Order UW94-11 - UW46301 - Cavendish - Interim Sewer Tariff (Eff Jan 1, 1994) (Jun 23, 1994)

Docket UW46301
Order UW94-11

IN THE MATTER of an application by the Cavendish Sewer Utility for interim approval of a Tariff for sanitary sewer services.

BEFORE THE COMMISSION

on Thursday, the 23rd day of June, 1994.

Linda Webber, Chair
John L. Blakney, Vice-Chair
Deborah MacLellan, Commissioner

Order

Contents

1. Introduction

2. The Applicant

3. Tariff Proposals

4. Findings

5. Disposition

Order

Appearances & Witnesses

1. For the Cavendish Sewer Utility:

Walter Wyand, Chairman
David Ellis, Consultant

2. For Cavendish Sunset Campground:

Bill Hogg

3. For Holiday Haven Campground:

Annet Tol

4. For Ocean View Campground:

Janet Hryckiw

5. For Rainbow Valley:

Earl Davison

6. For Marco Polo Land:

Larry Dumville representing Dr. K.G. Ellis

7. For Chez Yvonne Restaurant:

Paul Larkin

8. For the Island Regulatory and Appeals

Commission

Staff:

Donald G. Sutherland
Director, Utilities Division

Shayne A. Hogan
Research Analyst

Heather Walker
Recording Secretary

Reasons for Order

1. Introduction

This is an application under the Water and Sewerage Act, R.S.P.E.I. 1988, Cap. W-2, as amended, by the Cavendish Sewer Utility ("applicant" or "utility"). The applicant seeks interim approval of a Tariff for sanitary sewer services provided to customers served or capable of being served by the utility's sewage collection and treatment system.

The application in this matter was originally filed with the Commission on July 14, 1993 and an initial public hearing was held on November 10, 1993. The application was subsequently revised and re-filed on March 30, 1994 and the hearing reconvened on June 9, 1994 to consider the revisions to the original application.

2. The Applicant

The applicant is a body corporate and a public utility within the meaning of the Water and Sewerage Act. According to the applicant, the Cavendish sewage collection and treatment system consists of the following facilities:

The system consists of approximately 6200 meters of gravity sewer main, 3600 meters of force main, 600 meters of service laterals, five pumping stations and the treatment facility. The treatment facility includes a three acre aerated lagoon and related blower building, two holding lagoons (total area of approximately six acres) and the outfall line (including a pumping station).

(Exhibit 1, p.2)

The historical development of the system and the areas serviced are described by the applicant this way:

The project was tendered in five packages. Four of these were essentially for the collection system, the fifth was for the treatment facility. As of January 1993, the collection system was essentially complete from an operational standpoint. The aerated lagoon was operational and accepting effluent on May 15, 1993. The balance of the work (primarily the four acre holding cell) at the treatment facility [was] completed in the early summer of 1993.

The properties serviced include the following areas:

Route 6 from the Cavendish Boardwalk to the Gulf View Cottages

Cavendish Maples Lane

Forest Hills Lane to the Chinney Chin Inn

Kindred Spirits Lane

Route 13 from the former school north to Ingleside Lodge

Lane way servicing five cottages behind Chevy's bar

MacCoubrey Lane (which provides service to the Marco Polo Campground

The customer base for the utility is 98 representing 487.12 proportionate sewer units and 32,701 feet of frontage.

(Exhibit 1, pp. 2-3)

The overall capital cost of the system is estimated at approximately $3,000,000. Grants from federal and provincial governments total some $2,350,000. The balance of the cost is to be borne by the utility and recovered from customers. By Order UW93-11 dated June 30, 1993, the Commission authorized a non-recurring capital contribution charge of $4.00 per lineal foot based on a minimum frontage of 100 lineal feet to each property fronting on a utility sanitary sewerage main. The applicant estimates that the capital recovery from this charge will amount to some $134,000 with the balance—approximately $480,000—to be financed by the utility and recovered through annual user rates.

3. Tariff Proposals

In addition to the non-recurring capital contribution charge authorized under Order UW93-11, the applicant originally proposed the following tariff items:

an annual frontage rate of $1.00 per foot - to a maximum of $500 - with a 100 foot exemption for each proportionate unit charged the customer;

an annual customer charge of $102.04 for each customer;

an annual demand charge of $109.43 per proportionate unit; and

a flow charge of $1.17 per cubic meter.

The rates were based on the following expense estimates and allocation of costs:

Table 1

Cavendish Sewer Utility
Original Allocation of Expenses and Rate Proposals

The utility also originally proposed:

that campground sites be charged at 0.18 units per site per annum;

that existing residential properties greater than 100 meters from the main be exempt from the residential demand and flow charges; and

that only 84 campground sites in the Marco Polo Land campground be required to connect to the sewer system.

As a result of revisions made to the original application,

the utility now proposes:

An annual frontage rate of $1.00 per foot - to a maximum of $500 - with a 100 foot exemption for each proportionate unit charged the customer;

an annual customer charge of $102.04 for each customer;

an annual demand charge of $88.00 per proportionate unit; and

a flow charge of $0.78 per cubic meter.

The revised rates are based on the following expense estimates and allocation of costs:

Table 2

Cavendish Sewer Utility
Revised Allocation of Expenses and Rate Proposals

The utility also now proposes:

that campground sites be charged at 0.10 units per site per annum;

that existing residential properties greater than 100 meters from the main be exempt from the residential demand and flow charges;

that only 84 campground sites in the Marco Polo Land campground be required to connect to the sewer system;

that non-leased farm land actively used for farming be exempted from all Tariff charges; and

that the Cavendish Cemetery be exempted from all Tariff charges.

In a written submission to the Commission dated March 30, 1994 (Exhibit 23), the revisions to the original submission are described by the utility:

Capital recovery is reduced to reflect a mortgage rate of 7.5% [7.25%] amortized over 25 years. The mortgage period is 5 years. The principal amount is $475,000.

Electrical costs are based on an amended study by Malcolm Lodge for UMA Engineering.

System operation and maintenance costs are based on a maintenance contract plus recalculated Engineering estimates.

Administration costs reflect contracting out book keeping and renegotiation with the community.

The additional purchase of land to compensate Parks Canada totaling $140,000 has been put on hold...

The revised campground site rate of .10 of a sewer unit was established as a result of negotiations with the campground owners.

(Exhibit 23, p.1)

4. Findings

The Cavendish sewer system represents a significant capital investment in the long-term economic welfare of this resort community. The likelihood of sewage-related environmental problems and their probable impact on the tourism industry in this area have, with the installation of the sanitary sewer system, been largely eliminated.

This long-term benefit to the community comes, of course, at a cost. Even with federal and provincial capital grant assistance approaching the 80% level and the arrangement with Parks Canada to defer a land purchase, capital-related costs to the end-user still represent some 50% of the total annual cost of operating the system. With such a small customer base, user-rates will remain highly sensitive to change in costs. For example, an increase in costs of $15,000 a year would increase the proposed revenue requirement and rates by some 17%. Given the relatively high proposed rate levels, efforts must continue to be made to keep costs to an absolute minimum and, where possible, to reduce them. We are confident the utility will continue to explore ways and means of doing so.

While the specific rate proposals of the applicant are somewhat more complex than that of other utilities, the unique and seasonal nature of the customer base combined with the consultation process that the applicant has had with its customers leads us to conclude that the proposed rate-design methodology should be approved. If, at a later date, the methodology proves to be overly complicated in terms of the customers' understanding of the rates, we will consider the possibility of simplifying the Tariff.

The Commission notes that the matter of an appropriate unit value to assign to campground sites will not be resolved until we have available additional flow data. We will revisit this issue at a later date. In the meantime, the unit value of 0.10 units per campsite will receive interim approval.

The applicant's audited financial statements for the year ended December 31, 1993 show a deficit of $13,000. Since this deficit must be recovered from rates, we have added $5,000 to the utility's annual revenue requirement to reflect the recovery of this deficit, including interest, over a three-year period. The revised revenue requirement and resulting customer rates are shown on Table 3.

Table 3

Cavendish Sewer Utility
Approved Allocation of Expenses and Authorized Rates

The above rates will be approved, on an interim basis. In addition, the exemptions proposed by the applicant have been reviewed by the Commission and will, at this time, be allowed. We will revisit this issue when the applicant next appears before us.

Finally, the Commission wishes to acknowledge the efforts of the utility and, in particular, its Chair, Walter Wyand, for his work in attempting to resolve many of the issues earlier raised by customers. We also acknowledge and thank the other hearing participants for their contributions to the review process and those who provided us with written comments.

5. Disposition

An order granting interim approval to the Tariff appended hereto will therefore issue. The Tariff shall have effect from January 1, 1994 and will be subject to review and confirmation in the first quarter of 1996. The applicant shall provide the Commission with actual customer flow data by November 30 of each year.

Order

UPON the application of the Cavendish Sewer Utility (the "utility") for interim approval of a Tariff for sanitary sewer services;

AND UPON hearing and considering submissions made by the utility and interveners at public hearings conducted in Charlottetown on November 10, 1993 and June 9, 1994 after due public notice;

AND UPON it appearing to the Commission that the Tariff authorized herein is not unreasonable or unjustly discriminatory;

NOW THEREFORE, for the Reasons given in the annexed Reasons for Order;

IT IS ORDERED THAT

1. Interim approval is hereby granted to the utility for the implementation of the Tariff appended to, and forming part of, this Order;

2. The appended Tariff is declared effective on January 1, 1994 and shall remain in effect until otherwise ordered by the Commission;

3. The utility shall file with the Commission, by February 15, 1996, an application for confirmation of the interim rates approved herein; and

4. Until otherwise ordered, the utility shall file with the Commission, by November 30 of each year, actual flow data for each metered customer for the current year.

DATED at Charlottetown, Prince Edward Island, this 23rd day of June, 1994.

BY THE COMMISSION:

Linda Webber, Chair

John L. Blakney, Vice-Chair

Deborah MacLellan, Commissioner

NOTICE

Section 12 of the Island Regulatory and Appeals Commission Act reads as follows:

12. The Commission may, in its absolute discretion, review, rescind or vary any order or decision made by it or rehear any application before deciding it.

Parties to this proceeding seeking a review of the Commission's decision or order in this matter may do so by filing with the Commission, at the earliest date, a written Request for Review, which clearly states the reasons for the review and the nature of the relief sought.

Sections 13.(1) and 13(2) of the Act provide as follows:

13.(1) An appeal lies from a decision or order of the Commission to the Appeal Division of the Supreme Court upon a question of law or jurisdiction.

(2) The appeal shall be made by filing a notice of appeal in the Supreme Court within twenty days after the decision or order appealed from and the Civil Procedure Rules respecting appeals apply with the necessary changes.