Commission Review of Capital Additions

1
Commission Review of Capital Additions

• NHPUC Staff
• Mark Naylor
• Director, Gas Water Division

2
Process of Review

• Form E-22
• Required at least 30 days before construction or
  commitment of funds
• Required when probable cost of addition will
  exceed reportable amounts as follows based on
  gross fixed plant
• 3 million to 50 million ---- 30,000
• 50 million to 100 million ---- 50,000
• Over 100 million ---- 100,000

3
Process of Review

• Form E-22 (continued)
• Provides Staff with advance notice of a proposed
  project and facilitates informal discussion with
  the company
• Provides Staff with the opportunity to understand
  utilitys need for the project and to potentially
  discuss alternatives
• Provides Staff the opportunity to discuss with NH
  DES if necessary

4
Process of Review

• Financing Requests
• Pursuant to NH RSA 369, long term debt (payable
  more than 12 months after issuance) approved by
  the Commission if consistent with the public
  good
• Public good looks beyond actual terms to the use
  of the proceeds and the effect on rates

5
Process of Review

• Financing Requests (continued)
• Appeal of Easton, 125 N.H. 205 (1984) defines the
  review power of the NHPUC with respect to use of
  funds obtained in a financing
• PUC may reject management decisions when
  inefficiency, improvidence, economic waste, abuse
  of discretion or action inimical to the public
  interest are shown. Easton, 125 N.H. at 215.

6
Process of Review

• Rate Cases
• NH RSA 37828 The Commission shall not include
  in permanent rates any return on any plant,
  equipment, or capital improvement which has not
  first been found by the Commission to be prudent,
  used, and useful.

7
Process of Review

• Rate Cases (continued)
• With smaller utilities Staff more likely to
  examine capital needs into the future in
  consultation with NH DES
• Effect of regulatory lag with deferred capital
  projects (and with OM) provides the incentive to
  make good decisions

8
Process of Review Case Study

• Tilton Northfield Aqueduct Co. DF 95-185
• Small utility serving 900 customers
• 3.1 million loan to convert from surface water
  to ground water
• Docket opened as a financing request

9
Process of Review Case Study

• Comments from Commission order
• we find proposed use of funds, development of a
  groundwater supply, to be a prudent means of
  compliance with the SWTR promulgated pursuant to
  the SDWA
• TNAC has examined alternatives . . .
• TNAC located an excellent groundwater source . .
  . And conducted an economic analysis comparing
  the costs and benefits of each alternative
• TNAC concluded that developing the groundwater
  source and transmitting the water back to its
  distribution system, an option that would not
  trigger requirements of the SWTR, was the most
  prudent means of complying with the SDWA

10
Process of Review Case Study

• Comments from Commission order
• testimony shows chosen means of compliance was
  the least cost alternative on a present value
  basis
• consistent with good utility practice because it
  provided the company with access to new areas
  currently zoned for commercial and industrial
  development
• adding new C I customers would help in
  spreading the costs incurred with SDWA compliance
  over a larger customer base

11
NH WICA Pilot Program

• Water Infrastructure and Conservation Adjustment
• Aquarion Water Co. of NH, DW 08-098 Order No.
  25,019 (9/25/09)
• Intended to speed up the replacement of
  non-revenue producing aging infrastructure
• Modeled after Aquarions CT WICA

12
NH WICA Pilot Program

• Annually by November 1, Aquarion to file a 3 year
  projected budget of WICA-eligible projects
• WICA eligible services, meters, hydrants
  (repl.), mains valves (repl.), main cleaning,
  re-lining, and relocations, production meters
  (repl.), and pressure reducing valves (repl.)

13
NH WICA Pilot Program

• Parties to DW 08-098, which includes 2 of the 3
  towns served, meet to review and discuss, and
  make recommendations to the Commission
• Company makes a filing for a surcharge at least
  60 days in advance
• Surcharge consists of pre-tax return, property
  tax, and depreciation

14
NH WICA Pilot Program

• Surcharge can be made temporary, without
  reconciliation, if Commission desires further
  investigation
• Property tax is pro-rated first year, adjusted
  second year, for all projects
• Surcharge capped at 7.5 of revenues between rate
  cases, no more than 5 in any one year

15
NH WICA Pilot Program

• Surcharge calculated as a of bill
• Return depr. PT / Base Retail Water Revenues
  from last rate case
• WICA Pilot set for 4 years, and must be
  specifically re-authorized in the next rate case

16
NH WICA Pilot Program

• How will Staff evaluate the WICA Pilot?
• Did it provide incentive for the Company to speed
  up infrastructure replacement?
• Did it help to reduce rate shock?
• Did it help extend time between rate cases (help
  company maintain its authorized ROR between
  cases)?