BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Pennsylvania Public Utility :
Commission : R-2008-2079310
Office of Small Business Advocate : C-2008-2080943
Office of Consumer Advocate : C-2009-2082586
Kevin Tracey : C-2009-2086699
Michael Waitlevertch : C-2009-2087277
Daniel & Elizabeth Palumbo : C-2009-2090937
Borough of Athens : C-2009-2090542
Borough of Sayre : C-2009-2090707
Borough of South Waverly : C-2009-2090725
:
v. :
:
Aqua Pennsylvania, Inc. :
RECOMMENDED DECISION
Before
Cynthia Williams Fordham
Administrative Law Judge
51
TABLE OF CONTENTS
I. HISTORY OF THE PROCEEDING 1
II. PUBLIC INPUT HEARING 5
III. FINDINGS OF FACT 10
IV. DISCUSSION 16
A. Introduction 16
1. Description of the Company 16
2. Aqua’s Request to Increase Its DSIC Cap 17
3. Burden of Proof and Evidentiary Standard 17
B. Motion to Strike Portions of Reply Brief 20
1. OTS’ Motion 20
2. Aqua’s Answer 22
3. Ruling on Motion 25
C. DSIC 26
1. Introduction 26
2. Aqua’s Current DSIC 28
3. DSIC Success 29
D. Aqua’s Position 32
1. There is a Demonstrated Need to Build Upon the Success of the DSIC by Increasing the Cap from 5% to a Reasonable 7.5%. 32
2. Aqua Has Been Reaching the Surcharge Cap in 18 Months 33
3. The Proposed DSIC Surcharge Increase Represents a Reasonable Increase 34
E. OTS’ Position 34
1. Aqua Satisfied the Burden of Proof Requirement 34
2. The Commission Should Reflect in a Utility’s Rate of Return the Reduced Business Risk Associated with Having a DSIC Recovery Mechanism 36
F. OCA’s Position 38
1. Aqua Failed to Show by a Preponderance of the Evidence That a 50% Increase in the DSIC Cap is Just, Reasonable and in the Public Interest 38
2. The Company Has Not Demonstrated a Need for Additional Ratepayer Money to Accommodate Increased Water Main and Service Line Renewals 38
3. The Company Has Not Demonstrated the Need for Additional Ratepayer Money in Order to Undertake Specific Main Remediation Projects 41
4. The Company Has Not Demonstrated the Need for Additional Ratepayer Money to Further Facilitate Acquisitions of Small, Troubled Systems and Make Improvements to Acquired Systems 42
5. The Company Has Not Demonstrated That an Increase to the DSIC Cap Will Help Avoid Increases in Rate Case Expense 43
6. The Company Has Not Demonstrated That an Increase to the DSIC Cap Will Decrease Water Main Breaks, Decrease Risk to Local Fire Protection, and Decrease Low Pressure and Discolored Water Complaints 44
7. OTS’ Recommendation Should Be Rejected 44
G. OSBA’s Position 45
1. Aqua Failed to Support Its Request for an Increase to 7.5% 45
2. The PAWC Decision Should Not Be Used as Precedent. 46
3. The DSIC Filing Violates the Prohibition Against Single-Issue Ratemaking 46
H. Conclusion 47
V. CONCLUSIONS OF LAW 49
VI. RECOMMENDED ORDER 50
51
I. HISTORY OF THE PROCEEDING
On December 8, 2008, Aqua Pennsylvania, Inc. (“Aqua” or “Company”) filed Supplement No. 88 to Tariff Water-Pa. P.U.C. No. 1 to become effective on February 6, 2009, requesting approval to increase its Distribution System Improvement Charge (DSIC) surcharge cap from 5% to 7.5%.
By Corrected Order entered February 9, 2009, the Pennsylvania Public Utility Commission ("Commission") instituted an investigation into the lawfulness, justness and reasonableness of the rates, rules and regulations contained in the proposed Supplement No. 88 to Tariff Water-Pa. P.U.C. No. 1. The proposed Supplement was suspended by operation of law until August 6, 2009, unless otherwise permitted by Commission Order to become effective at an earlier date. In addition, the Commission ordered that the investigation include consideration of the lawfulness, justness and reasonableness of Aqua's existing rates. The matter was assigned to the Office of Administrative Law Judge for prompt scheduling of hearings culminating in the issuance of a Recommended Decision.
In accordance with the Commission's order, the matter was assigned to Administrative Law Judge Cynthia Williams Fordham.
The Office of Small Business Advocate (“OSBA”), through its counsel, filed a Complaint and Public Statement on December 24, 2008. The Complaint was docketed as C2008-2080943. The Office of Consumer Advocate (“OCA”), through its counsel, filed a Complaint and Public Statement on January 6, 2009. The Complaint was docketed as C-2009-2086699. The following filed formal complaints at the following docket numbers: Kevin Tracey at C-2009-2086699, Michael Waitlevertch at C-2009-2087277 and Daniel & Elizabeth Palumbo at C-2009-2090937. In addition, Jonathan P. Foster, Sr., Esquire, filed complaints on behalf of the Borough of Athens at C-2009-2090542, the Borough of Sayre at C-2009-2090707 and the Borough of South Waverly at C-2009-2090725.
On February 11, 2009, the Northeast Democratic Delegation of the Pennsylvania House of Representatives sent a letter to the Commission expressing their opposition to Aqua’s proposal.
On February 17, 2009, Aqua, through its counsel, filed Supplement No. 91 suspending Supplement No. 88 until August 6, 2009.
On February 17, 2009, Johnnie E. Simms, Esquire, entered a notice of appearance on behalf of the Commission's Office of Trial Staff ("OTS").
On February 19, 2009, a Prehearing Order was sent to the parties.
On February 24, 2009, counsel for the following parties submitted prehearing memoranda: Aqua; OCA; OTS; and OSBA.
The Telephonic Prehearing Conference was held on February 25, 2009. Counsel for the following parties participated: Aqua; OTS; OCA; and OSBA.
During the Prehearing Conference we discussed the following: modifying the discovery rules to allow expedited discovery; the issues; the amount of hearing time needed; witnesses; the schedule for submission of testimony, hearings and briefs; and public input hearings. We also discussed active and inactive status. The active parties are Aqua, OTS, OCA and OSBA. In accordance with their counsel’s request, the Borough of Athens at Docket No. C-2009-2090542, the Borough of Sayre at Docket No. C-2009-2090707 and the Borough of South Waverly at Docket No. C-2009-2090725 are inactive parties. The other Complainants are also inactive parties.
On March 3, 2009, Aqua, through its counsel, filed the direct testimony of William C. Packer, Manager of Rates for Aqua Pennsylvania, Inc. (Aqua Statement No. 1) and the direct testimony of Dennis J. Mahoney, Senior Manager of Network Engineering for Aqua Pennsylvania, Inc. (Aqua Statement No. 2).
The active parties submitted the direct testimony of their witnesses in accordance with the schedule established during the prehearing conference.
A total of eight (8) formal complaints were filed in this matter.
On March 23, 2009, a public input hearing was held at 6:00 p.m. at the Kingston Township Municipal Building in Shavertown, PA. Fourteen witnesses presented sworn testimony.
The evidentiary hearing scheduled for March 30, 2009, was cancelled. An evidentiary hearing was held on March 31, 2009, in Philadelphia before Administrative Law Judge Cynthia Williams Fordham. Aqua, OTS, OCA and OSBA participated. Aqua’s witness, Mr. Packer, and OCA’s witness, Ms. Kraus were cross-examined.
The following statements and exhibits were entered into evidence by the following parties: Aqua - Aqua Statement No. 1 - the direct testimony of William C. Packer; Aqua Statement No. 1 Supp - the supplemental direct testimony of William C. Packer; Aqua exhibits WCP – 1 through WCP - 7; Aqua Statement No. 2 - the direct testimony of Dennis J. Mahoney; Aqua exhibits DJM - 1 and 2; OTS - OTS Statement No. 1 - the direct testimony of Robert Plonski with OTS Exhibit No. 1; OCA - OCA Statement 1 - the direct testimony of Marilyn J. Kraus; OCA Cross Examination Exhibits 1, 2, 4, 5, and 6; and OSBA - OSBA Statement No. 1 - the direct testimony of Brian Kalcic.
According to the schedule established at the prehearing conference, the evidentiary record was scheduled to close on April 1, 2009. During the hearing, counsel for OCA made on the record data requests for information from Aqua’s witnesses (Tr. 181, 193, 194, 211). It was also noted that there was an outstanding discovery request. Since counsel for Aqua indicated that the responses would be provided by April 3, 2009, OCA’s counsel requested that the record be held open until April 8, 2009, to allow the documents to be admitted into the record, if necessary. The request was granted (Tr. 193, 194, 253). It was noted that the evidentiary record would close on April 1, 2009, with the exception of the responses to the on the record data requests and the outstanding discovery (Tr. 253).
On April 3, 2009, counsel for Aqua submitted to the presiding officer a copy of the correspondence to counsel for OCA indicating that the following was provided in accordance with the requests: Aqua’s 2008 projected deferred taxes resulting from bonus depreciation; Aqua’s 2009 projected deferred taxes resulting from bonus depreciation; the Midway Manor bid information and Aqua’s “Earnings Disclosure Report” which was filed with the Commission on April 2, 2009. In addition, the letter contained a sentence stating that the responses satisfied OCA’s requests and that there were no outstanding requests.
On April 8, 2009, counsel for OCA submitted correspondence and OCA Cross Examination Exhibits 7 (Aqua’s Response to Transcript Request Nos. 1 and 2) and 8 (Aqua’s Response to Transcript Request No. 3). OCA requested that the exhibits be admitted into the record. In Order # 3, dated April 9, 2009, OCA’s request to hold the record open until April 30, 2009 for Aqua to respond to OCA II – 1 was denied. In addition, in that Order, OCA Cross Examination Exhibits 7 and 8 were entered into evidence as late filed exhibits pursuant to 52 Pa. Code § 5.404 (a) and the evidentiary record was closed.
Aqua, OTS, OCA, and OSBA filed Main Briefs in accordance with the established schedule. Aqua, OCA, and OSBA filed reply briefs and OTS filed a letter replying to Aqua’s “Proposed Ordering Paragraphs” in accordance with the established schedule.
On May 7, 2009, pursuant to 52 Pa. Code §§ 5.243(e), 5.431(b) and 5.501, OTS filed a Motion to Strike portions of Aqua’s Reply Brief on the basis that Aqua introduced claims and evidence not presented before the close of the record or in Aqua’s Main Brief.
By Order, dated May 12, 2009, Aqua and the other parties were instructed to respond to OTS’ Motion to Strike no later than noon on Friday, May 15, 2009.
Aqua filed its answer to OTS’ Motion on May 13, 2009. Aqua denied that it introduced claims and relied on evidence not in the record.
The record consists of the statements and exhibits listed above, the 255 page transcript, the parties’ briefs, OTS’ correspondence, dated April 27, 2009, OTS’ Motion to Strike and Aqua’s Answer to the Motion.
II. PUBLIC INPUT HEARING
One public input hearing was held on March 23, 2009 at 6:00 p.m. at the Kingston Township Municipal Building in Shavertown, PA. Fourteen (14) witnesses testified on the record during the public input hearing.
Gretchen Dlugolecki represented Representative Phyllis Mundy, the State Representative for the 120th Legislative District in Luzerne County, and read Representative Mundy’s prepared testimony (Tr. 56; Mundy Ex. 1). Aqua serves customers in Exeter, Jackson and Kingston Townships which are in Representative Mundy’s legislative district (Tr. 56-58; Mundy Ex. 1). She said that Aqua has been granted three rate increases in the past five years which amount to a 25.56% increase (Tr. 58). She objected to the fact that the Company would be able to automatically raise the DSIC up to 7.5% for new plant but would not have to reflect reductions for depreciation and retirement of existing plant (Tr. 58, 59). Representative Mundy suggested that water bills be kept at a minimum during these difficult financial times (Tr. 59). She opposed the request and urged the Commission to deny the request to increase the DSIC cap (Tr. 60).
Steven D. Hurd, of Sayre, PA, testified that he is pleased with the water quality that he receives in his home. The pressure is good and fire protection is available. Although no one wants to have rate increases, he believes that the increase is necessary to maintain the infrastructure of the systems that the customers enjoy (Tr. 62).
Richard Morgan, a resident of Midway Manor in Kingston Township, said that he has lived in Midway Manor for forty (40) years (Tr. 63). He stated that he testified in a March 2008 public input hearing regarding Aqua’s base rate increase request (Tr. 63). He said that the current request is unreasonable (Tr. 63). Mr. Morgan stated that Aqua purchased the Midway Manor water system in June 2002. At that time the residents were receiving good water and their wells were in place (Tr. 63, 64, 75). Aqua requested a rate increase in 2004 although no work had been done in Midway Manor. In 2004 Aqua supplied water meters and the customer paid for the plumbing work to have them installed (Tr. 64, 69). The Midway Manor water system and customer service is not the same as it was in 2002 because other lines are connected to the system (Tr. 64, 65). Although the residents of Midway Manor have paid for each rate increase, they have the same mains, same supplies and the water quality has declined (Tr. 65, 67). Aqua now has connected another development, Saddle Ridge, to their water system. Mr. Morgan brought a brown water filter to show that when he replaces his filter every thirty (30) days it is dark brown due to the sediment in the water (Tr. 65, 74). The water quality problems started in 2005 when Aqua finished the main line on Manor Drive. After Aqua installed the new main and connected it to the tower, Mr. Morgan started using water filters (Tr. 68). If the cold water sits for any length of time, there is sediment in it (Tr. 70, 71). He uses bottled water for drinking and his coffee (Tr. 70). There is an odor at times (Tr. 70). The water lines in his development are on the back of every property line. There are right of ways every ten (10) feet to get to the line (Tr.76). His meter is located in the basement (Tr. 76). All of the other Townships have water lines in the front of the road (Tr. 76). Mr. Morgan said that the Midway Manor has two (2) sections. He is served by the pumping station directly through the main road area (Tr. 140). Mr.Dicton[1] is served by another main line which comes across Shade Tree Road (Tr. 140). Midway Manor has the oldest water system with 155 homes (Tr. 143, 144). Mr. Morgan said that Aqua is not treating Midway Manor residents fairly (Tr. 145).