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PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
CHARLESTON

CASE NO. 04-0095-S-CN

CITY OF CHARLES TOWN SEWER DEPARTMENT

STAFF'S REPLY BRIEF

Now comes the Staff of the Public Service Commission of West Virginia (Staff), by its Counsel, to file its Reply Brief in the above-referenced proceeding. In this brief, Staff will be responding to the parties' Initial Briefs about Staff's Post-Hearing Final Joint Staff Memorandum filed on September 3, 2004. The only issue that Staff will address here is Staff's recommendation concerning Commission approval of the 1st Revised Amendment to 1988 Sewer Service Agreement between the City of Charles Town (Charles Town), the City of Ranson (Ranson) and the Jefferson County Public Service District (District) for a limited period of up to one (1) year OR until the sewer resale rate is implemented by the City of Charles Town, whichever comes first.

First, Staff had to review the 1988 Sewer Service Agreement (1988 Agreement) among the three (3) sewer utilities to get insight into the 1st Revised Amendment to 1988 Sewer Service Agreement (1st Revised Amendment) to be approved in Charles Town's certificate filing. The 1988 Agreement has actually been in effect among the three (3) sewer utilities for approximately 16 years. Staff knows at various times that the 1988 Agreement has been a source of contention among the three (3) sewer utilities. For example, Staff obtained knowledge that the sewage flow meters were recently installed in the early months of 2004. According to the 1988 Agreement, these meters were to be installed some 16 years ago. Another example is under the 1988 Agreement, Article D, Calculation of Payment of Sewer Service Charges, Item 2, which states the District and Ranson agree to pay Charles Town their "proportionate share" of the operating and maintenance (O&M) costs of Charles Town's treatment plant and interceptor system. During the investigation of this case, Staff has found that the O&M costs have been shared equally (1/3 + 1/3 +1/3) among the three (3) sewer utilities and not by each utility's proportionate share.

In hindsight, Staff reasons that the 1988 Agreement was flawed since the date of its inception. That reason was a premise to Staff's rationale for the Pt Revised Amendment being limited to a period of up to one (1) year or until the sewer resale rate is implemented/charged by Charles Town, on a first come-first serve basis, whichever comes first. In Staff's viewpoint, this maximum one (1) year period gives Charles Town ample time to conduct a study to establish a sewer resale rate within 120 days, enact this resale rate by municipal ordinance and even be subjected to a municipal appeal proceeding at the Public Service Commission.

By establishing a resale rate, it allows Charles Town the independence to construct additional sewer upgrades in capacity for a first come-first serve basis without being tied up with Ranson and the District to the 1988 Agreement and the 1 ~ Revised Amendment. If the sewer resale rate or increase in sewer capacity affects Ranson and/or the District, each utility would have the right to intervene in Charles Town's future resale rate ordinance and/or certificate filing.

Under Staff's recommendations of having the 1st Revised Amendment being limited for a period of up to one (1) year, this sewer project can still go to closing because Huntfleld, L.C. (Huntfield) is prepared to guarantee the debt service with a $700,000 contribution toward the principal and interest on the loan. On the $2,500,000 loan, the annual principal and interest payment is $203,300.00. Even with no growth, Huntfield's $700,000.00 contribution provides approximately 3 1/2 years of debt service payments. After these 3 1/2 years, if growth has not occurred, Charles Town will have to increase sewer rates, including the resale rate, to continue making the debt service payments for the remaining 16 1/2 years of the 20 year loan. Increasing rates is a common practice for a non-profit utility to generate sufficient revenues to cover all of its expenses.

In conclusion and pursuant to West Virginia Code §24-2-11, Staff is still recommending approval of the City of Charles Town Sewer Department's application for a certificate of convenience and necessity for its sewer improvements and the approximately 500,000 gallons upgrade of its treatment capacity. Charles Town has proven persuasively that this sewer project is needed to provide additional sewer connections to customers of each of the three (3) sewer utilities. Also, because of proposed sewer customer growth, Charles Town will not experience any sewer rate increase within the confines of this sewer project, which deems this project convenient.

Furthermore, Staff is standing firm on its Post-Hearing Final Joint Staff Memorandum filed on September 3, 2004, which consists of the following:

1. Staff recommends approval of the City of Charles Town's certificate application to add two (2) new air blowers to the plant blower building and the construction of a sewer sludge digester as detailed in the Technical Staff's final memorandum contingent upon receiving the WVDEP NPDES permit modification establishing the new discharge criteria for the plant.

2. Staff further recommends Commission approval of the 1st Revised Amendment to 1988 Sewer Service Agreement between the City of Charles Town, the City of Ranson and Jefferson County Public Service District for a limited period of up to one (1) year OR until a sewer resale rate is implemented/charged by the City of Charles Town for a first come-first serve basis, whichever comes first, without approving the specific terms and conditions in this agreement. Staff would like to note that any unresolvable issue(s) between the three (3) sewer utilities to the above-stated agreement will be brought back to the Commission for resolution.

3. Staff recommends approval of the 1st revised Debt Service Guarantee Agreement between Huntfleld, L.C. and the City of Charles Town in the amount of $700,000 contingent upon receiving the revised letter of credit for $700,000 between M & T Mortgage Corporation and Huntfield, L.C.

Respectfully submitted this 17th day of September, 2004.

STAFF OF THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
By Counsel,
RONALD E. ROBERTSON, JR.