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