LAW OFFICE OF JAMES v* KELSH. 300 Summers St., Ste P.O. Box 3713 Charleston, WV yahoo.com WV State Bar #6617

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1 , Telephone (304) LAW OFFICE OF JAMES v* KELSH 300 Summers St., Ste P.O. Box 3713 Charleston, WV yahoo.com WV State Bar #6617 Facsimile (304) January 13,2010 Ms. Sandra Squire Executive Secretary Public Service Commission of 201 Brooks Street Post Office Box 812 Charleston, West Virginia RE: CASE NO PWD-CN ARMSTRONG PUBLIC SERVICE DISTRICT Dear Ms. Squire: Enclosed please find an original and twelve (12) copies of the following: Attachment A: Revised Rule 42 Exhibit Thank you for your assistance. Very truly yours, f- mesv. Kelsh '(WV State Bar No. 6617) JVWnal Enclosures cc: Cassius Toon, Esq. Richard Barnett, CPA Tracey Rowan Brian Morton, PE Judson Wallace (armstrongpsdkquire Itr filing attachments)

2 ATTACHMENT A

3 Armstrong Public Service District WATER FUND TO SUPPORT LOAN AND GRANT APPLICATIONS FOR A WATER PLANT UPGRADE AND DISTRIBUTION SYSTEM IMPROVEMENT PROJECT RULE 42 EXHIBIT BASED ON THE FISCAL YEAR ENDED JUNE 30,2009 Teed & Associates, PLLC 3624 MacCorkle Avenue SE Charleston, West Virginia

4 ARMSTRONG PUBLIC SERVICE DISTRICT WATER DEPARTMENT TO SUPPORT GRANT AND LOAN APPLICATION FOR A WATER PLANT UPGRADE AND DISTRIBUTIONS SYSTEM IMPROVEMENT PROJECT RULE 42 EXHIBIT Table of Contents For the Year Ended June 30,2009 (Historical) Statement Accountants Report Statement of Net Income Statement of Operating Revenues Operations and Maintenance Expense Depreciation Expense Taxes Other Than Income 0 t her I nco m e Other Income Deductions Details of Debt Details of Adjustments Cash Flow Analysis Notes to the Financial Statements 1 A A- 1 A-2 A-3 A-4 A-6 A-7 C G H 3

5 Accountants Report Armstrong Public Service District Water Department Kimberly, West Virginia We have assembled, from information provided by management, the accompanying pro forma statements of revenues and expenses and associated statement of cash flows and other financial information for the Armstrong Public Service District Water Department for the year ending June 30, We have not compiled or examined the financial forecast and express no opinion or any other assurance on them or the accompanying summary of significant accounting assumptions. Further, there will usually be differences between the forecasted and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. We have also compiled the accompanying historical statement of revenues and expenses and associated cash flows of the Armstrong Public Service District Water Department for the year ended June 30, 2009 (historical), in accordance with Statements on Standards of Accounting and Review Services issued by the American Institute of Certified Public Accountants. Our compilation was limited to presenting in the form prescribed by the Public Service Commission of West Virginia (Rule 42 Exhibit) information that is the presentation of management. We have not audited or reviewed these financial statements and, accordingly, do not express an opinion or any other form of assurance on them. Management has elected to omit substantially all of the financial note disclosures required by generally accepted accounting principals. If the omitted note were included in the financial statements, they might influence the user s conclusions about the Armstrong Public Service District Water Department s financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters. 1

6 Armstrong Public Service District Water Department Kimberly, West Virginia The accompanying Rule 42 Exhibit is int nded solely for the u of the man gement of Armstrong Public Service District Water Department, legal counsel, the governing body of the Armstrong Public Service District Water Department, the West Virginia Public Service Commission, the Rural Utility Services (RUS) Division of the Department of Agriculture, Project Engineers and the West Virginia Infrastructure and Jobs Development Council in order to make grant and loan applications, to extend, expand and improve Water services. Other uses or distributions of this report are restricted. Charleston, West Virginia January 11,2010 2

7 ARMSTRONG PUBLIC SERVICE DISTRICT. WATER FUND STATEMENT OF NET INCOME Statement A UTlllN OPERATING INCOME Reference Accounting Per Books Going level Proforma Statement A Per Books Adjustments Adjusted Adjustments Going level Adjustments Proforma (11 (4 (4 (41 (51 (11 (7) t $ t t t t $ Operating Revenues Schedule 1 508, , ,123 42, ,889 Operating Revenue Deductions Operation and Maintenance Schedule 2 424, , ,335 (20000) 404,335 Taxes Other Than Income Taxes Schedule 4 20,587 20,587 20,587 20,587 Total Operating Revenue Deductions 444, , ,922 (20,000) 424,922 Net Operating Income 63,201 63,201 63,201 62, ,967 Other Income Schedule Other Income Deductions Schedule ,071 29,071 25,368 54,439 NET INCOME 34,750 34,750 34,750 37,398 72,148 See accompanying summary of significant forecast assumptions and accountants report

8 ARMSTRONG PUBLIC SERVICE DISTRICT *WATER FUND DETAIL OF OPERATING REVENUE Statement A Schedule 1 Accounting Per Books Going Level Proforma Per Books Adjustments Adjusted Adjustments Going Level Adjustments Proforma (1) (21 (3) (4) (5) (6) (7) $ $ $ $ $ $ $ Sales of Water Metered Sales Residential Commercial Industrial Public Authorites 432, , ,459 38, ,380 10,617 10,617 10, ,573 5,843 5,843 5, ,369 1,025 1,025 1, ,117 Total Metered Sales 449, ,944 40, ,439 Sales for Resale 10,003 10,003 10, ,903 Total Sales to Public Authorities 10,003 10,003 10, ,903 Total Sales of Water 459, , ,947 41, ,342 Other Oueratina Revenues Forfeited Discounts 15,236 15,236 15,236 1,371 16,607 Miscellaneous Service Revenues 32,940 32,940 32,940 32,940 Total Other Operating Revenues 48,176 48,176 48,176 1,371 49,547 Total Operating Revenues 508, , See accompanying summary of significant forecast assumptions and accountants report

9 ARMSTRONG PUBLIC SERVICE DISTRICT -WATER FUND DETAIL OF OPERATION AND MAINTENANCE EXPENSES FISCAL YEAR ENDiNG JUNE 30,2009 Statement A Schedule 2 Sheet 1 of 2 Account Number SOURCE OF SUPPLY EXPENSES Accounting Per Books Going Level Proforma Per Books Adjustments Adjusted Adjustments Going Level Adjustments Proforma (1) (2) (3) (4) (5) (6) (7) $ $ $ rl a a $ Operation 602 Purchased Water Total Source of Supply 2,648 2,648 2,648 2,648 Total Operation 2,648 2,648 2,648 2,648 2,648 2,648 2,648 2,648 PUMPING EXPENSES Operation 622 Fuel or Power Purchased for Pumping 18,929 18,929 18,929 18, Operation Supplies and Expenses 1,050 1,050 1,050 1,050 Total Operation 19,979 19,979 19,979 19,979 Total Pumping Expenses 19,979 19,979 19,979 19,979 WATER TREATMENT EXPENSES Operation 630 Operation Labor & Expenses 130, , ,117 (10,000) 120, Operation Supplies & Expenses 8,077 8,077 8,077 8,077 Total Operation 138, , ,194 (10,000) 128,194 Total Water Treatment Expenses 138, , ,194 (10,000) 128,194 TRANSMISSION AND DISTRIBUTION EXPENSES Operation 640 Operation Labor (10,000) Operation Supplies & Expenses 102, , , ,025 Total Operation 156, , ,135 (10,000) 146,135 Total Transmission 8 Distribution Expenses 156, , ,135 (1 0,000) 146,135 CUSTOMER SERVICE EXPENSES Operation 901 Meter Reading Labor 903 Supplies & Expenses 7,336 7,336 7,336 7,336 1,933 1,933 1,933 1,933 Total Operation 9,269 9,269 9,269 9,269 Total Customer Service Expenses 9,269 9,269 9,269 9,269 ADMINISTRATIVE AND GENERAL EXPENSES Operation 920 Administrative and General Salaries 921 Office Supplies and Other Expenses 924 Property Insurance 926 Employee Pensions & Benefits 928 Regulatory Commission Expense 932 Total Administrative 8 General Expenses Total Operation Total Operation & Maintenance Expenses 14,523 16,920 5, ,523 16,920 5,607 58,483 14,523 16,920 5, ,523 16,920 5, ,577 2,577 2,577 2,577 98,110 98,110 98,110 98,110 98,110 98,110 98,110 98, , , ,335 (20,000) 404,335 See accompanying summary of significant forecast assumptions and accountants report

10 ARMSTRONG PUBLIC SERVICE DISTRICT -WATER FUND Depreciation, Deplection and Amortization Statement A Schedule 3 Decription Structures and Improvements Tangible Plant Structures Pumping System Structures Water Treatment Structures General Plant Structures Plant and Equipment Electrical Pumping Equipment Other Pumping Equipment Water Sources Plant Water Treatment Equipment Transmission and Distribution Mains Services Meters Hydrants Other Transmission Plant 5 '/o 5% 5% General Plant Office Equipment Transportation Equipment Stores Equipment Laboratory and Other Equipment 20% 20% 10% Land and Intangible Plant Intangible Organization Costs Sources of Supply Land Water Treatment Plant Land Transmission and Distribution Land NIA NIA NIA Total Water Utlity Plant $ 2,263,541 Total Depreciation Expense for the year ended June 30,2009 $ See accompanying summary of significant forecast assumptions and accountants' report

11 ARMSTRONG PUBLIC SERVICE DISTRICT WATER FUND TAXES OTHER THAN INCOME TAXES Statement A Schedule 4 Accounting Per Books Going Level Proforma Per Books Adjustments Adjusted Adjustments Going Level Adjustments Proforma (11 (4 (3) (4) (5) (4 (7) $ $ $ $ $ $ $ FSCA State Unemployment 17,622 17,622 17,622 17,622 2,965 2,965 2,965 2,965 Total Taxes Other Than Income Taxes 20,587 20,587 20,587 20,587 See accompanying summary of significant forecast assumptions and accountants report

12 ARMSTRONG PUBLIC SERVICE DISTRICT WATER FUND OTHER INCOME Statement A Schedule 6 Accounting Per Books Going Level Proforma Per Books Adjustments Adjusted Adjustments Going Level Adjustments Proforma (1) (2) (3) (41 (5) (6) (7) $ $ $ $ $ $ $ Interest Income Total Other Income See accompanying summary of significant forecast assumptions and accountants report

13 ARMSTRONG PUBLIC SERVICE DISTRICT. WATER FUND OTHER INCOME DEDUCTIONS Statement A Schedule 7 Debt Holder Per Books (1) $ Accounting Adjustments (2) $ Per Books Going Level Adjusted Adjustments Going Level (3) (4) (5) $ $ $ Proforma Adjustments (6) $ Proforma (7) $ Interest Paid on Customer Deposits Series 1974 Revenue Bonds Series 2002 RUS Loan Proposed RUS Loan 67 4,998 24, ,998 24, , , Total Other Income Deductions 29,071 29,071 29,071 25,368 54,439 See accompanying summary of significant forecast assumptions and accountants report

14 ARMSTRONG PUBLIC SERVICE DISTRICT. WATER FUND DETAIL OF DEBT CAPITAL Statement C Outstanding Interest for Year Nominal Date Date of per Balance Debt Holder of Issue Maturity Sheet Rate Amount Principal Totals $ YO $ $ $ Series 1974 Revenue Bonds , ,998 15,270 20,268 Series 2001 RUS Loan ,520 4,500 24,006 6,210 30,216 Proposed USDA RUS Loan , ,368 9,931 35,299 54,372 31,411 85,783 See accompanying summary of significant forecast assumptions and accountants report

15 ARMSTRONG PUBLIC SERVICE DISTRICT - WATER FUND COMPARATIVE BALANCE SHEET - PER BOOKS Statement F ASSETS AND OTHER DEBITS Utility Plant Plant Less: Accumulated Depreciation YEAR ENDED 06/30/08 06/30/09 $ $ 2,261,525 2,263,541 (1,224,898) (1,253,241) Net Utility Plant 1,036,627 1,010,300 Other Property and Investments Sinking Funds Other special funds 45,871 49,675 1,268 1,414 Total Other Property and Investments 47,139 51,089 Current and Accrued Assets Cash and working funds Customer accounts receivable 43,366 55,283 65,907 70,949 Total Current Assets 109, ,232 LIABILITIES AND OTHER CREDITS Total Assets and Other Debits 1,193,039 1,187,621 Retained Earnings Retained Earnings (444,438) (421,9101 Total Retained Earnings (444,4381 (421,910) Long Term Debt Bonds 622, ,218 Total Long Term Debt 622, ,218 Current and Accrued Liabilities Notes payable Accounts Payable Payable to associated companies Customer Deposits Taxes Accrued Interest Accrued Miscellaneous current and accrued liabilities 14, ,441 25,344 3,307 3,503 4,933 19, ,719 25,710 3,923 3,802 3,118 Total Current and Accrued Liabilities 170, ,356 Contributions in Aid of Construction 843, ,957 Total Liabilities and Other Credits 1,193,039 1,187,621 See accompanying summary of significant forecast assumptions and accountants report

16 ARMSTRONG PUBLIC SERVICE DISTRICT =WATER FUND DETAIL OF ADJUSTMENTS Adjustment Number PER BOOKS ADJUSTMENTS 1 There were no per book adjustments for purposes of this Rule 42 Exhibit. Numbers were compiled and assembled based on the Armstrong PSD s Water Fund s June 30,2009, West Virginia Public Service Commission Report, Statement G Sheet 1 of 3 INCREASE <DECREASE> $ 0 See accompanying summary of significant forecast assumptions and accountants report

17 ARMSTRONG PUBLIC SERVICE DISTRICT - WATER FUND DETAIL OF ADJUSTMENTS Statement G Sheet2of 3 Adjustment Number GOING LEVEL ADJUSTMENTS 1 There were no going level adjustments for purposes of this Rule 42 Exhibit. Numbers were compiled and assembled based on the Armstrong PSD s Water Fund s June 30, 2009, West Virginia Public Service Commission Report. INCREASE <DECREASE> $ 0 See accompanying summary of significant forecast assumptions and accountants report

18 ARMSTRONG PUBLIC SERVICE DISTRICT = WATER FUND DETAIL OF ADJUSTMENTS Statement G Sheet 3 of 3 Adjustment Number PROFORMA ADJUSTMENTS 1 Operating Revenues To adjust to reflect pro forma increases in opreating revenues due to an expected nine - percent (9%) rate increase. INCREASE <DECREASE> $ 42,766 Pro Forma $ 551,509 Going Level 508,743 Increase <Decrease> $ 42,766 2 Interest Expense Increase in interest expense due to expected borrowing from the U S Department of Agriculture Rural Utilities Services Division. Expected borrowing in the amount of $765,000 with terms of thirty-eight years at 3.75 percent, 25,368 Pro Forma $ 54,439 Going Level 29,071 Increase <Decrease> $ 25,368 3 Water operating expenses To adjust to reflect pro forma decreases in expenses due to water plant upgrades and improvements to the distributions system thus reducing operations costs by a total of $20,000. Calculations: Pro Forma $ 424,922 Going Level a) 444,922 (20,000) Increase <Decrease> $ (20,000) See accompanying summary of significant forecast assumptions and accountants report

19 ARMSTRONG PUBLIC SERVICE DISTRICT -WATER FUND DETAIL OF ADJUSTMENTS Statement H Per Books Per Books Adjusted Going Level Proforma $ $ $ $ Available Cash Metered Sales Sales for Resale Forfeited Discounts Miscellaneous Service Revenues Interest Income 449,944 10,003 15,236 32, ,944 10,003 15,236 32, ,944 10,003 15,236 32, ,439 10,903 16,607 32, Total Available Cash 508, , , ,509 Cash Requirements Operation and Maintenance Expenses Taxes Other Than Income Taxes 424,335 20, ,335 20, ,335 20, ,335 20,587 Total Cash Requirements 444, , , ,922 Cash Available for Debt Service (A) 63,821 63,821 63, ,587 Debt Service Requirements 1974 Revenue Bonds. (Interest) - (Principal) 2001 RUS USDA Loan - (Interest) - (Principal) Proposed RUS Loan - (Interest) - (Principal) 4,998 15,270 24,006 6,210 4,996 15,270 24,006 6,210 4,996 15,270 24,006 6,210 4,996 15,270 24,006 6,210 25,368 9,931 Sub-Total 50,484 50,482 50,482 85,781 Debt Service Reserve Requirements (10%) Renewal 8 Replacement Reserve (2.5%) 3,022 11,249 3,022 11,249 3,022 11,249 6,552 12,261 Total Debt Service Reserve Requirements (B) 64,754 64,752 64, ,593 Remaining Cash Surplus (Deficit) (933) (931) 21,994 Debt Service Coverage Factor (A) I (B) % - Yo 1.48 Yo See accomdanvina summarv of sianificant forecast assumdtions and accountants' redort

20 ARMSTRONG PUBLIC SERVICE DISTRICT WATER DEPARTMENT RULE 42 EXHIBIT Notes to Forecast Schedule of Cash Flow Analysis Under the Hypothetical Assumptions in Note A For the Year Ending June 30,2008 (Forecast) NOTE A: Summary of Significant Forecast Assumptions The Pro Forma Statement of Net Income, Statement of Operating Revenues, Operating and Maintenance Expense, Other Income, Other Income Deductions and Cash Flow Analysis presents to the best of management s knowledge and belief the Armstrong Public Service District Water Department expected results of operations and cash flows for the forecast period. Accordingly, the forecast reflects management s judgment as of January , the date of this forecast, of expected conditions and its expected course of action. The assumptions disclosed herein are those management believes are significant to the forecast. There will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Revenue - Going Concern and Pro Forma Management developed the revenue forecast based on the June 30, 2009 actual compiled numbers. Pro forma adjustments are for a nine percent across the board increase in customer water rates. There are no going concern adjustments and this report was prepared using compiled information for the June 30, 2009,,report to the West Virginia Public Service Commission. Operating Expenses - Pro Forma Operations and maintenance costs are expected to remain constant through out the projection period. This amount is based on the reported June 30, 2009, operating and maintenance expenses. Savings which are expected to result from the reduction in water losses and associated paid overtime due to improvements in the water system are expected to be a minimum of $20,000 and management believes these numbers are conservative. 3

21 Other Income and Deductions - Going Level Management has not increased non operating income; however, it does expect to receive grant proceeds of $61 0,000 from the United States Department of Agriculture Rural Development. These grant proceeds are expected to be received during the pro forma period. Income deduction is increased for the pro forma period as discussed below for pro forma debt service. Debt Service - Pro Forma Pro forma debt service consists primarily of interest and principal payments associated with additional borrowings on behalf of a Water System Plant Upgrade and Distribution System Improvement Project. The increase reflects expected increases in interest and principal payments associated with the expected borrowing of $ 765,000 for the Project. Pro forma amortization is based on thirty-nine years at percent, which are the terms of the loan expected to be approved by the United States Department of Agriculture Rural Development. Going Level Adjustments Column This column is used to adjust the historical financial statements for material changes, which occurred during the latter part of the year and to give these changes an annualized affect. There were no going level adjustments. Sources and Uses of Funds The expected sources and uses of funds for the Water Improvement Project based on preliminary cost estimates are: Sources of funds: USDA Grant USDA Loan Total project sources Uses of Funds: Construct ion and contingency Construction contingency Engineeringldesign/inspection/special services Land acquisition Legal fees and bond counsel Accounting and administration Project contingency Capitalized interest Total project uses $ 610, ,000 $ $ 1,037,300 72, ,000 10,000 46,000 15,000 6,100 18,000 $ 1,

22 CERTIFICATE OF SERVICE I, James V. Kelsh, counsel for Armstrong Public Service District, do hereby certify that a copy of the foregoing has been served this 13th day of January, 2010, upon the following in the manner indicated: VIA HAND DELIVERY: Cassius Toon, Esquire Legal Division Public Service Commission 201 Brooks Street Charleston, WV 25301