Entered: -_- May ?/L.---- PROCEDURE I_I- (hereinafter sometimes referred to as "Commission"),

Transcription

1 I_!$? fyl 48.- $l ' + B -; -* i ' j $ 5 CASE NO P U BL I C S E RV I C E C OMM I S S IO N OF WEST VIRGINIA C HA R L E STO N Entered: -_- May ?/L.---- THE CITY OF WELCH, a municipal corporation. Application for authority to change rates for water at Welch, McDowell County. HEARING EXAMINER'S -. RECOMMENDED ---I ORDER PROCEDURE I_I- On June 7, 1978, The City of Welch, a municipal corporation and public utility, filed its tariff, P.S.C. W.Va. No. 2, canceling P.S.C. W.Va. No. 1, stating an increase of approximately fifty percent (50%) in rates and charges for furnishing water service at Inlelch, in McDowell County, to become effective July 6, By order entered herein on August 9, 1978, the Public Service Commission, (hereinafter sometimes referred to as "Commission"), ordered that The City of Welch be made respondent to this proceeding, and, pending investigation, hearing and decision, the aforesaid respon- dent was authorized to place into effect on July 15, 1978, the increasec rates and charges contained in the aforesaid tariff, provided that it first file an Agreement and Undertaking. The respondent filed said Agreement and Undertaking on August 11, 1978, and after completion of Staff's investigation and Audit Report, this matter was set for hearing on December 7, Public notice was properly given and the hearing was held as scheduled. The applicant appeared by counsel, Alexander Ross. The Chapman, Division of Accounts, Finance and Rates; and Michael Goff, Division of Engineering. No Protestants appeared at said hearing, however, the Commission did receive three (3) letters of protest prior to the hearing. Creed Adkins, the Commission's Tariff Analyst, and Staff members from each of the aforernentiined Divisions submitted memoranda in this matter. On the day of hearing, testimony was taken, evidence OF 4m OMM ISBlON ClNlA

2 was introduced and this matter was submitted to the Commission for decision. DISCUSSION.+.._,._ "- 1 OF THE EVIDENCE The City of Welch, a municipal corporation and public utility, the respondent herein, serves anproximat.ely 1,615 customers of various classes at Welch in McDowell County, West Virginia. The rate increase of approximately fifty percent (50%) herein proposed would be the first such increase since the respondent acquired its water plant and distribution system from West Virginia Water Compan in A t that time, the plant and distribution system, which were approximately 75 years old, were in a diladidated condition, according to W. B. Swope, Mayor of Welch, who testified on behalf of the respon- dent. Since then, the respondent has built a new filtration plant, an additional reservoir and approximately three miles of new water mains. It has changed its former source of raw water, being the Tug River, to a mixture of deep well mine water and surface water. Despite these improvements the system still experiences a relatively high line loss. It appears that this situation is caused by a large percentage of old porous distribution lines. In April, 1978, the State Department of Natural Resources destroyed four of the respondent's five water impoundments for reasons of public safety. This led to increased electrical costs for pumping more water from the deep mine source and for chemical treatment require by the higher sodium content of this raw water. Additionally, it appears that the remaining reservoir must undergo some $80,000 worth of improvements to comply with safety standards. Furthermore, the respondent is currently engaged in making step-by-step improvements to its fire protection facilities in response to recommendations by the State Insurance Services office. Noncompli- ance with these recommendations could result in a reclassification of The City of Welch for purposes of fire' insurance coverage. Respondent's Exhibit Nos. 3 and 4 show the planned repairs and replacements, as well as associated costs, deemed necessary for rehabil itation of the system. The plan covers a period of three to five years - PUBLIC OF 6 T","I;SION

3 and the estimated cost of implementadion i s approximately $426,000. From 1972 to 1978, some $520,934 in Capital Improvements was funded from Federal Revenue Sharing funds alloted to The City of Welch and distributed to the Water Department. authorities have questioned this practice. Since that time, State tax Based on this fact, Mayor Swope suggested that the Water Department might eventually be required to repay those funds. The accounting exhibits filed by the respondent and the Commission's Staff used a test year ending June 30, These exhibits are substantially similar in terms of total dollars, with Staff's exhibit showing approximately $9,000 more in operation and maintenance expenses. A t the hearing, however, the respondent introduced income and expense data for the year following the test year, which suggested increased operating costs for electricity and chemical treatment, necessitated by its increased reliance on the deep well source of raw water, as hereinbefore discussed. Respondent's Schedule 3A shows that the average monthly cost of electricity from April, 1978, through November, 1978, was $4, This is an increase of $1, for the preceding eight months. over the average monthly electric bill Based on this average monthly cost, respondent's annual electric costs would be $51,312.00, or $18, more than such costs in the test year. (Respondent's Exhibit No. 2, Schedule 3A). Should these costs be recognized for purposes of rate making, however, said recognition should be tempered by the Commission' order in Case No. 9091, in which Appalachian Power Company was ordered to make refunds of that amount of the rates collected under bond during this period which was denied. This amounts to a refund of approximatel I 2.67%to the respondent, and the corresponding average monthly cost would be reduced to approximately $4,162. By the same token, respondent's increased reliance on its deep well raw water caused an increase in chemical costs which was not reflected in the test year. The average monthly chemical cost from April, 1978, through November, 1978, was $1,908.19, or an annual increase of $14, over test year cost. (Respondent's Exhibit No. 2, Schedule 3B). I --- PUBLIC S-MISSION OF INlA

4 As a general rule, the Commission does not consider post test year expenses in determining reasonable and necessary costs. However, in this case the respondent has provided the Commission with evidence in the form of receipts which indicates that these are known and measurable costs. Additionally, the evidence clearly indicates that an extraordinary amount of rehabilitation and maintenance of this system is necessary in order to assure adequate service to the respondent's customers. Again Respondent's Exhibit No. 4 details the replacements and repairs required to achieve what the respondent has determined to be a reasonable level of service. In light of the evidence which indicates that the respondent has shown reasonable effort in managing and maintaining this deteriorating water system, it is suggested that some upward adjustment in rates is justified. Based on test year calculations, at going-level the respondent is experiencing an annual net loss of $23,050. When post test year increased expenses for purchased power and chemicals are taken into account, respondent's loss at going-level becomes $43,308. Thus, the proposed rate increase of 49.6% would increase operating revenues by $126,736 to a pro forma total of $382,236, resulting in a net income of $83,428, an annual surplus of $57,918, and a debt service coverage ratio of 205.7%. Neither the respondent's present nor proposed tariff provides for a connection fee. However, the proposed tariff does provide a charge of $5.00 for reinstating previously disconnected service. The proposed delayed payment penalty would require customers to pay their accounts in full within fifteen (15) days from the billing date to avoid a ten percent (10%) late charge. (Staff Exhibit No. 1, p. 17). The Commission's rules provide a twenty (20) days period withir which customers may pay bills without incurring a penalty. (Rule 4.03 (3), Rules and Regulations for the Government o f Water Utilities, -II Public Service commission of West Virginia, 1,977). C 0 MM E N T S 1. In light of the recent U.S. Supreme Court case, Memphis Light, Gas & Water Division v. Craft, 436 U.S. 1 (1978), the Public Service Commission of West Virginia is reviewing for appropriate revision its rules regarding service terminations by public utilities PUBLIC 6-yJFSION Of CHARLEITON

5 operated by political divisions of state government. Anticipating this revision, the Commission has not approved the termination of service provision submitted by this utility. This will result in no harm or prejudice to the applicant, because the utility is still authorized to act pursuant to Rule 4.08 of the Commission's Rules and Regulations for the Government of Water Utilities. It is hoped that this action by the Commission will minimize the administrative burden of amending numerous utility tariffs to bring them into compliance with the revised rule of the Cornmission. 2. The enactment of the Enrolled Committee Substitute for H.B. 1280, effective March 10, 1979, by the West Yirginia Legislature, Regular Session, 1979, hils altered the Commission's jurisdiction in regard to the regulation of rates charged for service by municipal utilities. Thus, the rates, charges, rules and regulations approved herein are effective and binding on The City of Welch from July 15, 1978 when the increased rates were placed into effect subject to an Agreement and Undertaking, through March 9, 1979, after which said Enrolled Com- mittee Substitute for H.B became effective. FINDINGS -- OF FACT 1. The City of Welch is a municipal utility rendering water service to approximately 1,615 customers at Welch in McDowell County, West Virginia. (Commission's Form 107, Report on Tariff Change). 2. The City of Welch has not!increased its rates and charges for providing water service since its acquisition of the water plant and distribution system from West Virginia Water Company in ( T - 9 P. 8). 3. Since said acquisition, the respondent has made various improvements to the system and now uses as its source of raw water a mixture of deep well mine water and surface water. (T., pp. 13, 16, 44). 4. Despite said impravements,' the system, which is approxi- mately 75 years old, experiences a relhtively high degree of line loss presumably due to the existence of a large percentage of old porous distribution lines. (T.3 pp. 51, 52). I MMISSION OF OlNlA rn 5.

6 5. In April, 1978, the State Department of Natural Resources destroyed four of respondent's five surface water impoundments, creating increased costs for pumping and chemical treatment of additional water demanded from the deep mine source. (T., pp. 36, 44, 54; Respondent's Exhibit No. 2, Schedules 3A and 3B). The remaining impoundment w i l l be destroyed unless an estimated $80,000 is spent for improvements. (T., p. 35). 6. In order to avoid reclassification of The City of Welch for purposes of fire insurance coverage, the respondent is currently making step-by-step improvements to its fire protection facilities in accordance with recommendations by the State Insurance Services office. (T,, p. 19; Respondent's Exhibit No. 1). 7. The respondent has planned a repair and rehabilitation program for the system over the next several years which w i l l cost approximately $426,000. (Respondent's Exhibit No. 4). 8. From 1972 to 1978 the respondent funded $520,934 in capital improvements with Federal Revenue Sharing funds which it may eventually have to repay. (T., pp. 19, 32). 9. The respondent experienced increased expense after the test year for the additional electricity and chemicals required by its reliance on additional deep well mine water. (T., pp ; Respond- ent's Exhibit No. 2, Schedules 3A and '3B). 10. The respondent is experiencing an annual net loss of $43,308 at going-level. The proposed across-the-board increase of 49.6% would produce an annual surplus of $57,918 and would generate a debt service coverage ratio of 205.7%., (Staff Exhibit No. 1, p. 26; Respondent's Exhibit No. 2, Schedules 3A and 3B). 11. Neither the respondent's present nor proposed tariff provides for a connection fee. (Staff Exhibit No. 1, pp ). 12. The respondent's proposed delayed payment penalty would require customers to pay their accounts in full within fifteen (15) days from the billing date in order to avoid a ten percent (10%) penalty. (Staff Exhibit No. 1, p. 17).

7 CONCLUSIONS OF LAW _l_l-l -.-,e-_. 1. The respondent's existing 'rates and charges for water service are not just and reasonable in that they do not produce suffi- cient annual operating revenues to allow it to meet its increased operating expenses, to meet its long-term debt obligations, and to provide a reasonable amount of resources for maintenance, rehabilitation and unforeseen contingencies. 2. The rates and charges for water service as hereinafter set forth in Appendix A are just and reasonable in that they will not produce more revenue than that which is necessary for meeting increased operating expenses, for meeting long-term debt obligations, and for providing a reasonable amount of resources for maintenance, rehabili- tation and unforeseen contingencies. 3. The respondent's proposed delayed payment penalty should be changed, as hereinafter set forth in Appendix A, to conform to Rule 4.03(3) of the Commission's Rules and Regulations for the Government of Water Utilities The respondent should make every reasonable effort to - I1 repair the system as needed. IT IS SO ORDERED. ORDER _) I/ IT IS FURTHER ORDERED that the respondent, The City of Welch, place into effect the rates, charges, rules and regulations hereinafter set forth in Appendix A for providing water service in the entire territory served by it, to be effective on all bills rendered for service provided from July 15, 1978, through March 9, IT IS FURTHER ORDERED that the'respondent shall file with the Commission within thirty (30) days of the date of this order its tariff stating the rates, charges, rules and regulations herein approved and set forth in Appendix A. The proposed rates and charges herein approved will produce an annual surplus of $57,918, generating a debt service coverage ratio of approximately 205.7%. IT IS FURTHER ORDERED that the Executive Secretary of the Commission serve a copy of this recommended order upon the Commission by hand delivery, and upon all parties of record by United States -!I PUBLIC SE1I(IDklMIS*ION OF W INlA

8 Certified Mail, return receipt requested. IT IS FURTHER ORDERED that any party shall, within fifteen (15) days from the date this order is maile'd, file any exceptions to this order that it may have with the Executive Secretary of the Commission. If exceptions are filed, the party filinq exceptions shall certify to the Executive Secretary that all parties of record have been served said exceptions. Said exceptions shall contain a brief in suppart thereof, IT IS FURTHER ORDERED that if no exceptions are so filed, this order shall become the order of the Commission without further action or order, unless it is ordered stayed or postponed, five (5) days following the expiration of the fifteen (15) days time period. Franklin G. Crabtree Heari ng Examiner I I k L- PUBLIC SE-~~SION OF W - _--- FGC/11 m 8.

9 APPENDIX A Sheet 1 of 2 CITY OF WELCH - WATER DEPARTMENT - SCHEDULE NO. 1 Applicable in entire territory served. AVAILAB,ILITY _-- OF SERVICE Available for general domestic, commercial and industrial service. ll -- RATE First 400 cubic feet used per month $2.10 per 100 cubic feet Next 1,600 cubic feet used per month 1.70 per 100 cubic feet Next 2,000 cubic feet used per month 1.50 per 100 cubic feet Next 3,000 cubic feet used per month 1.30 per 100 cubic feet A l l Over 7,000 cubic feet used per month 1.00 per 100 cubic feet MINIMUM CHARGE No bill w i l l be rendered for less than the following amounts, according to the size of meter install'ed, to-wit: 5/8 inch meter or less 3/4 inch meter 1 inch meter 1-1/4 inch meter 1-1/2 inch meter 2 inch meter 3 inch meter 4 inch meter 6 inch meter $ 6.30 per month 9.07 per month per month per month per month per month per month per month per month DELAYED PAYMENT PENALTY I_p--- The above schedule is net. On all accounts not paid in full within twenty (20) days of the billing date, ten percent (10%) penalty may be added to the net amount shown. This delayed payment penalty i s not interest and is only to be collected once for each bill where it is appropriate. RECONNEGTION FEE I Where water service is discontinued for non-oavment of a delinquent bill pursuant to the Public Service CommiksTon's Rules and Regulations for the Government of Water Utilities, a reconnection charge of Five D o l l a r s m h a l l be collect-a for reinstatins - service when any such bill is'paid.' SCHEDULE NO. 2 Applicable in entire territory served. AVAILABILITY OF SERVICE RAT E -"- Available for private fire protection. Where connections, hydrants, sirinklers, etc., on private property are maintained by the customer: 2 inch service line with hydrants,sprinklers,, $ 3.68 per month II 3 inch service line with hydrants, sprinklers, 4.35 per month

10 I= APPENDIX A Sheet 2 of 2 4 inch service line with hydrants, sprinklers, 6 inch service line with h.ydrants, sprinklers, 8 inch service line with hydrants,sprinklers, 10 inch service line with hydrants,sprinklers, 12 inch service line with hydrants,sprinklers, Where connections and hydrants on private property are maintained by City: Each fire hydrant $ 5.85 per month per month per month per month per month per month Applicable in entire area served. AVAILABILITY -- OF SERVICE RATE Available for public fire protection. Base rate of $ per month for all public fire hydrants in use in the City of Welch on the first day of May, PUBLIC SE=;WION OF W