PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON. Entered: January 9, 1986 HEARING EXAMINER'S RECOMMENDED DECISION PROCEDURE

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1 OF WEST VIRGINIA CHARLESTON CASE NO S-CN Entered: January 9, 1986 IMPERIAL WOODS HOMEOWNERS ASSOCIATION, a public utility, Morgantown, Monongalia County. Application for a certificate of convenience and necessity to operate a sewage system in Imperial Woods Subdivision, Imperial Woods Extension Subdivision, Meadowbrook Subdivision, Cedarhurst Subdivision and Cheat Lake Junior High School, Union District, Monongalia County. HEARING EXAMINER'S RECOMMENDED DECISION PROCEDURE On November 21, 1984, Imperial Woods Homeowners Association (Asso- ciation) filed an application for a certificate of convenience and neces- sity to operate a sewage system, together with collection lines, in the Imperial Woods Subdivision, Imperial Woods Extension Subdivision, Meadowbrook Subdivision, Cedarhurst Subdivision and Cheat Lake Junior High School, all of which are located in Union District, Monongalia County, West Virginia. The Association was established in 1969 for the purpose of owning, operating and maintaining a sewage system to be located in the Imperial Woods Subdivision. Since then, it has extended its service to homes located in an extension to the Imperial Woods Subdivision and to residents of Meadowbrook Subdivision, Cedarhurst Subdivision and Cheat Lake Junior High School, all of which are contiguous to one another. The Association now serves 168 customers/members rnstdn ef WEST VIRGINIA

2 In Case No S-SC, Imperial Woods Homeowners Association, the Public Service Commission determined that Imperial Woods Homeowners Association was operating as a public utility in the provision of sewage service and, therefore, required it to file an application for a certificate of convenience and necessity with the Commission. The Commission's Final Order in Case No S-SC was entered on March 20, 1984, and, by Order entered on June 8, 1984, the Supreme Court of Appeals of West Virginia declined to review the Order of the Public Service Commission. Additionally, on June 28, 1982, several individuals (hereinafter "Complainants") filed a formal complaint against Imperial Woods Homeowners Association, alleging that the Association was engaging in discriminatory practices. Through a series of Procedural Orders, the complaint was deferred until action was finalized in Case No S-SC, and then, subsequently, deferred again, pending the filing of an application for a certificate of convenience and necessity by the Association. By Final Order entered on November 26, 1984, the complaint filed in Case No S-C was dismissed, with all issues raised thereby and all matters involved therein having been transferred to Case No S-CN, the case designation for the application for a certificate of convenience and necessity herein. By order entered on November 30, 1984, Imperial Woods Homeowners Association was ordered to give notice to the public of the filing of the application for a certificate of convenience and necessity by publishing a copy of the Commission's Order one time in a newspaper published and of general circulation in the City of Morgantown, Monongalia County, making due return to the Commission of proper certification of publication immediately thereafter. Anyone desiring to make objection to the PUBLIC SERVICE COMMISSJON

3 application was given leave to do so within thirty (30) days after the publication of the notice. On January 16, 1985, Imperial Woods Homeowners Association filed a Publisher's Certificate from The Dominion Post, a newspaper published and of general circulation in the City of Morgantown, indicating that notice of the application was given, as required, by publication on December 12, The thirty (30) days in which to make protest to the application expired on January 11, 1985, with no protests having been filed with the Commission. By order entered on April 19, 1985, the Hearing Examiner determined that Imperial Woods Homeowners Association had been dilatory in filing the additional information which was required to be included within an application for a certificate of convenience and necessity and determined that, since the application filed by Imperial Woods Homeowners Association on November 26, 1984, could not be considered as being complete, the 270 day statutory period in which to process an application for a certificate of convenience and necessity could not be construed as having begun to run until such time as Imperial Woods Homeowners Association submitted the information required by the Commission's rules and regulations and requested pursuant to Staff requests, which were attached to the order of April 19, 1985, which information included a Rule 42 Exhibit. On April 26, 1985, Imperial Woods Homeowners Association submitted a revised application for a certificate of convenience and necessity setting forth certain additional information but not incorporating all of the information which was required to be filed by the Order of April 19, On August 12, 1985, the Commission Staff Audit Division submitted a Staff Rule 42 Exhibit for Imperial Woods Homeowners Association for the year ended December 31, Additionally, on October 3, 1985, the OF WEST VIRGINIA mton m -3-

4 Commission's Finance and Special Studies Division submitted its recommendations with regard to proposed rates, a cost of service and the formal complaint matters which had been initiated in Case No S-C, which issues had been transferred to this proceeding by the Order entered on November 26, By order entered on October 11, 1985, the Hearing Examiner determined that, with the filing of the Rule 42 Exhibit by Commission Staff, the 270 day statutory period set forth in West Virginia Code should be considered to commence from the date of the filing of that Exhibit, or August 12, Additionally, the matters involved herein were set for hearing to be held in 'Morgantown, West Virginia, on November 4, 1985, at 1:30 p.m. The hearing set for November 4, 1985, was held as scheduled, with William Brewer appearing on behalf of Imperial Woods Homeowners Association, Allan N. Karlin appearing on behalf of the individuals who had initiated the formal complaint proceeding designated as Case No S-C, and Marc Lewis, of the Legal Division, appearing on behalf of Commission Staff. The Association presented the testimony of one witness and Commission Staff presented the testimony of three witnesses and introduced two exhibits into evidence. Prior to the hearing, all of the parties, including Commission Staff, held a pre-hearing conference and, at the hearing, the Hearing Examiner was informed that the parties had been able to reach an agreement and settlement of this proceeding. As a result, Commission Staff preceded to put its evidence in the record and then the Association and the Complainants put on their understanding of the agreement. At the conclusion of the hearing, the matters involved -1-

5 herein were submitted for a decision, pending receipt of the transcript. No party wished to file a brief or memorandum. DISCUSSION Before beginning a discussion of the Agreement for Settlement entered into by the parties to this proceeding, some discussion of the background of part of the problems relating to the Association should be discussed. The formal complaint filed in Case No S-C was triggered by the practice of Imperial Woods Homeowners Association of charging a group of approximately eighteen customers a surcharge of $140 per year in addition to the regular rates for sewer service. The Association justified this rate differential on the basis that those eighteen customers were served through a lift station which did not serve other customers; however, the eighteen customers disagreed with the additional assessment and therefore filed the formal complaint against the Association. Once the formal complaint was filed, these customers ceased paying the Association the additional surcharge and, instead, the Attorney for the Complainants established an escrow account into which the Complainants have paid this additional annual assessment. A large portion of the Agreement and Stipulation entered into by the parties in this proceeding revolves around the disposition of those funds currently held in the escrow account. According to Staff Witness Hippchen, of the Engineering Division, the pump in the lift station is in need of replacement at a cost of approximately $5,000. (Tr., pp. 5-6). Additionally, according to Mr. Hippchen, the Department of Natural Resources has indicated to Mr. Hippchen that, under its DNR certificate, the Association will be limited in its chlorine effluent, which means that the Association will either have to install a -5-

6 dechlorination facility or a different type of disinfection system and Commission Staff has recommended that the Association try to go with an ultraviolet disinfection system and totally eliminate the chlorine from the system. (Tr., pp. 5-6). According to Mr. Hippchen, the cost of installing the dechlorination facility will be approximately $10,000 and he has communicated that estimate to the Audit and Finance and Special Studies Divisions. (Tr., p. 6). Staff Witness Burriss of the Audit Division sponsored Staff Exhibit No. 1, which is the Audit Report prepared by Commission Staff following an audit of the Association's books and records, which estimates the Association's going-level expenses and revenues. (Tr., pp. 7-8). Staff Witness Macon, of the Finance and Special Studies Division, sponsored the Staff recommended revenue requirement and rate design for the Association, which was received into evidence as Staff Exhibit No. 2. According to Ms. Macon, the revenues produced by the recommended rates will be sufficient to cover the Association's operation and maintenance expenses and should provide a surplus of approximately $7,500 per year. (Tr., p. 11). Additionally, the rate design recommended by Commission Staff is a change from the Association's rate design because the Association currently bills a flat rate on a yearly basis, with some additional charge for residents in the Meadowbrook area, while Staff is recommending that the rate be changed to a metered rate, that it be billed bi-monthly and that the additional charge for the eighteen residents served by the separate lift station be eliminated. (Tr., p. 11 and Staff Exhibit No. 2, pp. 1-3). The Agreement between Commission Staff, the Complainants and the Association covers several points. The Association agrees to accept the Staff recommended revenue requirement and rate design. (Tr. p. 12). The D -6-

7 parties have agreed, as part of the stipulation, that the Association will charge all customers, including the customers served through the lift station, according to the Staff recommended rates and to include any operation and replacement expenses, incurred in the future for the lift station, in the general cost of service to be recovered through the rates charged to all of the Association's customers. (Tr., p. 13). Further, the parties have agreed that the Association will be permitted to use the funds which have been accumulating in the escrow account established by the Complainants for a two-year period, in order to replace the pump in the lift station, as recommended by the Commission's Engineering Division. (Id.). - The Association would have the use of those funds without interest for a two-year period and, during that two-year period, the rates proposed by Commission Staff should generate sufficient revenues for the Association to pay back the depositors in the fund. (Tr., pp ). the Association does not pay those funds back at the end of the two-year period, the Association and the Complainants have agreed that interest will be charged from that point on for the use of the funds until the funds are repaid. (Tr., p. 14). As emphasized by Counsel for the Complainants, the tender of the escrow funds as an interest free loan for the two-year period is a one time only occurrence and all expenses and replacement costs arising in the future with regard to the lift station will be rolled into the Association's general operating expenses and the customers who are served through the lift station will no longer be separately charged in any fashion. (Tr., p. 14). According to Counsel for the Complainants, there is something between $5,000 to $6,000 in the escrow fund at this time but the price of the replacement pump is not based upon or limited by the If -

8 amount of money that has accumulated in the escrow fund; rather, the Association will make its best judgment and purchase the appropriate type of pump. (Tr., pp. 13 and 15). Additionally, at the end of the two-year period, the money does become payable to the depositors into the escrow fund and an interest rate will begin to run on the money at that time if the money is not repaid. (Tr., p. 15). The Association will accept the escrow funds from Counsel for the Complainants and, in turn, will tender to Counsel for the Complainants a promissory note which Counsel for the Complainants will hold in trust for the depositors into the fund until such time as the money is repaid. (Tr., p. 16). Additionally, the Association does not want the funds until it is necessary to expend them in order to prevent the two-year period from running until the Association actually uses the monies from the escrow account. (Tr., p. 17). The Association placed one witness on the stand to discuss the Association's willingness and understanding of the Commission's rules and regulations since it is obtaining a certificate of convenience and necessity. The witness presented by the Association was Fenton R. Eddy, the current President of the Imperial Woods Homeowners Association. Mr. Eddy indicates that the Association understands that it must follow the Commission's rules and regulations and is familiar with the Commission's sewer rules and tariff rules. (Tr., pp ). Mr. Eddy indicated that the Association understands that, if problems arise in extending service, Public Service Commission approval is needed before any moratorium on new service extensions can be implemented by the Association. (Tr., p. 21). The Association intends to obtain meter readings from Union Public Service District in order to bill its customers and the City of Morgantown Water Department will actually do the billing for the Association. (Tr., p D

9 22). The Association's plant is operated by an individual who is employed as an independent contractor, rather than an actual employee of the Association. (Tr., p. 23). As a result of all of the above, the rates to be implemented by Imperial Woods Homeowners Association, for all service rendered on and after January 1, 1986, is a charge of $2.18 per 1,000 gallons of water usage bi-monthly, with a $13.08 bi-monthly minimum charge. Additionally, there is a 10% delayed payment penalty and a $150 service connection charge. Having reviewed all of the above, the Hearing Examiner is of the opinion that the Stipulation and Agreement for Settlement entered into between Commission Staff, the Complainants from Case No S-C and the Imperial Woods Homeowners Association is reasonable and should be approved and adopted as the resolution of this proceeding. Therefore, Imperial Woods Homeowners Association will be granted a certificate of convenience and necessity to operate a sewage system in Imperial Woods Subdivision, Imperial Woods Extension Subdivision, Meadowbrook Subdivision, Cedarhurst Subdivision and Cheat Lake Junior High School, all in Union District, Konongalia County. FINDINGS OF FACT 1. All of the parties to this proceeding have entered into an Agreement for Settlement and Stipulation of the issues to be resolved in this proceeding, which Agreement calls for the adoption of the Staff recommended revenue requirement, rate design and rates, which provide for a cash operating requirement of $22,967 with a surplus of $7,500. (Tr., pp and Staff Exhibit No. 2, Schedule 1). -9-

10 2. Under the Joint Stipulation and Agreement for Settlement entered into by the parties to this proceeding, the escrow account funds, which have accumulated since the customers served by the pump station have ceased paying the additional surcharge to the Association, will be tendered to the Association by Counsel for the Complainants for the purpose of replacing the pump in the lift station serving those customers at such time as the Association is ready to replace the pump and the Association will have the use of those funds without interest for a two-year period. (Tr., pp ). 3. In exchange for the funds deposited in the escrow account, the Association will tender to Counsel for the Complainants, as Trustee, a promissory note for the amount of those funds. (Tr., p. 16). 4. Under the Stipulation, at the end of the two-year period, if the Association does not repay the escrow funds to the depositors immediarely, interest at a prime rate to be established between the Complainants and the Association and which will be set forth in the promissory note, will begin to run on the money. (Tr., p. 15). CONCLUSIONS OF LAW 1. The Agreement for Settlement and Stipulation entered into between Commission Staff, Imperial Woods Homeowners Association and the Complainants in Case No S-C, in order to resolve all outstanding issues in this proceeding, is reasonable and should be adopted as the final resolution of this proceeding. 2. It is reasonable to grant a certificate of convenience and necessity to Imperial Woods Homeowners Association to operate a sewage system in Imperial Woods Subdivision, Imperial Woods Extension --

11 Subdivision, Meadowbrook Subdivision, Cedarhurst Subdivision and Cheat Lake Junior High School, in Union District, Monongalia County. ORDER IT IS, THEREFORE, ORDERED that a certificate of convenience and necessity to operate a sewage system in Imperial Woods Subdivision, Imperial Woods Extension Subdivision, Meadowbrook Subdivision, Cedarhurst Subdivision and Cheat Lake Junior High School, Union District, Monongalia County, be, and it hereby is, granted, to Imperial Woods Homeowners Association. IT IS FURTHER ORDERED that the Agreement for Settlement and Stipulation entered into between the parties in this proceeding, which is set forth at pages 12 through 17 of the transcript of the hearing held on November 4, 1985, be, and it hereby is, approved and adopted as the resolution of all outstanding issues in this proceeding. Imperial Woods Home Owners Association and the Complainants from Case No S-C shall both take steps to implement the terms of that Agreement for Settlement and Stipulation as expeditiously as possible. IT IS FURTHER ORDERED that the rates and charges attached hereto as Appendix A, having been agreed to by all parties pursuant to the Agreement for Settlement and Stipulation and having been recommended by Commission Staff be, and they hereby are, approved for all service rendered by Imperial Woods Homeowners Association on and after January 1, IT IS FURTHER ORDERED that Imperial Woods Homeowners Association tender a copy of the promissory note to be issued to Counsel for the Complainants, as Trustee for the depositors in the escrow account, to the D -11-

12 -. Public Service Commission for inclusion in the official file of this proceeding, as soon as said note is tendered. 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 of the Commission 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 said exceptions. If no exceptions are so filed this order shall become the order of the Commission, without further action or order, five (5) days following the expiration of the aforesaid fifteen (15) day time period, unless it is ordered stayed or postponed by the Commission. Any party may request waiver of the right to file exceptions to a Hearing Examiner's Order by filing an appropriate petition in writing with the Secretary. No such waiver will be effective until approved by order of the Commission, nor shall any such waiver operate to make any Hearing Examiner's Order or Decision the order of the Commission sooner than five (5) days after approval of such waiver by the Commission. n MKM:mrs Melissa K. Marland Hearing Examiner PUBLlC SERVICE COMMISSION -12-

13 APPENDIX A IMPERIAL WOODS HOMEOWNERS ASSOCIATION CASE NO S-CN COMMISSION APPROVED JUTES RATE $2.18 per 1,000 gallons of water usage bi-monthly. MINIMUM CHARGE $13.08 bi-monthly. DELAYED PAYMENT PENALTY The above schedule is net. On all accounts not paid in full within twenty (20) days of date of bill, ten percent (10%) will be added to the net amount due. This delayed payment penalty is not interest and is only to be collected once for each bill where it is appropriate. SERVICE CONNECT ION CHARGE $150.00