February 14, Case No W-PWD-PC West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission

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1 201 Brooks Street, P.O. Box 812 Charleston, West Virginia Phone: (304) Fax: (304) February 14,20 19 Electronic Service Only Nicklaus A. Presley, Esq. Christopher L. Callas, Esq. Counsel, WVAW JacksonKelly, PLLC PO Box 553 Charleston, WV Robert Passmore, Esq. Corporate Counsel West Virginia-American Water Company PO Box 1906 Charleston, WV D.Keith Randolph, Esq. Counsel, Boone-Raleigh PSD Boone County Prosecutor's Office 200 State St. Madison, WV Heather B. Osborn, Esq. Consumer Advocate Division 700 Union Building 723 Kanawha Boulevard, East Charleston, WV RE: Case No W-PWD-PC West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission Ms. Osborn and Gentlemen: The Staff Memorandum issued today was served via on the above-listed parties. Any responses must be submitted to the Executive Secretary's Office in writing within 10 days of this date, unless directed otherwise. You will not receive a copy of the Staff Memorandum by regular mail. Your failure to respond in writing to the utility's answer, StafY's recommendations, or other documents may result in a decision in your case based on your original filing and the other documents in the case file, without further hearing or notice. When you provide an address, you will automatically receive electronic docket notifications as documents are filed in this proceeding. The notifications allow recipients to view a document within an hour from the time the filing is processed.

2 Case No: W-PWD-PC February 14,20 19 Page 2 If you have not done so, you are encouraged to file the Electronic Mail Agreement, previously mailed to you, which allows the Commission to serve all orders issued in this matter via electronic docket notification. Please note - the Public Service Commission does not accept electronic filings. Sincerely, n IF/tg Enc. - Memo Ingrid Ferrell, Director Executive Secretary Division

3 INITIAL AND FINAL JOINT STAFF MEMORANDUM TO: FROM: INGRID FERRELL Executive Secretary CHRIS HOWARD Staff Attorney DATE: FEBRUARY 14,2019 RE: CASE NO W-PWD-PC WEST VIRGINIA-AMERICAN WATER COMPANY, BOONE-RALEIGH PUBLIC SERVICE DISTRICT AND BOONE COUNTY COMMISSION Staff recommends the Commission approve the agreement pursuant to W.V. Code $ , without approving the terms and conditions of the agreement. Legal Staff recommends that the Commission promptly issue an order requiring the Company to provide notice of the acquisition to the customers of Boone-Raleigh Public Service District and West Virginia-American Water Company by publishing a copy of the attached Notice of Filing. On January 11, 2019, the West Virginia-American Water Company (WAWC), the Boone-Raleigh Public Service District (District) and the Boone County Commission filed a Petition for Consent and Approval of an Interim Water Sales and Asset Purchase agreement before the West Virginia Public Service Commission (Commission). The District has been experiencing numerous issues in the provision of water service to its customers. The District s system is located relatively close to the end of the WVAWC s lines in Boone County, WV. The parties are seeking to establish an interconnection between WVAWC s line and the District s system, which should allow the District s customers to receive better water service. WVAWC will design, construct, install and own facilities necessary to establish the interconnection, and the Company will immediately begin providing service. WVAWC intends to purchase the District s water distribution system through a cash payment to the District of $1 15,000. The District and Boone County Commission will repay any grants and loans previously entered into by the District using the proceeds from the $1 15,000 payment. The District will continue to operate its water distribution plant until the WAWC completes upgrades to the facilities. The District s customers will pay WAWC s current water rates charged to its other customers. The District s customers will experience improved and reliable water service and no other public utilities will be impacted by this agreement. On February 1, 2019, the District filed a letter with the Commission requesting that the Commission immediately approve this agreement.

4 Case No P WD-PC February 14,20 19 Page 2 Initial and Final Recommendation of the Commission s Utilities Division Staff On February 11, 2019, Nathan R. Mills, Utilities Analyst I1 of the Commission s Utilities Division (Financial Staff) issued an Initial and Final Memorandum. Technical Staff states the Commission should waive the Rule 21 requirement for WVAWC and the District. Financial Staff does not oppose WVAWC charging its current rates, but it should provide the District s former customers with public notice and the opportunity to comment on the proposed rates. Financial Staff has reviewed the Petition and recommends the Commission approve the agreement without approving the terms and conditions contained in the Agreement. Initial and Final Recommendation of the Commission s Engineering Division Staff On February 4, 2019, Jim Weimer, PE, Engineer I1 for the Commission s Engineering Division (Engineering Staff) issued an Initial and Final Memorandum. Engineering Staff states it has reviewed the agreement and recommends the Commission approve the agreement without approving the terms and conditions contained in the agreement. Initial and Final Recommendation of the Commission s Legal Division Staff Legal Staff has reviewed the documents, including the Petition and the Initial and Final Memorandum of Financial Staff and Engineering Staff. Legal Staff agrees with the recommendations of Financial and Engineering Staff. Legal Staff states the Commission should waive the Rule 21 requirement for WAWC and the District. Legal Staff does not oppose WVAWC charging its current rates, but it should provide the District s former customers with public notice and the opportunity to comment on the proposed rates. Legal Staff recommends the Commission approve the agreement pursuant to W.V. Code $ , without approving the terms and conditions of the Agreement. Lastly, Legal Staff recommends that the Commission promptly issue an order requiring the Company to provide notice of the acquisition to the customers of Boone-Raleigh Public Service District and West Virginia-American Water Company by publishing a copy of the attached Notice of Filing. CLH/cs Attachment cws c\ils H:\choward\word\l W-PWD-PC (West Virginia-American Water Company, Boone-Raleigh Public Service District, and Boone County Commission)\INITIAL AND FINAL JOINT STAFF MEMORANDUM.doc

5 PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON CASE NO W-PWD-PC WEST VIRGINIA-AMERICAN WATER COMPANY, BOONE-RALEIGH PUBLIC SERVICE DISTRCT AND BOONE COUNTY COMMISSION Boone County, West Virginia Joint Petition for consent and approval of an Interim Water Sales and Asset Purchase Agreement NOTICE OF FILING On January 1 1, 20 19, West Virginia-American Water Company (Company), Boone-Raleigh Public Service District (District) and Boone County Commission filed a Joint Petition for consent and approval for the Company for an interim water sales and asset purchase agreement under the requirements of W. VA. CODE The Joint Petition asserts that the acquisition is in the public interest. Following the acquisition, the former water system assets of the District will be owned and operated by the Company subject to the Commission s continuing jurisdiction and regulation. From and after the closing of the acquisition, the former customers of the District will become customers of the Company and will pay the same rates and charges as the Company charges its other customers under the Company s statewide tariff rate schedule. The rate impact on residential customers of the adoption of the Company s current rates is as follows: West Virginia-American Water Company Boone-Raleigh Public Service District 3,000 gallons/month $52.36 $33.18 ($) Increase (%) Increase $ % 1

6 Anyone desiring to protest or intervene in this proceeding should file a written protest or request to intervene within thirty (30) days following the date of this notice, unless such period is otherwise modified by Commission Order. Failure to timely protest or request to intervene can affect your right to protest aspects of this proceeding or to participate in future proceedings. All protests or requests to intervene should briefly state the reason for the protest or request to intervene. Requests to intervene must comply with the rules on intervention set forth in the Commission s Rules of Practice and Procedure. All protests and requests to intervene should be addressed to Ingrid Ferrell, Executive Secretary, Public Service Commission of West Virginia, Post Office Box 812, Charleston, West Virginia In the absence of substantial protest received within thirty (30) days of the issuance of this notice, the Commission may waive formal hearing and grant the petition based on the Commission s review of the evidence submitted with the petition. 2

7 PUBLIC SERVICE COMMISSION OF WEST VIRGINIA UTILITIES DIVISION INITIAL AND FINAL MEMORANDUM FROM: DATE: SUBJECT: Nathan R. Mills, Utilities Analyst I1 -pfl Utilities Division February 1 1,20 19 Case No W-PWD-PC West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission Petition for consent and approval of an Interim Water Sales and Asset Purchase Agreement On January 1 1,20 19, West Virginia-American Water Company (Company), Boone-Raleigh Public Service District (District), and the Boone County Commission (Boone Commission) filed a petition for Commission consent and approval of an Interim Water Sales and Asset Purchase Agreement (Agreement). The Agreement filed with the petition provides detail of the specific terms during an initial period during which the District will purchase water from the Company and also the terms related to the Companys eventual purchase of the water distribution system of the District. On February 1,20 19, the District filed a letter with the Cornmission requesting that7%e Commission immediately approve the interconnection with West Virginia American Water Company (Company) outlined as part of the requested approval of the Interim Water Agreement Sales and Asset Purchase Agreement (Agreement) filed in this instant Case? The letter states that the District is in immediate need of a supplemental water supply due to frequent failures of its water plant and large amount of water loss from its system. The Agreement is divided into two sections labeled as 1. Interim Sales Agreement and 11. Purchase Agreement. An explanation of some of the terms contained in the Agreement's two sections are described below. Interim Sales Agreement Section The agreement states the Company will design, construct, install, and own appropriate facilities, including a booster station, to interconnect with the District's system and enable the Company to provide water service to the District. The Company will install an appropriately sized meter at the delivery point for the measurement of the water to be supplied to the District. Service shall begin under the agreement immediately upon approval

8 West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission Case No W-PWD-PC February 11,2019 Page 2 of the agreement by the Commission and construction of the interconnection to the District's system. The agreement states the District will pay a rate of $2.00 per thousand gallons of water which exceeds the Company's marginal cost but is less than the Companfs wholesale tariff rate. If the Interim Sales Agreement expires without the Company acquiring the District's distribution system, the District and/or Boone Commission will be billed the excess purchased water costs over what was previously billed under the agreement rate. The agreement states the Company will continue to assist the District in operation of its distribution system, for leak detection and repairs, emergency water supplies and technical consultation. The Company will record any expenses related to this assistance as a regulatory asset. The Company will also make additional as needed investments in the District's distribution system to allow the Company to eventually supply all the water service needs of the District's customers. The Company will record all investment in the Districts distribution system as utility plant and will either (1) if the asset purchase closes, the Company will seek base rate treatment of this system investment and may also seek recovery through its Distribution System Improvement Charge (DSIC) program or (2) if the interim agreement ends without the asset purchase agreement, the District or Boone Commission will purchase the system investment assets from the Company equal to the original cost less accumulated depreciation. Purchase Avreement Section The agreement states the Company will make a cash payment of $1 15,000 for the water distribution system of the District upon closing and that until closing, all day to day operation and maintenance responsibilities shall continue to be the responsibility of the District. At closing, the District's former customers are to be charged (1) the same rates as the then current rates charged by the Company to its other customers and (2) if the PSC approves recognizing the cost of purchased water as a regulatory asset to be applied to the Companys customer base then no additional surcharge will be requested or in the alternative, a surcharge from the former District customers to recover the full cost of purchased water for a period not to exceed ten (10) years. The agreement points out the Company will not acquire and will not operate the District's treatment plant. After closing, the Company may still need additional water supply from the District's water treatment facility to serve the former customers of the District. The Boone Commission will provide contributions up to an amount of $150,000 to the District to fimd post closing operation of the plant as needed. If this contribution is

9 West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission Case No W-PWD-PC February 1 1,20 19 Page 3 exhausted and water treatment from the District s facilities it still required, the Company will pay an amount up to $15,000 per month for the treatment facilities operation. It is expected the closing for the purchase will take place sixty (60) days after the latest of (1) a Commission final order approving the Agreement and its terms or (2) the receipt of any other required waivers or consents to the transfer of the water distribution facilities. Additionally, the petition states the Company is requesting a waiver of the financial condition information filing requirement of Rule 2 1 of the Commission s Rules of Practice and Procedure. The petition states the Commission has recently examined the Company s financial condition through its last base rate case, Case No W-42T. The petition hrther requests the Commission s Rule 2 1 financial condition filing requirement be waived for the District as well. The petition states, Because the PSIYs poor financial condition is the central reason necessitating the arrangements proposed in the Agreement, and because the PSD will no longer serve customers upon closing of the Acquisition, the PSD s provision of Rule 2 1 data would be unhelpful, and unnecessary? Cornmission approval for the Company s purchase of the District s distribution system is governed by West Virginia Code , which provides that public utilities may not enter into any contract or arrangement or acquire the plant or property of other public utilities without prior consent and approval of the Cornmission. The Commission may grant its consent upon proper showing that the terms and conditions of the transaction are reasonable, that neither party is given an undue advantage over the other and the public in the state is not adversely affected. The rates to be charged the Districts customers upon the Company s acquiring control of the District s system is governed by Rule 3 1 of the Cornmission s Rules for Construction and Filing of Tariffs. Rule 3 1 states that if change in ownership of a utility occurs, the entity that operates the utility after the ownership transfer must use the same rates, classifications, and rules and regulations of the former operating utility unless authorized to change by the Commission. As previously noted, the Company intends to charge the former District customers the same rates as the then current rates charged by the Company to its other customers. The Company s approved rates and charges are significantly higher than the District s current rates. Attached to this memorandum is a bill comparison schedule between the Companfs approved rates and the District s current rates at various levels of monthly usage. As shown on this schedule, the District s average residential customer using 3,100 gallons per month would experience an increase in the current bill from $34.29 to $53.75 under the Companfsrates, an increase of $19.46 or 56.75%. The

10 West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission Case No W-PWD-PC February 1 1,20 19 Page 4 Districts average commercial customer using 6,100 gallons per month would experience an increase in the current bill from $67.47 to $95.59 under the Company s rates, an increase of $28.12 or 41.68%. It should be noted the bill calculations listed above reflect the Company s approved rates which recently increased as a result of a Commission order issued in Case No W-42T on February 8,2019 to become effective on February 25,2019. Staff notes the petition filed by the parties does not request waiver of Rule 3 1. However, Staff notes the Commission has recently allowed a troubled water system to be acquired by another utility with the acquiring utilitfs rates effective at the time of acquisition with the requirement that public notice of the increased rate impact be given to the customers of the acquired entity. In that case (Case No W-PWD-PC), the Commission granted its consent and approval for the Company to acquire the assets of Queen Shoals Public Service District (Queen Shoals). The Company was allowed to charge its higher statewide tariff rates to the former customers of Queen Shoals after the closing date of the acquisition in that case. The Commission required the Company to give public notice of the rate impact of charging the Companys rates to the former customers of Queen Shoals. The District also recently increased its water service rates and charges in Case No PWD- 19A. In that case, the operational and financial struggles the District has experienced were highlighted before the Commission. Treatment plant and distribution problems in addition to other customer service issues were described by the Commission s Engineering Division and the lack of and disregard for maintaining sufficient financial records made the Utilities Division s rate case responsibilities difficult in that proceeding. In that proceeding, the Commission approved increased rates and charges for the District effective January 7,2019 expected to generate additional rate revenues of $79,633 or 43.5% more than the Districts rates prior to that case. Implementation of the Company s approved rates would further increase the Districts customer rates as shown on the bill comparison schedule attached. The Utilities Division believes the District s customers should be given notice of the planned increase in rates and charges upon Company acquisition of the Districts water system. As mentioned previously, the Agreement includes provisions for the establishment of regulatory assets by the Company related to expenses it expects to occur in providing assistance to the District and also for the cost of purchased water applicable to the Districts water purchases prior to the acquisition. The Utilities Division believes the determination as to whether deferred costs are reasonable and appropriate for rate recovery should be made in a future rate proceeding and does not recommend the Commission consent to a rate recovery treatment in this case. The Utilities Division has reviewed the petition and recommends the Commission waive the financial filing requirements of Rule 21 for the Company and the

11 West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission Case No W-PWD-PC February 11,2019 Page 5 District. The Utilities Division also recommends the Commission grant its consent and approval of the Interim Water Sales and Asset Purchase Agreement without approving the specific terms and conditions of the Agreement. In addition, the Utilities Division does not oppose the joint petitions proposal for the Company to charge its then current rates to the former District customers upon the Company's purchase of the District's distribution system. However, it is recommended those customers be provided public notice and the opportunity to comment on the proposed increase in rates.

12 West Virginia-American Water Company (WVAWC), Boone-Raleigh Public Service District (District), and the Boone County Commission Case No W-PWD-C Bill Comparison between WVAWC Current Rates and District Rates WAWC Gallons Current Usage Rates $ , , , , , , , , , , , District Current WVAWC Current Step 1 Rates Rat e s Difference $ $ YO (1.74) -5.24% (1.74) -5.24% (1.74) -5.24% % % % % % Yo % % % %

13 PUBLIC SERVICE COMMISSION OF WEST VIRGINIA INITIAL AND FINAL STAFF INTERNAL MEMORANDUM DATE: TO: FROM: SUBJECT: February 4,2019 Chris Howard, Staff Attorney Legal Division Jim Weimer, P.E. Engineer I1 & Engineering Division Case No W-PWD-PC West Virginia-American Water Company, Boone-Raleigh Public Service District and Boone County Commission Petition for Consent an Approval of an Interim Water Sales and Asset Purchase Agreement On January 11, 2019 the West Virginia-American Water Company (Company), the Boone-Raleigh Public Service District (District) and the Boone County Commission (County) filed a joint Petition Case to allow the Company to provide a limited amount of water on an emergency basis until an asset purchase agreement can be completed to allow the Company to own and operate the water distribution system. The filing included the fully executed Joint Application summarizing the Interim Water Sales and Asset Purchase Agreement (Agreement) attached to the Joint Application. Engineering Staff has been working with the District since December 2017 due to the many serious operational and financial problems associated with both the District s water and sewer systems. The water system was without doubt not providing safe, continuous water service to its customers. Nightly water outages for customers at higher elevations and occasional periods of service interruptions for the entire system were common. Complaint cases were filed ( PWD-C, PWD-C) describing the poor water service and the Informal Staff received many complaints about frequent water outages. Staffs concems The Joint Petition described many of the system characteristics; however that information was based the original design information. For instance, the stated production capacity of the 1930 design plant was 400,000 gallons per day while Staff actually verified that actual current pumping capacity was only 275, 000 gallons per day

14 Chris Howard, Staff Attorney Case No W-PWD-PC Page 2 on a good day. Water loss was also noted in the petition as 60% while Staff calculated actually loss at 80% and often worse. The raw water pump simply hangs from a cable close to the River bottom and must be cleaned frequently due to mud ingestion. The plant sedimentation basis is full of holes in its metal tank the tank is nearly full of River mud severely limiting settlement of mud and debris in the raw water. The dirtier water is sent to the plant filters which then require frequent backwashing further limiting plant production. The filters are also badly corroded and the possibility of a failure is very high. In addition, the plant is in violation of a WVDEP permit which requires that all filter backwash be properly treated prior to discharge to the Big Coal River. Current situation A lack of certified plant operators has required that the only two available certified water operators sleep in the water plant as the plant must operate 24 hours per day just to maintain water service for District customers. Despite the 24 hour operation, storage tanks operated at minimum or zero levels resulting in customers quickly losing water service for even minor plant problems which have occurred many times over the past many months. That procedure has existed since November 2017 and is ongoing. Within recent weeks, one plant operator has moved to a different utility to get a reprieve from sleeping in the District s plant. A trained but uncertified employee now operates the plant on the 24 hour, 3 day weekend shift. The result is that the District s system is now on a permanent boil water order. That situation must be corrected prior to the Company assuming ownership of the District s system as the Company will not accept the system with a boil water order in place. The current plan proposes that the District will deliver water to the Company from the District s plant after the asset transfer is completed and the District customers become Company customers. Initially only 20% of the customer base will be supplied from the Company s source. The plant will be shuttered once the Company improvements to its current Boone County system are upgraded to allow the Company to deliver all the water for the entire District system. Interim steps The Petition notes that the Company, after urgent requests from the District s Board, has agreed to install a permanent connection to the District provided the District agrees to an asset transfer at a later date or pay for the cost of the now installed connector. The two systems water lines were only separated by approximately 1700 feet. The Company cannot yet supply all of the needs of the District due to its booster capacities and tankage limitations in the County. Those will be upgraded over time if the asset transfer is approved. However, it is anticipated that, depending on leakage reduction, the Company will be able to initially support only 20% of the customer base. The Petition noted the capacity of the Kanawha Valley Treatment Plant (KVTP) as sufficient to supply all of the Districts future needs.

15 Chris Howard, Staff Attorney Case No W-PWD-PC Page 3 In addition, once the Agreement is approved by all parties (both the Boone County Commission and District Board have already approved the Agreement) including the Commission and the bondholders, the Company will begin making investments in the District s water infrastructure to reduce leakage. If for any reason the acquisition fails to proceed afier the Company has invested capital in both labor materials and the difference in the reduced cost of delivered water versus the wholesale rate, the District has agreed to refund the investment over a yet unspecified time frame. Staffs position In Staffs view, the District should request that the Company immediately provide water for the 20% of the customer base which can be isolated from the District s water plant. This will reduce the need for 24 hour operation, the associated large labor power and chemical expense, the ability to keep all tanks at capacity as well as reducing the risk of a prolonged water outage due to a multi hour plant outage. The Company has determined that it will provide a discounted water purchase cost to the District as a way to prevent a severe water outage and has set a reduced rate of $2.00 per MGAL. However, the District or the Boone County Commission must agree to pay the existing wholesale tariff rate for all provided MGALS if the asset purchase fails to proceed. Current Companv actions The Company has already made a substantial commitment of funds to acquire the District given its present condition. The now completed interconnection was originally estimated to cost $150,000 but the final cost was not reported. A new line in the Town of Whitesville was also installed via a directional drill process under the Coal River afier the original galvanized line failed. The cost for the drilling operation including pipe, valves, labor and equipment was also estimated at $25,000. In addition, the Company has sent leak detection crews to the District on multiple occasions and assisted with the repair and partial replacement of a large main along busy WV Route 3. Asset transfer conditions The Company proposes to provide a payment to the District for the assets of $1 15,000 to pay off existing water project loan balances or possible grant repayments. The Company also indicated that it may consider additional funds for repayments, if needed, for repayment of loans or grants or if sufficiently repayments are larger than anticipated, declare the asset purchase null and void. The District may receive a waiver in lieu of loan repayment to sell the District assets to the Company from grant fund agencies which provided funding for past water system improvements. Thus, this may eliminate the need for grant repayment as has occurred in other asset transfers so the funds can be used for

16 Chris Howard, Staff Attorney Case No W-PWD-PC Page 4 other needs. The District s recently completed water and sewer 19A rate cases identified significant outstanding arrearages to both the IRS and State tax Department which will have to be repaid at some time before the Company assumes ownership of the Districts system. Boone County Commission commitments and future concerns In addition, after the asset and customer transfer, The Boone County Commission will provide the District up to $15,000 per month for 10 months for post transfer operation of the Districts plant. The Company proposes to pay the District $15,000 per month subsequent to the County Commission funding expiring if the Company s Boone County system is not yet ready to supply all water needs of the former District customers from the District s water plant. The plant will not be transferred to the Company. The payments will continue until the Company is able to supply all of the former District customer water needs. The plant will remain a District stranded asset once the Company can supply all water from its upgraded system and a significant liability and safety hazard for the District unless removed. Customer impact After the District customers are transferred to the Company, the Company s current rates for all other Boone County customers will be charged. In the event that the water supplied by the Company to certain District customers prior to the asset transfer being completed, the Company has agreed to charge the Interim rate for those flows. If the asset transfer is not completed, the District has agreed to pay the difference between the Interim rate and the normal tariff rate. Also, if the ownership transfer is completed, the Company proposes to include the difference in the cost of the water supplied prior to the transfer as a rate base asset or recovered from a surcharge to the former District customers only. The Company also requested a waiver of filing the financial condition of both the Company and the District as both have very recently completed tariff cases. Company ana District-filing requests In Summary, the Company and the District requested the following actions by the Public Service Commission; 1. To retain the case. 2. To waive the filing of financial information.

17 Chris Howard, Staff Attorney Case No W-PWD-PC Page 5 3. To approve the already installed connection to the District, the sale of water to the District at the interim rate provided and the acquisition of the District by the Company. 4. To recognize the recovery of any unpaid amounts for Purchased Water as a regulatory asset or in the alternative approve the proposed Surcharge methodology for the unpaid amounts. 5. To recognize the Company s expense incurred in assisting the PSD with operations during the Interim Period as a regulatory asset for subsequent recovery in rates and DSIC recovery of any System Investment during or after the Interim Period. 6. Grant full rate base recognition of the purchase price including the acquisition transaction costs. 7. To enter an Order approving the proposed Agreement in the form attached as Exhibit To waive publication of notice of filing and hearing. 9. To grant such and further relief as may be deemed appropriate. Engineering Staff asserts that it has witnessed nearly all of the activities by the Company noted earlier to maintain water service to District customers. Both Engineering and Assistance Staff have spent many hours assisting the District with leak detection efforts, plant and system repairs, regulatory assistance and with advice on the best way to proceed without jeopardizing its regulatory responsibilities. Staff is certain that the proposal by the Company is the least cost alternative to secure reliable water service into the future. The impact of a large project to build a new plant, replace many mains and service and the associated legal, accounting and engineering costs would be far costlier to District customers than enlisting the assets of the Company. The Company can accomplish most work with its own assets, personnel and equipment at far less cost. Engineering Staff recommendations Consequently, Engineering Staff strongly supports the approval of the Agreement to finally secure reliable, high quality, low cost reliable service to District customers. All areas of this State must have reliable utility services or the entire economic future of the State will continue to decline. This is the only way to proceed to correct the many problems which exist with many small utilities. The utilization of a large integrated, responsible company with competent technical personnel and sufficient equipment assets

18 Chris Howard, Staff Attorney Case No W-PWD-PC Page 6 and financial strength will address the needs of the residents and foster real growth. Engineering Staffs defers to the Legal and Utilities Division for Legal and financial recommendations related to the Agreement. Further, Staff also supports the District s recent filing request to allow the District to immediately utilize the Company s supply. The very tenuous situation with the Districts water plant to which Staff can attest, poses a continuing risk for a long term loss of water service to many customers. The addition of the Company s supply will reduce that risk. The immediate approval of the Joint Agreement will ensure that the Company can proceed on an expedited basis to make necessary repairs to the Districts system as well as improve its own system in the area. The resulting reduction in water loss and improvements to the Company s system will ensure a quick change to a total Company supply * \ JCW: