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PUBLIC SERVICE COMMISSION OF WEST VIRGINIA

FINAL MEMORANDUM

DATE: May 29, 2009

TO: Ronald E. Robertson, Staff Attorney

Legal Division

FROM: Randy Lengyel, Utilities Analyst III

Water and Wastewater Division

Jim Weimer, P.E., Engineer II

Engineering Division

SUBJECT: 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.

(filed 1/26/04).

Initial Memo.

The City of Charles Town Sewer Department has filed an application for a Certificate of Convenience and Necessity to construct an effluent discharge line to the Shenandoah River. Since the original filing, Staff has been informed of additional improvements needed to its existing wastewater treatment system which will become a part of the Certificate filing.

The City has proposed funding the project with revenue bonds issued by the City and secured by a large land developer. A current tariff provision requires that a Capacity Improvement Capital Cost (CICC) fee be imposed on all new sewer users. The fee is anticipated to be adopted by the City of Charles Town's neighboring City of Ranson and the Jefferson County Public Service District. All are served by the Charles Town sewage treatment plant. All entities would be required to collect the fee from all new users connected to the Charles Town plant. This fee is anticipated to cover the costs of the bond repayments during the out years. The most recent project cost breakdown is as follows:

CONSTRUCTION COST $1,435,573

ENGINEERING DESIGN $ 85,200

TECHNICAL SERVICES $ 157,000

LEGAL AND FISCAL $ 30,000

SITE AND EASEMENTS $ 25,000

UNDERWRITERS DISCOUNT&OID $ 92,387

COST OF BOND ISSUANCE $ 40,000

FUNDED RESERVE $ 210,000

PROJECT CONTINGENCY $ 510,000

TOTAL EST. PROJECT COST $2,585,200

Staff notes that the engineering design services were paid previously and are not part of the amount to be financed in the project funding. The total financed will be $2,500,000.

ENGINEERING REVIEW

The City of Charles Town has proposed a project to expand plant capacity due to significant growth in Jefferson County. The Charles Town plant treats sewage for the City of Ranson and all sewage generated by the Jefferson County Public Service District. It is currently the owner of the only large treatment facility in Jefferson County. The Utility has a collection system consisting of approximately 25 miles of various sizes of sewer gravity and force mains. The Utility operates 22 lift stations of varying capacity. These lines all terminate at the City's Sequencing Batch Reactor (SBR) plant. The current project will include the addition of two blowers to an existing SBR blower building, upgrades to the electrical system, and the addition of a new sludge digester and associated equipment.

The documents provided to complete the review were provided with either the application or in subsequent filings. These included:

$ The Facility Plan

$ The design drawings

$ The contract documents

$ The final engineering report

$ The Operation and Maintenance cost estimates

The proposed project provides no new customers as it is related only to necessary repairs and upgrades to meet current WVDEP discharge requirements and as a necessary step for a capacity increase. Plant capacity for the Sequencing Batch Reactor type treatment facility will likely be permitted to increase to a possible maximum of 1.75 million gallons per day (MGD) from its current 1.2 MGD limit. The actual increase has not yet been determined by the WVDEP but will likely be staged as effluent monitoring verifies compliance with new permit requirements. A WVDEP NPDES permit has not yet been granted for the plant upgrades but is expected prior to spring 2005.

PERMITS

The City has been granted a WVBuPH construction permit for the plant additions. Permit No. 16195 was issued on August 20, 2004. The NPDES permit is expected after a review of the current plan and presentation before the public. No other permits are required as all construction will occur within the boundaries of the existing plant.

OPERATION AND MAINTENANCE EXPENSES

The project is expected to increase operating costs by approximately $90,000 annually due primarily to increases in the cost of power for the digester. However, Staff recommends that the O&M be increased to $104,000 to acknowledge operation of the blowers for the SBR basins. The cost associated with operation of the belt press should initially decrease as the sludge loading from the digester will be less than the current sludge loads from the sludge holding tanks.

COMPARISON DATA

The project proposes no new customers and is to be initially funded with guaranteed developer contributions anticipating significant future growth. The growth is anticipated to provide the revenues necessary to support the project in the out years. The funding package also anticipates debt repayment from Capital Improvement Fees (CIF) which are paid by developers for each new EDU put in service. (These fees were approved by the Commission for Berkeley County PSSD in Case No. 04-0153-PSD-PC and were requested by Jefferson County PSD in Case No. 03-1490-PSD-T-PC). The total cost of the blower addition is estimated at $500,000 while the digester is estimated at $1,500,000. A $500,00 project contingency is proposed which brings total project cost to $2,500,000.

It is anticipated that the sludge digester will reduce short term sludge disposal cost by approximately $3000 per year. Debt service for the digester will total approximately $118,000 per year with an additional annual operating cost of approximately $83,000. While the construction cost is not justified on a cost savings basis, the WVDEP believes the flexibility provided to a plant operator for sludge level control in the SBR basins and the resulting protection afforded to the discharge stream during high flow events justifies the expense. Sludge conditioning for eventual de-watering operations is also improved. Many new and old plants are installing digesters for the same reasons despite their apparent cost burden. The digester does provide the utility with the ability to eliminate all sludge disposal with the addition of new technologies which monitor and control the aerobic and anoxic zones in the digester.

ENGINEERING COSTS

Total engineering costs are listed as $433,200 for the original project. The breakdown of this cost is as follows:

Facility Plan $ 15,000

Effluent line design $108,000

Blowers/Digester design $ 85,200

Bid/constr. Svcs. $225,000

TOTAL ENGINEERING $433,200

However, with the revised scope the effluent line has been eliminated. Consequently, a reduction in bid/construction services has been deducted from the original estimate. The new total costs are as follows:

Facility Plan $ 15,000

Effluent line design $108,000

Blowers/Digester design $ 85,200

Bid/constr. Svcs. $157,000

TOTAL ENGINEERING $365,200

Based on a total current project cost and accounting for the lost cost due to the deletion of the effluent line which was already paid for by the City, the cost of total engineering as a percentage of construction cost is 17.6%. This cost is higher than the cost normally anticipated of 11-13% for this type of project but is not unacceptably high.

DISCUSSION

The current plant is under a WVDEP notification of its intent to sue to improve its operations and is facing civil penalties for past discharge violations. The plant is generally producing an effluent with average pollutant concentrations less than its permitted average but has had significant excursions above its maximum permitted levels. The plant operators are unsure of the cause of most excursions but acknowledge that cold weather filamentous bacteria outbreaks in the SBR basins contributed to several of the plant violations of the discharge permit. In addition, a foreign substance has entered the basins on several occasions which killed a majority of the bacteria necessary for treatment of the influent BOD materials. The plant is also approaching its design capacity of 1.2 million gallons per day (MGD). The WVDEP has allowed the plant an additional 150,000 gallons per day above its yearly 1.05MGD average as of February 2004. Since that time nearly 35,000 gallons per day of that capacity has been consumed. The addition of the blowers may allow a permitted capacity increase if a review supports the City's engineering calculations and initial operation verifies the improvement in effluent quality.

The City of Charles Town has been hampered in its efforts to expand sewage capacity by several unrelated issues. There has been a significant resistance by some concerned citizens to what has been perceived to be poorly regulated growth in the County, objection to the construction of new facilities by partners to the City's Sewage Service Agreement, and finally, by a changing regulatory environment. The eastern panhandle of the State and other eastern bay watershed areas are also affected by the pending regulations which are designed to provide protection to the Chesapeake Bay, which has been seriously impacted by nutrient pollution. In 1998 the City expanded sewage plant capacity to meet the needs of home buyers desiring to escape the congestion of the Washington D.C., metropolitan area. As a result of the rapid growth occurring in the County, the capacity added in the plant expansion project was rapidly consumed. The lack of capacity led to the WV Bureau for Public Health and the WVDEP to halt approval of building permits in late 2003 implementing an unofficial moratorium on sewer availability. Despite these setbacks, the City undertook an aggressive plan to add plant capacity and submitted a project in early 2004. The original plan was later modified to address regulatory issues associated with the capacity improvement. The previous project plan submitted included:

$ The addition of two new air blowers to the plant blower building.

$ The construction of a large sludge digester with an associated blower building for sludge aeration to assist with sludge disposal and provide additional sludge wasting for proper maintenance of sludge levels during normal operation and during storm events. This should also assist with control of filamentous bacteria during cold weather, high BOD events.

$ The addition of a large effluent line to remove the effluent from Evitts Run, a small stream adjacent to the plant, to the larger Shenandoah River.

The possible capacity increase is due to the additional oxygen available to the SBR basins. The new blowers would allow a twofold increase in air supplied to the basins significantly increasing the amount of biological material which can be treated with a concurrent increase in treatment capacity of the high strength influent BOD materials which occasionally enter the plant. This process improvement was estimated to allow a reduction in the maximum allowable permit limit for BOD₅ content and the maximum ammonia nitrogen content of the plant effluent than is currently required by the existing NPDES permit issued by the WVDEP. As a result, an increase in plant capacity would be possible without adding additional SBR basin capacity. However, the WVDEP had originally interpreted stream modeling criteria and pending stream anti-degradation criteria as requiring that an increase in total plant effluent flow would require discharge to a larger body of water. This was believed to be a method to increase plant capacity without any other plant additions. Hence the original project filing included only the effluent line to the Shenandoah. However, after a second review of the pending regulations and anti-degradation requirements for both Evitts Run and the Shenandoah River, it was determined that the pending regulations would not allow any additional pollutant concentration to either the stream or the river. At that point, only improvements in the quality of plant effluent would be allowed if capacity were to increase. The blowers and the digester were added to the project and provide the potential for effluent quality improvement and a potential for sludge reduction. The additions would allow the WVDEP to reduce the maximum effluent permitted limits for BOD and ammonia nitrogen by approximately 30%. This will in effect allow plant permitted hydraulic capacity to increase to a higher level without impacting the total maximum permitted pollutant discharge load.

Consequently, it soon became apparent that the effluent line was, therefore, a useless expenditure and improvements targeted to maintaining or improving plant effluent quality would be the only economically viable path to capacity increases. The SBR blowers will maintain or improve effluent quality while the digester addition allows for more flexible plant operation and provides a better quality sludge while reducing the amount of sludge to be disposed of at the land application site. Therefore, the blower addition by itself will allow a capacity increase and the digester will provide a cost savings as capacity increases. In addition, pending Chesapeake Bay protective criteria will require future nutrient reductions in plant effluent and likely result in the need for effluent tertiary treatment installations to allow future plant capacity additions. Those additions will also include the construction of a forth SBR basin and possibly a fifth basin if growth continues in the County. The investment saved by the elimination of the effluent line will allow those future improvements to be installed with only a small rate impact for all customers.

This project has been reviewed in its various forms several times by Staff. Multiple visits to the plant were conducted, multiple discussions were held with the City management, the City's Engineer, the WVDEP, the Intervenor protesting the project and internally with all Technical and Legal Staff. The City had proposed that the SBR blowers should be removed from the project and installed immediately as a normal course of business expense. This position was taken for a multiple of reasons. These were and are the following:

$ The City has experienced several past excursions above its permitted discharge limits and as a result is facing significant potential civil penalties levied by the WVDEP from a lawsuit filed for those permit violations for the three years of past violations ending in 2003.

$ The original design BOD₅ loading of 400 mg/l was revised in January 2004 after a recalculation of actual plant performance to 500 mg/l for the existing plant. This loading is surpassed frequently with readings as high as 900 mg/l which contribute to excursions from permitted discharge limits. The additional air will effectively eliminate discharges above permitted limits due to insufficient air in the SBR basins during high BOD inflows.

$ The blowers were going to be funded with a developer contribution at no cost to the City.

$ The blowers will not add capacity unless the WVDEP approves an increase in capacity as a result of the additional air available to the basins. The immediate installation of the blowers can be completed as an important part of the resolution of the WVDEP civil action to prevent future discharge violations. The blowers can be installed under the existing permit.

OTHER ISSUES

During Staff's frequent visits to the treatment plant and discussions with the operating manager, Staff noted that it's review indicated that additional financial and employee resources would be needed to improve both system and plant maintenance activities once the project was completed. The City has a rate ordinance awaiting final public comment which will supply additional financial resources to the utility. Staff anticipates several improvements in maintenance once the funds are available, particularly in the evaluation and identification of Inflow and Infiltration (I&I) sources and the scheduling of maintenance and repair activities.

There has been significant public protest for this project. Much of the protest was related to allowing a discharge directly to the Shennandoah River, via the now deleted effluent line. Other protest issues centered on the past performance of the plant related to violations of its discharge limits and pending civil action by the WVDEP. The protestants had particular interest in the bacterial discharges from the plant and the detrimental health effects that it created for swimmers in the Shennandoah River. The plant has significantly improved its ultra-violet (UV) disinfection system maintenance which has significantly reduced that problem and the plant has been in compliance with its permit for over 18 months with only one excursion. Concerns were also noted by the opponents of the project that the methods of testing for pollutants in the plant discharge may be inadequate. Testing requirements are set by the WVDEP and no violations of those procedures have been noted. Staff does believe that it would be in the City's best interest to add to the existing test requirements on a temporary basis to confirm plant operations under all operating conditions as a means to isolate and correct any problems it may be unaware exist.

In the Jefferson County area and the Eastern Panhandle of West Virginia in general, there is a likelihood of sinkholes developing in the fractured karst topography at any time. The opponents of the project are concerned that while I&I sources are certainly a problem affecting plant performance, the loss of sewer flows through broken pipe joints, poorly made pipe taps and failed pipes due to ground movements are a danger to groundwater. The plant records indicate that I&I for the entire systems served by the Charles Town plant is lower than in most other systems of similar age. Consequently, the concern that reverse I&I is actually occurring. Staff is of the opinion that the increased maintenance activities, particularly video line inspection will resolve that issue and would encourage the City to include that in a revised maintenance plan.

Many of the protest letters addressed the cost and quality of life impact of unregulated growth within the County. The letters of protest encouraged the Public Service Commission to take a broad view of the impact of this proposed project on the entire State and County cost structures. Those issues raised by the opponents of the project were not a consideration in Engineering Staff's recommendations.

The City also filed with the Certificate, an Amendment to a Sewer Service Agreement between the three utilities receiving service from the Charles Town plant, Charles Town, Ranson and the Jefferson County Public Service District. The Amendment defines the financial responsibility for the project financing by each party and provides an allocation of capacity with that financial commitment. The Amendment was an issue at a hearing to resolve a moratorium issue for the parties to the original Agreement in Case No.04-0682-PW-PC. Staff opposes the terms of the Amendment which calls for capacity reservation but acknowledges that the utilities have been sharing financially to the operation of the Charles Town plant since 1988. There is currently no resale rate established in the City of Charles Town's sewer tariff and none adopted in its most recent rate ordinance. Staff believes this Agreement severely limits the ability of the Charles Town Sanitary Board to fulfill its responsibilities as a sewer utility to provide service due to the need for approval from other utilities to make investments in its plant and to meet the requirements of the various regulatory agencies. Since the Agreement has been in effect since 1988, Staff acknowledges its importance in moving forward with this project and will recommend it be accepted on a temporary basis with conditions. Furthermore, Staff opposes the provision of the Agreement which reserves capacity and believes it should be stricken to allow customers to be served on a first come first serve basis. In addition, Charles Town must establish a resale rate for sewer service within 120 days, otherwise, Staff will petition the Commission for a General Investigation to establish a resale rate for the City of Charles Town. This will eliminate the need for the current Agreement.

FINANCIAL REVIEW

On January 26, 2004, the City of Charles Town Sewer Department filed an application for a Certificate of Convenience and Necessity to construct a new sewer effluent line to discharge into the Shenandoah River. The City of Charles Town submitted a Rule 42 exhibit, Form 4 and Form 14 with this application. The total estimated project costs were $3,200,000. The City of Charles Town planned to finance this project by issuing revenue bonds in the amount of $3,200,000. The City of Charles Town submitted a confirmation letter from Crews and Associates concerning the issuing of the $3,200,000 in revenue bonds. Crews and Associates is acting as underwriter for the issuance of the revenue bonds. The terms of the $3,200,000 are for 30 years at 5.5%. The City of Charles Town is not proposing to obtain interim financing in this certificate project.

The City of Charles Town currently treats sewage for the City of Ranson and the Jefferson County Public Service District (District). The City of Charles Town has also submitted an amendment to the sewer service agreement between them, the City of Ranson and Jefferson County Public Service District. Staff prepared a cash flow statement based on the City of Charles Town's Rule 42 exhibit (See Exhibit 1). All going level adjustments for revenue, operation and maintenance expenses, and debt service payments are based on the City of Charles Town's purchase of Tuscawilla sewer operations. The City of Charles Town purchased Tuscawilla on December 31, 2002, and therefore, only 6 months of revenue and expenses are recorded at per books. The going level adjustments are to annualize these numbers. The pro forma adjustment to revenue is based on the City of Charles Town receiving payments from Huntfield, L.C. The debt service payment associated with this proposed loan will be initially made by a land developer named Huntfield, L.C., which is a Virginia limited liability company. The City of Charles Town submitted a letter of credit from M&T Mortgage Corporation for Huntfield, L.C., in the amount of $1,700,000. The City of Charles Town informed Staff that this letter of credit is renewable on an annual basis between M&T Mortgage Corporation and Huntfield, L.C. The City of Charles Town is relying on receiving future payments from the City of Ranson and Jefferson County Public Service District in order to continue making these debt service payments. The City of Charles Town's water department will also be providing $33,683 of annual revenue to the sewer department. The City of Charles Town's water and sewer operations are defined as a combined utility under the WV State Code.

The City of Charles Town is not proposing to raise rates to pay for this proposed certificate project. Staff has attached a copy of the City of Charles Town's current rates (See Exhibit 2). The City of Charles Town is planning to pay for this project with nontraditional certificate project funding.

On May 26, 2004, the City of Charles Town filed an amendment to this certificate case. The amendment increased the total estimated project costs from $3,200,000 to approximately $6,000,000. The increase in estimated project costs was for the new sewer effluent line to discharge into the Shenandoah River, adding a sewer digester, and 2 new blowers. A new confirmation letter from Crews and Associates was also submitted for a loan in the amount of $6,000,000. The terms of the loan would be for 30 years at 5.5%. The City of Charles Town also submitted a revised Rule 42 exhibit. Staff prepared a cash flow statement based on the City of Charles Town's revised Rule 42 exhibit (See Exhibit 3). All going level adjustment are the same as contained in the original Rule 42 exhibit. All pro forma adjustment have been increased due to the increase in total estimated project costs. The methodology for the pro forma adjustments are the same as the previous Rule 42 exhibit.

The City of Charles Town has submitted an agreement between them and Huntfield, L.C. Huntfield, L.C., which estimates that approximately 2,778 new houses will be constructed over the next 13 years. Huntfield currently owns property within the geographical boundaries of Jefferson County Public Service District. The estimated 2,778 new houses will become customers of the District and their sewage would flow to the City of Charles Town to be treated. As new houses are built and sewage flows increase, the Huntfield, L.C., debt service obligation would decrease. The Huntfield, L.C., obligation to make the debt service payments of the City of Charles Town's revenue bonds would end when the flows reach 8,100,000 gallons per month or 270,000 gallons per day which is equivalent to 1,800 new houses. Staff calculated the 8,100,000 gallons per month by taking 1,800 new houses (1,800 new EDU's) and multiplying that by 4,500 gallons per month. The amendment to the sewer service agreement states that an EDU is equivalent to 4,500 gallons per month. Staff's calculation also contains information provided by the City of Charles Town to Staff containing the estimated new EDU's per year, principal and interest payments after Capacity Improvement Capital Cost fees are collected, and required developer subsidy for the proposed loan. Revenue to be collected by the District to be paid to the City of Charles Town for the proposed debt service are defined as Equivalent Dwelling Units (EDU's). EDU's are outlined in section 2.B of the revised sewer service agreement. An EDU is listed in this agreement in the amount of $12.34 for all new sewer service customers and is equal to 4,500 gallons of sewer usage. Under this sewer service agreement, the City of Ranson and Jefferson County Public Service District will remit $12.34 per new customer per month to the City of Charles Town and this money is dedicated solely for make debt service payments on the $6,000,000 loan. As the payments from EDU's increase the developer's debt service payments will decrease. If approved by the Commission, all Capacity Improvement Capital Cost (CICC) fees to be imposed on all new sewer users would be used to pay down the principle on the $6,000,000 loan. The City of Ranson attempted to pass a municipal rate ordinance including Capacity Improvement Capital Cost fees. This ordinance was appealed and is currently pending before the Commission (Case No. 04-1221-S-MA, City of Ranson). The Commission has not issued a Final Order in Case No. 03-1490-PSD-T-PC, Jefferson County Public Service District, approving their request for Capacity Improvement Capital Cost fees. The City of Charles Town's current tariff contains a Capacity Improvement Capital Cost fee. Staff notes that the City of Charles Town does not currently have a resale rate in its sewer tariff. The City of Charles Town bills the City of Ranson and the Jefferson County Public Service District based on a 1988 sewer service agreement.

On August 9, 2004, Staff met with the City of Charles Town and the Department of Environmental Protection to discuss revising the scope and financing of this certificate project. The City of Charles Town proposed revising the total estimated project costs from approximately $6,000,000 to approximately $500,000. The revision to the scope of this project was for the City of Charles Town to add only the 2 blowers. This removed the new sewer effluent line to discharge into the Shenandoah River and the digester from this certificate project. The City of Charles Town proposed to Staff that the $500,000 for the 2 blowers is in the normal course of business and that they wanted Staff to give them an opinion as to this proposal. Huntfield, L.C., offered to write a check to pay for the 2 blowers. Staff informed the City of Charles Town that it still qualified as a certificate of convenience and necessity and would not be considered the normal course of business. The City of Charles Town stated that if they were going to have to file for a certificate of convenience and necessity, they should again include the digester in the project.

On August 17, 2004, the City of Charles Town submitted a second amendment to this certificate project. The change in scope removed the new sewer effluent line to discharge into the Shenandoah River. The 2 blowers and the digester would remain in the project. The total estimated project costs have been revised from approximately $6,000,000 to $2,500,000. On August 18, 2004, the City of Charles Town submitted a 2^nd revised (3^rd actual) Rule 42 exhibit. Staff prepared a cash flow statement based on the City of Charles Town's revised Rule 42 exhibit (See Exhibit 4). The City of Charles Town is currently in the process of passing a municipal rate ordinance. This ordinance has not yet become final. The City of Charles Town included as part of the going level revenue adjustment the projected revenues that would result if municipal rate ordinance passed and was enacted. The pro forma adjustment to revenue is in the amount of $263,300 will be based on the City of Charles Town receiving payments from Huntfield, L.C. The debt service payment associated with this proposed loan will be initially made by a land developer named Huntfield, L.C. The City of Charles Town is relying on receiving future payments from the City of Ranson and Jefferson County Public Service District in the order to continue making these debt service payments. The City of Ranson and Jefferson County Public Service District would pay the $203,300. The remaining $60,000 would also be paid evenly ($30,000 each) by the City of Ranson and Jefferson County Public Service District for their share of the $90,000 in increase operation and maintenance expenses. The debt service expense has been changed in order to reflect payments on the $2,500,000 loan. This revised Rule 42 exhibit did not include an adjustment to other revenue from the City of Charles Town water department.

A hearing was held in this case on August 24, 2004. Staff did not submit a Final Recommendation in this case before the hearing. This was due to the City of Charles Town changing the scope and the financing again. Staff received the 3^rd revised Rule 42 exhibit the night before the hearing. A new commitment letter from Crews and Associates for the revised loan in the amount of $2,500,000, including revised terms of 20 years instead of 30 years at 5.5% was received on August 27, 2004. The revised calculations for the $90,000 annual operation and maintenance adjustment which the Staff Engineer has adjusted to a level of $104,000 at pro forma included in the 3^rd revised Rule 42. The City of Charles Town Water Department's cash flow statement for the year ending June 30, 2003, shows a cash flow surplus at pro forma of $106,588, which is sufficient to provide the $61,132 in other revenue being pledged by the Water Department. The revised amendment to the 1988 sewer service agreement includes a reduction per EDU from $12.34 to $6.10. Charles Town's revised application indicates a decrease in the amount of the irrevocable letter of credit from $1,700,000 to $700,000, the revenue bonds will be issued in the amount of $2,500,000 instead of $6,000,000. Huntfield, L.C., the City of Charles Town, the City of Ranson and Jefferson County Public Service District will be bearing the debt service payments associated with this certificate project.

The City of Charles Town's pro forma adjustment to operating revenue assumes that there will be approximately 2,778 new houses constructed over the next 13 years. The City of Charles Town's 3^rd revised Rule 42 exhibit does not take into consideration the worse case scenario, which is no new houses constructed over the next 13 years. Staff performed a rate impact comparison on the existing customers of the City of Charles Town, the City of Ranson, and Jefferson County Public Service District under the worse case scenario analysis of the total costs associated with this certificate project. Staff used the City of Charles Town's total debt service payments for the proposed loan through Crew and Associates and the estimated increase in operation and maintenance expenses. Staff used the number of customers listed in each of the listed utilities annual reports on file for the year ending June 30, 2003. Staff's analysis shows what each customers sewer bill per month would need to be increased by each utility in order to cover costs associated with this certificate project. This analysis shows that Charles Town would need to increase rates by approximately $5.36 per customer per month, Jefferson County Public Service District would need to increase rates by approximately $5.08 per customer per month, and the City of Ranson would need to increase rates by approximately $6.26 per customer per month. This scenario assumes that Huntfield, L.C., line of credit would be exhausted in approximately 3.5 years. The annual debt service payment are proposed to be $203,300 and the letter of credit is for $700,000. Staff's calculations are as follows:

Adjusted Annual Operation and Maintenance expense

and debt service payments for this certificate $307,300

Allocation between the 3 sewer utilities ) 3

Annual Certificate Case Expense per utility $102,433

CHARLES TOWN

Annual Certificate Case Expense per utility $102,433

# of customers per utility 1,519

Additional cost per customer per year $ 67.43

12 months ) 12

Additional cost per customer per month $ 5.62

JEFFERSON COUNTY PSD

Annual Certificate Case Expense per utility $102,433

# of customers per utility 1,603

Additional cost per customer per year $ 63.90

12 months ) 12

Additional cost per customer per month $ 5.33

RANSON

Annual Certificate Case Expense per utility $102,433

# of customers per utility 1,301

Additional cost per customer per year $ 78.73

12 months ) 12

Additional cost per customer per month $ 6.56

RECOMMENDATIONS

The project cost has been reduced from its previous cost with the effluent line of $6,000,000 to a far lesser $2,500,000. Part of the borrowing is being guaranteed by a large developer with an interest in home construction.

The project is convenient as it will improve the discharge effluent quality during high BOD inflow events and reduce the sludge disposal cost for the Utility. The project is needed to support continued growth in both industrial, commercial and residential construction.

Consequently, Staff makes the following recommendations;

1. The City of Charles Town 2^nd amended application for a Certificate of Convenience and Necessity should be approved. The Certificate should be contingent upon the issuance of the WVDEP NPDES permit establishing the new discharge criteria for the plant and for the installation of all new plant additions.

2. The existing Sewer Service Agreement which the three Utilities have operated under since that time is in Staff's view an impediment to the ability of Charles Town to fulfill its obligations under the PSC Rules to provide service when needed and meet the requirements of all other Regulatory Agencies. The Amendment filed with the application which stipulates the financial responsibility of each utility with respect to debt service and Operation and Maintenance costs of the Charles Town plant and also allocates capacity to each utility should only be accepted on a temporary basis with the following conditions:

A. The 1^st revised Amended Sewer Service Agreement will require all parties to share any increased costs of the plant and debt service costs equally but no capacity reservation will be a part of that agreement and all customers will be served on a first come first serve basis.

B. The City of Charles Town shall establish a resale rate for sewer service within 120 days. Failure to establish a resale rate within 120 days will result in Staff of the Public Service Commission petitioning the Commission for a General Investigation into the City of Charles Town for the establishment of the respective resale sewer rate.

C. The 1^st revised Amended Sewer Service Agreement between the City of Charles Town, the City of Ranson, and Jefferson County Public Service District be approved for a period of up to 1 year with the exception noted in AA@ above or until the resale rate is implemented by the City of Charles Town, whichever comes first.

3. The City should take action after its pending rate ordinance is adopted to immediately address the maintenance issues with the new project and to improve the maintenance activities within its system.

4. Contingent upon receipt of the revised letter of credit between M&T Mortgage Corporation and Huntfield, L.C., in the amount of $700,000.

5. Approval of the agreement between the City of Charles Town and Huntfield, L.C.

6. A copy of the bids are to be filed with the Commission and made part of the file as soon as they are tabulated.

7. If there is any change in the plans, scope, terms of financing the project, the City of Charles Town should request a reopening of the Certificate Case for adjustments and approval.

Finally, Staff encourages the City of Charles Town to file a Certificate for the Phase II improvements with the tertiary treatment facilities within the next four months to alleviate all capacity and discharge water quality concerns for the Charles Town plant.