DF 96-210 Tilton & Northfield Aqueduct Company, Inc. Petition for Authority to Issue Securities and Increase Rates Order Approving Stipulation and Decrease in Rates O R D E R N O. 23,029 September 25, 1998
APPEARANCES: Jay C. Boynton, Esq. on behalf of Tilton & Northfield Aqueduct Company; James R. Anderson, Esq. of the Office of 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 180% in order to recover additional revenues of $573,972 to service the debt incurred to construct and install two gravel-packed wells, a new transmission system and the first half of a storage reservoir. Those plant additions were placed in service on December 31, 1997 and represented Phase I of a Safe Drinking Water Act (SDWA) compliance project which was approved by the Commission in DF 95-185 and DF 96-210. When the wells were placed in service, they became TNA's new source of supply bringing TNA into compliance with the Surface Water Treatment Rule of the SDWA. In response to requests from ratepayers and certain State Representatives, a hearing was held on June 9, 1998 to accept public comment on issues raised by requests for rehearing related to the 180% rate increase. Among the items discussed were the amount of the rate increase, terms of the financing and proper notice of the hearings. On June 30, 1998, plant additions for Phase II of the compliance project were placed in service. Those additions included the second half of the storage reservoir, installation of a backup generator at the pumphouse and paving projects related to main replacements. TNA filed financial schedules on that date requesting a 9% rate increase to service the additional debt related to the Phase II plant additions. As TNA noted in its filing, those schedules did not factor in the effect of any Surface Water Treatment Rule Filtration Grant monies related to Phase I of the SDWA project or any adjustments from a recently completed PUC audit of the 1995 test year. On September 1, 1998, the Commission issued Order No. 23,008 which delineated certain actions to be taken based on issues raised at the June 9, 1998 rehearing. Among the actions required in that order was TNA's pursuit of any available avenues that would assist in reducing rates to customers such as refinancing or alternative funding sources. Order No. 23,008 also directed TNA to explore opportunities for expanding customer base as a means of increasing revenues to assist in reducing rates. In the period following the June 9, 1998 rehearing, the Bank of New Hampshire (BNH) and TNA discussed refinancing the existing loan. At the beginning of September 1998, TNA received a proposed Agreement from BNH that would extend the amortization period for calculating principal and interest payments from 20 to 30 years. Additionally, the current 9.5% interest rate would be reduced to 7.95% fixed for five years at which time the loan would mature. Under the existing terms of the loan, the current interest rate is scheduled to be adjusted on December 7, 1998, and every three years thereafter, to 175 basis points over the prevailing BNH base rate. As with the existing loan, the refinancing proposal contained no prepayment penalties. Upon acceptance of BNH's proposal, TNA would be charged one half of one percent of the principal balance ($20,550). By changing the aforementioned terms of TNA's loan, the required monthly payment would decrease from $39,429 to $30,015. II. POSITIONS OF THE PARTIES AND STAFF A. TNA and Staff TNA and the Staff presented a Stipulation with accompanying financial schedules at the hearing which provided for a decrease of $81,731 to TNA's annual revenue requirement. Ratepayers would experience a 9.03% rate decrease to be reflected in the October 1, 1998 bills for service rendered as of July 1, 1998. Staff witness Steven Mullen of the Finance Department explained that the following items were incorporated into the Stipulation and financial schedules: costs for Phase II of the SDWA compliance project; Surface Water Treatment Rule Filtration Grant monies related to Phase I of the project; adjustments from Staff's audit of the 1995 test year; revenues from new customers; and the terms of refinancing the BNH loan. Costs for the Phase II plant additions amounted to approximately $634,000 and encompassed the second half of the storage reservoir, a backup generator at the pump station and paving projects related to main replacements. Those plant additions were placed in service on June 30, 1998 and were used and useful and providing service to TNA's customers. On July 1, 1998, TNA began receiving Surface Water Treatment Rule Filtration Grant money related to costs incurred during Phase I of the SDWA project. On an annual basis, the total grant money to be received by TNA is approximately $84,000. Those funds will be received over the life of TNA's loan with the proceeds used to offset TNA's monthly principal and interest payments. The principal portion of the grant money will be recorded as Contributions in Aid of Construction and the interest portion will reduce the effective rate of interest to be paid on the loan. In keeping with the terms of Order No. 21,876 and the Stipulation in DF 95-185, 1995 was used as the test year in the rate calculations. Staff had conducted an audit of the test year and incorporated any necessary adjustments into the financial schedules. Additionally, revenues from new customers added to the system as a result of the compliance project were incorporated into the rate calculations. Mr. Mullen explained that BNH's refinancing proposal to TNA would change the life of the loan from an eleven and one-half year term with a twenty year amortization period to a five year term with a thirty year amortization period. Also, the interest rate would be fixed for five years at 7.95%. At the end of five years, a new five year fixed rate would be determined. Currently, the loan carries a 9.5% interest rate which is scheduled to be adjusted in December 1998, and every three years thereafter, to 175 basis points over the prevailing BNH base rate. The current loan would result in a December 1998 rate in the area of 10.25%. The refinancing proposal contains no prepayment penalties but does impose a fee of one-half of one percent. All other terms of the original note would remain unchanged. As a result of the changes to the terms of the loan, TNA's required monthly payment would decrease from $39,429 to $30,015. Mr. Mullen further noted that by incorporating the refinancing terms into rates effective July 1, 1998, prior to any refinancing taking place, TNA would be forgoing revenue. B. Office of Consumer Advocate (OCA) Mr. Anderson did not state a position regarding the Stipulation and the proposed rate decrease, but asked several questions regarding the proposed refinancing terms and possible future rate adjustments. III. COMMISSION ANALYSIS We have reviewed the Stipulation and financial schedules presented by the Company and Staff, and approve them as presented. We previously addressed and approved the construction on TNA's water system, which was necessary to comply with the SDWA. We are now approving a 9.03% decrease in rates necessary to incorporate the following items into TNA's rates to customers: Phase II plant additions; Surface Water Treatment Rule Filtration Grant monies related to Phase I of the project; audit adjustments of the 1995 test year; revenue from new customers; and refinancing of TNA's loan encompassing the entire SDWA compliance project. We find that the plant that is the subject of this proceeding has been prudently constructed and is used and useful in the provision of public utility service. We also find that the terms of refinancing the BNH loan are reasonable and in the public good. Finally, the 9.03% rate decrease achieved by incorporating the above items results in just and reasonable rates. We do, however, expect TNA to continue to work to build its customer base with due diligence and explore other avenues to reduce rates. Based upon the foregoing, it is hereby ORDERED, that Tilton & Northfield Aqueduct Company is authorized to decrease its rates related to the above mentioned items, effective July 1, 1998, to reflect an $81,731 decrease to its annual revenue requirement; and it is FURTHER ORDERED, that TNA is authorized to refinance the Bank of New Hampshire loan under the terms and conditions set forth above; 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). By order of the Public Utilities Commission of New Hampshire this twenty-fifth day of September, 1998. Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger Chairman Commissioner Commissioner Attested by: Claire D. DiCicco Assistant Secretary