Docket UW26303
Order UW95-7

IN THE MATTER of an application by Seawood Estates Water and Sewer Utility for a non-recurring rate increase to offset the costs of an engineering study.

BEFORE THE COMMISSION

on Tuesday, the 11th day of April, 1995.

Linda Webber, Chair
John L. Blakney, Vice-Chair
Anne McPhee, Commissioner

Order

WHEREAS:

In November, 1994, Seawood Estates Inc. Water and Sewer Utility ("Seawood" or the "Utility") filed an application with the Commission for a one-time rate increase of approximately 21% in its schedule of rates and charges for water supply and sanitary sewerage services. The increase is intended to recover the costs associated with an engineering study.

On January 19, 1995, the Commission issued a notice of the application to Seawood's customers and invited written comments from them. A number of customers responded. Most of the respondents opposed the application in its entirety on one or more of the following grounds:

  1. Seawood's current customers should not be required to pay for a study that is of little or no benefit to them;
  2. costs associated with problems or difficulties between Seawood and the Resort Municipality Community Council should not be borne by current customers;
  3. costs associated with future development should not be borne by current customers; and
  4. engineering costs should be the sole responsibility of the utility and not charged to customers.

Many of the respondents indicated that a hearing into the application should be conducted during the summer months when customers are resident at Seawood Estates. Others questioned the need for the study or indicated that engineering studies or drawings should have been required in the past and paid for by the developer(s).

A review of the correspondence on file in this matter indicates that the requirement for an engineering study was made by the Cavendish Resort Municipality. In a letter to Seawood dated July 22, 1994, the Resort Municipality made the following demands:

This is to advise that, prior to any further building permits requiring sewer services being issued, you are required to submit to this office a complete evaluation of the existing water and sewer servicing in the noted subdivision. This evaluation should include a water supply and distribution assessment as well as an assessment of the sewage collection and disposal systems. Once it is completed, the municipality shall submit the report to the Department of Environmental Resources for evaluation and recommendations.1

The Commission understands that the demand of the Resort Municipality followed the transfer of the local development authority from the Provincial Government to the Council of the Resort Municipality and that these demands were not made as a result of Seawood investigating the possible development of a resort complex or condominium. Such issues as subdivision development, the issuance of building permits and related requirements that were formerly dealt with by the provincial government are now within the jurisdiction of the local community council. One would assume that, prior to the involvement of the local community council in these matters, the provincial government would have assessed the adequacy of Seawood's water and sewer system before the issuance of building permits. This was apparently done without the benefit of the study at issue here. For whatever reason, the local community council has placed this new demand on Seawood and the question arises as to who should pay the costs.

An evaluation of costs of this nature usually entails a review of whether the costs are necessary for the provision of adequate service by the utility. If the answer to this is yes, the question arises as to how the costs should be accounted for. For example, a cost might be capital in nature and properly amortized over a number of years as opposed to an expense which is properly charged to the year in which the expense is incurred.

The evaluation required by the Resort Municipality is clearly intended to cover the existing water and sewer systems. However, a draft of the study—made available to the Commission—shows that comments are made about both the existing systems and future development within the Seawood Estates peninsula. While one might argue that engineering costs associated with future development are more properly chargeable to the developer, others might argue that such costs are properly incurred by current customers to ensure the ongoing integrity of the existing system. It is noted that the draft of the study in question is limited to a very brief evaluation of whether the current system is adequate for future development. It does not include detailed proposals for future development, or even extensive comments on such future development.

While the Commission acknowledges the comments and concerns expressed by Seawood's customers, there is, in the Commission's view, little doubt that the study into existing system adequacy is properly paid for by the utility and properly recoverable from the utility's customers. Although such a study has not been required by provincial authorities since the inception of the Seawood system in the 1960s, new requirements imposed by the local development authority—in this case the Resort Municipality—cannot be said to be the responsibility of others. There is no evidence to suggest that Seawood intentionally or otherwise avoided laws in existence prior to the creation of the Resort Municipality. Simply stated, the costs of new requirements imposed by the local authority to ensure service adequacy must be shared among the utility's customers. To impose them on Seawood's proprietor, Mr. Wygant, when they were apparently not earlier required is, in our view, simply unfair.

As well, having had the opportunity to review a preliminary draft of the report, the Commission is of the view that the assessment of future development is consistent with normal studies of system design and is of a benefit to all customers.

The costs in question are, in the Commission's view, non-capital in nature and are properly expensed or recoverable in one year. The Commission will therefore allow a one-time, non-recurring increase in Seawood's 1995 rates of 21%. Rates will thereafter revert to the current level and will remain at that level until otherwise ordered.

The Commission notes that future engineering costs associated with future development within Seawood will be the responsibility of the developer and will not be recoverable through rates.

A final issue raised by many of Seawood's customers relates to the manner in which this application has been dealt with. In particular, the concern was expressed that applications of this nature should be dealt with via a public hearing process during the summer months when utility customers are normally resident in the province.

This is the way most applications for permanent rate relief have been dealt with in the past. In this case, however, given the single focus of this application and its non-recurring nature, the Commission believes that the balance of interests, including the costs to be incurred, favored the written comment process for this application.

IT IS THEREFORE ORDERED THAT:

1. The following annual rates and charges are hereby approved and declared effective for the 1995 billing period only:

Flat Rates (No water line to exceed 3/4 inch)

Water & Sanitary Sewerage Service

Each customer served over 6 months per year $255.50

Each customer served six months (1 May to 31 October) or less per year $128.00

Frontage Rates

Each lot serviced or capable of being served by:

Water and sewerage per year $139.50

Water only or sewerage only per year $ 70.00

2. The rates approved herein are in temporary substitution for the rates approved under Commission Order W92-3.

DATED at Charlottetown, Prince Edward Island, this 11th day of April, 1995.

BY THE COMMISSION:

Linda Webber, Chair

John L. Blakney, Vice-Chair

Anne McPhee, 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.

1 Letter from Betty Pryor, Administrator, to Bob Wygant, dated July 22, 1995.