DF 96-210
TILTON & NORTHFIELD AQUEDUCT COMPANY, INC.
Petition for Authority to Issue Securities
and Increase Rates
Order Approving Increase in Rates
O R D E R N O. 22,884
March 27, 1998
APPEARANCES: Jay C. Boynton, Esq. for Tilton &
Northfield Aqueduct Company; and Eugene F. Sullivan III, Esq. for
the Staff of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
The New Hampshire Public Utilities Commission
(Commission) authorized the Petitioner, Tilton & Northfield
Aqueduct Company, Inc. (TNA or the Company) in Docket DF 95-185,
by Order No. 21,876, to issue securities in an amount not to
exceed $3,124,398. Order No. 21,876 also found the proposal to
finance the construction of gravel packed wells in Northfield and
a new transmission system to comply with the Safe Drinking Water
Act (SDWA) to be prudent uses of the funds. The Commission also
approved a Stipulation entered into by TNA and Staff which
resolved all of the issues in the proceeding and set forth the
ratemaking methodology to be used to derive TNA's revenue
requirement once the new source of supply provided service to
customers. On August 27, 1996, the Commission issued Order No.
22,296 in DF 96-210 which provided authorization for borrowing an
additional $64,318 for larger transmission mains in order to
achieve acceptable fire flows. On February 11, 1997, the
Commission issued Order No. 22,502 which increased TNA's
financing authorization up to $3,841,965, to enclose its storage
reservoir rather than use a floating cover system. Finally,
Order No. 22,564 (April 21, 1997) further authorized the Company
to increase its total borrowing authority up to $4,159,889. The
increase in financing related to the lapse in time since the
original estimates in 1995 and the subsequent higher bids for the
well pumping station and the water main improvement projects.
On December 30, 1997, the Company filed financial
schedules, per the terms of the Stipulation in DF 95-185, which
would provide for a 192% increase in its currently approved rates
as a result of the construction of the wells, pump station,
transmission system and one half of the storage reservoir (Phase
I of the project). Those schedules included the Company's
calculations of the final construction costs of Phase I as well
as related increases in expenses.
A duly noticed prehearing conference was held on
February 25, 1998. The Commission received no requests for
intervention. On March 10, 1998, the Commission issued Order No.
22,866 approving a procedural schedule to govern its
investigation into the proposed increase in rates. On March 16,
1998, the Commission heard testimony from the Company and Staff
in support of a rate increase.
II. POSITIONS OF THE PARTIES AND STAFF
TNA and the Staff presented financial schedules at the
hearing which provided for a 180% increase in revenues for TNA.
In accordance with the methodology approved in the Stipulation in
DF 95-185, TNA's rate increase would be calculated based on the
new capital additions installed to comply with the SDWA as well
as 1995 test year data.
Staff witness Steven Mullen presented the schedules and
explained the components of the rate increase. An audit of the
construction costs had been completed and the Company's records
were found to be in good order. The major exception noted during
the audit, the amount of interest to be capitalized as part of
the plant costs, was resolved with the Company. TNA's plant in
service totaled $4,036,520 which consisted of the cost of the new
capital additions and the December 31, 1995 plant balance.
Subtracting accumulated depreciation resulted in net plant in
service of $3,592,674. Adding a cash working capital allowance
of $61,866, materials and supplies of $16,357 and prepayments of
$7,438 yielded a total rate base of $3,678,336. Applying the
overall cost of capital of 9.59% determined for this proceeding
to the rate base resulted in a revenue requirement of $352,775.
Combining the revenue requirement with the proforma test year
loss and a calculated tax effect yielded an overall revenue
deficiency of $573,972, requiring an increase of 180% over test
year revenues. It was noted that the proposed effective date for
the increased rates resulting from this proceeding would be
January 1, 1998, to be reflected in bills rendered April 1, 1998.
Mr. Mullen noted that the financial schedules, prepared
by the Company, were agreed to by Staff earlier in the day prior
to the hearing. While Staff noted some minor calculation errors
in the schedules, the schedules were accepted as presented. It
was agreed with the Company that final reconciliation of all
numbers would occur during the proceedings for Phase II of the
compliance project, which TNA anticipates filing in June 1998.
Items to be completed during Phase II include the second half of
the reservoir, installation of a backup generator at the
pumphouse and paving projects.
It was further noted that TNA had filed an additional
financing petition with the Commission in February 1998 for the
primary purpose of replacing concrete-tin mains which were
experiencing leaks due to increased system pressure from placing
the Phase I plant additions in service. This was an
unanticipated consequence and Staff recommended that, due to
timing considerations, the financing petition be assigned a new
docket number, although it was referred to as "Step III"
throughout the proceeding.
Staff witness Douglas Brogan explained that Staff had
been in contact with the Company throughout the construction
process, had visited the site of the new wells and pumphouse, and
was satisfied with the Phase I plant additions. Mr. Brogan
further explained that, regarding Step III, the leakage in
concrete-tin mains occurred in spite of surge protection
installed in the new pump station and the relatively low pressure
increases seen in the system from the project. He stated that
the leakage was more a reflection of the age and type of mains
affected.
Kenneth Money, President of TNA, detailed the
construction process and the financial and engineering oversight
responsibilities required by the bank. Mr. Money was asked what
the potential rate implications were for Phase II of the
compliance project. He explained that it was difficult to
determine because TNA had submitted an application for a Surface
Water Treatment Rule Filtration grant which could potentially
offset 30% of the costs of qualified Phase I and II plant
additions. Any potential impact on rates could, in fact, be
negative. The Company did not yet know whether it will be
receiving the grant.
Mr. Money also elaborated on the problems the Company
had been experiencing with the concrete-tin pipe and the
difficulty involved in repairing it. He expected that if the
main replacement project is approved it will be completed by mid-summer 1999. TNA applied for State Revolving Loan Funds from the
Department of Environmental Services and is on the list to
potentially receive funding. That funding is contingent in part
upon receiving approval from the Commission to borrow and
increase rates accordingly. He explained that TNA has been
identified as a disadvantaged water company which would make the
Company eligible for principal forgiveness, lessening the
potential rate impact.
Attorney Boynton read into the record the following
procedural schedule for Phase II of the SDWA project proposed by
Staff and the Company:
Audit of 1995 Test Year April - May 1998
Company Filing July 1, 1998
Data Requests July 15, 1998
Data Responses August 1, 1998
Staff Testimony September 1, 1998
Hearing September 15-20, 1998
III. COMMISSION ANALYSIS
We have reviewed the financial schedules presented by
the Company and Staff, and approve them as presented. We note
that the agreed upon 180% increase in rates is lower than the
192% originally requested by the Company. We previously
addressed and approved the construction on TNA's water system,
which was necessary to comply with the SDWA. We are now
approving the 180% increase in rates necessary to service the
debt incurred to bring the water system into compliance with
federal law. Although this is a dramatic increase in rates, it
is just and reasonable in light of the significant modifications
made to the water system to meet the requirements of the SDWA.
We find that all investments that are the subject of
this proceeding have been prudently incurred and that the
facilities are used and useful in the provision of public utility
service. We direct the Company to vigorously pursue State
Revolving Loan Funds and any other avenues available that will
assist in reducing rates to customers and to keep the Commission
informed of all such efforts.
We also find the aforementioned procedural schedule set
forth during the hearing for Phase II of the SDWA compliance
project to be reasonable and will approve it for the duration of
the proceeding.
Finally, the financing petition for "Step III" has been
assigned a new docket number, DF 98-035. We find that to be
reasonable in light of the fact that construction may not be
completed until mid-1999.
Based upon the foregoing, it is hereby
ORDERED, that Tilton & Northfield Aqueduct Company is
authorized to increase its rates related to Phase I of the SDWA
compliance project, effective January 1, 1998, as per the
Stipulation in DF 95-185, in order to recover additional revenues
of $573,972; and it is
FURTHER ORDERED, that the procedural schedule
delineated above for Phase II of the project is approved; and it
is
FURTHER ORDERED, that TNA submit a properly annotated
tariff with the Commission within 10 days of the date of this
order in accordance with N.H. Admin. Rules Puc 1603.06(o); and it
is
FURTHER ORDERED, that matters related to the financing
petition filed on February 11, 1998 will now be addressed in
docket DF 98-035.
By order of the Public Utilities Commission of New
Hampshire this twenty-seventh day of March, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary