DF 96-210
          Petition for Authority to Issue Securities and Increase
       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.
               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.
               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.
               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
               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