Order 15747 - Prov. Water Supply Board: Authorization to Pay the City

 

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

PUBLIC UTILITIES COMMISSION

ORDER

WHEREAS, The Commission previously in this docket, approved a joint proposal by the Providence Water Supply Board ("PWSB") and the city of Providence for the implementation of a "Plan"  [1 "Plan to recover $3,248,551 over a five year period"] which would allow the PWSB to repay the City $3,248,551 from a prior surcharge-related docket (Docket No. 2022) over a five year period (See Order Nos. 14400, issued on January 27, 1994; 14502, issued on July 15, 1994; and 14683, issued on April 7, 1995).

WHEREAS, The Plan provides for the possible recovery of the $3,248,551 as follows:

- The Plan covers a five fiscal year period of time, commencing July 1, 1994;

- That on or before September 30, immediately following the end of the PWSB's fiscal year, the City and the PWSB will, for each year in the aforementioned five year period of time, jointly file a petition with the Commission which sets forth the following:

1. The amount, if any, which the PWSB proposes to repay the City relative to the $3,248,551 as a result of sound fiscal management during the previous fiscal year, as reflected in its audited figures; and

2. An identification of the area or areas of sound fiscal management from which the funds were made available, as shown by the year-end audited figures; and

- That in any given fiscal year within the five year period of time, funds in the minimum amount of the outstanding balance of the $3,248,551 divided by the years remaining under the Plan are not available to be repaid or are not approved for repayment by the Commission, then the balance of the appropriate amount will be written off by the City for that fiscal year (See Order Nos. 14683, supra; and 14927 issued on February 23, 1996).

WHEREAS, The Commission has previously held that it will consider the "totality" of the PWSB's operations, instead of specific cost items, in determining whether the PWSB is actually displaying sound fiscal management, and consequently permitted to repay the city of Providence any additional funds under the Plan (See Order No. 14927, supra).

WHEREAS, The City and the PWSB filed their first joint petition under the Plan on August 30, 1995. The City and the PWSB sought authorization for the PWSB to repay the City $655,710 during fiscal year 1995-1996, from savings and cash surpluses aggregated during the fiscal year ending June 30, 1995.

WHEREAS, The Commission approved the first joint petition on February 9, 1996 (See Order No. 14927, supra).

WHEREAS, In their second joint petition, the PWSB and the City sought authority for the PWSB to repay the City $710,000, from savings and cash surpluses aggregated during the fiscal year ending June 30, 1996 (Id.).

WHEREAS, The Commission conditionally granted the second joint petition on June 17, 1997 (See Order No. 15333). Specifically, the Commission authorized the PWSB to repay the City $307,466 out of the proposed $710,000 immediately. The balance of $402,534 was authorized for repayment to the City, when and if the PWSB is successful in receiving reimbursement from the Rhode Island Emergency Management Agency ("RIEMA") of a like amount relative to expenses incurred by the PWSB regarding repairs to a 102-inch water main break in Cranston (See Order No. 15333 for details).

WHEREAS, The City and the PWSB filed their third joint petition under the Plan previously approved in this docket on September 30, 1997.

WHEREAS, The Commission determined that a public hearing on the merits of the instant repayment proposal was necessary. A public hearing was conducted on April 24, 1998 at the Commission's offices located in Providence.

During the hearing, the following counsel entered appearances:

FOR THE PWSB:                    Michael R. McElroy, Esq.

FOR THE DIVISION:             Elizabeth Kelleher, Esq.

Special Assistant Attorney General

FOR THE COMMISSION:     John Spirito, Jr., Esq.

The PWSB offered two witnesses in support of its petition. The witnesses were identified as follows:

1. Mr. Paul Titzmann, Director of Finance - PWSB; and

2. Mr. Boyce Spinelli, Finance Director - City of Providence

Mr. Titzmann testified that the PWSB seeks authorization to repay up to $750,000 during fiscal year 1997-1998 based on the PWSB's sound fiscal management for the fiscal year ending June 30, 1997 (PWSB Exh. 98-1, p. 2). He noted that the instant request does exceed the "one fifth requirement" which is specified in the plan originally proposed by the PWSB, and approved by the Commission in 1995. He related that the PWSB is proposing to repay the City an additional amount this year "as long as there is sufficient cash available to fulfill our obligation to our ratepayers" (Id., p. 2).

Mr. Titzmann testified that the PWSB believes that it has satisfied the Plan's prerequisite for "sound fiscal management" based on the PWSB's achievement of ending the fiscal year with a surplus of $1,100,000, and "without diminishing our commitment to our customers" (Id., p. 3; and Tr. 47).

Mr. Boyce Spinelli proffered a brief statement on the instant proposal. He related that the financial impact to the city of Providence of not being repaid would be devastating (PWSB Exh. 98-2, p. 2). He stated that the City and the PWSB have worked together to comply with the letter and spirit of the Commission approved repayment plan.

During their case presentation, the City and the PWSB also sought a modification from the Commission relative to the Commission's conditional approval of the parties' 1996 joint petition. Specifically, the parties seek a modification, which would extend their ability to seek the $402,534 reimbursement from RIEMA from June 30, 1998, to the later of 30 days from the close of the State's 1998 legislative session, or September 30, 1998 (Tr. 7).

In response to the instant petition, the Division filed a memorandum with the Commission on April 21, 1998 (Division Exh. 98-1). In its memorandum the Division indicated that it had reviewed the joint petition and subsequently propounded a number of data requests, which were answered by the PWSB. The Division stated that based on its investigation:

...it appears that PWSB has met the repayment criteria established in this docket for fiscal year '97 and has sufficient funds to repay the City. Therefore, the Division does not object to the repayment (Id.).

However, during the course of the hearing, the Division and the Commission questioned the methodology used by the PWSB for calculating its reported surplus. As a result of Mr. Titzmann's expressed reservations on the surplus calculation presented, the PWSB agreed to meet with the Division's and Commission's accounting staffs to determine an appropriate methodology for measuring "operational results and the availability of cash" (Tr. 48-50). Accordingly, the parties agreed to delay further consideration of the instant petition until such time that the parties could agree on an appropriate methodology, and the fiscal 1997 surplus could be refiled.

On September 16, 1998 the PWSB filed a revised data response that amended the reported fiscal year 1997 surplus to account for restricted and non-restricted funds in calculating the operating surplus. This reporting was reflective of the presentation that the fiscal staffs of the PWSB, the Division and the Commission had agreed to. The revised operating surplus for fiscal year 1997 was reported as $38,822.

Subsequently, on September 29, 1998 the PWSB filed a motion with the Commission which seeks Commission adoption of a new basis for approving repayment to the City of $750,000 supra; and an extension of the permitted repayment date from September 30, 1998 to October 30, 1998. The new basis or methodology requests that repayment be allowed based upon retained earnings accruing from fiscal year 1996. The PWSB described the new methodology as follows:

In order to accurately report Providence Water's non-restricted income, several reclassifications were made and fiscal year 1996 was recalculated. For fiscal year 1996, the net income on a regulatory basis was $6,456,674 of which $2,138,698 was nonrestricted. After the authorized City repayment of $307,466, there remained an ending retained earnings of $1,831,232.

Carrying forward to fiscal year 1997, there is a retained earnings balance available of $1,870,054. Providence Water has requested to pay $750,000, which is well within the available balance and leaves an ending non-restricted retained earnings balance of $1,120,054.

In response to the aforementioned motion, the Division filed a position memorandum on October 16, 1998. The Division's position relative to the PWSB's proposed methodology is represented below:

Though the methodology PWSB proposes in its motion does not meet the criteria established in this docket, the Division does not object to its adoption. The methodology PWSB proposes corrects for 1996 reporting errors. As noted in PWSB's response to data request 8, when recalculating its 1997 results from operations it made several reclassifications, which impacted fiscal year 1996. These reclassifications resulted in a regulatory income for 1996 of $2,138,698 before the authorized repayment to the City. After the authorized repayment of $307,466 the net surplus on a regulatory basis was $1,831,232. Had PWSB originally calculated their fiscal year 1996 regulatory income correctly they would have been able to repay substantially more under the established repayment criteria than what they requested.

The Division additionally supported the PWSB's request for approval of the $750,000 third repayment to the city of Providence, and the PWSB's request to extend the repayment date to October 30, 1998.

FINDINGS

The Commission has considered the testimony, evidence and pleadings presented by the parties. The record supports a conclusion that the PWSB has labored to satisfy the mandate of the Plan by striving to be more fiscally responsible.

With respect to the surplus calculation methodology proposed by the PWSB, the Commission must find it inconsistent with the parameters established under the Plan. However, the Commission recognizes that since the adoption of the Plan, the City and the PWSB have concertedly endeavored to keep the expenses of the PWSB contained within the scope of its authorized operating revenues. Consequently, the PWSB has not needed to borrow from the City or seek additional surcharge revenues from the Commission, previously a common pattern of behavior, which the Commission has diligently worked to correct.

Due to the efforts of the City and the PWSB to control the PWSB's spending, and because the Commission finds the proposed methodology for calculating the PWSB's surplus to be reasonable, the Commission will approve the PWSB's current request to repay the City the $750,000 proposed through the instant petition. Concomitantly, the Commission will approve the PWSB's motion to extend the repayment date to October 30, 1998.

In response to the petitioners' request for a modification for the deadline associated with their ability to seek the $402,534 reimbursement from RIEMA, supra, the Commission notes that the September 30, 1998 proposed new deadline has passed. Accordingly, the issue has been rendered moot.

Accordingly, it is

(15747) ORDERED:

That the Providence Water Supply Board's and the city of Providence's September 30, 1997 joint petition, as amended by its motion of September 29, 1998, seeking authorization for the PWSB to repay the City $750,000 from retained earnings aggregated through fiscal year ending June 30, 1997, is hereby granted.

EFFECTIVE AT PROVIDENCE, PHODE ISLAND ON OCTOBER 27, 1998 PURSUANT TO AN OPEN MEETING DECISION. WRITTEN ORDER ISSUED ON DECEMBER 9, 1998.

PUBLIC UTILITIES COMMISSION