DF 96-210
TILTON & NORTHFIELD AQUEDUCT COMPANY, INC.
Petition for Authority to Issue Securities and Increase
Rates
Order Delineating Actions to be Taken Arising from Rehearing
O R D E R N O. 23,008
September 1, 1998
APPEARANCES: Jay C. Boynton, Esq. on behalf of Tilton &
Northfield Aqueduct Company; James R. Anderson, Esq. of the
Office of the Consumer Advocate on behalf of residential
ratepayers; and Eugene F. Sullivan III, Esq. for the Staff of the
New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On March 27, 1998, the New Hampshire Public Utilities
Commission (Commission) issued Order No. 22,884, which granted
Tilton & Northfield Aqueduct Company, Inc. (TNA or the Company)
authority to increase rates in order to recover additional
revenues of $573,972. This increase in revenues increased
average annual bills for residential customers from approximately
$180 to approximately $505. The revenue increase was necessary
to recover the costs of investment in plant and equipment
required for compliance with the Surface Water Treatment Rule
(SWTR) of the federal Safe Drinking Water Act (SDWA).
On April 24, 1998, the Commission received a petition
signed by numerous TNA customers asking for rehearing of the
Commission's decision. On April 28, 1998, the Commission also
received a request for rehearing from State Representatives Tom
Salatiello, Gerard St. Cyr and Gordon Bartlett. Among other
things, the requests for rehearing argued that the rate increase
was too large and that proper notice of the hearings was not
provided. On June 9, 1998, a hearing was held to accept public
comment on the issues raised by the requests for rehearing.
II. POSITIONS OF THE PARTIES AND STAFF
This case has a lengthy procedural history which spans
several years and dockets. The central issue has been TNA's
attempts to secure the necessary funding to comply with the SWTR
of the SDWA.
TNA made various objections to reconsideration of any
of the previous orders. The Company also stated that it believed
that notice had been sufficient and in accordance with Commission
rules and orders. The Company went on to provide its explanation
of the events that led to the rate increase.
Customers and other interested parties were then given
the opportunity to state their positions. Numerous customers
expressed their concern over the level of the rate increase as
well as what they believed to be insufficient notice of the
construction project and its resultant effect on rates. Also
mentioned were concerns about the terms of the existing
financing, the potential availability of other, lower cost,
sources of financing, and impacts of system expansion. Limited
statements were also made supporting the project and the efforts
of TNA.
III. COMMISSION ANALYSIS
As was noted by both the Company and Staff, this case
has a rather lengthy procedural history. Given the issues raised
in the requests for rehearing regarding notice, the terms and
conditions of the note and the resultant increase in rates, we
believe it is necessary to provide a summary of the events that
surround the Commission's finding that the note and the resultant
rate increases to service the debt was for the public good.
The "case" actually consists of five dockets; DF
94-218, DF 94-264, DF 95-135, DF 95-185 and DF 96-210. The first
three dockets were relatively minor financings totaling $180,000,
which provided TNA with the necessary funds to retain the
engineering expertise required to assess the available SDWA
compliance options, to drill and pump test wells that were part
of the engineering assessment of viable options, and to construct
and reconstruct mains necessary to provide service to new
commercial establishments along U.S. Route 3 that would also be
an integral part of the compliance option ultimately chosen.
DF 95-185 was the main proceeding in which the
Commission authorized TNA to borrow approximately $4.1 million
and also determined that the Company's decision to construct
gravel pack wells in Northfield, transmission mains back into
Tilton along U.S. Route 140 to provide service to new customers
at the intersections of Route 3 and Route 140, and to construct
new storage reservoirs was the prudent and most economically
efficient means of compliance with the SDWA.
The Commission also concluded in DF 95-185 that the
Company should receive a rate increase to service the debt
incurred to implement this means of compliance once the wells,
mains and reservoirs were prudently constructed and providing
service to customers and a financial audit had been conducted to
ensure that the funds had been expended as initially represented.
The case began informally in 1990 when conversations
commenced between Commission Staff and TNA regarding TNA's
inability to locate any financial institutions willing to loan
the necessary funds for compliance with the SWTR of the SDWA.
TNA and other small water utilities indicated that no bank would
lend a small water utility funds without a guarantee that those
funds could be recovered from ratepayers because of RSA 378:30-a,
the so-called "anti-CWIP law", and the prudence and used and
usefulness reviews required under RSA 378:28.
In response to this concern, Commission Staff proposed
by letter dated August 3, 1992 that TNA submit its proposed plan
for compliance with the SWTR of the SDWA for a prudence review at
the time of its financing request under RSA 369 along with a
request for an increase in rates at the time the proposed
facilities were placed in service. Only one financial
institution, the Bank of New Hampshire (Bank), found that
procedure acceptable to address the potential risks. Thus, TNA
and the Bank entered into an agreement in which the Bank agreed
to lend to TNA the funds necessary to construct gravel packed
wells. The note would be repaid over 11.5 years at an interest
rate of 175 basis points (1.75%) above prime.
On June 20, 1995, consistent with the August 3, 1992
letter from Staff, TNA filed the proposed financing agreement
with the Commission requesting a finding that the terms and
conditions of the note and the proposed use of the funds were
"consistent with the public good" pursuant to RSA 369:1. The
petition specified that TNA would abandon its current water
source, Knowles Pond, the use of which had reached and at times
exceeded its safe yield, and use the proceeds of the notes to
construct gravel packed wells on land located on Route 140 in the
Town of Northfield, transmission mains would be constructed
westerly along Route 140 to Route 3 in the Town of Tilton for
interconnection with the existing transmission and distribution
system in an area of new commercial development. The plan also
included the construction of new covered reservoirs to replace
the existing uncapped earthen reservoir located downstream from
Knowles Pond. The Petition also requested that the Commission
authorize TNA to increase its rates once the prudently
constructed plant was placed in service.
By Order No. 21,876 (October 24, 1994) the Commission
found the terms and conditions of the note and the proposed use
of the funds consistent with the public good and authorized the
Company to implement rates to service the resultant debt once the
plant had been placed in service and the books and records of the
company had been audited by Staff. Re Tilton-Northfield Aqueduct
Company, Inc., 80 NH PUC 673 (1995).
Prior to the issuance of Order No. 21,876, the
Commission issued an Order of Notice to provide the public an
opportunity to give its input into the proceeding. The Order of
Notice was published in the August 3, 1995 edition of the Laconia
Evening Citizen and stated, among other things, that TNA was
requesting permission to borrow $3,192,400 to comply with the
SDWA and that customers faced,
the potential of rate increases of $208 per year as of
September 1, 1996 (144%) plus an additional $34 per
year as of January 1, 1997 (10%). An average
customer's annual bill following the two rate increases
would be approximately $422.
The Order of Notice also invited intervention by interested
parties and advised that a prehearing conference would be held on
September 6, 1995 at 10:00 a.m. at the Commission's offices in
Concord to commence the Commission's investigation into the
petition.
Following this legal notice and the prehearing
conference, a display advertisement was placed in the September
11, 1995, Laconia Evening Citizen announcing an informational
public hearing to be held on September 21, 1995 at the Northfield
Town Hall at 7:00 p.m. to accommodate those customers and other
members of the public that were unable to attend the formal
proceedings during the day. The public informational hearing
took place in the Northfield town hall as scheduled.
Subsequently, the Commission opened DF 96-210 to
address TNA's requests to borrow additional funds required to
meet unforseen contingencies such as, $317,923 required because
the bids received for the project exceeded estimates, $64,317 to
upgrade transmission mains for fire flows as requested by local
fire officials, and an additional $84,808 to construct a metal
roof rather than a floating cover over the new storage reservoirs
as requested by the Department of Environmental Services.
On December 30, 1997, following the approval of these
incremental increases in TNA's authority to borrow and the
completion of the major portions of the SDWA compliance project,
TNA filed a request with the Commission to increase its revenues
to cover the cost of the note, and thereby increase customers'
rates. On January 30, 1998, the Commission issued an Order of
Notice advising the public "the Company filed financial schedules
which would provide for a 192% increase in its currently approved
rates". The notice also provided that a prehearing conference
would be held at the Commission's offices and required TNA to
publish the Notice in a newspaper of general circulation in the
area in which service is provided so that interested parties
could participate in the Commission's investigation.
TNA published the Notice in the February 4, 1998, Union
Leader. Moreover, because a hearing had already been held in
Northfield when the Company sought permission to borrow the
majority of the funds for the compliance project, the Commission
did not schedule another evening public informational hearing in
either Tilton or Northfield.
Based on its investigation of the proposed increase in
rates and hearings held relative to that request, the Commission
issued Order No. 22,884 (March 27, 1998) approving an increase in
rates. It was in response to this Order that the rehearing
requests herein were filed. Nothing raised by the parties at the
rehearing provides any justification for reconsideration of the
chosen compliance option, nor do we believe the terms and
conditions of the note were unreasonable under the circumstances
in place prior to construction and inclusion of capital
investments and operating expenses in rates.
Notwithstanding this conclusion, we do believe there is
room for improvement in the method of public notice employed in
this proceeding. While the January 30, 1998 notice met all legal
requirements for public notice, we recognize that publication of
notice in those multiple local newspapers of general circulation
that serve the different centers of interest in the
Tilton-Northfield franchise area would have been more effective
in apprising TNA ratepayers of impending rate increases for
compliance with the SWTR.
Moreover, we believe that TNA can take affirmative
actions prospectively that will ameliorate the impact of the rate
increases resulting from this federal mandate. After careful
consideration of the comments put forth at the June 9, 1998,
hearing, we direct that the following efforts be undertaken in an
attempt to effect rate relief:
1. The Commission shall write to the Federal Environmental
Protection Agency (EPA) questioning its interpretation
of the applicability of the Drinking Water State
Revolving Loan Fund low interest loans for water supply
infrastructure improvements to refinancing of existing
loans and that the Commission solicit the help of the
New Hampshire congressional delegation on this issue.
We note that similar concerns regarding the EPA's
interpretation have been addressed to the EPA by Rep.
Marge Roukema, a New Jersey congresswoman. If the EPA
can be convinced to allow utilization of low interest
loans for the Revolving Fund refinancings, this could
help lower rates for customers.
2. The Commission reemphasizes its March 27, 1998 Order
(No. 22,884), in which it directed TNA to vigorously
pursue State Revolving Loan funds and any other avenues
available that would assist in reducing rates to
customers. We shall continue to require the Company to
do this and, in addition, now require it to report to
the Commission monthly on those efforts. As part of
that effort, we direct TNA to pursue some
recommendations made at the hearing; i.e., that TNA
inquire into the Belknap County Economic Development
Council and Industrial Development Bonds as potential
resources. In the event that any savings can be
realized as a result of refinancings, we intend to take
action as quickly as possible to insure that the
reductions are passed on to ratepayers.
3. We direct TNA to work with Staff and report to the
Commission on avenues available to expand customer base
as a means of increasing revenues to assist in reducing
rates. These avenues should include looking into the
possibilities for special contracts and modifications,
if appropriate, to main extension policies. This is
consistent with a prior order (Order No. 21,876 dated
October 24, 1995) in which we essentially directed the
Company to do this.
4. As a follow-up to a previous order of the Commission,
we order TNA to work on finding ways to provide meters
for the remaining customers who are residents of a
manufactured home park and are not currently metered.
Similar problems have been resolved by other water
utilities, which could be used as a model in this
instance. Staff can be of assistance on this issue.
5. Finally, we direct the Commission's Executive Director
and Staff to review the Commission's current policies
and rules concerning notice to customers to try to find
better ways to insure that sufficient notice is
provided to customers about how pending rate cases can
impact customers' rates. While we do not find that any
specific errors were committed by the Company, we
believe more could have been done by the Commission and
TNA to make sure that customers are made aware of
proposed rate increases. In this case, the Commission
held a hearing in the Company's service area early on
in the process, a display advertisement was used as a
means of notifying customers about possible rate
increases, notice was provided in accordance with the
Commission's Order of Notice, and it is our
understanding that there was substantial press coverage
about the SDWA compliance efforts by TNA. Nonetheless,
given the size of the increase that ultimately
resulted, we believe more could have been done to
inform customers and we intend to take steps to avoid
similar complaints in future proceedings.
We believe that if all of the above efforts are
undertaken, opportunities to lower rates exist. We will not
modify Order No. 22,884 other than to require these additional
efforts on the part of TNA, the Commission and Staff. In
accordance with item #1 above, a letter was sent to the EPA on
July 7, 1998 expressing our concerns regarding the applicability
of Drinking Water State Revolving Loan Funds to refinancing of
existing loans.
Based upon the foregoing, it is hereby
ORDERED, that Tilton & Northfield Aqueduct Company, the
Commission and Staff undertake the directives delineated above to
address concerns raised in response to the recent rate increase;
and it is
FURTHER ORDERED, that, except for the additional
actions required above, Order No. 22,884 will stand as issued.
By order of the Public Utilities Commission of New
Hampshire this first day of September, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary