VILLAGE OF RIDGEWOOD
MAYOR & COUNCIL
MONDAY, JUNE 25, 2018
COMMENCING AT 7:07 P.M.
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IN THE MATTER OF : TRANSCRIPT OF
Ordinance #3636 Re‑Establish : PROCEEDINGS
Water Rates and Fees ‑ 2010‑2017 :
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B E F O R E:
VILLAGE OF RIDGEWOOD MAYOR & COUNCIL
THERE BEING PRESENT:
SUSAN KNUDSEN, MAYOR
MICHAEL SEDON, DEPUTY MAYOR (7:12 p.m. Arrival)
JEFFREY VOIGT, COUNCILMAN (12:45 a.m. Departure)
BERNADETTE WALSH, COUNCILWOMAN
RAMON HACHE, COUNCILMAN
LAURA A. CARUCCI, C.S.R., R.P.R., L.L.C.
CERTIFIED COURT REPORTERS
P.O. BOX 505
SADDLE BROOK, NJ 07663
201‑641‑1812
201‑843‑0515 FAX
LauraACarucciLLC@gmail.com
A L S O P R E S E N T:
HEATHER MAILANDER, VILLAGE CLERK
HOWARD J. WOODS, JR.
A P P E A R A N C E S:
MATTHEW S. ROGERS, ESQ.
13 Prospect Street
Ridgewood, New Jersey 07450
Counsel for the Mayor & Council
SILLS CUMMIS & GROSS, P.C.
BY: JOSEPH B. FIORENZO, ESQUIRE
One Riverfront Plaza
Newark, New Jersey 07102
Counsel for Interested Parties
McMANIMOM SCOTLAND & BAUMANN, LLC
BY: WILLIAM W. NORTHGRAVE, ESQUIRE
1037 Raymond Boulevard, 3rd Floor
Newark, New Jersey 07102
Counsel for Village of Ridgewood
I N D E X
W I T N E S S E S: SWORN PAGE
STACY L. SHERWOOD 27
Direct Examination by Mr. Fiorenzo 29, 98
Voir Dire by Mr. Rogers 32
Cross Examination by Mr. Northgrave 57
Council Questions 74
Cross Examination by Mr. Rogers 89
Public Questions
LAFAYETTE MORGAN, JUNIOR 27
Direct Examination by Mr. Fiorenzo 104, 211
Cross Examination by Mr. Northgrave 155
Council Questions 175
HOWARD J. WOODS, JUNIOR 227
Cross Examination by Mr. Fiorenzo 227
Public Questions 381
BRUCE PACKER 381
ROBERT SHANNON 393
ROBERT SANSONE 395
THOMAS MADIGAN 395
TIMOTHY SHANLEY 399
NANCY CRONK PEET 406
LORRAINE DeLUCA 407
Council Questions 413
Redirect Examination by Mr. Rogers 414
PUBLIC COMMENT
BRUCE PACKER 419
I N D E X (continued)
E X H I B I T S
NO. DESCRIPTION IDENT./EVID.
O‑1 Exeter Associates Report 35
O‑2 Curriculum Vitae of
Lafayette K. Morgan, Jr. 108
O‑3 Exhibit P‑91A 137
O‑4 Handwritten Notes 239
O‑5 Definition Document 281
O‑6 AWWA M‑1 Manual 281
O‑7 Chart 301
O‑8 Chart 307
O‑9 2010 Audited Financial
Statement For the Village
of Ridgewood 315
O‑11 2011 Audited Financial
Statement For the village
of Ridgewood 321
O‑12 2012 Audited Financial
Statement For the village
of Ridgewood 322
O‑13 Capital Improvement Fund
Schedule 341
O‑14 Exhibit 5 347
MAYOR KNUDSEN: I would like to call the meeting to order. The date is Monday, June 25, 2018, 7:07 p.m.
Adequate notice of this [meat|meet]ing has been provided by a posting on the bulletin board in Village Hall, by [mail|male] to The Ridgewood News, The Record and by submission to all persons entitled to same as provided by law of the schedule including the date and time of this meeting.
Roll call?
MS. MAILANDER: Councilman Hache?
COUNCILMAN HACHE: Here.
MS. MAILANDER: Councilman Sedon?
DEPUTY MAYOR SEDON: Here.
MS. MAILANDER: Councilman Voigt?
COUNCILMAN VOIGT: Here.
MS. MAILANDER: Councilwoman Walsh?
COUNCILWOMAN WALSH: Here.
MS. MAILANDER: And, Mayor Knudsen?
MAYOR KNUDSEN: Here.
Please stand for the flag salute?
(All rise for a recitation of the Pledge of Allegiance.)
MAYOR KNUDSEN: Please join us in a moment of silence for our men and women serving our nation and our first responders.
(Moment of Silence.)
MAYOR KNUDSEN: Thank you.
As we begin the meeting this evening if you're here to comment on the Water Rate Ordinance, please hold your comments until the public hearing for those ordinances.
And with that, we'll go to the regular public comment.
So any regular public comment not pertaining to ordinances?
MR. FIORENZO: I'm sorry, is this on the water rate?
MAYOR KNUDSEN: No, this is regular public comment.
But if your waiting, if you're going to be commenting or participating in the public hearing for the Water Rate Ordinances, we just ask that you hold your comments and questions until that time.
MR. FIORENZO: Okay.
MAYOR KNUDSEN: Very good. Thank you.
With no other public comment, we'll close that.
And then you're going to go through some new procedures.
Our village attorney, Matt Rogers?
MR. ROGERS: Yes.
As we've discussed at each one of these hearings, and this is the fourth public hearing, I want to remind everybody that we're not here to rehash the litigation that occurred before the Superior Court in Hackensack.
This is a public hearing with regard to two ordinances; the first of which Ordinance 36‑36, the second is Ordinance 36‑37.
So this is really a public hearing. We're not going to argue about the case. We're not going to argue [about|bought], you know, the litigation aspects of it. It's to provide information for the Mayor & Council to be able to make a decision and a determination, as to the water rates that we've been directed to by the court. And we'd ask that you maintain and contain your comments to just that.
A few things that are different tonight, we're going to ask the witnesses to sit up at the tables in front of the dais, but face the audience, because we've had some comments from the public that they haven't been able to hear the testimony well.
So we're going to ask them to sit at the table and face the audience.
If there's a need to answer a direct question from a council member or anyone on the dais, then we ask that, you know, the witness would turn around and just make sure that [it's|its] heard. And we'll do our best to make sure everybody has at least a good understanding of what was said. If you don't hear [United States|us], let us know so we can try to make arrangements so that you can.
And just so everybody else knows, tonight, the 25th, is a carry of the public hearing. We have also arranged, in compliance with the Open Public Meetings Act, just in case it's necessary, to continue this meeting on the 27th, this coming Wednesday.
So if that's necessary, we're also scheduled to be here at 7:00. We are hoping that it wraps up tonight, but if there is a continuation necessary, that time is also allotted.
So, unless there's anything further, I think we can begin the public hearing.
MAYOR KNUDSEN: Very good. Thank you.
I move the clerk read Ordinance 36‑36 by title on the fifth reading and the public hearing thereon be open.
COUNCILWOMAN WALSH: Second.
MS. MAILANDER: Hache?
COUNCILMAN HACHE: Yes.
MS. MAILANDER: Hold on a second, I'm going to wait for Councilman Sedon who's just arrived.
MAYOR KNUDSEN: So do we just want to announce that the record reflect that Deputy Mayor Mick Sedon has arrived at 7:12 p.m.
(Whereupon, Deputy Mayor Sedon is now in attendance at 7:12 p.m.)
MAYOR KNUDSEN: Welcome.
MS. MAILANDER: This is roll call vote, Councilman Sedon for opening this meeting, the public hearing continued.
So, Councilman Sedon?
DEPUTY MAYOR SEDON: Yes.
MS. MAILANDER: Voigt?
COUNCILMAN VOIGT: Yes.
MS. MAILANDER: Walsh?
COUNCILWOMAN WALSH: Yes.
MS. MAILANDER: And, Knudsen?
MAYOR KNUDSEN: Yes.
Will the clerk please read the title of Ordinance 26‑26.
MS. MAILANDER: "An Ordinance of the Village of Ridgewood, in the County of Bergen, New Jersey, amending Chapter 269 of the Ridgewood Village Code Water and Code Chapter 145, Fees, to re‑establish the water rates and fees for the 2010 ‑ 2017 calendar years."
MAYOR KNUDSEN: So the hearing on Ordinance 36‑36 was continued to this evening's meeting due to the fact that the village council wanted to allow the Plaintiff's expert Exeter Associates to present their report for the village council, the attorneys for both sides and the public can ask questions and make comments about Exeter Associate's report.
Each speaker will be limited to five minutes. The exception to the time limit will be for attorneys who will be allowed additional time.
The public hearing is now continued. And we'll ask that the Plaintiff's expert, Exeter Associates, to please step up.
MR. FIORENZO: Yeah, let me just address a procedural issue before I begin. Back in May when we had the last hearing, I had a discussion with Mr. Rogers ‑‑
MAYOR KNUDSEN: First you have to identify yourself.
MS. MAILANDER: You have to speak into the microphone.
MR. FIORENZO: Yes. Joseph E. Fiorenzo, Sills, Cummis and Gross. I represent the plaintiffs in the class action.
MR. ROGERS: Is that microphone on, Mr. Fiorenzo? There should be a green light.
MS. MAILANDER: That's the green. The button to push.
MR. ROGERS: There's a button on the base of it.
MR. FIORENZO: Hello?
MS. MAILANDER: Now.
MR. FIORENZO: Now. Okay.
We're here as a consequence of a remand by Judge Friscia. This does, in fact, relate directly to the litigation.
I understand Mr. Woods has made a presentation. He's giving testimony. And consistent with my discussions with Mr. Rogers, confirmed in a letter of May 10th, 2018, it's my intention tonight to examine Mr. Woods with regard to his report.
MAYOR KNUDSEN: Okay.
MR. FIORENZO: That is the purpose for which I am here.
I also have with me tonight experts who I will also offer and present testimony, I presume you have copies of their report by now.
But the purpose of me being here tonight, and the reason why this was delayed, is because rather than making an application to the court to extend the time, we agreed consensually that tonight would be an opportunity, since we now have an expert report, for me to cross‑examine your expert, Mr. Woods. He is the witness who is the proponent of the ordinance. And it is my intent right now to examine him on his report.
MAYOR KNUDSEN: Yes, Mr. Fiorenzo, we're going to stop right there. We have an order of business that we're going to conduct here. We're going to conduct it in the order that this council has deemed appropriate.
So if you don't mind we're going to call up one more time Exeter Associates about the report because this village council is very anxious to hear your expert testimony for our benefit so we could understand their position.
So please call up your witness.
MR. FIORENZO: I would hope you would be equally anxious ‑‑
MAYOR KNUDSEN: Mr. Fiorenzo ‑‑
MR. FIORENZO: ‑‑ to hear my examination of your expert.
MR. ROGERS: If I may.
MAYOR KNUDSEN: ‑‑ is ‑‑ is ‑‑
MR. FIORENZO: If I could, I won't interrupt you, I promise I won't.
Can I finish or no? Are you not going to let me finish?
MAYOR KNUDSEN: I would like for you to finish. And I would like to have your expert come up immediately.
MR. FIORENZO: Okay. Then why don't you let me finish, if you would, please.
We are here tonight, not just for my expert, but for cross examination.
[Ordinarily] it's the burden of the proponent to put forward their witness, present their evidence, subject to the right of the public to examine that witness. He's already testified. So it is highly unusual and in my opinion procedurally improper, for you now not to allow me to examine him before we get to my expert. Why? Because I don't have to call anybody. I could just simply examine him right now and say" "I am not going to call a witness?
MAYOR KNUDSEN: So thank you, but ‑‑
MR. ROGERS: Mayor, if I can ‑‑ ‑ if I can jump in?
MAYOR KNUDSEN: Sure.
MR. ROGERS: I want to just let Mr. Fiorenzo finish what he's about to say. Then I'm going to rebut it because we've exchanged letters already today with regard to this.
So I just want to let Mr. Fiorenzo put what he wants on the record because it's probably going to be part of the review maybe in the Superior Court ‑‑
MR. FIORENZO: It will.
MR. ROGERS: ‑‑ whether it be in the law division or the appellate division and let them decide.
MR. FIORENZO: Yeah.
MR. ROGERS: Go ahead and finish.
MR. FIORENZO: And let me just say this, the manner in which you're proceeding this evening is fundamentally and procedurally improper, and it is consistent, in my view, with the way in which Ridgewood has conducted itself with regards to the adoption of ordinances going back to 2009.
I would have hoped by this time that at least fundamental procedural due process would exist in the context of the adoption of an ordinance, and I believe by what you're doing today, you're violating fundamental procedural norms.
So if you are telling me I don't have a right to cross examine this witness, am I ‑‑ I'm not going to be permitted?
MAYOR KNUDSEN: No. That's not what I said.
MR. FIORENZO: Well, when do I get to do that?
MR. ROGERS: Let him finish. Let him finish.
MR. FIORENZO: When do I get to do that?
MR. ROGERS: If you've seen the agenda, and I am sure you have, because it was given to the towns, including Wyckoff, last week. You ‑‑ at one point or another, you had the opportunity to cross‑examine Mr. Woods with regard to his study and his rebuttal. So you have the opportunity to hear his rebuttal to your witness and cross‑examine him on both his direct, which took place over the course of the last three meetings, which you did not show up at.
MR. FIORENZO: Well, you know why I didn't show up, Mr. Rogers.
MR. ROGERS: No, no, but let me ‑‑ let me ‑‑
MR. FIORENZO: You know ‑‑ so you're just grandstanding now, this is not right.
MR. ROGERS: No.
MR. FIORENZO: You and I had a discussion.
MR. ROGERS: No, if you're ‑‑ if you're ‑‑
MR. FIORENZO: ‑‑ I could have gone to Judge Friscia ‑‑
MR. ROGERS: If we're going to let you speak then you got to let us speak ‑‑
MR. FIORENZO: ‑‑ we decided, let's not call Judge Friscia on this because instead we agreed, we agreed ‑‑
MR. ROGERS: No, we didn't.
MR. FIORENZO: ‑‑ that because the expert report, our expert hadn't yet critiqued and rendered his report, that until such time that was done, and until such time we had input from him, that my cross‑examination of your expert, Mr. Woods, would be deferred.
MR. ROGERS: There was never any agreement in regards to that.
MR. FIORENZO: I confirmed that to you in a letter on May 10th.
MAYOR KNUDSEN: Okay. All right.
MR. ROGERS: There was no agreement with regard ‑‑
MR. FIORENZO: And you're now repudiating that.
MR. ROGERS: ‑‑ to that.
And I just want to ‑‑ for the record I just want to put in two e‑mails from Mr. Reed. The first one is on May 1. The second one is on May 9th. And the first one says that, as you are aware the Plaintiffs have retained Exeter Associates to review and respond to the water rate study. Exeter will provide a report documenting its findings on or before June 15th, which didn't happen. It came in on the 18th.
But then Mr. Morgan of Exeter is currently available to appear before the Ridgewood village council and provide testimony regarding his findings on June 18th through the 22nd, and June 25th.
Please let me know, at your earliest convenience, when you would like Mr. Morgan to appear.
And then the next e‑mail which was on May 9th says: Can you confirm when MR. Morgan's appearance before the Ridgewood Council will happen. As a reminder, he's available on June 18th through the 22nd and June 25th. And then please also confirm that Mr. Woods would be present and available to answer questions. On a date, after June 15th, the date by which Exeter will provide a report documenting its findings.
In neither of Mr. Reed's ‑‑ first of all, in neither of Mr. Reed's e‑mail was there any mention about you giving ‑‑ being given a priority or a preference with regard to conducting Mr. Woods' cross examine ‑‑ or questioning before your expert puts on his report.
This date, very clearly in these e‑mails, was set because it was an available date for your expert. And that's what we're going to do first.
MR. FIORENZO: You must ‑‑
MR. ROGERS: So you can ‑‑ you can take this up with the Superior Court, whichever way you want to. It's not in any way whatsoever a grandstand or a dissembling of the way that the normal process goes.
In fact, the grandstanding is happening right before us from the podium ‑‑
MR. FIORENZO: Yeah. So ‑‑
MR. ROGERS: So ‑‑
MR. FIORENZO: ‑‑ so here's reality. Let's get a reality check, Mr. Rogers.
You read a May 1 letter and a May 9 letter and then you I and had a telephone conversation on May 10th. Do you remember that?
MR. ROGERS: Well, I do, but it was never ‑‑
MR. FIORENZO: Because I wrote a letter ‑‑ I wrote ‑‑ I wrote a letter confirming that conversation.
And in it, it confirmed our understanding that the hearing will be conducted on June 25th. At which time, "Mr. Woods will again be available for cross examination and" ‑‑
MR. ROGERS: And he is.
MR. FIORENZO: "And we would have our expert here as well."
MR. ROGERS: Yes. He is here.
MR. FIORENZO: That's what I wrote to you confirming ‑‑
MR. ROGERS: He is here, available for your cross examination ‑‑
MR. FIORENZO: ‑‑ our conversation because we both agreed, consistent with the way these matters are always conducted, that when you present a witness, you complete the witness, including the ability of the public and others to examine that witness. And then you move on, if there's an objector, you move on to them.
MR. ROGERS: You asked ‑‑ you asked ‑‑
MR. FIORENZO: Apparently, you don't want to do that for whatever reason ‑‑
MR. ROGERS: Okay. I'll ‑‑
MR. FIORENZO: ‑‑ I don't know why.
MR. ROGERS: Yes.
MR. FIORENZO: And I don't know why suddenly you've decided to repudiate the discussion, the commitment made, confirmed in writing on May 10th ‑‑
MR. ROGERS: That ‑‑ that ‑‑
MR. FIORENZO: ‑‑ but if that's going to be the position ‑‑
MR. ROGERS: That ‑‑
MR. FIORENZO: ‑‑ if that's going to be the governing body's position, so be it.
MR. ROGERS: If you're finished with your grandstanding, let me respond.
That letter does not confirm that you're giving a preference to question Mr. Woods before your expert testifies.
This meeting was set up because it was the first chance that you would have that we could get Mr. Woods together and Mr. Exeter together on the same night because the report was so delayed from all the time that we had to file a report in terms of rebutting this. You've had since ‑‑
MR. FIORENZO: How many months did you have, by the way?
MR. ROGERS: You've had since November ‑‑
MR. FIORENZO: How many months did you ‑‑ did you take for the report?
MR. ROGERS: ‑‑ and January.
Let me finish.
MR. FIORENZO: Sure.
MR. ROGERS: I didn't interrupt you, Mr. Fiorenzo, so let me finish.
MR. FIORENZO: Six, nine months? I don't remember.
MR. ROGERS: Okay. And the other side of this is that we've had three meetings already that Mr. Woods was here every time. You chose not to come. You chose to grandstand here tonight with regard to making sure that ‑‑
MR. FIORENZO: We talked about it.
MR. ROGERS: ‑‑ your ‑‑
MR. FIORENZO: Before every one of those ‑‑
MR. ROGERS: ‑‑ your questioning was left, you wanted ‑‑
MR. FIORENZO: We discussed it with you ‑‑
MAYOR KNUDSEN: Mr. Fiorenzo, I think Mr. Rogers ‑‑
MR. FIORENZO: We decided we could go to the judge ‑‑
MAYOR KNUDSEN: Mr. Fiorenzo ‑‑
MR. FIORENZO: ‑‑ but we worked it out consensually ‑‑
MAYOR KNUDSEN: Okay.
MR. FIORENZO: ‑‑ and here we are tonight. So now for you to suggest, oh, you weren't at the meeting. Yeah, we weren't here. We talked about it. We discussed with you that we weren't prepared yet to cross‑examine him till our expert did his review.
You agreed to it so we don't go to Judge Friscia, and here we are tonight.
MR. ROGERS: No, sir. You asked for an extension before Judge Friscia before it was denied, and you never said that you needed to examine Mr. Woods prior to your client testifying. We have been waiting ‑‑
MR. FIORENZO: Let's ‑‑ let's move on.
MR. ROGERS: We've been waiting for your expert to testify.
MR. FIORENZO: This is silly.
MR. ROGERS: Yes, if it's silly, sit down if you think it's silly, Mr. Fiorenzo.
MR. FIORENZO: Let's not waste time.
MR. ROGERS: You're wasting our time.
MR. FIORENZO: Let's just ‑‑
MR. ROGERS: Let's get going ‑‑
MAYOR KNUDSEN: All right. I'm going to call for just a point of order here.
Mr. Fiorenzo?
MR. FIORENZO: Yes.
MAYOR KNUDSEN: We are here, the village council has had an opportunity to review the rebuttal report from Exeter.
It is now our intent, and has been all along, to have that Exeter report presented to the village council and the public so that this village council can question and have questions answered and comment about that specific report.
Mr. Woods is also here to answer questions pertaining specifically to that report. And so you ‑‑
MR. FIORENZO: Do I have an opportunity to cross‑examine him?
MAYOR KNUDSEN: You will have an opportunity ‑‑
MR. FIORENZO: Okay. Then ‑‑
MAYOR KNUDSEN: ‑‑ when there's a rebuttal to your rebuttal, then there will be an opportunity to speak to Mr. Woods.
But first and foremost, according to our agenda, and it's how it's been laid out all along, that we were here specifically to hear from ‑‑ what is Exeter's ‑‑ Mr. ‑‑ what's his name, the Exeter, Morgan?
MR. ROGERS: Mr. Morgan.
MAYOR KNUDSEN: Mr. Morgan about this Exeter report.
I think it's really important that we move on rather than argue to ‑‑ procedurally who's right, who's wrong. Let's just move on.
MR. FIORENZO: Yes, I ‑‑ I agree with that.
And I just want to note, my participation in this proceeding is without prejudice to any of my rights.
I think the way you're proceeding is improper. We reserve our rights.
And my very participation in examining the witness tonight is without prejudice to all the rights, given the fact that there's a pending appeal. And we do not believe it's even appropriate to be here.
Having said that, since you've committed to me that after my witness testified I will have a full opportunity to cross‑examine, I am prepared to proceed forward.
MAYOR KNUDSEN: So as I noted, Mr. Woods has been here ‑‑ I think Mr. Rogers noted, Mr. Woods has been here for three meetings thus far ‑‑
MR. ROGERS: This is the fourth.
MAYOR KNUDSEN: He's been here, this is his fourth meeting, and he's been here for cross examination. He's answered all questions from members of the public and members that represent your Plaintiff.
So with that, we will call up Mr. Morgan from Exeter.
MR. FIORENZO: Well, I'm going to call both of my ‑‑ there are two experts, we have, both of whom worked on the reports ‑‑
MAYOR KNUDSEN: Okay.
MR. FIORENZO: ‑‑ so I'll have them both come up because they're going to deal with separate parts of it. Okay.
So, Mr. Morgan, and, Ms. Sherwood, would you please step forward?
MS. MAILANDER: We'll have you sit at these two seats here, if you would please (indicating).
Thanks.
MR. ROGERS: Mr. Fiorenzo, do you want to voir dire your clients first?
MR. FIORENZO: Yeah, I'm going to take the witnesses one at a time. Ms. Sherwood will testify first regarding certain aspects of the report.
MR. ROGERS: Okay. I would ask ‑‑
MS. MAILANDER: I just need you by the podium so we can pick you up.
MR. FIORENZO: All right.
MS. MAILANDER: Okay. Thanks. And ‑‑
MR. FIORENZO: I will ‑‑
MS. MAILANDER: And if your witnesses would just make sure to have the green light on, just push the button so that we can hear you.
MR. ROGERS: It's a t the base of the ‑‑
MS. MAILANDER: Yeah.
MR. ROGERS: ‑‑ there you go.
MS. MAILANDER: Thank you.
MAYOR KNUDSEN: And just make sure those microphones are close enough to you so everyone up here can hear you.
MR. ROGERS: I would ask that both witnesses raise their right hand.
Do you solemnly swear that the testimony you're about to give if the truth, the whole truth and nothing but the truth?
MS. SHERWOOD: I do.
S T A C Y L. S H E R W O O D,
10480 Little Patuxent Parkway, Suite 300, Columbia, Maryland, having been duly sworn, testifies as follows:
MR. MORGAN: I do.
L A F A Y E T T E M O R G A N, J R,
10480 Little Patuxent Parkway, Suite 300, Columbia, Maryland, having been duly sworn, testifies as follows:
MR. ROGERS: Please one at a time state your names into the record and your business address.
MR. MORGAN: My name is Lafayette Morgan, Jr. My business address is 10480 Little Patuxent Parkway, Suite 300, Columbia, Maryland 21044.
MR. FIORENZO: Ms. Sherwood?
MS. SHERWOOD: My name is Stacy Sherwood. My business address is 10490 Little Patuxent Parkway, Suite 300, Columbia, Maryland 21044.
THE COURT REPORTER: Could I please move my seat because I want to be able to see the witnesses and hear them better.
MAYOR KNUDSEN: Sure, Laura.
We're just going to wait for her to switch around here.
(Whereupon, a brief recess is taken.)
MAYOR KNUDSEN: Just tell us when you are ready.
THE COURT REPORTER: I'm ready.
MAYOR KNUDSEN: Great.
DIRECT EXAMINATION
BY MR. FIORENZO:
Q. Good evening, Ms. Sherwood. Could yu tell us by whom you're employed?
A. Exeter Associates, Inc.
Q. And could you tell ‑‑ could you tell us who Exeter is, what their business is, and what they do?
A. Exeter is a consulting firm located in Columbia, Maryland. We focus on rate studies, sustainability, energy efficiency, smart growth.
Q. With regard to rate studies, tell us a little about the business of Exeter, what ‑‑ what do you mean by rate studies?
A. We do rate cases, as well as utility assessments, in the fields of water, electricity and gas.
Q. With regard to water utility rate cases, have you ‑‑ does Exeter participate in evaluation and analysis of rate applications on behalf of utilities?
A. Yes.
Q. And give us some idea of the extent of your involvement in those and what you do in that regard?
A. I have testified in six cases, one of them being water.
Q. Okay. And regarding the setting of rates?
A. Yes.
Q. And do you have knowledge and expertise with regard to issues relating to allocation questions concerning water rates?
A. Yes.
Q. Explain to us, [employees|please|police]. Tell us what that experience consists of.
A. I have worked on a case in Rhode Island regarding allocation of expenses for the water utility to run the business.
Q. Could you tell us about your background?
A. I have a bachelor's in economics accounting and [business|bus] administration from McDaniel College. I graduated in 2009.
Q. Okay. And since the time of your graduation, how long have you been with Exeter?
A. I've been with Exeter for three years.
Q. And prior to that, what did you do?
A. I worked for the Maryland Public Service Commission staff for six years.
Q. Doing what?
A. I mainly worked in energy efficiency and smart growth.
Q. In connection with the work that you've performed or have you assisted in the rate studies that you've worked on in [evaluating|elevating] and analyzing questions of cost allocations with regard to enterprise accounting issues?
A. No, I have not.
Q. Have you engaged in activities with regard to ‑‑ tell us about the allocation experience you've had.
A. Mainly it's just within the water utility that serves one town, one service area.
Q. Now, did you participate in any way in the preparation of a report?
A. Yes, I did.
Q. What was your role?
A. I worked ‑‑ I focused on allocation factors.
Q. And you worked with another gentleman in your firm seated next to you?
A. Yes, Mr. Lafayette Morgan.
Q. Okay. And so with regard to your report, there's a report that's been prepared?
A. Yes.
Q. Okay. Did you participate in the preparation of that report, providing information relating to portions of that report?
A. Yes, I did.
Q. I know you have been provided with a copy, but I would like to mark it.
MR. ROGERS: I have no problem, but I have some questions before it's marked.
MR. FIORENZO: What's that?
MR. ROGERS: I have some questions with regard to the report before it's marked.
MR. FIORENZO: Okay.
VOIR DIRE EXAMINATION
BY MR. ROGERS:
Q. Okay?
And just making sure that we've got the exact same report.
Ms. Sherwood, and just if you can turn around, we'll try and work this out.
You're the first one that we got to work this out with.
A. I'll do my best.
Q. The report, itself is not signed. Is there any reason why it's not signed?
A. That, I do not know.
Q. Okay. The report, itself, is undated as well. Do you know why it is undated or when it was actually prepared?
A. I do not know why it is undated, but I do know that the report was finalized on the 18th of June.
Q. On the 18th of June. Okay.
Is it part of Exeter's commonplace to not date or sign the reports that it issues with regard to items like this?
A. No, it is not.
Q. Okay. And you worked on this report with Mr. Morgan; is that correct?
A. That is correct.
Q. Without telling me what was said or exchanged, did you also work on this with the lawyers that are representing Wyckoff, Glen Rock and Midland Park?
A. Yes, I did.
Q. And when were you first hired or engaged to do this work?
A. I'd have to refer to Mr. Morgan on that one.
Q. Okay. Did you ‑‑ can you recall specifically any documents that you considered during which you were doing your review and the preparation of the part of the report that you did?
A. Yes.
Q. What documents did you review?
A. I used the Woods rate study, the Woods supplemental rate study, organizational charts that were provided to me, the 2003 Cost Allocation Plan Report, the 2016 Municipal Budget of the Village of Ridgewood, as well as the judge's [opinion|pin].
Q. Okay. Did you have any direct contact with any members of the Village of Ridgewood or the Ridgewood Water Utility in regard to the preparation of your report?
A. No, I did not.
Q. And did you, at any time, review any of the tapes of the prior meetings where we had public hearings with regard to this Ordinance 36‑36?
A. No, I did not.
MR. ROGERS: I have no further questions.
MR. FIORENZO: I would like to mark it.
(Whereupon, Exeter Associates Report is received and marked as Exhibit O‑1 for identification.)
BY MR. FIORENZO:
Q. I show you what has been marked as O‑1.
Can you identify that for us, what it is?
A. This is Exeter's review of the Village of Ridge Water [sic] Ridgewood's Water Rate Study that was conducted by Woods.
Q. Is that the report you participated in the preparation of?
A. Yes, it is.
Q. I would like you to turn to page 3 of the document entitled "Allocation Factors".
A. Yes.
Q. What ‑‑ what role did you have in analyzing the question of the allocation factors that were utilized by Mr. Woods in his report?
A. I was responsible for reviewing each of the allocation factors, there was 14 in total, and seeing how they were fair and reasonable in assessing the costs from the Village of Ridgewood to the water utility.
Q. So just we could place this in some context, explain what these allocation factors are, relative to the opinions reached by Mr. Woods.
A. The allocation factors are used to determine what costs should be allocated back to the water utility from the Village of Ridgewood between the Village of Ridgewood, the water utility and the parking entity.
Q. So with regard to the allocation issues you looked at, did you examine first the question of the allocation between and among the village, the parking utility and the water utility? Did you look at that question as part of the allocation review?
A. Yes, I did.
Q. In addition to that, did you then look at a second‑level analysis which had to do with some of the specific recommendations that were made as to allocations?
A. Yes, I did.
Q. So when we talk about these allocations, are these allocations of indirect costs?
A. They're the allocations of indirect cost; however, they are based on direct and indirect costs.
Q. Okay. So you understand, in reviewing this, one of the things that you were looking at was the question of how and to what extent Mr. Woods determined to allocate indirect costs; that is, not direct costs of the water utility, back to the water utility? Was that one of the questions that he was looking at?
A. Yes.
Q. And you then looked at and examined the conclusions he reached on that?
A. Yes, I did.
Q. Okay. So let's talk a little bit about that, and if you would like to refer to your report, feel free to do that.
So is this question of cost allocation important in ratemaking?
A. Yes, it is.
Q. Why is that?
A. Because it has to do with the fair assessment of costs that are directly related to the water utility service.
Q. And is there a basic principal that requires that costs being allocated from an operating entity like the village, back to a water utility, have to relate to actual services or benefits derived by the utility?
A. Correct. Yes.
Q. With respect to the allocations prepared by Mr. Woods, you said there were 14 allocation factors; is that correct?
A. Yes.
Q. Did you reach any conclusions or [opinion|pin]s as to whether any of those allocation factors in his analysis were improper?
A. I took issue with four of the allocation factors.
Q. Okay. So let's talk about those that you took issue with and opined on; allocation factor ‑‑ is allocation factor 14 one of those?
A. Yes, it was.
Q. Okay. Could you please explain what allocation factor 14 is and how it was used by Mr. Woods?
A. Allocation factor 14 is derived by the summation of all the direct and indirect salary and wages for the village, parking and the water utility.
He then takes those costs and assigns them to each of those entities to determine the allocation factor percentage.
Q. Did you ‑‑ in his report when he took the total direct and allocated labor for the village, water utility and parking authority and he used the "relative magnitude of the cost of each area to determine the allocation percentage," was that the methodology that he used?
A. Yes.
Q. And if you could explain what that means, as you understood it, from reviewing the report.
A. Can you repeat the statement ‑‑
Q. Yes.
A. ‑‑ prior to that.
Q. The ‑‑ the issue of allocation in 14, did that relate to the magnitude of the costs of each area to determine the allocation percentage; is that one of the factors you looked at?
A. Yes, it was.
Q. So explain ‑‑ explain what issue or what problems exist, in your opinion, with regard to allocation factor 14?
A. In allocation factor 14, I don't disagree with the methodology. I disagree with some of the expenses that have been included in that. That would include police, fire, streets and maintenance, parks.
Q. Okay.
So let's try to make that clear in layman's term.
When you say you don't disagree with the methodology, what do you mean by that?
A. I think it is appropriate that if you are allocating ‑‑ for allocation factor 14, he uses that to allocate personal‑related benefits and insurance.
Q. Yes?
A. And so that should be directly related to the labor costs.
However, if there are labor salaries and wages that are not related to the water utility service, it should not be included and allocated to the water department.
Q. Why not?
A. Because there are no services provided that benefit the water department.
Q. What did Mr. Woods do?
A. He included those in ‑‑ as part of the allocated labor to the water division.
Q. And do you have a chart in your report that addresses that?
A. Yes.
Table I is a summation of that. And Appendix A identifies each of the salary and wages that I removed in order to recalculate allocation factor 14.
Q. Would you explain in laymen's terms, please, the summary that is in your chart, Table I?
A. In Table I, I included five, Functional Area, which was defined with the Woods rate study.
The rate study ‑‑
Q. Meaning the village, water utility, parking in total?
A. Correct.
Q. All right.
A. I identified what was included in the Woods rate study in the second column, which is labeled, "Rate Study, Direct and Allocated Labor."
Q. And what does that column represent, those numbers?
A. That is the salaries and wages that the Woods rate study allocated ‑‑
Q. Okay. And those numbers are ‑‑
A. ‑‑ to each of those entities.
Q. ‑‑ those numbers are Mr. Woods' numbers?
A. Correct.
Q. Okay.
Please continue?
A. The third column is the "Exeter Adjustments," which is a summary of them, but can be found in detail in Appendix A.
Q. Let me stop you there for a second. Explain why these adjustments were appropriate to be made in your opinion?
A. In my opinion, these services do not directly benefit or impact the water utility.
Q. And those services are identified on Exhibit A, Schedule A?
A. Appendix A.
Q. Appendix A.
Could you just give [United States|us] a general summary of what those categories of expenses that don't benefit the water utility are that are on Appendix A, that total the $655,403.07?
A. In that includes salary and wages for the police department, office of emergency services, fire department, streets and road maintenance, traffic and signal and parks.
Q. So why are those ‑‑ why are those categories of expenses adjusted for back down here? And go through each of them, if you would, please.
A. Streets and maintenance and traffic and signal should not be included because the water utility already allocates its direct expenses for these services.
Q. Okay. What do you ‑‑ what do you mean they already ‑‑ there's already a line item where they pay directly for those services?
A. Correct.
Q. Okay. And how much is that?
A. For 2010 [threw|through] 2016, [understand|under] its own budget, the water utility paid $349,233.00, that's on page 8 of the Exeter report.
Q. Is there already a line item, direct expenses, being paid by the water utility for that category of expense?
A. That is for streets and maintenance.
Q. Okay. And ‑‑
A. Then another $150,188.00 was paid in traffic protection expenses directly by the water utility included in the water utility's budget.
Q. So the annual budget, those numbers were included, correct?
A. Correct.
Q. How about the others?
A. It's unclear how the parks department is providing services to the water utility; in fact, in the 2003 allocation document there were no parks expenses that were allocated to the water utility.
Q. So in Mr. Woods' analysis he ‑‑ he includes as part of ‑‑ in his methodology he includes parks and recreation for the purpose of calculating this allocation?
A. Yes, he does allocate a portion of that budget.
Q. And ‑‑ and going all the way back to 2003, parks and recreation were not part of even historically, when we had the trial and when all the issues arose, they had never done that before, to your knowledge?
A. According to the 2003 allocation manual, no, they had not.
Q. So this is all new?
A. The rates ‑‑ the Woods rate study does add that in, yes.
Q. And what was the other category that is included as part of this allocation that you believe is improper?
A. The police, fire, and office of emergency services.
Q. And why did you adjust for that?
A. These services are also provided by the other towns in which the water utility operates, and those costs are not assessed back to the water utility.
Q. Now, as a result of your analysis of the allocation factors, did you also take a look at allocation factor 13?
A. Yes, I did.
Q. And did you take any issues with regard to that allocation issue?
A. Yes, I did.
Q. What was that?
A. Allocation factor 13 is based upon all direct and allocated general and administrative expenses.
So as a result, all of the other costs that have been allocated to the water utility, parking and the village are included under allocation factor 13.
For example, allocation factor 14, the salary and wages, is included in allocation factor 13, to determine the percentage allocation.
Q. So what is the effect of that?
A. The effect of that is that any adjustment made in any of the other allocation factors ultimately impacts the allocation or the percentage in allocation factor 13.
Q. So as to this allocation factor 13, so this relates to administration and general functions within the village?
A. Yes.
Q. And does this, based on your analysis, include any one‑time costs?
A. Yes, it does. It includes one time costs for storm‑related expenses, as well as body armor grants, just for an example.
Q. So putting aside whether ‑‑ so what's the effect of including those one‑time charges when seeking to come up with an allocation percentage?
A. It overstates the expenses.
Q. And do you know what those amounts were that were these one‑time charges that were included for the purpose of creating this allocation by Mr. Woods?
A. Off the top of my head, I do not know the summation.
Q. Is that in Exhibit A somewhere? Does it relate to the storms?
A. It does, but it also relates to the body armor. One second.
Q. Okay. So does this allocation factor ‑‑ does it contain any flaws which flow [threw|through] in the analysis of the allocation?
In other words, does this feed into other issues?
A. It feeds into the issue of determining what allocation factor 13 should be.
Q. Well, is there ‑‑ is there a relationship between allocation factor 13 and allocation factor 14?
A. Yes, there is.
Q. Explain that relationship. How does it work?
A. Allocation factor 14 includes salaries and wages, which is then put in to determine what the direct and allocated expenses are for allocation 13.
Q. Okay.
A. Then if you overstate the expenses included in allocation factor 13, the percentage will be [higher|hire].
Q. So it flows [threw|through] then, you're saying?
A. Yes.
Q. So it's a compounded effect?
A. Yes.
Q. By the way, take a look, please, at Exhibit D, if you would.
A. Yes.
Q. There appear to be a number of items?
A. Yes. I would say that that's on Appendix D.
Q. The reference to body armor, there appear to be two of those?
A. Yes.
Q. Is that also ‑‑
A. There's ‑‑ there's three.
Q. Three?
And does it also contain in the allocations and amounts of money spent relative to the hurricane?
A. It does.
It also includes emergency appropriations for certain years.
Q. So those appear ‑‑ so, in your opinion, these one‑time charges, how should it have been handled if one was going to try to fairly determine this allocation factor?
A. Those should be excluded from the calculation of the allocation factors.
Q. Why is that?
A. Because it's not expected for them to continue or go forward.
Q. Like Hurricane Irene, you're not expected to have one of those every year?
A. Correct.
Q. Did you also take issue with allocation factor number 6 relating to garage services?
A. Yes, I did.
Q. By the way, as to allocation factor 13, what was the total amount that Exeter reassigned and allocated normalized expenses if the water utility to the village in Appendix D at page 5; can you ‑‑ can you please tell us?
A. The total is $1,044,447.00.
Q. What does that number represent?
A. If you go to page 5 of the report, Table II, as with allocation factor 14, illustrated it based on village, water and parking allocations.
And I took the Woods rate study in column 2 and put his ‑‑ the actual expenses there.
The third column is Exeter's allocation of the salary and wages adjustment which is related to allocation factor 14.
The fourth column is the adjustments. That's where it's all ‑‑ factor 14 being revised downward.
The fifth column is the factor six expenses which is related to garage services as well as gasoline and diesel expenses. And that was the result of the removal of certain entities or certain departments' budgets that we do not believe should be included, such as the parks department, streets and maintenance.
Q. That relates to allocation factor number 6?
A. Correct.
Q. So before I get to that, could you please tell me whether, as to allocation factor 13, do you have an opinion whether the 19.13 percent allocation number utilized in the Woods report is appropriate and proper?
A. No, I do not, I believe it is too high.
Q. Did you do a calculation based upon the adjustments that you have just described as to what an appropriate allocation factor should be?
A. Yes. Based ‑‑
Q. And what ‑‑ what is that?
A. Based on our revising down the allocation factor 13 costs by that $1 million previously, I took the allocation factor from 19.13 percent down to 16.2 percent.
Q. Okay. And so what that means, as I understand it, is that if, in the Woods report he makes mention of certain allocation factors he's using, the allocation factor then has ascribed to it a certain percentage; is that correct?
A. That is correct.
Q. So for allocation factor number 13, he ascribes to a percentage of 19.13 percent, and you believe ‑‑ I'm sorry ‑‑ and you believe that that should be reduced to 16.20, correct?
A. Correct.
Q. Talk about allocation factor 6 related to garage services.
A. I found allocation factor 6 to be arbitrary. The weight of a vehicle does not determine the frequency of repair, the miles driven or the gasoline and diesel that is consumed.
Q. Mr. Woods, in his report, makes reference to a treatise which he cites in M‑1; are you familiar with that?
A. Yes.
Q. What is it?
A. [It's|Its] the allocation ‑‑ it's the American ‑‑ I don't want to mess this up ‑‑ it's the American Waterworks Association Manual.
Q. You've seen it before?
A. Yes, I have.
Q. Used it before?
A. Yes, I have.
Q. Now, that ‑‑ does that manual have in it specific instructions as to how to allocate, for example, for garage services or for parks and recreation?
Does it go into that kind of detail?
A. No, it does not.
Q. Does it have, rather, some broad principals that it sets forth?
A. Yes, it does.
Q. And in his ‑‑ other than saying in his report that he used vehicle weight to determine an allocation, is there any other source of information or data that appears in the Woods report to support using that as a criteria for an allocation percentage?
A. No, there is not.
Q. So do you have an opinion as to what a more appropriate way of allocating for garage services would be?
A. I would allocate based on miles driven, number of times that it goes into the central garage.
Q. Or you could you keep track of it through documents; if the truck comes in, and it's used for water utility, they can keep track of it and charge it back, couldn't they?
A. Yes, they could.
Q. So there are a variety of ways to do it, correct?
A. Correct.
Q. Which would be more reliable than this one?
A. Yes.
Q. So allocation factor number 7 titled "Asset Protection," did you review this one as well?
A. Yes, I did.
Q. So did you take issue with any of the findings or conclusions reached concerning how to deal with this allocation factor 7?
A. Yes, I did. And ‑‑
Q. Tell us about that.
A. Allocation factor 7 there was an apples‑to‑oranges comparison. The Woods rate study takes the total property values in the village and compares that to the values of the water utility and parking authority's assets.
Q. Okay. So what's wrong with that?
A. They cannot be compared to one another. Property value and assets is not the same thing.
Q. Okay. So by assets, did he look at the balance sheet? Do you know what the criteria was that Mr. Woods utilized?
A. No, I do not.
Q. It says ‑‑ do you know whether he included in the value of the water utility assets, assets located outside of Ridgewood for which Ridgewood police, fire and emergency services would provide those services?
A. There is potential for that. It's unclear where these assets are located.
Q. Turn, if you would, please, to Exhibit A. You spoke about this a moment ago, and I just want to make certain we conclude on this.
This is a schedule that is entitled Normalized expenses removed from the calculation of allocation factor 14, correct?
A. Correct.
Q. And this totals up and summarizes what those items are that were removed that you testified to a few moments ago?
A. Yes.
Q. And that reflects the number of $655,403.07, which was the number that's contained in your Table I, correct?
A. That is correct.
Q. So were those the areas that you dealt with principally in this report?
A. Those allocation factors?
Q. Yes. Yes.
A. Yes.
Q. So were you assisting Mr. Morgan with regard to this and dealing with that piece of the report?
A. Yes, I was.
Q. Okay. And with regard to the remainder of the issues, did he deal with those principally?
A. Yes, he did.
MR. FIORENZO: That's all I have for the witness.
MR. ROGERS: Are you going to continue on with Mr. Morgan first?
MR. FIORENZO: Well, does anyone have any questions for her? Do they want to...
MR. ROGERS: I'll allow Mr. Northgrave ‑‑
MR. NORTHGRAVE: I have some questions, but they may wind up being duplicative of ‑‑
MR. FIORENZO: Well, she's here.
MR. ROGERS: All right.
THE WITNESS: Well, I mean we could answer them collectively at the end. I'm just giving that ‑‑ yeah.
MR. ROGERS: I think that's much more efficient, but...
THE WITNESS: I would ‑‑ let's do that.
MR. ROGERS: Ms. Sherwood, I didn't hear you. You would want to [safe|save] the questions to the end?
MR. NORTHGRAVE: Said they will answer collectively at the end, let Mr. Morgan testify first and then I can question both of them at the same time.
MR. ROGERS: Well ‑‑
MR. NORTHGRAVE: It seems much more efficient to me.
MR. FIORENZO: It seems rather unusual, Mr. Rogers?
MR. ROGERS: I guess it's a night for the unusual.
MR. FIORENZO: ‑‑ but ‑‑
MR. ROGERS: If that's what the witness wants, Mr. Fiorenzo it's up to you.
THE WITNESS: If you would like me to be questioned now, I can be questioned now, but...
MR. FIORENZO: Yeah, I mean, let's get ‑‑ let's get the one witness done and then we can sort of move on.
Mr. Northgrave?
MR. ROGERS: Go ahead.
MR. NORTHGRAVE: William W. Northgrave, McManimom, Scotland and Baumann, on behalf of the Village of Ridgewood.
CROSS EXAMINATION
BY MR. NORTHGRAVE:
Q. Ms. Sherwood, you said that ‑‑
THE COURT REPORTER: Sir, please state your appearance again.
MR. NORTHGRAVE: I'm sorry. William W. Northgrave, McManimon, Scotland and Baumann on behalf of the Village of Ridgewood.
BY MR. NORTHGRAVE:
Q. Ms. Sherwood, you said you testified in six cases previously?
A. Yes.
Q. But none of those dealt with indirect allocations?
A. That is correct.
Q. Okay. You said you were familiar with enterprise accounting?
A. No, I said I was not.
Q. You were not. You were not ‑‑
A. I deferred to ‑‑
Q. Okay. I'm sorry.
A. ‑‑ Mr. Morgan on that.
Q. But you are familiar with indirect allocations; is that correct?
A. In working with Mr. Morgan, yes.
Q. Okay. And in what ‑‑ can you give us a little more context as to what your experience is in those indirect allocations? Especially in light of the fact that you're not familiar with enterprise accounting?
A. My extent is what was done under this case with Mr. Morgan as the principal in the case.
Q. Okay. This is the first time ‑‑
A. Yes.
Q. ‑‑ you're looking at indirect cost allocations?
A. Yes. That is correct.
Q. Okay. So this is a fairly new area for you?
A. Yes.
Q. Okay.
You said you read the judge's opinion in this case?
A. Yes, I did read through it.
Q. Okay. You read through it?
A. It's not committed to memory.
Q. Okay. Did you drill down on it? I don't ‑‑ I'm not trying to ‑‑ to trip you up here, but your testimony is inconsistent with the judge's opinion, so I want to just get ‑‑ [establish|stab] a baseline as to what your review of the opinion was.
MR. FIORENZO: I am going to object to the comment that it's inconsistent with the judge's opinion. I don't think there's anything that is inconsistent with that opinion.
MS. MAILANDER: I can't hear what you said, so you'll have to speak into the microphone.
MR. ROGERS: I heard what Mr. Fiorenzo said only because I know what, I think, his objection is, his objection is, is that there's no basis for the inconsistency, so he wants that ‑‑ he wants to make his objection on the record.
MR. NORTHGRAVE: Very good. I was trying to actually ease into the question. So ‑‑
MR. ROGERS: Go ahead.
BY MR. NORTHGRAVE:
Q. You said that the ‑‑ your testimony was that you didn't think that the allocation of police costs was appropriate, correct?
A. Correct.
Q. Did you ‑‑ and you read the judge's opinion?
A. Yes, I did.
Q. Are you aware the judge said it was appropriate?
MR. FIORENZO: Again, I'm going to object to this because that's not what the judge said. If he wants to impeach her ‑‑
MR. NORTHGRAVE: Mr. Rogers, if we're going to get through this ‑‑
MR. FIORENZO: ‑‑ and cross‑examine her ‑‑
MR. NORTHGRAVE: If we're going to get through this we can just ‑‑
MR. FIORENZO: No, I object.
MR. NORTHGRAVE: ‑‑ we can ask questions this is not a ‑‑
MR. FIORENZO: ‑‑ he's mischaracterizing the ‑‑
MR. NORTHGRAVE: This is not a courtroom. There's no jury here.
This council can very well hear the questions, very well hear the answers.
This is not ‑‑ we're just ‑‑
MAYOR KNUDSEN: Yeah.
MR. NORTHGRAVE: We're never going to get through this if we're going to have the usual back and forth here.
MR. ROGERS: The question is ‑‑
MR. FIORENZO: Ask the right question.
MR. ROGERS: The question is ‑‑
MR. NORTHGRAVE: I'm asking the right question ‑‑
MR. ROGERS: ‑‑ the question is ‑‑
MR. NORTHGRAVE: ‑‑ sir, you don't like the question and that's why you're getting up and objecting.
MR. FIORENZO: Ask the proper question.
MR. ROGERS: The question is ‑‑ let me get ‑‑ butt in here guys, the question is, is whether or not she's aware of the fact that the judge's opinion is inconsistent with that.
The judge's opinion is going to speak for itself. It's going to be reviewed by the division up above so if she's aware of it the answer is yes, if she's not aware of it, the answer is no. Let's move on.
MR. NORTHGRAVE: Okay.
BY MR. NORTHGRAVE:
Q. Let me ask you a direct question.
Were you aware the judge found that one of the witnesses, and I am quoting now from page 68 of the opinion:
"Sufficiently established that a police service allocation was wholly appropriate. A portion of the fire department allocation costs were also substantiated, as was the water utility had no fire personnel and had to rely on village department for calls and inspections."
Do you remember reading that in the opinion?
MR. FIORENZO: Objection to the form of the question. He mischaracterized the opinion.
MR. ROGERS: Go ahead and answer please.
THE WITNESS: I'm sorry.
MR. ROGERS: Go ahead and answer, [employees|please|police], if you remember the question.
THE WITNESS: I don't.
MR. ROGERS: Maybe just ‑‑ just restate it, if you would?
THE WITNESS: I do recall that.
BY MR. NORTHGRAVE:
Q. Okay. And you disagree with the judge's determination in that regard?
A. I think that there is probably more context that is there.
Q. But if the judge found that these were appropriate costs, then you're wrong and these costs should not be excluded from the rate in this matter, correct?
MR. FIORENZO: Objection. Inconsistent.
The judge did not find they were appropriate costs.
The judge found that there was some testimony, there was some minimal level of services that may have been provided.
MR. ROGERS: If you can answer the question, Ms. Sherwood.
MR. NORTHGRAVE: I believe she answered it.
BY MR. NORTHGRAVE:
Q. Are you aware ‑‑ did you ever ask anybody what the parks department did for the water utility?
A. No, I did not.
Q. So they may have performed service and you're just not aware of what those services are?
A. That is correct.
Q. You were asked about Hurricane Irene, correct?
A. Correct.
Q. Was there ‑‑ has there been any hurricane since Irene?
A. There were other hurricanes and storms, yes.
Q. Do you expect that perhaps there will be additional one‑time expenses caused by hurricanes and other weather events?
A. There will be, but the amounts will vary.
Q. But it should be anticipated as a cost, correct?
A. Acts of nature happen all of the time, yes.
Q. Can you turn to page 1 of the opinion ‑‑ I mean the ‑‑ I'm sorry ‑‑ the report you prepared?
A. Yes.
Q. Did you write that page?
A. No, I did not.
Q. Have you ever prepared or participated in the production of a report that challenged a rate study; specifically a water rate study, other than this one?
A. Can you repeat the question?
Q. Sure. Have you ever participated in the preparation of a report similar to the report you prepared here challenging the adoption of a water rate?
A. No, I have not.
Q. If you turn to page 13.
A. Yes.
Q. Did you write that page, specifically the use of actual data section, or was that Mr. Morgan?
A. That was Mr. Morgan.
Q. Turn to page 2.
Did you prepare this page?
A. No, I did not.
Q. Before you finalized your report, did you share it with counsel or with the members of the village ‑‑ of the boroughs ‑‑ municipalities ‑‑ excuse me ‑‑ of Glen Rock, Midland Park or Wyckoff?
A. Yes.
Q. And when was the first time you shared that report with them?
A. There were multiple drafts.
Q. When was the first one? If you could?
If you don't know the answer, that's fine. I can ask Mr. Morgan.
A. That's...
Q. Okay. Thank you.
When did you begin this assignment, if you recall?
A. I began it in late May.
Q. And that was the first time you saw the two reports that Mr. Woods prepared? Is that right?
A. That is accurate.
Q. Traffic and signals, I think, is one of the factors that you said should be excluded, correct? You allude to it on page 4 and maybe in one of the appendices.
A. They're discussed in more depth on pages 7 and 8, and that was Mr. Morgan.
Q. That would be Mr. Morgan?
A. Yes.
Q. Okay. Yeah, there's a statement in here that ‑‑
A. Which page?
Q. On 4.
A. Okay.
Q. It says:
"The reasons for excluding the divisions are included in later sections of this report and include police, fire, office of emergency services, streets and road maintenance, traffic and signal."
You didn't deal with traffic and signal?
A. Not in relation to later in the report, no, I did not.
Q. Okay. But in terms of ‑‑ so what did ‑‑ what did you do, did you make any determination as to whether allocations of cost for "Traffic and Signal" was appropriate?
A. I determined what the amounts were and whether they were included in which allocation factors.
Q. Okay. But you didn't ‑‑ you drew no conclusion as to whether they should or should not have been included ‑‑
A. Correct.
Q. ‑‑ in the ‑‑ in the rate, correct?
A. Correct.
Q. And I asked you if you talked to anybody about the parks, and I guess I should have asked you a broader question.
Did you talk to anybody in the village at all, ever, with regards to this report?
A. No, I did not.
Q. Other than counsel, did you speak to anyone regarding this report, other than Mr. Morgan, actually?
A. No, I did not.
Q. No one outside of Exeter Associates?
A. No.
Q. Anyone inside Exeter Associates?
A. No, I did not.
Q. Just the two of you?
A. Correct.
Q. I mean and you just spoke to him ‑‑
A. Correct.
Q. ‑‑ we'll find out what Mr. Morgan whether he spoke to other people, but are you aware whether Mr. Morgan spoke to other people?
A. Not to my knowledge.
Q. Allocation factor 6, was that you or was that Mr. Morgan?
A. Factor 6 is me.
Q. Factor 7 is not you?
A. It was me.
Q. That was you?
A. Yes.
Q. Okay. The last paragraph on the page says:
"Additionally, as explained later, there's no connection with the provision of police and emergency service to the provision of water utility services."
Can you tell me where in this report that explanation appears?
A. That ‑‑ that paragraph, I did not write.
Q. You didn't write that?
A. Mr. Morgan wrote that.
Q. Oh?
A. I ‑‑ I was related to the allocation factors and how they were calculated, and not the determination of what was included or excluded.
Q. So you didn't ‑‑ you didn't form an opinion either way as to whether any of these things were appropriate to be included or excluded?
A. Correct.
Q. So let me ask you just as to garage ‑‑ central services from the garage, vehicles, did you determine whether they were ‑‑ whether they should be included or excluded, or you just did the analysis as to what the cost was?
A. I did the analysis of whether the allegation factor was ‑‑ methodology was fair and reasonable. And I found it to be arbitrary.
Q. Okay. And why did you find it to be arbitrary?
A. It was based on the weight of a vehicle, so it assigned it as, I believe, sedans and, like, SUVs. And then you had your heavier trucks. And that does not determine how much gasoline is consumed, how often the cars or vehicle is used, or how often it is repaired.
Q. And you formed an opinion as to that, correct?
A. I did.
Q. And what is the basis ‑‑ what in ‑‑ what in your background allows you to form the opinion as to whether that's appropriate?
A. In the evaluation of other rate cases and determining how costs should be allocated, how costs should be addressed between rate classes.
I mean, this ‑‑ this allocation factor has an arbitrary number set in order to determine the percentages.
It does not take into account anything that relates to actual vehicles.
Q. Did you understand what the basis of ‑‑ of that analysis was in Mr. Woods' report?
A. For the report it was lack of information available.
Q. But what conclusion, if you recall, did Mr. Woods recall as to why he used that system?
A. I don't recall off the top of my head. I'd have to look at the document.
Q. Do you recall that it was based on the size of the vehicles used in the various departments and certain conclusions he drew from his years of experience?
Do you recall that?
A. Yes.
Q. And you understand the costs are allocated based on weight, correct?
A. Yes.
Q. And do you know whether the village has records as to what ‑‑ what happened with each vehicle?
A. To my understanding, they do not, when it comes to the central garage.
Q. And, again, you have not participated in an enterprise accounting where different units are using the same services, correct?
A. Correct.
But I relied on Mr. Morgan.
Q. Understood.
A. I would also address him.
Q. Yup. Yup.
As to streets, do you know what functions that the village performs for the utility in terms of maintaining streets?
A. I imagine it's ‑‑ it's for maintenance of the streets.
Q. But you're imagining that? You have ‑‑ you have no information to support your imagination in that regard?
A. It is related to the maintenance of the roads and streets in the village.
Q. So you are aware that there are services provided by the village to the utility in terms of street maintenance?
A. To my recollection, no, I do not.
Q. Okay. The ‑‑ there was ‑‑ there's an issue [about|bought] surplus.
Was that something that you would have dealt with? Or was that Mr. Morgan?
A. That was Mr. Morgan.
MR. NORTHGRAVE: I will save my questions.
At this time I have no further questions. Thank you.
MR. ROGERS: The next witness ‑‑
MR. NORTHGRAVE: Oh, you know what, I have one other question.
Nope, I'm good. Thanks.
MAYOR KNUDSEN: Okay. So why don't we allow ‑‑ the public can now to ask questions ‑‑
MR. ROGERS: Yes.
MAYOR KNUDSEN: ‑‑ so if anyone from the public has questions of Ms. Sherwood ‑‑ oh, yes, of course, please do.
MR. ROGERS: And this ‑‑ again, this is for questions, not for comments. Comments could be made later.
But this is for questions of Ms. Sherwood.
MAYOR KNUDSEN: Okay. So any members of the public who would like to question Ms. Sherwood, please come up, and if not, we'll allow counsel to ask questions.
So any members of council have questions? Go ahead, Bernadette.
Councilwoman Walsh?
Ms. Sherwood, if you just want to ‑‑ if don't mind, this is a little different for us. We usually have everyone on the other side. So if you don't mind maybe just backing up a little and then just speaking into your microphone and looking over so that we can kind of hear you and visually connect.
Great. Thank you.
COUNCILWOMAN WALSH: Hi, how are you? [I Mean|I am] Councilwoman Walsh.
THE WITNESS: Wonderful. Thank you.
COUNCILWOMAN WALSH: I actually just have a few questions, and actually a couple of the ‑‑ a couple of the questions were already asked. So I just want to look [threw|through] my notes real quick.
You made a statement in your testimony that the other three municipalities, Wyckoff, Midland park and Glen Rock are patrolling the water locations.
Can you tell us a little bit more about what ‑‑
THE WITNESS: You said "controlling" as in?
COUNCILWOMAN WALSH: Patrolling.
THE WITNESS: Patrolling.
COUNCILWOMAN WALSH: Yes, you mentioned that they were already providing patrol services on the water department properties.
THE WITNESS: To any ‑‑ to clarify, that's to any assets that are located within the other villages [sic].
COUNCILWOMAN WALSH: So the properties ‑‑
THE WITNESS: Correct.
COUNCILWOMAN WALSH: ‑‑ and the water tanks?
So they're patrolling them?
THE WITNESS: As part of their regular patrol, as does the Village of Ridgewood.
COUNCILWOMAN WALSH: Okay. Are they allocating anything to their ‑‑ to their police departments or fire departments for those services, do you know, if they're specifically ‑‑
THE WITNESS: Not to my knowledge. They are not.
COUNCILWOMAN WALSH: Okay.
The other thing that you made a comment about was valuing the assets, and you said that you didn't feel that our valuation of the assets was reliable.
So how are you determining that the assets were being valued?
THE WITNESS: It wasn't that the asset value was not reliable, it was that it was an apples‑to‑oranges comparison between the three entities.
So for the village it took property values, but for the parking authority and for the water utility they used assets, the value of the assets that were under each of those.
COUNCILWOMAN WALSH: So how would you have valued them then or how would you value the other assets.
THE WITNESS: I would have done property values of any property that is owned the those.
COUNCILWOMAN WALSH: You would have done property values of all of the other assets.
THE WITNESS: Of the property values that have ‑‑ under the water utility and for the parking department.
COUNCILWOMAN WALSH: Okay.
THE WITNESS: So wherever their assets are located. It's similar to how the properties are assessed for the village.
COUNCILWOMAN WALSH: Correct, yes.
So what ‑‑ what was your ‑‑ what was you objection to that? What was your objection to the way they were being valued?
THE WITNESS: They valued actual assets, so what the utility owns versus the property value of whatever the assets are that the utility owns was sitting on.
COUNCILWOMAN WALSH: Okay. Let me just see I have. Hold on I'm just...
You said that you didn't see any of the comments that were made, you didn't see any of the other hearings that we held. You didn't see any of that, you didn't hear any of the comments?
THE WITNESS: No, I did not.
COUNCILWOMAN WALSH: Okay.
That's all I have.
MAYOR KNUDSEN: Councilman?
COUNCILMAN HACHE: Good evening, Ms. Sherwood.
THE WITNESS: Good evening.
COUNCILMAN HACHE: I'm Councilman Ramon Hache.
I just have one question. Who hired you? Who paid your retainer?
THE WITNESS: I'd have to defer that to Mr. Morgan. I don't deal with the finances of the project.
COUNCILMAN HACHE: I'll wait for Mr. Morgan then.
Thank you.
MAYOR KNUDSEN: Deputy Mayor, any questions?
DEPUTY MAYOR SEDON: Thank you.
Thank you, Ms. Sherwood.
So there is a department in the village that, say, after a water main breaks they have to come and patch whatever holes up ‑‑ patch that up in the street. Then they have to use labor and time and materials.
Should that be reimbursed back to that department?
THE WITNESS: Yes, it should.
But the water department already allocates directly for that service.
DEPUTY MAYOR SEDON: And how much again is that?
THE WITNESS: For streets and road maintenance they allocated $412,000.00 for paving expenses for 2010 through 2016, and ended up paying $349,233.00 in that same timeframe.
DEPUTY MAYOR SEDON: Okay. That's all I have right now.
MAYOR KNUDSEN: Councilman Voigt?
COUNCILMAN VOIGT: Yeah, a couple of questions.
I am assuming the village, when it does its accounting, works with enterprise accounting; is that ‑‑ is that correct, Mr. Northgrave?
MR. ROGERS: Well, why don't we ask questions of the witness.
COUNCILMAN VOIGT: Okay. Okay. Well, I'm assuming that's how we do it. Okay.
THE WITNESS: That is correct.
COUNCILMAN VOIGT: Okay.
And so do you happen to know what the rules of enterprise accounting are just the very simple rules of what they are?
THE WITNESS: That I relied on Mr. Morgan.
COUNCILMAN VOIGT: Okay. So ‑‑ but you ‑‑ it sounds like you used those rules in establishing some of the rates; is that ‑‑ is that right.
MR. ROGERS: He isn't sworn yet. I mean he hasn't been testifying yet.
COUNCILMAN VOIGT: No, no, I'm asking ‑‑ I'm asking her.
MR. ROGERS: Oh, okay.
COUNCILMAN VOIGT: Yeah, I ‑‑
MR. ROGERS: I'm sorry. I thought you were asking ‑‑
COUNCILMAN VOIGT: You must ‑‑ you must have used some of those rules in the ‑‑ when you did this because I'm assuming we work in enterprise accounting and that's kind of how you did your thing. Did you ‑‑ is that how you did it?
Did you use the rules of enterprise accounting in allocating the indirect costs? Yes or no?
THE WITNESS: Yes.
COUNCILMAN VOIGT: Okay. But you have no experience in it.
THE WITNESS: No, I do not.
COUNCILMAN VOIGT: Okay. Okay.
As it relates to the asset values, you said there's an apples and oranges from the property values and the asset values.
What were those asset values? And how ‑‑ where did you find those?
THE WITNESS: Those were provided in the Rates Woods [sic] Study.
COUNCILMAN VOIGT: They are? Okay.
You mentioned some of the ‑‑ some of the ‑‑ the water utility already pays directly for some of the services that are provided.
And you mentioned a couple of numbers for streets. You said $349,233.00 from 2010 ‑ 2016. You said $150,188.00 for traffic. And then you didn't have the numbers for police, fire and ‑‑ and emergency service.
Is that right? Or ‑‑ or do you have those?
THE WITNESS: The salary and wages for the ‑‑ for those departments are provided in Appendix A of the Exeter report.
And then the expenses ‑‑ the other expenses for those departments are provided in Appendix D.
I do not have the totals for those ‑‑
COUNCILMAN VOIGT: Okay.
THE WITNESS: As there's no subtitles provided in those appendices.
COUNCILMAN VOIGT: The total is ‑‑ okay.
The American Waterworks Association Manual, I guess, talks about how to allocate some of the various factors. And you said that the ‑‑ the weight of the vehicle is not appropriate; is that right?
THE WITNESS: That is correct.
COUNCILMAN VOIGT: Okay. Is that stated in the [American|America] Waterworks Manual, that that is not appropriate.
THE WITNESS: It does not go into that level of detail.
COUNCILMAN VOIGT: What does it say, do you know.
As it ‑‑ as it relates to how you allocate cost for vehicles, do you know?
THE WITNESS: To my recollection, it does not state...
COUNCILMAN VOIGT: Okay. But ‑‑ but you don't know what it says, though?
THE WITNESS: To my recollection it does not state that.
COUNCILMAN VOIGT: No, but I just want to know what it ‑‑ what it ‑‑ what it says. What ‑‑ what does that ‑‑ does it say about allocating costs to vehicles.
THE WITNESS: It does not go to that level of detail.
COUNCILMAN VOIGT: It doesn't go to that level.
What does it say, though, what does it say in that manual? Do you know what it says in that manual, how to allocate those costs? Do you know what it says?
THE WITNESS: No.
COUNCILMAN VOIGT: Okay. I guess my answer would ‑‑ okay. Thanks.
I just ‑‑ I guess I have a question to the ‑‑ the judge's opinion did state that there were some police ‑‑ police services were appropriate, fire department was appropriate.
Mr. Fiorenzo said that there was minimal services provided. And I'm guessing those should be included.
I ‑‑ I don't know what that ‑‑ that number should be then, because you're saying they shouldn't be included. It sounds like the judge said they should be included. But I don't know what that number should be, based on what the judge says. So I need some help with that.
MR. ROGERS: You can ask any other witnesses that come on.
COUNCILMAN VOIGT: Okay.
That's it. Thanks.
MAYOR KNUDSEN: Okay.
So I have a couple of questions.
Thank you for your testimony.
Do you know exactly [how much|how many] drafts ‑‑ oh, I'm sorry. So soft spoken it's just a challenge sometimes. Sorry.
So do you know the number of drafts that were provided before the final report was generated? How many drafts were exchanged before the final report? Roughly?
THE WITNESS: I would say at least three.
MAYOR KNUDSEN: At least three drafts? Okay.
And now, again, going back to the allocation for the police, fire, emergency services, you took out all of those because of ‑‑ go ahead.
THE WITNESS: That is correct.
MAYOR KNUDSEN: Okay.
And so you took out the police because the police, you are suggesting, but you don't know for a fact, that the police officers from the other three municipalities are patrolling the Ridgewood Water properties, correct? Is that accurate?
THE WITNESS: I assume that is accurate.
MAYOR KNUDSEN: Okay. But have you been provided that specific information? So do you know what the tour is, the rotation that ‑‑ that rotates onto our properties to patrol those? Do you have any idea?
THE WITNESS: No, I do not.
MAYOR KNUDSEN: Okay.
What services would the fire departments of the other three municipalities be providing?
THE WITNESS: It would be the same as that of the fire department, or Ridgewood Fire Department.
MAYOR KNUDSEN: Okay.
THE WITNESS: If there's property, for the properties that are located in those villages [sic].
MAYOR KNUDSEN: Okay.
And do you know the types of fire departments that Ridgewood has, the type of fire department Glen Rock, Midland Park or Wyckoff would have?
THE WITNESS: No, I do not.
MAYOR KNUDSEN: Okay. Do you know which of those municipalities would have a career‑paid fire department?
THE WITNESS: No, I do not.
MAYOR KNUDSEN: So you don't know which of those municipalities would have full‑time staffed fire departments?
THE WITNESS: That is accurate.
MAYOR KNUDSEN: Okay.
Would that have any ‑‑ would that be reflected in your assessment, your allocations, if one had a career fire department as opposed to a volunteer fire department that's, you know, not staffed? Would that change?
THE WITNESS: I would defer to Mr. Morgan on that one.
MAYOR KNUDSEN: Okay.
THE WITNESS: Because that's outside my area of expertise.
MAYOR KNUDSEN: Okay. Good.
Let me just see, just in ‑‑ in terms of enterprise accounting, and the going back to the weighting of the vehicles, is there an efficiency in that approach that ‑‑ is there ‑‑ is that approach more efficient than going [threw|through] the detailed recordkeeping? Is it a cost savings in that?
THE WITNESS: In terms of recordkeeping? Yes, there could be cost savings.
MAYOR KNUDSEN: Okay. So, certainly doing a weighting of the vehicles would be more efficient and would just streamline the process because you could make a determination that certain vehicles, based on weight class, perhaps there were other ‑‑ what other criteria might be considered in that, do you know?
THE WITNESS: Well, when we were evaluating it, we looked and said the number of miles driven will determine how frequently maintenance happens, tire replacement, how much gasoline and diesel is used.
MAYOR KNUDSEN: Right.
THE WITNESS: So those kind of records would be helpful in assessing whether or not, you know, the heavy equipment is assessed as a three. That doesn't mean that heavy equipment is used as often as, say, a police patrol car.
MAYOR KNUDSEN: But then your allocation could change dramatically if the vehicles from the police department were significantly, substantially newer vehicles, and the other vehicles, were ‑‑ so the allocation could be dramatically different, in your report, based on the age of the vehicle, whether or not we're leasing those vehicles, and how we approach that; whether they're purchased, and when they're purchased. So the age of the vehicle ‑‑
THE WITNESS: The age of the vehicle, yes, could impact gasoline and diesel and maybe potentially the number of times in the shop, you never know.
MAYOR KNUDSEN: Right.
But certainly there's an ‑‑ you would agree that there's an efficiency to that approach?
THE WITNESS: Yes.
MAYOR KNUDSEN: Okay. All right.
You said that you had received this assignment in late May of 2018?
THE WITNESS: Yes. That's when Mr. Morgan came to me about this project.
MAYOR KNUDSEN: Okay.
And when you say "late May," would that have been, like, the last week of May, so less than a month ‑‑ about a month ago, less than a month ago?
THE WITNESS: It was probably closer to the middle of May.
MAYOR KNUDSEN: You would be able to refer to e‑mails to better ‑‑
THE WITNESS: Yes.
MAYOR KNUDSEN: ‑‑ to better understand the timing on that?
THE WITNESS: Yes, I would.
MAYOR KNUDSEN: Okay. Great.
I have no other questions.
Thank you.
MR. ROGERS: Mayor, I have just a few.
MAYOR KNUDSEN: Sure. Go ahead.
CROSS EXAMINATION
BY MR. ROGERS:
Q. Ms. Sherwood, thank you.
I was going to say, can you turn around so I can see you.
There is basically a fundamental difference between the allocation factor number 13 and allocation number 14; would you agree with that? In terms of what expenses they're talking about?
A. That is correct.
Q. Allocations 13 and 14 ‑‑
A. That is correct.
Q. ‑‑ difference, right?
A. Yes.
Q. And would you agree with me that allocation number 13, the factor deals with general administrative expenses and the like in terms of the amount of effort ‑‑ the amount of work or the time that is spent in a particular office doing work for the utility; is that a ‑‑ a fair way of ‑‑
A. That is the purpose of the allocation.
Q. ‑‑ addressing.
Okay. And allocation 14 deals more with that percentage of salaries for those people that do that work or benefits for insurance costs; is that correct?
A. It's ‑‑ yes. It's for the benefits and the insurance.
Q. For the benefits. Okay. All right.
So, realistically, you can't determine what the benefits are or what the salaries are or the ‑‑ or what the insurance costs are unless you know how much or what if anybody does for the water utility, right? You can't make that determination until you know somebody does something for the water utility, that's part of the village staff, right?
A. That is correct.
Q. Okay. So I could have sworn, and maybe I misheard it, but when you were answering questions from Mr. Fiorenzo, you said you needed to know 14 before 13.
But you just basically said the opposite. You need to know 13 before you can determine how much to allocate for benefits and salaries and the like.
A. Well, that's what is confusing about these allocation factors is because it actually does go into allocation factor 13.
Q. Well, 13 sets ‑‑ well, let me strike that.
The ‑‑ if I were to tell you that police and fire ‑‑
A. I'm sorry?
Q. I am going to look at Table A ‑‑
A. What was the word you just said? I'm sorry?
Q. If I were to tell you that police and fire, streets, roads, what we call our signal core, traffic and signal, and parks, division of parks, all provide services to the water utility.
And with that assumption would that change your opinion in terms of how you would address allocation factors 13 and 14?
A. It would add that in those salaries and wages into allocation factor 14 ‑‑
Q. Okay.
A. ‑‑ which in turns adds back into allocation factor 13.
THE COURT REPORTER: I'm sorry, I can't hear you.
MR. ROGERS: I know she's on the other side.
THE COURT REPORTER: I'm sorry.
THE WITNESS: The allocation factor ‑‑ where were you lost?
THE COURT REPORTER: I couldn't really hear you at all.
THE WITNESS: Okay.
Yes, that would impact because allocation factor 14 would then include those salaries and wages, which in turn go into allocation factor 13.
BY MR. ROGERS:
Q. And I may not have heard you.
Is this where the critiques of the allocation factors 13 and 14, part of the work that you did in this report or was that part of the work that Mr. Morgan did?
A. Collectively, Mr. Morgan and I consulted on that.
Q. Okay. Wouldn't you think it would be very important when you're trying to [establish|stab] an accurate statement with regard to the factors in allocation numbers 13 and 14, wouldn't you think it would be very important to find out what work, if any, any of these particular divisions or departments in the village might do for the water utility?
A. Yes.
Q. When you realized that you did not know what they did, and you say particularly, you know, with things such as streets and the garage, there ‑‑ there were no documents that indicated how much gas or what type of maintenance the water utility vehicles got, did you do anything further to determine or find out if there was any involvement of those departments in the operation of the water utility?
A. No, I did not do further research.
Q. And one last question for you, is what you prepared, part of what you prepared and collaborated on this report, would you consider this to be a water rate study or a critique of someone else's water rate study?
A. A critique.
MR. ROGERS: I have nothing further.
MAYOR KNUDSEN: I actually have one more question, sorry.
So in your report, going back to the weight and the vehicles, your report indicates that you're aware that the records, the specifics don't exist, correct?
THE WITNESS: That is correct.
MAYOR KNUDSEN: So ‑‑ but you made certain assertions based on ‑‑ that this is not an appropriate method, but you're acknowledging that the records don't exist.
So in the absence of those record, what ‑‑ you're ‑‑ you take exception with the approach that was used. What approach then would you use in the absence of those records?
THE WITNESS: We did not ‑‑ we did not propose a new method. We just took issue with it and as a result, we did not adjust the cost.
MAYOR KNUDSEN: Does anybody else have questions because sometimes questions beget questions.
So councilman Voigt is shaking his head yes. Go ahead.
COUNCILMAN VOIGT: Yes.
Page 5, you ‑‑ you said you reassigned $1,044,447.00?
THE WITNESS: Yes.
COUNCILMAN VOIGT: How's that number calculated?
THE WITNESS: If you were to add up in the water utility wells, column 3 through 6.
COUNCILMAN VOIGT: Three through six.
THE WITNESS: Correct.
COUNCILMAN VOIGT: Three, four, five, six.
I ‑‑ I did, but I didn't come up with that number. I came up with a different number.
THE WITNESS: Can I ask what your number was.
COUNCILMAN VOIGT: I think it was a couple thousand dollars less. It was, like, 844,000, if I recall.
THE WITNESS: Okay. I would have to check.
COUNCILMAN VOIGT: Yes, okay.
Yeah, could you do that please?
THE WITNESS: I can do that.
COUNCILMAN VOIGT: Yeah.
This ‑‑ there's another ‑‑ yeah, there was a couple of ‑‑ you made a couple of ‑‑ there's a couple of mistakes in the report I want to make sure you're aware of those. Okay.
So the $6,118,000 figure, I think it was misstated as 6,002,000. I don't know which is correct, I'm assuming it's the 6.118 million?
THE WITNESS: Can you identify which page, please?
COUNCILMAN VOIGT: Yes.
THE WITNESS: I'm sorry.
COUNCILMAN VOIGT: Okay. Let me just go through this again. I'm sorry.
Page 9, $6,008,118.00, and then you have 6 million. What is that right number? Oh, yeah, it's page 9 you have 6,002,118.00.
Then you have $6.118 million. What's ‑‑ what's the correct number? Page 9 and Page 10.
THE WITNESS: Oh, yeah, okay.
COUNCILMAN VOIGT: Yeah, I'm assuming it's the $6.118 million, I calculated it.
THE WITNESS: Yes.
COUNCILMAN VOIGT: That's ‑‑ so that's wrong, I believe.
Can I ask just a general question? And maybe it might be the right person to ask.
MR. ROGERS: And then see if Ms. Sherwood can answer it.
COUNCILMAN VOIGT: Yeah. Okay.
So the judge's charge was to look at the years 2010 and forward.
So I'm having a tough time understanding why we're looking at years before that in this report.
MR. ROGERS: I don't know that Ms. Sherwood could answer that, possibly Mr. Morgan.
THE WITNESS: That was outside the scope of what I worked on in this report.
COUNCILMAN VOIGT: Yeah, I ‑‑ I just don't know why we're looking at years prior to 2010, if that was the charge.
MR. ROGERS: We're going to save that for Mr. Morgan.
COUNCILMAN VOIGT: Yeah, okay. I just ‑‑ it just concerned me that we were looking at numbers before 2010. And I don't know if they should be included or not.
MAYOR KNUDSEN: So, Ms. Sherwood, I have another question.
Do you know who the designated hazmat responders are for all Ridgewood Water utility properties in and out of the village? Do you know who are designated hazmat responders are?
THE WITNESS: No, I do not.
MAYOR KNUDSEN: Okay. Thank you.
Any other questions?
(No response.)
MAYOR KNUDSEN: Okay. All right.
MR. ROGERS: The next, I think, is goes to is Mr. Morgan. If you want to direct his testimony?
MR. FIORENZO: Yes, we're all set.
REDIRECT EXAMINATION
BY MR. FIORENZO:
Q. So just one question to you, Ms. Sherwood, before you step down.
You were asked a question, I think, by the Mayor concerning whether there were other methods that you could utilize for the vehicle allocation. They used here weight.
Are you familiar that in the 2003 allocation they, in fact, used a different method which was count ‑‑ did you count vehicles? Is that another way to do it?
A. Yes.
Q. And that wouldn't take an awful lot of effort either, wouldn't require recordkeeping, would it?
A. No, it would not.
Q. Just count the vehicles?
With regard to this issue of recordkeeping, whether it's more "efficient," it certainly could be done that when a vehicle was being utilized by either the water utility or the village that someone in this department could fill out a piece of paper and say this was for water utility purposes.
Is there any reason you're aware of that that couldn't be done?
MR. ROGERS: I'm just going to say since ‑‑ of course anything could be done.
MR. FIORENZO: I'm sorry.
MR. ROGERS: That's ‑‑ that's not a part of the record. So ‑‑
MR. FIORENZO: Well, she just asked a question. And I'm following up. The Mayor asked a question about this.
MR. ROGERS: The Mayor asked questions as to whether or not any other method was utilized.
MR. FIORENZO: Right.
No, she asked about efficiency and recordkeeping and whether it would be more burden ‑‑
MAYOR KNUDSEN: I only ‑‑ no, I didn't ‑‑ I only ‑‑ I merely asked if it was an efficient form ‑‑ an efficient method. And she acknowledged that it was an efficient approach to that allocation.
MR. FIORENZO: But you asked if it would be more efficient, were your words.
MAYOR KNUDSEN: No. I think I asked if it was an efficient ‑‑ I may have asked if it was more efficient, but I asked if it was efficient and she acknowledged that it was more efficient.
MR. FIORENZO: Right. More efficient in keeping records.
MR. ROGERS: But my point is ‑‑
MR. FIORENZO: I mean, that was the question.
MR. ROGERS: ‑‑ is that we all know as a result of the trial and reviews that have been done, the records weren't kept. So we're ‑‑
MR. FIORENZO: Well, no, but the point is they could be kept quite easily.
MR. ROGERS: It could be kept.
MR. FIORENZO: And it could quite easily allocate it if you wanted to. And then ‑‑
MR. NORTHGRAVE: Well, now I'm going to object because now ‑‑
MR. FIORENZO: And it didn't require ‑‑
MR. NORTHGRAVE: ‑‑ because now ‑‑
MR. FIORENZO: It wouldn't take very much effort to do so ‑‑
MR. NORTHGRAVE: It's the professional opinion is that it could easily ‑‑
MR. FIORENZO: ‑‑ at all.
MR. NORTHGRAVE: ‑‑ be done, we have no ‑‑ no evidence ‑‑
MR. FIORENZO: Quite easily.
MR. NORTHGRAVE: ‑‑ before this Council as to what could easily be kept.
MR. ROGERS: But it ‑‑ but it ‑‑ but the point is, is that it really doesn't make any difference because the facts that are before the court and what's before the board right now is the rate study that's been done based on the materials that were in play during the years 2010 [threw|through] 2016.
So that's what we're dealing with. And whether or not we could have kept them, whether or not they shouldn't have been kept, that's irrelevant to the process.
MR. FIORENZO: I think your ‑‑ with all due respect, I think your characterization of the issue is wrong.
MR. ROGERS: Okay.
MR. FIORENZO: It involves a lot more than that ‑‑
MR. ROGERS: I wouldn't expect you to agree with much I said tonight, Joe.
MR. FIORENZO: What's that?
MR. ROGERS: I said I wouldn't expect you to agree with much I say tonight, but it's ‑‑ were the facts ‑‑ the facts are there. This is the way it was operating. And that's what the rate study was about.
So whether or not there could have been better records kept, that's an issue that is really irrelevant to what the rates are for the ‑‑
MR. FIORENZO: It has to do with the propriety of the allocation method. And it goes to the Mayor's question of whether this was ‑‑ the weight was an efficient way of doing it, was it more efficient than keeping records.
So I'm just following up.
MAYOR KNUDSEN: Well, you know what, I'm going to actually object to the way you're characterizing my question, because I ‑‑ my question was simply was it an efficient method to this allocation. And she acknowledged it was.
So I'm not stating whether or not the recordkeeping ‑‑ it seems to me that one is just simply more efficient. And rather than the cumbersome ‑‑ a cumbersome recordkeeping, and she acknowledged so.
So I object to your mischaracterization of my question.
MR. FIORENZO: You know what, the record is going to speak for itself what you said.
MR. ROGERS: Right.
MAYOR KNUDSEN: Yes.
MR. ROGERS: Absolutely.
MR. FIORENZO: So I'm not going to argue [were you|with you].
MAYOR KNUDSEN: I agree.
MR. ROGERS: Right.
MR. FIORENZO: It will say what it says.
I believe I'm right. And we'll find out.
So that takes us to Mr. Morgan.
MAYOR KNUDSEN: Okay.
MR. FIORENZO: And, Ms. Sherwood, you could step down if you like.
I think we're finished.
DIRECT EXAMINATION
BY MR. FIORENZO:
Q. Good evening, sir.
And I would like to start by having you tell us a little bit about you. You're with Exeter; is that correct?
A. I am an independent consultant working exclusively with Exeter Associates.
Q. Tell us a little bit [about|bought] your background.
Where did you go to school and your level of education please?
A. Yes.
I received a bachelor for business administration from North Carolina Central University.
I have met ‑‑ my course work was accounting. I have a master's of business administration, coursework there was in finance from the George University.
I previously was a licensed, certified public accountant.
In 2009, I placed my license in an inactive status because I had some other business interests that I needed to focus on, start‑up activities.
I returned to Exeter in 2014 doing pretty much what I was doing, and I have expanded into some other areas as well.
Prior to ‑‑
Q. Before we get to that, let me ‑‑ let me ‑‑ let me talk about your previous employment history.
Did you work as a senior regulatory analyst with Exeter at some point?
A. Yes.
Q. Starting in '93?
A. In ‑‑ in 1993, I worked as a senior regulatory analyst at Exeter.
Q. Did you work for the North Carolina Utilities Commission?
A. I worked at the North Carolina Utilities Commission, public staff, which is the staff that represents the using and consuming public.
Q. During what period of time was that, sir?
A. That was from 1984 to 1990.
Q. Okay. And, thereafter, did you work for a public utility?
A. Yes, I went ‑‑ after being with the public staff, I moved and worked with the Potomac Electric Power Company in Washington, DC.
Q. Okay. And did your employment there last from 1990 through 1993?
A. That's correct.
Q. And at that point you joined Exeter?
A. That's correct.
Q. And are you a senior financial analyst, or what's your title at Exeter?
A. My ‑‑ my title is ‑‑ is ‑‑ because I left as a senior analyst, I typically refer to myself as senior regulatory consultant.
Q. Now, in connection with the work that you have done, have you been involved in reviewing and analyzing rate filings in which ‑‑ in connection which various parties sought rate increases?
A. I have been involved in proceedings involving utilities seeking rate increases involving water, telephone, natural gas, electric companies.
Q. And you've have done that for a number of years, I take it, sir?
A. Almost 35 years now, 34.
MR. FIORENZO: Rather than have you belabor the record with it, I'm going to mark as O‑2 a CV, which gives the benefit of the background in some of the matters, rate matters, that you've been involved in over a period of years.
MR. ROGERS: Once that's been marked, could that shared with counsel?
MR. FIORENZO: Sure.
MR. NORTHGRAVE: Just for the record, I assume there were no copies ‑‑ additional copies brought?
MR. FIORENZO: Not of that.
MR. NORTHGRAVE: Okay. And that wasn't shared with the report initially, correct?
MR. FIORENZO: I'm sorry?
MR. NORTHGRAVE: That CV wasn't shared with the report initially?
MR. FIORENZO: I don't remember.
MR. NORTHGRAVE: You don't remember that?
MR. FIORENZO: You can tell me.
No, I don't. Was it?
MR. NORTHGRAVE: No, it was not.
MR. FIORENZO: Okay. Well, you have it now.
Can you mark that please?
MR. NORTHGRAVE: The night he's testifying.
MR. ROGERS: Once it's marked you can take a look at it, Mr. Northgrave.
MR. NORTHGRAVE: Thank you.
MR. FIORENZO: Did you ask for it?
MR. NORTHGRAVE: Yes.
MR. FIORENZO: Oh, you did? Okay.
MR. NORTHGRAVE: Yes. Mr. Rogers asked for it.
MR. FIORENZO: Okay. Well, here it is. It's here.
Can you mark it?
(Whereupon, Curriculum Vitae of Lafayette K. Morgan, Jr. is received and marked as Exhibit O‑2 for identification.)
BY MR. FIORENZO:
Q. Does that set forth the various matters in which you were qualified as an expert with regard to rate cases?
A. That ‑‑ that looks correct, yes.
Q. Now, sir, I want to direct your attention, please, to O‑1, which is the report prepared by Exeter.
You heard testimony from your colleague, Ms. Sherwood. She described you as a principal on this matter.
Would that be a fair characterization of your role?
A. That's correct, yes.
Q. Okay. And are you the principal author of this report?
A. Yes, I am.
Q. Now, I would like to begin by asking you about what it is you did here, what was your role in ‑‑ in this matter that you were engaged for; what did you do?
A. I ‑‑ I reviewed a number of documents, one beginning with the Woods report, the initial Woods report and then the supplemental report.
I reviewed several documents from the court proceeding, a number of which were financial information. I reviewed the judge's order. I reviewed exhibits that were presented during the court proceeding, and I ‑‑ I don't have a complete list, but I ‑‑ there were quite a few documents that I went [threw|through].
Q. Now, with regard to this assignment, did you undertake a review and analysis of the report prepared by Mr. Woods?
A. Yes, I did.
Q. And in connection with that, Ms. Sherwood assisted you?
A. Yes. I asked her to ‑‑ to help me out as we start ‑‑ as I started to get more depth.
Q. Okay. And what portions of this did you ask her to assist you on?
A. I asked her to focus on recalculating the ‑‑ the allocation factor. The allocation factors I should say.
As I ‑‑ as I went [threw|through] the Woods report, there were [self|several] things about it that caught my attention, that I felt as though it ought to be taken ‑‑ a better look ought to be taken.
And in order to ‑‑ when you have a project of this size, you don't want to spread yourself so thin, so thinly, so what I did was as I was looking at the whole project.
I got Ms. Sherwood involved so that she could focus primarily on the recalculation of the allocation factor.
Q. Okay. Now, did you understand, sir, that the reason why we're here is that there was a lawsuit and a ruling by a judge?
A. Yes.
Q. And do you understand as we stand here today, the Superior Court of New Jersey has struck down the ordinances that had raised rates approximately 37 percent?
A. Yes.
MR. ROGERS: I'd just ask what the relevance of that is with regard to what's going on in his report?
MR. FIORENZO: I'm sorry?
MR. ROGERS: His report is a critique of Mr. Woods' report.
What difference does it make, you know, his understanding of the ‑‑ of the fact that the ordinances were struck down?
MR. FIORENZO: Because parts of what he addressed in his report relate to that decision that was rendered by the judge. The judge directed certain things be done.
MR. ROGERS: All right. I will let you go to see if it ‑‑ if your questions go into that.
BY MR. FIORENZO:
Q. Now, one of the issues as a result of the ordinances being struck down, is the issue of whether it is appropriate and proper to engage in what is known as retroactive ratemaking.
Are you familiar with that term?
A. Yes.
Q. And did you ‑‑ are you aware that Mr. Woods had addressed the issue of retroactive ratemaking in his report?
A. Mr. Woods does mention that retroactive ratemaking is ‑‑ is something that is not allowed. Let me say let's ‑‑
Q. Excuse me, sir, can I ‑‑
A. Yes.
Q. Before you get to that, let me just ask you this question.
A. Uh‑huh.
Q. Page 4 of Mr. Woods' report, paragraph two at the top he states:
"In addition, retroactive ratemaking is eschewed by the New Jersey Board of Public Utilities and is uniformly avoided in the industry.
"In New Jersey, if a regulated water utility over‑earns, the board can adjust the utility's rates going forward, but does not make retroactive rate adjustments."
Now, do you agree with the conclusion of Mr. Woods, that retroactive ratemaking is uniformly avoided in your industry?
A. Yes, I agree with that.
Q. And in your experience, sir, over the 30‑some‑odd years you've been engaged in rate cases in which people have been evaluating the propriety of rates, have you ever experienced or seen someone seeking to retroactively determine rates going back as far as five years?
A. Not that far back.
Q. With respect to this issue of retroactive ratemaking, could you explain just for the record, what that means?
A. Retroactive ratemaking primarily involves a situation where the rates are set today to recover costs that were incurred in the past test year or to recognize revenue or the lack of revenue in a past test year.
So, essentially, what ‑‑ what that means is that we are collecting ‑‑ we are setting rates today to collect for something that happened in the past.
Q. And it appears that you and Mr. Woods, you disagree on some things, but you both agree on that; and that's it can't be done, correct?
A. That's correct. It's uniformly ‑‑
Q. Here we are in 2018 and this proposed ordinance would seek to determine rates going back to 2010.
Do you understand that?
A. Yes.
Q. About nine years ago. Is that retroactive ratemaking?
A. That would be retroactive ratemaking.
Q. Now, in the Woods report you take exception to a number of different issues that he has raised in his report; is that correct, sir?
A. That's correct.
Q. And let's talk about the issue of the allocation factors, if we could, please.
A. Okay.
Q. Now, Ms. Sherwood's already testified to some extent about these allocation factors, but I first ‑‑ I would like to address a question that was raised by one of the members of the governing body.
There is reference in this AWWA M‑1 manual, and Mr. Woods report, he makes reference to it several times. The first time is on page 1 of his report.
And then later, again, he refers to it when discussing the allocations on page 10 of the report.
Are you familiar with that document?
A. Yes.
Q. What is that document? What does it consist of?
A. The ‑‑ the AWWA, it's called the M‑1, the manual. And it's a document that provides a narrative on the principals of ratemaking.
So it begins with the concept of rates being based on your actual costs. And when you go through it, it talks about rate of return and it talks about cost allocation within the Class Cost of Service Study.
Q. Does it deal, generally, with broad principles regarding ratemaking?
A. In general broad principles, yes.
Q. Is this it (indicating)? Am I holding it in my hand?
A. Yes.
Q. In this book, if you review it and we go through it, does it set forth and say what allocation method should be used for village employee benefits and insurance specifically?
A. No.
Q. Does it say how you allocate general administrative and general functions?
A. No.
Q. Does it say in there how you allocate garage services or cost of functions related to asset protection?
A. No.
Q. Or, in fact, any of the 14 items contained in the Woods report?
A. No.
Q. So although he makes reference to it in footnotes, in reality there is nothing in that document that instructs or gives standards as to how one is to go about allocating those specific items that are the subject, in part, of this dispute; true?
A. That is correct. The only thing it focuses on is that it should be cost‑based.
Q. Right. Of course. Of course.
Now, with respect to the Woods report, in this report ‑‑ and Ms. Sherwood spoke to this to some extent about her work, on [page|paying] ‑‑ beginning on page ‑‑ if you could turn to page 5 and over onto 6 through page ‑‑ the top of page 7.
So as I understand it, and please correct me if [I mean|I am] wrong, this part of the report merely deals with the allocation factors that Mr. Woods presents in his report, correct?
A. Correct.
Q. And there are 14 of those?
A. There are 14.
Q. So he goes about undertaking and expressing opinion as to what the proper allocation method is for different types of expenditures, correct?
A. Correct.
Q. And he comes up with percentages and the like that he allocates for those, correct?
A. Correct.
Q. Okay. So that allocation methodology, do you take exception to any of the conclusions he reaches as to any of those allocation factors?
A. As ‑‑ as we outline in ‑‑ in our report, there were four ‑‑ I believe four factors that we ‑‑ we took issue with.
Q. Okay. Now, I don't want to repeat what has already been covered by Ms. Sherwood, but since you're the principal author of this report, I would like you to just briefly touch upon your opinion and conclusion regarding allocation 14 dealing with employee benefits and insurance.
Why ‑‑ why did you reach the opinion and conclusion that this allocation method he used in his report, and the way he arrived at it, was not appropriate?
A. The primary issue there with ‑‑ with allocation factor 13 is the fact that there are costs that I would consider to be overhead costs that are coming from departments such as the central garage, the ‑‑ I believe the police and emergency services. These are costs, when you're ‑‑ when you're looking at overhead costs, you're looking at the organizational costs. And those are costs that they were allocating to the water company. They have nothing to do with the provision of water utility service.
And so because of that, I had a problem with them being included in ‑‑ in that allocation.
Q. Is that reflected on page 5 of your report?
A. That's correct.
Q. And it's summarized ‑‑ I don't want to go over it, there's a reassigning the $1,044,447.00 and, ultimately, there's an adjustment of $655,000.00‑and‑change, correct?
A. Correct.
Q. Related ‑‑ related to that?
A. Yes.
Q. Now, this adjustment for this item, am I correct that it simply is relevant to the question of the percentages to be allocated between and among the three entities?
A. That's correct.
Q. So this method then, allocation factor 13, you also took issue with factor number 6?
A. That's correct.
Q. And that deals with the garage services; is there anything you wish to add to the comments made of your colleague concerning that?
A. The ‑‑ yeah.
On the one hand, as she pointed out, the weight system is not appropriate to use. And then in response to the question I was asked from the bench, we ‑‑ for accounting it's ‑‑ it's not efficiency, it's the proper allocation of cost.
So if something ‑‑ if you take an approach that is fast and easy, but if it gives you bad results then you don't do it.
And so those are just some general comments based on what I heard.
Q. Now, in the report on page 6 concerning this allocation number 6, for the garage, you ‑‑ you make ‑‑ you make reference to police allocation being 8.22 percent, while the water utility is 12.67 percent.
Do you see that?
A. Yes.
Q. And, again, that's because it's based on weight?
A. Correct.
Q. In your opinion, is utilization of weight, rather than something like number of vehicles, frequency of use, the amount of mileage that's been generated by the vehicles, is weight a more appropriate standard to utilize to accurately allocate?
A. I have not seen that as an approach in my work.
Q. So based on standards in the industry in the 35 years you've been doing this, you've never seen that done?
A. I have not seen that done by weight, no.
Q. Now, allocation factor number 7, which deals with asset protection, your colleague addressed this to some extent.
Is there anything that you wish to add with regard to the comments she has made?
A. I ‑‑ I think I want to point out that when you look at other well run water utilities, you'll find that for services that they receive from, say, the police, there's generally, as an example, is when they're doing work in the roadway and they need some traffic control.
But those costs are specifically captured and charged to the utility. It's not ‑‑ they don't charge them overhead costs to compensate for some specific activity cost.
Q. So you're saying there are specific instances in the budgeting process where they allocate monies related to those items?
A. To those items, of course.
Q. Do you have an opinion, sir ‑‑ well, withdrawn.
Take a look at page 7 of your report. In that you deal with the topic of allocated cost issues.
Do you see that, sir?
A. Yes.
Q. So tell me ‑‑ tell me what this section is intended to address?
A. This ‑‑ this section is intended to highlight, based on what we reviewed, specific instances where costs that were unrelated to the provision of utility service had been allocated to the water utility.
So for example, the first item there, parks, division costs.
Q. How much was allocated by Mr. Woods from 2010 through 2016, to the water utility for parks?
A. It's about $908,837.00.
And when we looked at this, again, these are overhead costs; salaries, telephone and water, property maintenance, that kind of thing.
Q. Do you have an opinion, sir, as to the propriety of that allocation of $908,837.00 based upon both the information in the Woods report and the documents that you've seen?
A. Based on the ‑‑ the information in the Woods report, this ‑‑ it doesn't appear reasonable. It appears that what's being charged to the water utility are costs that are ‑‑ that should be borne by either the parks division or the village, itself, but not the water utility.
Q. So if there are already charges being made to the water utility for specific things related to parks, what ‑‑ what was the method that Mr. Woods used to allocate this extra $908,000.00 ‑and‑change?
A. I believe that those were ‑‑ were done through allocation factor 13.
Q. Right. So that means he basically took a percentage?
A. A percentage and applied it to those costs.
Q. Okay. Now, there is also a category on page 7 related to gasoline and diesel expenses.
Could you address that, [employees|please|police]?
A. Those, again, were ‑‑ were costs that we ‑‑ we looked at the gasoline...
Q. I'm sorry. Let me ‑‑ forgive me. Let me just interrupt before I forget this.
So I know they allocated this money, $908,000.00 for parks. Historically, going back to 2003, and all the way up to the time of this Woods report, are you aware that the original rate study didn't provide any allocation for parks at all?
A. That's my understanding, yes.
Q. Apparently they must have concluded previously that there was no basis for allocation and now they have?
A. Yes.
MR. ROGERS: I am going to object that that's pretty far of a leap.
MR. FIORENZO: What's that?
MR. ROGERS: To conclude that it was not used before.
MR. FIORENZO: Yeah.
MR. ROGERS: I mean ‑‑
MR. FIORENZO: Yes, we had a trial on this.
MR. ROGERS: I know you did.
MR. FIORENZO: That's how I do concluded this.
MR. ROGERS: Well, whatever happened at the trial, his ‑‑ he can't draw a conclusion as to what they did before and why. As to why it was done before.
MR. FIORENZO: Well, presumably if there was an allocation to be had, it would have been made.
And we've gone 15 years without an allocation. And now Mr. Woods suggested there should be one.
It seems to me it's a curious ‑‑ it's a curios development, to say the least.
Particularly since it's 908,000 bucks.
MR. ROGERS: Maybe that's the most ‑‑ maybe that's the most he can say because he's not an expert in concluding what they did before.
MR. FIORENZO: It's curious. And I would ‑‑ I would hope ‑‑ I would hope, if one were looking at this objectively and trying to fairly evaluate what to do, since it impacts upon neighboring communities, that might be a factor to would be considered.
I would hope.
BY MR. FIORENZO:
Q. So let me ask ‑‑ le me ask about traffic and signals, sir.
Mr. Woods appears to have allocated $805,517.00 for traffic and signal expenses for the water utility for the period 2010 through 2016.
Did you take a look or did you critique and analyze that issue, sir?
A. Yes, I did. And ‑‑
Q. So what conclusion did you reach?
A. I ‑‑ I reached the conclusion that they were not appropriate because, again, these are costs that were not related to utility service. The utility had already been allowed a certain level of costs in ‑‑ in their budget.
Q. They budgeted money for it, didn't they?
A. That's ‑‑ that's correct.
Q. Right. In fact, it appears from the report that they budgeted $174,000.00 from 2010 through 2016, correct?
A. Correct.
Q. And so we're now ‑‑ the evaluation is that on top of the money that was actually budgeted, there now should be additional cost allocations that are made for traffic and signal, correct?
A. That's what this implies, yes.
Q. Yeah.
Now, streets and road maintenance, did you also take a look at that?
A. Yes, I did.
Q. So Mr. Woods allocated $1,544,843.00 of street and maintenance expenses to the water utility from 2010 to 2016.
Do you have an opinion of whether that was appropriate to do, sir?
A. Again, I ‑‑ I thought they were not appropriate because they didn't appear to have any relationship to provision of water service. These ‑‑ again, when you look at these specific costs, they were of the nature of overhead costs.
Q. Right.
And in the budget from 2010 [threw|through] 2016 was there, in fact, an allocation, a direct allocation that was made of $412,000.00 for paving expenses?
A. There was an allotment in the budget for ‑‑ to that ‑‑ to that ‑‑ to that amount.
Q. And was $349,000.00 actually paid during that period of time?
A. It's my understanding that it was paid, yes.
Q. Okay. So now ‑‑ and you have an opinion as to whether or not that allocation of that additional sum of money over and above what you budgeted is appropriate?
A. Again, when you're looking at overhead costs, the ‑‑ it doesn't seem appropriate, given that costs were specifically budgeted for activities from street and road maintenance, so it's ‑‑ it's inappropriate in my [opinion|pin].
Q. Also, you ‑‑ you addressed the question of police, fire and office of emergency services. Is that right?
A. Correct.
Q. Can you please address your opinions and conclusions with regard to the allocation there?
A. Yes. These were of the nature of overhead costs again. Body armor, I ‑‑ I couldn't understand what body armor ‑‑ how that provides water to ‑‑ to customers.
And then again, their telephone retirement system costs, so these were costs that I didn't see the correlation to the provision of water utility service.
Q. You also addressed on page 9 telephone expenses?
A. Correct.
Q. Do you have an opinion concerning the propriety of the allocation of the sum of $15,667.00 from 2010 through 2016 for that category?
A. Yes, my understanding is that the water utility has its own telephone budget. And so to have costs that are then allocated from other departments for telephone service, it doesn't seem appropriate. And so I disagreed.
Q. How about temporary disability insurance; you address that on page 9.
A. Temporary disability, and, you know, this is one where we actually proposed something that goes into the favor of the water utility, because we found that the allocation factor that was being used was allocation factor 8, which relates to total asset value.
And disability is a more labor‑related item and so we felt it was not reasonable. And ‑‑ and so we ‑‑ we recommended or at least we identified that as an issue.
Q. Okay. The emergency appropriations on page 9?
A. Emergency appropriations, again, where ‑‑ we didn't see a correlation between those appropriations with the ‑‑ they were ‑‑ as I recall, they were primarily related to the street, parks and fire division. And so we didn't see how those costs were related to water utility service.
Q. Now, did you ‑‑ have you summarized your conclusions with regard to these improper, inappropriate and unsupported allocations contained in the Woods report?
MR. ROGERS: It sounds like you're talking about his opinion of them being improper and inappropriate?
MR. FIORENZO: I'm sorry?
MR. ROGERS: His opinion about them being improper and inappropriate, right?
MR. FIORENZO: Yes.
MR. ROGERS: Okay. Go ahead.
BY MR. FIORENZO:
Q. Have you ‑‑ have you addressed that and summarized these expenses, these ‑‑ what in your opinion are these improper allocations in Exhibit E?
A. In Exhibit E we ‑‑ we provide a summary and, essentially, what we have on that ‑‑
Q. Could you turn to that, [employees|please|police]?
A. Yes.
Q. So the record is clear what Exhibit E is, it's a document entitled: "Revised Allocated Actual Expenses;" is that correct?
A. Correct.
Q. And it has ‑‑ it appears to run from 2010 through 2016; is that correct?
A. That's correct.
Q. And there is a column "Rate Study Adjustment, Exeter Revised"?
A. Correct.
Q. Now, if we total up the various adjustments that have been made for these inappropriate allocations, do you summarize that on page 9 of your report as to what that is?
A. I believe that ‑‑
Q. I'm sorry. On page 10 of your report in Table III, do you summarize it?
A. On page 10 I believe is where we would come up with the $6 million figure.
Q. And what does that number represent ‑‑
A. That ‑‑
Q. ‑‑ in your opinion?
A. That's ‑‑ that represents the misallocation of ‑‑ of ‑‑ of funds to the water utility, and so this would cost the water utility to appear to have less earnings than they actually should have.
Q. So the $6 million ‑‑ total is $6,118,000.00 spanning that 7‑year period from '10 through '16, correct?
A. Correct.
Q. And that number represents your opinion concerning the allocations in the Woods report, based on his revisions, that you believe to be improper; true?
A. Correct.
Q. Now, you mentioned something a [moment|movement] ago about this, so assuming, hypothetically, that there were improper allocations and that those numbers in some way should be further adjusted.
And assuming, hypothetically, the accuracy of what's in your Table III, would that have an effect upon the surplus of the water utility?
A. Yes.
Q. [Employees|Please|Police] explain what that is ‑‑ what's the relationship and how it affects it?
A. These allocations reduce the earnings.
And so as a result, if the utility had a surplus this will give you the impression that the surplus didn't exist or it was less.
Q. Okay. So, hypothetically, if these amounts were backed out and they were not expended it would increase, then, the profitability of the water utility ‑‑
A. Yes.
Q. ‑‑ by those amounts?
A. Yes.
Q. Which then, in turn, would increase the surplus for the water utility?
A. Yes.
Q. By the way, is surplus ‑‑ one of the purposes of surplus to maintain rate stability?
A. Yes.
And ‑‑ and I would caution that ‑‑ that answer by saying that there's ‑‑ if you look at what I have seen industry‑wide, there is usually a ‑‑ a cap, if you will, that ‑‑ that's allowed.
Q. Besides the cap, is ‑‑ is having the surplus, does that permit a water utility to have a cushion so that they don't have to raise rates as the surplus goes up, if they have a down year, does it allow rate stability?
A. Yes. Yes.
Q. Now, in your report you also address certain, what are described as deferred charges, or retroactive transfers of the 5 percent of the operating budget.
Do you see that on [page|paying] 10?
A. Yes.
Q. So in the Woods report and in the proposed ordinance, in Appendix E of the Woods report, there is a proposal to retroactively transfer 5 percent of the utility's operating expenses for every year from 2010 [threw|through] 2016.
Do you have an opinion as to whether that is appropriate and proper, based upon the industry standards?
A. [It's|Its] ‑‑ it's inappropriate because it's retroactive and as I indicated earlier, retroactive ratemaking isn't allowed.
Q. Right.
Now, these amounts in your report, you set forth that in 2010 ‑‑ and by the way, just so we're clear, these deferred charges, are these monies in the water utility that are taken from the water utility dollars and then transferred to the village operating fund, so they can use whatever they want?
A. Essentially that's what they represent.
Q. And so those monies taken from the water utility, which was created by the ratepayer dollars, over ‑‑ so for 2010, that was $413,300.00?
A. Correct.
Q. And how about in 2011?
A. It's 429,519.
Q. How about 2012; how much did they transfer out to help with the operating budget of the village?
A. 416,302.
Q. And how about '14 ‑‑ '13?
A. 417,782.
Q. And how about 2014?
A. 438,992.
Q. I'm sorry. The next year, how much was that?
A. For ‑‑ that's 2015?
Q. Yes.
A. And 458,190.
Q. So that amount of money taken out from the water utility, from its operations, which is proposed in the Woods report to retroactively confirm that this could be done, totals $3,109,062.00.
Is that correct?
A. That's correct.
Q. You also address capital expenditures in your report on Page 11?
A. Yes.
Q. Now, the Woods report ‑‑ and by the way, in the budget every year, when Ridgewood prepares its budget, among the line items of the budget is there a provision for capital expenditures?
A. There is, yes.
Q. Right.
So every year they have, as part of their budgetary process, say here is how much money we're spending on capital items, correct?
A. Correct.
Q. And for ‑‑ you mention in ‑‑ in ‑‑ in your report, you address what that capital budget expenditure number was in 2009; what was it?
A. $75,000.00.
Q. How much?
A. 75,000.
Q. Okay. And do you know, and did that number increase?
A. The number increased over time up to 1.8 million ‑‑ $1,820,900.00 in 2016.
Q. So how much did it go up to? Say that again?
A. 1,820,900.
Q. So in ‑‑ and it went then, from '09 in the amount you mentioned of 75, and at some point you recall that it went up to 100 and then to 500 and then suddenly, suddenly in 2016, after the lawsuit started, there was $1.8 million that was set forth in the budget for capital items?
A. The ‑‑ the ‑‑ I ‑‑ I recall seeing the 100, 125. I believe there were these gradual increases and then there was a ‑‑ in 2016, it was this high.
Q. Right, so just so we ‑‑ we have an understanding what that means, if it now went from 75,000 in 2009, to $1.8 million in 2016, would that then increase the cost of operation, at least from a budgetary standpoint of the water utility?
A. Yes.
Q. And did you see anywhere in the budgetary documents you reviewed, any type of backup or justification for such an extraordinary increase?
A. I ‑‑ what I saw from the budget were ‑‑ were just line items with ‑ with the numbers.
Q. And ‑‑ and by the way, in reviewing those budgets, did you become aware that over the period of years, there ‑‑ there was a continued increase in the fund balance?
A. I believe that's correct.
Q. Okay. Let me show you ‑‑ I want to show you something, sir.
MR. ROGERS: If you're going to ‑‑ Mr. Fiorenzo, if you're going to bring them up, just have them marked so we can identify them.
MR. FIORENZO: Sure. Sure.
(Whereupon, Exhibit P‑91A from trial is received and marked as Exhibit O‑3 for identification.)
BY MR. FIORENZO:
Q. So, sir, I'll just ask you, this is a record, this was marked as Exhibit P‑91A at the trial, the underlying trial, in terms of a description.
MR. ROGERS: Well, was this part of the ‑‑ was this part of his report?
MR. FIORENZO: What's that?
MR. ROGERS: Was this part of his report?
MR. FIORENZO: It's not attached as an exhibit to the report.
MR. ROGERS: Was it something that he reviewed in the preparation of a report?
MR. FIORENZO: He indicated he reviewed the fund balance. He reviewed the fund balance.
MR. ROGERS: Okay.
MR. FIORENZO: It's part of ‑‑ it's part of the budget, it was obtained directly from the fund balance numbers of the budget.
MS. MAILANDER: Could I just have you stand by a microphone please? Just so you can be heard on the record.
MR. ROGERS: By the podium.
MS. MAILANDER: By the podium.
Thank you.
MR. FIORENZO: I'm sorry.
BY MR. FIORENZO:
Q. So this column here said, "fund balance" at the end of the year for 2009 for the budget you reviewed, was it $914,048.00?
A. That ‑‑ that ‑‑ that sounds right, yes.
Q. So by the time you got to 2015, it went from 914,881.41 to 2,069,000 to 3.2 million, 5.7, all the way up to $8.3 million, and then you testified that it was the next year in 2016 when, for the first time, the Ridgewood budget had a capital line item for $1.8 million; correct?
A. Correct.
Q. And did you see any backup or justification in the Woods report for what that was used for?
A. No.
Q. Do you know, sir, if these capital expenditures that went up to $1,820,900.00, do you have an opinion as to whether that increase in the capital expenditures, which has the effect of reducing profitability in the water utility, and increasing their expenses, do you have an opinion whether there was sufficient support within either the budget documents or otherwise, for such an extraordinary increase, or perhaps maybe it was just because they had $8.3 million sitting in the fund balance?
A. I ‑‑ I didn't see what I would consider adequate support.
As I said, what was there was just one line item.
Q. Yeah, so what ‑‑ what then did you do with regard to the ‑‑ to the capital spending, sir? How did you ‑‑ what opinion did you reach, what conclusion did you reach, concerning the appropriate allocation of capital improvement funds for the period of 2009 to 2012?
A. Because of my understanding that there were no other documents to support this, what ‑‑ what I ended up doing was including that as ‑‑ as a part of the savings of ‑‑ as ‑‑ as cost that should be removed.
Q. Did you take an average over a 4‑year period?
A. Yes.
Q. And that average came to what?
A. (No response.)
Q. Was it 125,000?
A. I think it was $125,000, yes.
Q. Yes okay. And what was the result of an average of the capital expenditures over a 4‑year period of time; correct, sir?
A. From ‑‑ from 2013 to 2016.
Q. Right.
Now, did you also express an opinion and address the question of whether there should be an adjustment to the health insurance allocation made by Mr. Woods?
A. That ‑‑ that is something that we included and ‑‑ and ‑‑ and...
Q. So in your report on Page 11, you have a category headed "Refund For Improper Indirect Cost Allocation".
Do you see that?
A. Right.
And these were ‑‑ were issues that were brought up in the trial, but they were not addressed in the Woods report.
Q. Right.
One of those was health insurance. The court ordered that there be an accounting done based upon what happened at the trial.
In the Woods report, did you see anywhere where they did an accounting for the health insurance expenses testified by Ms. Janic (phonetic) at trial from '05 through '09? Is there anywhere in the report that that's addressed?
A. No, I did not see that being addressed.
Q. So instead, it appears that in Mr. Woods' analysis, he did ‑‑ he attempted to do an allocation of health insurance and he used allocation factor 14?
A. Yes.
Q. And in doing so, did he use a percentage for allocating health insurance costs, 14.88 percent?
A. I believe that's correct.
Q. So tell me, during the period of '04 through '09, did Ridgewood allocate 21.3 percent to the water utility from '04 through '09?
A. Yes.
Q. And even with Mr. Woods' rate study, that allocation then was reduced to 14.88 percent, correct? That's the number he ultimately came up with, based on allocation factor 14; true?
A. Just one second.
Yes.
Q. Okay. Now, in the top of page 12 of your report, sir, you ‑‑ you conclude that as to this health insurance, your analysis was that an additional adjustment for allocation factor number 4 was needed to 12.02.
Do you see that?
A. Yeah, allocation factor 14.
Q. Right.
A. Yeah.
Q. And you have a footnote there that relates specifically to the fact that there had been a prior allocation testified to by Ms. Chen of 11.09 percent and it should have been placed '04 to '09, right?
A. Correct.
Q. Now, did you then undertake an analysis of the health insurance allocation for the years 2004 through 2009?
A. Yes.
Q. And do you have ‑‑ did Table IV set forth what that amount is?
A. Yes. The ‑‑ the original amount was 3 million ‑‑ original allocation was 3,162,938.
Q. When you say [original|rig] allocation, this was the amount originally allocated by Ridgewood from '04 to '09 ‑‑
A. Yes.
Q. ‑‑ based upon their budgets and based upon the prior allocation form, right?
A. Right.
Q. Okay. And then ‑‑ go ahead.
A. And then after adjusting for the allocation factor change, it's 1,784,907.
Q. Right. So as a result of that, you have concluded that for that period of time there is ‑‑ just for that charge alone, consistent with the judge's direction, that that has to be determined, that there is $1,378,031.00 for this overcharge alone; is that correct?
A. Correct.
Q. And that's not addressed in the Woods report at all, is it?
A. No, it's not.
Q. There's also an allocation for attorney's fees that you have a question on page 12 of your report.
A. Yes.
Q. You see that?
A. Yes.
Q. Now, please explain your opinion and your conclusion there.
A. This, again, was ‑‑ was an issue that was not addressed. My understanding is that Ridgewood had stipulated that conceded to this sum in trial, and so I felt it was necessary to include the fees that should have or I guess I should say that were improperly charged to the water utility.
Q. Right. So leading up to the '09 rate increase from '04 to '09, Ridgewood was charging the water utility 56 percent of all the expenses that were incurred for legal fees, right?
A. Right.
Q. And the court said you've got to ‑‑ you've got to redo that.
And as you said, there was a stipulation at trial.
Did you reach a conclusion with respect to the amount of municipal attorneys' fees for the period of 2006 through '09 were overcharged?
A. Five million.
Q. Five million?
A. I mean I'm sorry, 570,374 ‑‑
Q. That's a lot of legal fees, 5 million, even for Mr. Rogers. I think those are his fees.
I don't think it was that much.
What was the number, [employees|please|police]?
A. 570,374.
Q. That sounds better. That sounds better.
Not good, but it's understandable. Okay.
Also, you addressed, as one of these improper allocations, the issue of early retirement payments.
A. Yes.
Q. Okay. So please explain to us what your analysis and conclusion was there.
A. Okay. Based on the documents that I reviewed, I understood it to mean that the trial court had found that there was some costs that were improperly charged to the water utility from ‑‑ relating to early retirement payments, so I believe that an amount of 348,216 should be removed and refunded to ratepayers per the judge's ruling.
Q. So in your report you indicate that in 2005, the projected total of early retirement payments to the village employees in the budget was 233,959, correct?
A. Yes.
Q. And yet somehow the water utility was actually charged out of the 233,000, $212,555.00 for the 2005 early retirement incentive costs, correct?
A. Correct.
Q. That's what led the court to conclude that something was amiss, right?
A. Right.
Q. So you determined that the sum of 348,216 in early retirement [pavement|payment]s were all village employees in 2005 and 2006 alone, just those two years, was improper, correct?
A. Correct.
Q. Okay. You also addressed the question of Mr. Moritz, Frank Moritz's compensation?
A. Yes.
Q. Do you understand who Mr. Moritz was?
A. I ‑‑ I ‑‑ if my memory serves me right, I ‑‑ I believe he was a village employee that, I ‑‑ I think he split time between the ‑‑
Q. Right. He worked for the water utility ‑‑
A. ‑‑ the water utility and ‑‑
Q. ‑‑ and he worked for a variety of other ‑‑
A. Right.
Q. ‑‑ divisions?
A. Yes.
Q. Okay. So with regard to Mr. Moritz's compensation issue, what was the conclusion you reached regarding the allocation and how Mr. Moritz's salary, who worked not just for the water utility, but all these other divisions of the Village of Ridgewood, how that should be treated?
A. Based on the document I reviewed, I concluded that the court formed ‑‑ found that Ridgewood had improperly charged the water utility $131,000.00. And so I ‑‑ those were not reflected in the Woods report, and I felt it should be reflected in the rate study. And so I ‑‑ I recommended that it be reflected and refunded to customers.
Q. Now, did you total and calculate up the refunds that, in your opinion, were due to the ratepayers for the improper indirect cost allocations for those items we just talked about, health, early retirement and the Moritz compensation issues; what was the total amount reflected in the top of page 13?
A. [It's|Its] 2,427,621.
Q. So you also addressed the question of the data that was relied upon by Mr. Woods in your report. You talk about the use of actual data.
A. Right.
Q. So, am I correct that when we talk about this retroactive rate analysis and this reason why retroactive rate analysis is disfavored is because when a rate is determined, there is a methodology that exists in that book, here, that talks about projecting out what is going to happen in the future, correct?
A. Correct.
Q. So now here we are eight years later, we're not projecting.
Did Mr. Woods not project as called for in M‑1, instead relied upon actual data?
A. His analysis uses actual data, yes.
Q. Right. And what's your thoughts and what's your view with regard to that?
A. Well, my thoughts are that when you're looking at whether the right decisions were made, we can't do that with the benefit of hindsight. We have to look at it from what a reasonable manager or reasonable body that determines the rates would have known at the time. And ‑‑
Q. So if you are going to determine then what the proper rate should have been for 2010, you would be looking at data some time in 2009, right?
A. 2009.
Q. Yeah, and you would be trying to project out what is going to happen and you'd project out revenue, correct?
A. Correct.
Q. And you'd be projecting out budgetary expenses, correct?
A. Correct.
Q. All right. And you'd try to determine, based upon that, whether there was a deficit or a surplus, correct?
A. Correct.
Q. Because if the utility is operating at a surplus and it has sufficient assets to meet [it's|its] obligations on an ongoing basis, would you agree, based on industry standards, as Mr. Woods said in his report, that there really is no basis for an increase?
A. Would you repeat the question?
Q. Yes. If it's generating a surplus, not a deficit, based upon industry standards, that would indicate that there would be no justification for rate increase; true?
A. That's correct.
Q. With respect to your report, you then ultimately summarized and you reached certain conclusions which are summarized on pages 13 and 14 in your report, correct?
A. Correct.
Q. Could you tell us and summarize what your opinion is as to the refund amounts that should be made back to the water utility based upon your analysis and critique of the Woods report?
A. In terms of ‑‑
Q. And you have a Table V to summarize that?
A. Yes. On table ‑‑ in Table V on Page 14, we break down line‑by‑line item of the various components to come up with the total of 13,436,653 as amount ‑‑ the amount to be refunded to ‑‑ by the water utility.
Q. And in the left‑hand column you indicate what the categories of each of those expenditures are or what the categories of those items are that a refund is due for; is that correct?
A. Correct.
Q. The first category is reallocated expenses, which we talked about. When we break it down through the years we come up with that total of $6 million‑and‑change; is that correct?
A. Correct.
Q. Then there's the retroactive deferred charges of 3,109,062 that we spoke about and you broke it down from 2010 through 2016, correct?
A. Correct.
Q. Then there is the questionable items that they charged for the extraordinary capital expenditure increase in 2016 after you made an adjustment for a reasonable amount, correct?
A. Correct.
Q. And then the health insurance, attorney's fees, early retirement payments and the Moritz compensation, and then you totaled that up and the total amount, in your opinion, that is due to the ratepayers as a result of the actions taken here and based upon your review and analysis, even of the adjusted amounts in the Woods report is $13,436,653.00; is that correct?
A. Correct.
Q. And so, sir, in light of this, do you have an opinion as to whether there is any basis for this body to reinstitute and adopt an ordinance retroactively that would put back in place those identical rates that have already been struck down by the court; do you have an opinion as to that?
A. I ‑‑ My understanding is that the ‑‑ the ‑‑ the judge has already struck down those ordinances.
Q. Right, but I'm asking you, do you have an opinion whether, based on the Woods report and the information and the critique you've given here, whether there exists a basis upon which to go back and reinstitute those identical rates today?
A. No.
I mean, based on what I see here I think those rates, in my opinion is that they're not ‑‑ the basis for those rates show be that the utility was allocated a [higher|hire] cost than it should have been, and so, no, my ‑‑ my answer is, no, they shouldn't re‑implement those rates.
Q. That ‑‑ you assume hypothetically the analysis you did is correct, that would mean that rather than having a fund balance of 8,308,773 from 2015, there would be a lot more money than that; true, in the fund balance?
A. Correct. Yes.
Q. There would be ‑‑ 3 million would have to be added back for the retroactive charges, bringing it up to ‑‑ well, it's actually here. These are the amounts that were actually taken out.
It would be at least 11,950,000 and based on your analysis even now; correct?
A. Yes.
MR. FIORENZO: Thank you, sir. That's all I have.
MR. ROGERS: Looking at the court reporter's face we're going to take a ten‑minute break. And let's start back up at exactly 10:00.
(Whereupon, a brief recess is taken.)
MAYOR KNUDSEN: I would like to call this meeting back to order.
You're all good over there? Good. All right.
MS. MAILANDER: Let me just get a roll call one more time.
MAYOR KNUDSEN: We're going to do roll call. So if everyone could just take their seats, make sure all the people are here.
MS. MAILANDER: Councilman Hache?
COUNCILMAN HACHE: Here.
MS. MAILANDER: Councilman Sedon?
DEPUTY MAYOR SEDON: Here.
MS. MAILANDER: Councilman Voigt?
COUNCILMAN VOIGT: Here.
Mayor [sic] Walsh? I'm sorry.
Councilwoman Walsh?
COUNCILWOMAN WALSH: Here.
MS. MAILANDER: I'm so sorry.
And, Mayor Knudsen?
MAYOR KNUDSEN: It's okay. I'm here too.
MR. NORTHGRAVE: Can I proceed?
MR. ROGERS: Yes, I think the next thing would be the cross ‑‑ the questioning by Mr. Northgrave.
MAYOR KNUDSEN: Yes.
CROSS EXAMINATION
BY MR. NORTHGRAVE:
Q. Good evening, Mr. Morgan.
Your colleague told us there was three drafts of this report, and it was begun in late May. Is that when you started on the report, sir?
A. No. I ‑‑ I initially started the draft, the initial draft, so it wasn't ‑‑
Q. When?
A. Oh, gosh.
I ‑‑ I have to ‑‑ I have to check my e‑mail when this is over ‑‑ I started looking at this somewhere in April.
Q. April? Okay.
A. And ‑‑ just give me one moment I'll check.
Q. Sure. And I'm not trying to rush you.
A. The ‑‑ the first draft was probably somewhere around the end of the first week in May. Somewhere around there.
Q. Okay. And did you share that with ‑‑ with the three municipalities and counsel at that time?
A. Not the first draft, no.
Q. Okay. When did you share it with ‑‑
A. I did not share directly. What I did when ‑‑ when it got prepared ‑‑
MR. FIORENZO: [I Mean|I am] going to object. What's the relevance? What's the difference?
MR. ROGERS: Well, I mean it's ‑‑
MR. FIORENZO: He's communicating with counsel. [It's|Its] privileged. He has no right to get into communications.
MR. NORTHGRAVE: Not when.
MR. FIORENZO: It's between an expert and counsel.
MR. NORTHGRAVE: Not when.
Are you directing the witness ‑‑
MR. FIORENZO: And beyond that, beyond that, why is it relevant?
MR. NORTHGRAVE: Direct the witness not to answer then.
MR. ROGERS: He's got a right to ask when.
MR. FIORENZO: I direct him not to answer.
MR. NORTHGRAVE: Very good.
MR. ROGERS: The record will show that.
MR. NORTHGRAVE: Thank you.
BY MR. NORTHGRAVE:
Q. The ‑‑ you could take your seat, Mr. Fiorenzo.
MR. FIORENZO: My leg is stiff, if you don't mind. I am just walking it off.
MR. NORTHGRAVE: Sure.
BY MR. NORTHGRAVE:
Q. The ‑‑ your testimony ‑‑ you just ‑‑ the last five, 10, 15 minutes your testimony talked a lot about what you called a "refund," correct? About the amounts you think are owed?
A. Right.
Q. Did you understand Mr. Woods' report to be calculating what the refund is?
A. I think Mr. Woods concludes that there shouldn't be any ‑‑ that there is a fund, so I don't think he ‑‑
Q. But he doesn't ‑‑ he wasn't charged with computing a refund, was he?
A. I don't know what he was charged with.
Q. Is there anything in his report that addresses the refund?
A. As I said, from what I recall, he concluded that the rates were fine and ‑‑
Q. But he didn't address the refund, correct?
A. So he did not address the refund.
Q. Okay. You said ‑‑ you said you were previously a CPA?
A. Yes.
Q. You were licensed in North Carolina?
A. Correct.
Q. When did you go inactive?
A. 2009, I guess.
Q. And what precipitated that?
A. I started ‑‑ I left Exeter around that time. I had a life goal to try to do something different, so I ‑‑ I went to Africa and I started a plantation, and I ‑‑ at that time I wasn't doing anything with accounting, and so I didn't want to have to keep up with the educational requirement and all of that.
Q. Okay. And how long were you in Africa?
A. Oh, I've been ‑‑ it's been a thing where I go back and forth.
But, initially, I was focused on ‑‑ on trying to get this thing started and so it didn't allow me much time to ‑‑ to do utility work, but that's ‑‑ that's why I decided not to continue with my license.
Q. Okay. Well, looking at your CV, your previous employment says that you were a senior regulatory analyst at Exeter in 2010.
A. Right.
Q. And then, and I'll give you your CV, I've reviewed it briefly. As you know, I received it for the first time this evening.
You've done a number of reports, but they ended in 2010. And I don't see anything again until 2016. So what were you doing in that timeframe?
A. Not 2016.
Q. You want to take a look?
A. Oh, what ‑‑ I guess what you're saying is that ‑‑ no, I thought you were incorrect. This is 2015.
Q. Okay. So it's 2000 ‑‑ 2010 is the last one ‑‑
A. Yes. So ‑‑
Q. ‑‑ the next one isn't until 2015?
A. Right. And that ‑‑ between there was when I took the ‑‑ the break.
Q. You took a sabbatical of sorts?
A. Right.
Q. So you didn't do anything in this field in that time?
A. I didn't do anything in this field or at least not in regulation.
Q. Your report criticizes the inclusion of police, fire and those types of charges, correct?
A. That's correct.
Q. And you read the judge's report, correct?
A. I ‑‑ I read a portion. I didn't read the entire report.
Q. Okay. Would it surprise you to know that on page 96 the judge said:
"The accurate allocation for indirect costs, such as police, fire, garage, engineers us also to be established"?
A. Could you repeat that?
Q. Sure. I read it quickly, I'm sorry.
"The accurate allocation for indirect costs, such as police, fire, garage, engineer, et cetera, is also to be established."
A. No, it would not surprise me if she said that. But what would surprise me is that then it's not addressed in the Woods report.
The Woods report seemed to indicate that those allocations are fine and ‑‑ and as we went through and did our analysis, I think what you are saying there is that we agree with the judge that because we disagree with the allocations in ‑‑ in the Woods report and that's what you basically are saying the judge said. So, [I mean|I am], to that extent I think we're consistent.
Q. Well, the judge said that you should analyze the indirect cost for police and that's what Mr. Woods' report did. And you disregarded the indirect cost for police, correct?
MR. FIORENZO: Objection. No foundation that that's "what Mr. Woods did."
MR. ROGERS: Well, the witness did say that Mr. Woods did not do it, so ‑‑
MR. FIORENZO: He stated a conclusion in his report.
MR. ROGERS: The answer before that he gave.
MR. FIORENZO: We'll find out what he did.
MR. ROGERS: I would say answer the question.
THE WITNESS: My understanding is ‑‑ well, let's look at it like this. Even if Mr. Woods addressed the allocation, I still disagree because you don't ‑‑ there ‑‑ the police ‑‑ I don't see the police being an integral part of producing, distributing, transmitting water.
And, so therefore, to allocate their overheads to the water utility, I ‑‑ I just find no basis for that.
BY MR. NORTHGRAVE:
Q. Okay. And that's your professional opinion?
A. Yes.
Q. [How Much|How many] rate cases have you done that involved enterprise accounting?
A. I have done ‑‑ when you ‑‑ can you clarify what you [many|mean] by enterprise?
Q. A situation similar to this where you have an enterprise fund in a larger current fund.
A. Probably six.
But this is not enterprise accounting. This is fundamental accounting where costs are based on the principles of cost causation.
And so if ‑‑ if you look at what I'm doing, I am basically applying fundamental accounting where you don't allocate costs that have nothing to do with that entity.
And so yes, maybe Mr. Woods can show his resume and show he probably did more enterprise accounting, as you put it. But the bottom line is that what I'm talking about is not something that is limited to enterprise accounting and it's ‑‑ it's primarily fundamental accounting, and so on that front I ‑‑ I ‑‑ it's just something that I disagree with how the water company has treated these costs.
Q. You spoke several times about retroactive ratemaking.
Do you recall that testimony?
A. Yes.
Q. Okay. So if the charge from the court, and let me read you what the court said here.
"The court acknowledges the foundation for the appropriate recalculation of the rates may be established by the introduction of documents and testimony and/or may be undertaken by a rate study.
"The appointment of an independent expert with utility experience in evaluating rate structures and conducting rate studies may be utilized to determine the cost rate difference and refund. Additionally this court changed jurisdiction," that's irrelevant.
But, so the charge from the court was for the village to reestablish these rates and to, perhaps, do a rate study. How can the village do that without cutting rates or establishing rates for each year?
A. The ‑‑ the fundamental question here is is retroactive ratemaking something that is allowable, and on that ground I ‑‑ I say no.
Q. Let me stop you. Is it ‑‑ is it your opinion that the court should have ‑‑ should not have ordered this remedy?
A. I ‑‑ that's a legal question. I can't answer that question.
Q. Okay. But, so ‑‑ but you do answer the question on the other side. You're saying there was retroactive ratemaking and you can't do that. So how do you ‑‑ how do you ‑‑ how do you recalculate the rates without it being retroactive ratemaking?
MR. FIORENZO: I am going to object to the premise of the question because the premise was I read from Mr. Woods' report who said you can't do retroactive ratemaking. And I asked him if he agreed with it and he said he did.
MR. ROGERS: Right.
MR. NORTHGRAVE: The question went well beyond that.
MR. FIORENZO: He mischaracterized the question.
MR. NORTHGRAVE: The question went well beyond that. The record will reflect what the question and answer was, Mr. Fiorenzo.
MR. ROGERS: He's said several times that he doesn't think that this ‑‑ that this is wrong because it was retroactive ratemaking.
MAYOR KNUDSEN: Right.
MR. NORTHGRAVE: Correct.
MR. FIORENZO: What's that?
MAYOR KNUDSEN: He said that.
MR. ROGERS: That woods' ‑‑ that Woods' report was improper because it was retroactive ratemaking. He said that. So his questioning is immaterial.
MR. NORTHGRAVE: Mr. Fiorenzo, you don't need to fear the record. Sit down. I let you make your record. I am going to make my record. The Council is going to act on the record that's before them. And then we can move on, sir.
MR. FIORENZO: Mr. Northgrave, you're not the judge and you don't direct me what to do.
MAYOR KNUDSEN: You know what, so I'm to ask for Mr. Northgrave to be permitted to continue to ask his questions ‑‑
MR. NORTHGRAVE: Thank you, Mayor.
MAYOR KNUDSEN: ‑‑ and for ‑‑ this is a public hearing and the public is entitled to have this information on the record, so please allow the gentleman to answer the questions if you don't mind.
MR. FIORENZO: I was simply making an objection.
MAYOR KNUDSEN: You can object and it will be on the record, but please allow Mr. Northgrave to continue.
MR. NORTHGRAVE: In regard ‑‑
MR. FIORENZO: And I have a right to make a record ‑‑
MAYOR KNUDSEN: And you're noted, it's duly noted.
MR. FIORENZO: ‑‑ so that someone reviewing this ‑‑
MAYOR KNUDSEN: Okay. You have the right to make a record ‑‑
MR. FIORENZO: Yes.
MAYOR KNUDSEN: ‑‑ but let's make a record, make it brief, and let's continue.
MR. FIORENZO: That's what I was doing.
MAYOR KNUDSEN: Thank you.
BY MR. NORTHGRAVE:
Q. So to fulfill the court's mandate, what should Mr. Woods have done?
MR. FIORENZO: Objection; calls for a legal opinion, calls for a legal conclusion. He has not come here to opine on the court's mandate. That's not his function.
MR. ROGERS: Well, he has ‑‑ unfortunately, he has.
MR. NORTHGRAVE: He has.
MR. FIORENZO: No, he has not. He hasn't opined on the mandate.
MR. NORTHGRAVE: He has ‑‑
MAYOR KNUDSEN: Okay. You're ‑‑
MR. NORTHGRAVE: If the record is really bothering you, Mr. Fiorenzo, why don't you just ‑‑
THE COURT REPORTER: One at a time.
MAYOR KNUDSEN: All right. Mr. ‑‑ I'm going ‑‑ let me cut in, Mr. Fiorenzo, your objection once again is noted.
[Employees|Please|Police] continue.
MR. FIORENZO: It isn't even done yet. Are you not allowing me to complete it?
MAYOR KNUDSEN: Complete your objection.
MR. FIORENZO: Am I not allowed to complete it.
MAYOR KNUDSEN: Complete your objection.
MR. FIORENZO: Are you not allowing me to complete it.
MAYOR KNUDSEN: Complete your objection. Go ahead.
MR. FIORENZO: Thank you.
My objection is that he's not qualified to answer the question of what do you do to fulfill the judge's mandate. That's not what he is here for. I didn't ask him any questions about what do you do to fulfill the mandate. He critiqued the Woods report. That's what he did.
MAYOR KNUDSEN: Okay. Thank you.
MR. ROGERS: Thank you.
[Go] ahead, Mr. Northgrave.
MR. NORTHGRAVE: Thank you.
BY MR. NORTHGRAVE:
Q. So do you agree with your counsel, you're not qualified to ‑‑ to determine what the judge's mandate is?
A. I ‑‑ I think it's a legal question. I ‑‑ I ‑‑ you know, I don't know how to ‑‑ to address that.
Q. But it is your opinion that resetting the rates is improper in this case?
A. My ‑‑ my opinion is that ‑‑
Q. Sir, it's a straightforward question.
MR. FIORENZO: Please don't cut him off.
MR. NORTHGRAVE: I want him to answer the question that's being asked.
MAYOR KNUDSEN: Okay. That's not an objection, just sit ‑‑
MR. FIORENZO: No, it is an objection. He's cutting off the witness.
MAYOR KNUDSEN: Let them answer the questions.
You're interrupting him.
THE COURT REPORTER: One at a time.
MAYOR KNUDSEN: Okay.
MR. FIORENZO: I'm in the middle of a sentence.
MR. ROGERS: Let him answer.
MAYOR KNUDSEN: You're interrupting everyone. Please ‑‑
MR. FIORENZO: Can I finish my objection.
MAYOR KNUDSEN: You are interrupting everyone. We have to conduct business in an orderly fashion, so please allow him to answer the question.
Thank you, Mr. Fiorenzo.
MR. FIORENZO: Well, that's what I wanted him to do.
MAYOR KNUDSEN: Thank you.
MR. ROGERS: Why don't you let him answer?
MR. FIORENZO: Please complete your answer.
THE WITNESS: Could you repeat the question?
MR. NORTHGRAVE: Can you read the question back.
(Whereupon, the court reporter reads back the requested portion.)
BY MR. NORTHGRAVE:
Q. Yes or no?
A. Can I ask a clarifying question? When you ‑‑
Q. Yes, sir, please.
A. When you say resetting the rates, you mean retroactively?
Q. Well, the judge said go back and reestablish what the rate should have been from 2010 to 2017. Is that improper?
MR. FIORENZO: Objection to the form. Mischaracterization of the judge's [opinion|pin].
THE WITNESS: I think the rates need to be reset. It's a [matter|mat] of whether you do it retroactively or not.
BY MR. NORTHGRAVE:
Q. Well, how else can you do it, if you don't do it retroactively? If the judge is saying the rate in 2010, 2011, 2012 was improperly established, then how do you do it other than retroactively?
A. Well, to begin with, let's start with a rate study that we all can say costs were allocated properly, and I think once we have a rate study that does that, perhaps the answer will be clear to us. But that's the ‑‑ the first place you start is ‑‑
Q. Okay. So let's assume for the purpose of this that you agreed with Mr. Woods' report. Then what he did in resetting the rates was appropriate, correct?
MR. FIORENZO: Objection. Calls for a legal conclusion as to retroactivity.
BY MR. NORTHGRAVE:
Q. You can answer the question, sir.
A. You know, what you're asking is a hypothetical, if I agree to what he has done. And it is very difficult to answer a hypothetical because you really don't know what you would do until it's ‑‑ it's something that's real. So ‑‑
Q. This is real, sir.
A. No. So ‑‑
Q. The judge ordered the rates to be reset?
A. No, no.
Q. Assuming for the purpose of my question you agreed with Mr. Woods' allocation factors, is the resetting of these rates appropriate or no?
MR. FIORENZO: Object to the form of the question. Calls for a legal conclusion. [It's|Its] mischaracterizing the judge's [opinion|pin].
THE WITNESS: I think I've said the rates need to be reset. I just disagree that it should be retroactively.
BY MR. NORTHGRAVE:
Q. You disagree with how?
A. I disagree ‑‑
Q. You disagree with Mr. Woods' conclusion?
MR. FIORENZO: I'm sorry. He's cutting him off again.
MR. NORTHGRAVE: As you did, sir.
MR. FIORENZO: He's right in the middle of a sentence. And he's cutting him off.
MR. NORTHGRAVE: Please, please take your seat.
MR. FIORENZO: He's right in the middle of a sentence.
MAYOR KNUDSEN: All right. Okay. You've made your statement.
Sit down.
MR. FIORENZO: Will you let him finish?
MR. ROGERS: Try and let him finish, please.
THE WITNESS: I'm not sure what else I can say other than what ‑‑ I ‑‑ if I agreed with what he's done, maybe the answer would be clear.
But as of now, I ‑‑ all I ‑‑ the best way I can answer this question is that rates need to be reset. Perhaps if we had a cost study that allocated the costs properly, maybe reasonable minds can come to a conclusion or a compromise.
But as of ‑‑ we can't even agree on the starting document. And so based on that, [it's|its] difficult to even offer an opinion as to what else can be done to change the rates, so...
BY MR. NORTHGRAVE:
Q. Let me ‑‑ let me try one ‑‑ one last time, sir. And then, hopefully, we can end here.
A. Okay.
Q. If ‑‑ assume, for the purpose of my question, you're here to give expert opinion testimony, correct?
A. Correct.
Q. Okay. So assume for the purpose of my question that you agreed with everything in Mr. Woods' report, except for one allocation factor, the police services. Just for the purpose of the hypothetical.
Would it be appropriate for Mr. Woods or for this council to rely on Mr. Woods' analysis to reset the rates for 2010 through 2017?
MR. FIORENZO: Objection. Calls for a legal conclusion as to the propriety of retroactive ratemaking, which is an issue on appeal, by the way.
THE WITNESS: I ‑‑ I still look at it as the rate ‑‑
BY MR. NORTHGRAVE:
Q. You don't want to answer the question? Okay.
A. No. I ‑‑ I've answered the question.
Q. I think you have, yes. Thank you.
MR. NORTHGRAVE: At this time I have no further questions.
MAYOR KNUDSEN: All right. Let's go to the council.
Did you have a question?
MR. ROGERS: Well, are there any questions from members of the public for Mr. Morgan?
MAYOR KNUDSEN: Do you have a question for the witness? Do you have a question?
FEMALE AUDIENCE MEMBER: No.
MAYOR KNUDSEN: Okay. Does anyone else have a question from the public?
FEMALE AUDIENCE MEMBER: I don't have a question for the witness.
MAYOR KNUDSEN: Okay. So no further questions, why don't we go to council and we'll start with Jeff.
Do you have questions or just jump in whoever has questions.
COUNCILMAN VOIGT: I do.
Sir, I'm still having a tough time understanding why we're looking at refunds prior to 2010, when we were asked to look at rates 2010 [threw|through] 2017.
You've got ‑‑ you know, you've got close to ‑‑ you've got close to $2.4 million in ‑‑ and ask for a refund and I have no idea why that's being asked for, specifically because the judge has asked us to look at 2010 after.
MR. ROGERS: Well, that's what the lawsuit was. But maybe Mr. Morgan can answer the question.
COUNCILMAN VOIGT: Yeah. So just help me understand that.
THE WITNESS: Well, what's the refund?
COUNCILMAN VOIGT: Well, it was $2.4 million prior to 2010, which included ‑‑ which included health insurance, attorney's fees, early retirement payments, Frank Moritz's compensation. Why are we ‑‑ why are we even looking at those numbers?
THE WITNESS: We're looking at those numbers because they were things that the judge found during the trial. And so to ‑‑ I believe to ignore them would be ‑‑
COUNCILMAN VOIGT: Well, so this is what the judge said, and this is where I am having a problem. This is what you say in your report, okay.
You say in your report on Page 11:
"The trial judge found that Ridgewood conceded that the amount charged for health insurance was excessive and ordered that an accounting be performed for such inappropriate charges, with the overage amount refunded to the Plaintiff."
I don't see that anywhere in the opinion, to be honest with you.
MR. FIORENZO: It is in the opinion.
COUNCILMAN VOIGT: No, it isn't. I'll give you where it is, okay, and you can read it, all right.
MR. FIORENZO: Okay.
MAYOR KNUDSEN: So, Jeff, just so ‑‑ just to keep it clean ‑‑
MR. FIORENZO: Would you like me to help you?
MAYOR KNUDSEN: No, no, no. We are questioning the witness right now.
MR. ROGERS: Yes.
COUNCILMAN VOIGT: So ‑‑ so you're making a conclusion here that the judge didn't even say. You're saying that the overage should be refunded to the plaintiff. The overage is to be refunded to the plaintiff. Nowhere did the judge say that, okay.
What the judge said was as follows, on page 91, the judge ‑‑ and this is ‑‑ the judge didn't even say it, it was a witness that said it. So it says attorney's fees were overcharged. Okay. It doesn't say they should be refunded. It says they were overcharged. That's the first thing.
The second thing is that according to Ms. Chen, she said that the ‑‑ the health insurance was excessive. Okay.
But nowhere does it say anything that these were inappropriate charges, nor does it say that they should be refunded. You're coming to that conclusion without anything that says it in the actual judge's [opinion|pin]. And I have a concern with that.
Okay. Is that correct?
THE WITNESS: Well, my ‑‑ what I have done is based on how I understood it.
COUNCILMAN VOIGT: Yeah. Well, the judge didn't say that. Okay? At all. The judge didn't say that.
MR. FIORENZO: Excuse me. Let me direct you to page 96.
"This court also directs an accounting for the inappropriately allocated insurance costs as conceded by Ms. Chen."
The court directs an accounting for the inappropriate allocated insurance costs conceded by Ms. Chen, and when you read 96 and 91 ‑‑
COUNCILMAN VOIGT: Yeah, but it doesn't ‑‑
MR. FIORENZO: ‑‑ the judge directed an accounting, an accounting of that.
COUNCILMAN VOIGT: Okay. So let's get through the witnesses.
MR. ROGERS: We can argue over that later.
MAYOR KNUDSEN: Yes, I think we want a question so ‑‑
MR. ROGERS: This is the time for questions.
MAYOR KNUDSEN: ‑‑ just for the record.
COUNCILMAN VOIGT: So that's fine. You made a conclusion here that the judge said the overage should be refunded to the Plaintiffs. And the judge didn't say that.
MR. FIORENZO: She said an accounting.
MAYOR KNUDSEN: Okay.
COUNCILMAN VOIGT: She said an accounting, but didn't say get it refunded.
MR. FIORENZO: No one has accounted as of right now.
COUNCILMAN VOIGT: Sir, you're making a conclusion in this document that's not correct. Is that ‑‑ is that right? The judge didn't say that.
MR. FIORENZO: The judge did say that.
MAYOR KNUDSEN: So, no, so ‑‑
MR. ROGERS: For the record, please.
MAYOR KNUDSEN: Right.
Mr. Fiorenzo, so just, please, there's questions now of the witness, so please allow Councilman Voigt to ask his questions. And ‑‑
MR. FIORENZO: But he's completely mischaracterizing the opinion.
MAYOR KNUDSEN: All right. But you ‑‑
MR. FIORENZO: You said the judge nowhere in the [opinion|pin] says that. The judge ordered an accounting because Ms. Chen testified there were overcharges that she brought to the attention of the people in Ridgewood ‑‑
MAYOR KNUDSEN: Okay. All right.
MR. FIORENZO: ‑‑ and they did nothing about it for years. There's millions of dollars.
MAYOR KNUDSEN: Mr. ‑‑
COUNCILMAN VOIGT: Okay. So I'm going to ‑‑
MR. ROGERS: There's a question ‑‑
MAYOR KNUDSEN: Mr. Fiorenzo ‑‑
COUNCILMAN VOIGT: I am going to correct you again. Okay.
In your report you said the overage ‑‑ the overage amount should be refunded to the Plaintiffs. The judge didn't say that. You said that. Is that correct?
You put this in your report. The judge didn't put it anywhere in her report. Is that right?
THE WITNESS: Sir, what I can say is that at the time I put this in the report, that is ‑‑ that was my understanding.
COUNCILMAN VOIGT: Okay. I just don't find that, okay, that the judge says you need to give the money back. The judge doesn't say that.
MR. FIORENZO: Excuse me, sir. If you look at page 95 the court said, quote ‑‑
MAYOR KNUDSEN: Mr. Fiorenzo. Mr. Fiorenzo.
MR. ROGERS: You can clear it up on cross examination.
MAYOR KNUDSEN: I'm going to ‑‑ Mr. Fiorenzo ‑‑
THE COURT REPORTER: One at a time.
MAYOR KNUDSEN: Mr. Fiorenzo, point of order ‑‑ Mr. Fiorenzo ‑‑
MR. FIORENZO: "The Court finds the Plaintiffs are entitled to a refund." A refund.
MAYOR KNUDSEN: Mr. Fiorenzo, you're not going to do this.
MR. FIORENZO: "For amounts inappropriately charged."
MAYOR KNUDSEN: Mr. Fiorenzo, we are going to have order in room ‑‑
MR. FIORENZO: First line, page 95. Read it.
MAYOR KNUDSEN: Mr. Fiorenzo? Mr. Fiorenzo, if ‑‑ you cannot continue to get up and disrupt the questions being asked of the witness. [I Mean|I am] going to ask you to please allow Councilman Voigt to ask his questions.
COUNCILMAN VOIGT: Okay. So I'm going to ask a different question now.
MAYOR KNUDSEN: Please, please sit down.
COUNCILMAN VOIGT: You can sit down.
MR. FIORENZO: Let me say this.
MAYOR KNUDSEN: I want ‑‑
MR. FIORENZO: Councilman Voigt is being fundamentally unfair when he mischaracterizes the opinion ‑‑
MAYOR KNUDSEN: You can ‑‑ all right. You can ‑‑
COUNCILMAN VOIGT: No.
MR. FIORENZO: ‑‑ that says there should be a refund. Top of page 95. Refund for improper allocation of funds.
MR. ROGERS: Mr. Fiorenzo ‑‑
THE COURT REPORTER: One at a time.
MAYOR KNUDSEN: Mr. Fiorenzo, sit down. Please sit down.
Now, we ‑‑
MR. ROGERS: If there's another interruption of Council's question, we're going to have to take action and put some type of a lid on it.
MR. FIORENZO: He's attacking the witness.
MR. ROGERS: Because you have the opportunity to correct it.
MR. FIORENZO: He's attacking the witness unfairly.
MAYOR KNUDSEN: He's not attacking him.
MR. ROGERS: He's not badgering the witness at all. He's asking him a question.
COUNCILMAN VOIGT: I'm just asking a question.
MAYOR KNUDSEN: Councilman Voigt ‑‑ we're going to have order in the room. We are going to have order in this room.
Please, I'm going to just give you one warning, please do not have an outburst again. We just cannot tolerate this. It's late.
Your ‑‑ the gentleman has been sitting here politely answering questions politely, we appreciate that.
Councilman Voigt is going to continue uninterrupted.
Go ahead, Jeff.
COUNCILMAN VOIGT: Okay. Thanks.
So the principles of ratemaking is the water ‑‑ what is it the MA ‑‑
THE WITNESS: Oh, the AWWA M‑1?
COUNCILMAN VOIGT: Okay. Yeah. Thank you.
Yeah, it says ‑‑ they're broad principles; is that right?
Pretty broad principles as to how you should account for costs, direct, indirect.
Is that right?
THE WITNESS: Correct.
COUNCILMAN VOIGT: Okay. So it doesn't say specifically how you should do it, it just says it needs to be done.
Is that correct?
THE WITNESS: I ‑‑ yes, I have not seen ‑‑
COUNCILMAN VOIGT: Okay.
THE WITNESS: ‑‑ where a specific directive is provided in ‑‑ in that manual.
COUNCILMAN VOIGT: And so Mr. Woods used it ‑‑ I'm just going to refer to one of the ‑‑ the weight system is not an appropriate system to use. It's not an appropriate allocation of cost in your opinion.
Is that correct? It's not a way to do it?
THE WITNESS: It's not an appropriate method because as the M‑1 indicates, costs should be ‑‑ rates should be based on cost, and I don't think that method captures cost.
COUNCILMAN VOIGT: So that's your opinion.
THE WITNESS: Captures the proper cost.
COUNCILMAN VOIGT: Okay. Is it an accepted method? Is it done in other ‑‑
THE WITNESS: I have not ‑‑ I have not seen that method.
COUNCILMAN VOIGT: Ever used? Ever used?
THE WITNESS: Of the ‑‑ of the ‑‑ I have not seen ‑‑
COUNCILMAN VOIGT: Okay. So I guess we have to ask Mr. Woods whether it's am accepted method; is that right?
THE WITNESS: I'm sorry. Say that again.
COUNCILMAN VOIGT: We have to ask Mr. Woods whether that's an accepted method or not. Is that ‑‑ because right now it's just your opinion versus his, so I have to understand, you've got to help me here. Is it an ‑‑ is it an ‑‑ is it an accepted method?
THE WITNESS: I ‑‑ I have not seen it, so I cannot opine whether it is an accepted ‑‑ acceptable method.
I think, based on what we've outlined, the fact that when you have a fleet of different types of vehicles, so let's say I have a bulldozer and that bulldozer weighs a lot. And I have only one bulldozer. So is it fair for me to take a [higher|hire] allocation of cost because I have one heavy vehicle, or ‑‑ or should I look at it from the standpoint of what are the costs to service the vehicle? And where are these vehicles coming from? And ‑‑ and then allocate the cost on ‑‑ on that basis.
From what I've seen in terms of allocating costs, that has been the approach. It's based on cost causation. And so when you look at weight, it's ‑‑ it's not capturing ‑‑
COUNCILMAN VOIGT: Are there different ways of allocating indirect costs besides cause and causation? Are there other methods?
THE WITNESS: No, that's the principle that they are all based upon, so I don't think there is another way to ‑‑ to allocate. I have not seen and I don't believe there is another way to do it, except based on the causation of the cost.
COUNCILMAN VOIGT: Okay. Thank you.
I think that's it.
Thank you.
MAYOR KNUDSEN: You could always come back, if something else pops in your head.
DEPUTY MAYOR SEDON: Thank you. Thank you, Mr. Morgan, for your testimony.
Would you agree, maybe generally, that a water utility is capital intensive and then specifically in Ridgewood where the case is we have 52 or 54 wells and lots of property and it's spread out in four towns and there's above ground storage and everything else?
THE WITNESS: Yes. All utilities are capital intensive.
MR. ROGERS: And you said between '09 and '12 that the capital expenditures averaged about $125,000.00 a year.
THE WITNESS: Yes.
MR. ROGERS: And do you think that that would be an appropriate level of funding to do bigger capital projects like tank rehabilitations and things like that?
MR. FIORENZO: I just want to note an objection because that, in fact, is what occurred, so it doesn't mater whether it's appropriate or not.
MR. ROGERS: He's got the right to answer the question.
MAYOR KNUDSEN: He's asking a question.
MR. ROGERS: Ask a question and answer it.
MAYOR KNUDSEN: He's just asking questions.
MR. FIORENZO: I am making an objection to the question.
MAYOR KNUDSEN: All right. Your objection is noted.
Thank you.
MR. FIORENZO: Because that's what happened.
MAYOR KNUDSEN: You can answer.
THE WITNESS: What I believe should be looked at in terms of deciding whether the 125,000 is appropriate is are there specific plans for ‑‑ that the utility has to implement? And I think it would be wrong for me to ‑‑ to look at a utility and base a decision just based on, you know, what I think some other similar utility would pay.
So if there are no programs or no plans to invest or to make those expenditures, then I don't think they're appropriate, you know, you can't ‑‑ one of the problems we have is when you're forecasting, there is a tendency sometimes to ‑‑ to forecast higher than the actual expense, and so, therefore, we have to be able to look at documents that can really support or you stated...
Mr. MORGAN: Okay. So then you take ‑‑ took an issue with 2016 and an $1.8 million jump all the sudden in capital expenditures.
THE WITNESS: Correct.
DEPUTY MAYOR SEDON: Okay. So just to let you know that 2016 was the first year of a six‑year capital intensive rehabilitation of the entire water utility because it was kind of leftover a little bit and we got a great new director, Mr. Calbi, who put together this plan.
And every year at budget season during the capital budget discussions, this plan has been enacted since then so '16, '17 and '18. So the capital expenditures to catch up with what wasn't put into the utility in the past is being done right now and will continue to be done for the next three years.
So that's the reasoning behind the big jump in capital expenditures. There's a lot of tank rehabilitations, water main replacements, things like that.
So that's ‑‑ that would ‑‑ would that kind of explain the just then in ‑‑ and we have all the documentations to prove whatever ‑‑ you know, what every dollar was spent on.
THE WITNESS: I mean, certainly that's something that can be considered in ‑‑ in how I look at this.
DEPUTY MAYOR SEDON: Okay. Thank you. I have no further questions. Thank you.
MAYOR KNUDSEN: Thank you.
Councilwoman Walsh?
COUNCILWOMAN WALSH: Thank you.
I just have a couple of questions.
Are you aware of the projects that were done in all of the municipalities, the capital improvements, like when you ‑‑ when you did your report were you aware of all the projects that went on over the years to get a better understanding of why things were allocated to each other?
THE WITNESS: When you say all the municipalities, are you ‑‑
COUNCILWOMAN WALSH: All of the municipalities including Ridgewood.
THE WITNESS: No.
COUNCILWOMAN WALSH: No? Okay. So, you know, as I was listening to your testimony and of your colleague where you were questioning, you know, body armor and allocating pay and things like that, wouldn't those be assumptions of both of yours that those are items that are part of the everyday business of running the water utility.
THE WITNESS: No.
Those costs, when I hear body armor I think police. I don't think water utility.
So the questions, I think to the extent that there were projects that were legitimate water projects, I think those are direct costs. Those are not allocated.
When you look at these costs that we take issue with, body armor, I really don't see how body armor provides water service.
And so I don't see that link. And so, therefore, I have an issue with allowing those costs, or those costs being allowed to be part of the revenue requirements.
COUNCILWOMAN WALSH: So ‑‑ so ‑‑ so the Village of Ridgewood's Police Department is the ‑‑ I don't want to say the official police department, but we really are the official police department that ‑‑ that polices all of the water department properties. I know that your colleague had mentioned that there is perhaps ad hoc in the other police departments that they may drive around, but I don't believe there's any solid agreement that they're actually policing those properties in their towns.
THE WITNESS: I ‑‑ I'm sorry did I cut you off?
COUNCILWOMAN WALSH: No, I'm done.
THE WITNESS: The ‑‑ from what I have seen in my experience, the ‑‑ the municipality may have a police force, but I've never seen where there is a dedicated force that is at the water utility 24/7.
Even if there are certain members of the police that pay more attention to the water utility assets, those costs should be direct. They should not be allocated. The problem with allocating costs is that you take a large group of costs that are unrelated to ‑‑ in this case the water utility ‑‑ and you allocate those costs.
Whenever you have a situation where, as you describe, the water utility may have started to expand and needed some extra protection. Those costs should be directly assigned. You go and you figure out what it costs to provide those services. And they're charged directly to the water utility.
COUNCILWOMAN WALSH: Right. So they're all ‑‑ so those percentages would then be allocated.
THE WITNESS: In that case it wouldn't be ‑‑ basically, what you do is you determine the cost and it's directly assigned, so it's not an allocation.
COUNCILWOMAN WALSH: Okay.
And then, again, there was questions from your ‑‑ your legal counsel to you about the Village of Ridgewood taking money out of the water utility, so what is your ‑‑ I guess, what is your assumption of when a ‑‑ when a municipality owns a water utility, what is the assumption of where that money is going to go? Is it always going to stay there or is the village permitted to take money out?
MR. FIORENZO: Object to the extent it calls for a legal conclusion because that is one of the issues on appeal, so...
MR. ROGERS: You can answer.
THE WITNESS: What I have seen is that water utilities that are owned by municipal may have certain funds turned over to the ‑‑ to the larger entity.
But what happens is that there is a formal process that determines what that percentage is. And so ‑‑ and there is public input as well so that at some future date when those funds are then transferred, there's no question. It's transparent. But in this instance we're looking at costs that were done ‑‑ that were allocated back retroactively, and that is a problem.
COUNCILWOMAN WALSH: Okay.
And just as a matter of information, so when we hold our meetings our work sessions and our public meetings, we always separate Ridgewood Water. So there's always a public hearing on a separate, that anybody from any of the other municipalities can attend and ask us questions.
So we do have that in our system that they can ask those questions and be part of the process. So that's just something as a note.
And let me just see if there's any other... I think that's all I have.
MAYOR KNUDSEN: Councilman Hache?
COUNCILMAN HACHE: The problem with going last is everybody steals your questions.
So my ‑‑ you had mentioned about the ‑‑ the need for body armor.
But would you agree that in the interest or in the pursuit of protecting the assets of the village, that ‑‑ and we have a professional police department that does that, wouldn't body armor be required equipment for a police officer to carry on duty in performing those duties?
THE WITNESS: [It's|Its] ‑‑ it's not exclusive to the water utility, it's used for everything else.
So that body armor, if there's a riot out in the street, God forbid, the body armor is needed to address those needs as well.
So it's ‑‑ when ‑‑ when the police is driving, patrolling and looking at water utility assets, it doesn't ‑‑ it does it just as it does any other citizen in ‑‑ in the village. And ‑‑ and so you have to look at, again, what costs are being charged to the water utility.
And in this case it ‑‑ these are costs that are just not water‑related. They are just general overhead that everyone within the village will benefit from. To take those overhead and charge them directly to the water utility is just unfair.
COUNCILMAN HACHE: So ‑‑ okay. So I ‑‑ I agree. I think it would be unfair to charge 100 percent of it to the water utility, but a portion of it, I think, would be reasonable; correct?
THE WITNESS: No, I don't think a portion of it.
Again, these are overhead costs. It's almost as if to say that the water utility has its own police force, and I don't believe that is the case.
COUNCILMAN HACHE: So not 100 percent, but also ‑‑ you think it should be zero?
THE WITNESS: The ‑‑ if you're looking at why ‑‑ I would say then: Why body armor? Why charge those costs when ‑‑ when they go to inspect a water facility, do they, at that point in time, put on the body armor just to go in and inspect the water utility?
COUNCILMAN HACHE: Police bring their body armor when they suit up for duty every day. Unfortunately, they have to.
THE WITNESS: So ‑‑ so those are costs ‑‑ those are the costs of the police. And ‑‑ and so it should be borne by the police, not the water utility.
COUNCILMAN HACHE: So the police should remove their body armor before visiting a facility.
THE WITNESS: No, that's not what I'm saying. I'm saying ‑‑ I'm saying costs that are related to the functioning of the [employees|please|police] should be borne by the [employees|please|police], not the water utility.
COUNCILMAN HACHE: I had a question before about your retainer. Was your retainer paid by all three municipalities named as Plaintiffs in this case, or just Midland Park and Glen Rock?
THE WITNESS: I ‑‑ I did not see the check when it came in. We discussed ‑‑ I discussed that with my counsel. And ‑‑
MR. FIORENZO: Yeah, I'm going to direct you not to answer that question. They're conversations with me. That's not appropriate. Conversations with counsel are privileged.
THE WITNESS: So I ‑‑ I don't know because I did not see the check.
MR. FIORENZO: Nor is it relevant, for that matter.
MR. ROGERS: He says he did not see the check.
COUNCILMAN HACHE: Thank you.
No more questions.
MAYOR KNUDSEN: So just on the body armor, do you know what the life expectancy of a body armor or bulletproof vest is? What the lifespan used for the life of a bulletproof vest would be?
THE WITNESS: No. But, then again, it's still...
MAYOR KNUDSEN: I'm not asking ‑‑ I just asked the question ‑‑
THE WITNESS: No, no, I don't.
MAYOR KNUDSEN: You don't know.
So you don't know whether or not a bulletproof vest, Kevlar, has a lifespan of two years or five years or how quickly they're rotated in and out of the ‑‑
THE WITNESS: I don't know.
MAYOR KNUDSEN: ‑‑ the system? Okay.
Do you know [how much|how many] properties Ridgewood Water maintains in Ridgewood, in Glen Rock, in Wyckoff and Midland Park?
THE WITNESS: I don't know the specifics.
MAYOR KNUDSEN: So you don't know the number of properties that we're actually overseeing.
THE WITNESS: I don't know the specifics.
MAYOR KNUDSEN: So it would be fair to say that you don't know [how much|how many] roadway we have to maintain? How much sidewalk? How much grass? How many trees? You don't anything about any of the properties that Ridgewood Water owns and/or maintains?
THE WITNESS: I ‑‑ I don't know the specific numbers, but those are costs that should be direct costs of the utility.
MAYOR KNUDSEN: Well, when we're talking about allocated costs, we're talking about allocated costs from different departments, it would be relevant if you understood ‑‑ and that's my question, because you did a study here and ‑‑ and you made certain assumptions based on a study, but you're suggesting here you have no clue [how much|how many] properties we have in each of the four municipalities.
THE WITNESS: I ‑‑ I didn't make that study.
MAYOR KNUDSEN: Okay.
THE WITNESS: I ‑‑ what ‑‑ what I did was I reviewed ‑‑
MAYOR KNUDSEN: Okay.
THE WITNESS: ‑‑ a study that was performed. And I identified problem areas.
MAYOR KNUDSEN: Sure.
[So] when you went through your report, I heard you say, and I believe I heard you say that Mr. Woods' report relied on actuals; is that what I understand?
THE WITNESS: In ‑‑ in reaching his conclusions.
MAYOR KNUDSEN: I'm sorry.
THE WITNESS: In reaching his conclusions.
MAYOR KNUDSEN: So he didn't rely on budget and actuals?
THE WITNESS: He ‑‑ as I understand it, he mixed his final conclusion based on what the actual numbers ‑‑
MAYOR KNUDSEN: Did he use budget and actuals?
THE WITNESS: He looked at budget, but I think in reaching his conclusion he used actual.
MAYOR KNUDSEN: Could you just lean into your microphone so everybody can hear you?
THE WITNESS: I said that in reaching his conclusion, he used the actual numbers.
MAYOR KNUDSEN: So you wouldn't say that he calculated the revenue based on both budget and actuals and concluded ‑‑ came to his conclusion based on that information?
Let me rephrase the question.
How did you make that determination that he relied on exclusively the actuals and didn't calculate both the budget and actuals in order to come to his conclusion?
THE WITNESS: On page 1 of his report he says:
"This re‑evaluation of rates was directed by the Superior Court of the State of New Jersey as a result of litigation brought by the surrounding communities. The actual financial results for 2009 through 2012 were reviewed in this evaluation to establish a normalized level of expense that was used along with the physical and operating data for the village and its water utility to establish the basis of the utility revenue requirement."
MAYOR KNUDSEN: So just, I'm going to ask you to read that one more time. And just into the microphone, if you don't mind. You're looking at page ‑‑ what page is that?
THE WITNESS: This is page 1.
MR. ROGERS: Susan, is there a question?
MAYOR KNUDSEN: Oh, I asked him to re‑read it.
MR. ROGERS: She asked you to read it again.
THE WITNESS: Oh, I ‑‑ I ‑‑ when you were ‑‑
MR. ROGERS: She asked you to read it again.
THE WITNESS: So read ‑‑ read that passage again?
MAYOR KNUDSEN: Yes.
THE WITNESS: "This re‑evaluation of the rates was directed by the Superior Court of the State of New Jersey as a result of litigation brought by the surrounding communities.
"The actual financial result for 2009 through 2012 were reviewed in this evaluation to establish a normalized level of expense and was used along with the physical and operating data for the village and its water utility to establish the basis of the utility revenue requirement."
MAYOR KNUDSEN: Okay. But does it say that he didn't use the budgeted amounts?
THE WITNESS: It doesn't say "I used the budgeted amount."
MAYOR KNUDSEN: He doesn't say that. Right?
THE WITNESS: Your question is does it say that? And I'm saying it does not say that.
MAYOR KNUDSEN: Okay. All right.
Let me just go on to my next question. Actually I know we went through this, and so I had my notes about the retroactive ratemaking is not permitted, but that's exactly ‑‑ or not acceptable, but that's exactly what we're doing.
Now, I want to go back to something that Mr. Fiorenzo pointed out in the beginning, and that was that waterworks manual. And he was using the ‑‑ the quotes in Mr. Woods' report to suggest that somehow Mr. Woods was using that manual to determine how the allocations were done.
It seemed that that's what he was suggesting. Is that what you believed he was suggesting?
THE WITNESS: I don't ‑‑
MR. FIORENZO: I have to object.
MAYOR KNUDSEN: No, no, no, I'm not ‑‑
MR. FIORENZO: He is being asked whether he knows what I was thinking?
MAYOR KNUDSEN: Now, I'm asking if he interpreted that as the same suggestion because you had him go back to the manual and there was a suggestion and are you ‑‑ let me rephrase the question.
Do you interpret the quotes used in the report from the manual to suggest how the rates should be ‑‑ how the allocation should be done?
THE WITNESS: When ‑‑ when one reads the footnotes and the sentences to which they refer, it ‑‑ it implies that the AWWA M‑1 gives specific instructions on cost allocation.
MAYOR KNUDSEN: But he didn't write that book. He's taking those quotes directly.
So one of the quotes that was referred to was:
"The development of the utility's revenue requirement is the basis for setting the overall level of the utility's rates while providing the utility with adequate and sustainable funding levels for both operating and capital cost."
How is that interpreting how the allocation should be done?
THE WITNESS: That's not the only place that the reference is made.
MAYOR KNUDSEN: No, I understand. I just was ‑‑ I went through a whole bunch of them and I can't find anything. I'm hoping that, actually, you can.
THE WITNESS: Well ‑‑ oh, I'm sorry. I think I cut you off, so...
MAYOR KNUDSEN: No. That's okay. That's all right.
So I was unclear when that was the specific example that was used, how that was suggesting that that book was the manual for how the allocations should be done.
THE WITNESS: This ‑‑ this was a rate study that was presented by Mr. Woods. And this is something that he indicated was a directive of the superior court.
In the sentence that the footnote is attached to, again, the sentence reads:
"The methodology used to develop the utility revenue requirement and the allocation factors for shared services is consistent with the industry standard methodology described by the [American|America] Waterworks Association, AWWA, in [it's|its] manual of Water Supply Practices, M‑1."
So based on ‑‑
MAYOR KNUDSEN: But he's just saying it's consistent, but it's not directing you how to do it, it's just consistent. That's two different things, no?
THE WITNESS: Well, when you say it's consistent, it implies that there were a set of directives to which you follow.
MAYOR KNUDSEN: Okay.
THE WITNESS: And so, therefore, if you say it's consistent I would think that if I went to the AWWA M‑1 manual I would see those instructions there and believe that you follow them so that they're consistent.
That's how I read it, and I don't know any other way to ‑‑ to look at it, when you say that the allocation factors for shared services is consistent with the M‑1, that tells me that you looked at the M‑1 and you did the calculation according to the M‑1.
MAYOR KNUDSEN: Well, I disagree. It doesn't say that. But let's go on to the next question.
You stated that the weight of the ‑‑ doing the weight vehicle, the allocation based on the weight of the vehicle versus the paperwork, having the detailed paperwork, you made the statement that that outcome was a bad result. Those were your words. So you that it ‑‑ it created a bad result.
So I just wanted to ask, how did you make a determination that that was a bad result based on what information since there was no paperwork to compare it to?
THE WITNESS: I ‑‑ I think the record will show that what I ‑‑ I said is if you do something for ease or efficiency, just because it's easy, if it gives you a bad result, then it doesn't justify. That was basically what I said, and I think the record will show that that's what I said. I did not say that what you suggested or was a bad result.
MAYOR KNUDSEN: Okay. So I'll stand corrected then, but if it's a bad ‑‑ you said if it's a bad result, but actually we don't know that it was a bad result, do we?
THE WITNESS: I agree.
But, basically, when the question was asked to Ms. Sherwood, I ‑‑ I think she answered in a way that implied that [it's|its] okay to do something just because it's efficient and it's easy. And that is something that given it thought I thought I needed to say something to address it. Just because it's easy doesn't mean its right, and that's ‑‑ that's the point I wanted to make.
MAYOR KNUDSEN: But just because it's efficient doesn't mean it's wrong either. There's no way to make that determination.
THE WITNESS: I agree.
MAYOR KNUDSEN: Okay.
THE WITNESS: And so that's why the best way to do it is to keep records so that we know exactly what it costs to service the water utility vehicle. And we know what it costs to service the police department or parks and recreation. That's why we need a better system than what we have now.
MAYOR KNUDSEN: Right. And we wouldn't dispute that, but this is in the absence of those records. Obviously you conceded that. Okay.
THE WITNESS: Yes.
And, again, I looked at it because consider the fact that if I wrote a report and said, well, the use of weight system will find nothing wrong with it, someone five years down the road, said, well, Morgan looked at it and he said it was fine. So we continued it. This is a problem.
MAYOR KNUDSEN: Okay. We weren't here then so ‑‑ none of [United States|us]. Okay. We're here now, though.
All right. Any ‑‑ do you have other questions? Anybody over here? Okay. You. Matt?
MR. ROGERS: No.
MAYOR PACKER: Is it too late if I ‑‑ I'm sorry.
MR. ROGERS: Yes, it is.
We're going to move on. We're going to allow Mr. Fiorenzo to do what he...
MR. FIORENZO: Well, I have a follow‑up question ‑‑
MR. ROGERS: Redirect.
MR. FIORENZO: ‑‑ for the witness, based on some of the questions from the council members I want to clarify.
MR. ROGERS: I think the council is done, so do you have any other follow‑up questions?
MR. FIORENZO: Yes, I do. Based on a couple of these questions.
MR. ROGERS: Go ahead.
REDIRECT EXAMINATION
BY MR. FIORENZO:
Q. The Deputy Mayor asked you what I thought was a very interesting question and I would just like to follow up on it that had to do with capital expenditures. And he noted that there were, in 2016, when the budget ‑‑ the capital items went up to $1.8 million, he talked about how a certain plan was apparently put into place to do things on an actual basis.
So when it comes to ratemaking, however, when a rate is to be fixed, so, for example, here we're examining rate increases that went into effect, ordinance adopted in December '09, effective January 2010.
When one is analyzing a rate increase for 2010 in the end of '09, you're required to analyze and evaluate the capital expenditures that existed at that time; correct?
A. Yes.
Q. And there is a budget that is prepared that sets forth an expression of what the governing body believes are the capital expenditures they require for the next coming budget year, correct?
A. Correct.
Q. In fact, in each successive year, so when we go to 2010, when they adopted an ordinance for '11, 5 percent increase, they would then, as a matter of ratemaking, be required to take a look at the budget, which includes the capital expenditures determined by the governing body that you would need it in 2010; correct?
A. Correct.
Q. Okay. So ‑‑ and, finally, when they adopted the ordinance in 2012, another 5 percent rate increase, which is the subject of this dispute, they would have looked at the information and the data that existed with respect to 2011, and, once again, it was a budget which set forth the amount of the capital expenditures in that year that the governing body determined, based upon their analysis, their discussion, what should be included in the water utility budget, what was needed; correct?
A. Correct.
Q. So now we're talking about, in '09 for the budget there was 75,000; in the 2010 budget there was $100,000.00 including the budget for capital improvements; in 2011, $125,000.00; and in 2012, $200,000.00.
So if we assume, sir, that the governing body knew what it was doing when they made the determination as a policy standpoint that they were going to allocate capital expenditures of those amounts of those budget years, when we're looking at the propriety of the rate increases, we don't look at 2016 if they decide four years later that they're now going to get a new capital improvement plan, we look at the facts in the ground that existed at the time they adopted the ordinance; isn't that true?
A. That's true.
Q. Okay. So all this talk and discussion about what happened in '16 seems to me, although it's a fascinating issue, but if we focus on what the issue is, and focus on what the ratemaking is about, which is what happens at the appropriate time when you're evaluating the rate increase, none of that is relevant, is it, because it didn't exist?
A. Correct.
Q. So if they decided years later that we're going to spend $10 million or $20 million in a capital plan in 2016, they have every right to do that. Let's assume they did that.
So at that point if they now decide to include that amount in the budget, if it's 1.8 or it's 2 million or whatever, they have a right at that point in time then to determine if they need to increase the rates to meet that expenditure, correct?
A. Correct.
Q. But you don't go back and assume back and assume factors $1.8 million when you're supposed to be evaluating rates based on the facts in '09, '10, '11 and '12; do you, sir?
A. No, you don't.
Q. And then finally, finally, Mr. Voigt ‑‑ Councilman Voigt, asked you a series of questions and I just want to give you the opportunity now to make the record clear.
Councilman Voigt asked you whether this opinion by the court anywhere said that there has to be a refund. He said there's nowhere in there for a refund.
Remember him telling you that?
A. Yes.
Q. Okay. Well, on the top of page 95 of that very opinion it states, and I quote:
"The court finds the Plaintiffs are entitled to a refund for amounts inappropriately charged under the rate increases based upon the improper indirect cost allocation."
So, in fact, this opinion does direct the very question of the refund you were questioned about, doesn't it?
A. Yes.
MS. MAILANDER: Mr. Fiorenzo, could you stay at the microphone, because we're not picking you up for the audio.
Thank you.
MR. FIORENZO: And ‑‑ and ‑‑ I'm sorry. You're right.
BY MR. FIORENZO:
Q. And on that same topic, Councilman Voigt asked you about the testimony of Ms. Chen.
And, in fact, the court made a finding, a finding that, "this court directs an accounting for the inappropriately allocated insurance costs," because Ms. Chen testified at the trial that there was millions of dollars in overcharges in the health insurance costs from 2005 through 2009?
And, in fact, you put it in the footnote in your report, don't you?
A. Yes.
MR. FIORENZO: So I hope, perhaps that clarifies the record for the benefit of the Councilman.
That's all I have.
DEPUTY MAYOR SEDON: Well, I would just like to say ‑‑ I would just like to make one clarification, because Mr. Fiorenzo, you're the one who brought it up.
MR. FIORENZO: Sure.
DEPUTY MAYOR SEDON: You brought up the capital expenditures for '09 to '12, and you said you know, through questioning said that it was an average of about $125,000.oo.
So my point was in bringing it ‑‑ and then you said all of the sudden in 2016 it goes up to $1.8 million, like, oh, my gosh.
Well, my point is, it ‑‑ because the allocation was so low in the prior years that we had to come up with a plan to catch up, and that's exactly what we did.
So I just wanted to clarify that point.
MR. FIORENZO: Well, sir, respectfully, the facts in the ground belie that. The facts in the ground show that the surplus of the utility rose to about $11 million from the period of '09 through 2015. There was so much money in '15 that at that point in time, there was $785,000.00 transferred out in the surplus to the operating budget, and this $1.8 million, it seemed like it was flush with cash.
So when you say you didn't have enough money, there was plenty of money in prior years. You could have easily spent 1.8 million. Easily.
DEPUTY MAYOR SEDON: No, no, I didn't ‑‑ I didn't ‑‑ I didn't say there wasn't enough money in prior years.
I said enough money wasn't allocated in prior years. They should have allocated more. That ‑‑ that was my point.
And then we said we have to keep the utility ‑‑ we have to have a safe, quality product. And we have to update the utility, which explains the big increase in '16.
MR. ROGERS: Right.
DEPUTY MAYOR SEDON: Look at '17, '18, '19. '20. It's all ‑‑
MR. FIORENZO: Makes perfect sense. So in '16 ‑‑
DEPUTY MAYOR SEDON: Exactly.
MR. FIORENZO: ‑‑ you have a right to say we need more money, let's put it in the budget. Maybe we need to raise the rates.
DEPUTY MAYOR SEDON: That's exactly what I'm saying.
MR. FIORENZO: That would have been the appropriate point to do that, I quite agree.
COUNCILMAN VOIGT: So, Mr. Fiorenzo, I just want to add a couple of things to what you just said.
I'm having a problem understanding why we're looking at prior to 2010, when we're supposed to be looking at rate setting ordinance and ‑‑
MR. ROGERS: I think we're dealing with ‑‑
COUNCILMAN VOIGT: And ‑‑ ‑ and ‑‑
MR. ROGERS: ‑‑ with all due respect, Jeff, I think we're dealing with questions of this ‑‑ I just don't ‑‑ we're going to get in a colloquy right now between you and Mr. Fiorenzo with regard to this issue, and it's an argument ‑‑
MR. FIORENZO: [I Mean|I am] happy to address any question you have, sir.
COUNCILMAN VOIGT: But ‑‑ but ‑‑
MR. ROGERS: It's a legal argument, really, about what the ‑‑
COUNCILMAN VOIGT: I know, but why are we dealing with a legal argument? We're supposed to be looking at a rate setting for 2010 to 2012?
MR. ROGERS: Well, that's ‑‑
COUNCILMAN VOIGT: And we're ‑‑ we're bitching about health insurance from 2004 to 2000 ‑‑ it's irrelevant to the rate setting here. Completely irrelevant.
MR. FIORENZO: Well, sir, unfortunately you're reading the decision way too narrowly, because the judge went beyond that. And the judge ordered a variety of things, including accounting and including the refund.
COUNCILMAN VOIGT: We're looking at an ordinance on rate setting. We're not looking at the ordinance on what health insurance was from 2004 to 2009. It's irrelevant.
MR. FIORENZO: It's not irrelevant because Woods addressed it in his report.
MR. ROGERS: If I may, the council ‑‑ the council gets to hear the testimony that's before it with regard to setting the rates for the years that are in question on these ordinance.
You determine what's relevant and what's not relevant. What's competent and what's not competent. And you make your decision.
So to have a discussion about it, you're not going to convince anybody else of what that is. But I think ‑‑
COUNCILMAN VOIGT: I just want it on the record that I don't know why we're even looking at it.
MR. ROGERS: All right. But they're looking at it, so you decide whether or not, how you value that in your understanding of what should be done with this ordinance.
And that's what happens.
COUNCILMAN VOIGT: Got it.
MR. FIORENZO: The judge ordered us to look at it. That's why we're looking at it.
MR. ROGERS: All right. Anything further of Mr. Morgan?
MR. FIORENZO: I have no further questions for either witness.
MR. ROGERS: Okay. Let's get into the cross‑examination of Howard Woods because we promised that would happen.
MR. FIORENZO: I need a couple minutes to shift gears.
By the way, just for the record, it's now 11:07.
MAYOR KNUDSEN: Thank you, Mr. Morgan.
MR. FIORENZO: And my examination of the witness is going to be easily a few hours. I just want to let you know that because there will be cross‑examination. It seems silly to me to begin it now, given the fact that we're going to go until the wee hours of the morning.
We've set aside Wednesday. It would seem to me it would be logical and rational to conclude at now 11:08, have the witness back, since he was going to be back here Wednesday night. And we can complete this. It would make a lot more sense.
MR. ROGERS: We're going ‑‑ we're going to go ahead as fast and as far as we can tonight.
MR. FIORENZO: Okay. We're going to be here to the wee hours.
MR. ROGERS: Okay. We had planned on it with the first place.
MR. FIORENZO: Did you? Well, see, that's curious because you told me you set aside Wednesday night.
MR. ROGERS: We did but we had planned ‑‑
MR. FIORENZO: I'm wondering what that was for.
MR. ROGERS: We did. We planned on being here ‑‑
MALE AUDIENCE MEMBER: It's already after 11 o'clock.
MAYOR KNUDSEN: All right. We're going to ‑‑ we are ‑‑ we are going to continue with the cross‑examination of Mr. Woods.
MR. FIORENZO: How late are we going to continue? How long are we going to continue?
MR. ROGERS: I don't know. We'll see how long you take, Joe.
MR. FIORENZO: How long are we going to here.
MR. ROGERS: We have no ‑‑ we are not ‑‑
MAYOR KNUDSEN: We'll ‑‑
MR. ROGERS: ‑‑ determining right now.
MR. FIORENZO: So you want to stay here all night?
MR. ROGERS: We could stay here past midnight.
MR. FIORENZO: Well, this ‑‑ I've just got to say this because I've never experienced this, but this is ‑‑ this case is unique, I guess.
Here we are at a public hearing and you have members of the public here. [It's|Its] 11:08.
MR. ROGERS: Yes.
MR. FIORENZO: You set aside Wednesday night to complete this, understanding that we may need that extra time, which we plainly do.
And we will not be finished with this gentleman for hours.
MR. ROGERS: Why don't you proceed?
MR. FIORENZO: Probably after 1:00, maybe 1:30. Maybe later, I don't know.
MR. ROGERS: Why don't you start and we'll get ‑‑ we'll figure it out as we go along?
MR. FIORENZO: So ‑‑ let me finish.
MAYOR KNUDSEN: Wait ‑‑
MR. ROGERS: You're just wasting time right now, Mr. Fiorenzo.
MR. FIORENZO: I'm directing ‑‑
MR. ROGERS: Let's go.
MR. FIORENZO: I'm directing to the Mayor and the Members of the Council as ‑‑ as a courtesy ‑‑ forget about me. You have all these people here.
[It's|Its] fundamentally unfair to make them have to stay here to 1:00, 2:00 in the morning. I don't know why you would do that.
MAYOR KNUDSEN: So I'll remind you that Mr. Woods was here on three previous evenings and he was ready, willing and able to be cross‑examined on any one of those nights.
And so this village council stayed and waited and Mr. Woods was here. He was available.
So what we're going to do now is we're going to continue. I appreciate that the public is here. It's important for the public to be here, to be participating. They've been invited to ask questions and to comment.
But Mr. Woods has been here several nights and you were available ‑‑ I guess you weren't available to question him then. So ‑‑
MR. FIORENZO: No, no, no. That's not the case at all.
So let's make the record straight on this. Okay? I had a conversation with your counsel ‑‑
MAYOR KNUDSEN: Okay.
MR. FIORENZO: ‑‑ and we agreed that because our expert report was not completed, it would be a waste of time for me to conduct my cross‑examination.
MR. ROGERS: Not a all.
MR. FIORENZO: So that is why I didn't appear on the prior occasions.
MAYOR KNUDSEN: If you're ‑‑
MR. ROGERS: Not at all. If there was ever an agreement on that, that would have been placed in writing. There was no agreement on that.
MR. FIORENZO: Oh, stop it. Stop it.
MAYOR KNUDSEN: Just for the record, your cross‑examining Mr. Woods on his report, not on the rebuttal report.
So he was [hear|here] and he had his report, so I am assuming that that's what you were ‑‑
MR. ROGERS: That's exactly what was going on.
Let's start to cross‑examine him on.
MAYOR KNUDSEN: ‑‑ what was going on.
MR. ROGERS: Let's start the cross‑examination.
MAYOR KNUDSEN: So I don't understand. So why don't we continue because the clock is ticking.
MR. FIORENZO: Okay. For the record then, it's 11:11.
What you are doing here is fundamentally unfair to the public, it's fundamentally unfair to everyone involved in this process.
And I can only conclude ‑‑ since the beginning of the hearing and today I was advised we set aside Wednesday night, I can only conclude you're doing this to make people go home or hope that we shorten the proceeding. I don't know.
But there's no rational reason or justification.
With that, I'll go. That's fine. I need five minutes to set up and we'll be ready.
(Whereupon, a short recess is taken.)
MS. MAILANDER: Quick roll call.
Hache?
COUNCILMAN HACHE: Here.
MS. MAILANDER: Sedon?
DEPUTY MAYOR SEDON: Here.
MS. MAILANDER: Voigt?
COUNCILMAN VOIGT: Here.
MS. MAILANDER: Walsh?
COUNCILWOMAN WALSH: Yes.
MS. MAILANDER: And, Knudsen?
MAYOR KNUDSEN: Here.
MS. MAILANDER: Okay.
MR. FIORENZO: Is the witness sworn?
MR. ROGERS: No, you can swear him in. Well, actually, he continues to be sworn in.
MR. FIORENZO: All right. I just got to make sure.
He continues to be sworn? Okay.
7H O W A R D J. W O O D S, J R,
Having been previously sworn, continues to testify as follows:
CROSS EXAMINATION
BY MR. FIORENZO:
Q. Good evening, Mr. Woods.
A. Good evening.
Q. Almost morning.
We finally get a chance to chat.
So you available Wednesday night?
A. No, I'm not.
(Audience Outburst.)
MR. FIORENZO: Nice.
MALE AUDIENCE MEMBER: Should have gone first.
MR. FIORENZO: That's why I should have cross‑examined first, but that's another story.
BY MR. FIORENZO:
Q. So you prepared, as I understand it, sir, two reports; your November 17, 2017, rate study, which covered certain years, 2010 through 2012; correct?
A. Yes. That's right.
Q. And then you prepared a second report December 29, 2017, which covered 2013 to 2016; correct?
A. Yes.
Q. And these two documents embody the scope of your work?
A. Yes.
Q. Correct?
And in these, you set forth opinions and conclusions regarding an allocation formula is one of the things you addressed, correct?
A. That was part of the work that I did.
Q. Part of it, right.
And you also render certain opinions concerning whether the governing body should go back to engage in retroactive ratemaking.
Do you recall that?
A. I do.
Q. Am I correct in understanding, sir, that you did not, at any time, do an analysis of the allocation of any costs or expenses prior to 2009; true?
A. I looked at the actual expenses that were recorded for 2009, in the effort that I undertook to establish a normalized level of actual expenses, so I included 2009, '10, '11 and '12.
Q. Sir, I got that. I'm asking, you didn't look at prior to '09, correct?
A. No, no. The first rate resolution that I was asked to look at was the resolution for the 2010 rate.
Q. Well, so anything that occurred prior to '09, do you know when the last rate increase was prior to this ‑‑ to 2010?
A. I don't. I don't.
Q. So the scope of your assignment then was limited to evaluation of the propriety of the rate increases in 2010, 2011, 2012, correct?
A. That's right.
Q. So one of the things that you did not do is you did not undertake any efforts to provide an accounting with respect to healthcare costs that were allocated to the water utility prior to 2010, correct?
A. That's correct.
Q. And as I understand it, you did not look at ‑‑ did you, in gathering the facts here, read any of the testimony of any of the members of the Village of Ridgewood, Mr. Moritz, or any of the other people who work for the water utility?
Did you read any of those?
A. I did not.
Q. So in gathering facts here would you agree that in reaching conclusions concerning the allocation methodology, that the allocation methodology is based upon an evaluation of the underlying facts regarding the particular expenses; true?
A. Yes.
Q. So that, for example, with respect to the [employees|please|police] charge, which you provide allocation an for; you do that, correct?
A. I did.
Q. And you provided an allocation of, I think it was allocation 13?
A. Allocation factor 13 is for administrative and general expenses.
Q. What was the allocation factor you used for police?
A. Seven.
Q. Seven? And what was that based upon?
A. The allocation factor 7 is ‑‑ is based on relative property values. I looked at the ‑‑
Q. I'm sorry, give me that again. Relative property values?
A. Right. The ‑‑
Q. So in order to determine how much money you're going to charge the water utility and its ratepayers, rather than evaluate the actual work they did, you looked at the relative value of the property that was owned by the Village of Ridgewood compared to the assets of the water utility; is that right?
A. The ‑‑ the methodology that I used for allocation factor 7 and the same methodology that I used for other allocation factors, is to determine a rational way to allocate an expense for which there is no detailed accounting for.
You can't go back in and look at the [employees|please|police] records and identify, for example, a specific cost associated with the water utility. Yet they provide ‑‑
Q. You could interview the police chief, can't you?
A. Yet they provide services to the water utility. In addition ‑‑
Q. Did you interview the police chief?
A. In addition ‑‑
Q. Can you interview the police chief?
MR. ROGERS: Well, let him finish his answer.
THE WITNESS: Let me finish my answer.
MS. MAILANDER: I need you to stand by the microphone, [employees|please|police].
Thank you.
BY MR. FIORENZO:
Q. Sir, I want to try to get out of here some time tonight.
A. In ‑‑ in developing a cost allocation for a functional cost that doesn't have an accounting system you need to develop some method of allocating that cost.
Q. You told me that.
A. For the emergency services, what I chose to do, to develop that allocation was look at the relative value of the ‑‑ the facilities that were being protected by those service functions.
Q. Right. So let's just be clear what you're saying.
I'm asking about the police?
A. Okay.
Q. The police were the subject of a lot of debate and discussion. You read the court's opinion, correct?
A. I did.
Q. Okay. Did you have an opportunity to read either the trial testimony or the deposition testimony of Mr. Moritz, the director of the water utility, who described the nature of the services provided by the police ‑‑
A. I did not.
Q. ‑‑ to the water utility?
Did you interview anyone from the police department to find out the actual amount of activity they engaged in relating to the water utility?
A. No. I interviewed the personnel from the water utility.
Q. Okay. Right. So in reviewing your report ‑‑ do you have your report in front of you?
A. I do.
Q. Okay. The first ‑‑ the first report you prepared, I was looking carefully to try to find out what the facts were that you discovered from your due diligence in your investigation regarding the work that the police department did for the water utility.
You would agree with me that's a relevant inquiry, correct?
A. It is.
Q. So in devising an allocation method to charge the water ratepayers for work of the [employees|please|police] department of Ridgewood, you'd want to know what they did for the water utility, correct?
A. Yes.
Q. You'd want to know how much time they spent in a given day, correct?
A. If that were possible to find in the records I would have wanted to know that. But it's not ‑‑
Q. Forget about the records ‑‑
A. ‑‑ in the records.
Q. ‑‑ you could interview people in the police department. You could have read Mr. Moritz's deposition. You could have read Mr. Moritz's trial testimony. You didn't do any of that stuff, did you?
A. What I did do is I ‑‑
Q. No, no. I'm asking you ‑‑
A. What I did do ‑‑
Q. I'm asking you what ‑‑ whether you did those things. Did you?
A. I did not.
Q. Okay.
A. What I did do is I interviewed the current director of the water utility.
Q. Yeah. Okay. So in your report then you talked about a lot of things, and as to the [employees|please|police] you say, and this is on the top of page 16 of your report ‑‑ because I was trying to find, desperately, in your report what the facts were that led you to conclude that you can take the value of the property ‑‑ the value of the property of the Village of Ridgewood and then you compare it to the assets of the water utility, and then that somehow would be a rational way of determining how much to charge the ratepayers for the [employees|please|police] services.
So what I found was on page 16 of your report at the top of the page where you say:
"In addition to these expenses, police, fire, and emergency services have a role in protecting water utility assets and personnel."
Now, is there any other statement anywhere in your report where you describe the factual basis for the allocation of these monies to the police department?
A. No. That's the discussion right here.
Q. Okay. I thought so.
A. Yes.
Q. So if I understand correctly, you apparently spoke to someone and they told you that all the police department of Ridgewood does is they provide, they have what they have a "role in protecting the water utility assets and personnel," right?
A. They do.
Q. And is that role meaning that they go out and they patrol to make sure those assets are safe?
A. Yes.
Q. Okay. And do they do that as to every other business in the community?
A. They do.
Q. And do you know if, for example, in Wyckoff, Glen Rock and Ridgewood ‑‑ and Midland Park, do they have police departments, do you know?
A. They do.
Q. And do you know if there are assets in those communities that are owned by Ridgewood Water utility?
A. There are.
Q. And do you know if those police departments, just like their counterparts in Ridgewood, patrol the wells and address issues and questions that arise concerning any property owner, including the Village of Ridgewood; do you know if they do that?
A. I believe they do.
Q. Okay.
A. And I believe that's why the Village of Ridgewood pays property taxes to those communities.
Q. Right, right. Yeah, that's why. That is why, I guess.
But beyond that, do you know whether there is a difference between the general patrol duties that the Ridgewood Police Department performs including looking at the assets of the water utility and the similar function performed by the counterpart municipalities; do you know if there's any difference?
A. I don't believe there's a difference, except for the fact of how that cost is paid for.
Q. Right. Now, with respect to ‑‑ you don't mention anything about how the cost is paid for in the report, do you?
A. Well, taxes are part of the revenue requirements ‑‑
Q. Do you mention that in your report?
A. I do.
MR. ROGERS: Let him finish his answer.
THE WITNESS: In fact ‑‑
BY MR. FIORENZO:
Q. Do you mention that in your report, is my only question.
A. Yes.
Q. Okay. Show me where.
A. Taxes ‑‑
Q. Show me where you mention in your report that as to this patrolling function, it in some way is related to the payment of taxes.
A. Property ‑‑
Q. Can you do that?
A. No. I include that ‑‑
Q. I didn't think so.
A. I include that as part of the revenue requirement in the appendices where I calculated the total cost of the water utility.
Q. So when you ‑‑ who was it you spoke to about the police department?
A. The director of the water utility.
Q. Who is that?
A. Rich Calbi.
Q. Is he here?
A. Yes, he is.
Q. When you spoke to him, did you make notes?
A. Some, yes.
Q. Okay. And did you attempt to memorialize in your notes what he told you?
A. If I thought it was relevant to the calculations that I needed to do, I did.
Q. Okay. So let me show you ‑‑
MR. FIORENZO: And actually let me mark your notes.
What exhibit are we up to?
THE COURT REPORTER: This would be O‑4.
(Whereupon, Handwritten Notes are received and marked as Exhibit O‑4 for identification.)
BY MR. FIORENZO:
Q. So your notes, sir, are O‑4. And I know I am away from the mic, but ‑‑ so I'm going to hand it to you in a moment.
O‑4 ‑‑
A. Thanks.
Q. You'll turn to the third page of O‑4. There are some notes you write, two‑thirds of the way down the page, it says, "Police?"
Do you see that?
A. Yes.
Q. Okay. So you write, based on your conservation with the gentleman from the water utility, trying to gather facts so you can understand what the police department does so you can try to be ‑‑ come up with a fair allocation; that's what you're trying to do, right?
A. Right.
Q. Okay. So in doing that you write in your notes, quote, "Direct" ‑‑ I'm sorry, is that "traffic control"?
A. Traffic control, yes.
Q. Is ‑‑
A. A direct cost.
Q. A direct cost. Right.
And that means it's being charged directly to the water utility, correct?
A. What that function is, is a function ‑‑
Q. Is that correct?
A. No.
Q. It's not being charged directly?
A. Traffic control is an expense that's incurred by the water utility for construction projects wherein police officers provide traffic control.
Q. So that means the police are performing this function and there's a direct cost, direct charge to the water utility because they did provide a service to the water utility, right?
A. And that only includes a portion of the cost for the service provided by the police department.
Q. Now, if you could just answer my question.
MR. ROGERS: Let him answer the question.
BY MR. FIORENZO:
Q. If you can answer my question, and my question simply is this: When they told you that when they performed the specific service to the water utility, in this instance doing a traffic control in connection with a construction project, you noted that here because they were ‑‑ there was a direct charge to the water utility for that, right?
A. And just below that ‑‑
Q. Is that a yes?
A. And just below that ‑‑ yes. And just below that I noted that they also ‑‑
Q. I didn't ask about all of that, did I?
A. ‑‑ provide security issues, consulting to the water utility, and that's not a direct charge.
Q. Did I ask about that?
MR. NORTHGRAVE: But this Council needs a record upon which to make a decision.
MR. FIORENZO: This is cross‑examination. Stop.
MR. NORTHGRAVE: No, no, no.
MR. FIORENZO: I have a right to get answers to my questions.
MR. NORTHGRAVE: This is not ‑‑ sir, you're not going to yell over me. This ‑‑
MR. FIORENZO: Stop.
MR. NORTHGRAVE: I am not going to stop. This council has a right to understand what this witness has to say.
And if he needs to give a complete answer, he'll give a complete answer.
MR. FIORENZO: Yes, the way they get a record ‑‑
THE COURT REPORTER: One at a time.
MR. NORTHGRAVE: And if you want to do this in front of a jury or in front of a judge you're entitled to.
MR. FIORENZO: But to get to the truth is by having him answer my question.
MR. NORTHGRAVE: No, you're not ‑‑
MAYOR KNUDSEN: All right.
MR. FIORENZO: That's what cross‑examination is.
MR. NORTHGRAVE: Which is what you did.
MAYOR KNUDSEN: So‑‑ so, let me just ‑‑ let me just stop both of you. If, in fact, the notes continues to say something else beyond that, perhaps it would be prudent for us to have a copies of the note.
MR. FIORENZO: I dont have an extra copy.
MAYOR KNUDSEN: Okay.
MR. FIORENZO: You can have that one. I don't have an extra copy, I apologize. You can have that one. But that's my next question.
MS. MAILANDER: Please go back to the microphone. Please.
MAYOR KNUDSEN: Stay by ‑‑ well, stay by the microphone. Don't want to get you in trouble over that microphone now.
MR. FIORENZO: Okay.
MAYOR KNUDSEN: So we're going to just ‑‑
MR. FIORENZO: Okay. I promise you, we're going to get to the next note. Okay. If you can just stick me. I'm trying to take this a piece at a time.
BY MR. FIORENZO:
Q. Okay. The first comment you made is when you were told that when it was a direct project for the water utility and they had to go out and do traffic control, there's a direct charge, right?
A. That's correct.
Q. Okay. And then in addition to that, you have a note. Read the note underneath that into the record. What does it say, for the benefit of the Council?
A. "Security issues consulting."
Q. Okay. "Security issues consulting."
So, did you ask this gentleman what the security issue was they consulted on?
A. After ‑‑ after 9/11, all water utilities were required to provide a vulnerability or security assessment, and the police department in the Village of Ridgewood provides consulting to the water utility to help them with those security ‑‑
Q. Well, this is actually what they ‑‑
A. ‑‑ issues.
Q. They do that to everybody. You're aware of that, right?
A. Well, there's a specific ‑‑
Q. Are you aware of that ‑‑
MR. ROGERS: Let him finish.
THE COURT REPORTER: I'm sorry. One at a time, please.
MR. ROGERS: Let him finish please.
BY MR. FIORENZO:
Q. Are you aware of that, that they were required to do a comprehensive review of that for the entire community?
A. I am only aware of what water utilities were required to do after 9/11.
Q. I'm sorry?
A. I'm only aware of what the water utilities were required to do after 9/11.
Q. Okay. So when did they do that report after 9/11?
A. It's continuing.
Q. When did they do it?
A. It's ongoing.
Q. So have you seen this report?
A. No, they're ‑‑
Q. Did you ask to see it?
A. No, because they're ‑‑
Q. Do you know who prepared it?
A. Excuse me?
Q. Do you know who prepared it?
A. I do not.
Q. Do you know how long it is?
A. I don't.
Q. Do you know how much time it took for them to prepare it?
A. No.
Q. You don't know any of those things?
A. No.
Q. You weren't curious about that?
A. No.
Q. Okay. So do you know then ‑‑ so the only thing you mention in your notes then are those two items police; they do traffic control and we charge them direct. Makes sense. Easy.
And then when they did this consulting for not ‑‑ following 9/11, they did something, you don't know how much time they spent, you don't know how often they did it, right?
A. That's correct.
Q. Okay.
A. And that's why I included that in the ‑‑ in the formula chart.
Q. So now getting back to my question about the police, given that your report says that all the police do is to provide, "A role in protecting the water utility assets and personnel". And your notes would say when they did something specific for the water utility they got charged for the construction stuff, and the only other thing they did was some consulting?
A. My notes don't ‑‑
Q. You then ‑‑
A. My notes ‑‑
Q. You then concluded from that information, and you didn't know how much time on an annual basis they spent doing any water utility work; correct, you don't know that?
A. Because there's no record for that.
Q. Exactly. There's no records. And you didn't bother to speak to the people who were in charge of the police department. Maybe you could have gotten more information, but you didn't do that, correct?
A. I spoke to the director of the water utility.
Q. Well, I know that. But you didn't talk to the people who actually did the work, right?
A. I talked to the person who did the ‑‑
Q. You told me that now twice, but you didn't talk to the people who actually did the work, meaning the police department personnel, correct?
A. I did not interview the police department.
Q. Okay. And so as a result of that, you concluded that you can allocate money to the water utility for the police department based upon those facts, based upon a comparison of the value of the real estate versus comparison of the value of the water utility assets; correct?
A. I did.
Q. And how much money is that?
A. It's less than $100,000.00 a year for the police.
Q. How much? Do you calculate it?
A. Well ‑‑ I did. Police ‑‑
Q. Show us.
A. Police ‑‑
Q. Tell me what it is?
A. Police, fire and emergency services collectively ‑‑
Q. No, police. Let's take the police.
A. I used the same allocation.
Q. No, no, no, no.
Can you ‑‑ can you tell us? Are you able to tell us what the amount of money is allocated to the police; not the others, just the police?
A. I can do it as a transcript request, but it's in the ‑‑ it's in the data. It's in the appendices.
Q. Sir, you didn't even break that out, right?
A. No. I lumped it together with the fire and emergency services.
Q. You lumped it all together, right?
A. Right.
Q. Right.
And so even though there was this ‑‑ you've been asked extensively in questions about the police and what they did and about the allocations, you are not able, as you sit here today, to tell us how much money that you allocated to the police based upon them doing this consulting and doing their patrol activities to protect the assets?
A. Along with ‑‑ along with the fire and emergency services the total of that is $100,000.00 ‑‑
Q. No, no, no. I'm not asking you that.
A. ‑‑ a year.
Q. I'll get to those in a minute.
A. Okay.
Q. I'm not asking about fire. I'm not asking about emergency. Just police. You're not able to tell us that, correct?
A. I could break it out for you, but I don't know it off the top of my head.
Q. Could you do that?
A. I could.
Q. How would you go [about|bought] doing that?
A. I'd go through the allocations that are in each of these appendices and I'd add up the lines that are associated with the police.
Q. What appendices?
A. B, C, D and E.
Q. Okay. And you ‑‑ so let's turn to ‑‑ show me an example, just so we have the record clear on this.
What appendix are you looking at?
A. If you look at Appendix D, that's the normalized expenses after credits. In that ‑‑ in that appendix you'd be able to see what the total expenses are.
Q. What page are you on?
A. Starting with B1 and go through, I believe it's 35 pages long.
Q. No, no, no. I am asking you to show me an example of how you would go about ‑‑
A. Oh. Let me go to ‑‑
Q. ‑‑ taking out or allocating the police‑related expenditure.
A. Well, let me go to ‑‑ let me go to Appendix C first. It might be easier to see there.
If you look at Appendix C, page 10, you see the police department budget there.
Q. This is their budget, right?
A. Right. This is based on their ‑‑ well, actually these are the actual expenses of the police department.
Q. Right. Exactly.
A. Right.
Q. So they're actual expenses?
I'm asking you ‑‑
A. Out of ‑‑
Q. ‑‑ if you can show me where we can calculate ‑‑
A. Sure.
Q. ‑‑ what the amount of money is you have allocated to the police department based upon your allocation method.
A. Um‑hmm.
Q. Where?
A. Right here.
If you look at the lines that are indicated that they're police department expenses, not all of them on the page are, but if you look at the lines that are police department expenses, you can see the normalized level of expense after the credits were reversed, the amount that I allocated using Chapter 7 to the general fund.
So for the first line, for example, the actual expenses were $4.9 million‑and‑change. I allocated $4,866,000.00 to the village.
Q. What was the percentage you used in that allocation?
A. .07 percent.
Q. And was that based upon this relative difference in real estate versus asset value?
A. Yes.
Q. Okay. So if we go through this then you say you can total up the amount of money, and you said a moment ago you thought it was under $100,000.00 a year?
A. For the police, fire and emergency services ‑‑
Q. No, no. For police. Police. I'm just talking about police right you.
A. Police then would be a fraction of $100,000.00.
Q. Okay. Do you know how much?
A. No. I didn't add it up.
Q. Did anyone ever ask you to focus solely on the police and allocate that out, because I notice you lumped them all together.
A. I did, because they're all emergency services ‑‑
Q. Well, I know that.
A. ‑‑ and they're all allocated the same way.
Q. You weren't asked to specifically break out and allocate police ‑‑
A. No.
Q. ‑‑ fire and others?
A. No.
Q. Like had been previously done in the prior allocation report?
A. No.
Q. And you're aware that from your review of the judge's decision that at the trial in this matter there was discussion about each of those separate items; police, fire and others?
A. Yes.
Q. Okay. When you did this assignment, did someone tell you, give you the methodology to be used for undertaking this analysis of the allocations?
A. No.
Q. So as to your methodology that you used, you cite in your report the M‑1.
A. Yes.
Q. Right? Principles of water rates, fees and charges.
In your report, first page, you say:
"The methodology used to develop the utility revenue requirement and allocation factors of shared services is consistent with the industry standard methodology described by the [American|America] Waterworks in [it's|its] manual of Water Supply Practices, M‑1, Principles of Water Rates, Fees, Charges."
And then you cited it in your report.
Can you turn and show me where in this manual it provides information on about how to engage in the allocation factors that are found in your report? Show me where that is.
A. M‑1 describes functionally how to do ‑‑
Q. No, just show me. Show me. Just open it up ‑‑ oh, you don't have it.
A. I don't have it.
Q. I'm sorry. Forgive me.
Show me where it is. Show us. We all want to know.
A. Chapter 2.3 talks about operation and maintenance expenses.
Q. No, no, let's go to the page. Go to the page. You're in the index, right?
A. Yes. I just wanted to ‑‑ there's several sections.
Q. Go to the section that you were referring to when you quoted it in your report on page 1 for the proposition that M‑1 was used by you to develop the allocation factors. Show me where it instructs you or gives you guidance about how to develop the "develop the allocation factors."
Show me where?
A. This is a general discussion.
Q. Just show me where.
A. It's a general discussion about the concept of establishing a revenue requirement and that's what I followed.
Q. No, I'm talking about the allocation factors. Does it anywhere in there talk about or speak to how you develop the allocation factors? Show me.
A. If you're asking for an allocation factor like the allocation factor for police, you're not going to find that in this manual.
Q. No, no, I'm asking what you ‑‑ when you told us in your report that that manual, M‑1, has ‑‑ is what you relied upon for ‑‑
A. I did.
Q. ‑‑ for ‑‑ to, quote, "develop," your term, the allocation factors for shared services.
Show me the page where you rely upon for development of the "allocation factors." Because I couldn't find it. Maybe you can help me.
A. On [page|paying] 9, "the development of the utility's revenue requirement is the first analytical step of a comprehensive rate‑setting process."
Q. Well, let me stop you there "the development of the" ‑‑
A. "Utility's revenue requirement."
Q. Revenue requirements. I'm asking about the development of the allocation factors.
A. I'm getting to it.
MR. ROGERS: He's answering your question.
BY MR. FIORENZO:
Q. The revenue requirement has a definition, doesn't it?
A. It does.
Q. What does revenue requirement mean?
A. The total cost of providing a utility service.
Q. So show me where it talks about or gives you an instruction about developing the allocation factors. That's what I want to know. If it's in there or not. As you seemed to indicate in your report.
A. On page 12 you will see the start of a ‑‑ a discussion about the revenue requirement components.
Q. No, no, I'm not interested in the revenue requirements. I'm interested in how the allocation factors were developed ‑‑
MS. MAILANDER: Go back to the microphone.
BY MR. FIORENZO:
Q. I know ‑‑ I know there's a section about revenue requirements.
A. The specific factors are not described in this manual.
Q. Okay. So there is nothing in there that tells you how to develop the allocation factors, is there?
A. There's general discussion that says that an allocation factor for an unallocated expense, one that's not got a direct account to the ‑‑ to the cost of the utility, needs to have some form of rational means of allocating that cost.
Q. Show me where that is. I didn't see it. Maybe you could help us. Educate all of us.
MAYOR KNUDSEN: And while he's looking, I'm going to remind you to please stay by the microphone. We need to pick every ‑‑
MR. FIORENZO: Sorry. It's a bad habit.
MAYOR KNUDSEN: And we want to hear every word you say. You want it memorialized.
MR. FIORENZO: Not too sure about that, but I'll try to stay here.
MAYOR KNUDSEN: Okay. It's all good.
THE WITNESS: On Page 14.
BY MR. FIORENZO:
Q. Okay.
A. "The utility basis for directions for government‑owned utilities. For a government‑owned utility, the total level of annual revenue required may be similar under either the cash‑needs approach or the utility‑based approach?
THE COURT REPORTER: I'm sorry, Mr. Woods, you're speaking way too quickly and much too low.
THE WITNESS: Sorry.
BY MR. FIORENZO:
Q. That doesn't say anything, Mr. Woods, does it, about how you developed the allocation factors?
A. There is no ‑‑
Q. Does it refer to allocations at all?
A. There's no description in this manual that will tell you how to allocate the cost of police, for example.
Q. There is nowhere ‑‑ there is nowhere in the manual where it tells you how to develop the allocation factors; true?
So we can move on?
A. Not true.
Q. Okay. Show me and read into the record where it describes how you develop the allocation factors.
MAYOR KNUDSEN: I'm going to ask you, we have to ‑‑
MR. FIORENZO: I need to see what he's looking at. I'll work on this with him.
THE WITNESS: Okay.
This whole chapter ‑‑
BY MR. FIORENZO:
Q. Yes?
A. ‑‑ talks about allocating revenue requirements to cost components.
Q. Okay.
A. And there's a discussion in here about how to go about doing that by class of service and ‑‑
Q. That's allocating revenue.
A. Revenue requirement.
Q. That's allocating revenue requirements ‑‑
A. Revenue requirements.
Q. ‑‑ and cost analysis. There's nothing ‑‑ I read through it.
A. So the cost ‑‑
Q. You know you can ‑‑ you can show me if I am wrong, but there's nothing in here that tells one how to develop an allocation method for the various component parts referred to in your report for police, for fire, for health, for all of that stuff; there's nowhere in the manual that addresses that. True?
A. That guidance in the manual only suggests that whatever method is used, it needs to provide some rational basis for the allocation of the cost.
Q. Right. And that's what you were going to show me?
A. Right.
Q. Where is that? Read that into the record where it says that. Because like I said, again, I've never seen it.
A. All right.
"The cost incurred in a water utility are generally responsive to the specific service requirements for cost drivers imposed on the system by its customers.
"Each of the various water utility facilities are designed and sized to meet one or more of these cost drivers."
Q. Sir, can we shortcut this? Can we agree, you and I, that there isn't anywhere in M‑1 where it speaks in any way towards ‑‑
MALE AUDIENCE MEMBER: Every time you step away from the microphone we cannot hear you.
BY MR. FIORENZO:
Q. ‑‑ where it speaks in any way towards a standard for determining how to allocate costs in a water utility; can we agree?
A. No. We can't.
Q. Okay. Then read it into the record where it says that you can only do it based upon reasonable costs, there has to be a reasonable basis when you're developing these allocations.
MAYOR KNUDSEN: Okay. So then why don't you just let Mr. Woods look through the book and take his time and find it.
MR. FIORENZO: I've been trying to do it. I just assumed he knew where it was ‑‑
MAYOR KNUDSEN: I don't know how many pages are in that book ‑‑
MR. FIORENZO: ‑‑ because he [cited|sighted] it in his report.
MAYOR KNUDSEN: Well ‑‑
THE WITNESS: On page ‑‑
MR. FIORENZO: I apologize. I just assumed you knew where it was.
MAYOR KNUDSEN: Okay. Let him continue.
THE WITNESS: The concept is in several different locations. Right? So ‑‑
BY MR. FIORENZO:
Q. Well, when you cited it in your report for the proposition that you used it to develop the allocation factors ‑‑
A. I did.
Q. ‑‑ show me the page, line, and read into the record that you relied upon when you made that statement in the report you submitted.
A. On page 39 of the report.
Q. Yes?
A. It says, "Utilities that determine revenue requirements using the cash‑needs approach do so in conjunction with the annual budgetary process. This is the case whether the utility operates as part of a general municipal government or as a separate enterprise.
"The budget sets out the use of funds to pay for capital‑related costs such as principal and interest payments on debt, contributions to specific reserves and a portion of capital replacement and improvement that is cash funded.
"Under this approach, revenue requirements do not include depreciation expense or the return on rate base.
"However, they are often subject to fiscal covenants and targets such as minimum financial ratios. Projections of" ratio ‑‑ "projections of revenue requirements should recognize receipts of contributions from developers or customers, government grants and other non‑utility sources that offset capital needs."
Q. Is that what you relied upon when you told us in your report ‑‑
A. I'm not done.
"It is common practice for utilities to finance a portion of its capital‑related improvement program from annual revenues, sometimes referred to as pay‑go or pay‑go capital funding."
Q. Is that it?
A. That's part of it. No. That's only part of it.
Q. So you told ‑‑ is that ‑‑
MR. ROGERS: Let him finish.
THE WITNESS: You said is that it ‑‑
BY MR. FIORENZO:
Q. ‑‑ what you say supports the language in your report ‑‑
MR. ROGERS: Let him finish his answer.
BY MR. FIORENZO:
Q. ‑‑ that ‑‑ that ‑‑ that the revenue requirements or the allocation factors for shared service, that's how you develop them? That's part of it?
MR. ROGERS: I'm going to interject here.
Mr. Woods, does that ‑‑ is that actually spelled out or is the basically the theory that's presented by M‑1 that directs the way that allocation factors are determined?
They don't say this factor has to be determined. They don't say this factor has to be determined.
But is the theory and the principle in M‑1 that allows you to feel that or opine that the methodology that you used is consistent with the M‑1.
Is that true?
THE WITNESS: This whole manual talks about cost allocations.
BY MR. FIORENZO:
Q. Yes, I know that.
But you cited in your report, and I'm trying to find out ‑‑
A. I cited ‑‑ I cited the manual.
Q. No, hold on.
MR. ROGERS: Well, no, no you don't hold him up. Let him finish answering the question.
BY MR. FIORENZO:
Q. You cited in your report the proposition that you used the methodologies to develop the allocation factors. There's nowhere ‑‑
MR. ROGERS: Don't cut him off. No.
Mr. Woods ‑‑ Mr. Woods ‑‑
MR. FIORENZO: There's no where that ‑‑
MR. ROGERS: ‑‑ go ahead and answer the question you were trying to answer. Go ahead and give the answer you were giving.
MR. FIORENZO: Your attorney is trying to help you so why don't you ‑‑
MR. ROGERS: I'm not his attorney.
MR. FIORENZO: Well, you're acting that way.
MR. ROGERS: No, I'm not. I'm trying to protect the record here for the purpose of the public hearing.
MAYOR KNUDSEN: And we're actually trying to conduct an orderly business, so I'm just going to ask you to step back to the microphone, please step back to the microphone, and please allow Mr. Woods to answer the questions without interrupting him. We need to conduct business in an orderly fashion, please.
Go ahead.
THE WITNESS: M‑1 describes a series of theories of how to allocate costs to develop a revenue requirement.
BY MR. FIORENZO:
Q. Where? Show me.
A. In ‑‑ it's the whole manual.
Q. Where does it say that? Where does it refer to it?
A. It's the whole manual.
Q. Where are you referring to?
A. It's the whole manual.
Q. Oh, the whole manual?
A. Yes.
Q. Oh, okay.
So in that whole manual, aside from generally talking about revenue requirements and the like, can we agree that nowhere in there does it tell you or give instructions or standards as to how to allocate for police?
A. That's correct.
We can agree to that.
Q. And for fire?
A. That's also correct.
Q. For health?
A. Yes. That's correct.
Q. And for ‑‑ in fact, for any of those items that are addressed in your report, M‑1 doesn't give a standard for how to do that, correct?
A. But the guidance that's provided in the report explains how to functionally allocate those costs when there's not a direct accounting system that would allow them to be billed directly to the utility.
Q. But M‑1 doesn't give you a specific standard for how to do that, correct?
A. It only ‑‑ it only indicates that they should be done on some logical basis based on the costs that are being allocated.
Q. So then it's up to you to determine what that logical basis is, right?
A. [Absolute|Absolutely] right.
Q. Because the manual, cited repeatedly, doesn't do that, correct?
A. It only gives ‑‑
Q. So it's up to you?
A. It only gives general guidance to the practitioner to go about doing that.
Q. Right. You say it gives you guidance to be reasonable, right?
A. That's right.
Q. Okay. And so reason is whatever you believe is reasonable, correct?
A. Yes.
Q. Okay. And so now with respect to police, even though you didn't speak to the police department and they did this limited activity described in your notes, you determined that it was reasonable to basically just do this percentage allocation based upon the value of the property, correct?
A. Property that the police were protecting.
Q. Property.
A. Right.
Q. Property that what?
A. Property that the [employees|please|police] are responsible for protecting.
Q. So the value ‑‑ oh, right. So they're responsible for protecting all the property in town, aren't they?
A. That's right.
Q. Okay.
A. That's how I based ‑‑ that's how I developed the allocation factor, right.
Q. So that's why you used all the property?
A. Right.
Q. Okay. And even if ‑‑ and so that's the patrolling function you're talking about, correct?
A. And I also included the ‑‑ the consulting that they do for security impact ‑‑
Q. Right, but I'm ‑‑
A. ‑‑ because there is no way ‑‑ there was no way ‑‑ wait ‑‑ there is no way to allocate that cost directly.
Q. You said ‑‑ you said you used all of the property because they had to patrol all of the property, right?
A. Right.
Q. Okay. Now, with respect to the standards set forth in your report, you speak about a number of different things, and one of those is you acknowledge and you confirm that the direct expenses of the water utility represents 71 to 75 percent of the total cost of operation?
A. Yes. That's right.
Q. So as we're looking at this we know that there are direct costs, and now from the standpoint of operation of the utility, you focused on determining the correct indirect cost allocations; true? That was your assignment.
A. There are a number of shared services that the utility uses and the village uses and those ‑‑
Q. But that was your assignment, right?
A. ‑‑ those costs needed to be allocated ‑‑
Q. Was that your assignment?
A. ‑‑ to develop the full revenue requirement.
Q. Was that your assignment?
A. Yes.
Q. Okay. Thank you.
So your assignment then focused on taking the data you received and coming up with or trying to come up with an indirect cost allocation, correct?
A. What I attempted to do is come up with a revenue requirement for each year that I was asked to review.
Q. So let me ask you about that because you keep using that term, and you know, you're the expert, and none of us here are, so when you say revenue requirement ‑‑
A. Yes.
Q. ‑‑ as I understand that term, from the manual, revenue requirement is simply another way of setting forth what the expenses are that the utility is projected to have in a given year that have to be met, correct?
A. Yes.
Q. So I, as a layperson, think of the revenue requirement as really the expenses. Is that fair?
A. Yes.
Q. The expenses of the water utility?
A. Yes.
Q. Okay. So nomenclature aside, your assignment then was to go back, and the first thing you did was you sought to undertake an analysis of a new allocation method, correct?
A. Yes.
Q. So you knew there was a previous one from back in 2003, right?
A. I knew there was a prior one and I hadn't looked at that.
Q. Turn to page 9. Turn to page 9 in your report.
A. Okay.
Q. So if you are attempting to try to determine a rate increase, do you need to do that and analyze that on a year‑by‑year basis?
A. Yes.
Q. And so what you did here, as I understand it, in 2017 ‑‑ and by the way, when were you retained to do the work?
A. In 2017, in ‑‑ I think it was September.
Q. Okay. So in September of 2017, when you embarked upon this, you knew that you had to go back and take a look at rates and whether a rate could be justified back in 2010, correct?
A. Yes.
Q. '11?
A. Yes.
Q. '12?
A. Yes.
Q. '13?
A. Well, initially I offered a proposal to the village to do 2010, '11 and '12.
And then they asked me to do '13 [threw|through] '17, which I was able to cover in my supplemental report and ‑‑ but not for '17. The '17 data was not available at that point.
Q. So when you do that, you had to undertake that analysis, can we agree that based on the standards, including those set forth in M‑1, that in order to ‑‑ in order to determine whether a rate increase is justified, that you need to examine the state of affairs of the water utility as of the date of the proposed water rate increase, correct?
A. Oh, yeah. Rate setting is always a prospective exercise. You're always looking forward.
Q. Prospective.
A. You're always looking forward.
Q. And in doing that then you basically look at two factors, as I understand it from the trial and your experts, you look at first what the projected expenditures are, correct?
A. That's right.
Q. And then you look at what the projected revenue is, correct?
A. That's right.
Q. And both of those are prospective, correct?
A. That's right.
Q. Now, here you knew and had the benefit of the actual operations; true?
A. Yes.
Q. So this wasn't a traditional ratemaking exercise; can we agree?
A. That's correct.
Q. This was something different because you had the benefit of the actual results of operations, correct?
A. I did.
Q. Whereas if we were to go back in time to 2009 when they were deciding on whether to increase the rates by 21 percent, they would have looked at the state of affairs that existed in '09 projected into '10, correct?
A. And largely they would have looked at their budget for 2010.
Q. Right.
Did you look at that?
A. I did.
Q. Did you look at the costs that were allocated in 2009?
A. I looked at the actual expenses in 2009 through 2012, to develop a normalized level of expense for each of the line items.
Q. And did you ‑‑ well, before normalizing, and by that, that mean you made ‑‑
A. Average it.
Q. ‑‑ you made adjustments?
A. Well, no, no, no, no. A normalized level of expense for that period of time is essentially an arithmetic average.
I did make adjustments to develop the cost allocation factors, and in doing that what I did is I first reversed all of the allocations that were done by the village. So that I ended up with a cost center‑based budget that showed total expenses incurred by the village, total direct expenses incurred by the parking authority, and total expenses incurred by the water utility.
And from there, I developed the allocation factors.
Q. Yes, I know. I know.
So page 4 of your report, the revenue requirement, take a look at that, [employees|please|police].
Do you agree with me that the costs to operate the utility are going to vary over time?
A. What are you citing to on page 4?
Q. Page 4 under revenue requirement. The second and third paragraph.
Costs vary over time, correct?
A. I'm still not up to where you ‑‑
Q. Do the costs vary over time?
A. Yes, they do.
Q. Okay. And in the first paragraph under revenue requirement, you indicate that water utilities ‑‑
A. Are you ‑‑ are you on page 4 of my report?
MR. ROGERS: I don't know if you're on the right report.
MR. FIORENZO: What? I'm sorry?
THE WITNESS: Are you on page 4 of my report?
BY MR. FIORENZO:
Q. It's at paragraph 4, it's on page 9.
A. Oh, page 9?
Q. Revenue requirement. Page 9, paragraph 4.
MR. ROGERS: Page 9, oh.
MR. FIORENZO: I'm sorry.
BY MR. FIORENZO:
Q. You ‑‑ you state in ‑‑ under number 4, first paragraph that:
"Water utilities, like Ridgewood, should be self‑sustaining entity. The costs of operating a utility includes the cost of labor and operating expenses," et cetera, you provide to the water service.
A. Yes.
Q. So by "self‑sustaining" you mean that expenses have to at least [meat|meet] the operating costs, correct?
A. Well, the revenues have to meet the operating cost.
Q. The revenues have to meet the operating cost.
A. Right.
Q. And to the extent that there is no deficit in operation, and it does meet its expenses and is self‑sustaining, can we agree that generally, under these standards, there is no basis for a rate increase?
A. No. If there ‑‑
Q. Well, that's what you say in paragraph 4.
A. If the ‑‑ if the village or any other utility, whether [it's|its] ‑‑ like, I mentioned Suez New Jersey here, if it's another utility, a lot of this is prospective. They're looking at what their budget is for the coming year and determining whether or not they need a rate increase to cover the expenses that they expect to incur in that year.
Q. Are you familiar with what the statutory standards are in New Jersey for fixing rates?
A. Yes.
Q. What are they?
A. Well, for ‑‑ for municipal systems they're ‑‑ that are systems that are governed by the Board of Public Utilities, they're in Title 48.
Q. No, no. Is there ‑‑ are there statutory provisions that govern and set the standards of when one is entitled to have a rate increase?
A. Well, a municipal system like this is required to be self‑sustaining.
Q. Meaning that their expenses can't exceed their revenue, correct?
A. Yes. They can't lose money. They're not ‑‑ they're not like an investor in a utility, they can't lose money.
Q. Would you ‑‑ yeah, but would you agree with me under the standards, the statutory authority that establish rates, that under New Jersey law, in fixing the rates a local unit establishes a rate structure to recover cost of acquisition, construction or operation, including costs of raw materials, administration, real and personal property, maintenance, taxes, debt service charges, fees and an amount equal to any operating budget deficit occurring in the immediately preceding year.
Would you agree with me that that's the standard?
A. Yes.
Q. And that tells us what the utility can charge, right?
A. Yes.
Q. Is that correct?
A. Yes.
Q. So ‑‑
MR. ROGERS: Why don't we mark that. I don't know what that is.
MR. FIORENZO: Sure.
MR. NORTHGRAVE: While we're at it we should mark M‑1.
MR. ROGERS: Probably mark M‑1 as a document as well.
(Whereupon, Definition Document is received and marked as Exhibit O‑5 for identification.)
MR. ROGERS: What number is that.
THE COURT REPORTER: O‑5.
MR. ROGERS: O‑5. And let's mark ‑‑ you can put the mark on it later on, but let's refer to mark M‑1 as O‑6.
(Whereupon, AWWA M‑1 Manual is received and marked as Exhibit O‑6 for identification.)
BY MR. FIORENZO:
Q. So in this ‑‑
MS. MAILANDER: Microphone.
BY MR. FIORENZO:
Q. So in this ‑‑ do you have something I can hold? Can I take that?
In this definition when it sets forth in the fixed rates, here's what you can recover, you can recover those costs plus operating budget deficit occurring in the immediately preceding year; that's the standard in New Jersey, correct?
A. That's right.
Q. So if you don't have one of these items, you can't seek to charge or seek a rate increase to recover, unless there is a deficit occurring in the immediately preceding year, correct?
A. No. The way I read ‑‑
Q. Well, that's the law, isn't it?
A. The way I read that, that indicates that if there were ‑‑
Q. Do you understand ‑‑
MR. ROGERS: Let him answer the question, please.
BY MR. FIORENZO:
Q. Do you understand that to be the law?
A. If there were ‑‑
MR. ROGERS: No, let him answer the question.
THE WITNESS: If there were a deficit in the preceding year, then it could be included in prospective rates for the coming year.
BY MR. FIORENZO:
Q. Right. In fixing rates.
A. That's right.
Q. So in other words, if you're going to determine a new rate ‑‑
A. Right.
Q. ‑‑ you're now going to come in and say I need a rate increase ‑‑
A. Right.
Q. ‑‑ you're changing the rates, you can only do it under these circumstances; would you agree?
A. What I read there is a list of expenses that can be included in the rates.
Q. "In fixing rates, the local unit shall establish a rate structure that allows the local unit to..."
And then it tells you what they can do?
A. Sure.
Q. So the rate structure has to include these items; that's what the law is, correct?
A. Right. And ‑‑ and look at what you have. "Recover all costs of acquisition, construction or operation" ‑‑
Q. I got that, sir.
If you can stay with me so we can get home some time this morning?
I'm focused here on the part that says:
"Recover all costs, plus the operating budget deficit in the immediately preceding year."
That's the standard that exists and that's consistent with what is in M‑1, correct?
A. Yes. If the utility had a deficit in the preceding year, they could recover it in their prospective rates.
Q. Right. If they were seeking a rate increase they could recover that, but if they don't have a deficit, there's no deficit in operations, they don't have the ability to raise rates.
A. That ‑‑
Q. Do you disagree with that?
A. I disagree with that.
Q. Okay. You're the first person in this case that's done that, including all the other people who've testified.
MR. ROGERS: Let's keep it to questions and not the colloquy.
MR. FIORENZO: That's okay.
MR. NORTHGRAVE: Let's get some testimony.
BY MR. FIORENZO:
Q. Including the prior experts from the Village of Ridgewood.
MR. ROGERS: You want to stop, Mr. Fiorenzo?
Let's ask a question.
MR. FIORENZO: It's interesting.
BY MR. FIORENZO:
Q. By the way, are you aware that there was another expert that Ridgewood had in this case before you?
A. No.
Q. Okay. So you didn't have an opportunity to review the opinions that he gave?
A. That's ‑‑
Q. Or his testimony?
A. ‑‑ correct, I did not.
Q. Okay. So in the M‑1, the manual, so let me just make sure I'm clear about this.
Are you now saying here today that it doesn't matter, even if the water utility is operating profitably, that the village council can still go ahead and raise the rates?
A. If the water utility is operating properly, but their budget shows that they will incur additional expenses ‑‑
Q. Yes, right.
A. They can raise the rates.
Q. If the budget shows?
So if, for example, the budget ‑‑ if up to ‑‑ up to 2009, hypothetically, they were making money and now in 2010, suddenly they decided, for example, they wanted to spend $1.8 million in capital and include that as an expense, and now they had to try to find a way to fund that, that could provide a justification for a rate increase; true?
A. Yes.
Q. If the projected revenues didn't meet those expenses?
A. Yes. That's right.
Q. But it's always the projected revenues have to at least meet ‑‑ there has to be a deficit before you can seek a rate increase?
A. No. That is not correct.
Q. Looking prospectively, if you project in your budget a certain number of dollar expenses, and if your projected revenues exceed that, would there be a basis for a rate increase?
A. If your ‑‑ if your budgeted level of expenses are exceeded by the revenues that you anticipate, then there would be no need for a rate increase.
Q. Yeah.
A. But if your budgeted level of expenses exceed your revenues ‑‑
Q. Okay.
A. ‑‑ then there would be a reason for a rate increase.
Q. So it all comes down to an analysis of expenses versus revenue as projected; true?
A. That's right.
Q. And if, as you said, the expenses exceed it, there is a deficit, you can seek a rate increase, correct?
A. That's right.
Q. But if the revenues are higher, there's no justification for a rate increase, correct?
A. That's right.
Q. All right. Now, in undertaking this analysis here, you, in your report, start your process by referring on page 12, if you can turn to that, the various allocation factors.
So page 12 over onto page 13, these are the 14 allocation factors that you looked at?
A. Yes.
Q. So as to these allocation factors, you told us already that these 14 aren't really ‑‑ aren't [lifted|listed] in ‑‑ in here, so you couldn't just look at this and determine that, correct?
A. That's right.
What you'll find, though ‑‑
Q. So ‑‑
A. What you'll find, though, in M‑1 is a concept that any direct expenses should be allocated first, so ‑‑
Q. I'm not asking about direct expenses.
A. ‑‑ all ‑‑
Q. I'm asking about indirect.
A. That's right.
Q. Indirect expenses.
A. Yes.
Q. These are ‑‑ this is a summary of your allocation factors for ‑‑ well, you include both direct and indirect.
A. Yes, I do, right.
Q. Correct?
So as to the indirect allocation factors here, it's not anywhere in here, there's no standard in this book that tells you what those numbers should be or what methodology should be used, correct?
A. Only the principle that's in that book that talks about having a rational basis for developing the allocation.
Q. I got it. We talked about that. You said it's got to be rational.
But other than being rational, there's nowhere in here where it told you how to do specifically what you did here, correct?
A. That's right.
Q. And so as to the allocation factors, the ‑‑ how many of the 14 relate to indirect allocation factors? Identify them for the record. Which ones are they?
A. Oh, allocation factor 4 is the allocation of village hall operating expenses.
Q. Just give me the numbers.
A. Allocation factor 5, allocation factor 6, allocation factor 7, allocation factor 8, allocation factor 13 and allocation factor 14.
Q. And as to those then, we talked about the police already.
Did you do any kind of separate analysis of the fire department of the Village of Ridgewood? Did you talk to the fire chief?
A. No.
Q. Did you ever undertake an investigation of how much time the fire department spent working on water utility specific activities?
A. No, I did not.
Q. Other than providing general emergency services, if there was a fire, are you aware of any other specific service the fire department provided to the water utility?
A. Yes.
Q. What?
A. They're the designated hazmat responder to the water utility.
Q. Okay. So in some report ‑‑ I'm familiar with those reports, and the hazmat report will identify the fire department in some way in it as the contact person, correct?
A. And as the responder.
Q. Right.
A. Right.
Q. So other than being identified in the report, do you know whether on a daily basis it takes them any time to have their name put in the report?
A. Well, I know in my ‑‑ in my experience with water utilities over 40 years ‑‑
Q. No, I'm talking about in Ridgewood. Do you know in Ridgewood ‑‑
A. Let me answer your question.
Q. ‑‑ whether in Ridgewood ‑‑
A. Let me answer your question.
Q. Don't tell me about 40 years that you've done things. In Ridgewood, do you know what they do?
A. I know that they're the designated hazmat responder and they have to provide training for their [employee|plea]s in order to be able to do that.
Q. Do you know if they have done that here?
A. They have to ‑‑ I ‑‑ I asked the water utility if they did that here and they told me they did.
Q. Oh, you asked that?
A. Yes.
Q. Because I didn't see that in your report either.
Could you show me where that is?
A. I included fire and emergency services.
Q. Is that ‑‑ is that in your report, is the question?
A. It's not.
Q. Okay. In fact, in your report you don't indicate anything, at least that I saw, concerning the fire department and what they did or didn't do, other than the general service they provide to every resident in the community, correct?
A. Right. That's right.
Q. And ‑‑ and so when you decided to allocate fire utility activity what ‑‑ what was the method you used?
A. I used the same thing, I used the same allocation factor as I used for police.
Q. So you took the value of property?
A. Right.
Q. Compared real estate value to the asset value of the water utility?
A. The asset value except for the underground piping. I excluded that from the calculation.
Q. So when you determined the asset value of the water utility, did you take that from the balance sheet?
A. I took it from the audit reports.
Q. Right. Because they're reliable, right?
A. I believe them to be, yes.
Q. Do you consider those to be a reliable financial report?
A. I do.
Q. And you read and rely upon those and you relied upon those here?
A. Yes.
Q. The fact is you went back and you took a look at the actual performance of the utility, did you examine the water reports?
A. I did.
Q. Okay. Did ‑‑ I want to ask you about the healthcare allocation. So you ‑‑ in your report on page 18 you have an allocation of [employee|plea] benefits and insurance, Table VIII.
Could you turn to that?
A. Yes.
Q. You say that ‑‑ so tell me what the percentage was that you utilized in allocating the insurance cost and benefits for [employee|plea]? What was the percentage you utilized?
A. Well, Table VIII develops that allocation factor, and for water I allocated 14.88 percent.
Q. Where do you say that?
A. The allocation factor .1488 is the allocation factor that I calculated for ‑‑
Q. How did you ‑‑ how did you determine ‑‑ ‑‑
A. ‑‑ employee benefit insurance.
Q. ‑‑ that almost 15 percent ‑‑ you allocated almost 15 percent of the insurance ‑‑ this is health insurance and employee benefits?
A. Yes. That's right.
Q. Did you have an opportunity to examine any of the facts underlying those insurance costs?
A. I didn't ‑‑ I didn't look at what those costs were, other than ‑‑
Q. So did you look at any of the costs, the actual costs that were incurred?
A. I saw the actual expenses, but that's ‑‑ that's all. I didn't review ‑‑
Q. Did you look at the actual expenses?
A. I didn't review them.
Q. Where did you get the information from?
A. From the village's line item budgets and their line item actual expenses.
Q. From the audit or from the budgets?
A. From their budgets. From their budgets and their accounting system.
Q. And did you ‑‑ did you understand that ‑‑ and did anyone tell you that Ridgewood had undertaken an analysis to determine what the proper allocation of health insurance costs should be? Did they tell you that?
A. I never asked anybody that.
Q. Were you aware, from having read the court's opinion, that a village representative, Ms. Chen, had undertaken a specific analysis of the health‑related costs at the direction of Steven Sanzari?
Did you know that?
A. No.
Q. So I take it then you don't know the conclusion of that analysis?
A. No, I don't.
Q. Would that be of any interest to you ‑‑
A. No.
Q. ‑‑ in knowing whether your client had actually looked at the underlying insurance costs and done an actual allocation based upon the actual underlying records; that wouldn't be of any interest to you?
A. No.
Q. Okay. So instead, you ‑‑ you arrived at the number how?
A. I added up all the direct and allocated labor associated with the village, the water and the parking authority, and calculated a ratio against the total.
So in other words, the 14.88 percent is the ‑‑ as you can see on Table VIII here, 3,406 ‑‑ $3,406,000.00 divided by 22,889,000.00.
Q. And that's ‑‑ that's what you did?
A. Yes.
Q. And did you consult with anyone in the village when you concluded this analysis?
A. No.
Q. And you didn't review ‑‑ just in terms of the documents you reviewed, you didn't actually review the actual underlying records concerning the insurance costs, correct?
A. I only reviewed what was budgeted and what the actual expenses were.
Q. Right. So you didn't look at the underlying records for the healthcare cost, correct?
A. That's right.
Q. Like Ms. Chen did, right?
A. That's right.
Q. You ‑‑ can you turn to ‑‑ actually page 6 were the annual revenue requirements. So ‑‑
A. Page 6?
Q. I'm sorry. Page 18, number 6. Annual revenue requirements.
A. Yes.
Q. Okay. So you say that:
"Allocation factors derived in the previous section were applied to the village's annual budgets in 2010, 2011 and 2012 to determine the annual revenue requirement."
Now, the revenue requirement is how much they need to pay in expenses, correct?
A. The cost to operate the utility, yes.
Q. So this annual ‑‑ so you looked at the annual budgets for each of those years?
A. I did.
Q. Did you have copies of those?
A. I did.
Q. Okay. And did you also look at the audited financial statements?
A. I did.
Q. And did you determine if the audited financial statements matched with the budgets?
A. No, I did not.
Q. So you say at the top of page 19 of your report:
"For 2010 and 2011, we have allocated fewer expenses to the water utility. We have allocated more for 2012."
Do you see that?
A. I do.
Q. There is a chart, Table IX, summary of the allocations and a comparison to the rate study?
A. Yes.
Q. So you have a column that says, "Description." What did you list in that column?
A. That's the line item description for the budget.
Q. And then you analyzed that for '10, '11 and '12?
A. Yes.
Q. And at the bottom [you have|have you] summaries; village allocation to water, and then [you have|have you] HJWA allocation to water, is that ‑‑ HJWA, is that you?
A. That's me.
Q. Okay.
So you totaled up, for 2010, the allocations that were made by the Village of Ridgewood, correct?
A. I did.
Q. And that's based on their budget?
A. Yes.
Q. And then you compared it and you said I ‑‑ you redid the allocations, correct?
A. I did.
Q. So you say you took it back to zero, you eliminated all the prior allocations and then you started anew?
A. Yes.
Q. And then in doing that you ended up having $92,503.00 in allocation that differed from the village's allocation, correct?
A. That's right.
Q. Which basically, as I read it, you're indicating that the village over‑allocated expenses in 2010, correct?
A. Yes.
Q. And then you have charges for 2011. And for 2011, what are the expenses that the village allocated for indirect costs and water utility? What's the number?
A. Oh, all of these line items above the summation are ‑‑
Q. Yeah, no, the total.
A. ‑‑ are the ‑‑ are the allocations that the village made to the water utility.
Q. Yes. $3 million.
A. So in 2011 it's $3,522,932.00.
Q. Right. And then you looked at it and you determined that the allocation instead of that number should be what?
A. 2,904,557.00.
Q. So you determined that the village had allocated more in expenses for 2011 than they should have, correct?
A. Yes. That's right.
Q. And how much was the amount that they had over‑allocated in the expenses to the water utility in 2011?
A. $618,000.00.
Q. Okay. So that means, if I understand you correctly, that in your opinion, in that year there were expenses charged to the water utility in the amount of $618,375.00 that shouldn't have been charged, correct?
A. Well, this is based on their budget, not the actual expenses that were recorded.
Q. Right. And they budgeted, they allocated more than they should have, correct?
A. $618,000.00 more.
Q. According to you.
A. Uh‑huh.
Q. And do you know then what the effect of that was in 2011?
A. Well, I know that that was only part of the total revenue requirement for 2011, and in subsequent pages of the report I look at the rest of the revenue requirement.
Q. All right. So when you went through this analysis in 2010 and 2011, ultimately there was a conclusion that you reached regarding the revenue ‑‑ I'm sorry, regarding the overall operations in the year 2010 and 2011, correct?
A. And in 2012 in this report.
Q. And in 2012.
And you looked at that for each of those three years, correct?
A. I did.
Q. And turn if you would, please, to page 26.
MR. FIORENZO: Let's mark this, please.
(Whereupon, Chart is received and marked as Exhibit O‑7 for identification.)
BY MR. FIORENZO:
Q. Sir, I put up and we marked as O‑7, is it? O‑7.
The page 26 of your report, and let me make sure I understand what this chart says.
So you looked at a comparison of actual versus anticipated revenues.
Is that right?
A. Yes.
Q. So by anticipated revenues you mean what was budgeted?
A. No.
Q. What do you mean anticipated revenues?
A. Anticipated revenues means the ‑‑ if you take th billing determinants, meaning the number of meters that are going to be billed, the fixed service charge each quarter, the number of gallons of water that are going to sold, the number of fire hydrant charges that are going to be charged, and add those up, assuming that 100 percent of those are actually billed and collected, that will give you the total anticipated revenues from sales.
Q. So you say in your ‑‑ in the text at the top, you say:
"Here, the actual revenues received by the water utility are compared to the anticipated revenues from sales for service and from public and private fire protection charges."
Is that correct?
A. That's right.
Q. Okay. So the number that says total anticipated revenues from the sales, that is the projected amount, correct?
A. It's the calculated amount based on the rates that were in effect for each of those years, yes.
Q. And you're comparing that number to what actually happened, correct?
A. That's right.
Q. So the number of ‑‑ and in doing this did you look at the audited report?
A. That's ‑ that's ‑‑ that's where the actual numbers come from.
Q. Okay.
A. Is from the audit report.
Q. So the actual numbers then in the audited report for 2009, you have actual revenue, 9,066,115 and you say that there is a variance between what was anticipated and the actual revenue received of $123,730.00 so what does that number mean?
A. The proof of revenues calculation produces total revenues of $9,189,845.00 at the rates that were in effect in 2009.
The actual revenues that were collected were $9,066,115.00.
So the actual revenues were $123,000.00 higher than what the proof of revenues calculation would show.
Q. Turn to page 27, there is another table you have, Table 15.
A. Yes.
Q. So that's a different comparison, right? Here you're comparing the total revenues to what the revenue requirement was, which we've agreed means the expenses, correct?
A. Yes.
Q. Okay. So where it says revenue requirement for 2010, 11,642,203.00 that number is derived from the budget, or from the audit or what?
A. From the proof of revenues calculation.
Q. Okay. And the total revenues up above is derived from the audit? That would have the most ‑‑
A. Oh, no, I'm sorry. I misunderstood your question.
The first part of the table is the ‑‑ the total revenues from the proof of revenue calculation.
Q. Well, that's not actual revenue, right?
A. [It's|Its] ‑‑ it's total revenues that could be collected, assuming that 100 percent of ‑‑ of the billed revenues were actually collected. Probably higher than ‑‑ higher than that.
Q. Well, I'm looking at Table XV and you're indicating for 2010 there is a shortage, right?
A. That's right.
Q. And you say in your ‑‑ in the text that with respect to ‑‑ you say:
"Over the course of three years, the rates in place produced revenues that fell short of the budget of revenue requirement by a cumulative amount of $429,002.00"; correct?
A. Yes. That's right.
Q. And then you say you reviewed the actual expenses over the same three‑year period, and then you have a ‑‑ you say Table XV, it shows that there is a shortage in 2010, correct?
A. Yes.
Q. By that you mean a deficit?
A. Yes.
Q. Okay. So this is intending to show that in 2010, there was a shortage of revenue over expenses, which goes back to what we talked about before, which would justify a rate increase, correct?
A. Yes, if I were putting the budget together in 2010, I could anticipate revenues of 11,426,000, with the proposed rates that the village ultimately adopted ‑‑
Q. So you were ‑‑
A. ‑‑ against ‑‑ against the revenue requirement of 11,642,000.
Q. So you were attempting, by creating this table, I presume, to show that in 2010 and 2011 there was a shortage in revenue to meet expenses; true?
A. Yes. Right.
Q. And you were trying to convey to the reader of your report that there would then appear to be some justification for a rate increase, correct?
A. That's right.
Q. Okay.
A. And these are based on ‑‑ on budgets.
Q. Yeah. Okay. So let's take a look at ‑‑ let me show you an exhibit which is Exhibit O‑3. We marked it previously.
And actually, let me get the page we're discussing which shows the shortages for 2010 and 2011.
MR. FIORENZO: Would you mark this, please.
(Whereupon, Chart is received and marked as Exhibit O‑8 for identification.)
MR. FIORENZO: Okay.
BY MR. FIORENZO:
Q. So let me put this back up on the board. And this is what I've been talking about is these numbers here (indicating), and I know I can get back to that.
MS. MAILANDER: Right, I just want you to repeat it.
MR. FIORENZO: So I just marked in the yellow the ‑‑ the numbers on page 27, which show $216,144.00 in deficit or shortage for 2010, right?
A. Yes.
Q. And then 2011, $529,729.00 in shortage, right?
A. Right.
Q. And then it actually shows an excess of revenue over expenses for 2012 of how much?
A. 316,871.
Q. So 316, things were looking good. There was a positive cash flow; true?
A. That's calculated on a budget basis, yes.
Q. Right. Well, that's how you would go about undertaking a rate analysis?
A. Right.
Q. So it would appear then in 2012 there was a positive projected cash available?
A. Once ‑‑ once all the allocation factors that I developed are applied to the budget numbers, yes.
Q. Yes, based on your numbers now.
A. Right.
Q. Because you're the one looking at it and determining whether or not a rate increase is needed or not; that was your charge, right?
A. That's right.
Q. And you gave your client this chart to show in '12, at least, there was a surplus, correct?
A. Right.
Q. Whereas in '10 and '11 there was a deficit?
A. That's right.
Q. Right? Okay.
And this revenue requirement here, do you know what ‑‑ actually when you prepared this you had the benefit of ‑‑ you told us you had the audited reports?
A. Yes, I did.
Q. And did you look at what the actual revenues were in the audited reports for 2010?
A. I did. That's the table that we ‑‑
Q. So that's the number?
A. No, no, no.
Q. Is that this (indicating)?
A. No, it's not.
Q. So my question to you ‑‑
A. The actual revenues for 2010 were ‑‑ from sales were 11,108,955.
Q. Okay. What year, '10?
A. 2010.
Q. Well, weren't the revenues for the sales in 2010, based on the audited financial statement, $11,856,609.00?
A. The revenues from sales were 11,108,955.
Q. The revenue shown on the audited financial statement, all the revenue that you were ‑‑
MAYOR KNUDSEN: Back to the microphone.
THE WITNESS: I don't know.
MAYOR KNUDSEN: Microphone, back to the microphone.
BY MR. FIORENZO:
Q. You don't know?
A. I don't know.
Q. So you weren't interested and you didn't include the total revenue of the water utility?
A. What I was looking at here ‑‑
Q. Did you include the total revenue, is my only question?
A. No.
Q. Okay.
A. I'm only looking at the revenues that are generated by the rates that were in effect.
Q. Okay. So in [evaluating|elevating] a rate increase you don't look at the total revenue of the water utility?
A. No. I looked at what's generated in sales.
Q. No, no, don't you ‑‑ don't the standards require that you look at the total revenue of the water utility?
A. No. It depends on ‑‑
Q. No?
A. It depends on what those other elements come from. If they're coming from ‑‑
Q. Do you know what the actual revenues were that were realized in the year of 2011? I'm sorry ‑‑ let's stay in 2010, based upon the audited report?
A. I know what they are for sales. That is what this number is here. It's $11,108,955.00.
Q. What does sales mean?
A. Billings of the water utility for fixed service charges for the meters, for the volumetric rate, for the volume that they sold and for the hydrants ‑‑
Q. And did they have any other revenue?
A. ‑‑ they billed.
Q. And did they have any other revenue?
A. They had miscellaneous revenue.
Q. Do you know what that was for? Related to what?
A. Miscellaneous revenue is generally things for uncollectibles, pursuing collections. It's fines.
Q. It's money they collect, right?
A. Yes. But for other ‑‑ for other things.
Q. From various ratepayers, right?
A. Right. And those ‑‑
Q. Okay. And you say you didn't ‑‑ and you're saying ‑‑ let me finish.
You're saying you didn't include that when you created this chart showing a deficit of $216,144.00 in 2010; you did not do that?
A. That includes miscellaneous revenues. But we're talking about Table XIV, not that.
Q. No, I'm talking about the revenue for 2011 based upon the audited statement.
The total revenue of the water utility in the audited statement, is it your testimony here that [it's|its] that number?
A. No.
Q. And [it's|its] higher, right?
A. What you just pointed at is the revenue requirement.
Q. Is it higher than that?
MR. ROGERS: Let him answer.
BY MR. FIORENZO:
Q. Is it higher than the audited financial?
A. The total revenues shown on Table 15 that you're pointing at here are based on the proof of revenues for sales.
Q. Okay. So this gets back to the question, I thought you said before that number came from the audited financial statement; didn't you just tell me that?
A. No. On the previous [page|paying]. The $11,108,000.00.
Q. I'm on page 27.
A. Right.
MAYOR KNUDSEN: You have to go to the microphone.
BY MR. FIORENZO:
Q. We were talking about that now for a few minutes.
A. Right.
Q. Page 27, when you show a deficit of $216,000.00 ‑‑
A. That's right.
Q. ‑‑ do you know what the actual revenue was in 2010, based on the audited financial statement?
A. The total revenues that are shown here are revenues from sales.
Q. Okay. So it's different from what's in the audit?
A. Yes.
Q. So let's take a look at Exhibit O‑3, which is marked as P‑91A at the time of the trial in this matter, and these are total revenues, total costs of the water utility, for each of these years, taken from the audited financial statement.
Do you dispute that in 2011, the water utility had total revenues ‑‑
MAYOR KNUDSEN: We can't hear you.
MR. FIORENZO: Excuse me.
BY MR. FIORENZO:
Q. ‑‑ 2010, the water utility had total revenues of $11,856,609.00?
Do you dispute that?
A. I don't know what that number is.
Q. [It's|Its] from the audited financial statement. You told me you reviewed those, right?
A. I did.
Q. Okay. Did you ‑‑
A. And ‑‑ and ‑‑
Q. Do you dispute the accuracy of the number?
A. And ‑‑and ‑‑ and I focused in on what the revenues were that were generated from sales.
Q. Okay.
A. They're the only ‑‑ they're the only revenues that are impacted by the rates.
Q. Okay. So you weren't interested in the overall revenues of the water utility when you prepared this, right?
A. That's right.
Q. So if they actually had other revenue that created a surplus, it was of no interest to you, right?
A. That's correct.
Q. Okay.
MR. FIORENZO: Let's mark this, please.
(Whereupon, 2010 Audited Financial Statement For the Village of Ridgewood is received and marked as Exhibit O‑9 for identification.)
BY MR. FIORENZO:
Q. I show you Exhibit O‑9, which is a 2010 audited financial statement for the Village of Ridgewood.
Have you seen this before?
A. I have.
Q. What is the ‑‑ and is there a separate schedule that relates to the water utility budget?
A. I recall that there was.
Q. Take a look at D‑1.
A. D‑1?
Q. Yes. D‑1, does that show the total revenue reported on the financial statement of the water utility for 2010?
A. It does.
Q. What is the total amount of revenue reported to the water utility in 2010, please?
A. 11,856,609.
Q. Give me that number again, please.
A. 11,856,609.
Q. And how about 2011; are you aware of what ‑‑ I'll take that back.
A. Well, before you do, you should know that there are a number of things in here that are adjustments to the revenues. The water rents and fire hydrant service are the only ones that are impacted by the rates.
Q. That's your opinion.
A. Well, that's fact.
MAYOR KNUDSEN: We can't hear you.
THE WITNESS: That's fact.
MAYOR KNUDSEN: We cannot hear you if you're talking ‑‑ if you don't have a microphone.
MS. MAILANDER: Whatever you're saying is not being picked up by the record.
MAYOR KNUDSEN: And it's really important that everyone hears you, so why don't you just repeat the question and the exchange because ‑‑
MR. FIORENZO: Yes.
MAYOR KNUDSEN: ‑‑ we all missed.
MR. FIORENZO: So he answered my question.
MAYOR KNUDSEN: At the microphone. Just stay ‑‑ put your feet right there and don't move.
BY MR. FIORENZO:
Q. So the audited financial statement sets forth and reports what the total revenue for the water utility is for the year, does it not?
A. It does.
Q. And it sets forth the number that I just wrote up there which is 11,856,609, correct?
A. That's right.
Q. Right.
And you did not use that number, but instead you used a lower number because you did not consider other items considered to be revenue in the audited report which were reported as such, correct?
A. I ‑‑
Q. You did not consider those to be revenue?
A. I only included the revenues that were impacted by the rates.
Q. Right. Right. And so if we ‑‑ hypothetically, if we took the actual number of the revenues as reported in the audited financial statement, would there be a ‑‑ and assuming the accuracy of that number, would there be a surplus or a deficit?
A. Well, there would be a surplus, but part of that includes $300,000.00 that was transferred to the capital fund.
Q. Well, that's revenue, right?
A. It's a transfer from the village to the water utility.
Q. That is ‑‑ that is revenue as reported to the State of New Jersey in the audited financial statement as approved by the governing body of the Village of Ridgewood; that is deemed and considered to revenue, is it not?
A. It's revenue, but it's not ‑‑
Q. Thank you.
A. ‑‑ it's not impacted by the rates.
Q. Well, I know that ‑‑ I know that's your position on that. I hear you on that.
With respect to 2011 ‑‑ and by the way, if ‑‑ if we assume the revenue amount including those items reported as revenue by the Village of Ridgewood are the 11 million 8, would there be a ‑‑ what would be the amount of the surplus that was generated in 2010?
A. Well, if you include all those restricted costs ‑‑
Q. Yes. Assuming the revenue is as reported, that number in the audit, what would the surplus be?
A. You're comparing an apple and an orange.
Q. Yes. I understand your position, but could you now answer my question? What would the surplus be, assuming that the audited figure of revenue reported to the State of New Jersey, signed off by the governing body is accurate, assuming that revenue number is used, what would the surplus be?
A. Roughly $200,000.00.
Q. Okay. And with respect to 2011, do you dispute that in 2011 that the total revenues reported on the audit ‑‑ audit file with the State of New Jersey, approved by the governing body, was $12,246,459.00?
A. I ‑‑ I don't know where that number comes from.
(Councilman Voigt steps off the dais at departs the meeting. Time noted: 12:45 a.m.)
MR. FIORENZO: Should we take a break until he comes back or ‑‑
MR. ROGERS: He said he had to leave. No, just keep going.
MR. FIORENZO: We're in the middle of a hearing.
MR. ROGERS: Well keep going.
MAYOR KNUDSEN: Just keep going, moving, keep moving it. And don't move from the microphone.
MR. ROGERS: He's going to have to review the record before he votes, so ‑‑
MAYOR KNUDSEN: Right.
MR. ROGERS: He's going to have to do it.
Just go ahead.
BY MR. FIORENZO:
Q. Do you dispute the accuracy of that number?
A. I don't know what that number is.
Q. Okay. Let's take a look.
MR. FIORENZO: Mark this, please.
(Whereupon, 2011 Audited Financial.
Statement for the Village of Ridgewood is received and marked as Exhibit O‑10 for identification.)
BY MR. FIORENZO:
Q. This is the audited financial statement of 2011.
Did you see this before?
A. Yes.
Q. Take a look at Exhibit D‑1. Putting aside your argument and your debate with me concerning whether certain things should or shouldn't be in revenue, just accepting the revenue as reported by the governing body, what is the bottom line total revenue, [employees|please|police]?
A. 12,421,459.
Q. Okay. So 12,421,000 ‑‑ what was the rest of it?
A. 459.
Q. So assuming, hypothetically, that number reported in the audit was accurate, in 2011 there would then be a surplus and not a deficit of $529,000.00‑and‑change; true?
A. Yes.
Q. Okay. And then we've got 2012. You dispute that in 2012 the audit, audited financial statement showed total revenue of $12,673,836.00?
A. Again, I don't know where that number comes from.
Q. Let me see if I can help you.
MR. FIORENZO: Mark that, please.
(Whereupon, 2012 Audited Financial.
Statement for the Village of Ridgewood is received and marked as Exhibit O‑12 for identification.)
MR. FIORENZO: Thank you.
BY MR. FIORENZO:
Q. Have you ever seen O‑12, which is the 2012 audited financial statement?
A. Yes, I have.
Q. Turning to D‑1 graph, could you tell us and read into the record, putting aside your argument concerning ‑‑ you know, I know you say you took only sales revenue ‑‑
MR. ROGERS: If you're not at the microphone. You're not making a record.
BY MR. FIORENZO:
Q. Assuming ‑‑ assuming the accuracy of the total revenue number reported by the governing body, approved by the State of New Jersey, what was that number of total revenue?
A. 12,673,836.
Q. How much?
A. 12 million ‑‑ oh, wait a minute did I read the wrong number?
12,673,836.
Q. So that would mean we'd have to assume the accuracy of that number that the surplus in 2012 was actually higher than is reported on ‑‑ in your report; correct, sir?
A. Yes. But as I noted in the report ‑‑
Q. Yes, I know.
A. ‑‑ only 12,059,000 comes from ‑‑
Q. You told us that.
A. ‑‑ rent.
Q. I'm asking you to assume that what the governing body reported was true and that that's real revenue and it is not fake; okay?
A. It is. It is.
Q. So ‑‑ it is fake?
A. It is real revenue.
Q. Oh, good. Okay.
A. Yes.
Q. So assuming that real revenue then and assuming one were to accept all of the real revenue of the water utility in [evaluating|elevating] whether there's a need to increase the rates to the ratepayers, there would be a surplus of over half a million dollars in 2012 based upon those numbers, correct?
A. Wrong. Wrong.
Some of those numbers that are in there are restricted funds. They're not revenues that can be used for the general operations of the water utility ‑‑
Q. You've now said that seven times, but if we assume ‑‑
A. At least I'm consistent.
Q. ‑‑ if ‑‑ yes.
If we assume the revenue figure to be accurate, assume that, because you're here as an expert, assume that's the number ‑‑
A. Right.
Q. ‑‑ which is reported in the audit, that would mean that there isn't just a surplus of 316, the surplus would be higher, if that number was accurate; true?
A. Yes.
Q. Okay. So under that scenario then ‑‑ and by the way, did you ever go back to 2009 to evaluate whether there existed a deficit?
A. No.
Q. Did you ever ‑‑ in making your analysis here, did you make any assumption concerning the allocation of what you described as deferred revenue?
A. Well, the deferred revenue is not my term. That's what's listed in the budget.
Q. Well, did you make an assumption regarding that?
A. My assumption in developing the revenue requirement, both on a budget and an actual basis, is that that item should include 5 percent of the total O&M expenses as part of the revenue requirement for the utility.
Q. So in your report, if I could direct you back to page 12, you ‑‑ you suggest that the governing body should be able to transfer 5 percent of the annual cost of operation from the accounts of the utility, put it in their budget, and then ultimately have it transferred over to the general fund of the municipality; correct?
A. Yes.
Q. And in doing so, you cite to the provisions of N.J.S.A. 40A:4‑35 in footnote 9, correct?
A. That's right.
Q. Now, those amounts, you say, that were actually charged by the Village of Ridgewood, you say they charged the incorrect amount; true?
A. In ‑‑ in the years in which they included it in their budget and in the actual expenses, I believe they did the calculation based on the total budget, not O&M.
Q. And that was incorrect; true?
A. Yes.
Q. So you then created some adjusted numbers?
A. I did.
Q. So based on the authority of 40A:4‑35.1 you included, in 2010, $413,300.00 in the operating expenses, the budget expenses; correct?
A. I believe that's right, yes.
Q. And you included $429,515.00 in 2011?
A. Subject to check, yes. I believe that's right.
Q. Well, take a look at your report.
A. Yes.
MR. ROGERS: Just tell us what page you're referring to, Mr. Woods.
MAYOR KNUDSEN: Can you give us the page number you have open?
MR. FIORENZO: I don't have a page number.
MAYOR KNUDSEN: Okay.
MR. FIORENZO: I'm asking the witness to show us where those numbers are.
This might be an appropriate time to break. I'd like to take a men's room break, [employees|please|police].
MAYOR KNUDSEN: Of course.
MR. FIORENZO: Thank you.
Why don't you take a look and we'll come back.
(Whereupon, a brief recess is taken.)
MAYOR KNUDSEN: I would like to call the meeting back to order.
MS. MAILANDER: Okay.
Hache?
COUNCILMAN HACHE: Here.
MS. MAILANDER: Sedon?
DEPUTY MAYOR SEDON: I am still here.
MS. MAILANDER: Councilman Voigt has left.
And, Councilwoman Walsh?
COUNCILWOMAN WALSH: Yes.
MS. MAILANDER: And, Knudsen?
MAYOR KNUDSEN: And I'm still here.
MS. MAILANDER: All right.
MAYOR KNUDSEN: Okay.
Moving on?
MR. FIORENZO: Yes. I just want to note for the record, it is now 1:02 in the morning. And I, again, renew my suggestion to the governing body. It is unfair to the people who are here to continue. When I am done crossing, which will be some time from now, there is also a public hearing that needs to be conducted. I don't understand why it is necessary to continue, and I think it's unfair to both the public, the reporter, and all participants.
MR. ROGERS: Just ‑‑ before you begin, just let me respond.
I wasn't aware that ‑‑ of two things tonight; one was the fact that there would be two experts on behalf of Exeter. We were told that only Mr. Morgan would be here. There were two, so we didn't know how much time that was going to take. And anticipating that that would be done for ‑‑
AUDIENCE MEMBERS: Come on.
MAYOR KNUDSEN: All right, [employees|please|police], somebody is speaking.
MR. ROGERS: Anticipating that that would be done first and have time for Mr. Woods' testimony.
Mr. Woods has an elderly family member issue that he's got to attend to, and that's why he can't make it for Wednesday night.
So we're trying to finish his testimony and then carry the remainder of it over to the next meeting, to Wednesday.
MR. FIORENZO: Knowing that, you should have permitted me to do my cross‑examination first because I ‑‑
MR. ROGERS: I probably should have permitted you to do that first.
MR. FIORENZO: Okay.
BY MR. FIORENZO:
Q. Mr. Woods?
A. Yes.
Q. We broke. You were going to try to find for us the allocation of these charges under 40A:35‑1. So where are they located in your report?
A. In ‑‑ on the budget basis on Appendix D, page 35.
Q. Okay. And what were the amounts on the budget basis that were set forth in each of the years 2010 [threw|through] 2016?
A. For ‑‑ in the first report for 2010, the number is 425,145. For 2011 it's 430,347. For 2012 it's 438,298. And let me find it in the other report.
For 2013 you have $449,045.00. 2014 is 453,569.00. 2015 is 470,463.00. And 2016 is 556,249.00.
Q. Okay. And then you adjusted those as you described earlier because you believed that the method of calculating the budget was incorrect; true?
A. Yes. The numbers that the village had were [higher|hire].
Q. Now, those ‑‑ those amounts which you just identified, just so the record is clear, that represents ‑‑ that doesn't represent an expense of the operation of the water utility; correct? That is in reality. A transfer of money from the water utility to the Village of Ridgewood; correct?
A. Yes.
Q. So those are not monies needed for the "operation of the utility;" rather, it is what you say they're entitled to transfer by virtue of that statutory provision that you cite in the footnote; correct?
A. That ‑‑ essentially it's a surrogate for a rate of return.
Q. Yes. I didn't ask that.
But you say that they have a right to do that based upon the statutory provision 35‑1, correct?
A. Yes.
Q. Now, you read Judge Frescia's report, her decision, correct?
A. I did.
Q. Were you aware where hat ‑‑ this issue of these transfers out from the water utility fund, their surplus fund to the Village of Ridgewood was one of the issues the judge addressed?
A. Yes. I believe that.
Q. Are you aware that Judge Friscia, on page 94 of her report, held:
"Defendant's reliance upon the ability to retroactively take an automatic 5 percent surplus per year is misplaced. Retroactively taking an automatic or bulk surplus amount is not statutorily permitted and was not legislatively intended to replace appropriate governance over the water utility by the village governing body.
"Defendant has not established precedence to retroactively or automatically prospectively take 5 percent surplus in cumulative fashion for a number of years. The court finds no precedent for such an interpretation."
Are you aware the judge made that finding?
A. Yes.
Q. Okay. You aware that the judge also made the finding on page 103:
"Defendant has failed to sustain the burden of proof for its counterclaim. Defendant's failed to prove the Defendant is entitled to retroactively take an automatic cumulative 5 percent surplus each year, pursuant to N.J.S.A. 40A:4‑35 and 40A:31‑10A‑C."
You're aware of that finding as well ‑‑
A. Yes.
Q. ‑‑ by the court?
A. Yes.
Q. So when you went back then and you did your analysis here with respect to the propriety of a rate increase, I take it that you assumed that it was correct and proper to include as an expense for the water utility that 5 percent charge that you just read into the record for us; correct? You assumed that was appropriate to do that; correct?
A. Yes.
Q. And so when you did your analysis of surplus ‑‑ excuse me ‑‑ of whether there was a surplus or a deficit, you included in that that sum of 400 ‑‑ between 425 up to $550,000.00, correct?
A. That's right.
Q. So when we go ‑‑ when we go back to these numbers, these projected deficits here, putting aside the audited numbers, if ‑‑ if we assume that there was no legal authority to make that 5 percent transfer, would you agree that under that circumstance for each and every one of the years there would be ‑‑ certainly in 2010, there would be a surplus, correct?
A. Given your hypothetical, yes.
Q. Yes. And in 2011, would there be a surplus?
A. No.
Q. Close?
A. Close.
Q. Okay. And then in 2012, there would be a much larger surplus, correct?
A. Close, yes. Yes.
Q. Okay. So ‑‑ so one of the fundamental questions then in evaluating whether there exists a deficit between projected revenues and projected expenses is whether this expense of around a half million dollars, give or take, over these period of years, should be allocated as an expense, because if it's not, the results could change; true?
A. Yes. And I believe it should.
Q. Well, I know that. But if you're wrong about that, then ‑‑ then the results may change. It may well be that there's no justification for a rate increase at all, correct?
A. Or a smaller rate increase.
Q. Or a smaller rate increase, right.
But you've assumed a rate increase is needed based on the numbers, based on the assumption that what you described as that deferred 5 percent operating charge is appropriate, correct?
A. Yes.
Q. Okay. And by the way, in 2000 ‑‑ turn to page 19 in your report. There is a schedule.
So, you know, so in the schedule in Table IX for 2011, you have ‑‑ you have ‑‑ from the budget you have a deferred charge, this 5 percent transfer out, you identify it in your report as how much?
A. 549,662.
Q. So assuming the accuracy of what you said there, and assuming that that money shouldn't be included as an expense because it's not allowed to be charged, hypothetically, of course, I know you disagree, assuming that that should not have been included, that would wipe out the deficit in '11; correct?
A. Well, you ‑‑ again, you're mixing up numbers here. The 549 ‑‑ for the 549 number here that's shown on Table IX is the actual budget number that the village utility or the village charged to the utility that year.
Q. In 2011?
A. 2011.
Q. That's expenses.
A. I think it should be lower than that.
Q. I understand. But assuming that that amount was the amount that was actually ‑‑ because you've made an adjustment, but do you know what they actually transferred out? They didn't do it based on your number, they did it based on the actual number they budgeted, didn't they?
A. No, I could probably look that up for you, but I don't know off the top of my head where they charged that.
Q. You just recently did your analysis, correct?
A. Yes.
Q. And prior to that, the only number the Village of Ridgewood had, either in their annual budget or their annual audit, was the number that was in the budget and the audit, which in this case for '11 is 549,000.
A. Right.
Q. You're aware of that, right?
A. Well, again, this ‑‑ this is a budget number that's shown in Table IX. I don't know if that's the same number that they actually charged out or not.
Q. Well, do you have any reason to believe that they didn't transfer the money out that they budgeted to transfer it out?
A. Well, it's a calculation.
Q. Do you have any reason to believe ‑‑
A. It's a calculation.
Q. Do you have any reason to believe that the money that they budgeted in 2005, $549,000.00, to transfer out to the general fund, that they didn't make the transfer? Because I'll tell you that ‑‑ see this? See that amount?
A. And where is that from?
Q. Well, this is from the trial and the testimony agreed by all sides that these numbers were transferred out.
A. Okay.
Q. And so if you accept that as true, can we then agree that if that transfer was made as budgeted, that ‑‑ and it shouldn't have been made, that would have increased the revenue, reduced the expenses, and would have wiped out the shortage; correct?
A. It would have reduced the revenue requirement.
Q. And, therefore, my math, resulted in an elimination of the $529,000.00 because now you have extra revenue of 546; correct?
A. That's right.
Q. So when you did this analysis then and you reported to your client the ‑‑ that based on your adjustments, you said ‑‑ you concluded there was a reason, there was a need for a rate reduction in '10 and '11 because of these numbers, right?
A. Yes.
Q. But you might be wrong; true?
A. I don't believe I am.
Q. Well, if your assumption about the transfer out is wrong ‑‑ let me give you this hypothetical. I want you to assume hypothetically, these are the facts, assume hypothetically that during the course of the underlying action, the Village of Ridgewood admitted in writing and stipulated to the court that this statutory provision that you relied upon in your footnote, 35:4‑4:35‑1, 48:4‑35.1, that they admitted and stipulated that that did not provide a legal basis upon which to transfer money from the water utility to the current fund of the village. I want you to assume that to be true because it is, in fact, true.
So if that is so, that would mean your analysis and the assumptions that you reached regarding the need for a rate increase in '10 and '11 doesn't exist [understand|under] that hypothetical, right?
A. Hypothetically, yes.
Q. Thank you.
A. But I don't believe that is true.
Q. Okay. [It's|Its] good to know that if it is true there's no basis for an increase.
Now, with respect to ‑‑ did you ‑‑ when you did your report initially, is there a reason why you only dealt with the three years '10, '11 and '12?
A. I was given the judge's order and ‑‑ or opinion, rather, and I was asked to develop a rate study based on the three ordinances that were remanded back to the village.
Q. So now, you and I talked about the methodology you used based on M‑1, and M‑1 talks about how you look at revenue, expenses, and you do those sort of, as you talked about, looking prospectively; right?
A. That's right.
Q. So if we go back to that, to 2009 when all this started and the village was considering whether to adopt this ordinance, they would have to look prospectively at the projected revenue and the projected expenses, correct?
A. Yes. That's right.
Q. And that ‑‑ at that time you're aware there was a budget prepared, correct?
A. Yes.
Q. And the budget has, as part of it, there is a required section in the budget in which you have to identify any line item for capital improvements, correct?
A. Yes.
Q. Did you review the budget for the Village of Ridgewood to look at the capital improvements?
A. I looked at all the expenses.
Q. You looked at that one in particular?
A. Yes.
Q. So you're aware, I take it, of the history of what they budgeted for capital improvements?
A. Yes.
Q. And as part of the budget, they have to submit a statement and explain their capital plan; you're aware of that?
A. Yes.
Q. And each of those budgets in 2009, 2010, 2011 or 2012 set forth the capital expenses and it had a plan, a capital plan; correct?
A. Yes.
Q. Now, you're aware, sir, I take it, that ‑‑ can you mark that, please.
(Whereupon, Capital Improvement Fund Schedule is received and marked as Exhibit O‑13 for identification.)
BY MR. FIORENZO:
Q. So I take it you're familiar with the history of the capital improvements in the Village of Ridgewood budget, and this is a schedule.
Again, this was put into evidence at the underlying trial. It gives a history. It shows the ‑‑ it shows ‑‑ it's a schedule changes in capital improvement fund, it's a line item budget. So it shows the budget appropriation and it shows in this line what this budget appropriate is for?
You're familiar with those budget appropriations ‑‑
A. Yes.
Q. ‑‑ because you reviewed the budgets?
A. Yes.
Q. So I know you didn't look at the back budget, so I won't focus on that, so let's just talk about the ones you did look at.
Did you look at '09?
A. I saw the '09 actual operating expenses, but not the budget for '09.
Q. Right. So the capital budget there of $75,000.00, right?
A. Yes.
Q. And then you looked at '10 and it was how much?
A. It looks like $100,000.00 from here.
Q. And '11?
A. 125,000.
Q. And '12? 200?
A. 200,000.
Q. Okay. And it looks like it had a pretty good jump in '13 it went up to five, '14 was five, '16 was five.
So it was the prerogative of the governing body in order to determine the amount they would budget for capital improvements; agreed?
A. Agreed.
Q. And it was the prerogative of the governing body to determine at any point in time if they wanted to increase that capital improvement amount, assuming that there was some valid and legitimate basis to do so, correct?
A. Yes.
Q. So it would appear then if one were evaluating the budgets and evaluating whether a rate increase should be justified in '09 and '10, you would look at and evaluate the budget as it existed in '09 and was projected into '10, correct?
A. That's right.
Q. And so with respect to capital improvements, they were 75,000 and then projected to be 100 in 2010, correct?
A. Yes.
Q. So would you agree with me that the relevant point in time for analysis of what the capital expenditure requirements are of the water utility for the purpose of ratemaking is the date upon which the projection is being made for future revenues and expenses?
A. Yes.
Q. So if something happened five years from now, for example, and ‑‑ well, let's just pick a date. Let's say it happened in 2020. There's a decision made by the village that they're going to go on a huge capital program where they want to spend $20 million on the water utility. They certainly have a right to do that; would you agree? Assuming they can justify it.
A. Sure.
Q. And if they ‑‑ if they wanted to do that then, it would be their prerogative to fashion a budget at that time in which they included, perhaps, part of those capital expenditures or an increase in the capital improvement fund which might well justify a rate increase; true?
A. Yes.
Q. But they didn't do that back in '09, '10, '11, '12 and '13, did they?
A. No.
Q. Okay. So it would appear then this talk about what happened in 2016 and capital budgets and that apparently at some point Ridgewood may have decided that they wanted to embark upon a more robust capital campaign, does not have any relevancy to what happened back in '09 because we're looking at the facts that existed at that time to determine whether to increase the rates in '10, correct?
A. Yes. The 2016 capital budget only impacts my 2016 rate calculation.
Q. Or goes forward. But it has nothing to do with what happened prior to that; agreed?
A. That's right.
Q. Okay. Thank you.
Now, did ‑‑ before I turn to your other report, I had one other question before I leave your initial report, and that is police.
A. I'm sorry?
Q. Police.
A. Police? Yes.
Q. [I Mean|I am] tormented by the topic of police so I want to revisit it with you for a moment maybe you and I together might try to make some sense of it. Okay.
So you determined in your report and you told me a little bit earlier in response to my questions, when I asked you if you could allocate the amount that you believe was the appropriate police allocation, you said there was a certain amount of money that should be allocated, you lumped it together and I asked you if you could allocate it out, and I think you told me ‑‑ you showed me ‑‑ just walk to very quickly, Appendix C, page 10 ‑‑
A. Yeah.
Q. ‑‑ where you had this police department and you said it was around 34,000?
A. Yes.
Q. Okay. So that number's 34,311.95.
Now, does that ‑‑ that number represent the amount of money that you believe is an appropriate allocation for police?
A. That's an allocation for labor for the police.
Q. Is there some other items other than labor?
A. Yes. The items that are listed below that in that same column where you found the $34,000.00. Those are also allocations for police.
Q. So all these going down (indicating)?
A. Yes.
Q. Here?
A. Yes.
Q. And "here," I'm referring to Appendix C, page 10, starting at ‑‑ can you do me a favor?
(Whereupon, an off‑the‑record discussion is held.)
BY MR. FIORENZO:
Q. Okay. It looks like the labor is the big one, right?
A. Yes.
Q. And then there is some relatively small amount. Can you estimate for me, ballpark, what the total of that would be?
A. Page 10, right? Let me just find it.
Q. I'm trying to [safe|save] some time. Give me a rough number. I won't hold you exactly to it.
A. Round up to about $39,000.00.
Q. 39. Okay.
So let's use that just for discussion purposes. So that number, that 39, represents the amount of money that you believe is an appropriate allocation of police expenses to the water utility, correct?
A. Yes.
Q. And do you know how much was allocated to the water utility prior to 2010; for example, in '09. Look at '09. Do you know what the amount was that was allocated in '09?
A. No, I don't.
MR. FIORENZO: Can you mark this, please.
(Whereupon, Exhibit 5 is received and marked as Exhibit O‑14 for identification.)
BY MR. FIORENZO:
Q. So I marked as O‑13 [sic] a document which is Exhibit 5 to the report that was filed in the underlying case. And I will just represent to you those numbers, there is no dispute on the numbers. I'll represent them to you.
That has ‑‑ yes, that has a line item for police salary, wages and direct administrative, correct? You see that?
A. I see police here.
Q. Police. And then there's a line item in yellow?
A. Yes.
Q. For 2006 to 2009, right?
A. Yes.
Q. And it shows the amount that was allocated as indirect costs to the water utility for police.
So tell us what the ‑‑ just read into the record what those numbers are for '06, '07, '08, '09?
A. Well, for 2006 it's 149,743; for 2007 it's 159,766; for 2008 it's 149,122; and for 2009 it's 165,108.
Q. Okay. So now, you just told the governing body a moment ago that based upon your analysis, it would be appropriate to allocate, I think you said $39,000.00 a year for ‑‑
A. Roughly.
Q. ‑‑ all those categories, right? Roughly?
A. That's right.
Q. Roughly. Approximately.
And that's just for the labor component you just read into the record, right?
A. Well, no, there are ‑‑ there are expenses in here too.
Q. Okay. That's the whole thing. So we're comparing apples to apples.
So if I took those numbers correctly, that would indicate to me that Ridgewood had allocated about $120,000.00 per year, on average, over and above what you have now told the governing body is an appropriate amount to allocate for police charges, right? So ‑‑
A. Yes. I independently calculated an allocation factor ‑‑
Q. Right. So ‑‑
A. ‑‑ for police and that's what ‑‑
Q. ‑‑ assuming the math was right ‑‑
THE COURT REPORTER: I'm sorry, one at a time. I can't hear both people. I'm sorry.
MR. ROGERS: Let him finish the answer please.
THE WITNESS: I independently calculated an allocation factor for police and it's .7 percent of the police budget.
BY MR. FIORENZO:
Q. Which comes, as you said, to about $39,000.00?
A. $39,000.00.
Q. Compared to what the water utility had been charged from '06 [threw|through] '09 of an average of about 150‑or‑so‑thousand‑dollars a year?
A. Right.
Q. So by my math, assuming that you're right and your allocation is correct and that it shouldn't be zero, which is what I think, but let's take your number for the moment, that would mean the water utility was overcharged about $120,000.00 a year for a period of six years for about $720,000.00.
Would you agree?
A. Well, I only see ‑‑
Q. Under that hypothetical.
A. I only see four years here.
Q. I know. Because the village didn't produce records prior to that, so we're going to assume and extrapolate that it was an average over that period.
So assuming that, if it was six years at about 120,000 difference, that would mean an overcharge of 720,000 bucks, correct? Under that hypothetical.
A. If you isolate that one item, yes.
Q. Yes, yes. I just did. Okay.
Do you know why the Village of Ridgewood would charge 100 and ‑‑ I'm sorry, can I see it? Would charge an average of $150,000.00 a year over those period of years for police to the water utility?
MR. ROGERS: I've just got to ask ‑‑ object, because it's irrelevant as to what he thinks or why he thinks ‑‑
MR. FIORENZO: No, I'm asking if he knows why.
MR. ROGERS: I know. He did the study these years, he's already admitted this. He, you know, why didn't he do it, I think it's already been vetted out in the court.
MR. FIORENZO: That's a fascinating question. I thought maybe he's here as your expert, he might be able to answer that for you, because it's something that weighs heavily on my mind why all that money was charged when even your own expert now has indicated at most that should be charged is 39,000 and they charged about 150. I'm just ‑‑ I just thought you might want to hear from him.
MR. ROGERS: It's not relevant to a public hearing on 36‑36.
MAYOR KNUDSEN: I don't think it's relevant.
MR. FIORENZO: Not interested? Okay.
MAYOR KNUDSEN: I just ‑‑ no, it's just ‑‑ Mr. Rogers said it exactly correctly ‑‑
MR. FIORENZO: Yes, just another $720,000.00.
MAYOR KNUDSEN: ‑‑ it's not relevant. He didn't study those years, he wouldn't know.
MR. FIORENZO: What's a few dollars between friends.
MR. ROGERS: It's a different issue.
MAYOR KNUDSEN: Right.
MR. ROGERS: It's a different issue, Mr. Fiorenzo.
MR. FIORENZO: I'm sorry?
MR. ROGERS: I said it's a different issue.
MR. FIORENZO: Okay. Fair enough.
BY MR. FIORENZO:
Q. All right. So you prepared a second report, right?
A. I did.
Q. Okay. Let's chat about that for a minute.
So this report deals with the time period from 2013 through 2016?
A. Yes. That's correct.
Q. Okay. So what you basically did, you just ‑‑ as I understand it, is you went back, you took a look at those years, and were you attempting to again evaluate whether a rate increase was necessary?
A. Yes.
Q. Well, there was a ‑‑ the last rate increase that occurred was in 2013, I think it was. I lost my chart.
Yeah, the last increase was in ‑‑ adopted on July 3rd, 2012, effective date January 1 of '14. That was a 3‑percent increase, for the last of the total of 37 percent.
Are you aware of that?
A. Yes.
Q. Okay. So in your report you ‑‑ turn to page 2, please.
So in the report you indicated that you compared the budget revenue requirement, which is really the expenses we talked about, calculated after making adjustments, to the revised allocations of shared cost of water utility, showed the rates in effect for 2013 to '14, were designed properly to produce small surpluses. Right?
A. Yes.
Q. Did you look at what the surpluses that were being generated in '13, '14 and '15 were?
A. For '13 and '14, I looked at what the revenue requirement was for those years, after making adjustments with the allocation factors that I developed in the first study, and I compared that to the ‑‑ to the proof of revenues calculation for sales.
Q. So how about for 2015? Did the revenues go up?
A. They did.
Q. And you indicate since the last rate increase was in ‑‑ adopted in 2012, the middle of '12 and the effective date was January 1 of '14, you, in your report, talked about, the top of page 3, changes in capital expenses in 2016.
Do you see that?
A. Top of page 3?
Q. Top of page 3 of 18, "had the village anticipated changes"?
A. Oh, yes.
Q. Okay. So you speak about the 2016 capital expenses, but we agreed, you and I, a [moment|movement] ago, that those aren't really relevant to the rate increases, because the relevant time period for evaluation is when the rate increase is being adopted; true?
A. But the revenue requirement for 2016 should include the capital expenses for 2016.
Q. You may well be right and that may be considered from '16 going forward ‑‑
A. Yes.
Q. ‑‑ but it certainly wasn't relevant when they made the rate ‑‑ the last rate increase of 3 percent on July 3rd, 2012; correct?
A. Yes.
Q. Yes? I'm correct?
A. You're correct.
Q. You say in your report again, the middle of the page on page 3, you talked about:
"The village also budgeted for the transfer of surplus funds generated by the water utility to the current fund that is allowed for by the New Jersey Board of Public Utilities regulated entities under N.J.S.A. 40A:4‑35.1."
So that goes back to what we spoke about before?
A. Yes.
Q. And the question of whether that was correct or proper or not, you assumed that it was; correct?
A. Yes. Yes.
Q. And that was a material item in the budget, was it not?
A. Yes.
Q. You go on to talk about how, after considering the revised allocations of the village costs, those are your revisions to the allocations, correct?
In other words, you made the revised allocations to the costs?
A. Yes. I used the same allocation factors that I developed in the first study for this study.
Q. Right. Right.
So when you say that:
"After considering the revised allocations of village cost to the water utility, the amounts budgeted for and charged to the water utility were too high."
That was the conclusion you reached, correct?
A. Where are you reading that from?
Q. This is the middle of page 3, first ‑‑ second paragraph.
A. Yes.
Q. Starting with "However."
A. I see that. Right.
Q. So you concluded that what was being allocated to the village was too high; true?
A. Yes. I believe their calculation included capital expenses, which is not ‑‑ not correct.
Q. Which is what?
A. It's not correct.
Q. What's not correct?
A. If you include capital expenses as part of the basis for that 5 percent calculation, the number you'll arrive at is too high.
Q. Then you talk about how you went on to adjust that, correct?
A. That's right.
Q. And in your report you also address the question of, you say:
"Over the four years addressed by the rate study, the rates in effect generated sufficient surpluses above the budgeted and actual revenue requirement, and these differences were not excessive."
So first let's break that down. So during these years, you were evaluating, the four years, there were budget surpluses, correct?
A. Yes.
Q. And you go on to say:
"We reiterate our recommendation from the initial rate study to avoid retroactive rate setting for these years.
"First, it is not necessary because the rates in effect were appropriate, given the budget set for the water utility each of those years.
"Second, retroactive ratemaking is eschewed by the New Jersey Board of Public Utilities and is uniformly avoided in the industry."
Is that true?
A. Yes.
Q. You go on to say:
"In New Jersey if the regulated water utility over‑earns, the board can adjust the utility's rates going forward, but it does not make retroactive rate adjustments."
Is that also true?
A. Yes.
Q. Did you ‑‑ you then go on to take a look at the revenue requirements; do you not, sir?
A. Yes.
Q. I'd like you to turn to Table S‑2, the summary of the allocations.
A. S‑2 on page 8?
Q. Yeah.
A. Yup.
Q. So what is S‑2?
A. S‑2 is just a summation of the actual allocations ‑‑ budget and actual that were made by the village versus the ‑‑ the calculated allocation which I developed using my allocation factors.
Q. So you have that for '13 [threw|through] '16?
A. Yes.
Q. And then you include in there statutory expenses, contribution to PERS; is that correct?
A. Yes.
Q. And did you ‑‑ do you know whether ‑‑ did Judge Friscia address the question of PERS?
A. I don't know.
Q. Were you advised that the judge had ruled the village had improperly charged the water utility $348,262.00 in early retirement payments in '05 and '06?
A. In '05 and '06?
Q. Yeah.
A. I didn't ‑‑ I didn't look at those years.
Q. No, but it was in the report which you read.
A. Yes.
Q. You never talked about that?
A. No.
Q. The village contributed to PERS?
A. They may have. But it was something that occurred before 2010, the first year that I was ‑‑
Q. So it wasn't of interest to you, I take it?
A. That's right.
Q. Correct.
A. And here, in this table, these are just the actual numbers, budget and actual, that were allocated by the village.
Q. So ‑‑ so was there ‑‑ during the period of time that we've been discussing covered by this report, were there excesses of revenues over expenses during those period of years?
A. Some, but not all.
Q. Let's just take a look again at O‑3. That is the schedule, [it's|its] entitled analysis of fund balance. You know what a fund balance is, right?
A. Yes.
Q. So from a layman's perspective, cutting out the jargon, "fund balance" is really kind of the accumulation of all the money you make over a period of years?
A. Well ‑‑
Q. Carried over?
A. ‑‑ it's the ‑‑ yes. Say, the net operating income. How about that?
Q. Thank you.
So you have net operating income and then it gets put into a fund balance, and then there could be monies taken out of the fund balance, it could go up or down, but basically the fund balance represents an accumulation over time, but basically net operating income if it was different it would be profit?
A. Right.
Q. Okay. And so the way a fund balance increases is if there's profit, if you're making money, right?
A. If the fund balance grows, you're making money. If the fund balance declines you're losing money.
Q. Okay. So when you looked at the years '13, '14 and '15, let's focus on those for a moment, it appears that ‑‑ and these numbers are from the audited statement. These are the fund balance and the water utility. It appears that for the first year of this study, 2013, there were total revenues from the audited financial statement of 13,436,786; correct?
Again, I'll represent to you those numbers come straight from the audit?
A. Okay.
Q. And they were testified to at trial.
So assuming that these numbers are accurate for the audit, the total revenues for '13 of 13,436,786, exceeded the total cost of 12,222,600; correct, sir?
A. That's what those numbers show, yes.
Q. And as a result of that the fund balance, which you just described a moment again as the profit, went up, right?
A. Yes.
Q. It went up by how much from '12 to '13?
A. Looks like [about|bought] $1.2 million.
Q. [How much|How Many]?
A. About $1.2 million.
Q. 1.2. Okay.
So then in '14, it looks like the revenues went up, 14,778,595. The total costs remain roughly the same, 12,295,862. And so was there a profit? Did the fund balance go up?
A. Yes, it did increase.
Q. By how much did it go up in that year?
A. Looks like about 2.4 million, $2.5 million.
Q. 2.4 million.
So there was sort of a net profit being shown of $2.4 million in that year, correct?
A. Right.
Q. Okay. And so then let's go to the next years, which were '14 and '15. In '15 it looks like the revenue was 14 million 527. Expenses were 11,984,798. So how much money did they make that year?
A. Well, the fund balance increased by about $2.6 million.
Q. 2.6.
So now by the end of '15, [threw|through] these increases in net profit, whatever you want to call it, there appears to be accumulating a larger and larger amount in the fund balance of the water utility, correct?
A. Yes.
Q. So that's good, right?
A. It is.
Q. It's terrific for operations, terrific for rate stabilization, things like that, correct?
A. It also positions the utility to make capital expenses without ‑‑
Q. Sure. Now they're flush with all this cash, right?
A. Um‑hmm.
Q. Yes?
A. Yes.
Q. Okay. And by the way, that amount ‑‑ that amount doesn't even include the $8,308,000.00 of profit that's been accumulated. That doesn't include what? You know. What doesn't it include? It doesn't include the $2,858,548.00 that were taken out and transferred ‑‑ took the money out of the water utility account into the operating account in the Village of Ridgewood. It doesn't include that money, right, because that was expense.
A. Yes. That would be transferred to the operating account.
Q. Right. So if ‑‑ if ‑‑ and again, I know you don't agree with this, but if, pretend for a moment that maybe the judge said it's illegal or some other judge says you can't do that, that would then mean that there's an extra ‑‑ there would have been an extra $2.8 million added to the 8,308,773, which would have left, assuming that that money shouldn't have been taken out, $11,167,000.00‑and‑change.
Am I correct in that regard, sir, or is my math wrong?
A. It looks like your arithmetic is right.
Q. Okay.
A. But I don't know that I can pretend that that's correct.
Q. Okay. And by the way, there's one other thing, '16. We've been talking about it. '16 now. You got all this ‑‑ you have 8.3, now that 2.8 million has already been taken out of the water utility you still have all that money, and so we know in '16, because you mention it in your report, now they have to try to figure out what to do with all this cash.
So they took, in '16, for the very first time, $1.8 million that they used for the capital improvement up from $75,000.00 in 2009, correct?
A. Yes.
Q. And then they did one other thing. One other thing, and that is they made another transfer out to the budget in the Village of Ridgewood, only this time it was an even bigger amount. How much was that? 783,101. You're aware of that, right?
A. Yes.
Q. Because you reviewed the budget, right?
A. Yes.
Q. So they took out the 1.8 in capital, they took out another 783 in the budget, in the transfer.
In other words, the budget went from the water utility ratepayer fund to the Village of Ridgewood to help them defray their budget and their costs.
So if we add ‑‑ if we assume, again, pretend for a moment that that shouldn't have been done. That means that there would have been, sitting in the bank, $11,950,422.00.
Am I correct in that regard, sir?
A. Well, that's the number you show on your exhibit.
Q. Right. Right.
So can we agree that there certainly was no need for any rate increase in '13, '14 or '15?
A. Well, there was no rate increase in '14 or '15.
Q. Okay. Can we agree that there was no basis for rate increase in '13, '14 or '15, based upon the performance and the profits that were being derived and accumulated over this period of time; can we agree?
A. Well, again, the numbers that you're showing in your revenue column there ‑‑
Q. Assuming hypothetically these numbers are accurate.
A. Yes. If they're accurate and assuming that I don't recognize any of those as restricted funds that can't be used for operating expenses, if those are the right numbers then I'd say yes.
Q. Okay.
A. But I don't necessarily agree that those are the right numbers.
Q. Well, did you do ‑‑ did you do an analysis of that?
A. I analyzed the budgets and the actual expenses for each of those years.
Q. Well, those ‑‑ the audit gives you the actual numbers, doesn't it?
A. It does.
Q. So let's look at what you did.
You did a bunch of different calculations. So go to page 17, please.
You say on page 17:
"It is our conclusion that the rates in effect in 2013, 2014 and 2015 were adequate to recover the recalculated budget and revenue requirement of the water utility."
Is that true?
A. Yes.
Q. So there was enough money in '13, '14 and '15, sufficient to provide operation; indeed, as we know, generating a significant surplus, correct?
A. Yes.
Q. You then go on to say:
"While the variance between budget and actual expenses within reason, the amount of actual surpluses generated in 2013 through 2015" ‑‑ those are the years we've been
Talking about ‑‑ "suggest a need for more aggressive budgeting as would be seen in an investor‑owned utility.
"Unfortunately, municipal procurement rules and budgeting standards may not permit tighter budgeting to the effectively implemented."
So you're saying that in '13 through '15, as we just went [threw|through] the numbers, it's terrible, that there needs to be a more aggressive budgeting, and by that I take it you mean that there really ‑‑ if you are going to try to match revenue expenses and create some reasonable amount of surplus. They could have more aggressively budgeted and not needed as much revenue as was generated; true?
A. Yes. What I ‑‑ what I saw here in '13, '14, '15 and '16 is that there ‑‑ there was a growing spread between the budget and actual expenses. Where the budget is higher than the actual expenses.
Q. Right.
And that's what you meant by aggressive budgeting, to try to close that gap?
A. Yes.
Q. Okay. As would be done in private industry, you wouldn't want to, you know ‑‑ I know it's not analogous, there's not that need you suggested, correct?
A. In prior years the gap was smaller, so I ‑‑
Q. Much smaller.
A. ‑‑ so I think that they proved that they could also do it closer.
Q. Right. Historically, the ‑‑ the gap between revenue and expenses was nowhere near what we saw in '13, '14 and '15; would you agree?
A. Well, in '15, I think, is an unusual year in and of itself because of the weather.
Q. Well, whether it was or wasn't, just looking at the numbers, those were very, very large gaps, historically never seen; true?
A. Yes. And ‑‑ and '15, I think, was driven mostly by ‑‑ by weather.
Q. Whether it was or wasn't, those were historical gaps in revenue as we've never before seen, correct?
A. Well, no one would budget for the kind of sales year that ‑‑
Q. It was never before seen historically ‑‑
MR. ROGERS: Let him finish his answer.
BY MR. FIORENZO:
Q. ‑‑ in this utility, correct?
A. No one would ‑‑
THE COURT REPORTER: I'm sorry, I can't take everybody at once.
BY MR. FIORENZO:
Q. It was never before seen historically in this utility, the gap that was exhibited in '13, '14 and '15, right?
A. Well, I'll focus on '15. That's the year that ‑‑
Q. No, I want you to focus on my question.
MR. ROGERS: Let him finish the answer.
BY MR. FIORENZO:
Q. Would you focus on my question? It's really not that hard.
MAYOR KNUDSEN: And can you also just go back to the microphone.
THE WITNESS: Let me answer to '15 and I'll work backwards.
BY MR. FIORENZO:
Q. It's really not that hard, you know, it's pretty late and we want to get out of here. Could you try to focus on the question?
A. And I want to give you an answer.
Q. What's that?
A. I want to give you an answer.
Q. Well, you're not even trying to.
A. I am.
Q. You said you want to talk about '15. I didn't ask about '15.
MR. ROGERS: Please, Mr. Fiorenzo, let him finish his answer.
THE WITNESS: You did ask about '15. You just asked about '15.
MR. FIORENZO: No. All right. So let me rephrase the question because you don't want to answer.
MR. ROGERS: It will happen if he ‑‑ it will happen if he finishes the answer.
BY MR. FIORENZO:
Q. So in 2013, you talked about this gap that required more aggressive budgeting. Would you agree that the gap that existed in '13 and '14 was historically far beyond anything you have seen before in the water utility?
A. For the years that I've looked at, yes, but I didn't look at anything prior to 2010.
Q. So for the years you looked at?
A. Yes. Yes.
Q. Which is why you said you should be more aggressive in your budget, correct?
A. Right.
Q. Turn ‑‑ take a look at the table up above, S‑10.
A. Yes.
Q. You say, in the second line:
"It's worthy to note, the actual performance in each of the four years in this study produced results in which the revenue requirement, based on actual expenses, was less than the amount budgeted."
A. Yes.
Q. "This resulted" ‑‑ so let me stop there.
So when you say the revenue requirement based on actual expenses, the revenue requirement is the expenses, correct?
A. That's right.
Q. And you're saying the actual expenses were less than the budgeted amount, correct?
A. That's right.
Q. So that means they over‑budgeted the expenses, correct?
A. Well, they budgeted higher than what their actual expenses were.
Q. Than what they needed, right?
A. Well, they were able to control their expenses. That's what that tells me.
Q. Right. You say:
"This resulted in surplus amounts that exceeded the budgeted surpluses and in some cases, by significant amounts."
Correct?
A. Yes.
Q. And we just went through that and that's certainly true; significant amounts of surplus were generated as a result of the fact that you had expenses were actually less than what was being budgeted, which is why you said they had to focus more on the budgeting to bring those expenses down, correct?
A. Yes. And in 2016 they also had a $1.3 million shortfall.
Q. Right. So now ‑‑ yeah. So...
A. So you can see ‑‑ you can see swings here with this utility that go between 1‑and‑a‑half and $1.6 million, plus or minus.
Q. So going back to '10, '11, '12, which is when all the rate increases were in existence, we've gone through those numbers and you told us your conclusions.
Now, for this final report that you've given, you've told us that ‑‑ assuming hypothetically, you told us that because of the surplus being generated, there clearly was no need for a rate increase in '13, '14 and '15; correct?
A. Well, I said there was no need for a rate increase in '14 and ‑‑ '14 and '15.
Q. '13 and '14 and '15.
There was no need for a rate increase in '13, was there?
A. Well, '13, with the actual rates that were put into effect, with that 3 percent rate increase, that generated a $1.5 million surplus.
Q. Right. Exactly.
A. Right.
Q. So there was no need for an additional rate increase over and above the one that already had been put in effect?
A. It could have been smaller, probably.
Q. It could have been smaller. How much smaller?
A. I don't know. I didn't calculate that. I think the numbers are so close that there is no need to change the rates.
Q. Well, it wasn't close in 2013, was it? The gap was large.
A. I think $1.5 million is pretty close.
Q. Yeah.
Do you know what the ‑‑ do you know what the rate was ‑‑ the rate increase was in 2013?
A. Three percent.
Q. Okay. And so then you said there was no reason for a rate increase in '14 and '15, correct?
A. Well, there were no increases in '14 and '15.
Q. But there would have been no reason to have one anyway, correct?
A. Well, I believe in '14 and '15 they generated surpluses, but in '16 they did not.
Q. So there was no need for a rate increase in '14 and '15, correct?
A. Based on the budget for '14 and '15, I would not have recommended a rate increase. And they didn't ‑‑ they didn't have a rate increase in those two years.
Q. Thank you.
Go back to Table S‑10, please, on page 17?
A. Okay.
Q. So this is a comparison of revenues and actual rates and actual revenue requirements?
A. Yes.
Q. So you have a line item for anticipated revenues; is that based on budget?
A. [It's|Its] based on the proof of revenues calculation for each of those years.
Q. So that's not based on the budget?
A. No.
Q. [It's|Its] based on the numbers you prepared?
A. Yes. [It's|Its] based on the billing determinants for each of those years. And it's based on the rates ‑‑
Q. That's based on ‑‑ I just want to be clear where the numbers come from.
Those are numbers you created, they didn't come from a budget. They don't come from an audited statement. Those are numbers you created, correct?
A. Yes. They're anticipated revenues assuming that 100 percent of the bills are rendered are collected.
Q. You created those based on schedule S‑9, correct; Table S‑9?
A. Well, in that table what you have is a comparison on the same anticipated revenues with the revenue requirement based on the budget.
Q. So going back to what we discussed before, you then have, after total revenues which you created, projected, you have revenue requirement, and those are the expenses, correct?
A. Yes.
Q. And where do those numbers come from?
A. They're the ‑‑
Q. The audited statements?
A. No. They're the ‑‑ the line item budgets that are modified by the allocation factors that I developed.
Q. So taking your table, for 2013, you show that after consideration of the revenue minus expenses, you show the surplus of $1,574,543.00, correct?
A. Yes. And that's based on the ‑‑ on the recalculation of the actual expenses that were booked.
Q. Your recalculation?
A. Yes.
Q. Okay. So it's your opinion then that for 2013, you could take into considerations the adjustments that you believe are appropriate to the allocation of the cost, it would result in a surplus, based on the rates in effect in '13, of 1,574,543; correct?
A. Yes. But that's not the ‑‑ that's not the table that I would use to determine whether it needed a rate increase or not.
Q. I didn't ask that.
The next thing you did was you then do the same analysis for 2014?
A. Yes.
Q. And for 2014 you conclude, based on that table, that there is $1,128,440.00 in ‑‑ 441 the surplus, correct?
A. That's right.
Q. And then for '15 it goes up to 2,396,664 in surplus, correct?
A. Right.
Q. By the way, that trend that's in your table, S‑10, is consistent with the trend that's shown from the audited financial statements reflected on O‑3; correct, sir?
A. Yes.
Q. Okay. And that's the reason why you told me a moment ago that you concluded that at least in those three years there did not appear to be any variance between revenue and expenses sufficient to justify a rate increase; correct, sir?
A. Again, these are all calculated based on the rates that were actually in effect, so the 2013 numbers include the 3 percent rate increase that was implemented for 2013.
Q. Right. Based on those numbers there was no need for a rate increase for '14 or '15, correct?
A. And there were no rate increases in '14 or '15.
Q. I didn't ask that.
There was no basis for it. Whether there was or there wasn't, there was no basis for it ‑‑
A. Right.
Q. ‑‑ would you agree?
A. The surplus is on a budget or an actual basis, so I ‑‑ I would not have recommended a '14 or a '15 increase.
MR. FIORENZO: Just give me one second.
(Brief pause.)
MR. FIORENZO: That's all I have. Thank you.
MR. ROGERS: Mr. Northgrave, is there any questions?
MR. NORTHGRAVE: I think Mr. Woods covered everything.
MAYOR KNUDSEN: Wait, we didn't hear you.
MR. NORTHGRAVE: I'm sorry? Let me step to the microphone.
I think Mr. Woods covered the field very effectively. I don't have any questions at this time.
MR. ROGERS: Any questions from the members of the public? Yes.
MAYOR KNUDSEN: There we go, Bruce.
MAYOR PACKER: Thank you.
Bruce Packer, Mayor of Glen Rock.
First, just really quickly, some time last night I had asked to speak and I just wanted to say that I realize that this is ‑‑ there's probably been never a hearing like this before. I think this format and everything about this is different than anything that's been done before.
And I think I should have been granted a little leeway, even though I realize that I was out of order, I should have spoken earlier, but since I'm speaking for 4,000 households who were impacted by the decision, I think a little leeway would have been a good thing.
That being said, thankfully we have two of our experts here so I could ask the same question that I was going to ask the previous one.
And we've kind of touched on everything at this point. And I'll try to be a lot quicker.
But, in general, if ‑‑ if we were to go down every line of the municipal budget and ask ourselves the question, for each line, would this number be lower if Ridgewood Water did not exist? And if the answer to that question is yes then we should probably have an allocation. If the answer to that question is no, we probably should not have an allocation.
Is that correct? Does that make logical sense?
THE WITNESS: I'm not sure I follow your question. You want to try me again.
MAYOR PACKER: So if you go ‑‑ if you look at, I don't know, item X, Y ‑‑ item ‑‑ I'm trying to think of something.
THE WITNESS: Chlorine, how about that for ‑‑
MAYOR PACKER: Correct. So you look at that on the budget. You have some amount that's dedicated to that in your municipal budget. And you ask yourself if Ridgewood Water, if the Ridgewood Water facility did not exist and was not in Ridgewood, would that number be the same on the municipal budget? If the answer was yes, that number would be the same if Ridgewood Water did not exist, there probably should be no allocation to Ridgewood Water.
Does that make logical sense to you?
THE WITNESS: We have to pick another example then. I picked one that happened to be a direct expense to the water utility, so let's try something else.
MAYOR PACKER: A DPW truck.
THE WITNESS: Okay.
MAYOR PACKER: So we have a DPW truck that's a line item in the budget that is dedicated to trees on the ‑‑ some part of town that's far away from Ridgewood Water. A particular truck. You would need that truck if Ridgewood Water did not exist. Should that truck in some way be allocated to Ridgewood Water?
THE WITNESS: Well, it depends if the truck is being used to provide a service to Ridgewood Water then it should be.
MAYOR PACKER: I'm saying that it's not in this hypothetical situation.
THE WITNESS: If the truck doesn't have anything to do with Ridgewood Water then, no, I wouldn't allocate any of that to water.
MAYOR PACKER: Okay. So with that in mind, I want to talk for a second about the police.
And [it's|its] ‑‑ I think it's been implied, and maybe I'm wrong, that the village police are actually coming to Glen Rock, Midland Park and Wyckoff in some capacity because we have, you know, obviously Ridgewood Water facilities on our ‑‑ on our land, but that's not true.
I am not aware of a Ridgewood Village Police Officer ever doing anything in Glen Rock for any of those facilities.
And, in fact, the Glen Rock Police don't incur any extra time because of those facilities.
So with the latter point, I don't understand or I'd be surprised if the village police are incurring extra manpower because the facility is here.
I mean, do we have more people on duty any given day because Ridgewood Water is here.
THE WITNESS: No. That's not the point of the allocation.
The allocations are done to try and reflect a functional cost; in this case, we're talking about police. That does, in fact, provide some service to the water utility.
Unfortunately, though, there is not a cost allocation method in place to know exactly what that cost should be, so we have to develop an allocation.
MAYOR PACKER: So day‑to‑day what are they providing that they wouldn't be doing anyway if the facility wasn't there.
THE WITNESS: They provide security consulting for the utility. They ‑‑ they also [employees|please|police] the facility.
MAYOR PACKER: And how often do they have those security meetings with the facility?
THE WITNESS: That, I don't know. I couldn't tell you.
MAYOR PACKER: Is it likely that they meet weekly or is it possible they make a plan once a year?
THE WITNESS: Periodically, I just don't know how frequently. But, again ‑‑
MAYOR PACKER: Wouldn't that be important to know if you're going to allocate a pretty good sum of money, how often they are meeting with them or consulting?
THE WITNESS: Well, again, they're only allocating about $39,000.00 a year out of a 12 to $15 million annual revenue requirement. It's an insignificant number.
MAYOR PACKER: Okay. But ‑‑ fair enough.
One other question, have you ever ‑‑ and I think you answered this during one of the previous rate hearings, have you ever been asked to do a study quite like this one, or are you aware of there being a study quite like this one where you have historical rate changes that have been taken away and you have to evaluate what they should have been?
THE WITNESS: No.
MAYOR PACKER: And are you aware of anybody doing a study like that before.
THE WITNESS: Most rate studies are done prospectively, where they look forward at a budget that might be one or two years prospectively, and then they separate on that basis. They ‑‑ they generally don't go back, you know ‑
MAYOR PACKER: Exactly. So ‑‑
THE WITNESS: ‑‑ a number of years.
MAYOR PACKER: So ‑‑ so there's no traditional method here that it was obvious to you that you should be following to do this study?
THE WITNESS: Well, the rate calculations are the same. Whether we look at historical budgets and actual amounts or whether we look at prospective amounts, the calculations are the same.
MAYOR PACKER: So you're saying that no matter what methodology you selected, you would have come to the same number?
THE WITNESS: Well, given the ‑‑ given the budget numbers that I reviewed for 2010 [threw|through] 2016, and the actual numbers, yes.
MAYOR PACKER: Even though there ‑‑ I forgot, I don't have it in front of me, there were 15 allocation factors or something that ‑‑
THE WITNESS: Fourteen.
MAYOR PACKER: Fourteen.
So if you didn't use those allocation ‑‑ if you didn't use the methodology that had allocation factors, you still think you would have come up with the same numbers?
THE WITNESS: Well, no, the ‑‑ the ‑‑ the method of using the allocation factors is one that would be used if we were looking at a prospective look and forward‑looking rates. That's more normal.
The only difference here is we're looking at periods of time when we have the budget amounts that were adopted by the ‑‑ by the village, and we also have the benefit of being able to look at the actual amounts at the same time.
That's the part that is unusual is having the actual stuff, having ‑‑ having completely historical test years for every year that we look at.
MAYOR PACKER: Right. But a big part of the picture is the number you're coming up with the allocation factors which, you know, we are ‑‑ we've been talking a little bit about, I mean, if you ‑‑ if your percentages were different, your results would have been a lot different.
THE WITNESS: Well, the allocation factors you should always develop on the basis of actual expenses, not budget expenses.
So the factors, you know, the percentages that I used for the allocations, they were developed on the actual expenses between 2009 and 2012.
MAYOR PACKER: But you used percentages like total square feet, you know, percentage of square feet for one function versus ‑‑
THE WITNESS: Yes.
MAYOR PACKER: ‑‑ total.
So you ‑‑ you did come up with some factors that had nothing to with actual numbers.
I used to ‑‑ I was an actuary for over 25 years, and I actually put together studies very much like this because even though insurance has nothing to do with water rates. When you're doing a rate study for anything and you've got no information, you're really just down to numbers.
THE WITNESS: Right.
MAYOR PACKER: So, I mean, I have worked on things like this.
THE WITNESS: Right.
MAYOR PACKER: And so I know how I would answer this question, but I'm going to ask you. If you and five of your peers were handed this project, do you think you all would come up with the same number?
THE WITNESS: Exactly? Probably not.
MAYOR PACKER: Do you think you would have even been within a ‑‑ given nothing else, but the piles of information you were given, is it possible there'd be a pretty wide range of results?
THE WITNESS: I suspect we'd all be fairly close together.
MAYOR PACKER: That surprises me. I don't think so.
Based on my knowledge of these types of situations, there are so many moving variables that it just ‑‑ it can go up or down and all over the place.
But I understand you're sharing your expert opinion. And I appreciate that.
One last thing, and I'm not sure if you can answer this. Does it surprise you ‑‑ let me ask you, did you meet with the council in any private meetings prior to the open rate hearings to ‑‑ did they get a chance to ask you questions in a private meeting before we did a public hearing?
THE WITNESS: No.
MAYOR PACKER: And I think I missed one of the hearings, I was only at one, and I really didn't hear a lot of questions asked of you.
So were you a little surprised to hear the experts of the study that critiqued you get roughly 15 to 20 questions each, you know, almost interrogations, like, sitting, you know, sitting still versions of ‑‑ like sitting still Fiorenzos' almost, you know, asking you questions, and you really didn't get any questions at all on a study that was really based on a lot of assumptions and I think there were a lot of reasons, I think you'd agree there were a lot of things that people could ask.
Were you a little surprised that you weren't asked any questions about the work you did, it was just taken just because?
THE WITNESS: Well, in the prior ‑‑
MR. ROGERS: I think the record will reflect that there were a number of questions asked at those other meetings, so, I mean, it's on the record so it will show it ‑‑ certainly there wasn't no questions being asked.
MAYOR PACKER: Okay. So I'd like ‑‑ I would ‑‑ I definitely hope that anyone who reads the record looks at the questions that were asked of this expert and the tone and the questions that were asked of the other experts and the tone.
But thank you very much. I know it's late.
Thank you, Mayor.
MAYOR KNUDSEN: Did you have a question for Bruce?
COUNCILWOMAN WALSH: Yes, I have a question for Mayor Packer.
MAYOR KNUDSEN: Mayor Packer, come back. Come on back.
MAYOR PACKER: Yes.
COUNCILWOMAN WALSH: Hi. Just a quick question for you.
So, kind of relating to your questions of policing. So we're in ‑‑ obviously, in water restrictions and Ridgewood has the responsibility to issue summonses and that turns into revenue when people pay their summonses.
So what happens to the revenue in your municipality when you issue summonses during the water restriction.
MAYOR PACKER: I hope none of our residents are watching, but our police have not issued any summonses during the restrictions.
AUDIENCE MEMBERS: Oh.
MAYOR PACKER: It's a ‑‑ it's a conversation that's been ongoing as to who should be handling that, and we've actually spoken to Rich Calbi about possibly setting up a situation where we would share in the folks that are issuing the summonses for you. That has not happened, it never got anywhere.
But our police don't issue summonses. And I know everyone in Glen Rock is sleeping so they won't know that.
MAYOR KNUDSEN: Wake up Glen Rock.
MAYOR PACKER: Any other questions?
COUNCILMAN HACHE: I'm glad Ridgewood is sleeping.
MAYOR KNUDSEN: And actually that' that ‑‑ on the ‑‑ I think that's that non‑sales revenue so that we're speaking of earlier, so it's ‑‑ it's ‑‑ it adds up.
MR. ROGERS: Miscellaneous revenues.
MAYOR KNUDSEN: It's your revenue then, your loss.
MR. SHANNON: Mayor and Council, my name is Robert Shannon. I'm the municipal administrator in Wyckoff. I've been the administrator for 35 years.
I have worked with Mr. Florence. I've worked with Deitz. And I worked with Mr. Moritz. I worked with Mr. Calbi. I know all ‑‑ I knew all four of them very well. None of them ‑‑ your last four directors ‑‑ have ever asked me, either in writing or verbally, not to have our fire or police department patrol or service any Ridgewood Water ‑‑ Water property. Our police department protects property and individuals without any type of discrimination. Additionally, similar to Ridgewood, the three municipalities are also ‑‑ also accredited.
So regarding the questions that were talked about regarding policing, Wyckoff has always policed and provided fire service to Village of Ridgewood property in the Township of Wyckoff.
MAYOR KNUDSEN: Thank you.
And, hopefully, nobody interpreted that ‑‑
Mr. SHANNON: Yeah, I don't know that ‑‑
MAYOR KNUDSEN: I don't think anybody thought otherwise. So we appreciate that.
MR. ROGERS: Yes, I don't think anybody suggested differently.
COUNCILMAN SANSONE: Hi. I'm Bob Sansone. I'm council in Midland Park.
I just wanted to go on record as well that our police department does and always has covered Ridgewood Water's property and tanks and has ‑‑ as a part of their everyday patrol, as well as the fire department.
So, again, if there is issues, we've never billed. Okay. Thank you.
COUNCILWOMAN WALSH: Can I just ask you the same question I asked Glen Rock then?
COUNCILMAN SANSONE: Yes.
COUNCILWOMAN WALSH: So in the water restrictions that we're in, who issues the summonses in your municipality?
COUNCILMAN SANSONE: So far residents have been 100 perfect, to my knowledge. I don't know. So sorry.
COUNCILWOMAN WALSH: You don't know?
MAYOR KNUDSEN: Yes, sir.
COUNCILMAN MADIGAN: Thomas Madigan, I'm a township committeeman of Wyckoff. I'm the township committeeman in Wyckoff. And I'm also the deputy police commissioner.
I'm confused. I have been here, see if I can do my math, 7‑and‑a‑half hours. And all I heard about was the police and the police allocation in the town of Ridgewood. So I don't understand because the Wyckoff Police are doing in Wyckoff what you claim the Ridgewood Police are doing. So how do you explain that?
MAYOR KNUDSEN: So I think [I mean|I am] going to answer that. I don't ‑‑ I believe that what Mr. Woods stated is that the Ridgewood Police Department consults with Ridgewood Water, which is different than the role of patrolling.
They specifically consult with Ridgewood Water about security initiatives.
Would that be accurate?
THE WITNESS: Yes. And they do also do the patrolling there.
MAYOR KNUDSEN: Okay. Yes. And patrol. But I'm just saying over and above what would be construed there. So there are some things ‑‑ other things that Ridgewood Water does and with ‑‑ ‑ in concert with Ridgewood Police Department.
COUNCILMAN MADIGAN: Okay. So based upon that and based upon what we heard tonight, I'm sure there'd be no problem with reproducing police logs that should clearly show when Ridgewood Police and fire ever came to Wyckoff because I've lived there 35 years, two days ago, 35 years. And they haven't even been there even for our parade. So I don't understand all these allocations going to Wyckoff.
MR. ROGERS: I don't think anybody's suggesting that the Ridgewood Police patrol in Wyckoff or Midland Park or Glen Rock.
MAYOR KNUDSEN: Right.
MR. ROGERS: Nobody said that.
MAYOR KNUDSEN: I don't think anyone suggested that at all.
MR. FIORENZO: Your expert did.
COUNCILMAN MADIGAN: Your expert clearly said that.
MR. ROGERS: No, no.
COUNCILMAN MADIGAN: And ‑‑ and my last question ‑‑
MR. FIORENZO: He said it in his report. He says it in his report. I'll read it into the record if you want. It's in his report.
MR. ROGERS: I'm sorry. Go ahead. Go ahead with his question.
Mr. Madigan, go ahead.
MR. FIORENZO: I'll read it into the record.
MR. ROGERS: Mr. Madigan, go ahead.
MR. FIORENZO: It's in his report.
COUNCILMAN MADIGAN: When I'm done I'd defer to the attorney to read that into the record.
And then I clearly heard Ms. Walsh, who was telling us about Ridgewood Police, the various water properties and how they have to protect them in the towns, so based upon your comments and what was said tonight and this allocation of the police for Ridgewood Water, are you suggesting that from now on there is no need for Wyckoff Police or Midland Park Police or ‑‑
MAYOR KNUDSEN: As we stated earlier ‑‑
COUNCILMAN MADIGAN: Excuse me. I didn't interrupt you.
MAYOR KNUDSEN: I'm sorry. You're right. Go ahead.
COUNCILMAN MADIGAN: And this is the only time I can barely hear you because I'm that close. In the back I can't hear you.
But are you suggesting that ‑‑ with that comment that there's no need for us to protect your properties? Are you telling us that you can handle it because you're channeling all this money? I'm confused.
MR. ROGERS: I don't think anybody said that either, so.
MAYOR KNUDSEN: And I do think that what was stated on the record is that Ridgewood Water is a ‑‑ pays property taxes in each of the three municipalities and as such, we would fully expect the same protections every other taxpayer is afforded.
COUNCILMAN MADIGAN: Well, my listening skills, I used to think were pretty good, but no matter what we say, comments on or ask questions, somehow we're always wrong.
MAYOR KNUDSEN: Well, it was on the record so...
COUNCILMAN SHANLEY: Timothy Shanley, Township Committeeman from Wyckoff.
I just have a couple of questions for you, Mr. Woods.
Have you ever been involved in a hearing where the governing body that decided the fairness of the rate increases is hearing testimony from you, hearing testimony from the other towns that are involved that are ratepayers, and then deciding on the appropriateness of the rate increases?
THE WITNESS: Well, I have been at other ‑‑ I've actually been at other hearings like this one, with the exception that in most cases, you know, municipalities provide service within the corporate boundaries of the municipality, so we don't have the ‑‑
COUNCILMAN SHANLEY: But if they have ratepayers in other towns, do they have a fiduciary duty that they're owed to Wyckoff, Midland Park, Glen Rock, in deciding the rates?
THE WITNESS: Well, let's just stick with New Jersey first on this, because the rates are uniform, there is no ‑‑ no obligation to the village to file rate increases with the Board of Public Utilities and have them reviewed and approve by the board.
The board essentially, because of legislation, allows the village to determine those rates on the presumption that if they're uniform inside and out and that all ratepayers will be equally protected.
COUNCILMAN SHANLEY: Wouldn't it be fairer if the BPU was the one that decided the appropriateness of the rate ‑‑ rate increases for people in Wyckoff ‑‑ ratepayers in Wyckoff, Midland Park and Glen Rock? Because they don't have a voice where they could say we're not happy with what the five council, village council people are doing, so they could vote them out. They have no say.
THE WITNESS: I think if you were to go back to the day when, in fact, the village utility did have to have its rate increases approved by the board, you would find that the cost of providing the service would be significantly higher. You know, putting on ‑‑ you know putting on a rate case before the board is not cheap.
And for a utility the size of this village system, I wouldn't ‑‑ I would expect the ‑‑ the average expense, which would be an added amount to the ‑‑ to the revenue department now would be on the order of 2 to $300,000.00 a year as an average expense.
COUNCILMAN SHANLEY: Well, there were certainly expenses with your rate increase, your rate study?
THE WITNESS: Sure, yes.
COUNCILMAN SHANLEY: There was increases that ‑‑ [I mean|I am], there was expenses to the three other towns that involved ‑‑ that had Exeter come here today, the attorneys presenting the witnesses, the legal fees for ‑‑ for Mr. Rogers for, you know, counsel ‑‑ I mean, I'm sorry, I forgot your name. There's quite a bit of expense in this proceeding as well.
THE WITNESS: Yes, I agree with that.
COUNCILMAN SHANLEY: Well, so which ‑‑ which is the preferred ‑‑ the only reason you don't think the BPU is preferred is because it's a little more expensive? Wouldn't it be fairer?
THE WITNESS: Well, it's more expensive and the legislature has decided to allow this.
COUNCILMAN SHANLEY: True. They have. But that doesn't mean we can't petition the assembly, the senate and the governor to try to change that because of the unfairness.
THE WITNESS: Well, you know, the law is above my pay grade, so...
COUNCILMAN SHANLEY: Because from my perspective of sitting ‑‑
THE WITNESS: ‑‑ I know what it is.
COUNCILMAN SHANLEY: ‑‑ sitting here for seven hours and been here at every hearing, I don't believe the 17,000‑plus residents of Wyckoff are going to get a fair hearing out of this, because I think this is all predetermined, and I truly believe that they're just going to pass the rate, the rates ‑‑ the rate ordinance the way it was introduced, the way you backed it up and not ‑‑ not hear anything from our expert.
THE WITNESS: Well, I can only tell you that I did my rate study without any input from these folks here.
COUNCILMAN SHANLEY: Yeah, but you were hired by them to basically support the rate.
THE WITNESS: As a result of a court order.
MAYOR KNUDSEN: A court order.
THE WITNESS: I was hired by them to review the rate calculations that were done.
COUNCILMAN SHANLEY: And you're being paid by them as well, correct?
THE WITNESS: Yes, I am.
COUNCILMAN SHANLEY: So...
MR. ROGERS: The court ordered us to do that. And state legislature decides on that method with regard to BPU.
COUNCILMAN SHANLEY: I'm an attorney, so I kind of understand the law.
MR. ROGERS: I know.
COUNCILMAN SHANLEY: Thank you.
COUNCILWOMAN WALSH: Can I ‑‑ can I ask one more question?
COUNCILMAN SHANLEY: Yes, you may.
COUNCILWOMAN WALSH: Can I ask you a question. So I'm just going to ask Wyckoff the same question I asked the other municipalities.
How do you guys ‑‑ how do you issue summonses, we're under water restrictions.
COUNCILMAN SHANLEY: We don't issue summonses because we don't have an ordinance.
COUNCILWOMAN WALSH: So ‑‑
COUNCILMAN SHANLEY: We don't have an ordinance regarding water rates. I mean the water ‑‑ watering your lawn. So we ‑‑
COUNCILWOMAN WALSH: You don't have an ordinance ‑‑
COUNCILMAN SHANLEY: We do not have an ordinance.
COUNCILWOMAN WALSH: ‑‑ about water restrictions?
COUNCILMAN SHANLEY: We don't have an ordinance for water restriction. So we can't issue any summonses.
COUNCILWOMAN WALSH: So what ‑‑ I'm curious why you guys would not have an ordinance when you know that ‑‑ that Ridgewood's under the water restriction.
COUNCILMAN SHANLEY: Well, maybe ‑‑
COUNCILWOMAN WALSH: Why every municipality ‑‑
MAYOR KNUDSEN: Ridgewood Water is under a water restriction.
COUNCILWOMAN WALSH: Ridgewood Water is under a water restriction.
COUNCILMAN SHANLEY: Well, maybe it would be ‑‑ it would be helpful if you would get your 52 wells back in ‑‑ back pumping ‑‑
(Applause.)
COUNCILMAN SHANLEY: ‑‑ so we're not in constant Stage 2. You're never out of Stage 2.
COUNCILWOMAN WALSH: Well, we're ‑‑ Stage 2 has to do with the weather mostly.
COUNCILMAN SHANLEY: You're always in Stage 2.
MR. ROGERS: Stage 2 has to do with just responsibility with regard to the use of water.
COUNCILWOMAN WALSH: Yes.
COUNCILMAN SHANLEY: Right.
MR. ROGERS: But that's not really for the public hearing.
COUNCILMAN SHANLEY: Right.
And it's really not for the public hearing, but you asked the question and I gave you my answer.
Thanks.
COUNCILWOMAN CRONK PEET: Good morning, I'm Nancy Cronk Peet from Midland Park, 171 Hill Street, Councilwoman.
I'd like to ask Councilwoman Walsh what does Ridgewood Water do with the fines that you receive from the ratepayers? And how do you apply them?
COUNCILWOMAN WALSH: They're part of ‑‑ they're part of the budget.
COUNCILWOMAN CRONK PEET: And how ‑‑ how much have you realized at this point already in your surveillance of the community?
COUNCILWOMAN WALSH: In ‑‑ in Ridgewood?
COUNCILWOMAN CRONK PEET: Yeah.
COUNCILWOMAN WALSH: You would have to look to the numbers that we have in our budget.
MR. ROGERS: Summonses are issued.
COUNCILWOMAN WALSH: Summonses are issued and then it becomes part of the miscellaneous.
MAYOR KNUDSEN: And these are issues of water conservation and public safety.
COUNCILWOMAN WALSH: Yes.
COUNCILWOMAN DeLUCA: Good morning. Lorraine DeLuca, D‑E‑L‑U‑C‑A. I'm a councilwoman in Midland Park.
I have a question, something, Mayor, you stated at one point when the question arose, I was not here. My question is how many other people were not here?
In reference to the timeline as far as when something was going on.
MAYOR KNUDSEN: Oh, when the [original|rig] ordinances were ‑‑
COUNCILWOMAN DeLUCA: Yes.
MAYOR KNUDSEN: So I was only elected in 2014 ‑‑
COUNCILWOMAN DeLUCA: Okay.
MAYOR KNUDSEN: ‑‑ along with the Deputy Mayor ‑‑
COUNCILWOMAN DeLUCA: Okay.
MAYOR KNUDSEN: ‑‑ and Councilman Voigt and Councilman Hache were elected in 2016.
COUNCILWOMAN DeLUCA: Okay. So basically ‑‑
MAYOR KNUDSEN: And Council ‑‑
COUNCILWOMAN DeLUCA: ‑‑ we're talking about pretty much everybody.
MAYOR KNUDSEN: ‑‑ Councilwoman Walsh was 2010.
COUNCILWOMAN WALSH: '10 and '14.
MAYOR KNUDSEN: And '14 and then again ‑‑
COUNCILWOMAN WALSH: And then '16 to now.
MAYOR KNUDSEN: ‑‑ '16 to now.
COUNCILWOMAN DeLUCA: Okay. All right. So when this whole thing began you were kind of ‑‑ you weren't on the council. Okay.
The other thing, you did mention patrolling. And to me, patrolling is going around. I do not see Ridgewood Police coming in. In fact, if you see, Maltbie Avenue is kind of, like, the line between Ridgewood, they don't cross it.
So, [I mean|I am], how ‑‑ when you say patrolling, to me patrolling is seeings cars going around on different places in Midland Park. And I have never, and I'm there 35 years.
MAYOR KNUDSEN: No, I think you misunderstood what was said. I don't ‑‑
COUNCILWOMAN DeLUCA: About patrolling?
MAYOR KNUDSEN: Yes.
COUNCILWOMAN DeLUCA: Well, then explain to me, because to me patrolling is watching or walking around.
MAYOR KNUDSEN: Right. We didn't suggest ‑‑ go ahead.
COUNCILWOMAN WALSH: I think your expert, Ms. Sherwood, had made that comment and I asked her to clarify exactly what your municipalities were doing in their patrol.
MAYOR KNUDSEN: Yes.
COUNCILWOMAN WALSH: That was that line of questioning.
She had said that the other municipalities were patrolling. And I said can you explain what ‑‑ what actually they're doing.
MAYOR KNUDSEN: Right.
COUNCILWOMAN WALSH: What patrolling they're doing.
And she said I think they're going to all the facilities. And I believe that was her testimony.
MR. ROGERS: Right.
COUNCILWOMAN DeLUCA: And then you ‑‑ you spoke about summonses in Ridgewood.
I would like you to go down West Ridgewood Avenue at 7:00 on a Monday morning and see how many sprinklers are on.
COUNCILWOMAN WALSH: Well, it's alternate ‑‑
MR. ROGERS: Summonses get issued.
COUNCILWOMAN WALSH: They're going to get a summons.
COUNCILWOMAN DeLUCA: For the past three weeks?
COUNCILWOMAN WALSH: Yes.
MAYOR KNUDSEN: And they're on ‑‑ they're on alternate side so it's not zero watering. It depends on ‑‑
COUNCILWOMAN DeLUCA: But Monday is no watering, right?
MAYOR KNUDSEN: Right.
COUNCILWOMAN DeLUCA: Correct?
COUNCILWOMAN WALSH: They'll get a summons. And it depends, so I think if they have new planting they can get a waiver. So there are certain things that are ‑‑
COUNCILWOMAN DeLUCA: Yeah, I understand that.
COUNCILWOMAN WALSH: ‑‑ that are accommodated.
COUNCILMAN HACHE: This is ‑‑
COUNCILWOMAN DeLUCA: But I know these homes because I walk them every day and I see them.
MAYOR KNUDSEN: All right. So we appreciate the input to ratting out our ‑‑
COUNCILWOMAN DeLUCA: Okay. Thank you.
MAYOR KNUDSEN: ‑‑ residents, I [guess].
Okay. So any other questions? So I ‑‑ okay.
MR. FIORENZO: I just have one thing to follow up with what Mr. Madigan said, I want to read into the record because he asked me, page 16 from Mr. Woods' report, the first report, reads:
"In addition to these expenses, police, fire and emergency services have a role in protecting water utility assets and personnel."
That is the only statement made in his report as to the justification for the police charge. And that relates directly to the role of patrolling to protect, so I think you were missing the point.
MR. ROGERS: And you made that point ‑‑ you made that point in your cross.
MAYOR KNUDSEN: Okay.
MR. FIORENZO: I know, but I think the Mayor was mistaken when she said his position was otherwise ‑‑
MAYOR KNUDSEN: No, I think I ‑‑
MR. ROGERS: He testified.
MR. FIORENZO: ‑‑ and it had to do with security meetings. That's not what his position was in the report he submitted.
MR. ROGERS: This is not ‑‑ this is not time for summation ‑‑
MAYOR KNUDSEN: Yes, I think ‑‑
MR. ROGERS: ‑‑ and his testimony ‑‑ his testimony in the record will show what his response was to those questions.
MR. FIORENZO: I know. And his report says what it says.
MAYOR KNUDSEN: I'm sorry, I think a question came up as to whether or not our Ridgewood Police Officers were patrolling in other municipalities. I think that's what this ‑‑ unless I'm misunderstanding something, but maybe there is just some confusion here it's early in the morning.
MR. FIORENZO: You told me I was confused. I wasn't confused.
MR. ROGERS: Yes, let's go to questions.
MAYOR KNUDSEN: All right. So questions from the Council? Any questions?
I just have a quick question.
I want to turn Mayor Packer's question around and ask it differently.
Mayor Packer asked if we purchased a truck in Ridgewood and you didn't need it for ‑‑ and the Ridgewood Water Utility didn't exist, you would still need to pay 100 percent of the truck for water.
My question to you is if Ridgewood Water utility existed and the Village of Ridgewood was not the shared service that was offsetting those costs, would it be more expensive to have staffed Ridgewood Water completely, with all the staffing needs and the requirements that go into the day‑to‑way operation necessarily, would that increase the cost of the ratepayers?
THE WITNESS: Absolutely.
MAYOR KNUDSEN: Okay. Significantly?
THE WITNESS: Yes. I mean, all of those expenses would make up 25 percent of the utility, water utility budget, are shared expenses.
MAYOR KNUDSEN: They're shared, and because they're shared services, they are more efficient and less costly.
Would you agree to that statement?
THE WITNESS: I agree with that.
MAYOR KNUDSEN: Okay. Good. All right. That's my only question.
Thank you.
MR. ROGERS: I have just a few questions.
MAYOR KNUDSEN: Okay. A few questions from Mr. Rogers.
MR. ROGERS: Yes.
REDIRECT EXAMINATION
BY MR. ROGERS:
Q. Howard, you had talked about and you've been asked extensively with regard to the allocation factors that you utilized in this study.
Is that correct?
A. Yes.
Q. Okay. And you said that you've never really had to apply them retroactively before, but you have applied them prospectively. Is that correct?
A. Yes.
Q. Have you done that before the BPU or what other ‑‑ where or what other forums have you utilized those allocation factors prospectively before?
A. Well, there are two groups of allocation factors.
The factors that I developed here in this study generally are ones that I see with other municipal clients that I have ‑‑
Q. Right.
A. ‑‑ when they're attempting the set rates for their utilities.
In the ‑‑ in the Board of Public Utilities I've done cost allocation studies which go a little bit beyond this. They ‑‑ they also take a look at allocating the total revenue requirement to different classes of service that are provided by the utility.
Q. Have ‑‑ and in prior instances with regard to these allocation factors, there's been testimony that the really are unique, you haven't ‑‑ nobody ‑‑ you know, you think Exeter's expert said that he hadn't seen them before in his practice.
Is it something that is unusual and unique or is it something that's more common and part of the regular practice of developing rate studies?
A. I think they're more common. And the specific case that I recall that this came up had to do with the allocation factor 6 for the garage and fuel charges. I ‑‑ based on my 40 years of experience in the water utility business I determined that some allocation, other than just simply counting the numbers of vehicles, was necessary to properly allocate the costs for the garage services, you know, by class of vehicle, I weighted those vehicles in order to do that calculation, and that's something that I've done in other cases.
Q. And how about with allocation ‑‑ how about with allocation factor 6, the utilization of the water utility asset for determination with regard to allocations for police, fire and the like, is that something that's done commonly or is that something that you found unique?
A. Well, allocation factor 7 is the one that was used ‑‑
Q. I mean 7.
A. ‑‑ to allocate the police, fire and emergency services costs.
And, again, this is something that I've seen in other cases that I have done for municipalities where, like, the Village of Ridgewood, there's no specific budget that allocates the cost of police or fire directly for the utility.
Q. Okay. And just to clear it up is, you know, Mr. Fiorenzo just pointed out what you wrote on the top of page 16 of your first report where it says that services have a ‑‑ you said police, fire, emergency services have a role in protecting water utility assets and personnel.
Is there more to it than that or is it just that one thing?
A. Well, that ‑‑ that certainly was a generalization. I know in the discussions that I had with the water utility they also advised me of a consulting role that the police provide for security. And they, generally, patrol the facilities within the village.
MR. ROGERS: Thank you. I have nothing further.
MAYOR KNUDSEN: Okay.
MR. ROGERS: Okay. So I think what we should do at this point in time is close just tonight's [meat|meet]ing, carry the public hearing to Wednesday night and we'll carry on from there.
MAYOR KNUDSEN: All right.
MR. FIORENZO: I'm sorry, you said it's continuing Wednesday night?
MR. ROGERS: Yes.
MR. NORTHGRAVE: If I can just suggest if you're going to do that, if you close the public hearing, then Wednesday night should just be comments from council and then the vote taken. I would imagine that council is going to ‑‑ I can't imagine it's going to be a two‑minute, yes, yes, yes, yes, yes or no, no, no, no, no. I think council is going to want to comment. But you should close the public hearing because everybody has commented, so...
MR. ROGERS: Yes, so ‑‑
MR. FIORENZO: May I inquire of the Chair, what is happening then on Wednesday so we can all be informed?
MAYOR KNUDSEN: Sure.
So what we're doing right now is we're going to make a motion to close the public hearing and then we're going to carry the meeting to Wednesday night.
So on Wednesday night we'll continue with comments and discussion by council. And then make a ‑‑ take a vote as to whether or not we're going to adopt 36‑36. Then we'll go on to 36‑37 to amend the water rates and fees. We'll have that public hearing. And that's where we're at.
MR. FIORENZO: So the public portion is now closed?
MAYOR KNUDSEN: I'm about to close it.
MR. FIORENZO: There will be no further participation on Wednesday by the public?
MAYOR KNUDSEN: I'm about to close the public hearing ‑‑ well, the ‑‑ I'm about to close the public hearing. So if anyone has anything they want to add, they should do it now or forever hold their peace.
MS. MAILANDER: And this is for 36‑36. There will also be a hearing for 36‑37 on Wednesday.
MR. FIORENZO: So ‑‑ so I do have one thing I would like to say then, if this is the last opportunity to do so.
MR. ROGERS: Sure.
MAYOR KNUDSEN: Go ahead.
MR. FIORENZO: Okay. So ‑‑
MAYOR KNUDSEN: Wait, do you want to just wait, does Bruce want to ‑‑ do you want to go first before ‑‑
MAYOR PACKER: I can't be here on Wednesday. So is it okay if I just make my comment tonight?
MR. ROGERS: Absolutely.
MAYOR KNUDSEN: Absolutely.
MAYOR PACKER: We have a council meeting ‑‑
MR. ROGERS: Absolutely.
MAYOR PACKER: Thank you. I won't be long.
MR. FIORENZO: No. That's okay. Take your time.
MAYOR PACKER: Just a couple of quick comments. And, again, this would have been on Wednesday.
A reminder, and obviously you all know this, you know, you're making a decision here not for the Village of Ridgewood, but for all four towns.
And what you heard tonight over the last, I can't do math at this time of the morning, many hours, a lot of hours of, I think, testimony that called some parts of the study into question, in my opinion.
If you vote yes to allow the ordinances to go through, you're basically saying that every single thing that was said tonight and this morning, none of it resonated with you. That you disagreed with everything that was said; that the critique has no merit whatsoever.
And should you vote, yes, I hope you'll be ready to explain why, well, maybe not during that hearing, but residents will want to know how you were able to ‑‑ why you ignored everything that was said.
So you do have a fiduciary duty to all four towns to listen to everything.
This is not a court of law, which has been pointed out so many times, so we don't have competing studies. I think you should look at it as a study and a supplemental study, and put the information together and consider that and ask yourselves does that justify a yes vote.
And, again, I really hope that you'll think about it.
I put a note out over the last few days to Glen Rock residents to come here tonight. I'm kind of glad they didn't come to speak at the public portion. But I reached out to some of the residents, and we all have them, who typically come to meetings, saying are you going to be there? To a person, it's an [absolute|absolutely] waste of time. They already know what they want to do. I honestly hope ‑‑ whatever you vote, we'll never know if that's the case, but I really hope that that's not the case, but that's ‑‑ that is the ‑‑ the perception that people have.
So when you make your decisions and you make your vote, I hope you can justify it and make sure that everybody can leave that room not thinking, yeah, they were going to do this anyway, and this was a huge waste of time.
So thank you.
MAYOR KNUDSEN: Bruce, thank you for stepping in yesterday, personally, just on another note. Completely unrelated. Thank you. I appreciate that.
MAYOR PACKER: Thank you.
MR. FIORENZO: Yes. Just briefly, because the hour is late, but I just want to say this. We have been at this now for seven or eight years. We are here today after the trial court heard the case, invalidated the ordinances. They did that for a reason, because the process that was undertaken was not right. It wasn't fair.
And you've heard the comments of people here today. There's disillusionment. People don't believe they can trust this process. They don't believe that you can come before a group of people who are being asked to make a decision that they actually have an interest in, an adverse interest to you.
Think about it. We're adversaries in an ongoing proceeding, yet you sit here as a body with a fiduciary duty, as a public utility, and are supposed to act in the benefit, not just of Ridgewood, but all the communities. And anyone fairly listening and hearing what's happened can only conclude that there isn't a clearcut case that's been made for the adoption and the reinstitution retroactively of the same rate increases.
In 2013 and 2014, during a period of time when large surpluses were being accumulated, there were rate increases. You heard from your expert, there is no justification for a rate increase as these increases of surplus were exponentially rising.
So I would just echo what Mayor Packer said. I really hope that I am surprised because there is actually a thoughtful, careful consideration and analysis of the issues that are before you because what you do has impact upon thousands of people who look and are watching and want to know whether the village council of Ridgewood can really be trusted to do the right thing with regard to these rates, knowing that where we are right now is after seven years of litigation, the court has concluded that what we did previously was arbitrary and capricious.
Now would be the time to send a message to everyone to say you know what, we're going to do this thing right. We're going to really analyze this thing. And if you do, I hope you agree that there is only one conclusion, that there isn't any basis to go back retroactively impose a 37 percent rate increase.
We saw $11 million was being generated, $11 million over the period of years, which has been transferred out and you're now using for capital improvements. But the bottom line is, I urge you to please consider the facts, consider what we presented to you by way of our experts as well as my cross‑examination of Mr. Woods, and I hope that we can all be surprised and that there will be a result here that will try to be fair to everyone.
So thank you.
MAYOR KNUDSEN: Thank you.
Okay. Anyone else?
(No response.)
MAYOR KNUDSEN: With that, we'll take a motion to close the public portion.
COUNCILMAN HACHE: So moved.
COUNCILWOMAN WALSH: Second.
MAYOR KNUDSEN: Okay.
MS. MAILANDER: Hache?
COUNCILMAN HACHE: Yes.
MS. MAILANDER: Sedon?
DEPUTY MAYOR SEDON: Yes.
Voigt is absent.
MS. MAILANDER: Walsh?
COUNCILWOMAN WALSH: Yes.
MS. MAILANDER: And, Knudsen?
MAYOR KNUDSEN: Yes.
So with that we're going to carry ‑‑
MR. ROGERS: Carry the ordinance.
COUNCILWOMAN WALSH: Continue the meeting.
MAYOR KNUDSEN: Carry the ordinance to Wednesday, June 27, at 7 p.m. right here in this courtroom, and at that time we'll then also continue this hearing.
MS. MAILANDER: And also 36‑37, the public hearing.
MAYOR KNUDSEN: The public hearing, correct, very good. We're good.
All right. And I guess with that ‑‑
COUNCILWOMAN WALSH: Close the meeting.
DEPUTY MAYOR SEDON: Adjourn.
MAYOR KNUDSEN: ‑‑ we'll take a motion to ‑‑ oh, wait, you have public comment.
Public comment.
(No response.)
MAYOR KNUDSEN: Okay. Not to exceed five minutes. None, take a motion ‑‑ oh, do you have public comment?
(No response.)
MAYOR KNUDSEN: Take a motion to adjourn.
DEPUTY MAYOR SEDON: So moved.
COUNCILMAN HACHE: Second.
MS. MAILANDER: All in favor?
(Whereupon, all Council Members respond in the affirmative.)
MS. MAILANDER: Any opposed?
(No response.)
MAYOR KNUDSEN: We're adjourned.
(Whereupon, the hearing concluded: Time noted: 2:42 a.m.)
C E R T I F I C A T E
I, LAURA A. CARUCCI, C.C.R., R.P.R., a Notary Public of the State of New Jersey, Notary ID. #15855, Certified Court Reporter of the State of New Jersey, and a Registered Professional Reporter, hereby certify that the foregoing is a verbatim record of the testimony provided under oath before any court, referee, board, commission or other body created by statute of the State of New Jersey.
I am not related to the parties involved in this action; I have no financial interest, nor am I related to an agent of or employed by anyone with a financial interest in the outcome of this action.
This transcript complies with regulation 13:43‑5.9 of the New Jersey Administrative Code.
_______________________________
LAURA A. CARUCCI, C.C.R., R.P.R.
License #XI02050, and Notary Public
of New Jersey #15855, Notary
Expiration Date March 1, 2019
Dated:
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