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Decision 2009-108

Langdon Waterworks Limited Water Rates for Langdon Waterworks Limited Rule 011 – Rate Application Process for Water Utilities July 23, 2009

ALBERTA UTILITIES COMMISSION Decision 2009-108: Langdon Waterworks Limited Water Rates for Langdon Waterworks Limited Rule 011- Rate Application Process for Water Utilities Application Nos. 1508905 and 1508928 July 23, 2009 Published by Alberta Utilities Commission Fifth Avenue Place, 4th Floor, 425 - 1 Street SW Calgary, Alberta T2P 3L8 Telephone: (403) 592-8845 Fax: (403) 592-4406 Web site: www.auc.ab.ca

http://www.auc.ab.ca/

AUC Decision 2009-108 (July 23, 2009) • i

Contents

1 INTRODUCTION................................................................................................................. 1

2 RULE 011 PROCESS ........................................................................................................... 1

3 ORDER .................................................................................................................................. 2

APPENDIX 1 – PROCEEDING PARTICIPANTS................................................................... 3

APPENDIX 2 – LCWC LETTER OF ACCEPTANCE TO AUC DATED JUNE 24, 2009.. 4

APPENDIX 3 – LWW LETTER OF ACCEPTANCE OF AUC RECOMMENDATIONS DATED JUNE 29, 2009..................................................................................... 5

APPENDIX 4 – COMMISSION STAFF RECOMMENDATION .......................................... 6

APPENDIX 5 – LWW TERMS AND CONDITIONS OF SERVICE ..................................... 7

AUC Decision 2009-108 (July 23, 2009) • 1

ALBERTA UTILITIES COMMISSION Calgary Alberta LANGDON WATERWORKS LIMITED WATER RATES FOR LANGDON WATERWORKS LIMITED Decision 2009-108 RULE 011 – RATE APPLICATION PROCESS FOR Application Nos. 1508905 WATER UTILITIES and 1508928

1 INTRODUCTION

1. The Alberta Energy and Utilities Board (EUB or the Board) received applications, dated April 5, 2007, from Langdon Waterworks Limited (LWW) requesting approval of its Developer Contribution Fees (Application No. 1508905) and approval of its Terms and Conditions (Ts & Cs) (Application No. 1508928).

2. On January 1, 2008, the Alberta Utilities Commission (AUC or the Commission) was established. In accordance with the transitional provisions of the Alberta Utilities Commission Act, the Commission took over the process started by the Board. 3. Subsequent to the first two Applications, LWW initiated discussion regarding a general rate application (GRA) for 2008 and 2009 with the Commission during an August 19, 2008 conference call. In response, the Commission indicated that, in order to determine just and reasonable rates for LWW, the Commission would follow the process outlined in the Commission’s Rule 011 – Rate Application Process for Water Utilities (Rule 011). The Commission’s Rule 011 process is used to develop a Commission Staff Recommendation (Recommendation) to determine rates for a water utility that is acceptable to both the utility and its customers. The GRA and Application No. 1508928 were combined with Application No. 1508905 and assessed under the Rule 011 process.

2 RULE 011 PROCESS

4. On October 27, 2008, the Commission issued a Notice of Application and Public Meeting for LWW customers. The public meeting was held on November 6, 2008, at the Langdon Women’s Institute in the Hamlet of Langdon. The meeting consisted of a presentation by Commission Staff on utility regulation, a description of the Commission’s Rule 011 process and a description of the applications from LWW that were currently before the Commission. Commission Staff then heard customer concerns regarding water quality and LWW’s service. Customers present at the meeting voted to have the Langdon Community Water Council (LCWC) represent them in the Commission’s Rule 011 process.

5. Following the public meeting, Commission Staff met separately on various occasions with LCWC and LWW to discuss issues related to LWWs Rates, Developer Contribution Fees and Ts & Cs. Two rounds of Information Requests were conducted to gather information for the Recommendation. In addition, LWW conducted a tour of the Langdon treatment facility for LCWC members and Commission staff so parties could better understand LWW’s operations.

Water Rates for Langdon Waterworks Limited Rule 011 - Rate Application Process for Water Utilities Langdon Waterworks Limited

2 • AUC Decision 2009-108 (July 23, 2009)

6. Upon completion of the Recommendation, a joint meeting between LCWC, LWW and Commission Staff was held on May 20, 2009, at the AUC’s office. The Recommendation was presented and discussed. Areas of disagreement included Developer Contribution Fees, the Hearing Cost Reserve Account, the number of billed connections and the amount of monthly consumption used to forecast revenues.

7. Following the May 20, 2009 meeting, Commission Staff worked with the LCWC and LWW to review and re-evaluate the Recommendation. Commission Staff requested further information from LWW. In order to arrive at a definitive number of billed connections for the purposes of calculating revenue, Commission Staff traveled to Langdon to conduct an on-site count with representatives from both LCWC and LWW present.

8. On June 22, 2009, another Recommendation was distributed electronically to both LCWC and LWW. Parties were asked to indicate acceptance of the Recommendation by letter. Following review, both LCWC and LWW provided letters of acceptance. Copies of the letters can be found in Appendix 2 and Appendix 3 of this document. With both LCWC and LWW accepting the Recommendation, Commission Staff filed the Recommendation with the Commission for review and approval. A copy of the Recommendation is attached as Appendix 4 to this Decision. The Commission panel has reviewed and approved the Recommendation.

3 ORDER

9. IT IS HEREBY ORDERED THAT:

(1) The Commission Staff Recommendation, dated June 22, 2009, regarding Water Rates for Langdon Waterworks Limited, attached as Appendix 4 to this Decision, be approved effective August 1, 2009.

(2) The Developer Contribution Fees, as set forth in the Commission Staff

Recommendation, dated June 22, 2009, be approved and be effective as of August 1, 2009.

(3) The Terms and Conditions of Service for Langdon Waterworks Limited, as set forth

in Appendix 5 to this Decision and any revisions set forth in the Commission Staff Recommendation dated June 22, 2009, be approved and be effective August 1, 2009.

Dated in Calgary, Alberta on July 23, 2009. ALBERTA UTILITIES COMMISSION (original signed by) Thomas McGee Commissioner



APPENDIX 1 – PROCEEDING PARTICIPANTS

Name of Organization (Abbreviation) Counsel or Representative Langdon Waterworks Limited (LWW)

F. Misura Langdon Community Water Council (LCWC)

R. Miller Alberta Utilities Commission Commission Panel T. McGee, Commissioner

Rule 011 Process Staff

S. Ramdin (Counsel) D. Ward C. Taylor



APPENDIX 2 – LCWC LETTER OF ACCEPTANCE TO AUC DATED JUNE 24, 2009

(return to text)

Appendix 2 - LCWC Acceptance letter - Ju

(consists of 1 page)



APPENDIX 3 – LWW LETTER OF ACCEPTANCE OF AUC RECOMMENDATIONS DATED JUNE 29, 2009

(return to text)

Appendix 3 - LWW Acceptance Letter - J

(consists of 2 pages)



APPENDIX 4 – COMMISSION STAFF RECOMMENDATION

(return to text)

Appendix 4 - Staff Recommendation - Ju




APPENDIX 5 – LWW TERMS AND CONDITIONS OF SERVICE

(return to text)

Appendix 5 - Ts and Cs.pdf


Langdon Waterworks Limited Water Rates for Langdon Waterworks Limited Appendix 2 Rule 011 Process – Rate Application Process for Water Utilities Page 1 of 1

June 24, 2009 Alberta Utilities Commission Fifth Avenue Place, 4th Floor, 425 - 1 Street SW Calgary, Alberta T2P 3L8 Attention: Cameron Taylor Re: Langdon Waterworks Limited

Commission Staff Recommendation 2007-2009 General Rate Application

Please accept this letter as formal notice that we accept and agree with the recommendations as published in the June 22 recommendations. Although we do not necessarily agree with all of the recommendations, we unanimously agree and accept these recommendations in an effort to support the AUC and their efforts. We would also like to commend the AUC on their efforts and participation and certainly appreciate the time expended with our group to clarify and resolve our concerns. Yours truly, The LCWC

AUC Decision 2009-108 (July 23, 2009)

Water Rates for Langdon Waterworks Limited Rule 011 - Rate Application Process for Water Utilities

Langdon Waterworks Limited Appendix 3 Page 1 of 2





Langdon Waterworks Limited Commission Staff Recommendation 2007-2009 General Rate Application June 22, 2009


Langdon Waterworks Limited Appendix 4 to Decision 2009-108 Page 1 of 19


ALBERTA UTILITIES COMMISSION Langdon Waterworks Limited Commission Staff Recommendation 2007-2009 General Rate Application Application No. 1508905 and 1508928 June 22, 2009 Published by Alberta Utilities Commission Fifth Avenue Place, 4th Floor, 425 - 1 Street SW Calgary, Alberta T2P 3L8 Telephone: (403) 592-8845 Fax: (403) 592-4406 Web site: www.auc.ab.ca




http://www.auc.ab.ca/

Commission Staff Recommendation (June 22, 2009) • i

Contents

1 INTRODUCTION................................................................................................................. 1

2 BACKGROUND ................................................................................................................... 2

3 RATE BASE .......................................................................................................................... 2 3.1 Capital Additions and Contributions.............................................................................. 3

3.1.1 Capital Additions .............................................................................................. 3 3.1.2 Contributions..................................................................................................... 6

3.2 Amortization .................................................................................................................. 9

4 COST OF CAPITAL .......................................................................................................... 10 4.1 Capital Structure .......................................................................................................... 10 4.2 Cost of Equity .............................................................................................................. 10 4.3 Cost of Debt ................................................................................................................. 11

5 DEPRECIATION ............................................................................................................... 11

6 OPERATING COSTS ........................................................................................................ 11

7 CUSTOMER AND SALES FORECAST ......................................................................... 12

8 TERMS AND CONDITIONS OF SERVICE................................................................... 14

9 REVENUE REQUIREMENT ........................................................................................... 14

10 RATE DESIGN AND COST OF SERVICE .................................................................... 15 10.1 Rate Design .................................................................................................................. 15







Commission Staff Recommendation (June 22, 2009) • 1

ALBERTA UTILITIES COMMISSION Calgary Alberta LANGDON WATERWORKS LIMITED COMMISSION STAFF RECOMMENDATION 2007-2009 GENERAL RATE APPLICATION Application No. 1508905 & 1508928

Langdon Waterworks 2008/09 General Rates Application

Langdon Waterworks Developer Contribution Application Langdon Waterworks Terms and Conditions Application

Commission Staff Recommendations

1 INTRODUCTION

1. The Alberta Energy and Utilities Board (EUB or Board) received applications dated April 5, 2007 from Langdon Waterworks Limited (LWW) requesting approval of its developer contribution fee and approval of Terms and Conditions.

2. On December 5, 2007 the Alberta Utilities Commission Act (the AUC Act) was passed by the Government of Alberta and effective January 1, 2008, the EUB was separated into the two new regulatory bodies, the Alberta Utilities Commission (AUC) and the Energy resources Conservation Board (ERCB).

3. On October 27, 2008, the Alberta Utilities Commission (AUC or Commission) received a general rate application for 2008 and 2009 from LWW. The developer contribution application and the general rate application have been combined under Application No. 1508905 and this Application is now before the Commission.

4. On October 27, 2008, the Commission issued a Notice of Application and Public Meeting for LWW customers. This notice was mailed out to every LWW customer’s residence via Canada Post. LWW customers were also notified by a posting on the calendar of the Langdon Community Association’s website. The public meeting was held on November 6, 2008 at the Langdon Women’s Institute in the Hamlet of Langdon. It was well attended with 31 LWW customers signing the record and more in attendance. The agenda consisted of presentations on the AUC and utility regulation, the Rule 11 process, the applications from LWW currently before the Commission, customer’s concerns and to see if there was interest in forming a customer group to represent all customers.

5. At the meeting, those customers present voted to have the Langdon Community Water Council (LCWC) represent them in the AUC’s Rule 11 Rate Application process for Water Utilities.




2007-2008 General Tariff Application Langdon Waterworks Ltd.

2 • Commission Staff Recommendation (June 22, 2009)

2 BACKGROUND

6. In Order U2003-351, the EUB approved the water supply and distribution agreement (the Water Agreement) filed by the Municipal District of Rocky View No. 44 (the MD) which granted LWW the exclusive right and responsibility to provide water services to customers within the designated service area for a term of 10 years.

7. On December 20, 2004, LWW made application for an interim rate increase for 2005 and made a general rate application for 2004, 2005 and 2006. The application for an interim rate increase was dealt with in Decision 2005-018 and subsequently Order U2005-323.

8. LWW applied to have the GRA held in abeyance pending negotiations with interested parties. The Board approved LWW’s request to commence negotiations in Decision 2005-003. The negotiations resulted in the submission of a Partial Negotiated Settlement Application (Settlement) and a revised GRA on July 19, 2005. Further process resulted in a hearing held at the Board’s Calgary office on December 5th to7th, 2005 followed by oral argument and reply argument on December 19, 2005, and concluded with Decision 2006-019. Decision 2006-019 was released on March 14, 2006.

9. On April 11, 2006, the Board received a compliance filing (the Compliance Application) from LWW in response to Board Decision 2006-019. Following a Pre-Notice Application Assessment and a refiling (the Second Compliance Application) on June 5, 2006, the Board found that the Second Compliance Filing did not fully comply with the directions from Decision 2006-019 but that it did contain sufficient information for the Board to determine final rates. In Decision 2006-068 issued July 5, 2006, the Board approved final rates.

10. The Alberta Energy and Utilities Board (EUB or Board) received a Review and Variance (R&V) application dated July 31, 2006 from Langdon Waterworks Limited (Application No.1472754), following release of Decisions relating to the Langdon Waterworks Limited (LWW) General Rate Application for 2004, 2005 and 2006 and directions from the Board in Decision 2006-019 issued March 14, 2006 and the Compliance Application for the same period in Decision 2006-068 issued July 5, 2006.

3 RATE BASE

11. LWW requested the changes to rate base for the years 2006-2009 inclusive:

• 2006 to reflect rate base additions of $358,811 (a change from approved forecast to actual);

• 2007 additions of $60,954; • 2008 additions of 420,501; and • 2009 forecast additions of $1,968,160.

12. Rate base amounts were determined from using 2006 approved levels as a starting point. The 2006 forecast amounts were adjusted from forecast levels to actual then 2007 and 2008 actual additions were included. In the January 12, 2009 response to Commission questions, actual to date 2009 results were added. Based on a meeting with LWW on April 16, 2009 forecast (2009) amounts for Reservoirs and Well #5 were not included as work would not start






before the end of the 2009 fiscal year. Amortizations and contributions were also reviewed for the same period. Each area is discussed in more detail below.

3.1 Capital Additions and Contributions

3.1.1 Capital Additions

2006 13. Schedule “A-1” of Appendix 1 of EUB Decision 2006-068 included capital additions of $19,000 for the forecast year of 2006. All the additions were in meters.

14. Actual 2006 capital additions included $274,477.80 for water treatment plant #1, $698 for tools, $34,652.75 for database development and $49,983 for meters1.

Recommendation 15. The Commission staff accepts the $358,811 as total rate base additions for 2006.

2007 16. LWW provided 2007 actual capital additions of $60,954. Of the total, $2,592 was for work on water Plant #1 with the remainder ($58,362) for meters2.

Recommendation 17. The Commission staff accepts the $60,954 as total rate base additions for 2007.

2008 18. LWW provided 2008 actual capital additions of $416,793. Of the total, $224,255 was for work on the water treatment plants ($140,717 for water treatment plant #1 and $83,538 for water treatment plant #2). A total of $68,398 was for work on two wells ($12,700 for well #1 and $55,678 for preliminary work on well #5). The remaining capital amounts were for meters ($34,320) and website development ($89,840)3.

Recommendation 19. The Commission staff accepts the 2008 capital additions as noted above. Although the representative for the customers did not accept the website costs, Commission staff are of the opinion that the website will provide an enduring benefit and will provide progress in bridging the communication gap between LWW and its customers.

2009 20. LWW provided 2009 forecast capital additions of $1,968,160. Of the total, $1,400,000 was for the creation of a new water reservoir and $380,000 was to finish well #5. The remainder

1 Amounts come from LWW January 12, 2009 information responses. Meters amounts comes from April 21,

2009 email from LWW (meters). 2 The water treatment plant amount is from the January 12, 2009 information response 6c. The meters amount is

from the April 21, 2009 email from LWW showing contributions and capitalized costs of meters. 3 Amounts are from the January 12, 2009 information response 6c. Meters amount is from the April 21, 2009

LWW email.






related to completing the website ($168,160) and work on water treatment plant #2 ($20,000). LWW did not include any costs for meters.4

New Reservoir Construction: 21. LWW hired Sim-Flo Systems Inc. to provide an analysis of capacity and demand of the LWW system. The Sim-Flo analysis, dated December 19, 2007, revealed that treatment capacity is adequate but well capacity was not sufficient. To adequately service Langdon, the report stated that a fifth well was required as well as another water storage reservoir.

22. The cost of the upgrades was estimated to be $1.4 million with the expenditure to take place in the 2009 fiscal year.

23. An owner of RVUV, Mike Schaalje also owns Sim-Flo Systems Inc. LWW stated that Sim-Flo has provided engineering for LWW for 12 years. Sim-Flo provided the design for the reservoir at a cost of between 8 to 12% of the construction costs. This charge is within acceptable practice of consulting engineering firms. LWW went out for bids on the reservoir construction. When asked to provide the bids, LWW refused on the grounds that they are competitive bids and the information is confidential. The LCWC also asked for the upgrade costs to be validated.

Recommendation Sim-Flo design costs are acceptable. However, LWW must produce evidence that a competitive bid process was followed. The bids must be provided to the AUC or this cost may not be permitted. In light of economic conditions, prices should be decreasing. Recommend re-bidding the project and make all bid information available to the Commission. 24. An email received February 24, 2009 from LWW showed actual 2009 capital additions to February 23, 2009 of:

1. Water treatment plant #1 $9,691 2. Water treatment plant #2 $34,841 3. Well #5 $15,264 4. Website $135,743 5. Meters $0

A later email received June 16, 2009 showed additional capital expenditures for the water treatment plant # 2 of $53,838.45 and for well #5 of $4,468.

25. In a meeting with LWW on April 16, 2009, it was determined that further capital work was unlikely to occur in the current fiscal year. Based on this evidence, the Commission staff accepts the expenditures as shown above. In addition, based on the customer forecast (to be discussed in a later section) Commission staff recommend the inclusion of $24,300 for meters to represent the 54 additional customers forecast for 2009. Capital additions are shown in the schedules attached to this recommendation.

4 Amounts are from the January 12, 2009 information response 6c and updated from a June 16, 2009 email from

LWW.






26. Relations between LWW and its customers has been an issue in the past and continues to present challenges. Customers of LWW were quite vocal about poor service at the November, 2008 public meeting between the AUC and customers of LWW. In order to address this problem, LWW has introduced a web site to facilitate better communication with customers. It is also a tool to provide account information, invoicing, bill payment and will respond to customer problems. LWWs goal for the web site is to provide accountability, particularly with invoicing and service requests. This is a positive development for LWW customers.

27. The LWW website is budgeted at $258,000; $206,400 in fiscal 2008 and $51,600 in fiscal 2009.

28. In a response to an AUC IR regarding the website, LWW provided estimates that the website would save $6500/mo. in operational costs. The savings in operational costs were identified as:

• $3,500/mo. in reduced or eliminated technical support costs. Dependency on third party technical support for billing and invoicing will decrease.

• $1,000 reduction in paper and postage costs. • $1,000/mo. saved as customers view and pay their bills online. RVUC staff will not

collect and process cheques. • $1,000/mo. saved through efficient customer service.

There was no support provided for the above estimates. 29. LWW stated that 40% of households use the site for invoice payments and 52% use the site for information and complaint follow ups. The website is currently operating, with three more phases of development to follow.

30. There also is no evidence provided to indicate that a competitive bid process for the web site was followed.

31. The LCWC requested that the AUC not approve the web site expenditure.

Recommendation

32. Since the purpose of the LWW web site is to improve communications and service to customers and to “rebuild trust and goodwill” between customers and LWW it should be allowed.

Summary

33. Commission staff recommends that the starting total gross rate base for the fiscal year 2007 be $3,250,427 with depreciation to be adjusted accordingly. Total gross rate base at the end of each of the following fiscal years will be as follows:

2007 $3,311,381 2008 $3,728,174 2009 $4,006,319






34. These amounts are shown in Schedule A-1 Assets in the attached schedules to this recommendation.

3.1.2 Contributions

Developer Contribution: 35. In Decision 2006-019 the Board directed LWW to charge a developer connection fee of $8,800/acre for the original development area in Langdon that is served by groundwater including Langdon East, Langdon West, Langdon Lane, Lanark, Langdon Siding and Railway Ave. The Board directed LWW to charge $15,400/acre for the area that will have treated surface water, including the Harmony Park (Boulder Creek) area.

36. Further, in Section 4.14 of Decision 2006-019, the Board had the following comments:

The Board agrees with the VSC that it is important for all developers to be treated consistently. The Board notes that there was no quantitative information provided by LWW to support the current or future development fee5. Given that no quantitative information has been provided to support a developer contribution fee on any amount, following the test period, the Board directs LWW apply a contribution fee of Zero ($0.00) until such time as LWW can demonstrate support for an appropriate fee. If LWW has provided information to the MD in support of the requested increase in the Water Infrastructure Fee, the Board expects that LWW should be able to easily provide the same information to this Board as an additional part of the compliance filing directed in Section 4.13 of this Decision. Therefore the Board directs LWW to file support for a proposed developer contribution fee as part of a compliance filing. If this information is unavailable, the Board directs LWW to provide an estimated date at which the proposal for a developer contribution fee will be filed with the Board. In either case, the Board expects that the application can be dealt with expeditiously to facilitate orderly development in the area. Prior to approval of a developer contribution fee, the Board directs LWW to disclose to all potential developers that the fee, to be approved, will apply to all water supply agreements negotiated in the interim. Once the developer contribution fee has been approved, the Board directs LWW to charge this fee equally to all developers that sigh water supply agreements with LWW6.

37. Recently, developers in Langdon have been charged $21,740 per acre for a developer contribution. Due to LWW’s equity position, LWW introduced a higher developer contribution to pay for required infrastructure to service the new developments.

38. The LCWC had no comment on this issue.

5 EUB Decision 2006-019, page 25. 6 Ibid, page 26.






Recommendation 39. No evidence has been presented before Commission staff on compliance by LWW with the above directions in respect of a study supporting developer contribution fees at any level or Regulatory approval for and contribution fees charged.

40. For the year 2006 the Board approved contributions of $702,320 comprised of the following:

• Langdon Crossing West Phase 5 - $258,720 • Boulder Creek (Phase 1) - $400,400 • Meters - $43,200

41. In its submissions, LWW indicated the following contributions have been received:

Date Development Acreage Cost/Acre Total $ August 4, 2006 Government Grant 328,972 January 17, 2008 Perera 116,252 January 17, 2008 Langdon East 27.85 $21,500 598,775 December 5, 2008 Langdon Land

Manager (Boulder Creek) Phase 1

24.67 $15,400 379,918

Phase 2 19.87 $21,500 427,205 Phase 3 24.63 $15,300 376,839 Phase 4 19.4 42. The sum of the first three stages of the Langdon Land Manager development does not reconcile to the cash contribution received by LWW ($804,044 received versus the total of stages 1-3, $1,183,962). The Phase 1 acreage for Boulder Creek varies from the approved acreage total in Decision 2006-019. In that Decision the Board stated:

Further, in the development contract with Perera it states that “Prior to commencement of any construction by the developer, the developer shall have paid to LWW any amounts payable pursuant to this agreement.” While the Board understands that each development contract between LWW and a developer may be unique, the Board expects the terms of payment would be similar. Accordingly, the Board expects the payment from the Boulder Creek developer would already be payable as a developer contribution7.

43. The Commission staff accepts the adjustment to the forecast acreage, but wonders why the payment was received so late. Commission staff also note that varying amounts/acre were received contrary to the direction given LWW in Decision 2006-019

44. The Perera (Langdon Lane Development) amount received of $116,252 appears to be related to 2004 contributions. The Board was clear in Decision 2006-019 what the contribution should be ($105,600) for the Langdon Lane Development.

45. As noted in the table above the price/acre for Langdon East was $21,500. No evidence was presented to support this amount.

7 EUB Decision 2006-019, page 11






46. Commission staff accepts the acreage totals provided by LWW. LWW has not substantiated its developer cash contribution policy nor complied with Board directions on providing a study supporting a cash contribution level. Therefore, without further evidence Commission staff recommends that the previous developer cash contribution levels of $8,800/acre for the areas serviced by groundwater (original Langdon development area) and a cash contribution level of $15,400 for the areas proposed to be serviced by surface water. Contributions received in excess of these amounts should be refunded back to the developers. Contributions received for future facilities are to be held in a deferral account.

47. Commission staff make the following recommendations for recognition of contributions for no-cost capital:

Development Year $ Recognized $ Deferred $Refunded

Langdon Crossing West Phase 6

2006 $198,968

Langdon Land Manager Phase 2

2008 $305,998 $121,207

Langdon Land Manager Phase 3

2008 $379,302 ($2,463)

Railway Ave Phase 2

2008 $105,600 $10,652

Langdon East Development

2008 $245,080 $353,695

Government Grant

2006 $328,972

48. Based on this recommendation, For Langdon East, contributions of $245,080 will be put in a deferral account until facilities are built. The residual of $353,695 shall be refunded to the developer. For Langdon Land Manager phase 2 the refund to developers should be $121,207 (19.87 acres by $21,500 - $15,400) and is reduced by $2,463 the amount under collected for phase 3. This will derive a total refund to developers of $118,744 and put $379,302 into a deferral account until facilities are built.

49. LWW will continue to use the rates approved by the Commission until approval is granted for different developer cash contribution rates. Commission staff have serious concerns about how developer contributions are collected and tracked. Commission staff recommend that LWW file by September 30th of each year the net customer additions by development area, developer contributions by developer (specifying each development and phase of the development) for the fiscal year just completed and forecast developer contributions (specifying






each development and each phase of the development) for the ensuing year. In addition, the refund amounts to developers will be subject to audit by the Commission or its appointee.

50. Gross Contributions as shown in Schedule A-3 No-Cost (attached at the end of this recommendation) at the end of each fiscal year is as follows:

2007 $2,746,911 2008 $3,181,591 2009 $3,517,289

3.2 Amortization 51. The determination of depreciation expense, accumulated depreciation and the amortization of contributions were as approved in Decision 2006-019.

Recommendation 52. Based on the January 12, 2009 response to question 9, support was provided to change the amortization rate of software development from 10% to 20%. The change in amortization rate for software development was effective the beginning of fiscal 2007. All other amortization rates remain as determined in Decision 2006-019.

53. Accumulated Depreciation is shown in the attached schedule A-2 Depreciation. Amounts at the end of each fiscal year are as follows:

2007 $484,170 2008 $603,888 2009 753,119

54. Accumulated amortization of no-cost capital (contributions) is shown in Schedule A-4 Amor. NCC. Amounts at the end of each fiscal year are as follows:

2007 $277,860 2008 $362,553 2009 $458,252

55. Schedule A Rate Base provides the net rate base totals for each of the test years as well as the mid-year balances. For each of the test years the net rate base and mid-year rate base balance is as follows:

Test Year 2007 2008 2009 Year-End Net Rate Base $2,827,211 $3,124,286 $3,253,200 Mid-Year Rate Base $2,848,980 $2,975,748 $3,188,743 Hearing Cost Reserve 56. In EUB Cost Order 2006-025, LWW was ordered to record $186,535.02 in its Hearing Cost Reserve Account. In EUB Utility Cost Order 2007-044, LWW was ordered to add a further $43,421.27 to its Hearing Cost Reserve. A metered consumption charge of $0.28 per cubic meter was applied for the reduction of the Hearing Cost Reserve (HCR). In Decision 2006-068, the Board directed LWW to collect a further $100,000 for future hearing costs. The Board






directed LWW to reduce the consumption charge by $0.28/m3 once the balance of the HCR account reaches $100,000.00. Further, through approval of the deficiency rider in Decision 2006-068 (LWW 2004, 2005 and 2006 GRA Compliance Application), LWW was enabled the ability to collect its total revenue requirement including the HCR amounts for 2004, 2005 and 2006.

57. Decision 2007-032 (Review and Variance of Decisions 2006-019 and 2006-068) confirmed a further deficiency from LWW’s original forecast and again enabled LWW to collect its revenue requirement including the HCR amounts for 2006. It is clear from Schedule A-5 that the HCR amounts for the years 2004-2006 inclusive were collected from either base rates or the deficiency rider. It is also clear from Decision 2006-068 (page 5) that from July 1, 2006 forward that the variable water charge included an amount ($0.280/m3) that related to collection for the HCR account and that the $0.280/m3 was to be discontinued the month following the month in which the HCR account balance reached $100,0008

58. LWW provided evidence that it has been collecting monthly from its customers for its Hearing Cost Reserve. The actual amounts collected are shown in Schedule A-5 for the years 2007 and 2008. 2009 reflects actual amounts up to and including April of 2009 and estimates for the remaining 3 months of the year. However, an AUC request for an updated reconciliation of the Hearing Cost reserve revealed that the funds collected were being used for general operations in clear violation of Decision 2006-0689.

Recommendation 59. However, Schedule A-5 shows an over-collection of the HCR amount and the over-collected amount will be applied to the cumulative deficiency shown in Schedule C RevReq.

4 COST OF CAPITAL

4.1 Capital Structure 60. Decision 2006-019 approved a deemed capital structure of 75% debt to 25% equity. No request has been made alter the previously approved capital structure and no evidence was presented to change to vary that decision.

Recommendation 61. Commission staff recommends continuance of the 75:25 debt equity ratio for the capital structure of LWW.

4.2 Cost of Equity 62. Decision 2006-019 utilized the cost of equity as determined by the Generic Cost of Capital (GCOC) proceedings.

8 This direction was reaffirmed in Decision 2007-032, page 13. 9 On page 5 of Decision 2006-068 the Board stated: “The Board does not consider it to be reasonable for the

balance of the reserve account to grow to an excessive level and is concerned that the portion of the rates for the hearing cost reserve should not be included as general operating revenue but clearly recorded in the hearing cost reserve account.”






Recommendation 63. Commission staff recommend continuation of the GCOC for determining the cost of equity. The amounts for each year are shown in the attached Schedule B. Capital Return and are as follows:

2007 8.72% 2008 8.63% 2009 8.75%

4.3 Cost of Debt 64. LWW responded to its cost of debt in terms of the level of debt and the rate paid on debt in the January 12, 2009 information response #7.

Recommendation 65. Commission staff accept as reasonable the level of debt and the cost of debt included in the January 12, 2009 information response #7. The amounts are included in Schedule B-1 Debt and is as follows:

Year 2007 2008 2009 Total Debt at Mid-Year $959,173 $801,673 $801,673 Cost of Debt at Mid-Year 6.88% 7.00% 7.00% 5 DEPRECIATION

66. See comments under rate base.

6 OPERATING COSTS

67. LWW is the holder of Langdon’s water treatment and distribution systems and the holder of the franchise agreement with the Municipal District of Rocky View. RVUC, as an independent contractor, is responsible for the management, billing, operation and maintenance of LWW facilities on behalf of LWW. The term of the Operations and Maintenance Agreement, more commonly known as the RVUC Management Contract, is 20 years beginning August 1st, 2008.

68. In Decision 2006-019, the Board directed LWW to include a management fee in the revenue requirement for 2004, 2005 and 2006 that is based on the difference between the applied for equity return and the resulting equity return in the refilling. The Board calculated a management fee of $14,157, $18,000 and $24,895 per year for 2004, 2005 and 2006 respectively.

69. The requested management fee for the 2008 fiscal year is $48,990 per month for a total of $587,880 for the 2008 fiscal year. LWW stated that an upgrade to Alberta Environment specifications has doubled operation and administration requirements. For example, LWW stated that new standards such as daily visits to the treatment plants for water quality testing and weekly tests of the distribution system have required new employees to be hired and trained.






70. The LCWC requested more detail on the RVUC Management Contract and an IR was asked to satisfy the LCWC. LWW provided a response with evidence indicating costs were reasonable.

Recommendation 71. Because LWW has, comparatively, a small level of equity, the utility’s return on equity is also small. Commission staff consider that utilities should be in a viable financial position in order to serve customers effectively. To maintain viability, LWW has proposed the contract to pay RVUC to oversee operations. However, the RVUC Management Contract contains a mark-up of 15% and this is not recommended by Commission staff. As a result, Commission staff recommend approval of the RVUC Management Contract in the amount of $499,698.

Operating and Administrative Expenses: 72. LWW provided a forecast of operating expenses for 2009 of $189,000 (not including the RVUC contract) and a forecast for administrative costs for 2009 of $179,000.

Recommendation 73. Commission staff accepts the forecast operating expenses of $189,000 for 2009. However Commission staff are aware of a credit of approximately $24,000 for a sanitary lift station owned and operated by the MD of Rocky View but paid for by LWW. This amount will be deducted from the operating expense amount.

74. With respect to Administrative costs (2009), Commission staff noted that $42,000 was included for rent. Upon further discussion with LWW it was determined that an appropriate rent for LWW would be $6,000 per year (the residual applied to RVUC and was included in the RVUC contract. Other than the adjustment for rent, Commission staff recommend acceptance of administrative costs as forecast at the level of $143,000.

7 CUSTOMER AND SALES FORECAST

Number of Customers for 2008/09: 75. LWW provided an estimated number of customers for fiscal 2008 along with an estimate of additions as houses in Langdon are completed and added to the water system. Beginning August 1st, 2008, or the beginning of the 2008 fiscal year, LWW estimated actual billed connections of 1,165. LWW also provided expected additions to the billed connections at 2.5 per month over fiscal 2008. At the end of the 2008 fiscal year, LWW estimated 1,195 connections. The LWW estimated connections reflect a decrease in the rate of new house sales due to economic conditions.

76. The Langdon Community Water Council (LCWC) disputed the LWW number of billed connections that LWW provided. The LCWC estimates 1205 billed connections as of December 31, 2008. This number is based on a letter regarding an estimate for the new reservoir dated December 19, 2007 from Mike Schaalje of Sim-Flo Systems Inc. that describes “Total Allocated Homes” in each development in Langdon. The number provided by Sim-Flo is 1256 total allocated homes.






77. The LCWC stated that Langdon is a growing community and estimated developers have approximately 200 lots available for sale. The LCWC disputed the monthly increase in LWW customers for fiscal 2008. The LCWC calculated the monthly increase by using the 2006 mid-year customer base from the previous GRA (768). The LCWC used an estimate of 1155 for July 31, 2008. They subtracted 768 from 1155 and divided by 25 months (between June ’06 and July ’08) to arrive at 15.5 customers per month.

78. An estimate provided by one of the principles of LWW dated December 19, 2007 showed 1,205 billed connections. An email response dated April 22, 2008 stated that the number of customers to March 31, 2009 was 1,208. LWW later recanted the March 31, 2009 amount saying there was an error in their billing system10. LCWC strongly disputed the LWW numbers. Therefore to promote regulatory efficiency (and avoid external audit fees) Commission staff proposed that Commission staff, a customer representative and an LWW representative perform a customer count to determine the actual number of customers to resolve this issue. This proposal was accepted by both LWW and the LCWC. The count occurred on June 18, 2009 and the count determined that there were 1,184 LWW customers on that date.

Recommendation 79. Given the customer count which occurred on June 18, 2009, Commission staff recommended adding six to derive a year-end total of 1,190 customers. Commission staff applied a factor of approximately 5 customers/month as a reduction from the count total to derive the customer totals for the months preceding June, 2009. These amounts are reflected in Schedule 2009, Estimated Revenues and Expenses for the Time Period of August 2008 – July 2009.

2. Monthly Consumption 80. LWW provided an estimated average consumption rate for the 2008 fiscal year of 19.0 m3 per household per month.

81. In EUB Decision 2006-019, the Board directed LWW to use an average consumption rate of 24.3 m3 per household per month. In an IR response regarding this issue, LWW responded that the actual average usage for the past 17 months was 25.7 m3 per household per month. Referring to the December 19, 2007 letter from Mike Schaalje of Sim-Flo Systems Inc., a consumption number of 25 m3 per household per month is used.

82. The LCWC suggested increasing the monthly consumption to match the 25.7 m3 per household per month estimate provided by LWW. The LCWC thought that the LWW estimate of 25.7 m3 was low because LWW used a 17 month estimate rather than a 12 or 24 month full cycle estimate.

Recommendation 83. Commission staff recommend the use the 25.7 m3 per household per month estimate for consumption.

10 Based on a conference call received from LWW on June 16, 2009.






8 TERMS AND CONDITIONS OF SERVICE

5.0 Accounts: “There is a charge for each payment that is returned.” Please quantify the payment.

8.0 Deposit:

Section 8.1: It isn’t clear why or under what circumstances LWW can charge a deposit for. Recommend a change to “LWW shall collect from new customers …”

Section 8.3: “In the event a disconnection occurs as a result of a violation of these Terms and Conditions, an additional deposit will be required.” Recommend specifying an amount or identifying a maximum amount that is no more than 25% of the estimated annual bill.

9.0 Disconnection: Recommend that notice be given in the event of disconnection. 10.0 Reconnection: Recommend the deposit in (ii) be set at $100.00 and the reconnection charge in section (iii) be quantified. 11.0 Ownership of Facilities: Add clause 11.3 indicating all repairs upstream of the valve curb stop will be the responsibility of LWW and at LWW’s cost. 13.0 Meters and Equipment: Section 13.2 Meter inspection: The meter test should be

performed by an unbiased third party, not by an LWW employee. For gas and electric meters, tests are done by Measurement Canada. Recommend LWW finds an independent testing agency. In other cases in Alberta, test are done by the nearest large municipality, in this case the City of Calgary.

14.0 Liability and Indemnity: Recommend changing the term “gross negligence” to

“negligence.” 16.0 Termination of Service: The phrase “coincide with transfer of title for the service

address” implies that service is only provided to the owner of the property. This clause should be re-written to indicate that service is available to the tenant.

17.0 Additional Terms and Conditions: Recommend that this clause be re-written so it is

easier for the customer to understand. 9 REVENUE REQUIREMENT

84. Schedule C RevReq summarizes the revenue requirement for each of the test years. Results for 2007 were estimated from LWW’s financial statements. The 2008 results and the 2009 forecast were provided by LWW.






Recommendation 85. Commission staff recommend the gross revenue requirement as shown in Schedule C RevReq attached at the end of this recommendation be utilized. As the Commission has a legislative mandate to ensure a fair return, and given that LWW appears to have a relatively low amount of capital invested, it is recommended that a management fee be implemented for the year 2009 to provide LWW with reasonable compensation for operating this water utility. The amount of the management fee is identified in the attached Schedule C RevReq. It is strongly recommended that the shareholders of LWW invest capital into LWW to increase their returns as the management fee is applicable only for this recommendation and is considered transitionary to allow capital to be invested in LWW. For rates in effect after July 31, 2009 Commission staff recommend that HCR amounts be removed on a go-forward basis. The resultant revenue requirement and rates are reflected in the columns 2009 Forward Rates in Schedule C RevReq and Schedule D-1 Rate Calculation.

10 RATE DESIGN AND COST OF SERVICE

10.1 Rate Design

Recommendation 86. Commission staff recommends continuing with the rate design implemented through Decision 2006-019. The results of the rate design are shown in Schedule D-1. Specifically it is recommended that LWW continue with its fixed charge for each customer of $37.00/month. The resultant consumption charge from the determined revenue requirement for 2009 on a go forward basis (without any Hearing Cost Reserve provision) commencing August 1, 2009 will be $1.213/m3.

Deficiency Rider 87. In Decision 2006-068 the Board directed LWW to collect a deficiency rider for the period of July 1, 2006 to June 30, 2007 at a rate of $0.647/ m3. However, in Decision 2007-032 the Board ordered LWW to continue collecting the rider of $0.647/ m3 until the total deficiency of $313,179 is recovered.

88. LWW recovered the total deficiency in December of 2008. An over-collection of $13,179.00 occurred and LWW applied to the Board to apply the over-collection to the Hearing Cost Reserve.

89. Schedule C RevReq shows a cumulative deficiency of $98,509 for the years 2007-2009 inclusive. This amount includes over-collections for the HCR account and the deficiency rider.

90. The LCWC requested that the over-collection be refunded to customers.

Recommendation 91. Commission Staff recommend that a deficiency rider of $0.2618/m3 be effective August 1, 2009 and collect amounts until the deficiency of $98,509 is collected (approximately 1 year). Once the $98,509 has been collected LWW is to discontinue the deficiency rider and file with the Commission a reconciliation of the deficiency rider within 60 days of discontinuance of that rider.




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