.4
4 Total Revenue($) 1,226.546 1,180.169 1,124.265 1,040.317 899.254 8.2
5 Construction($) 682.346 603.652 511.706 488.708 414.853 13.4
Average
Five Year Central
Average Values(9)
6 Effective Income Tax Rate(%) 4.4 8.9 7.1 8.9 13.4 8.5 8.9
Book Capitalization Ratios(°/o)
7 Long-Term Debt 50.6 50.2 51.9 51.5 49.3 50.7 50.6
8 Preferred Stock 0.0 0.0 0.0 0.0 0.1 0.0 0.0
9 Common Equity 49.4 49.7 48.0 48.4 50.6 49.2 49.4
Total 100.0 100.0 100.0 100.0 100.0
10 Total Debt 52.0 51.9 52.6 53.8 50.9 52.2 52.0
11 Preferred Stock 0.0 0.0 0.0 0.0 0.1 0.0 0.0
12 Common Equity 47.9 48.1 47.4 46.1 49.0 47.7 47.9
Total 100.0 100.0 100.0 100.0 100.0
Rates on Average Capital(2)(%)
13 Total Debt 4.1 3.6 3.5 3.8 4.4 3.9 3.8
14 Long-Term Debt 3.9 3.6 NA 4.3 4.2 4.0 3.9
15 Preferred Stock 5.8 5.8 5.8 5.8 5.8 5.8 5.8
Coverage-Including AFC(3)(x)
16 PreTax Interest 3.3 3.9 4.2 4.0 3.6 3.8 3.9
17 PreTax Interest+Pref Div 3.3 3.9 4.2 4.0 3.6 3.8 3.9
18 PostTax Interest+Pref.Div 3.1 3.6 3.9 3.7 3.3 3.5 3.6
Coverage-Excluding AFC(3)(x)
19 PreTax Interest 3.2 3.8 4.1 3.9 3.5 3.7 3.8
20 PreTax Interest+Pref.Div 3.2 3.8 4.1 3.9 3.5 3.7 3.8
21 PostTax Interest+Pref.Div 3.0 3.5 3.8 3.6 3.2 3.4 3.5
22 GCF/Interest Coverage(4)(x) 4.6 5.5 6.0 5.5 5.1 5.3 5.5
23 Coverage of Common Dividends(5)(x) 2.9 3.1 3.5 3.3 3.0 3.2 3.1
24 Construction/Avg.Tot.Capital(%) 12.8 12.3 12.0 12.9 12.8 12.6 12.8
25 NCF/Construction(6)(%) 41.4 45.9 55.3 48.9 46.7 47.7 46.7
26 AFC/Income for Common Stock 5.8 4.1 4.2 4.3 6.5 5.0 4.3
27 GCF/Avg.Tot.Debt(7)(%) 15.0 15.9 17.1 16.9 17.7 16.5 16.9
28 GCF/Permanent Capital(8)(%) 7.5 8.0 8.7 8.6 8.3 8.2 8.3
See page 2 of this Schedule for notes.
Case No.VEO-W-24-01
Exhibit No. 1
Schedule 4
H.Walker
Page 1 of 2

Water Group Followed by Analysts
Five Year Analysis
2019-2023
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-24-01
Exhibit No. 1
Schedule 4
H. Walker
Page 2 of 2

S&P Utilities
Five Year Analysis
2019-2023(1)
Ln# 2023 2022 2021 2020 2019
Average
(Millions of$) Ann.Chg(%)
Investor Provided Capital($)
1 Permanent Capital 65,507.440 61,319.477 58,569.168 54,096.938 49,657.526 7.2
2 Short-Term Debt 2,393.247 2,255.166 1,702.705 1,459.606 1,583.442
3 Total Capital 67,900.687 63,574.643 60,271.874 55,556.544 51,240.968 7.3
4 Total Revenue($) 17,916.430 17,023.665 14,267.276 13,234.956 14,461.345 6.0
5 Construction($) 8,913.403 7,539.074 6,780.629 6,323.839 6,157.879 9.8
Average
Five Year Central
Average Values(9)
6 Effective Income Tax Rate(%) 13.7 14.7 12.4 8.4 14.8 12.8 13.7
Book Capitalization Ratios(°/o)
7 Long-Term Debt 58.7 58.2 57.3 57.1 54.4 57.1 57.3
8 Preferred Stock 0.6 0.8 1.0 0.9 0.9 0.8 1.0
9 Common Equity 40.6 41.0 41.8 42.0 44.7 42.0 41.8
Total 100.0 100.0 100.0 100.0 100.0
10 Total Debt 60.2 59.9 58.6 58.3 55.8 58.6 58.6
11 Preferred Stock 0.6 0.7 0.9 0.9 0.8 0.8 0.9
12 Common Equity 39.1 39.4 40.5 40.8 43.4 40.6 40.5
Total. 100.0 100.0 100.0 100.0 100.0
Rates on Average Capital(2)(%)
13 Total Debt 4.2 3.1 3.4 3.9 4.4 3.8 3.9
14 Long-Term Debt 4.4 NA NA NA NA 4.4 0.0
15 Preferred Stock 4.5 3.8 3.1 1.9 3.7 3.4 3.7
Coverage-Including AFC(3)(x)
16 PreTax Interest 3.0 3.7 3.0 2.7 3.0 3.1 3.0
17 PreTax Interest+Pref Div 3.0 3.7 3.0 2.7 3.0 3.1 3.0
18 PostTax Interest+Pref.Div 2.7 3.4 2.8 2.5 2.8 2.8 2.8
Coverage-Excluding AFC(3)(x)
19 PreTax Interest 2.9 3.6 3.0 2.6 3.0 3.0 3.0
20 PreTax Interest+Pref.Div 2.9 3.6 2.9 2.6 2.9 3.0 2.9
21 PostTax Interest+Pref.Div 2.6 3.3 2.7 2.4 2.8 2.8 2.7
22 GCF/Interest Coverage(4)(x) 4.8 6.9 5.5 4.9 5.0 5.4 5.0
23 Coverage of Common Dividends(5)(x) 3.7 3.2 3.1 3.2 4.2 3.5 3.2
24 Construction/Avg.Tot.Capital(%) 13.5 12.1 11.4 12.2 12.6 12.4 12.2
25 NCF/Construction(6)(%) 54.4 54.4 63.5 54.5 71.1 59.6 54.5
26 AFC/Income for Common Stock 6.7 3.6 0.4 12.6 5.2 5.7 5.2
27 GCF/Avg.Tot.Debt(7)(%) 15.9 13.9 14.4 14.8 17.2 15.3 14.8
28 GCF/Permanent Capital(8)(%) 9.1 8.2 8.4 8.2 9.6 8.7 8.4
See page 2 of this Schedule for notes.
Case No.VEO-W-24-01
Exhibit No. 1
Schedule 5
H.Walker
Page 1 of 2

S&P Public Utilities
Five Year Analysis
2019-2023
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-24-01
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
Recent Recent Recent
S&P S&P Value Market Market
Issuer Credit Stock Quality Line Value Market Quartile
Rating Exchaue Rankin¢ Beta 9/30/24 Quartile Name
(Mill$)
Water Group Followed by Analysts
American States Water Co A NYSE High(A) 0.75 3,119.810 2 Mid-Cap
American Water Works Co hie A NYSE High(A) 1.00 28,496.770 1 Large-Cap
California Water Service Gp A+ NYSE Above Average(A-) 0.75 3,189.498 2 Mid-Cap
Essential Utilities,hie. A- NYSE High(A) 1.00 10,555.621 2 Mid-Cap
Middlesex Water Co A NasdagGS High(A) 0.75 1,163.215 3 Low-Cap
SJW Corp A- NYSE Average(B+) 0.85 1,900.871 3 Low-Cap
York Water Co A- NasdagGS Hi A 0.85 538.004 3 Low-Can
Average A Hi h A 0.85 3,119.810 2 Mid-Can
S&P Public Utilities
AES Corporation(The) BBB- NYSE Lower(B-) 1.20 14,261.142 1 Large-Cap
Alliant Energy Corporation A- NasdagGS High(A) 0.90 15,566.959 1 Large-Cap
Ameren Corporation BBB+ NYSE High(A) 0.90 23,335.791 1 Large-Cap
American Electric Power Company,Inc BBB+ NasdagGS Above Average(A-) 0.85 54,595.511 1 Large-Cap
American Water Works Company,Inc. A NYSE High(A) 0.95 28,496.770 1 Large-Cap
Atmos Energy Corporation A- NYSE High(A) 0.85 21,532.345 1 Large-Cap
CenterPoint Energy,Inc. BBB+ NYSE Average(B+) 1.15 19,173.637 1 Large-Cap
CMS Energy Corporation BBB+ NYSE High(A) 0.85 21,099.260 1 Large-Cap
Consolidated Edison,Inc. A- NYSE Above Average(A-) 0.80 36,044.308 1 Large-Cap
Constellation Energy Corporation - NasdagGS NA NMF 81,305.415 1 Large-Cap
Dominion Energy,Inc. BBB+ NYSE Below Average(B) 0.90 48,482.250 1 Large-Cap
DTE Energy Company BBB+ NYSE Above Average(A-) 1.00 26,583.448 1 Large-Cap
Duke Energy Corporation BBB+ NYSE Average(B+) 0.90 89,034.857 1 Large-Cap
Edison International BBB NYSE Below Average(B) 1.00 33,632.133 1 Large-Cap
Entergy Corporation BBB+ NYSE Average(B+) 1.00 28,142.278 1 Large-Cap
Evergy,Inc. BBB+ NasdagGS Above Average(A-) 0.95 14,259.723 1 Large-Cap
Eversource Energy A- NYSE Above Average(A-) 0.95 24,320.031 1 Large-Cap
Exelon Corporation BBB+ NasdagGS Average(B+) NMF 40,570.202 1 Large-Cap
FirstEnergy Corp. BBB NYSE Below Average(B) 0.90 25,542.159 1 Large-Cap
NextEra Energy,Inc. A- NYSE Above Average(A-) 1.05 173,739.040 1 Large-Cap
NiSource hie. BBB+ NYSE Below Average(B) 0.95 15,540.866 1 Large-Cap
NRG Energy,Inc. BB NYSE Below Average(B) 1.10 18,801.203 1 Large-Cap
PG&E Corporation BB NYSE In Reorganization(D) 1.10 42,257.591 1 Large-Cap
Pinnacle West Capital Corporation BBB+ NYSE Above Average(A-) 0.95 10,064.843 2 Mid-Cap
PPL Corporation A- NYSE Below Average(B) 1.15 24,405.541 1 Large-Cap
Public Service Enterprise Group Incorpi BBB+ NYSE Average(B+) 0.95 44,441.002 1 Large-Cap
Sempra Energy BBB+ NYSE Average(B+) 1.00 52,949.990 1 Large-Cap
Southern Co(The) A- NYSE Average(B+) 0.95 98,707.938 1 Large-Cap
Vistra Corp. BB+ NYSE NA 1.10 40,725.769 1 Large-Cap
WEC Energy Group,hie. A- NYSE High(A) 0.85 30,400.517 1 Large-Cap
Xcel Energy hie. BBB+ NasdagGS Hi A 0.85 36,404.794 1 Large-Cap
Average BBB+ Average(B+) 0.97 28,496.770 1 Large-Can
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 6
H. Walker
Page 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 2019-20230)
Five
Year
2023 2022 2021 2020 2019 Average
Return on Common Equity(2)
Veolia Water Idaho,Inc. 3.8 5.6 6.0 7.8 6.3 5.9
Water Group Followed by Analysts 9.4 9.6 11.3 10.5 9.5 10.1
S&P Utilities 10.4 8.2 8.3 7.3 8.5 8.5
S&P 500 18.2 17.0 20.5 10.3 15.8 16.4
Market/Book Multiple(3)
Water Group Followed by Analysts 2.8 3.3 3.6 3.3 3.4 3.3
S&P Utilities 2.2 2.6 2.6 2.2 2.6 2.4
S&P 500 4.0 4.1 4.4 3.3 3.2 3.6
Eamings/Price Ratio(4)
Water Group Followed by Analysts 3.4 3.0 3.1 3.2 2.7 3.1
S&P Utilities 5.4 3.7 3.5 3.5 4.1 4.0
S&P 500 4.5 4.1 4.7 3.2 4.9 4.3
Dividend Payout Ratio(5)
Veolia Water Idaho,Inc. 47.7 0.0 0.0 0.0 0.0 9.5
Water Group Followed by Analysts 65.8 58.9 53.7 57.4 73.2 61.8
S&P Utilities 54.4 72.2 80.0 76.8 60.8 68.8
S&P 500 35.8 38.3 30.2 60.4 42.0 41.3
Dividend Yield(6)
Water Group Followed by Analysts 2.1 1.8 1.7 1.8 1.8 1.8
S&P Utilities 3.4 3.1 3.2 3.5 3.3 3.3
S&P 500 1.6 1.6 1.4 1.9 2.1 1.7
See next page for Notes.
Case No. VEO-W-24-01
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 2019-2023 (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-24-01
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 2023
Rate of Capital
Capital Capital Recovery
Intensity Recovery Years
Veolia Water Idaho,Inc. $1 1.34 1.69% 59.1
Water Group Followed by Analysts $6.81 2.15% 47.3
S&P Utilities $4.70 4.26% 31.5
Case No.VEO-W-24-01
Exhibit No. 1
Schedule 7
H.Walker
Page 1 of I

Relative Size of
Veolia Water Idaho,Inc.
Versus the Water Group Followed by Analysts
For the Year 2023
Water Group
Followed by
Analysts
Water Group Vs.
Veolia Water Followed by Veolia Water
Idaho,Inc. Analysts Idaho,Inc.
Total Capitalization(000's) $310,628 $6,157,000 19.8 x
Total Operating Revenues(000's) $56,124 $1,227,000 21.9 x
Number of Customers 106,412 970,639 9.1 x
Case No. VEO-W-24-01
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) 3.0% 0.3%
Percentage of common shares held by institutions(2) 77% 85%
Percentage of Common Shares Traded in 2022 122% 172%
Percentage of Common Shares Traded in 2023 133% 171%
Average Number of Months For All Common Shares to Turnover(3) 10.4 7.4
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-24-01
Exhibit No. 1
Schedule 9
H. Walker
Page 1 of 1

Bond and Credit Ratings for
Veolia Water Idaho,Inc.
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-24-01
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 2023) Financial Risk(Five-Year Average 2019-23)
Water Group Water Group
Credit Subject Followed by Credit Subject Followed by
Implication Company Analysts Implication Company Analysts
1.Base Credit Metrics
2. PreTax Interest Coverage(2)(x) Lower 3.lx 3.2x Higher 4.4x 3.7x
3. Total Debt/Total Capital(%) NA NA 52.0% NA NA 52.2%
4. GCF/ Interest Coverage(3)(x) Higher 4.7x 4.6x Higher 7.lx 5.3x
5. GCF/Average Total Debt(4)(%) NA NA 15.0% NA NA 16.5%
6. NCF/Construction(5)(%) Higher 47.7% 41.4% Higher 75.7% 47.7%
7. Construction/Average Total Capital(6)(%) Lower 12.9% 12.4% Lower 15.1% 12.1%
8. Standard&Poor's Credit Metrics
9. Funds from Operation/Average Total Debt(7)(%) NA NA 14.5% NA NA 16.0%
10. Average Total Debt/EBITDA(8)(x) NA NA 5.4x NA NA 5.2x
11. FFO/Interest Coverage(9)(x) Higher 4.7x 4.5x Higher 7.1x 5.2x
12. EBITDA/Interest(10)(x) Higher 5.Ox 4.7x Higher 7.6x 5.3x
13. CFO/Average Total Debt(11)(%) NA NA 15.0% NA NA 16.5%
14. FOCF/Average Total Debt(12)(%) NA NA -9.7% NA NA -7.5%
15. DCF/Average Total Debt(13)(%) NA NA -15.0% NA NA -13.0%
16.Mood s Credit Metrics
17. Cash Flow Interest Coverage(3)(x) Higher 4.7x 4.6x Higher 7.1x 5.3x
18. Cash Flow/Average Total Debt(4)(%) NA NA 15.0% NA NA 16.5%
19. Retained Cash Flow/Average Total Debt(14)(%) NA NA 9.7% NA NA 11.0%
20. Average Total Debt/Average Adjusted Total Capital(15)(%) NA NA 46.7% NA NA 46.6%
21. Capital Credit Metrics
22. Standard&Poor's Credit Metrics-Adjusted to Total Capital
23. Funds from Operation/Average Total Capital(16)(%) Higher 8.0% 7.4% Higher 11.6% 8.1%
24. Average Total Capital/EBITDA(17)(x) Higher 9.4x 10.5x Higher 7.4x 9.9x
25. CFO/Average Total Capital(18)(%) Higher 8.0% 7.7% Higher 11.6% 8.4%
26. FOCF/Average Total Capital(19)(%) Lower -4.9% -4.7% Higher -3.6% -3.7%
27. DCF/Average Total Capital(20)(%) Higher -6.7% -7.4% Higher -3.9% -6.5%
28. Moody's Credit Metrics-Adjusted to Total Capital
29. Cash Flow/Average Total Capital(21)(%) Higher 8.0% 7.7% Higher 11.6% 8.4%
30. Retained Cash Flow/Average Total Capital(22)(%) Higher 6.2% 5.0% Higher 11.2% 5.6%
See the next page for notes.
Case No.VEO-W-24-01
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
2019 - 2023
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-24-01
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 Capital10 Database(1)
Number of
Companies Range of Reported Permanent
In Each S&P Bond and Credit Ratings Capital By Groupings(Million$)
Grouping Average Median Maximum Minimum Smallest Average Largest
100 B+ B+ AA- CCC 41.700 697.813 1,126.040
100 BB BB- AA- CCC+ 1,131.700 1,480.706 1,834.800
100 BB BB AA CCC+ 1,842.800 2,160.662 2,445.300
100 BB+ BB A+ B- 2,451.900 2,821.080 3,272.000
100 BB+ BB+ AA CCC- 3,276.000 3,780.821 4,304.600
100 BB+ BB+ AA+ CCC+ 4,333.000 4,898.788 5,379.400
100 BBB- BBB- A+ CCC+ 5,382.000 6,054.457 6,812.000
100 BBB- BBB- AA- CCC- 6,817.000 7,934.041 8,982.900
100 BBB BBB A+ CCC+ 8,986.000 10,214.092 11,605.000
100 BBB BBB A+ CCC+ 11,646.476 13,376.106 15,748.800
100 BBB BBB+ AA CCC+ 15,912.000 19,600.155 23,202.900
100 BBB+ BBB+ AA+ CCC+ 23,315.200 29,233.122 36,209.000
100 BBB+ BBB+ AA+ CCC- 36,893.000 53,142.581 76,211.000
56 A- A- AAA BB 76,489.000 150,571.448 363,302.000
Total 1,356
Number of
Companies Range of Reported Permanent
In Each Capital By Groupings(Million$) Distribution of S&P Bond and Credit Ratings By Size Grouping
Grouping Smallest Average Largest AAA AA I A I BBB BB B CCC CC
100 41.700 697.813 1,126.040 0% 1% 4% 8% 16% 58% 13% 0%
100 1,131.700 1,480.706 1,834.800 0% 2% 4% 15% 39% 35% 5% 0%
100 1,842.800 2,160.662 2,445.300 0% 1% 8% 13% 44% 33% 1% 0%
100 2,451.900 2,821.080 3,272.000 0% 0% 7% 26% 40% 27% 0% 0%
100 3,276.000 3,780.821 4,304.600 0% 3% 13% 31% 35% 16% 2% 0%
100 4,333.000 4,898.788 5,379.400 0% 3% 11% 32% 38% 15% 1% 0%
100 5,382.000 6,054.457 6,812.000 0% 0% 11% 46% 31% 10% 2% 0%
100 6,817.000 7,934.041 8,982.900 0% 1% 15% 48% 25% 6% 5% 0%
100 8,986.000 10,214.092 11,605.000 0% 0% 17% 55% 24% 2% 2% 0%
100 11,646.476 13,376.106 15,748.800 0% 0% 18% 56% 22% 3% 1% 0%
100 15,912.000 19,600.155 23,202.900 0% 5% 26% 54% 8% 4% 3% 0%
100 23,315.200 29,233.122 36,209.000 0% 6% 35% 48% 5% 4% 2% 0%
100 36,893.000 53,142.581 76,211.000 0% 12% 37% 42% 6% 1% 2% 0%
56 76,489.000 150,571.448 363,302.000 4% 16% 41% 30% 9% 0% 0% 0%
1,356
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 2023(as of 6/11/24). 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-24-01
Exhibit No. 1
Schedule 10
H. Walker
Page 4 of 4

Interest Rate Trends for
Investor-Owned Public Utility Bonds
Yearly for 2018-2022 Monthly for the Years 2023 and 2024
Years Aaa Rated Aa Rated A Rated Baa Rated
2018 NA 4.09 4.25 4.67
2019 NA 3.61 3.77 4.19
2020 NA 2.79 3.02 3.39
2021 NA 2.97 3.11 3.36
2022 NA 4.53 4.72 5.03
Average NA 3.60 3.77 4.13
Jan 2023 NA 4.98 5.20 5.49
Feb 2023 NA 5.12 5.29 5.54
Mar 2023 NA 5.24 5.39 5.68
Apr 2023 NA 5.00 5.13 5.47
May 2023 NA 5.24 5.36 5.71
Jun 2023 NA 5.26 5.38 5.73
Jul 2023 NA 5.30 5.41 5.73
Aug 2023 NA 5.58 5.71 6.01
Sep 2023 NA 5.72 5.86 6.15
Oct 2023 NA 6.19 6.34 6.61
Nov 2023 NA 5.90 6.05 6.29
Dec 2023 NA 5.27 5.42 5.68
Avg 2023 NA 5.40 5.55 5.84
Jan 2024 NA 5.34 5.48 5.73
Feb 2024 NA 5.42 5.56 5.79
Mar 2024 NA 5.43 5.55 5.79
Apr 2024 NA 5.67 5.79 6.01
May 2024 NA 5.62 5.74 5.97
Jun 2024 NA 5.50 5.61 5.84
Jul 2024 NA 5.54 5.64 5.85
Aug 2024 NA 5.27 5.39 5.61
Sep 2024 NA 5.09 5.21 5.43
Source of Information: MERGENT BOND RECORD
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 11
H. Walker
Page 1 of 7

Credit Risk Spreads of
Investor-Owned Public Utility Bonds
Yearly for 2018-2022 Monthly for the Years 2023 and 2024
Aa A Baa Baa
Over Over Over Over
Years Aaa Aa A Aaa
2018 NA 0.16 0.42 NA
2019 NA 0.16 0.42 NA
2020 NA 0.23 0.37 NA
2021 NA 0.14 0.25 NA
2022 NA 0.19 0.31 NA
Average NA 0.18 0.35 NA
Jan 2023 NA 0.22 0.29 NA
Feb 2023 NA 0.17 0.25 NA
Mar 2023 NA 0.15 0.29 NA
Apr 2023 NA 0.13 0.34 NA
May 2023 NA 0.12 0.35 NA
Jun 2023 NA 0.12 0.35 NA
Jul 2023 NA 0.11 0.32 NA
Aug 2023 NA 0.13 0.30 NA
Sep 2023 NA 0.14 0.29 NA
Oct 2023 NA 0.15 0.27 NA
Nov 2023 NA 0.15 0.24 NA
Dec 2023 NA 0.15 0.26 NA
Avg 2023 NA 0.15 0.29 NA
Jan 2024 NA 0.14 0.25 NA
Feb 2024 NA 0.14 0.23 NA
Mar 2024 NA 0.12 0.24 NA
Apr 2024 NA 0.12 0.22 NA
May 2024 NA 0.12 0.23 NA
Jun 2024 NA 0.11 0.23 NA
Jul 2024 NA 0.10 0.21 NA
Aug 2024 NA 0.12 0.22 NA
Sep 2024 NA 0.12 0.22 NA
Source of Information: MERGENT BOND RECORD
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 11
H. Walker
Page 2 of 7

Interest Rate Trends
Of Long-Term Treasury Constant
Yearly for 2018-2022 Monthly for the Years 2023 and 2024
10-Year 20-Year 30-Year Long-term
Years T-Bond T-Bond T-Bond T-Bond Yield
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 1.27
2021 1.44 1.98 2.05 1.82
2022 2.95 3.30 3.12 3.30
Average 2.07 2.41 2.48 2.36
Jan 2023 3.53 3.81 3.66 3.74
Feb 2023 3.75 3.95 3.80 3.88
Mar 2023 3.66 3.94 3.77 3.86
Apr 2023 3.46 3.80 3.68 3.74
May 2023 3.57 3.96 3.86 3.91
Jun 2023 3.75 4.04 3.87 3.96
Jul 2023 3.90 4.15 3.96 4.06
Aug 2023 4.17 4.46 4.28 4.37
Sep 2023 4.38 4.65 4.47 4.56
Oct 2023 4.80 5.13 4.95 5.04
Nov 2023 4.50 4.84 4.66 4.75
Dec 2023 4.02 4.32 4.14 4.23
Avg 2023 3.96 4.25 4.09 4.17
Jan 2024 4.06 4.39 4.26 4.33
Feb 2024 4.21 4.49 4.38 4.44
Mar 2024 4.21 4.46 4.36 4.41
Apr 2024 4.54 4.77 4.66 4.72
May 2024 4.48 4.71 4.62 4.67
Jun 2024 4.31 4.54 4.44 4.49
Jul 2024 4.25 4.56 4.46 4.51
Aug 2024 3.87 4.25 4.15 4.20
Sep 2024 3.72 4.10 4.04 4.07
Source of Information: Federal Reserve Bulletin
Case No. VEO-W-24-01
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 2018-2022 Monthly for the Years 2023 and 2024
Spread in Average Long-Term T-Bond Yields Versus Public Utility Bonds:
Years Aaa Rated Aa Rated A Rated Baa Rated
2018 NA 1.08 1.24 1.66
2019 NA 1.24 1.40 1.82
2020 NA 1.52 1.75 2.12
2021 NA 1.15 1.29 1.54
2022 NA 1.23 1.42 1.73
Average NA 1.24 1.42 1.77
Jan 2023 NA 1.25 1.47 1.76
Feb 2023 NA 1.25 1.42 1.67
Mar 2023 NA 1.39 1.54 1.83
Apr 2023 NA 1.26 1.39 1.73
May 2023 NA 1.33 1.45 1.80
Jun 2023 NA 1.31 1.43 1.78
Jul 2023 NA 1.25 1.36 1.68
Aug 2023 NA 1.21 1.34 1.64
Sep 2023 NA 1.16 1.30 1.59
Oct 2023 NA 1.15 1.30 1.57
Nov 2023 NA 1.15 1.30 1.54
Dec 2023 NA 1.04 1.19 1.45
Avg 2023 NA 1.23 1.37 1.67
Jan 2024 NA 1.02 1.16 1.41
Feb 2024 NA 0.98 1.13 1.36
Mar 2024 NA 1.02 1.14 1.38
Apr 2024 NA 0.96 1.08 1.30
May 2024 NA 0.96 1.08 1.31
Jun 2024 NA 1.01 1.12 1.35
Jul 2024 NA 1.03 1.13 1.34
Aug 2024 NA 1.07 1.19 1.41
Sep 2024 NA 1.02 1.14 1.36
Comment: Derived from the information on pages 1 and 3 of this Schedule.
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 11
H. Walker
Page 4 of 7

Interest Rate Trends for
Federal Funds Rate and Prime Rate
Yearly for 2018-2022 Monthly for the Years 2023 and 2024
Fed
Funds Prime
Years Rate Rate
2018 1.83 4.90
2019 2.16 5.28
2020 0.38 3.54
2021 0.08 3.25
2022 1.68 4.85
Average 1.23 4.36
Jan 2023 4.33 7.50
Feb 2023 4.57 7.74
Mar 2023 4.65 7.83
Apr 2023 4.83 8.00
May 2023 5.05 8.22
Jun 2023 5.08 8.25
Jul 2023 5.12 8.29
Aug 2023 5.33 8.50
Sep 2023 5.33 8.50
Oct 2023 5.33 8.50
Nov 2023 5.33 8.50
Dec 2023 5.33 8.50
Avg 2023 5.02 8.19
Jan 2024 5.33 8.50
Feb 2024 5.33 8.50
Mar 2024 5.33 8.50
Apr 2024 5.33 8.50
May 2024 5.33 8.50
Jun 2024 5.33 8.50
Jul 2024 5.33 8.50
Aug 2024 5.33 8.50
Sep 2024 5.13 8.30
Source of Information: Federal Reserve Bulletin
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 11
H. Walker
Page 5 of 7

Blue Chip Financial Forecasts-October 1,2024
Fourth First Second Third Fourth Five
Quarter Quarter Quarter Quarter Quarter Quarter
2024 2025 2025 2025 2025 Average
Prime Rate
Top Ten Average 8.1 % 7.6 % 7.3 % 7.1 % 6.9 % 7.4 %
Group Average 7.8 7.3 6.9 6.7 6.5 7.0
Bottom Ten Average 7.4 6.9 6.6 6.3 6.2 6.7
Three-Month Treasury Bills
Top Ten Average 4.8 4.3 4.0 3.8 3.7 4.1
Group Average 4.5 4.0 3.7 3.4 3.3 3.8
Bottom Ten Average 4.2 3.7 3.3 3.1 2.9 3.4
Ten Year Treasury Notes
Top Ten Average 4.0 4.0 4.1 4.2 4.2 4.1
Group Average 3.8 3.7 3.7 3.7 3.7 3.7
Bottom Ten Average 3.5 3.4 3.3 3.3 3.2 3.3
Thirty Year Treasury Bonds
Top Ten Average 4.2 4.3 4.3 4.4 4.5 4.4
Group Average 4.1 4.0 4.0 4.0 4.1 4.0
Bottom Ten Average 3.9 3.8 3.7 3.7 3.6 3.7
Aaa-Rated Corporate Bonds
Top Ten Average 5.0 5.0 5.0 5.1 5.2 5.0
Group Average 4.7 4.7 4.7 4.7 4.7 4.7
Bottom Ten Average 4.5 4.5 4.4 4.4 4.3 4.4
Baa-Rated Corporate Bonds
Top Ten Average 5.1 5.1 5.1 5.1 5.1 5.1
Group Average 5.5 5.5 5.6 5.6 5.6 5.6
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 Utili, Bonds
Top Ten Average 5.1 5.1 5.1 5.2 5.2 5.1
Group Average 5.2 5.2 5.2 5.2 5.2 5.2
Bottom Ten Average 4.6 4.6 4.6 4.5 4.5 4.6
A-Rated Public Utility Bonds
Top Ten Average 5.2 5.2 5.2 5.3 5.3 5.2
Group Average 5.3 5.3 5.3 5.3 5.4 5.3
Bottom Ten Average 4.7 4.7 4.7 4.7 4.7 4.7
Baa-Rated Public Utility Bonds
Top Ten Average 5.5 5.4 5.5 5.5 5.5 5.5
Group Average 5.5 5.5 5.6 5.6 5.6 5.6
Bottom Ten Average 5.0 4.9 4.9 4.9 4.9 4.9
Case No. VEO-W-24-01
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 October 9,2024
Treasury
Bonds
Delivery Date CBOT
Dec-24 4.291 %
Mar-25 4.286
Jun-25 4.228
Average 4.268 %
Source of Information: Chicago Board of Trade
Case No. VEO-W-24-01
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) 2.5 %
Growth in Dividends(2) 0.1
Adjusted Dividend Yield 2.6
Stock Appreciation(3) 6.7
Market Value DCF Cost Rate 9.3 %
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-24-01
Exhibit No. 1
Schedule 12
H. Walker
Pagel of 2

Market Value Dividend Yield for
the Water Group Followed by Analysts
For the Twelve Months Ended September 2024
Recent Longer Term
Dividend Dividend Average
Yields 1 Yields(2) Yields
Water Group Followed by Analysts
American States Water Co 2.3 % 2.3 %
American Water Works Co Inc 2.1 2.3
California Water Service Gp 2.1 2.2
Essential Utilities,Inc. 3.4 3.4
Middlesex Water Co 2.0 2.2
SJW Corp 2.7 2.7
York Water Co 2.2 2.3
Average 2.4 % 2.5 % 2.5 %
Notes: (1) Average of the high and the low dividend yield for the month of
September 2024.
(2) Average of the high and the low dividend yield for each of the
twelve months ended September 2024.
Source of Information: S&P Capital IQ
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 12
H. Walker
Page 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 G H
Analysts'Projected Growth in EPS Other Projected Growth
First Value Value Value
Call S&P ZACK's Line Line Line Average Average
EPS EPS EPS EPS DPS Cash Flow EPS All
Growth Growth Growth Growth Growth Growth Growth Growth
Water Group Followed by Analysts
American States Water Co 4.4 % 8.0 % 6.3 % 6.5 % 8.5 % 5.5 % 6.3 % 6.5 %
American Water Works Co Inc 7.5 7.5 7.9 4.5 8.5 3.0 6.8 6.5
California Water Service Gp 10.8 10.0 NA 13.0 6.0 5.0 11.3 9.0
Essential Utilities,Inc. 5.2 6.4 5.8 7.0 8.0 6.5 6.1 6.5
Middlesex Water Co 2.7 NA NA 7.0 5.0 3.5 4.9 4.6
SJW Corp 7.5 5.4 6.0 6.5 4.5 -1.5 6.4 4.7
York Water Co 4.9 NA NA NA N A NA 4.9 4.9
Average 6.1 % 7.5 % 6.5 % 7.4 % 6.8 % 3.7 % 6.7 % 6.1 %
Industry Specific Average Projected Growth Rates 9.9 % 9.9 % 9.9 %
Historical 5-Year Growth in EPS
First Value
Call ZACK's Line Average
EPS EPS EPS EPS
Growth Growth Growth Growth
Water Group Followed by Analysts
American States Water Co 6.7 % 8.9 % 9.0 % 8.2 %
American Water Works Co Inc 5.9 8.1 15.0 9.7
California Water Service Gp 6.9 -7.7 4.0 1.1
Essential Utilities,Inc. 3.4 5.6 7.0 5.3
Middlesex Water Co -1.6 -0.3 5.5 1.2
SJW Corp 18.1 4.2 -0.5 7.3
York Water Co 5.7 9.5 0.0 5.1
Average 6.4 % 4.0 % 5.7 % 5.4 %
Source of Information: Value Line Investment Survey, 10/4/24;S&P Capital IQ 10/9/24;
FirstCall 10/9/24;and
Zacks Investment Research 10/9/24
Case No. VEO-W-24-01
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 60 13.5 29.0 3.74 3,119.810
American Water Works Co Inc 59 9.6 29.9 2.81 28,496.770
California Water Service Gp 36 12.0 17.9 2.06 3,189.498
Essential Utilities,Inc. 60 9.4 18.8 1.71 10,555.621
Middlesex Water Co 62 8.7 31.5 2.69 1,163.215
SJW Corp 57 7.2 21.3 1.49 1,900.871
York Water Co 52 10.5 23.4 2.39 538.004
Average 55 10.1 24.5 2.41 6,994.827
Source of Information: S&P Capital IQ,spot date of 9/30/2024
Case No. VEO-W-24-01
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 2027-2029
Value Line
Projected Value Line Projected
Value Line Average Projected Common
Projected ROE Dividend Equity
ROE (1) Pam Ratio
Water Group Followed by Analysts
American States Water Co 13.5 % 14.0 % 64.1 % 55.0 %
American Water Works Co Inc 11.0 11.7 58.6 60.0
California Water Service Gp 9.5 9.7 43.1 65.5
Essential Utilities,Inc. 9.5 9.8 66.0 45.0
Middlesex Water Co 13.5 13.5 50.8 59.5
SJW Corp 8.0 8.1 52.1 57.0
York Water Co NA NA NA NA
Average 10.8 % 111 % 55.$ % 57..0 %
Median 11a %
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, 10/4/24
Case No.VEO-W-24-01
Exhibit No. 1
Schedule 14
H.Walker
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 1 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 FTotal 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-24-01
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 Recent Difference in
Book Value Market Value Average Average Market Value
Capitalization Capitalization Book Value Market Value and
Ratios Ratios of Common of Common Book Value
(6/30/24) (9/30/24) Equity Equity Common Equity
(Millions) (Millions)
Water Group Followed by Analysts:
Long Term Debt 50.1 % 30.8 %
Preferred Stock 0.0 0.0
Common Equity 49.9 69.2 $2,946.602 $6,994.827 $4,048.225
Total 100.0 % 100.0 %
Differnce in Common Equity Ratio 19.3%
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 16
H. Walker
Page 1 of 3

Water Group Followed by Analysts
Financial Risk Adjustment Using the"Hamada Models"
Original Hamada Formulas Harris-Pringle Formulas
Market Value @(9/30/24) Market Value @(9/30/24)
Line Line
No. DEBT PREF CE TAX BETA No. DEBT PREF CE TAX BETA DEBT BET?
1. (D) (P) (E) (t) (Bl) 1. (D) (P) (E) (0 (Bl) (Bd)
2. 30.8% 0.0% 69.2% 26.14% 0.75 2. 30.8% 0.0% 69.2% 26.14% 0.75 0.42
3. Bl=Bu(1+(l-t)D/E+P/E) 3. B1=Bu+(Bu-Bd)(D/E)
4. 1-t= 0.7386 4. B1= 0.75
5. D/E= 0.4451 5. Bd= 0.42
6. P/E= 0.0000 6. D/E= 0.4451
7. B1= Bu* 1.3287 7. Bl+Bd(D/E)= 0.9369
8. Bu= 0.56 8. 1+D/E= 1.4451
9. 9. Bu= 0.65
Book Value @(6/30/24) Book Value @(6/30/24)
BETA BETA
10. DEBT PREF CE TAX UNLEVERED 10. DEBT PREF CE UNLEVERED
it. (D) (P) (E) (t) (Bu) 11. (D) (P) (E) (Bu)
12. 50.10% 0.00% 49.90% 26.140% 0.56 12. 50.10% 0.00% 49.90% 0.65
13. B1=Bu(1+(1-t)D/E+P/E) 13. B1=Bu+(Bu-Bd)(D/E)
14. 1-t= 0.7386 14. Bu= 0.65
15. D/E= 1.0040 15. Bd= 0.42
16. P/E= 0.0000 16. Bu-Bd= 0.2284
17. B1= Bu* 1.7416 17. D/E= 1.0040
18. B1= 0.98 18. Bl= 0.88
Cost Adjustment Based on Original Hamada Cost Adjustment Based on Harris-Pringle
19. Book Beta(Raw) = 0.98 19. Book Beta(Raw) = 0.88
20. Market Beta(Raw) = 0.75 20. Market Beta(Raw) = 0.75
21. Beta difference = 0.23 21. Beta difference = 0.13
22. Risk premium = 4_8 22. Risk premium = 4_8
23. Risk adjustment = 1.10 23. Risk adjustment = 0.61
Case No. VEO-W-24-01
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 2018-2022 Monthly for the Years 2023 and 2024
A
Corporate Public Utility Over
Years Aaa Rated A Rated Aaa
2018 3.93 4.25 0.32
2019 3.39 3.77 0.38
2020 2.50 3.02 0.52
2021 2.71 3.11 0.40
2022 4.09 4.72 0.63
Average 3.32 3.77 0.45
Jan 2023 4.40 5.20 0.80
Feb 2023 4.56 5.29 0.73
Mar 2023 4.60 5.39 0.79
Apr 2023 4.47 5.13 0.66
May 2023 4.67 5.36 0.69
Jun 2023 4.65 5.38 0.73
Jul 2023 4.66 5.41 0.75
Aug 2023 4.95 5.71 0.76
Sep 2023 5.13 5.86 0.73
Oct 2023 5.61 6.34 0.73
Nov 2023 5.28 6.05 0.77
Dec 2023 4.74 5.42 0.68
Avg 2023 4.81 5.55 0.74
Jan 2024 4.87 5.48 0.61
Feb 2024 5.03 5.56 0.53
Mar 2024 5.01 5.55 0.54
Apr 2024 5.28 5.79 0.51
May 2024 5.25 5.74 0.49
Jun 2024 5.13 5.61 0.48
Jul 2024 5.12 5.64 0.52
Aug 2024 4.87 5.39 0.52
Sep 2024 4.68 5.21 0.53
Source of Information: MERGENT BOND RECORD
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 16
H. Walker
Page 3 of 3

Market Value CAPM for
The Water Group Followed by Anal
Water Group
Followed by
Analysts
Estimation Based Upon Historical Information
Market Premium(1) 7.5 % 7.5 %
x Beta(2) 0.85 0.85
Risk Adjusted Market Premium 6.4 6.4
Size Adjustment Premium(2) 0.7
Plus Risk Free Rate(1) 4.2 4.2
Market Value CAPM Cost Rate 11.3 % 10.6 %
Estimation Based Upon Projected Information
Market Premium(1) 7.3 % 7.3 %
x Beta(2) 0.85 0.85
Risk Adjusted Market Premium 6.2 6.2
Size Adjustment Premium(2) 0.7
Plus Risk Free Rate(1) 4.2 4.2
Market Value CAPM Cost Rate 11.1 % 10.4 %
Market Value CAPM is: 10.8%
Notes: (1) Developed on page 2 of this Schedule.
(2) Developed on page 4 of this Schedule.
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 17
H. Walker
Pagel of 4

Development of Market Premiums for Use in a CAPM Model
Estimated Based Upon Projected Information
Value Line Summary and Index Project Return
Date 10/4/24
Market's Price Appreciation Next 3-5 Years(1) 40 %
Annual Price Appreciation(1) 8.80 %
Forecasted Market Dividend Yield(1) 2.00
Value Line's Annual Total Return(1) 10.80 %
S&P 500 Projected Market Return
S&P 500's Projected Growth Rate in EPS(2) 10.95 %
S&P 500's Dividend Yield(3) 1.30
S&P 500 Projected Market Return(4) 12.25 %
Average Projected Total Market Return(5) 11.50 %
Less Risk Free Rate(6) 4.20
Estimated Market Premium Based Upon Projected
Information 7.30 %
Estimated Based Upon Historical Information
Estimated Market Premium Based Upon Historical
Information(7) 7.50 %
See next page of this Schedule for Notes.
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 17
H. Walker
Page 2 of 4

CAPM
The Water Group Followed by Anal
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(Oct-24)that the market will appreciate in price 40%over the next three to five years. Using
a four-year midpoint estimate,Value Line's appreciation potential equates to 8.8%
annually([1.40]11.25). Additionally,Value Line estimates the market will have a dividend yield of 2%.
Combining the market dividend yield of 2%with the market appreciation results in
a projected market return rate of 10.8%(g 8%+2%)
(2) S&P Global Market Intelligence, S&P Capital IQ (Oct. 9, 2024) reports projected 5-year EPS
growth rate for the S&P 500 of 10.95%.
(3) Barron's Market Lab(Oct.4,2024)reports S&P 500's dividend yield of 1.3%.
(4) Combining the S&P 500 market dividend yield of 1.3%with the S&P 500 market appreciation results in
a projected market return rate of 12.25%(10.95%+ 1.3%).
(5) Average of Value Line's projected total market return and projected total market return for the S&P
(6) As discussed in the direct testimony,the risk-free rate is 4.2%.
(7) 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-24-01
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
Recent Adjusted
Market Market Quartile Value Size Quartile
Value Quartile Market Size Quartile Line Premium Size
5/31/24 Name Quartile Premium Beta Beta Ratio* Premium
(Mill$)
Water Group Followed by Analysts
American States Water Co $3,119.810 Mid-Cap 2 2.48 1.13 0.75 25% 0.62
American Water Works Co Inc 28,496.770 Large-Cap 1 0.00 1.00 1.00 0% 0.00
California Water Service Gp 3,189.498 Mid-Cap 2 2.48 1.13 0.75 25% 0.62
Essential Utilities,Inc. 10,555.621 Mid-Cap 2 2.48 1.13 1.00 25% 0.62
Middlesex Water Co 1,163.215 Low-Cap 3 3.95 1.23 0.75 25% 0.99
SJW Corp 1,900.871 Low-Cap 3 3.95 1.23 0.85 25% 0.99
York Water Co 538.004 Low-Can 3 3.95 1.23 0.85 25% 0.99
Average Mid-Can 2 2.48 1.13 0.85 21% 0.69
*- Estmated based on diffences in raw betas and credit spreads for the comparison companies and the
quartile companies.
Source of Information: 2022 SBBI Yearbook,Stocks,Bonds,Bills,and Inflation,and Value Line
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 17
H. Walker
Page 4 of 4

Market Value Risk Premium
For the Water Group Followed by Analysts
Water Group
Followed by
Analysts
Prospective Public Utility Bond Yields(1) 5.4 %
Estimated Risk Premium(2) 4.8
Market Value Risk Premium Indicated Cost Rate 10.2 %
Notes: (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 about
5.4%based upon credit profiles of A for the Water Group.
(2) A 4.8%risk premium is concluded for the Group after reviewing the
tabulation of risk spreads shown on pages 2-5 and 9 of this Schedule.
Case No. VEO-W-24-01
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 2004-2023, 1994-2023, 1984-2023, 1974-2023,1964-2023, 1954-2023 and 1928-2023
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
2004 to 2023 0.1216 0.0479 0.0000 0.0577 0.0577 0.0578 0.0649
1994 to 2023 0.1095 0.0611 0.0746 0.0696 0.0698 0.0711 0.0769
1984 to 2023 0.1285 0.0855 0.1253 0.0929 0.0932 0.0931 0.0997
1974 to 2023 0.1328 0.0805 0.1033 0.0880 0.0888 0.0894 0.0957
1964 to 2023 0.1140 0.0698 0.0815 0.0768 0.0775 0.0782 0.0840
1954 to 2023 0.1197 0.0620 0.0687 0.0687 0.0694 0.0705 0.0763
1928 to 2023 0.1095 0.0533 0.0594 0.0621 0.0630 0.0653 0.0722
Average Risk Premiums
2004 to 2023 0.0737 0.1216 0.0640 0.0640 0.0638 0.0567
1994 to 2023 0.0484 0.0349 0.0399 0.0397 0.0384 0.0326
1984 to 2023 0.0430 0.0031 0.0355 0.0353 0.0354 0.0287
1974 to 2023 0.0442 0.0325 0.0372 0.0365 0.0357 0.0300
1964 to 2023 0.0442 0.0325 0.0372 0.0365 0.0357 0.0300
1954 to 2023 0.0578 0.0511 0.0510 0.0503 0.0492 0.0435
1928 to 2023 0.0561 0.0500 0.0474 0.0464 0.0442 0.0373
Case No. VEO-W-24-01
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 2004-2023, 1994-2023, 1984-2023, 1974-2023,1964-2023, 1954-2023 and 1928-2023
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
2004 to 2023 0.1216 0.0342 0.0000 0.0462 0.0462 0.0482 0.0530
1994 to 2023 0.1095 0.0433 0.0749 0.0556 0.0557 0.0574 0.0618
1984 to 2023 0.1285 0.0546 0.0870 0.0664 0.0666 0.0685 0.0726
1974 to 2023 0.1328 0.0633 0.0936 0.0745 0.0750 0.0773 0.0817
1964 to 2023 0.1140 0.0621 0.0858 0.0728 0.0733 0.0755 0.0797
1954 to 2023 0.1197 0.0583 0.0761 0.0680 0.0685 0.0706 0.0745
1928 to 2023 0.1095 0.0498 0.0609 0.0588 0.0595 0.0620 0.0667
Average Risk Premiums
2004 to 2023 0.0875 0.1216 0.0754 0.0754 0.0734 0.0686
1994 to 2023 0.0663 0.0346 0.0539 0.0538 0.0521 0.0477
1984 to 2023 0.0738 0.0414 0.0621 0.0618 0.0599 0.0558
1974 to 2023 0.0519 0.0282 0.0412 0.0406 0.0385 0.0343
1964 to 2023 0.0519 0.0282 0.0412 0.0406 0.0385 0.0343
1954 to 2023 0.0614 0.0437 0.0517 0.0512 0.0491 0.0452
1928 to 2023 0.0597 0.0486 0.0507 0.0500 0.0474 0.0427
Case No. VEO-W-24-01
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 48 Years of the Lowest Interest Rate Environment and the 48 Years of the Highest Interest Rate Environment
For The Years 1928-2023
Current Interest Rate Environment:4.2%
Public Utility Bonds
Public Utility L-Term AAA
Periods Stock T-Bonds AAA &AA AA A BBB
Annual Total Returns
Low Interest Rate Environment:
48 Years of the Lowest Interest Rates,Ranging from 1.4%to 4.1%with an Average Rate of 2.9%
Average Rates of Return
0.1113 0.0268 0.0366 0.0438 0.0450 0.0498 0.0613
Average Risk Premiums
0.0845 0.0747 0.0675 0.0663 0.0615 0.0500
High Interest Rate Environment:
48 Years of the Highest Interest Rates,Ranging from 4.1%to 13.5%with an Average Rate of 7.1%
Average Risk Premiums
0.1076 0.0799 0.0788 0.0803 0.0811 0.0808 0.0831
Average Risk Premiums
0.0277 0.0288 0.0273 0.0265 0.0268 0.0245
Annual Income Returns
Low Interest Rate Environment:
48 Years of the Lowest Interest Rates,Ranging from 1.4%to 4.1%with an Average Rate of 2.9%
Average Rates of Return
0.1113 0.0286 0.0340 0.0367 0.0374 0.0402 0.0460
Average Risk Premiums
0.0827 0.0773 0.0746 0.0739 0.0711 0.0653
High Interest Rate Environment:
48 Years of the Highest Interest Rates,Ranging from 4.1%to 13.5%with an Average Rate of 7.1%
Average Risk Premiums
0.1076 0.0710 0.0837 0.0809 0.0816 0.0838 0.0875
Average Risk Premiums
0.0366 0.0239 0.0267 0.0260 0.0238 0.0201
Case No. VEO-W-24-01
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 1928-2023
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
1975 0.4364 0.0465 0.0915 0.0863 0.0813 0.0872 0.0940
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 18
H. Walker
Page 5 of 9

Annual Total Returns of
S&P Public Utility Stocks and Bonds
for the Years 1928-2023
Annual Total Returns
Public Utility Bonds
Public Utility L-Term AAA
Years Stocks T-Bonds AAA &AA AA A BBB
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
2022 0.0763 -0.2760 -0.2457 -0.2457 -0.2515 -0.2493
2023 -0.0562 -0.0302 0.0218 0.0218 0.0337 0.0417
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 18
H. Walker
Page 6 of 9

Annual Total Returns of S&P Public Utility Stocks
And Annual Income Returns of Bonds
for the Years 1928-2023
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
1975 0.4364 0.0817 0.0894 0.0912 0.0929 0.0978 0.1057
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 18
H. Walker
Page 7 of 9

Annual Total Returns of S&P Public Utility Stocks
And Annual Income Returns of Bonds
for the Years 1928-2023
Annual Total Income Returns
Returns Public Utility Bonds
Public Utility L-Term AAA
Years Stocks T-Bonds AAA &AA AA A BBB
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
2022 0.0763 0.0314 0.0436 0.0436 0.0454 0.0485
2023 -0.0562 0.0422 0.0538 0.0538 0.0553 0.0583
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 18
H. Walker
Page 8 of 9

Development of the Projected Risk Premium
Value Line Summary and Index Project Return
Date 10/4/24
Market's Price Appreciation Next 3-5 Years 40 %
Annual Price Appreciation 8.80 %
Forecasted Market Dividend Yield 2.00
Value Line's Annual Total Return 10.80 %
S&P 500 Projected Market Return
S&P 500's Projected Growth Rate in EPS 10.95 %
S&P 500's Dividend Yield 1.30
S&P 500 Projected Market Return 12.25 %
Average Projected Total Market Return 11.50 %
Less Prospective Public Utility Bond Yields 5.40
Forecasted Equity Premium 6.10 %
Estimated Risk Adjustment 85%
Forecasted Risk Premium 5.20 %
Case No. VEO-W-24-01
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 Ul CAPM 2 RP U3
Common Equity Cost Rate Range 10.00 % 11.50 % 10.90 %
Investment Risk
Adjustments (4) 0.00 0.00 0.00
Veolia Water Idaho, Inc.
Adjusted Common Equity Cost
Rate Range: 10.00 11.50 10.90
Veolia Water Idaho, Inc.
Recommended Common Equity Cost Rate (5) 10.80 %
Check of Reasonableness of
Common Equity Cost Rate (6) 10.8 % to 11.1 %
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 52%.
(6) See page 2 of Schedule 14.
Case No. VEO-W-24-01
Exhibit No. 1
Schedule 19
H. Walker
Page 1 of 1