Resolution W-4223September 7, 2000
Donner Lake Water Co. AL 58/RHG
WATER/DJE/FLC/KKL/RHG
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
WATER DIVISION RESOLUTION W-4223
AUDIT AND COMPLIANCE BRANCH SEPTEMBER 7, 2000
RESOLUTION
Resolution W-4223. DONNER LAKE WATER COMPANY (DONNER). REQUEST TO BORROW FUNDS UNDER THE SAFE DRINKING WATER STATE REVOLVING FUND (SDWSRF), TO ADD A SURCHARGE TO WATER RATES TO REPAY THE PRINCIPAL AND INTEREST, AND TO PROVIDE A SINKING FUND RESERVE EQUAL TO ONE YEAR’S DEBT SERVICE.
By Advice Letter No. 58 Filed on May 24, 2000.
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Summary
This Resolution grants in part and denies in part the authority requested by Donner in Advice Letter (AL) No. 58.
Donner, a Class C water utility, requests authority to enter into a loan agreement with the Department of Water Resources (DWR) to borrow a total of $3,700,000 ($100,000 planning loan; $3,600,000 for replacement of existing infrastructure and for a new water treatment plant) under the SDWSRF; to encumber its assets in connection with the loan; and to place in effect a surcharge on existing water rates for the purpose of amortizing the $3,700,000 loan and accumulating a sinking fund reserve to equal to one year’s debt service.
This financing authority grants Donner a $100,000 planning loan with DWR.
Notice
Notice of AL No. 58 was made by publication in the Commission’s Daily Calendar of May 25, 2000. This is not an expanded 311 decision because this is an advice letter filing or uncontested matter pertaining to water companies only.
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Resolution W-4223September 7, 2000
Donner Lake Water Co. AL 58/RHG
PARTIAL DENIAL OF ADVICE LETTER
Donner’s request to borrow $3,700,000 under the SDWSRF is denied without prejudice.
Background
Donner, a subsidiary of the Del Oro Water Company (Class B water utility), is centered within the watershed of Donner Lake, California. Donner Lake is a natural pristine alpine lake surrounded by mountainous terrain. Donner predominately serves single family residential units with some light commercial developments consisting preliminary of small stores, real estate offices, and motels. Pursuant to the advice letter, Donner serves 1,237 (flat rate) and 42 (metered rate) active service connections.
In 1993, DHS cited Donner with Compliance Order No. 01-061 - Water System No. 29-005, for being out of compliance with the Surface Water Filtration and Disinfection Regulation, Title 22, Chapter 17, California Code of Regulations (Regulations) for its surface water supply. DHS records indicated that Donner needs a filtration plant to comply with the Regulations.
Res. F-641 dated November 21, 1995 authorized Donner to enter into a loan agreement with CoBank, ACB (CoBank) in the amount of $1,580,000.
Res. W-4061 dated September 3, 1997 approved Donner’s request for an increase in the loan contract amount from $1,580,000 to $1,735,600 and authorized the USDA Rural Development as the credit provider in lieu of CoBank. Due to economic reasons, the USDA Rural Development financing facility was not availed of and remains unused.
Donner’s distribution and storage systems are predominantly 40 to 50 years old and consist mainly of welded steel pipe. This pipe has deteriorated excessively to where pipe repairs and leaks are numerous. The storage tanks have also deteriorated excessively. On June 22, 2000, a meeting was held between Donner, the DHS, and staff of the Commission to discuss Donner’s water outages and shortages that were occurring on a daily basis and possible solutions[1].
By letter dated August 3, 2000, TDPUD notified the Commission of its intent to draw up a plan for providing water service at Donner Lake, including rehabilitating the existing water system and the possible goal of taking over service responsibilities in that area. TDPUD is performing an evaluation on an expedited basis. TDPUD further indicated in its letter that some facilities planned for construction by Donner would not likely be constructed if TDPUD acquired the system.
Pursuant to its 1999 Annual Report, Donner realized a net income of $24,641 on total operating revenues of $409,347. The company’s balance sheet as of December 31, 1999 is summarized below:
Assets Amount
Net Utility Plant$ 896,117
Investments 10,558
Current and Accrued Assets 486,054
Deferred Charges (33,404)
Total Assets $1,359,325
Liabilities & Equity
Capital and Retained Earnings$ 604,001
Long-Term Debt 447,527
Current and Accrued Liabilities 222,806
Deferred Credits 10,923
Contributions in Aid of
Construction 74,068
Total Liabilities & Equity$1,359,325
NOTICE AND PROTESTS
On November 30, 1994, Donner requested a general rate increase for water service. Donner included in its request an estimated amount of $1,580,000 for the addition of a filtration plant mandated by DHS. A notice of the proposed rate increase was mailed to each customer on November 30, 1994 and a public meeting was conducted at the Truckee-Donner Public Utility District Board Room on December 27, 1994. The items included in the agenda were the problems facing
Donner’s water system, the DHS citation, the proposed loan, and increases in water rates.
On July 10, 1997, Donner again notified its customers and interested parties of the increase in plant construction from $1,580,000 to $1,735,600, the change of creditor to USDA Rural Development, and the estimated amount of prospective rate increases attendant to the revised cost of the treatment facilities. No protests were received.
On July 10, 2000, Donner held a meeting in Truckee to address a water shortage emergency and the proposed water treatment plant. The meeting was conducted by members of Donner’s staff, a DHS representative and Commission staff. Approximately 100 customers and 10 other interested parties (non-customers) attended the meeting. The DHS representative updated the customers on the issue of delays in building the proposed water treatment plant (e.g. investigation of water rights, environmental concerns, site movement, plant re-evaluation, and litigation).
When the floor was opened for individuals to speak, the response was overwhelming. Over 30 individuals chose to speak and express their opinions on all issues surrounding Donner. The overall consensus from individuals was that Donner had not been able to provide reliable and safe potable water for the last seven years. People were upset and demanded that some steps be taken immediately to insure reliable and safe potable water. There was also a misconception that the customers were paying already for the proposed treatment plant in their current rates. While Donner, DHS and the Commission staff attempted to address the issues, opposition to the responses increased with each attempt. Regardless of what the response was, those in attendance responded negatively and became very accusatory.
The Water Division received over 30 letters and one group letter of protest and complaint regarding water shortages, water boiling for consumption, water conservation, and cracked pipes. Most of those letters requested that the Commission not approve this loan. On August 14, 2000, 348 customers presented a petition to Peter Holzmeister, Manager of Truckee-Donner Public Utility District (TDPUD) requesting the District to take over in providing water service to the customers of Donner.
Discussion
The Safe Drinking Water Revolving Fund (SDWRF) program is governed largely by federal requirements. Section 116760.42 (b) of the Health and Safety Code requires the program to include any federal requirements as spelled out in the federal SRF legislation, or any federal rules, regulations, policies, or guidelines established by the United States Environmental Protection Agency (USEPA) for conduct of the SRF program. The California SDWRF program is patterned after and consistent with the federal SRF program requirements. The USEPA requires that the State SRF program determine, on an annual basis, which portion of the multiyear project priority list is likely to be funded in the current funding year. This portion of the list is called the “fundable list.” As stated in Senate Bill Number SB 1307, as amended, DHS will enter into an agreement with the federal government for federal contributions into the fund if the state has obtained or appropriated any required state matching funds and DHS is prepared to commit to expenditure of any federal minimum amount in the fund.
Pursuant to the Initial Statement of Reasons of the State Revolving Fund Financial Assistance Program, Title 22, California Code of Regulations, Article 5, Section 64774, following review of the application for funding, DHS will determine if funding for the project in terms of a loan and/or grant shall be made. If the application is approved, DHS will issue a letter of commitment which reserves funds for the project and commits the State to provide funds for construction etc. consistent with the terms and conditions specified in the letter of commitment.
On September 1997, Donner submitted its pre-application to DHS and by March 1999, Donner was placed under the fundable portion of DHS’ project priority list. Consequently, Donner submitted its application for funding with the California SDWSRF.
During the July 10, 2000 meeting in Truckee, numerous individuals indicated they wanted an independent review of Donner’s books and finances. There was also a misconception that the customers were paying already for the proposed treatment plant in their current rates.
Donner reported to the Commission that the owner of a property denied the utility ingress and egress rights to a 30-foot section of a dirt parking lot leading to the location of the proposed treatment plant. Donner filed for condemnation of the property and received the Superior Court’s approval of an easement in order to run its pipe through the storage yard. The decision was appealed by the condominium owners and will be heard in October, 2000.
Donner’s proposed treatment plant has received the County Planning Board’s approval. However, on August 31, 2000, the City of Truckee upheld the appeal of the Planning Department’s environmental review. This means Donner will have to do a full Environmental Impact Report (EIR). This will cost an additional $150,000 and will delay the project by at least one year.
DHS has committed to provide a “planning loan” of $100,000 (#SRF1998PX301) to enable Donner to plan to replace some leaking pipes. This loan will allow Donner to plan for the needed replacements (but not to be utilized for the actual replacement costs). This loan will be rolled into the requested loan of $3,700,000 (for replacement of existing infrastructure facilities and for a new water treatment facility). As there is no time estimate as to when the construction of the project can commence due to the litigation and the required EIR, DHS has indicated its commitment to provide funding first for the main replacement program.
Donner’s estimated construction costs shown as Exhibit E to the Advice Letter are as follows:
Description Total
Records and Submittals$ 5,000
Site Preparation 75,000
Concrete Work 150,000
Paving 7,500
Station and Distribution Piping 400,000
Southshore Drive Arterial Main 880,000
Drainage System 75,000
Electrical 225,000
Emergency Generators 65,000
Building 100,000
Land Acquisition 100,000
Water Treatment Plant Filters 354,500
Lake Intake and Pumps 100,000
Service Pumps 75,000
Storage and Contact Tanks (including 415,000
demolition of existing tank)
Tank Ringwalls 60,000
Disinfection 1,000
Startup and Testing 5,000
Site Cleanup 5,000 Subtotal $3,098,000
Construction Contingency 200,000
Subtotal Estimated Construction and $3,298,000
Contingency
Permits 7,500
Utilities Costs 20,000
Engineering 365,824
Total Project Cost$3,691,324
Below are highlights of the proposed treatment facility as shown in the revised Engineering Report dated March 27, 1999, attached to the Advice Letter:
1. The lake intake structure will be replaced with a new system that extends two parallel 16-inch pipe chambers to a 12-inch intake pipe, which extends to a maximum depth of 185 feet below the high water mark. Each chamber will have a submersible pump capable of pumping 850 gallons per minute.
2. There will be new 12 inch mainlines to transport the raw water to the filtration plant and the treated water from the plant to the distribution system.
3. The new treatment facility will be a combination clarification-filtration system. The water is first filtered, then sent to two 125,000-gallon steel tanks for chlorination.
4. Three new booster pumps will be installed to transport the treated water to the system.
5. A new building will be constructed to house the filters, electrical switchgear, feed equipment and the booster pumps.
As part of the design process for the new water surface treatment plant, below are some of Donner’s existing infrastructure facilities that will require replacement:
1. The existing 6-inch mainline on Southshore Drive will be replaced with a new 12 inch main constructed of either Ductile Iron or C-900 PVC. The proposal calls for replacing a total of 11,000 lineal feet of mainline.
2. The present 250,000-gallon Southside Tank will be replaced with a new 500,000-gallon tank of welded or bolted steel construction.
Donner has two rate schedules: Schedule No. 1A - Annual General Metered Service, and Schedule No. 2A Annual General Flat Rate Service. Schedule No. 1A consists of an annual service charge based on meter size and a single quantity rate for all consumption. Schedule No. 2A consists of an annual service charge for a single residential unit and a charge for each additional unit.
The DHS, our sister agency and the state agency responsible for the public health and safety of California residents is best equipped to establish and enforce water treatment requirements. To the extent that DHS should issue compliance order to water utilities under our jurisdiction, as it has in this instance, it is our responsibility to provide the regulated utility the means to comply with such an order.
Pursuant to AL No. 58, the annual requirements for debt service for the estimated loan principal of $3,700,000 is $303,993 for years 1-10 (72% increase over Donner’s last authorized revenue of $421,275 per Resolution No. W-4149 dated June 3, 1999) and $279,721 for years 11-20 (66%). The amount of the surcharge to repay the principal and interest, and to accumulate the necessary reserve on the loan, is supposed to be in direct proportion to the capacity of each customer’s meter or service connection. The bill for a typical metered customer pursuant to Donner’s computation would increase from $27.62 per month to $47.27 or 71.1% and a typical flat rate customer would increase from $27.00 per month to $46.65 or 72.8% (for years 1 to 10).
With a state-funded and rate surcharge type of recovery, the utility or its owners do not personally benefit from the SDWSRF loan. DWR monitors the work and advances funds to a utility periodically as portions of the work are completed. The rate surcharge on customers’ water bills will be sufficient only to make the principal and interest and reserve payments on the loan. There will be no profit for the utility owners. The surcharge will last until the loan is repaid.
Clearly, the ratepayers ultimately pay for all water system requirements and improvements, regardless of the manner in which they are financed. If the utility were able to borrow the money to make the water system improvements from regular commercial sources, it would be far more expensive for the ratepayers than the low cost state funded loan. Likewise, if the utility owners invested their own funds to pay for the water system improvements they would be entitled to similar earnings on such funds.
However we are denying in this Resolution the $3,700,000 SDWSRF loan without prejudice at this time. Once the litigation over the right-of-way on the property leading to the proposed water treatment plant has been settled and the EIR completed and approved by the Truckee City Council, Donner may file an advice letter requesting authorization of the $3,700,000 SDWSRF loan, to add a surcharge to water rates to repay the principal and interest, and to provide a sinking fund reserve equal to one year’s debt service. At this time, we believe that our approval on this matter will be premature and is not required.
Donner is authorized in this Resolution to enter into a loan agreement with DWR for the $100,000 planning loan. This amount should be incorporated into the $3,700,000 SDWSRF loan filing when the litigation is settled and the EIR completed.
Findings
- Donner’s water system requires improvements to provide safe drinking water and reliable water supply.
- Donner has received the Superior Court’s approval of an easement that it needs to route a pipeline from the lake to the filtration plant. This decision has been appealed by the condominium owners and will be heard in October, 2000.
- The Truckee City Council turned down the Planning Commission’s environmental approval of the Donner filtration plant project, and required an EIR.
- An EIR will delay Donner’s project by at least one year.
- DHS has committed to provide Donner a planning loan of $100,000 to enable Donner to plan for the needed main replacement program.
- Due to the appealed easement decision, the pending EIR, and customer concerns, it is premature and not necessary at this time for this Commission to authorize the $3,700,000 SDWSRF loan.
- Donner should pay the fee for the $100,000 planning loan (determined in accordance with Public Utilities Code § 1904(b).
Therefore it is ordered that:
- On or after the effective date of this Resolution, Donner Lake Water company is authorized to borrow a total of $100,000 from the State of California under the Safe Drinking Water State Revolving Fund to be used to plan its project.
- Donner Lake Water Company may execute and deliver the loan contract with the California Department of Water Resources.
- Donner Lake Water Company’s $3,700,000 proposed loan under the Safe Drinking Water State Revolving Fund to be used for replacement of existing infrastructure facilities and for a new water treatment facility is denied without prejudice.
- Donner Lake Water Company shall continue it’s full efforts to comply with the Department of Health Services’ orders, including but not limited to proceeding with the condemnation action.
- Donner Lake Water Company may file an advice letter requesting authorization to borrow funds for its main replacement project and a new water treatment facility when all legal and governmental requirements have been completed.
- Donner Lake Water Company shall file with the Commission a copy of the loan contract with the Department of Water Resources within 15 days after execution.
- The authority granted by this order shall become effective when Donner Lake Water Company pays $200 as required by Public Utilities Code § 1904(b).
This Resolution is effective today.