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PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
Entered: September 30, 2004
CASE NO. 04-0095-S-CN
CITY OF CHARLES TOWN SEWER DEPARTMENT
Application for a certificate of
convenience
and necessity to construct improvements to
its
existing wastewater treatment system.
RECOMMENDED DECISION
On January 26, 2004, the City of Charles Town Sewer Department (Utility) filed an application for a certificate of convenience and necessity to construct improvements to its existing wastewater treatment system.
On February 6, 2004, the Jefferson County Public Service District (PSD) petitioned the Commission to intervene. The PSD's wastewater is treated by the Utility.
On March 9, 2004, the Commission referred the matter. The current decision due date is October 7, 2004.
On May 26, 2004, the Utility filed documents significantly revising its proposed project. The revisions significantly increased the estimated cost of the project.
By Procedural Order issued June 1, 2004, the Utility was ordered to publish a Revised Notice of Filing reflecting the increased project costs.
By Procedural Order issued June 10,
2004, the PSD was granted intervenor status. The matter was set for hearing on
August 24, 2004.
On July 2, 2004, the City of Ranson
(Ranson) petitioned to intervene in the proceeding. Ranson's wastewater is
treated by the Utility.
By Procedural Order issued July 6, 2004, Ranson was granted intervenor status.
On July 16, 2004, Paul Burke filed a motion to intervene. Mr. Burke is a resident of Jefferson County and expressed concerns regarding environmental and other issues with the project.
On July 22, 2004, Huntfield, L.C. (Huntfield), petitioned to intervene. Huntfield is a developer with a large project under construction which requires sewer capacity.
By Procedural Order issued July 28, 2004, Mr. Burke and Huntfield were both made parties to the proceeding. The Utility was ordered to publish notice of the hearing previously scheduled for August 24, 2004.
The hearing was held as scheduled. Hoy G. Shingleton, Jr., Esquire, and Richard L. Lewis II, Esquire, appeared on behalf of the Utility. James V. Kelsh, Esquire, appeared on behalf of the PSD. David C. Glover, Esquire, appeared on behalf of Ranson. Georgiana M. Pardo, Esquire, appeared on behalf of Huntfield. Paul Burke appeared on his own behalf. Both public comment and evidence were received at the hearing. A briefing schedule was established.
PUBLIC COMMENT
James Cummings is a biologist and lives in Bakerton. (Tr. 22, 23). Mr. Cummings supports the proposed upgrade for the water treatment plant, as long as it is built so that it can handle the waste from the County's septic tanks and any lines are designed carefully. (Tr. 24). Mr. Cummings explained that, given the limestone geography of the area, sewer line breaks are very dangerous to the County's ground water. (Tr. 24). Mr. Cummings also wants to make sure that the creek where the effluent is discharged is adequately protected environmentally. (Tr. 26).
Jane Rissler is a resident of Greenbelt, Maryland, and believes that the project should result in a review under Section 106 of the National Historic Preservation Act to consider the potential effect on nearby historical resources. (Tr. 26, 27, 28, 29, 30, 31). The Act requires a historic review on any project that requires federal licensing. (Tr. 27). Ms. Rissler pointed out several historic structures within a mile of the proposed sewer upgrade. (Tr. 28, 29, 30).
Beth Haney is a resident of Jefferson County. (Tr. 32). Ms. Haney believes that the project is not in the public interest because it will allow new development. (Tr. 33, 34). Ms. Haney believes that new residential units cost more in services needed than in the tax revenue they produce. (Tr. 34). She believes that each new house “adds to the downward spiral that continues to drain our economic vitality”. (Tr. 35). Ms. Haney pointed out various programs in the metropolitan Washington, D.C. area, which were designed to limit growth. (Tr. 35, 36). Ms. Haney believes that development is an economic pyramid scheme where a few developers get rich and the rest of the community pays for the expansion. (Tr. 37).
Nick Latterell, a professor emeritus of biology at Shepherd University, supports the upgrading of the sewer plant. (Tr. 38, 39). He believes that it is badly needed, given the history of frequent failures on the part of the Utility to meet its environmental permits. (Tr. 39). Mr. Latterell opposes any expansion of sewer service into the rural area of the County. (Tr. 39). Mr. Latterell believes that increased development comes at a negative cost to the County. (Tr. 39, 40). Mr.
Latterell believes that County residents should get to vote on whether or not the sewer plant is expanded. (Tr. 41).
Lee Snyder, a resident of Jefferson County, believes that there is a sewer capacity crisis and that the opponents to growth are fighting the sewer expansion in order to stop development. (Tr. 42). Mr. Snyder believes that the lack of sewer capacity has the potential to destroy the area's economic vitality in short order. (Tr. 42). Mr. Snyder believes that they do not even have sufficient capacity to serve the new high school for which the bond has already been passed. (Tr. 42, 43). Mr. Snyder believes that the expansion of utility service to serve new customers should be automatic under the obligation to serve. (Tr. 43). He believes that, without a significant expansion of capacity at the Charles Town plant soon, it will create an economic crisis in Jefferson County. (Tr. 43).
Mary L. MacElwee will soon retire on a limited income and opposes having to hook up to sewer service. (Tr. 44). Ms. MacElwee is also concerned about the impact on the Shenandoah River of the proposed expansion. (Tr. 44). She is also concerned with additional traffic and pollution connected to growth. (Tr. 44, 45).
Ed Wormald, a professional engineer, is in favor of the expansion of capacity. (Tr. 45, 46). He believes it is essential for Jefferson County and good for the public. (Tr. 45). He believes the expansion will protect the environment and is certain that any discharge into the streams would be of extremely high quality, probably cleaner than the creek water itself. (Tr. 45, 46). Mr. Wormald believes there is currently an informal moratorium on new connections to the Charles Town plant. (Tr. 48). The lack of available capacity has resulted in a hotel delaying its construction schedule. (Tr. 46). Mr. Wormald believes that availability of water and sewer service should not be used as a way to control growth. (Tr. 46). Mr. Wormald believes the only option to the treatment plant expansion is no growth for Jefferson County. (Tr. 46). Mr. Wormald believes that residential housing does carry its financial burden within the community. (Tr. 47). Mr. Wormald believes that businesses will come into the County after the additional housing stock is built and occupied. (Tr. 47). He believes that denying the project will cause economic recession for Jefferson County. (Tr. 47).
Leslie Carter, a resident of Jefferson County, believes that uncontrolled growth will decrease the quality of life in the area. (Tr. 48). Ms. Carter believes that many tourists visit the area because of the quality of the environment, the beauty of the rivers and the quality of the historical resources. (Tr. 49).
Kelly Baty, a geologist, is concerned about the wells in the County, given the sewer project. (Tr. 49, 50). Mr. Baty's concern is with breakages in sewer lines, as well as inflow and infiltration problems. (Tr. 50). Given the limestone nature of the area's geology, Mr. Baty believes that sewer projects must be very carefully designed. (Tr. 51). The area is subject to sinkholes. (Tr. 51).
Frances Latterell is opposed to upgrading the sewer plant. (Tr. 52). She believes that an expansion and the related development will lower the quality of life in Jefferson County. (Tr. 52, 53).
Barbara Hunes is concerned with the County's quality of life. (Tr. 54). She is opposed to growth such as occurred in the neighboring Counties of Virginia and Maryland. (Tr. 54).
EVIDENCE
Jane Arnett is the Chairman of the Utility. (Tr. 56). The Utility's treatment plant provides service to its own customers, as well as to the PSD and Ranson. (Tr. 62). The utilities entered into an agreement in 1988 (88 Agreement) regarding joint use of the treatment plant. (Tr. 62). The Utility, Ranson and the PSD concluded in 2003 that an expansion of capacity was needed. (Tr. 58). Ms. Arnett believes that one of the fundamental duties of a public utility is its duty to serve new customers. (Tr. 76, 77).
Ranson's engineer prepared an estimate of the total number of equivalent dwelling units (EDUs) of capacity it would need to serve its customers over the next 20 years. (Tr. 59). Ranson estimates that it needs 10,506 EDUs of capacity over that time. (Tr. 59, 60).
The Utility is proposing an immediate increase in its capacity by 500,000 gallons a day. (Tr. 60). An increase in capacity of 500,000 gallons provides about 2,778 EDUs of capacity. (Tr. 61).
Huntfield plans to build 3,200 new homes, as well as related businesses. (Tr. 63). There are already existing sewer mains and pump stations in the Huntfield development. (Tr. 64). Norbourne Glebe projects building structures which will consume 500 EDUs. (Tr. 63). There is a townhouse development which is already partially completed and is going to complete an additional 141 units. (Tr. 63). Ms. Arnett is familiar with another small development for 44 housing units. (Tr. 63). The Board of Education intends to open a new high school in the Huntfield development within three years. (Tr. 64).
The Department of Environmental Protection (DEP) informed the Utility on February 10, 2004, that it only had 150,000 gallons a day of capacity remaining at the treatment plant on that date. (Tr. 66). Since that date, the Utility has consumed an additional 35,000 gallons of the available capacity. (Tr. 66, 78). Ms. Arnett believes that much more capacity would have been consumed, but for the fact that the three utilities were very careful with the limited amount of remaining capacity. (Tr. 78). The Utility desires to withhold 20,000 gallons of available capacity as a buffer to permit it to more closely comply with its NPDES permit. (Tr. 78).
The Utility recently received an increase in its rates. (Tr. 82, 83). That rate increase was to cover increases in its operating costs since 1998. (Tr. 83). The Utility has been relying on the water department to get a legally adequate debt coverage ratio. (Tr. 83).
The Utility has attempted to fix the immediate cause of its recent violations of its DEP permit. (Tr. 97). The upgrade at the sewer treatment plant will result in improved water quality of the discharge from the plant. (Tr. 97).
The 88 Agreement calls for each utility to have a certain number of shares of capacity at the plant. (Tr. 101). Ranson was allocated 330,000. (Tr. 101). Charles Town got 470,000. (Tr. 101). The PSD got 400,000. (Tr. 101).See FootNote 1 The original plan was to allocate the extra 500,000 gallons from the project equally between the three utilities. (Tr. 102). The Utility has now agreed to essentially a first-come, first-served system for the remaining capacity. (Tr. 103).
The original project envisioned an effluent line being constructed to the Shenandoah River and did not include the additional blowers and digesters. (Tr. 106). At some point, the DEP suggested the additional blowers and a digester. (Tr. 106). Later still, it was determined that it was not necessary to add the effluent line to the Shenandoah. (Tr. 106). The scope of the project was reduced from a cost of $6,000,000 to $2,500,000, when the decision was made not to try run a new effluent line to the Shenandoah. (Tr. 68, 69).
The Utility negotiated a proposed
agreement with Huntfield to guarantee the debt service for the improvements to
the treatment plant for the first few years until growth will pay for the debt
service. (Tr. 72). As a result of modifications to the plans, the agreement
with Huntfield was amended to reflect the lower costs associated with the
project. (Tr. 72, 73). The guarantee from Huntfield has been reduced to
$700,000, given the decrease in the size of the project. (Tr. 73). Huntfield
was not granted any exclusive right to capacity as a result of its guarantee.
(Tr. 74).
The quality of the discharge from the plant
after the upgrade will be of a much higher quality than exists from the plant
today. (Tr. 111). If no new additional customers are served, the improvement to
the plant would still significantly increase the quality of the effluent. (Tr.
111).
The Utility made certain improvements to the plant in 2001, which required reprogramming of its software. (Tr. 115). Programming errors resulted in some discharge problems at first. (Tr. 115). The Utility also had trouble cleaning its ultraviolet lights, which also limited the ability to comply with its discharge permit. (Tr. 116). The Utility has taken care of both the programming error and the O&M issue with the ultraviolet lights. (Tr. 116).
David Choate is a professional engineer who helped design the project. (Tr. 124). The proposed project will add two blowers to the Sequencing Batch Reactor (SBR) system, which will provide supplemental
oxygen in order to handle additional incoming loads. (Tr. 128). It will also replace the dissolved oxygen analyzers and controllers. (Tr. 128). It will add a 600,000 gallon aerobic digester to enhance digestion and reduce the total amount of solids. (Tr. 128).
The existing treatment plant uses bacteria to consume much of the sewage and to remove the ammonium nitrogen. (Tr. 129). The bacteria is then allowed to settle and the clean water is decanted off and discharged into the stream. (Tr. 129). The additional blowers will provide more oxygen to the bacteria in the reactors allowing them to consume more sewage. (Tr. 137).
The remaining parts of the treatment plant, including the head works, effluent pumping, disinfection process and belt press are all adequate to handle the increased capacity. (Tr. 138). The added blower and aerobic digester will result in a drier, thicker sludge, which will be easier to handle with the existing press. (Tr. 139).
The Utility has an existing discharge permit into Evitt's Run. (Tr. 129). The amount of pollution into Evitt's Run will not increase, but the new project will require a permit modification because there is an increase of flow going through the treatment plant and a change in the treatment plant process. (Tr. 130).
The decision to keep the effluent line on Evitt's Run came because of a change in water quality standards related to nitrogen. (Tr. 131, 132). The plant's three basins are always in a different phase of the cycle with a computer controlling the sequencing of the basins. (Tr. 137). The plant operates 24-hours a day. (Tr. 137).
The project is designed to be able to be retrofitted to handle any new regulations regarding nitrates that come from new requirements associated with the Chesapeake Bay watershed. (Tr. 140). The Health Department has issued a construction permit for the proposed project. (Tr. 140, 141).
The new plant, as designed, will be able to handle the peak bio- chemical oxygen demand (BOD) levels, which, occasionally, hit the Utility's treatment plant. (Tr. 160). The facility has a historic high level of BOD on its system, much higher than most other municipal plants. (Tr. 160). There is a bypass on the plant for occasions when flow exceeds three million gallons a day, but the bypass has not been used since four meters were installed in 2001. (Tr. 164, 165).
It is impractical to place the digester underground given the low elevation of the area and the high level of its ground water. (Tr. 169). It would be extremely expensive to de-water the area and not very environmentally sensitive. (Tr. 170).
L. Eli McCoy has a Ph.D., with an emphasis in aquatic ecology and aquatic quality. (Tr. 177, 178). Mr. McCoy served as Director of the DEP in the past and is currently a consultant to the Utility. (Tr. 178). Mr. McCoy explained that, due to then-existing environmental regulations, the Utility planned to build a new effluent line to the Shenandoah River. (Tr. 179). The relaxation of the criteria by the DEP made it
environmentally and economically appropriate to continue to discharge the plant's effluent at Evitt's Run. (Tr. 181, 182).
Evitt's Run is impacted by a variety of non-effluent pollution sources, most of which are from agricultural practices. (Tr. 183). Increasing the flow of the effluent from 1.2 million gallons to 1.7 million gallons a day will actually reduce the dissolved oxygen sag in the creek by half a milligram per liter, resulting in improved stream conditions. (Tr. 184, 185). The mass of pollutants will not actually increase with the increased discharge given the pollutants are going to decrease per unit. (Tr. 185). The additional flow should improve water quality on Evitt's Run from the dissolved oxygen standpoint. (Tr. 185). The additional flow in the stream is also a benefit because aquatic organisms benefit from a wet habitat. (Tr. 185).
The DEP will allow public comment and go through an entire process in determining the ultimate final environmental impact of the project. (Tr. 187). The only type of water pollution control permit in West Virginia is issued by the State. (Tr. 187).See FootNote 2 The Federal Pollution Control Program was delegated to the State in 1982. (Tr. 187).
John C. Kunkle is the accountant consulting with the Utility. (Tr. 197). The project is expected to create $90,000 of additional operation and maintenance (O&M) expenses. (Tr. 205). The project is going to cost $2.5 million, with a debt service of $203,300, and a replacement reserve requirement of $6,582. (Tr. 205). Funding will be derived through the Sewer Service Agreement with a secondary back up through the guarantee by Huntfield. (Tr. 205). Additionally, the project will be supported annually by relying on $61,000 of the Utility's revenue from its water operations. (Tr. 205).See FootNote 3 The Utility's recent rate increase, which is not reflected in the most recent Rule 42T filing, is an attempt to eliminate the need for the sewer operations to rely on revenue from the water operations to meet its debt service coverage. (Tr. 206).
The financial exhibits are based upon the project being completed with no new customers being connected to the system. (Tr. 207). Mr. Kunkle believes that the developer's subsidy will rapidly decrease as new customers are connected. (Tr. 207).
The debt service is for 20 years. (Tr. 209). The particular bonds to finance this project will have call provisions allowing the Utility to pay off the debt early without penalty. (Tr. 210). Such a bond is very easy to sell given the current low interest rates in the market. (Tr. 211).
There are four ways that the bond is going to be paid. (Tr. 211). First, each utility will contribute $6.10 a month (EDU Fee) for each new customer hooked up. (Tr. 108, 212). Second, money will come from the
$1,127 capacity fee charged for each new hookup, which was approved by a Recommended Decision, but is pending on appeal before the Commission. (Tr. 212, 213).See FootNote 4 At the beginning of the project, there will be insufficient cash flow from the EDU fee and the capacity fee to pay for annual debt service and it will be necessary to use the letter of credit from Huntfield to cover the shortfall. (Tr. 214). Huntfield will be billed any principal and interest payments not covered by the other mechanisms. (Tr. 108, 109). The Utility's Rule 42 Exhibit assumes 225 EDUs connected to the system per year, which is consistent with the historic average for the utilities but probably a very conservative estimate given all of the expected growth in the county. (Tr. 216, 217). Even in the worse scenario, with no new customers hooking onto the system, and the developer going broke, the rate impact for the customers of the existing systems for the project would be less than 10%. (Tr. 112, 219, 220). The Utility's current rate for 4,500 gallon customer is $19.93. (Tr. 220).
Jim Duszeynski is with Huntfield, which is a planned community for 3,200 residential units and a minimum of 200,000 square feet of commercial space. (Tr. 250). Huntfield will also include a high school and perhaps an elementary or middle school. (Tr. 250). Huntfield is a customer of the PSD and has been annexed by the City of Charles Town. (Tr. 251). Huntfield is still willing to guarantee the debt service for the sewer project. (Tr. 252, 253). Huntfield anticipates being able to sell and occupy about 250 residential units a year. (Tr. 253). It has already constructed 123 units, about half of which are currently occupied. (Tr. 253). It has some 850 lots approved. (Tr. 254). It dedicated 57 acres to the Board of Education for the school. (Tr. 254). Mr. Duszeynski understands that the Board of Education has in its possession all the money it needs to build the new high school, which will need sewer service. (Tr. 255).
Huntfield is willing to post a letter of credit for $700,000, not the full $2.5 million estimate of the project. (Tr. 256). It had already received a commitment from its bank for a letter of credit of $1.7 million, so reducing it to $700,000 should not be a problem (Tr. 256). If the project is substantially delayed, it will be financially devastating for Huntfield. (Tr. 257). Mr. Duszeynski testified that it would put Huntfield out of business. (Tr. 257).
Harry Kable, the Chairman of the PSD, supports the proposed project. (Tr. 260, 261). Mr. Kable believes that, even if the Commission does not approve the capital improvement fee, the project should go forward. (Tr. 261).
Suzanne Laton is the General Manager of the PSD, which serves 1,600 customers in Jefferson County. (Tr. 267). The PSD has been adding 20 customers a month in recent years. (Tr. 267). The PSD has been facing a limited capacity due to limited capacity at the Utility's treatment plant. (Tr. 267). The plant must be expanded in order for the PSD to continue to serve and meet its demand. (Tr. 267, 268). Ms. Laton
testified that there were 9,946 EDUS demanded from the PSD by various developers, which have not been provided yet. (Tr. 269, 270). Some of those developers may not actually proceed to developing their property. (Tr. 270).
If the proposed project is delayed for a year, the PSD will not be able to serve all of the customers who demand service. (Tr. 270). Although the PSD is reviewing the possibility of building its own plant, the plans are several years away from actually resulting in any additional capacity. (Tr. 270, 271).
Mr. Burke believes that there are 516 homes with final approval for construction in Jefferson County. (Tr. 285).
Paul David Mills is the City Manager of Ranson, which serves 1,265 sewer customers. (Tr. 296). Ranson supports the project. (Tr. 297). Ranson has recently annexed 22 separate properties for a total of 3,351 acres. (Tr. 298). Ranson believes that the Charles Town treatment plant is its most viable option for getting new capacity. (Tr. 301). Expansion of the Charles Town treatment plant is not only efficient but it is also less costly than attempting to build a separate plant. (Tr. 301). Ranson estimates that it will need additional capacity of 600,000 gallons or so over the next 20 years. (Tr. 301). Ranson believes that there are 3,325 residential units and five commercial developments in some stage of being developed in Ranson. (Tr. 303). Ranson is currently the largest municipality in Jefferson County in both terms of population and acreage. (Tr. 304). It is imperative that new capacity be developed and that Ranson receive a portion of that capacity. (Tr. 305).
The Staff submitted its recommendation in a post-hearing exhibit filed September 3, 2004.See FootNote 5 The Utility filed its post-hearing documents: a revised Rule 42 Exhibit; a revised loan commitment letter; documents relating to an increase in O&M expenses; a pro forma cash flow analysis from the Charles Town Water Department; a revision to the 88 Agreement; and a revised Agreement from Huntfield regarding the guarantee of the debt service. (See File). Staff recommended approval of the certificate contingent upon receiving the West Virginia DEP NPDES permit modification. (See Post Hearing Final Joint Staff Memorandum filed September 3, 2004). Staff recommended that the Commission approve the amendment to the 88 Agreement (without approving the specific terms and conditions of the agreement) for a limited period of up to one year or until a sewer resale rate is implemented by the Utility. Id. Staff recommended Commission approval of the Debt Service Agreement between Huntfield and the Utility contingent upon receipt of the line of credit between M&T Mortgage Corporation and Huntfield. Id.
The proposed project relates to necessary upgrades to meet the DEP discharge requirements and is a necessary step for a capacity increase. Id. The Utility estimated an increase in O&M expenses of $90,000 and Staff agrees with the estimate. (See Staff Memorandum filed September 22, 2004).
The current plant is under DEP notification of DEP's intent to sue to force it to improve operations and the Utility is facing civil penalties for past discharge violations. (See Post Hearing Final Joint Staff Memorandum filed September 3, 2004). The plant normally operates within its parameters but it has significant excursions above the maximums permitted. Id.
The plant is also approaching its design capacity of 1.2 million gallons a day. Id. Staff believes that there is rapid growth occurring in the County. Id. The lack of capacity led to the Health Department refusing to issue building permits in late 2003 and implementing an unofficial moratorium on sewer service. Id.
Staff opposes any revision of the 88 Agreement, which attempts to reserves capacity, and believes that all customers should be served on a “first come first served” basis. Id. Staff believes that the Utility should establish a resale rate for sewer service within 120 days or Staff threatened to petition the Commission for a general investigation to establish a resale rate for the Utility. Id. A resale rate would eliminate the need for the 88 Agreement. Id.
Staff concluded that the project is convenient as it will improve the discharge effluent quality during the high BOD inflow events and reduce the sludge disposal cost for the Utility. Id. The project is needed to support the continued growth of industrial, commercial and residential construction. Id. Staff recommended a limited approval of the revisions to the 88 Sewer Agreement with certain conditions. Id. Those conditions include: that no capacity reservation will be permitted and that all customers will be served on a “first come, first served” basis; that the Utility would establish a resale rate within 120 days; and that the Agreement be approved for a period of one year or until the resale rate is implemented by the Utility, whichever comes first. Staff recommended that the Utility take action to approve the maintenance of its system. Id. Staff recommended that bids be filed with the Commission and be made a part of the file as soon as they are tabulated. Id. Staff recommended that, if there is any change in the plans, scope or terms of financing of the project, the Utility request that the proceeding be reopened for Commission review and approval. Id.
On September 29, 2004, the Utility filed a letter from the M&T Mortgage Corporation committing to issue a letter of credit in the amount of $700,000 to secure Huntfield's obligations to guarantee a portion of the debt service related to the project.
DISCUSSION
The first issue is whether there is a need for the proposed project.See FootNote 6 The current treatment plant is quickly running out of capacity. The Utility was informed by the DEP in February that it only had 150,000 gallons a day of remaining capacity at the plant. It has since used 35,000 gallons of that capacity. It desires to maintain a 20,000 gallon a day buffer to help ensure compliance with its NPDES permit.
All three utilities served by the treatment plant have a large number of pending requests for service. There are already far more requests for service than capacity available at the existing treatment plant. The area served by the treatment plant is undergoing relative rapid development. The development includes residential and commercial development, as well as plans for a new public high school.
All of the parties, except Mr. Burke, agree that there is a capacity crunch. They all agree that rapid development in the area requires the immediate increase in capacity at the plant. The proposed project is only a first step to increasing capacity and the Utility is reviewing plans for additional increases of plant capacity. Mr. Burke believes that various factors will result in a much lower rate of growth than expected by the other parties.See FootNote 7 He argues that, if the expected growth
does not come, it will result in significant rate increases for existing customers.See FootNote 8
The record demonstrates that the Utility needs additional capacity. Although many of the developers who have requested service from each of the three utilities will never actually complete the proposed developments, there is almost a certainty that some of the development will occur. The proposed increase in capacity is relatively small and would be consumed if only a small fraction of the proposals actually come to fruition. Huntfield is a reality. It already has constructed 123 homes and has 850 lots approved. Many of the other developments are far beyond simple plans and will require sewer service in the near future. Several actually have started construction.
Some of the individuals offering public comment, and perhaps Mr. Burke, oppose additional development and advocate that the Commission deny the application as a way to put brakes on development. There is an argument that, to protect the public interest, the Commission must stop all local development by simply making sure there is no additional sewer capacity in Jefferson County. Ms. Haney insisted that development drains the economic vitality of the area with each new residence costing much more in services than it generates in taxes. Several individuals expressed concern that development was decreasing the quality of life in the area. Although the Commission is obligated to consider the broad public interest, the record is far from convincing that it would be in the public interest to prevent all development in the area by simply insuring an end to any additional sewer capacity. Issues related to the proper development of the County are far better left to the Jefferson County Commission and the Jefferson County Planning Commission who can take more nuanced measures to control or even limit additional development. It would be imprudent and contrary to the public interest for the Commission to end all development in the area by refusing to permit a much-needed increase in sewer capacity.
Additionally, the Utility has had a history of difficulty in meeting its discharge permit and is under pressure from the DEP to improve the ability of the plant to meet the permit. The proposed project will enable the Utility to meet the requirements in its discharge permit. Even if additional flows come to the plant as a result of growth, the upgrade of the plant will result in no additional amount of pollution being discharged into the environment. If the expected growth does not come, then there will be significantly less pollution put into the environment and it will be easier for the Utility to stay within the confines of its permit.
The record clearly demonstrates a need for the proposed upgrade, both to expand the capacity of the plant and to aid the Utility in meeting its discharge permit.
The financing of the proposed upgrade is complex and unusual. The Utility will issue a series of twenty-year revenue bonds at an average interest rate of 5.5%. In an effort to ensure that existing customers are not paying for any expansions of capacity used by new customers, the Utility, the PSD and Ranson agreed to pay off these bonds through a number of different sources. Each of the utilities has pledged to contribute to the project $6.10 a month for each new customer hooked up to their systems whose sewage flows to the Utility's treatment plant. Second, the utilities plan to use money from the $1,127 capacity fee each plans to charge all new customers. The third source of revenue is a guarantee by Huntfield for up to $700,000. If all else fails, then the utilities would simply raise rates to cover the cost of the project. The proposal requires Commission approval of a revision to the 88 Agreement as well as approval of the Huntfield guarantee.
Mr. Burke argues that the Commission should not approve the project unless Huntfield and other developers guarantee the entire amount of the project.
Mr. Burke's insistence that developers guarantee the entire cost of the project is unreasonable and should be rejected. Huntfield is only one of many developers in the County. It is not receiving a guarantee that the capacity which it helps to pay for will even be there when Huntfield needs sewer service. Frankly, it is surprising that Huntfield is willing to make even this amount of guarantee given that no other developer has made a guarantee and there is no certainty that Huntfield itself will consume the capacity it contributed toward.
The proposed financing is reasonable and should be approved. The 1st Revised Debt Service Guarantee Agreement between Huntfield and the Utility should be approved.
Mr. Burke argues that the Commission
should not approve the project until it approves the capacity fees pending in
Case Nos. 03-1490-PSD-T-PC and 04-1221-S-MA. The capacity fees are one of the
primary ways that the Utility plans to pay off the bonds. However, there are
other provisions to provide for the repayment of the bonds. Both the EDU fees
and the Huntfield guarantee will also be used to make bond payments. The other
parties to the proceeding all agree that the project should proceed whether or
not the Commission approves the capacity fees. They want the capacity fees to
be approved by the Commission, but argue that, whether or not they are
approved, the project is essential for the continued growth of Jefferson County
and the ability of each of the three utilities to continue to meet customer
demand. Approval of the capacity fees helps to insure that the new growth
supports the costs it creates. But even without the capacity fees, the rate
impact on existing customers would be relatively minor.
Mr. Burke argues that the additional
digester should only be approved contingent on the Utility being able to be in
compliance with its existing NPDES permit using its existing equipment for “a
year or
two.”See FootNote 9 He argues that the Utility upgraded its plant in 2000/2001 with the same engineering firm to bring it into environmental compliance but it apparently did not work.
Mr. Burke's proposal would delay a significant part of the project for a year or two in order to test the validity of the last upgrade. Mr. Burke pointed out at hearing numerous failures on the part of the Utility to meet its NPDES permit. It seems counterintuitive to delay a project which will help the Utility meet its environmental obligations until it can prove it can meet the obligations without the proposed upgrade. It seems apparent that the DEP is concerned with the Utility's failure to meet its NPDES permit. There is pending, in Circuit Court, a DEP enforcement action against the Utility seeking civil monetary fines and penalties.
Mr. Burke also suggests that the Commission make approval contingent upon the Utility continuing to search for BOD sources given the unusually high BOD loads that plague the system.See FootNote 10 The Utility testified at hearing that it does continually try and determine the cause of its high BOD loads. It does work in locating and inspecting grease traps in restaurants. Although the project approval should not be contingent upon the Utility continuing to investigate the sources of its BOD problem, the Utility should be ordered by the Commission to continue its efforts to reduce the BOD load at its source.
Staff argues that the Commission should only approve the changes to the 88 Agreement for a period of one year or until the Utility properly implements tariff rates for resale customers which would end the necessity for the 88 Agreement. The PSD indicated that, although it preferred to be served under a simple bulk rate, it was concerned that the Staff recommendation would make it difficult, if not impossible, to
issue the bonds for the project. It argued that the Commission should wait until after the project financing closed before anything was done related to replacing the 88 Agreement with a bulk rate. The PSD also suggested that any attempt, as suggested by Staff, that the Commission modify rates in a general investigation case might be vulnerable to a challenge based on jurisdiction. Both the Utility and Ranson also opposed limiting approval of the modifications to the 88 Agreement to a one-year period. The Utility suggested just notifying all the parties that the 88 Agreement is subject to the continuing jurisdiction of the Commission.
The PSD's concerns relating to the sale of bonds are persuasive. It does seem likely that a one-year limit on the 88 Agreement--which contains provisions which are the main way the bonds are going to be repaid--may create a problem for project financing. It is also understandable that Staff believes that the time has come for the Utility to have a more traditional rate for resale and terminate the 88 Agreement. The terms of the agreement have not been followed by the parties and the agreement has resulted in a fair amount of contention between the three utilities. It is likely that all three utilities would benefit from a more traditional arrangement. The Utility would have more independence to manage its own treatment plant and more ability to plan for increased demand. The PSD and Ranson could always protest and intervene in any rate ordinance or intervene in any certificate case.
The modifications to the 88 Agreement should be approved contingent upon the Utility agreeing to pass a municipal ordinance which includes bulk resale rates within eighteen months of the closing of project financing. Proceeding with the project will indicate the Utility's acceptance of the contingency. Given that the Utility will initiate a rate ordinance process establishing a bulk rate in the relatively near future,See FootNote 11 it is not necessary to limit the approval of the modifications to a one-year period and it will not be necessary to try and adjust municipal rates in a general investigation. The procedure should also create less potential trouble for the sale of the project bonds, but satisfy the Staff's desire that the 88 Agreement be replaced by a resale rate in the Utility's tariff.
The certificate application should be approved contingent upon: receipt of a revised NPDES permit and the Utility agreeing to enact an ordinance which includes bulk resale rates within eighteen months of the closing of project financing.
FINDINGS OF FACT
1. The existing Charles Town treatment plant has inadequate capacity to meet current and expected demand. (Tr. 42, 43, 46, 47, 58, 59, 60, 63, 64, 66, 78, 250, 253, 254, 255, 257, 267, 269, 270, 301, 303, Post-Hearing Staff Ex. filed September 7, 2004; Ranson Ex. 1; PSD Ex. 1; Charles Town Ex. 2; Charles Town Ex. 9).
2. The proposed project, as designed, will
increase capacity and will also improve the Utility's ability to conform to its
NPDES permit. (Tr. 60, 97, 111, 128, 130, 137, 139, 160, 185; Post-Hearing
Staff Ex. filed September 7, 2004; see application as amended).
3. The complex financing arrangement designed by the Utility, the PSD, and Ranson was an effort to place the burden of paying for the additional capacity upon new users of the system. The Utility intends to use a monthly contribution from each new customer taken out of its regular monthly bills, the capacity fee paid by each new customer and a guarantee by Huntfield to repay the bonds. (Tr. 71, 108, 109, 212, 213, 214, 216, 217).
4. Huntfield has agreed to guarantee up to $700,000 of repayments on the bonds at issue. (Tr. 214, 252, 253, 256).
5. Even if all of the growth fails to occur and Huntfield goes bankrupt, the project would only result in an increase in rates to existing customers of less than 10%. (Tr. 112, 219, 220).
6. The project is estimated to cost $2.5 million dollars and will result in an additional 500,000 gallons per day of capacity. (Tr. 60, 205, see application as amended).
7. The project design substantially conforms to Commission rules and regulations and Staff recommends approval of the application. (Post- Hearing Staff Ex. filed September 7, 2004).
8. The proposed project will add two blowers to the SBR system, which will provide supplemental oxygen in order to handle additional incoming loads. It will also replace the dissolved oxygen analyzers and controllers. It will add a 600,000 gallon aerobic digester to enhance digestion and reduce the total amount of solids. (Tr. 128).
9. The new plant, as designed, will be able to handle the peak BOD levels, which, occasionally, hit the Utility's treatment plant. (Tr. 160).
10. The project will result in improved water quality in Evitt's Run. (Tr. 184, 185).
11. Staff raises serious concerns about the continuing value of the 88 Agreement, including that the 88 Agreement has not been complied with and that it has created contention between the parties. Staff recommends a limited one-year approval of the modifications to the 88 Agreement as a way to encourage the Utility to replace the agreement with a bulk resale rate. (Post-Hearing Staff Ex. filed September 7, 2004).
CONCLUSIONS OF LAW
1. The public convenience and necessity require the proposed project.
2. The application for a certificate should be approved upon the following conditions: receipt of a revised NPDES permit and the Utility agreeing to enact an ordinance which includes bulk resale rates within eighteen months of the closing date of project financing.
3. The proposed financing is reasonable and should be approved, including the 1st Revised Debt Service Guarantee Agreement between Huntfield, L.C., and the City of Charles Town in the amount of $700,000.
4. The modifications to the 88 Agreement should be approved, contingent upon the project moving forward upon the conditions outlined in Conclusion of Law 2.
ORDER
IT IS, THEREFORE, ORDERED that the application for a certificate of convenience and necessity filed by the City of Charles Town on January 26, 2004, as subsequently amended, be, and hereby is, granted, subject to the following contingencies: receipt of a revised NPDES permit and the Utility agreeing to enact an ordinance which includes bulk resale rates within eighteen months of the closing date of project financing. Proceeding with the project will indicate the Utility's acceptance of the second contingency.
IT IS FURTHER ORDERED that the proposed amendments to the 1988 Sewer Service Agreement, as filed on August 27, 2004, be, and hereby are, approved, without approving the specific terms and conditions of the agreement. The parties should be aware that the agreement is subject to the continuing jurisdiction of the Commission.
IT IS FURTHER ORDERED that the 1st Revised Debt Service Guarantee Agreement between Huntfield, L.C., and the City of Charles Town in the amount of $700,000 be, and hereby is, approved.
IT IS FURTHER ORDERED that the proposed financing of issuing a series of 20-year revenue bonds in the total amount of $2.5 million dollars at an average rate of 5.5%, with $700,000 of the debt payments guaranteed by Huntfield, be, and hereby is, approved.
IT IS FURTHER ORDERED that the City of Charles Town continue in its efforts to investigate the sources of high BOD loads in an effort to reduce the BOD at its source.
IT IS FURTHER ORDERED that a copy of the project bids be filed with the Commission as soon as they are tabulated.
IT IS FURTHER ORDERED that, if the plans, scope or terms of financing of the project are modified, the City of Charles Town petition the Commission to reopen this proceeding to review and approve the modifications.
The Executive Secretary is hereby ordered to serve a copy of this order upon the Commission by hand delivery, and upon all parties of record by United States Certified Mail, return receipt requested.
Leave is hereby granted to the parties to
file written exceptions supported by a brief with the Executive Secretary within
fifteen (15) days of the date this order is mailed. If exceptions are filed,
the parties filing exceptions shall certify to the Executive Secretary that all
parties of record have been served the exceptions.
If no exceptions are filed, this order shall become the order of the Commission, without further action, five (5) days following the expiration of the fifteen (15) day time period, unless it is ordered stayed by the Commission.
Any party may request waiver of the right to file exceptions to an Administrative Law Judge's Order by filing an appropriate petition in writing with the Secretary. No such waiver will be effective until ap proved by order of the Commission, nor shall any such waiver operate to make any Administrative Law Judge's Order the order of the Commission sooner than five (5) days after approval of such waiver by the Commission.
Keith A. George Administrative Law Judge
KAG:pst/jas
040095ad.wpd
1Staff pointed out in a filing made September 17, 2004, that, although the 88 Agreement calls on the utilities to share in the plant's operation and maintenance costs in accordance with their share of the capacity, the utilities have actually been paying one-third each for these expenses.
2Accordingly, a review under the National Historic Preservation Act is not required.
3The $61,000 assistance from the water operations is not a transfer of real cash dollars. (Tr. 206).
4If the Commission does not approve the capital improvement fee, the project would be financed through the other mechanisms. (Tr. 109).
5
Pursuant to the procedural schedule agreed to at hearing, all parties were
given until September 7, 2004, to object to the Staff recommendation and
indicate that they desired to cross-examine the Staff witnesses. No parties
indicated the necessity to cross-examine the Staff witnesses and so no
additional hearing was scheduled. It will not be assumed that the
parties agree to the Staff recommendation simply because they failed to demand
an additional hearing.
6A preliminary issue is whether there was adequate notice of the proposed project. Mr. Burke raised the issue prior to the hearing and it was denied by Procedural Order issued July 28, 2004, and by Commission Order entered August 20, 2004. He raised it again at hearing and it was denied from the bench. Mr. Burke raises the issue, yet again, in his reply brief. He requests that the whole process be aborted and that “[p]ublic notice should be given that the project involves blowers, a digester, and discharge to Evitts Run, not an effluent pipe with discharge to the Shenandoah River.” The Utility twice gave notice of its filing at the direction of the Commission. It gave the normal notice and, when it appeared that project costs had substantially increased, the Commission required it to publish a second notice of filing. Both notices indicated that the proceeding involved a plan by the Utility “to construct certain additions and improvements to its wastewater treatment system.” The required notice did NOT go into engineering details of what pieces of equipment would be added or replaced or where effluent lines might discharge. It is not unusual in certificate cases for engineering to change throughout the process. If the public had to be notified about each engineering modification in a certificate case, no project could be completed in a reasonable time. Mr. Burke's request goes far beyond what is reasonable or necessary to provide the public with adequate notice. The public in this proceeding realized that important issues were pending before the Commission and participated in an active way. Numerous individuals filed letters and appeared at the hearing to make public comment. Mr. Burke, himself, intervened and was granted party status although his direct interest in the matter was limited to being a resident of Jefferson County.
7Among the factors Mr. Burke lists are a lack of local jobs, high gas prices, road bottlenecks, loosening land control measures in Virginia and increasing land control measures and fees in West Virginia.
8Mr. Kunkle estimated that rates would have to go up 10% or less if no new development occurred and Huntfield went bankrupt. (Tr. 112, 219, 220). Mr. Burke is not a sewer customer of any of the utilities in the proceeding.
9Similarly, in his reply brief, Mr. Burke argues that approval of the project be contingent upon “the project allowing no increase in any pollutant.” The DEP, not the Commission, has primary regulatory powers related to the environment. The evidence offered by Mr. McCoy indicated that the project would mean substantial benefits for the environment. The evidence presented and the assurance that the project will only move forward with the blessing of the DEP is sufficient. It is not appropriate for the Commission to insist that a pending project result in no increase of any pollutant.
10In his reply brief, Mr. Burke adds yet another proposed contingency. He proposes making the project contingent upon the Utility searching for the source of “bacteriacidal dumping.” There was no showing in the record that the system has an ongoing problem with such events. The Utility is certainly encouraged to continually monitor its system and do whatever investigations are prudent to protect its treatment process. There is nothing in the record to demonstrate that the Utility is somehow lax in its management of the treatment process. It has had problems in the past but very few sewage treatment plants operate flawlessly. Treatment plants are especially subject to difficulties when they are relatively new or recently underwent a major upgrade, as the operators are learning the new complexities of the process.
11This assumes the Utility will agree to the contingency of adopting an appropriate bulk rate for its resale customers.