In the matter of increased sewer rates

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Georgiana Sharp
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1 OF WEST VIRGINIA AT CHARLESTON CASE NO PSD-42T BERKELEY COUNTY PUBLIC SERVICE SEWER DISTRICT, a public utility, Martinsburg, Berkeley County. In the matter of increased sewer rates and charges. RECOMMENDED DECISION On December 7, 1993, the Berkeley County Public Service Sewer District (District), a public utility, Martinsburg, Berkeley County, filed revised tariff sheets which reflected increased rates and charges of approximately $345,000, which corresponds to an increase of approximately 28% annually, for providing sewer service to approximately 2,650 customers in Berkeley County, to become effective February 1, By Order entered on December 13, 1993, the Commission instituted a ratemaking proceeding and suspended the revised tariff sheets and the increased rates and charges until July 2, 1994, unless otherwise ordered by the Commission, to provide adequate time for Commission Staff to examine and investigate the supporting data filed with the revised tari sheets and to submit appropriate reports. By that same Order, the Commission established an intervention period which required any persons or corporations who are interested in intervening as parties to the proceeding to file an appropriate petition on or before January 21, Berkeley County Public Service Sewer District was required to provide public notice of its filing and the opportunity to intervene in this proceeding by Class I1 legal advertisement to be provided no later than January 7, 1994, and by postingatleastthirty (30) dayspriortothejanuary21,1994 intervention deadline. Finally, by that same December 13, 1993 Order, the Commission required Commission StaFf to submit a report in the proceeding on or before April 26, 1994, and referred the matter to the Division of Administrative Law Judges for a decision to be rendered on or before June 2, 1994.

2 Two petitions to intervene were filed in this case. One petition, filed by Mr. Brad Hansen, the previous general manager of the Berkeley County Public Service Sewer District, was denied by Procedural Order entered on April 5, 1994, since Mr. Hansen was not a customer of the District and the issues which he wished to raise in the case appeared be beyond the scope of issues to be addressed in this proceeding. The secondpetition to intervene,filedbythe VA MedicalCenter of Martinsburg, was granted by that same Procedural Order. By Order entered on April 5, 1994, this Administrative Law Judge established a procedural schedule in this case which sethe matter for hearing to be conducted on Monday, May 2, 1994, in the Council Chambers, City Building, 232 North Queen Street, Martinsburg, West Virginia, beginning at 1:30 p.m. As a part of that same procedural schedule, the ALJ required the filing of written direct testimony and exhibits by all parties of record prior to the scheduled hearing. By telefacsimile received on April 13, 1994, the Berkeley County$ Public Service Sewer District indicated that it had reviewed of the dra the Commission Staff report in this case, and it intended to stipulate and adopt the findings and recommendations submitted by Commission Staff. Since it intended to adopt the Staff recommendations in this case, it wished to be relieved of any obligation to file direct testimony and exhibits in support of its original recommendation. The District's correspondence indicated that the VA Medical Center concurred in that request, and was forwarding separate correspondence to that effect. By Order entered on April 15, 1994, the Administrative Law Judge relieved the parties of record of their obligation to file written direct testimony and exhibits in support of their respective rate recommendations. However, Commission Staff was still required to file its report and recommendations on or before April 26, 1994, as required by the Commission's December 13, 1993 Referral Order. Commission Staff proceeded to file its report and investigation in this case on April 18, On April 18, 1994, the VA Medical Center withdrew its petition to intervene this case, after reviewing Staff's report and recommendation. The hearing commenced as scheduled on May 2, George V. Piper, Esquire, appeared on behalf of the Berkeley County Public Service Sewer District, and Cassius Toon, Esquire, appeared on behalf of the Public Service Commission. Five individuals made statements of public protest in the case, and Commission Staff presented two witnesses in support of itsraterecommendation.theberkeleycountypublicservicesewer District accepted the Staff's rate recommendations in this case, and presented no testimony or evidence in support of its original rate request. On May 6, 1994, Berkeley County Public Service Sewer District filed affidavits of publication which confirmed that the District had provided adequate notice of the May 2 hearing, as required by the April 5, 1994 Procedural Order. -2-

t EVIDENCE AND DISCUSSION The Commission's task in this case is to determine the level of rates and charges which are needed to maintain and support the Distri existing operations.

3 t EVIDENCE AND DISCUSSION The Commission's task in this case is to determine the level of rates and charges which are needed to maintain and support the Distri existing operations. The Berkeley County Public Service Sewer District also has two separate certificate applications pending before the Public Service Commission for certain upgrades and improvements to the District's Baker Heights Treatment Plant (Case No PSD-CN), and for certain other upgrades and improvements on other portions of the District'ssystem (CaseNo PWD-CN).Theratesandcharges established in this case are not intended to support the projects discussed in the District's pending certificate applications, and any increased rates and charges which were needed to support those projects will be addressed in those pending certificate applications. Commission Staff reviewed the books and records of the Berkeley County Public Service Sewer District for the year ended June 30, 1993, and reviewed other documents in the District's possession to attempt to verify known and measurable changes in the District's expected revenue levelsandoperatingexpenses.commissionstaffobservedthatthe Berkeley County Public Service Sewer District provided sewer service to approximately 2600 customers in Berkeley County. (Staff Exhibit No. 1, Transmittal Letter, p. 1). As shown in the Staff's report, received in this case as Staff Exhibit 1, Berkeley County Public Service Sewer District's current tariff ratesandchargeswereapprovedbyorderenteredincase No PSSD-42T, effective June 17, In retrospect, Commission Staff believed that it had overestimated the expected levels of revenues which would be generated as certain new customers and projects came on line after the last rate case. Therefore, the actual revenue levels which the District received during the test year was $230,212 less than Commission Staff had previously projected during the District's last ra case. (See, Staff Exhibit No. 1, Transmittal Letter, p. 1; Tr., pp ). According to Staff's review, the Berkeley County Public Service Sewer District received $1,245,520 in operating revenues for the year endedjune30,1993.forthatsameperiod,thedistrictincurred operation and maintenanc expenses of $693,827, depreciation and amortization expenses of $577,639, other income of $26,630, and an annual debt service obligation which included $430,605 in interest expenses and $111,317inprincipalpayments.TheDistrict is also requiredto maintain a reserveaccountunderthetermsofitsexistingbond ordinance. In total, Commission Staff determined that Berkeley County Public Service Sewer District had a net income loss of $431,656 on an income statement basis for the year ended June 30, 1993, a and cash flow deficiency of $21,136 for that same period. (See, Staff Exhibit No. 1, Statements A & H; Tr., p. 51). After making certain per books adjustments and going level adjustments, Commission Staff determined that the District would receive annual operating revenues of $1,341,223 if its rates and charges remaine the same. Commission Staff identified $674,496 in going level operation and maintenance expenses for the District, $577,639 in going level depreciation and amortization expenses, $3,379 in going level taxes othe -2-

I than income taxes, and going level debt service requirements which consisted of $412,080 in interest payments on its long term debt, $117,433 in principal payments on its long term debt, a $44,322

4 I than income taxes, and going level debt service requirements which consisted of $412,080 in interest payments on its long term debt, $117,433 in principal payments on its long term debt, a $44,322 reserve requirement on its existing bond ordinance, plus an additional payment obligation of $10,428 annually to finance the District's acquisition of a pickup truck. When combined with the District's other income $26,630, of Commission Staff determined that the District would experience a net income loss of $320,001 on an income statement basis if its rates and charges remained the same, and the Commission Staff determined that the District would have a cash flow surplus of $105,715 and a debt service coverage of $127.79% if its rates and charges remained the same. (See, Staff Exhibit No. 1, Statements A & H). Commission Staff proceeded to analyze the District's average plant additions to determine whether the projected surplus generated by the District's existing rates and charges would be sufficient. Commission Staff observed that the District's three year average of plant addit after accounting for contributions in aid of construction, was $73,905, adjusted for inflation. Commission Staff recommended that the District's plant additions be increased by $136,333 annually to address certain capital needs of the District. (Staff Exhibit No. 1, Statement G, p. 4; and Statement H., p. 2). The components of that $136,333 figure are set forth below. Commission Staff recommended that the District expend $50,000 each year to identify and address inflow and infiltration problems currently being experienced on the Opequon/Hedgesville portion of the District's system. Mr. Hippchen believed that this $50,000 figure would be sufficient to conduct the initial studies needed to identify the pro onthedistrict'ssystem.oncethoseproblemsareidentified,the estimated cost of remedying and rectifying certain of the inflow and infiltration problems on the Opequon/Hedgesville portion of the District's system could be more clearly identified and addressed. (Staff Exhibit No. 1, Transmittal Letter, p. 5; Tr., pp ). Commission Staff also recommended that an additional $33,000 be reflected in the District's capital needs to cover the District's main extension reimbursement obligations. The District provided Commission Staff with a list of potential reimbursement obligations for sewer line extensions in Case No PSD-42T. The District also provided Staff with five contracts with separate developers which had been executed between 1987 and Commission Staff observed that the developers had fully or partially performed under three of the contacts, and potential reimbursement obligations remained outstanding on those three projects. Stafffurtherobservedthatthedevelopershadnotperformedany construction under two of the other contracts. Therefore, Commission Staff recommended that two of the prior agreements be voided since neither developer had actually started construction. Staff observed that the District has begun entering into cooperative venture agreements with other developers in the territory, and believed that the District shoul renegotiate extension plans with the two developers under the cooper venture format. Commission Staff alsobserved that one other development, Whitestone Estates Mobile Home Park, will be eligible for reimbursement pursuant to a Commission Order which was entered in Case -4-

5 No PSD-C. Staff recommended that a $33,000 line item be set aside for main extension reimbursements under those four remaining projects. (Staff Exhibit No. 1, Transmittal Letter, pp. 5-6; Tr., pp ). Commission Staff also identified certain pieces of equipment which the District needed to replace in the near future, and such replacemen will need to be funded from the District's surplus or available capital. The following equipment acquisitions or replacements were included in Staff's projection: Lift Station (Apache) $ 36,000 Dump Truck 25,000 Trailer 6,000 Pickup Trucks, 4WD (2) 32,000 Drying Bed Cover 25,000 Total : $124,000 Commission Staff recommended that the needed equipment replacement be amortized over a three year period. Therefore, $41,333 of Staff's recommended capital addition increase was to cover the cost of this equipment replacement. (Staff Exhibit No. 1, Transmittal Letter, p. 7; Tr., p. 74). Finally, Staff recommended that an additional $12,000 in interest expense be included in the District's anticipated capital expenses. Staff observed that the per books expenses reported by the District had included a number of items which Staff believed were more properly identified as project related functions as opposed to routine operating functions. Staff observed that services for project development, primarily engineering design and feasibility studies, should be paid proceeds generated by interim borrowings, which will later be retired by a long term debt issuance once the projects are finally approved. Staff recommended that the following services be paid by interim borrowings HNTB Pentree, Inc. $24,000 (Remainderof negotiated settlement) Up to $133,000 Staff estimated that the annual interest expense on these interim borrowings would be $12,000, and Staff recommended that this interest expense be included in the District's capital cost for ratemaking purposes. (Staff Exhibit No. 1, Transmittal Letter, pp. 7-8; Tr., pp ). After adding $136,333 in additional capital expenditures to the District's three year average of capital additions, Staff recommended that the District's rates and charges be increased to generate $210,238 in surplus annually, to meet the District's ongoing capital obligations Therefore, Staff recommended that the District's rates and charges be increased to generate an additional $105,624 in annual revenues, which -5-

6 represents an overall increase of 7.88%, to produce the desired capital surplus. (Staff Exhibit No. 1, Statements A & H). Staff recommended that the District's monthly customer service charge be increased $0.25 by per month, and that the District's commodity charge be increased from $4.10 per 1,000 gallons to $4.44 per 1,000 gallons. Accordingly, the District's monthly charges to unmetered residential customers would increase to $25.33 per month. (Staff Exhibit No. 1, Statement D; Tr., pp. 50, 96-97). The following Protestants made statements on the record: Glendle S. Twigg, Ann Coffinbarger, Jerry Steerman, Ronald W. Imbach, Sr. and David Myers. Mr. Twigg was opposed to any District rate increase. He also believed that any city resident should have the opportunity to obtain sewer service from the city once his or her area is annexed, and t should be provided the opportunity to acquire the necessary facilities from the District. (Tr., pp ). Mr. Steerman urged the Commission to examine options of reducing the District's operating costs, such as the elimination of excessive rain water received by the District's system. He also inquired why the sewage flow meters were not used by District instead of using the customers' metered water usage for billin purposes. (Tr., pp ). Although each of the other Protestants had certain questions or points they needed clarified, none were opposed to the basic Staff recommendation in this case. (Tr., pp , ). While the District did not necessarily agree with all of the individual adjustments reflected in Staff's report, it was willing to accept Staff's ultimate rate recommendations in this case. (May 10, 1994 District correspondence). Upon consideration of all of the above, the Administrative Law Ju finds it reasonable and appropriate to adopt Staff's rate recommendati in this case. Staff's recommended rates are designed to meet the District's reasonable and necessary costs providing sewer service with its existing sewage system, meet the District's existing debt service obligations and reserve requirements, and generate a capital surplus which is sufficient to meet the capital needs identified by Commission Staff as being reasonable and appropriate. FINDINGS OF FACT 1. After reviewing the District's books and records, Commission Staff concluded that the District's existing rates would generate a surplus of $105,15 per year, generate a debt service coverage of % on a cash flow basis. (Staff Exhibit No. 1, Statement H). 2. Commission Staff determined that the District would require an annual cash flow surplus of $210,238 per year, after its routine operation and maintenance expenses, taxes, and debt service obligations have been satisfied, to meet the reasonable and necessary capital requirements for the District's existing system. (Staff Exhibit No.1, Transmittal Letter, pp. 5-8, Statement G, p. 4 and Statement H, p. 2; Tr., pp , 81-83, 86-89). -6-

7 ~ proposed - 3. In order to generate that targeted surplus, Commission Staff to increase the District's rates by 7.88%, to generate an additional $105,624 in annual revenues. Specifically, Staff proposed to increase the District's monthly customer charge from $5.10 to $5.35, and the District's commodity charge from $4.10 to $4.44 per thousand gallons. The District's monthly flat rate for unmetered customers would correspondingly increase from $23.55 per month to $25.33 per month. (See. Staff Exhibit No. 1, Statement D; Tr., pp. 50, 96-97). 4. No party objected to Staff's final rate recommendations in this case. (April 18, 1994 correspondence of the VA Medical Center; May 10, 1994 correspondence of Berkeley County PSSD). II ll CONCLUSIONS OF LAW 1. The District's existing rates and charges are unreasonable and insufficient because they do not generate the level of surplus deemed necessary to meet the District's reasonable and appropriate capital ne for its existing sewerage system. 2. The rates and charges recommended by Commission Staff are reasonable and appropriate because they are designed to generate reve which are sufficient to meet the District's reasonable and necessary operation and maintenance expenses, taxes, debt service obligations and capital requirements. ORDER IT IS, THEREFORE, ORDERED that Berkeley County Public Service Sewe District's revised tariff sheets, as filed on December 7, 1993, are hereby disapproved for use, and the District is hereby authorized to assess the following increased rates and charges for all service rend on and after July 2, 1994: Service Charge Volumetric Charge Flat Rate $5.35 per month $4.44 per thousand gallons of metered water usage $25.33 per month (for unmetered customers, based on 4500 gallons consumption per month) IT IS FURTHER ORDERED that Berkeley County Public Service Sewer District is hereby required to file a proper tariff with the Commission's Tariff Office setting forth its approved rates, no later than ten (10) days after the date this order becomes a final order of the Commission. The Executive Secretary is hereby ordered to serve a copy of this order upon the Commission by hand delivery, and upon all parties of record by United States Certified Mail, return receipt requested. Leave is hereby granted to the parties to file written exceptions supported by a brief with the Executive Secretary of the Commission -7-

8 within fifteen (15) days of the date this order is mailed. If exceptions are filed, the parties filing exceptions shall certify to the Executive Secretary that all parties of record have been served said exceptions. If no exceptions are so filed, this order shall become the order of the Commission, without further action or order, five ( 5) days following the expiration of the aforesaid fifteen (15) day time period, unless it is ordered stayed or postponed by the Commission. Any party may request waiver of the right to file exceptions to an Administrative Law Judge's Order by filing an appropriate petition in writing with the Secretary. No such waiver will be effective until approved by order of the Commission, nor shall any such waiver to opera make any Administrative Law Judge's Order or Decision the order of the Commission sooner than five (5) days after approval of such waiver by the Commission. Robert F. Williams Deputy Chief Administrative Law Judge RFW: pst -8-

PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON

PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON GIN 'g; OF WEST VIRGINIA CHARLESTON Entered: April 2, 1993 ZASE NO. 92-0945-PWD-42A CLAYWOOD PARK PUBLIC SERVICE DISTRICT, a public utility, Parkersburg, Wood County. Rule 42A application to increase water