Garrard County Water Association Staff Report Recommends $227k Rate Increase

COMMONWEALTH OF KENTUCKY BEFORE THE PUBLIC SERVICE COMMISSION In the Matter of:

NOTICE OF FILING OF COMMISSION STAFF'S REPORT

Notice is hereby given that, in accordance with the Commission's Order of

December 30, 2025, the attached report containing the recommendations of Commission Staff (Staff) regarding the Applicant's proposed rate adjustment has been filed in the record of the above-styled proceeding. Pursuant to the Commission's December 30, 2025 Order, Garrard County Water Association, Inc. (Garrard County Water) is required to file written comments regarding the recommendations of Staff no later than 14 days from the date of service of this report. The Commission directs Garrard County Water to

the Commission's July 22, 2021 Order in Case No. 2020-00085 regarding filings with the 1 Commission. ________________________ Linda C. Bridwell, PE Executive Director Public Service Commission 211 Sower Blvd. Frankfort, KY 40601-8294 DATED ___________________ APR 21 2026 cc: Parties of Record

Case No. 2020-00085, Electronic Emergency Docket Related to the Novel Coronavirus COVID-119 (Ky. PSC July 22, 2021), Order (in which the Commission ordered that for case filings made on and after March 16, 2020, filers are NOT required to file the original physical copies of the filings required by 807 KAR 5:001, Section 8).

ELECTRONIC APPLICATION OF GARRARD ) CASE NO. COUNTY WATER ASSOCIATION FOR A RATE ) 2025-00396 ADJUSTMENT PURSUANT TO 807 KAR 5:076 )

COMMONWEALTH OF KENTUCKY BEFORE THE PUBLIC SERVICE COMMISSION In the Matter of:

COMMISSION STAFF'S REPORT ON GARRARD COUNTY WATER ASSOCIATION, INC. Garrard County Water Association, Inc. (Garrard County Water) is a water utility organized pursuant to KRS Chapter 273 that owns and operates a distribution system through which it provides retail water service to approximately 6,161 residential customers, 83 commercial customers, 1 bulk loading station, 4 public fire protection organizations, and 8 private fire protection organizations that reside in Garrard, Lincoln, Madison and Rockcastle counties, Kentucky. 1 On December 10, 2025, Garrard County Water filed its application with the Commission requesting an adjustment to its water service rates pursuant to 807 KAR 5:076. To comply with the requirements of 807 KAR 5:076, Section 9, 2 Water used the calendar year ended December 31, 2024, as the basis for its application. Garrard County Water has not previously adjusted its base rates pursuant to the alternative rate filing procedure. Garrard County Water has adjusted its rates multiple

Annual Report of Garrard County Water to Public Service Commission for the Calendar year 1Ended December 31, 2024 (2024 Annual Report) at 12 and 49. The reasonableness of the proposed rates shall be determined using a 12-month historical test 2period, adjusted for known and measurable changes, that coincides with the reporting period of the

applicant's annual report for the immediate past year.

ELECTRONIC APPLICATION OF GARRARD ) CASE NO. COUNTY WATER ASSOCIATION FOR A RATE ) 2025-00396 ADJUSTMENT PURSUANT TO 807 KAR 5:076 )

times pursuant to KRS 278.023 or KRS 218.015. To ensure the orderly review of the application, the Commission established a procedural schedule by Order dated December 30, 2025. Garrard County Water responded timely to two requests for information. 3 UNACCOUNTED FOR WATER LOSS Over the last five years, Garrard County Water reported an average water loss of 22.3325 percent, as shown in the following table. 4

Commission regulation 807 KAR 5:066, Section 6(3), states that for ratemaking purposes, a utility's water loss shall not exceed 15 percent of total water produced and purchased, excluding water consumed by a utility in its own operations. The table below shows that the 2024 total annual cost of unaccounted for water loss to Garrard County

Garrard County Water's Response to Commission Staff's First Request for Information (Staff's 3First Request) (filed Feb. 5, 2026); Garrard County Water's Response to Commission Staff's Second

Request for Information (Staff's Second Request) (filed Mar. 12, 2026).

Annual Report of Garrard County Water to the Public Service Commission for the Calendar year 4Ended December 31, 2020 (2020 Annual Report) at 57; Annual Report of Garrard County Water to the

Public Service Commission for the Calendar year Ended December 31, 2021 (2021 Annual Report) at 57

and 58; Annual Report of Garrard County Water to the Public Service Commission for the Calendar year Year

Ended December 31, 2022 (2022 Annual Report) at 57 and 58; Annual Report of Garrard County Water to 2020 21.7757%the Public Service Commission for the Calendar year Ended December 31, 2023 (2023 Annual Report) at 2021 27.7554%57 and 58; and 2024 Annual Report at 57 and 58.

2022 19.0662% 2023 20.9261% 2024 22.1393% -2- Case No. 2025-00396 Average 22.3325%Water Loss Percentage

Water is $302,734, while the annual cost of unaccounted for water loss in excess of 15 percent is $97,624.

DISCUSSION Using its pro forma test-year operations, Garrard County Water determined that a base rate revenue increase of $314,279 or 11.59 percent, was necessary to achieve the revenue requirement as shown in the table below. Garrard County Water used the 5 Operating Ratio method to calculate its revenue requirement. During discovery, Garrard County Water provided corrected revenue requirement calculations to address errors in the original filing in response to Staff's Second Request, which reduced the requested increase to $227,277 or 8.38 percent. 6

Pro Forma Purchases 1,346,877$ 20,530$ 1,367,407$ Water Loss Percent 22.1393% 22.1393% 22.1393% Total Water Loss 298,189$ 4,545$ 302,734$

Application, 5RevenueRequirement_Calculation. 5 Garrard County Water's Response to Staff's Second Request, Item 7. 6

Pro Forma Purchases 1,346,877$ 20,530$ 1,367,407$ Water Loss in Excess of 15% 7.1393% 7.1393% 7.1393% -3- Case No. 2025-00396 Disallowed Water Loss 96,158$ 1,466$ 97,624$ Purchased Purchased Purchased Purchased Power Power Water Water Disallowed Water Loss Total Water Loss Total Total

To determine the reasonableness of the rates requested by Garrard County Water, Staff performed a limited financial review of Garrard County Water's test-year operations.

The scope of Staff's review was limited to determining whether operations reported for

the test year were representative of normal operations. Known and measurable changes 7 to test-year operations were identified, and adjustments were made when their effects Pro Forma Operating Expenses 2,814,007$ 2,850,552$ Operating Ratio 88% 88% Subtotal 3,197,735 3,239,263 Average Annual Interest Expense 67,179 67,179 Commission regulation 807 KAR 5:076, Section 9, sets the standard for the determination of the 7reasonableness of proposed rates and states, in pertinent part, that the test period shall be "adjusted for Total Revenue Requirement 3,264,914 3,306,442

known and measurable changes." See also Case No. 2001-00211, Application of Hardin County Water Forfeited Discounts (34,965) (34,965)District No. 1 for (1) Issuance of Certificate of Public Convenience and Necessity; (2) Authorization to Miscellaneous Service Revenues (52,037) (17,416)Borrow Funds and to Issue its Evidence of Indebtedness Therefore; (3) Authority to Adjust Rates; and (4)

Approval to Revise and Adjust Tariff (Ky. PSC Mar. 1, 2002); Case No. 2002-00105, Application of Northern Interest Income (219,326) (219,326)

Kentucky Water District for (A) an Adjustment of Rates; (B) a Certificate of Public Convenience and Non-utility Income (24,649) (24,649)Necessity for Improvements to Water Facilities if Necessary; and (C) Issuance of Bonds (Ky. PSC June 25, Miscellaneous Non-utility Expenses 4,378 4,3782003); and Case No. 2017-00417, Electronic Proposed Adjustment of the Wholesale Water Service Rates

of Lebanon Water Works (Ky. PSC July 12, 2018). Revenue Required From Rates 2,938,315 3,014,464

Normalized Revenue From Water Sales ( ) (2,711,038) (2,711,038) Garrard Required Revenue Increase / (Decrease) 227,277$ 303,426$ -4- Case No. 2025-00396 County Water Percentage Increase / (Decrease) 8.38% 11.19%Revised Staff

were deemed material. Insignificant and immaterial discrepancies were not necessarily pursued or addressed.

Staff's recommendations are summarized in this report. Vinay Raj Raju reviewed

the calculation of Garrard County Water's Overall Revenue Requirement, and Elizabeth Stefanski reviewed Garrard County Water's reported revenues and rate design. SUMMARY OF FINDINGS

1. Overall Revenue Requirement and Required Revenue Increase. By
   applying the Operating Ratio method, as generally accepted by the Commission, Staff found that Garrard County Water's required revenue from water sales is $3,014,464 to meet the Overall Revenue Requirement of $3,306,442 and that a $303,426, or 11.19 percent, increase to revenue from sales at present rates is necessary to generate the Overall Revenue Requirement.

2. Monthly Water Service Rates. As part of its revised calculations, Garrard
   County Water proposed to increase all of its monthly retail water service rates by 8.38 percent. Garrard County Water stated that it did not file a cost-of-service study (COSS) 8 at this time. Garrard County Water stated that it did not consider filing a COSS with the 9 current rate application as there were no material changes in its system, and it would consider preparing a new COSS if material changes to the system were to occur. 10 Garrard County Water stated that is was unable to locate a copy of the most recent COSS

Garrard County Water's Application, 3ComparisonExistingandProposed_Rates and Garrard 8County Water's Response to Staff's Second Request, Item 7. Garrard County Water's Response to Staff's First Request, Item 18(a). 9 Garrard County Water's Response to Staff's First Request, Item 18(b). 10

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performed. The Commission has previously found that the allocation of a revenue 11

adjustment evenly across the board to a utility's rate design is appropriate when there

has been no evidence entered into the record demonstrating that this method is unreasonable in the absence of a COSS. Finding no such evidence in this case, Staff 12 allocated the $303,426 revenue increase evenly across Garrard County Water's monthly retail water service rates. The rates recommended in Appendix B to this report are based upon the revenue requirement, as calculated by Staff, and will produce sufficient revenues from water sales to recover the $3,014,464 revenue required from rates, an approximate 11.19 percent increase. The monthly water bill for a typical residential customer using 4,366 gallons will increase by $3.95 from $35.38 to $39.33, or 13 approximately 11.17 percent.

1. Nonrecurring Charges and Meter Connection Charges. Following the

Commission's previous decisions identifying issues with the calculation of Nonrecurring

Charges, Staff reviewed Garrard County Water's Nonrecurring Charges. Since utility 14 personnel are already compensated for labor performed during regular business hours,

Garrard County Water's Response to Staff's First Request, Item 18(d). 11 Case No. 2024-00155, Electronic Application of Cannonsburg Water District for a Rate 12Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Apr. 8, 2025); Case No. 2024-00242, Electronic

Application of Wood Creek Water District for a Rate Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Mar.

21, 2025); Case No. 2024-00068, Electronic Application of Simpson County Water District for a Rate

Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Oct. 29, 2024); and Case No. 2024-00002, Electronic Application of Nebo Water District for a Rate Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Aug. 2,

2024). Application, 1CustomerNotice.pdf. 13 Case No. 2024-00155, Electronic Application of Cannonsburg Water District for a Rate 14Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Apr. 8, 2025); Case No. 2024-00242, Electronic

Application of Wood Creek Water District for a Rate Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Mar.

21, 2025); Case No. 2024-00068, Electronic Application of Simpson County Water District for a Rate

Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Oct. 29, 2024); and Case No. 2024-00002, Electronic Application of Nebo Water District for a Rate Adjustment Pursuant to 807 KAR 5:076 (Ky. PSC Aug. 2,

2024).

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estimated labor costs representing periods occurring during regular business hours, which were previously included in determining Nonrecurring Charges expense, should be eliminated from the charges. District personnel are currently paid during normal business hours, and their salaries and wages are an expense recovered in rates, thus there is no additional employee compensation nominal expense incurred to provide a nonrecurring charge service provided during regular business hours. Garrard County Water provided updated cost justification information, which included estimated regular business hours labor costs for most of the Nonrecurring Charges. Garrard County Water's current tariff 15 lists an annual Fire Hydrant fee per hydrant, which is listed in the table below as 16 unchanged. Garrard County Water did not provide a cost justification form for delinquent account field collection charge and stated in response to Staff's inquiry that there were no occurrences during the test period. Because it did not provide the cost justification 17 form to support this charge, Staff recommends removing the delinquent account field

collection charge from Garrard County Water's Tariff. Should Garrard County Water wish

to keep the charge it should provide the cost justification form to support this charge. Staff reviewed the cost justification information provided by Garrard County Water and adjusted the charges by removing Field Labor Costs and Office/Clerical Labor Costs that occur during regular business hours from those charges. The cost justification information shown in Appendix A was provided by Garrard County Water and supports the adjustments. The table below shows the current and revised nonrecurring charges.

1521NRCCostJustificationSheets.pdf.

Tariff 10 Revised Sheet No. 2 and Original Sheet No. 20-21. 16 th Garrard County Water's Response to Staff's Second Request, Item 10. 17

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The adjustments to the Nonrecurring Charges result in a decrease in Other Water Revenues of $33,919.

Garrard County Water provided cost justification sheets for its 5/8 x 3/4-inch Meter Connection Charge and its 1-inch Meter Connection Charge. Staff reviewed the 1819 information provided by Garrard County Water and does not recommend any changes to the Meter Connection charges because the documentation supports the current tariff fees. PRO FORMA OPERATING STATEMENT

Garrard County Water's Pro Forma Operating Statement for the test year ended

December 31, 2024, as determined by Staff appears in the table below.

Garrard County Water's Response to Staff's Second Request, Item 1Tap-18onCostJustSheet3-4InchMeter.pdf. (17,407)$ Meter Turn-On (Service Charges) 435 $60.00 $20.00 8,700$ Garrard County Water's Response to Staff's Second Request, Item 1Tap- (15,673) 8,316 19Reconnection Charges 308 $78.00 $27.00onCostJustSheet1InchMeter.pdf. - -Meter Test Charge 0 $70.00 $33.50 (839) 400 Return Check fee 50 $25.00 $8.00

• -Meter Move and Reset Charge Actual Actual
• -Fire Hydrants (per year each) $50.00 $50.00 -8- Case No. 2025-00396 Pro Forma (33,919)$ 17,416 (51,335) Test Year ( )Revised Current Pro Forma Total (33,919)$ ChargeChargeRevenue Occurrences

Description Test Year (Ref) Pro Forma Operating Revenues Retail Metered Sales 2,523,840$ (16,664)$ 0 (16,664)$ A 61,416 0 61,416 A 141,345 0 141,345 A 2,709,938$ Fire Protection 1,100 0 1,100 Total Revenue Water Sales 2,524,940 186,098 - 186,098 2,711,038 Other Revenues: Forfeited Discounts 34,965 0 34,965 B 34,965 Miscellaneous Service Revenues 105,650 (34,965) 0 (34,965) C (18,648) 0 (18,648) C (34,621) (34,621) C 17,416 Total Operating Revenues 2,630,590 167,450 (34,621) 132,829 2,763,419 Operating Expense Operation and Maintenance Salaries and Wages - Employees 436,366 46,367 0 46,367 D 482,733 Salaries and Wages - Directors 37,500 2,100 0 2,100 E 39,600 Employee Benefits - Pensions & Benefits Employee - Health Insurance 76,221 19,727 52 19,779 F 96,000 Employee - Life 960 0 960 Employee - Other Benefits 784 0 784 Pensions 17,177 3,392 0 3,392 G 20,569 Purchased Water 1,121,957 53,645 0 53,645 H 143,665 0 143,665 H 27,610 27,610 H (94,187) (1,971) (96,158) I 1,250,719 Purchased Power 20,530 (1,466) 0 (1,466) I 19,064 Materials and Supplies 118,122 0 118,122 Contractual Services - Acct. 36,694 0 36,694 Contractual Services - Legal 15,655 0 15,655 Contractual Services - Water Testing 9,680 0 9,680 Contractual Services - Other 91,632 0 91,632 Transportation 23,722 0 23,722 Insurance - Gen. Liability 35,260 0 4,578 4,578 J 39,838 Insurance - Workers' Compensation 8,485 0 2,264 2,264 K 10,749 Insurance - Other 210 0 210 Bad Debt 6,316 0 6,316 Amort - Rate Case 3,112 0 3,112 L 3,112 Miscellaneous Expenses 10,577 (2,195) (2,195) M 8,382 Total Operation and Mnt. Expense 2,067,848 176,355 30,338 206,693 2,274,541 Depreciation Expense 574,172 1,670 0 N (53,406) 6,207 (45,529) N 528,643 Taxes Other Than Income 40,792 6,576 0 6,576 O 47,368 Total Operating Expenses 2,682,812 131,195 36,545 167,740 2,850,552 Net Utility Operating Income (52,222) 36,255 (71,166) (34,911) (87,133) Gains (Losses) Sales of Utility Property 2,764 (2,764) (2,764) P 0 Total Utility Operating Income (49,458) 33,491 (71,166) (37,675) (87,133) Other Income and Deductions: Interest Income 219,326 0 219,326 Non-utility income 37,423 18,648 0 18,648 C (18,287) 0 (18,287) Q (13,135) 0 (13,135) Q 24,649 -9- Case No. 2025-00396 Miscellaneous Non-utility Expenses (4,378) 0 (4,378)Garrard Interest Expense (73,849) 0 (73,849)County Water Net Income 129,064 20,717 (71,166) (50,449) 78,615 Proposed Total Staff Income Available to Service Debt 79,606$ 54,208$ (142,332)$ (88,124)$ (8,518)$

(A) Metered Retail Sales. In Case No. 2023-00424, city of Lancaster (Lancaster) was approved to increase its wholesale rate to Garrard County Water in three phases. On November 8, 2024, Garrard County Water was approved by the 20 Commission to increase its service rates through a purchased water adjustment filing (PWA), to account for the first phased in rates. Additionally, on September 5, 2025, 21 Garrard County Water was approved by the Commission to increase its service rates through a separate PWA to account for the second phased in rates. In its application, 22 Garrard County Water proposed an increase of $61,416 to reflect the difference between the water service rates at the beginning of the test year and rates approved on November 8, 2024. Garrard County Water also proposed an increase of $141,345 to reflect the 23 difference between the water service rates approved on November 8, 2024 and rates approved on September 5, 2025. The evidence in the case demonstrates that the 24 $61,416 increase from Case No. 2024-00323 and the $141,345 increase from Case No. 2025-00132 are known and measurable adjustments. Staff recommends the Commission accept the increase of $61,416, which represents the adjustment for the rates approved in Case No. 2024-00323, and the increase of $141,345, which represents the adjustment for the rates approved in Case

See Case No. 2023-00424, Electronic Tariff Filing of The City of Lancaster to Increase the 20Wholesale Rate Charged to Garrard County Water Association. (Ky. PSC Sept. 26, 2024). See Case No. 2024-00323, Electronic Purchased Water Adjustment Filing of Garrard County 21Water Association, Inc. (Ky. PSC Nov. 8, 2024). See Case No. 2025-00263, Electronic Purchased Water Adjustment Filing of Garrard County 22Water Association, Inc. (Ky. PSC Sept. 5, 2025).

234aBillingAnalysisCurrentProposed.xlsx, Tab BA PWA CN 2024-00263.

244aBillingAnalysisCurrentProposed.xlsx, Tab BA PWA CN 2025-00326.

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No. 2025-00263. Garrard County Water proposed a decrease of $16,664 to Retail Metered Sales and provided a billing analysis listing the water usage and water sales revenue for the 12-month test year of 2024, with total metered water sales revenue calculated as $2,709,938. Staff recommends accepting Garrard County Water's 25 proposed decrease of $16,664 to water sales to adjust water service revenues to the amounts indicated in its billing analysis. 26 (B) Forfeited Discounts. Garrard County Water proposed a reclassification of $34,965 from Miscellaneous Service Revenue to Forfeited Discounts, explaining in its application that $34,965 of forfeited discount revenue was incorrectly applied to Miscellaneous Service Revenue. Staff recommends the Commission accept Garrard 27

County Water's proposal to decrease Miscellaneous Service Revenue by $34,965 and to

increase Forfeited Discounts by $34,965 to reclassify the amount as prescribed in Uniform System of Accounts (USoA). 28 (C) Miscellaneous Service Revenues. Garrard County Water reported Other Water Revenue of $105,650 in the test year, comprised of $34,965 in Forfeited Discounts, $51,334 in Nonrecurring Charges, and $19,350 in Non-utility Income. As discussed 29 above in Adjustment B, Forfeited Discounts has been removed from Miscellaneous Service Revenues. Garrard County Water proposed decreasing Miscellaneous Service

25 264aBillingAnalysisCurrentProposed.xlsx, Tab BA Existing Rates.

Application, 4(SAO)StatementofAdjusted_operations.pdf. 27 Uniform System of Accounts - Account No. 470 Forfeited Discounts. 28 Garrard County Water's Response to Staff's First Request, Item 5. 29

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Revenue by $18,648, comprised of $17,298 in 911 Processing Fees and $1,350 in Other Non-utility Income, explaining that this amount should be classified as Non-utility Income. Staff recommends the Commission accept Garrard County Water's proposal 30 to decrease Miscellaneous Service Revenue by $18,648 as the amount is known and measurable. Further, Garrard County Water provided information about the number of occurrences for each Nonrecurring Charge listed in its tariff. Based on the number of 31 occurrences during the test period and Staff's recommended Nonrecurring Charge amounts, Staff calculated a pro forma revenue amount for Nonrecurring Charges of $17,416, or a reduction to the test period nonrecurring charge income of $34,621, as shown in the table below:

Description Test Year Pro Forma Forfeited Discounts 34,965$ (34,965)$ -$ (34,965)$ -$ Labor Charge 675 (648) (27) (675) 0 Machine Hire (Backhoe) 675 (675) (675) 0

Miscellaneous Income 702 (702) (702) 0 911 Processing Fee 17,298 (17,298) (17,298) 0 Application, 4(SAO)StatementofAdjusted_operations.pdf. 30

Non Recurring Charges Garrard County Water's Response to Staff's First Request, Item 20. 31Service Charges 26,107 (17,407) (17,407) 8,700 Reconnects 23,989 (15,673) (15,673) 8,316 Return Check fee 1,239 (839) (839) 400 -12- Case No. 2025-00396 Water Total NRCs 51,334 0 (33,919) (33,919) 17,416 Proposed Total Staff Total 105,650$ (53,613)$ (34,621)$ (88,234)$ 17,416$

Staff recommends the Commission accept Staff's adjustment to decrease Other Water Revenue by $34,621 based on the adjustments to Nonrecurring Charges discussed above. (D) Salaries and Wages - Employees. During the test year, Garrard County Water reported $436,366 in Salaries and Wages - Employees. Garrard County Water proposed one adjustment, an increase of $46,437 to reflect a ten percent increase in wages and to normalize employee regular hours to 2,080. 32 provided the test year employee list, test year total hours worked, current wage rate 33 34 35 and current employee list. Garrard County Water currently has nine full time employees 36 and five part time employees (Meter Readers). Garrard County Water stated that the 37 full-time employees are scheduled to work 2,080 hours annually. 38 stated that part time employees' (Meter Readers) pay is based upon the number of meters that each part time employee reads. The Board of Directors approved the 10 percent 39

Garrard County Water's Response to Staff's First Request, Item 6, 33EmployeeSalariesandWages. Garrard County Water's Response to Staff's First Request, Item 6, 34EmployeeSalariesandWages. Garrard County Water's Response to Staff's First Request, Item 3, GCWARateModel. 35Employee salaries and wages tab. Garrard County Water's Response to Staff's First Request, Item 3, GCWARateModel. 36Employee salaries and wages tab. Garrard County Water's Response to Staff's First Request, Item 6b. 37 Application, 4(SAO)StatementofAdjusted_Operations, References, Reference F. 38 Garrard County Water's Response to Staff's First Request, Item 6c. 39

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wage increase to its employees. Staff reviewed Garrard County Water's calculation and 40 recommends that the Commission accept Garrard County Water's proposed adjustment because it is known and measurable. (E) Salaries and Wages - Directors. Garrard County Water reported $37,500 of expenses related to Salaries and Wages - Directors and proposed an adjustment to increase those expenses by $2,100. Garrard County Water's Board of Directors 41 consists of seven members, who are paid an initial monthly fee of $300 each, and 42 increased to $500 when a member completes the training requirement. The Board of 43 Directors are nominated and voted on by members/customers; the compensation is voted on by the Board members. Training records were provided for all of Board Members in 44

response to Staff's First Request. Staff reviewed Garrard County Water's calculation 45 and recommends the Commission accept Garrard County Water's proposed adjustment because it is known and measurable.

Garrard County Water's Response to Staff's First Request, Item 13a, 40132025GCWABoardofDirectorsMinutes, December 2025.

Garrard County Water's Response to Staff's First Request, Item 14. 42 Garrard County Water's Response to Staff's First Request, Item 14a. 43 Garrard County Water's Response to Staff's First Request, Item 14b. 44 Garrard County Water's Response to Staff's First Request, Item 14c2023CertificatesGCWA, 4514c2024CertificatesGCWA, 14c2025Certificates_GCWA.

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(F) Employee Benefits - Health Insurance. Garrard County Water reported $76,221 of expenses related to Employee Health Insurance and proposed an adjustment to increase its expenses by $19,727. It stated that it provides Health, Life and AD&D 46 coverages to its employees. The amounts discussed in this section only relate to the 47 Health Insurance for Garrard County Water's employees, the Life and AD&D coverages were included as separate line items in the Pro Forma SAO. Staff reviewed the General Ledger and the invoices provided by Garrard County Water and calculated a $52 4849 increase resulting in a pro forma expense of $96,000. Staff recommends the Commission

accept Staff's adjustment because it is known and measurable.

Commissioners Jenn Lynn Whittaker 6,000$ Bill Doolin 6,000

46Robert Ballard 6,000

Gary Clark 6,000 Garrard County Water's Response to Staff's First Request, Item 7. 47 Bill Oliver 6,000

48Sean Smith 6,000 2aGCWA2024GeneralLedger. Jessica Fyfe 3,600 49Total Salaries and Wages - Officers 39,600$ 7aEmployeeBenefitInvoices2024Redacted and 7cEmployeeBenefitInvoices2026Redacted.

Test Year Salaries and Wages - Officers Expense ( ) (37,500) Garrard County Water's Adjustment (2,100) -15- Case No. 2025-00396 -$ Difference Between Garrard County Water's and Pro Forma Commission Staff's AdjustmentsSalaries

(G) Employee Benefits - Pension. Garrard County Water reported $17,177 of expenses related to Employee Benefits - Pension and proposed an adjustment to increase those expenses by $3,392. Garrard County Water provides pension benefits 50 to its eligible employees through a 401(k) plan. It stated that employee elective 51 contributions are matched by Garrard County Water Association up to five percent of employee compensation. In 2025, eight of Garrard County Water's employees 52 participated in the 401(k) plan. Staff reviewed Garrard County Water's calculation and 53 recommends the Commission accept Garrard County Water's adjustment because it is known and measurable. Medical Insurance - Employee Only 2 899$ Medical Insurance - Employee Only 1 689 Medical Insurance - Employee Only 1 549 Medical Insurance - Employee + Child 2 2,838 Medical Insurance - Family 1 1,527

50Medical Insurance - Family 1 1,499

Total Medical Insurance 8 8,000 Application, 4(SAO)StatementofAdjusted_Operations, References, Reference I. 51

Application, 4(SAO)StatementofAdjustedOperations, References, Reference I. 52Total Monthly Pro Forma Premium 8,000 Application, 4(SAO)StatementofAdjustedOperations, References, Reference I. Multiplied by: 12 Months 12 53

Total Annual Gross Health Insurance Cost 96,000$ Test Year Net Insurance Cost ( ) (76,221) -16- Case No. 2025-00396 Garrard County Water Adjustment (Ref I) ( ) (19,727) Number of Commission Staff's Adjustment 52$ Employees Type of Premium Total Cost

(H) Purchased Water. In its Application, Garrard County Water reported $1,121,957 of expenses related to Purchased Water and proposed two adjustments to increase its expenses by $53,645 and $143,665 to reflect the wholesale water purchases from the Lancaster. Garrard County Water purchases water from Lancaster, the Cities 54 of Berea (Berea) and Danville (Danville). Garrard County Water proposed two 55 adjustments, (1) $53,645 to increase cost due to Lancaster's 2024 wholesale rate increase, and 2) $143,665 to increase cost due to Lancaster's 2025 wholesale rate 56 increase, for a total proposed increase of $197,310. During the test year Garrard 57 County Water purchased 426,805,239 gallons of water from Lancaster and 31,442,635 gallons of water from Danville. Staff applied Lancaster's current tariff wholesale rate to 58 the test year. Garrad County Water also pays Kentucky River Authority Withdrawal Fee (KRA Fee) on purchases from Lancaster of 0.280 per 1000 gallons. Staff calculated the KRA fee of $119,505 based on the test year gallons purchased of 426,805,239. Based on test year purchases of 426,805,239 gallons, Staff calculated a total pro forma increase in Purchased Water Expense of $224,920 which is $27,610 greater than Garrard County

Water's proposed adjustment of $197,310. Staff recommends the Commission accept

Staff's adjustment because it is known and measurable.

2024 Annual Report at 54. 55 See Case No. 2024-00323, Electronic Purchased Water Adjustment Filing of Garrard County 56Water Association, Inc., final Order (Nov. 8, 2024). See Case No. 2025-00263, Electronic Purchased Water Adjustment Filing of Garrard County 57Water Association, Inc., final Order (Sept. 5, 2025). Application, 4(SAO)StatementofAdjusted_Operations, References, Reference J. 58

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(I) Excess Water Loss. In its application, Garrard County Water proposed an adjustment to decrease Purchased Water Expense by $94,187 and Purchased Power Expense by $1,466 to reflect the disallowance of water loss expense in excess of 15 59 percent. During the test year, Garrard County Water reported a water loss of 22.1393 percent. Commission regulations state that, for ratemaking purposes, recovery for the 60 expenses related to unaccounted for water loss in excess of 15 percent is not permissible. Garrard County Water's test year indicated $1,121,957 in Purchased 61 Water Expenses and $20,530 in Purchased Power Expenses. In the table below, Staff 62 adjusted Garrard County Water's Purchased Water Expense to correlate to the current wholesale rates. Staff calculated a disallowed Purchased Water Expense of $96,158 using the adjusted cost of $1,346,877 which is a $1,971 decrease from Garrard County First 325,000 Gallons 325,000,000 31,442,635 458,247,874 Current Purchase Rate 3.0044$ 2.4320$ 2.9392$ Total 976,430$ 59 Over 325,000Gallons 101,805,239 2024 Annual Report at 57 and 58. 60Current Purchase Rate 1.7138$

807 KAR 5:066 (Water), Section 6(3) (Water Supply Management). 174,474$ 61

Total Gallons 426,805,239 62KRA Fee 119,505$ Pro Forma Cost 1,270,409$ 76,468$ 1,346,877$ -18- Case No. 2025-00396 Test Year Purchase Cost ( ) (1,121,957) Increase 224,920$ Lancaster Danville Total

Water's proposed adjustment of $94,187. Staff agrees with Garrard County Water's

adjustment to reduce Purchased Power expense by $1,466. The table below summarizes the disallowed Purchased Water and Purchased Power expenses for Garrard County Water. Staff recommends the Commission accept Staff's adjustment, since the amounts reflect the limit to costs related to excess water loss of 15 percent.

(J) Insurance - General Lability. Garrard County Water reported $35,260 of expenses related to Insurance - General Liability and proposed no adjustments. Staff 63

reviewed Garrard County Water's general ledger, submitted invoices and recalculated 64 65 the expense based on the submitted invoices and recommends an increase of $4,578 to the test year amounts to match the most recent invoices. Staff recommends the

Commission accept Staff's proposed adjustment because it is known and measurable.

(K) Insurance Workers Compensation. Garrard County Water reported $8,485 of expenses related to Insurance Workers Compensation and proposed no adjustments. Staff reviewed Garrard County Water's general ledger, submitted 66 67

63 642aGCWA2024GeneralLedger

Garrard County Water's Response to Staff's First Request, Item 11InsuranceInvoices. 65

66 672aGCWA2024GeneralLedger

Pro Forma Purchases 1,346,877$ 20,530$ 1,367,407$ Water Loss in Excess of 15% 7.1393% 7.1393% 7.1393% -19- Case No. 2025-00396 Disallowed Water Loss 96,158$ 1,466$ 97,624$ Purchased Purchased Water Power Disallowed Water Loss Total

invoices and recalculated the expense based on the submitted invoices and 68 recommends an increase of $2,264 to the test year amounts to match the most recent

invoices. Staff recommends the Commission accept Staff's proposed adjustment

because it is known and measurable. (L) Rate Case Amortization. In its application, Garrard County Water did not report any test year expense related to rate case amortization but proposed an adjustment to increase Rate Case Amortization by $3,112. 69 provided a copy of a Kentucky Rural Water Association quote for the preparation of the rate case that is not to exceed $9,335 and an invoice related to the rate case 70 expenses. Garrard County Water then amortized the rate case expense over three 71 years. Staff agrees with Garrard County Water's methodology because utilities are expected to file for a rate case every three to five years. Staff recommends the

Commission accept Garrard County Water's proposed adjustment because it is known

and measurable.

Garrard County Water's Response to Staff's Second Request, Item 5, 6852025WorkersCompInvoice.

Garrard County Water's Response to Staff's First Request, Item 15a, 15RateStudyProposal. 70 Garrard County Water's Response to Staff's Second Request, Item 11, 7111KRWARateCase_Invoice.

Description Amount 9,335$ -20- Case No. 2025-00396 Amortization Years 3 Annual Rate Case Expense 3,112$ Kentucky Rural Water Association

(M) Miscellaneous Expenses. Garrard County Water reported $10,577 in Miscellaneous Expenses during the test year. Staff identified expenses totaling $2,195, 72

shown in the table below, in Garrard County Water's test year general ledger that it

recommends for removal from the revenue requirement. Staff recommends removing expenses related to the Christmas dinner and employee gift cards for Christmas 73 74 because these costs are not directly related to Garrard County Water's ability to provide service to its customers and therefore should not be recovered through rates. Staff notes that, while the expenses was approved by the Board of Directors, 75 provided insufficient evidence that such expenses are governed by a formal policy or are necessary for the provision of utility service. The adjustments result in a total reduction of $2,195, as shown in the table below.

Staff recommends the Commission accept Staff's adjustment to reduce Miscellaneous Expenses by $2,195, as the amounts are known and measurable and reflect the removal of expenses not directly related to Garrard County Water's ability to provide service to its customers.

Garrard County Water's Response to Staff's Second Request, Item 6b. 73 Garrard County Water's Response to Staff's Second Request, Item 6a, 746BackPorchandElanFinancialInvoices.pdf. Garrard County Water's Response to Staff's First Request, Item 13, 75132024GCWABoardofDirectorsMinutes.

Date Reference Description Amount 12/10/2024 40370 Back Porch Clubhouse 1,195$ -21- Case No. 2025-00396 12/26/2024 40384 Elan Financial 1,000 Total 2,195$ Miscellaneous

(N) Depreciation. In its application, Garrard County Water reported $574,172 of expenses related to Depreciation and proposed two adjustments. 76 Water proposed an increase of $1,670 to reflect the 2025 depreciation schedule and a decrease of $53,406 to bring asset lives to the midpoint of the NARUC recommended ranges in its publication "Depreciation for Small Utilities". To evaluate the 77 reasonableness of the depreciation practices of small water utilities, the Commission has historically relied upon the same NARUC study. When no evidence exists to support a specific life that is outside NARUC ranges, the Commission has historically used the midpoint of the NARUC ranges to depreciate the utility plant. Staff reviewed and agrees

with Garrard County Water's proposed adjustment of $1,670 to reflect the 2025

depreciation schedule; however, Staff recalculated the depreciation schedule provided by

Garrard County Water using NARUC's midpoint ranges, as shown in the table below, and

recommends an decrease of $47,199 which is $6,207 less than Garrard County Water's

proposed adjustment. Staff recommends the Commission accept Staff's adjustment to

Depreciation Expense because the amount is known and measurable.

76 77

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(O) Taxes Other Than Income. During the test year, Garrard County Water recorded Taxes Other Than Income of $40,792 which is composed of $34,637 in Payroll Taxes, $1,318 in Insurance Unemployment, $3,959 in PSC Assessment and $878 in Property Tax on Rental. Garrard County Water proposed one adjustment to increase its Taxes Other Than Income Expense by $6,576. Staff reviewed Garrard County Water's 78 calculations and agrees with the proposed adjustment. Staff recommends the

Commission accept Garrard County Water's adjustment because it is known and

measurable. (P) Gain (Losses) Sales of Utility Property. In its application, Garrard County Water proposed to decrease Gain (Losses) on Sale of Utility Property by $2,764 to Asset Class Original Cost

Building 204,026$ 37.5 3,982$ 3,645$ (336)$

account for the gain on the sale of assets during the test year. Staff agrees with the Equipment Power Operated 171,343 12.5 12,291 13,707 1,417 79Equipment Shop tools ETC 13,262 17.5 805 613 (192)

Equipment Transportation 347,719 7.0 42,461 49,674 7,213 Hydrants 25,591 50.0 335 349 14 Mains & Lines 19,549,806 62.5 347,784 297,093 (50,691) Meter Installation 683,485 45.0 18,345 15,189 (3,156) 78Meters 1,745,354 20.0 70,100 70,358 258 Office Equioment, Furniture & Fix 84,558 22.5 5,009 1,113 (3,896) 79Standpipes & Tanks 2,672,945 45.0 74,732 76,903 2,171 Land & easements 127,411 - - - -

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Garrard County Water's Adjustment ( ) (53,406) NARUC Staff Difference Between Commission Staff and Garrard County Water's Adjustment (6,207)$ Recommended Depreciation Calculated Current Total 25,625,500$ 575,842$ 528,644$ (47,199)$ DepreciationDepreciationService LivesAdjustment

proposed adjustment since the sale of equipment is a non-recurring transaction, in the normal course of business and, therefore, should be removed from the test year. Staff

recommends the Commission accept Garrard County Water's $2,764 decrease to Gain

(Losses) on sale of Utility Property since the sale of equipment will not recur and is, therefore, not representative of the normal course of business. (Q) Non-utility Income. Garrard County Water reported test year Non-utility Income of $37,423 and proposed three adjustments. First, Garrard County Water 80 proposed an increase of $18,648 to reclassify income from Miscellaneous Service Revenues to Non-utility Income. Garrard County Water recorded income from several 81 Non-utility services in the revenue account Miscellaneous Service Revenues. To correct this misclassification, as discussed above in Miscellaneous Service Revenues, Miscellaneous Service Revenues was decreased by $18,648 and Non-utility Income was increased by the same amount. Staff reviewed Garrard County Water's General Ledger 82 and agrees that the income should be properly classified as Non-utility income. Second, Garrard County Water proposed a decrease of $18,287 to remove an unrealized gain associated with investments recorded during the test year. The utility 83 recognized an increase in an investment account due to interest and fair value adjustments. Because this gain represents an unrealized and non-recurring event, Garrard County Water removed the amount from Non-utility income. Staff finds the 84

Application, 4(SAO)StatementofAdjustedOperations, References, Reference E. 81 Application, 4(SAO)StatementofAdjustedOperations, References, Reference E. 82 Application, 4(SAO)StatementofAdjustedOperations, 83 Application, 4(SAO)StatementofAdjustedOperations, References, Reference Q. 84

-24- Case No. 2025-00396

adjustment reasonable because unrealized investment gains are not representative of ongoing operations. Third, Garrard County Water proposed a decrease of $13,135 to remove a gain on sales of investments recorded during the test year. Because the gain represents a non- recurring event, Garrard County Water removed the amount from pro forma Non-utility income. Staff agrees that this gain should be excluded from normalized income. Staff recommends the Commission accept Garrard County Water's adjustments because each is known and measurable. OVERALL REVENUE REQUIREMENT In the application, Garrard County Water proposed to calculate the Revenue Requirement using the Operating Ratio methodology. The Operating Ratio 85 methodology is used when there is no basis for a rate of return determination, the cost 86 of the utility is fully or largely funded through contributions, or there is little or no outstanding long-term debt. The Operating Ratio is a method to provide the utility with the necessary working capital to operate effectively. The Commission has historically used an Operating Ratio of 88 percent to calculate the additional working capital. 87 Garrard County Water currently has two outstanding debts, a Kentucky Infrastructure Authority (KIA) loan and a United States Department of Agriculture's

Application, 5RevenueRequirement_Calculation. 85 Operating Ratio is defined as the ratio of expenses, including depreciation and taxes, to gross 86revenues. It is illustrated by the following equation:

Operating Ratio = Operating Expenses + Depreciation + Taxes Gross Revenues Case No. 2024-00234, Electronic Application of North Nelson Water District for a Rate 87Adjustment Pursuant to 807 KAR 5:076. Case No. Electronic Application of Graves County Water District

for a Rate Adjustment Pursuant to 807 KAR 5:076.

-25- Case No. 2025-00396

(USDA) Rural Development (RD) Loan. If the Commission used the Debt Service 88 Recovery method, Garrard County Water would only recover $209,953 for the Debt Service and Additional Working Capital, as shown in the following table.

In contrast, the Operating Ratio method provides $388,712 in additional working capital. Staff notes that, due to Garrard County Water's low debt service requirement, the rate increase from the debt service coverage method would not provide Garrard County Water with sufficient working capital to operate effectively to provide adequate, efficient, and reasonable service. By applying the Operating Ratio method, Staff found Garrard County Water's Revenue Requirement from Rates for Service to be $3,014,464. A revenue increase of $303,426 or 11.19 percent is necessary to generate the Overall Revenue Requirement of $3,306,442.

Case No. 2023-00128, Electronic Application of Garrard County Water Association, Inc. for the 88

Issuance of a Certificate of Public Convenience and Necessity to Construct a Water System Improvements Project and an Order Authorizing the Issuance of Securities Pursuant to the Provisions of KRS 278.020, KRS 278.300, and 807 KAR 5:0001. Case No. 2022 - 00276, Electronic Application of Garrard County Water Association, Inc. for a Certificate of Public Convenience and Necessity to Construct a Water System Improvements Project, Finance and Increase Rates Pursuant to the Provisions of KRS 278.023.

Average Annual Principal and Interest Payments 174,961$ -26- Case No. 2025-00396 Additional Working Capital at 20% 34,992 Total Additional Working Capital 209,953$ Amount

1. Average Annual Interest and Fees Payment. As discussed above, at the time of Staff's review, Garrard County Water had one outstanding KIA and one RD loan.

Garrard County Water provided the amortization schedules for its outstanding debt. 89 Using the amortization tables, Staff calculated the average annual interest using a five- year average for the years 2026 through 2030. Staff calculated an average Interest Expense of $67,179 as shown in the following table. Pro Forma Operating Expenses 2,814,007$ 2,850,552$ Operating Ratio 88% 88% Subtotal 3,197,735 3,239,263 Average Annual Interest Expense 67,179 67,179 Total Revenue Requirement 3,264,914 3,306,442 Forfeited Discounts (34,965) (34,965) Miscellaneous Service Revenues (52,037) (17,416) Interest Income (219,326) (219,326) Non-utility Income (24,649) (24,649) Miscellaneous Non-utility Expenses 4,378 4,378 Application, 10GCWALong-TermDebtAmortization_Schedules. 89 Revenue Required From Rates 2,938,315 3,014,464Description 2026 2027 2028 2029 2030 TotalNormalized Revenue From Water Sales ( ) (2,711,038) (2,711,038)KIA 29,174$ 27,907$ 26,612$ 25,288$ 23,933$ 132,915$ -27- Case No. 2025-00396 RD 42,207 41,415 40,610 39,790 38,956 202,978Water Required Revenue Increase / (Decrease) 227,277$ 303,426$ Total 71,381$ 69,323$ 67,222$ 65,078$ 62,889$ 335,893

Five year Average 67,179$ Percentage Increase / (Decrease) 8.38% 11.19%RevisedStaff

Staff recommends the Commission approve Staff's inclusion of $67,179 to the Revenue Requirement to account for the average annual interest payments, because the Operating Ratio methodology includes the recovery of Interest payments.

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Signatures Vinay Raj Raju______________ Prepared by: Vinay Raj Raju Revenue Requirement Branch Division of Financial Analysis Elizabeth Stefanski __________ Prepared by: Elizabeth Stefanski Rate Design Branch Division of Financial Analysis

Case No. 2025-00396

APPENDIX A

APPENDIX TO COMMISSION STAFF'S REPORT OF THE KENTUCKY PUBLIC

SERVICE COMMISSION IN CASE NO. 2025-00396 DATED APR 21 2026

Page 1 of 2 Utility Revised Staff Revised Utility Revised Staff Revised Utility Revised Staff Revised Field Labor ($35 at 1 hours) Field Labor ($30 at 1.5 hours) Field Labor ($23.33 at 1.5 hours) Field Materials Office Supplies Office Labor Transportation Bank charge Total Revised Charge $17.00 $25.00 $3.00 $5.00 $8.00 $3.00 $5.00 Reconnection Charge Charge* Charge * Denotes RoundingField Materials Office Supplies Office Labor Transportation Misc. Total Revised Charge Current Rate Field Materials Office Supplies Office Labor Transportation Misc. Total Revised Charge Current Rate Current Rate Charge* Charge* Charge Charge $17.00 $20.00 $25.00 $27.00 $35.00 $17.00 $60.00 $60.00 $45.00 $25.00 $78.00 $78.00 $25.00 $3.00 $2.00 $3.00 $5.00 $2.00 $6.00 Meter Turn-On Charge (Service Charge) Nonrecurring Charges Adjustments Return Check Charge

Appendix A Page 2 of 2 Case No. 2025-00396 Utility Revised Staff Revised Field Labor ($30.00 at 1.0 hours) Field Materials Office Supplies Office Labor Transportation Other: Shipping cost Other: Meter test charge Total Revised Charge Current Rate Charge Charge $12.50 $10.00 $33.50 $30.00 $12.50 $10.00 $70.00 $70.00 $2.00 $9.00 $2.00 $6.50 $9.00 Meter Test Charge

APPENDIX B APPENDIX TO COMMISSION STAFF'S REPORT OF THE KENTUCKY PUBLIC SERVICE COMMISSION IN CASE NO. 2025-00396 DATED APR 21 2026 The following rates and charges are recommended by Commission Staff based on

the adjustments in Commission Staff's Report for the customers in the area served by

Garrard County Water Association, Inc. All other rates and charges not specifically mentioned herein shall remain the same. Monthly Water Rates

Nonrecurring Charges

Page 1 of 2 Meter Turn-On (Service Charge) Reconnection Charge Return Check Charge Meter Test Charge $20.00 $27.00 $8.00 5/8- x 3/4-Inch Meter First Gallons Minimum Bill Next Gallons Per Gallon Next Gallons Per Gallon Next Gallons Per Gallon Over Gallons Per Gallon 1-Inch MeterFirst Gallons Minimum Bill Over Gallons Per Gallon 1 1/2-Inch Meter First Gallons Minimum Bill Over Gallons Per Gallon 2-Inch MeterFirst Gallons Minimum Bill Over Gallons Per Gallon Bulk Sales Per Gallon 10,000 10,000 25,000 25,000 1,000 1,000 1,000 2,000 5,000 5,000 5,000 $0.00839 $0.00693 $0.00665 $0.00626 $0.00626 $0.00626 $0.00626 $0.00754 $33.50 $168.73 $14.93 $43.56 $74.86

Meter Connection Charges

Appendix B Page 2 of 2 Case No. 2025-00396 Meter Move and Reset Charge Fire Hydrants (per year per hydrant) 5/8 x 3/4 Inch Water Tap On 1- Inch Water Tap On 1 1/2- Inch Water Tap On 2- Inch Water Tap On Actual Cost Actual Cost Actual Cost $1,092.75 $934.75 $50.00

Service List for 2025-00396

• Robert K. Miller Straightline Kentucky LLC

113 North Birchwood Ave. Louisville, KY 40206

• Mark Frost 110 Woodford Place #1 Harrodsburg, KY 40330
• Garrard County Water Association, Inc. 315 Lexington Road P. O. Box 670 Lancaster, KY 40444
• Sean Smith Registered Agent Garrard County Water Association, Inc. 315 Lexington Road P. O. Box 670 Lancaster, KY 40444
• Denotes served by Email