DE 97-154 Hampstead Area Water Company, Inc. Order Approving Franchise and Permanent Rates R E V I S E D O R D E R N O. 22,854 February 18, 1998 APPEARANCES: Stephen J. Noury for Hampstead Area Water Company, Inc. and James L. Lenihan for the Staff of the New Hampshire Public Utilities Commission. I. PROCEDURAL HISTORY On July 28, 1997, Hampstead Area Water Company, Inc. (Hampstead or the Petitioner) filed with the Public Utilities Commission (Commission) a petition to establish a franchise and permanent rates in a limited area known as the Colby Pond subdivision (Colby Pond) located in the Towns of Danville and Sandown. The Petitioner is seeking authority under RSA 378 to provide water service to Colby Pond. Colby Pond is planned for 141 single family residential homes. As of the date of the final hearing in this matter, there was testimony that 82 homes had been sold. An Order of Notice was issued September 5, 1997 setting a prehearing conference for October 10, 1997 at the Commission and setting deadlines for intervention and objections thereto. No requests for intervention were submitted in writing or orally at the prehearing conference. On October 28, 1997, the Commission issued Order No. 22,770 which approved a procedural schedule and scheduled a hearing on the merits of the petition for January 14, 1998. II. SETTLEMENT AGREEMENT AS PROPOSED BY THE PARTIES At the hearing on January 14, 1997, the Commission Staff (Staff) and the Petitioner presented a Settlement Agreement (Settlement) on the proposed franchise and permanent rates. The Settlement supported granting the franchise and set forth the following terms and conditions: RATE BASE Rate base is agreed to consist of net plant in service of $218,559 and a working capital requirement of $4,970. The total rate base is therefore agreed in the amount of $223,529. RATE OF RETURN The Petitioner's capital structure consists of 100% debt at 8.5% interest as specified in a promissory note from the Petitioner to Lewis Builders Development, which is the owner and operator of the Colby Pond system. Therefore, Staff and Hampstead agree to an overall rate of return of 8.5%. OPERATION AND MAINTENANCE EXPENSE Operation and maintenance expense has been agreed upon in an annual amount of $24,186. The components of this figure, as listed in Schedule 3 of Staff witness Thomas M. Sculley's prefiled testimony submitted December 23, 1997, consist of production expense of $11,821, transmission and distribution expense of $5,015, customer accounting expense of $3,200, office supplies and expense of $350, special services of $3,000, and miscellaneous expense of $800. TOTAL ANNUAL REVENUE REQUIREMENT The total annual revenue requirement agreed upon by the parties is therefore $51,155, ($32,155, total operating costs, plus $19,000, net operating income) to be applied to the full system build-out of an anticipated 141 single family homes. RATE STRUCTURE The rate structure, as agreed upon by Staff and Hampstead, will consist of a quarterly customer charge and a volumetric rate. The customer charge has been calculated by dividing the annual depreciation and amortization charge of $7,624 by the anticipated total customer base of 141 for a quarterly charge of $13.52 per customer. The consumption charge is calculated by allocating the remaining revenue requirement of $43,530 over an estimated annual consumption of 2,250 cubic feet per quarter per customer (2,250 x 4 quarters x 141 customers), or 1,269,000 cubic feet, resulting in a consumption rate of $3.43 per hundred cubic feet. An average annual bill would amount to approximately $362.80. EFFECTIVE DATE The Petitioner and Staff recommended that these rates be effective for service rendered on and after the date of issuance of a Commission order in this franchise and permanent rate proceeding. III. COMMISSION ANALYSIS We have reviewed the agreement between the parties and heard testimony in support thereof. We find granting the franchise to Hampstead Area Water Company to be in the public good. We also find that the recommended rates provide a reasonable return on property used and useful in service to the public. Accordingly, the settlement is approved. Based upon the foregoing, it is hereby ORDERED, that Hampstead Area Water Company is granted authority pursuant to RSA 374:22 and 26 to operate as a public water utility in a portion of the Towns of Danville and Sandown described as follows: Beginning at a point 3000' south of the centerline of Hersey Road on the Danville and Sandown town line: thence, running easterly, 3000' south of the centerline of Hersey Road, to a point 200' east of the centerline of Route 111-A (Main St.): thence, running northerly, 200' east of the centerline of Route 111-A, to a point 200' north of the centerline of Sandown Road: thence, running westerly, 200' north of the centerline of Sandown Road in Danville and then of North Danville Road in Sandown, to a point 200' northwest of the centerline of Fremont Road: thence, running southwesterly, 200' northwest of the centerline of Fremont Road, to a point 200' west of the centerline of Odell Road: thence, running southerly, 200' west of the centerline of Odell Road, to a point 3000' south of the centerline of Hersey Road: thence, running easterly, 3000' south of the centerline of Hersey Road to the point of beginning; and it is FURTHER ORDERED, that for water service rendered on or after the date of this order that the Hampstead Area Water Company, Inc. may bill its Colby Pond customers a quarterly fixed charge of $13.54 and a volumetric charge of $3.43 per 100 cubic feet; and it is FURTHER ORDERED, that the Petitioner file a revised tariff annotated with the above Commission order number within 10 days of the date of this order. By order of the Public Utilities Commission of New Hampshire this eighteenth day of February, 1998. Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger Chairman Commissioner Commissioner Attested by: Thomas B. Getz Executive Director and Secretary