Pennichuck Water Special Committee

REPORT OF THE PENNICHUCK WATER SPECIAL COMMITTEE APRIL 7, 2015 A meeting of the Pennichuck Water Special Committee was held on Tuesday, April 7, 2015, at 7:05 p.m. in the Aldermanic Chamber. Alderman-at-Large Daniel T. Moriarty, Chair, presided. Members of the Committee present: Alderman-at-Large David W. Deane Alderman Sean M. McGuinness Alderwoman Mary Ann Melizzi-Golja Alderman-at-Large Lori Wilshire Also in Attendance: Thomas J. Leonard, Chairman of the BOD, Pennichuck John Patenaude, CEO, Pennichuck Donald Ware, COO, Pennichuck Larry Goodhue, CFO, Treasurer & Controller, Pennichuck _______________________________________________________________________________________ PUBLIC COMMENT - None COMMUNICATIONS From: John L. Patenaude, Chief Executive Officer, Pennichuck Corporation Re: Pennichuck Water Works, Inc. – Bond Financing MOTION BY ALDERMAN DEANE TO ACCEPT AND PLACE ON FILE ON THE QUESTION Chairman Moriarty Mr. Goodhue, if you scan through this we have some pretty big numbers, $49 million; this had already shown up, we already talked about it, we already voted on it but I am curious what this particular letters’ purpose is and what is it doing here? Mr. Goodhue The purpose of this letter, speaking on behalf of Mr. Patenaude was basically to memorialize the actual closed upon amounts relative to this financing. Mr. Patenaude That’s exactly it. It was just to memorialize the fact that we came in for an amount of bonding and this is just bringing closure to that amount so that you would know that we completed that task. Chairman Moriarty It does talk about how we approved a much larger number. You refinanced some amount that’s taxable and you took some other loans and ended up not having to take the bond as large as it was originally requested. Pennichuck Water Special Committee -2- 04/07/15 Mr. Patenaude That is correct. MOTION CARRIED From: John L. Patenaude, Chief Executive Officer, Pennichuck Corporation Re: Pennichuck Utility Companies – Recoupment of Rate Case Expenses and Temporary Rate Recoupment MOTION BY ALDERMAN DEANE TO ACCEPT AND PLACE ON FILE ON THE QUESTION Chairman Moriarty Mr. Patenaude, would you like to comment? Mr. Patenaude Yes, this letter was sent to you to keep you in the loop as to what was going on with the rate cases. As people know, we are allowed to recoup rate case expenses through rates and this letter gave you an overview of how much was for each of the utilities and what was expected to be charged over the next twelve months for each of the utilities. If you had a question from a constituent you would know how to answer that. Chairman Moriarty The 2013 rate case expenses were $104,000. Does that mean you spent $100,000 in legal fees? Mr. Patenaude It is legal fees and any other fees to do with bringing the rate case through the system. Chairman Moriarty That’s a huge number to do something, this is substantial. Do you mind explaining what it takes to file a rate case? Mr. Goodhue There is a whole administrative process that we have to go through which are dictated by the statutes including getting the docket filed and then going through a certain series of steps relative to tech sessions, discovery, testimony, and responding to intervening parties relative to the rate case. At a minimum a rate case is going to have three parties to the case, the corporation, the NH Public Utilities Commission and the Office of the Consumer Advocate. As a result, those three parties all have responsibilities and obligations and in many rate cases you may have another independent third party that might be accepted as an intervener on that case if they have got direct interest and it’s deemed by the commission that they have an interest that is allowable. As a result there are a number of expenses that go along with that. We have to hire counsel and we have to pay fees associated with that whole process and then there are fees that are actually paid to the commission with respect to the process as well. The process on a normal rate case takes several months to go through the steps and there is a great deal of time invested both by the company and the other parties. You may have to also hire experts for various studies that may be required relative to a particular rate case. Pennichuck Water Special Committee -3- 04/07/15 Mr. Patenaude I will add that there was a lot of time spent relative to the acquisition. This rate case was promulgated through the PUC at the time of acquisition. They said by the next year you have to file a rate case and a lot of the items that were reviewed during that rate case had to do with the acquisition and the acquisition expenses. Mr. Goodhue That was in compliance with the rate order that was issued approving the city purchasing Pennichuck Corporation. It was a requirement and so part of those items that Mr. Patenaude just spoke about were in compliance with that order. Mr. Ware The filing was made on June 1, 2013, and the final ruling from the commission approving the petition did not occur until late July of 2014 so the process took over a year and it took about three months to prepare the petition so you are talking almost a 16-month timeframe from start to finish. Mr. Leonard One other interesting thing that I find in the process is that it’s complicated and driven by statute but you are pointing at an expense that is substantial and interestingly enough, this was all done – well basically there was no hearing, it was pretty much by settlement so it could get much more expensive than this. This was really kind of a “but for the initial expertise necessary to bring the PUC up to speed on the new company” if you will, or the new ownership. That’s a little out of the ordinary but other than that it was a straight forward and amicable process because these folks did such an excellent job in their initial petition with the information initially provided. If you have an intervener or if there are hearings where there is no agreement in advance it can get much more expensive. Chairman Moriarty Let’s say it takes about a year or many months for this to happen, I would have guessed that there was a rate case every year. Does that mean we spend an entire year to do a rate case every year? Mr. Patenaude We don’t do it every year. The rate case is typically every two to three years depending on the situation. Sometimes it can be more or less depending on the weather in essence. Hot and dry summers you can go a little longer; damp and wet summers will bring you into a two-year cycle. Mr. Goodhue To give you an illustration, as far as PWW is concerned this rate case was related to the 2012 test year. The prior rate case for PWW was the 2009 test year. That was the same cycle for Pittsfield Aqueduct Company and for Pennichuck East Utilities the prior rate case prior to 2012 was 2006. It is not an every year occurrence. Chairman Moriarty Maybe it just seems like it happens a lot because it’s new to me. We are sort of refreshing the organization as a whole. It’s obviously procedural and by the book. Pennichuck Water Special Committee -4- 04/07/15 Mr. Goodhue One other point is that when you look at this allowed rate case expenses this is the result of a very strenuous review and audit by the PUC of the costs that are eligible and qualifying for these rate case expenses as well. These are numbers that are very sanitized and very highly scrutinized relative to these costs. Alderman Deane If we get a really rainy summer we have problems. The rate cases are predicated on usage. So when people are out washing their cars and irrigating their lawns everything is fine and dandy but as soon as we get wet summers and the usage is down then you are in for a rate increase, is that right? Mr. Ware The drivers are weather but also you have inflationary pressure, electricity, chemicals, labor and capital investment. Usually those are the drivers but you have a variance of +/- 10% from an average between a wet year and a dry year and 65% of our sales are driven by volume. Alderman Deane For like 4 months, right? Mr. Ware Yes. So a dry summer versus a wet year you can have a difference of almost $3 million against a $25 to $27 million base. It makes a big difference. Alderman Deane It’s a lot of money. MOTION CARRIED From: John L. Patenaude, Chief Executive Officer Re: Pennichuck Water Works, Inc. – Water Infrastructure and Conservation Adjustment Filing MOTION BY ALDERMAN DEANE TO ACCEPT AND PLACE ON FILE ON THE QUESTION Chairman Moriarty There is a WICA surcharge. My question is how long the surcharge lasts because the rates here are per month. Mr. Patenaude It lasts until the next rate case. So people are basically paying for the infrastructure that is put into place during the year, the new infrastructure replacing the old infrastructure so there’s a charge for that and that keeps us from going into rate cases sooner rather than later so at the next rate case that will be taken into consideration. Then it basically comes back to zero because your rates now reflect the infrastructure and then if it’s approved by the PUC to go forward then the following year there would be another WICA charge. Pennichuck Water Special Committee -5- 04/07/15 Mr. Leonard The purpose of WICA, if you go between rate cases, there’s a steeper curve. The WICA allows the company to adjust rates for replacement of infrastructure and it flattens out the curve. As Alderman Deane asked if we were to do a rate case every three years – you know it’s flat for three years and then there is a big bump, 5%, 6%, 8% or 10%. With WICA you are allowed to collect for replacement infrastructure at an even rate so that the bump later on won’t be as much. It only applies to replacement of already installed and existing infrastructures so for a new project you can’t use it; you have to go through the regular rate process. Mr. Goodhue So you think of it as a subset of a future rate case, it gets absorbed in that future rate case so it allows for less rate shock over time for the consumers as we are continuing to invest in the infrastructure to make sure that we can supply good quality water on a reliable basis to our customers. Chairman Moriarty The previous communication, for example, for PWW was .32 cents a month for the next year and that’s just a flat rate then this particular WICA adjustment is going to be for the same – it looked like it is sort of an example for someone who consumes 7.8 cubic feet is .58 cents so is the WICA a rate charge or is it just a flat number? Mr. Patenaude It’s a percentage. If you look at the top of that worksheet the cumulative between the two years would be 1.91% of your bill. Chairman Moriarty I have a note here to myself on Attachment C, page 1 of 2; which by way, it looks like the analysis we get from the city when we see contracts, it’s the same font and structure. Do you guys use the same or is it coincidental? Mr. Goodhue It’s an Excel worksheet. Chairman Moriarty So we have overall revenue, there’s a yearly increase and then cumulative and it looks like the cumulative is the sum of the overall. They are like .7%, 1.2%, 1.9%, 1.9% and 1.6% per year. Mr. Goodhue Understand that when you look at those columns the first two are actuals, the 2013 is an actual, the 2014 is based on the actual information submitted for the WICA which is still on-going as far as getting a final order with the PUC for the 2014 year. The columns for 2015, 2016 and 2017 are projections for the out years based on planned expenditures for those three years. We are required under this program to always be forecasting at least three year out. Pennichuck Water Special Committee -6- 04/07/15 Chairman Moriarty Can you explain why – if we were going to replace capital at a fixed dollar amount per year then that would mean that you would have a fixed rate built in to recoup it but the fact that the rate is going up per year makes it seem like you are replacing more capital per year. Why is the rate increasing as opposed to just you add a rate one year and it stays that 1% surcharge for the next five years? Mr. Patenaude If you look at the plant additions, 2014 was $3.4 million, 2015 is projected to be $5.2 million and $5.4 million in 2016 and $4.5 million in 2017. Chairman Moriarty So you are indeed replacing more capital each year by a little bit? Mr. Patenaude That’s correct. Mr. Goodhue The percentage bumps are based on the layers being added on an annual basis. Mr. Leonard Those are replacements of existing infrastructure. That’s an annual decision that we make. We adopt a budget each year and it is more specific and certain but even then when you adopt a budget in January and then August comes it isn’t always as you had planned. We have to coordinate a lot of our work with the city so there are always variables that can’t be anticipated. MOTION CARRIED From: John L. Patenaude, Chief Executive Officer Re: Annual Meeting of Sole Shareholder MOTION BY ALDERMAN MCGUINNESS TO ACCEPT, PLACE ON FILE AND RECOMMEND THE ELECTION OF DAVID P. BERNIER, STEPHEN D. GENEST AND THOMAS J. LEONARD TO THE BOARD OF DIRECTORS OF THE PENNICHUCK CORPORATION EACH FOR A THREE YEAR TERM UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED ON THE QUESTION Chairman Moriarty For the benefit of people who are unfamiliar with the procedure, there is a proxy that we get from Pennichuck because Nashua is the sole shareholder. Nashua has to vote on it and submit it and it follows the usual process. The usual process is that you get a 1st reading at the full Board of Aldermen and it gets referred to a nd committee which is this committee, and then it goes back to the full Board of Aldermen for a 2 reading and then we can fill it out. What’s interesting here is that the proxy itself seemed to have come straight to this committee. I don’t know if it came in at the full Board of Aldermen. Pennichuck Water Special Committee -7- 04/07/15 Alderman Deane What we can do is we can make the motion to recommend. Chairman Moriarty We will make a motion to recommend and then do a 1st and 2nd reading at the full Board of Aldermen; I think we’ll be okay. It is typical of anyone who has owned stock that you get a proxy card once a year and you get to vote and it’s common for the Board of Directors to have people come up for re-election that you vote on and currently we have three of them. There’s a rotation, I think there is a total of eleven Board members and they are in three different sets. There are three 1-year, four 1-year and four 1-year and this particular group is Class C so it’s the last of the original three nominations I guess. There is a summary of the purpose of the corporation and a resume of the CEO, COO and CFO which is very nice and a summary resume of each of the three Board of Directors, one of which is here, Mr. Leonard. We have an annual report and if you look on page 5 and page 6 I noticed there was a lot of numbers that changed this year versus last year. Some of it had to do with the fact that you guys took out $50 million in loan. On page 5 we have a net loss of $1 million the previous year and now its $1.7 million. You guys have trained me to not worry about such a loss because in some cases it’s paper loss because you have that MARA that you are always depreciating so it’s sort of an invented asset that is being inventively depreciated and creating an inventive loss in some sense. Alderman Deane I remember that conversation like it was yesterday. Chairman Moriarty What matters I think is cash flow and the cash flow and the cash flow seems to be stable. Even if there is a loss and you are watching the books and there’s a cash flow issue then you project and hence you have the rate adjustment. So the way the corporation is set up it will never go bankrupt because the PUC will set the adjustments to make sure it runs. You pay back $8 million per year to the city for the loan so the city isn’t at risk of defaulting on that loan as long as people drink and there’s not some major catastrophe things should move along smoothly. Nevertheless there are some big number changes like the restricted cash; it was $120,000 and now its $40 million in cash. Mr. Goodhue You are referring to the unaudited cash flow statement and you are focusing on a couple of lines, specifically I believe; the increase, decrease and restricted cash of $40,273,000 and offsetting that are the proceeds from long-term borrowings at $49,935,000. When we did the bonding activity in December of this year there were three basic parts to that bonding. There was a taxable bonding portion of a little over $5 million, which was then reimbursed for capital expenditures in the year 2013; there was $19.5 million that was raised for funding of 2014, 2015 and 2016 cap X and there was $23.35 million raised to refinance some existing debt. The th $23.35 million; we closed on the bond on December 15 and the money was available two days after that for the refinancing activity but because these were refinancing some tax exempt bonds that were in the marketplace there’s a 30-day notice requirement to those existing bond holders. That $23.35 million plus $375,000 of accrued interest on that sat in an escrow account at year end so it’s on both sides of our balance sheet. You still have that doubling up of the debt, those refinanced amounts on the liability side and the left side of the balance sheet is $23.7 million worth of money sitting in escrow just waiting for that final payoff to happen on January 20, 2015; which did occur. The other piece of the $19.5 million where we bonded for capital expenditures for 2014, 2015 and 2016, we were only able to process one draw against that before the end of the year to the tune of about $2.7 million for cap X that had been expended in 2014 and was actually used and the projects were completed. As a result, there’s almost $17 million of that still sitting in a bond project fund with the bond trustee awaiting future draws over 2015 and 2016 as projects are completed for Pennichuck Water Special Committee -8- 04/07/15 those bonded monies and that will be then drawn to repay the company as those projects are completed. When you look at both sides of this it all has to do with that bonding process in that we raised that roughly $50 million but the slug of it was sitting in cash on the balance sheet at year end because of those two different items. Chairman Moriarty So you have two very big numbers cancelling each other and ultimately the very bottom line in cash equivalents at the end of the period, it was $1 million last year and it’s almost $3 million this year. Mr. Goodhue That is correct. Chairman Moriarty And that was on purpose. Mr. Goodhue Correct. In the way FASB has designed a cash flow statement is to be called a gross sources and uses statement rather than just showing net change in a checkbook you want to know what the gross sources and uses are to get to that final answer so that’s why you have some numbers that can be very big so when you need the direction to get you to the end result but it tells you the path that you took and all of the major elements that are required to get there. Chairman Moriarty So this is for a $30 million total revenues per year, is that about right? Mr. Goodhue It’s $36 or $37 million. Chairman Moriarty So you have $3 million cash on-hand at the end of the year. Mr. Goodhue We have $39 million worth of revenue. Chairman Moriarty That seems decent, 10%. Then on page 6 the assets and liabilities, they equal and for whatever reason that’s accounting. Can I interpret as essentially the company has a total value of $323 million if you just add everything up that’s associated with it? Mr. Goodhue That is the company’s total asset value as of December 31st. The one thing that I will point out is on the left and the right side of the balance sheet is that $23.7 million I spoke about. If you look at the 5 th line at the top of the assets, the $23,725,000 million restricted cash – bond refund escrow, the number down below, the Pennichuck Water Special Committee -9- 04/07/15 $26,275,000 million, the current portion of long-term debt; $23,350,000 of that is related to that so you would almost pull that out and say that the real value of the company at year because you just had this money sitting in escrow, its $300 million. Mr. Leonard It’s kind of like borrowing money to pay a debt and we have to take a snapshot when you have the money but before you pay the debt. We closed this on December 15th and we didn’t pay off the debt until January 20th st and this is a snapshot on December 31 . Mr. Goodhue If you look at the very end of the audited financial statements that we supplied to you in a subsequent events section at the very end of the financial statements it indicates that transaction was completed prior to those financial statements being issued. The financial statements have to show the financial status of the corporation as of the date of the balance sheet but if you’ve got a material event that occurs subsequently then you disclose that in your footnotes. Chairman Moriarty On page 7 you have list of major expenditures and these are things that people in the city might care about. Burke Street Main Replacement (Nashua) was the biggest expenditure at almost $900,000. Alderman Deane, we might have talked about that at one point in the Finance Committee maybe? Alderman Deane Yes. Chairman Moriarty There are some in Windham, Londonderry, Barnstead and then there is a Snow Station Structural Improvements (Nashua) at $572,000. Meters, I remember that; we got a tour of PWW and you talked about the meters being upgraded. Mr. Ware We still drive by but these meters are replacing meters where there is a new criteria with lead free meters. Every house has a radio on it that transmits when the meter reader drives by what the reading is at that particular time. Chairman Moriarty The Timberline Pump Station (Nashua) that would be down at Ward 8 up on the hill. Mr. Patenaude That’s in process; it hasn’t been completed yet but should be completed within the next 6 – 8 weeks. Alderwoman Melizzi-Golja We residents of that area were happy to see the sign as we turned onto Timberline so thank you. Pennichuck Water Special Committee -10- 04/07/15 Chairman Moriarty The Baldwin Street Main Replacement (Nashua), I suspect that would coincide with the new bridge. Did that go under the tracks or across the bridge? Mr. Patenaude Under the tracks. Alderman Deane Just like in Boston so when they burst they can wash the trains. Chairman Moriarty I had heard that the paving for the little forestry’s down there have been delayed in order to allow for the installation of new pipes. Is there a scheduled pipe replacement? Mr. Ware The only scheduled pipe replacement in this current year is the completion of work on Fairmount Street which leads down into the area. Chairman Moriarty Cross Street Main Replacement (Nashua) $110,000; Oak Street Main Replacement, so Nashua is getting some repairs and that’s always good to see. I wonder if on Pennichuck Street heading east if you will be laying any pipe there soon. The road is in bad shape. Mr. Ware There are none planned although there is a developer looking at the facility that is across the railroad tracks that might drive some improvement to the water main in that street earlier than it might have normally have been done. Alderman Deane Are you referring to the Beazer property? Mr. Ware Yes. Alderman Deane My other question is why is the quality of the water in that end of town so bad? Mr. Ware Are you talking about the quality of color or taste? Pennichuck Water Special Committee -11- 04/07/15 Alderman Deane I went to this woman’s house and she had a problem with her boiler and she couldn’t keep a boiler in her house because the water was so bad. Does Pennichuck have problems up in that end of town? Mr. Ware Prior to our initiating a flushing program which goes all the way back to the late 1990’s, all the pipes in that area are unlined cast iron pipes so when summer came around and people first turned their sprinklers on you got a release of the soft rust from the inside of the cast iron mains. We had historical problems with colored water. We now have a flushing program that is about ready to start. You’ll start to see publications in the paper that we are flushing the pipes around the city at night in order to remove any lose rust from the inside of the older pipes. We have very limited complaints and we track every customer complaint relative to water quality. If you are aware of a constituent with a problem please have them give us a call so we can work with them and investigate the issues. Some of the older homes in that area have steel services and those services build up with the rust so the main in the street may be clean but the service itself may have an issue with rust. Chairman Moriarty I promised Mr. & Mrs. Barry I would ask about the water tower at Kessler Farms. It’s a big rusty hunk of steel, are you guys going to paint that? They claim that they don’t get the benefit of drinking the water that comes out of the tower. Mr. Ware The water for all of Kessler Farm comes out of that tank. That tank was inspected last year and we are in the process of looking at whether we are going to repaint in the next one to two years or replace it with a concrete tank. It would cost $1 to $1.5 million to repaint it so we are weighing whether or not to replace it. There are concrete tanks on Shakespeare Hill and you don’t ever have to paint those. The ones up behind Rivier College are concrete as well. Chairman Moriarty You could talk to the Positive Street Art people; they would do it for free. Would the money to repaint it be a WICA filing? Mr. Ware No, it doesn’t qualify. Chairman Moriarty Would it be part of capital that you would just fit in your budget somehow? Mr. Goodhue The bonding that we just completed is for cap X for 2016 and when we are looking past 2016 we would be looking at another bonding event for major capital. Chairman Moriarty Is the water pressure on Shore Drive typically low? It’s off of Exit 5. Pennichuck Water Special Committee -12- 04/07/15 Alderman Deane It’s the same street the Mayor lives on. Mr. Ware The pressure in that area is around 50 to 55 PSI so they are fairly normal. The BOCA code which the city operates, the pressure needs to be between 40 and 80 pounds per square inch. Depending upon the size of the pipes in the house and if people add an irrigation system suddenly and then the washing machine comes on and they flush the toilet, you can have shortages of available water pressure because they have a 3/4 “ pipe that was put in originally. Again, I encourage them to call us in, we’ll go down and do recordings and try to help them understand what might be causing their problems. Alderman Deane I bet you 99% of the time that is the problem. Chairman Moriarty On page 8, the Conservation Easement is always a good thing even though it’s from 2013 you may as well keep taking the credit for doing something nice even if its two years old. Mr. Goodhue It covers the financial periods that are included in the financial statements. Chairman Moriarty So it’s mentioned not because you are do-gooders but because of the financials associated with the Conservation Easement. Mr. Goodhue Yes, we want to be compliant. Chairman Moriarty The $54 million in financing, we have succession planning on page 9. We are all going to sad to see, it’s here in black and white that Mr. Patenaude will retire from the company in November of 2015 even though you agreed to take an extension. Do we know what’s happening when our good man leaves? Mr. Patenaude That’s one of the primary responsibilities of the Board of Directors and we are in the process now. We hope to select someone by the end of the summer. Chairman Moriarty We will look forward to hearing who will be the new CEO is and give a heads up to the newspapers who I am sure are watching this meeting intently. We have come here many times about how the rates will go up slower because that’s the way it’s run now versus it used to be profit based and not paying dividends, it’s a lot of stuff that you can do that you weren’t able to do before but in the end, what are the rates looking like because it has a list of the company’s main goals for 2015 and one is to continue to provide excellent water calling services, etc. I would put down here to keep the rate growth low. Pennichuck Water Special Committee -13- 04/07/15 Mr. Patenaude We have been forecasting and if you look at our rate cases when we did the bonding we were using a protection for PWW of roughly 3.2% and if you went back to the original that was provided to the Board prior to the acquisition, they are pretty well in line with that. We had projected at the time that starting in 2013 increasing it 2.9% per year. In 2013 and 2014 there was no increase. As you go out in time that increase looks more like a 3.2% or 3.3%. It depends on what happens with the utility rates. Our mission is to keep them as low as possible but yet provide quality water and services to our customers. Alderman Deane What are you budgeting for our rate increases on electricity, about 8%? Mr. Ware We currently just transitioned from one two-year contract to another and the price went from 6.5 cents per kilowatt hour to 7.4 cents per kilowatt hour. Alderman Deane Wow. Mr. Ware We purchased about close to $10 million kilowatt hours per year so there was a substantial increase in the cost. Chairman Moriarty Mr. Patenaude, in 2013 it was a 2.9% increase? Mr. Patenaude No, 2013 was when we first did the projections for the city prior to the acquisition. We had flat lined using 2.9% per year as an increase in rates and revenue. Chairman Moriarty But 2014 ended up being basically zero as well as 2015? Mr. Patenaude Yes. Chairman Moriarty But on the WICA we show 1.2%. Mr. Patenaude Yes, we hadn’t projected WICA; we had projected the general rate increases going forward as 2.9%. WICA is still much lower than the 2.9%. It was .67% last year and this year cumulatively it will be like 1.89% so we will still be lower than what we projected relative prior to the acquisition. Pennichuck Water Special Committee -14- 04/07/15 Chairman Moriarty So I’ll re-phrase, the total bill that the customer pays year to year; is that pretty much it or is there something on top of this WICA? Mr. Patenaude Well there will be a rate case at some point in the future or an increase. That WICA will stop with that rate case. Chairman Moriarty For now at least this is basically everything, the 1.25% and 1.90%. Mr. Patenaude Yes. Chairman Moriarty There was a rate case on the previous communication because it was paying the legal fees for the rate case. Mr. Goodhue That’s just the rate case expenses. That is not a change in our water rates. Chairman Moriarty What was the result of the rate case? Mr. Goodhue Zero percent. We were required by the PUC. Prior to the acquisition, we had gone through the whole process with the PUC. They wanted to be assured that what we told them actually happened. In the order they said you will come back to us and file rate cases by June 1, 2013, which we did. For Pittsfield and Pennichuck East, there were increases. Pennichuck Water Works, Inc. did not have an increase. Alderman Deane As a ratepayer myself if you’re telling me you’re paying my ratepayer money to go through an exercise to ask for no increase, I’d be kind of alarmed by that. We should be looking at changing that process. If it was inclusive of Pennichuck East and Pittsfield Aqueduct, I could understand it. That just makes no sense. Mr. Goodhue That was the agreement the city made with the public utilities commission at the time of the acquisition. Going forward, Alderman Deane That doesn’t happen anymore. Pennichuck Water Special Committee -15- 04/07/15 Mr. Goodhue Exactly. It’s a one-time event. Alderwoman Melizzi-Golja My memory of that was you guys are telling us that you’re going to do this and you’re going to come back and we’re going to monitor it to make sure the consumers, the ratepayers aren’t having something happen that we did not intend to happen. Mr. Goodhue That’s correct. Alderman Deane I wanted to go back to Pennichuck Street again and the Beazer property. Has there been a request to put water down there? Mr. Goodhue There’s been no formal request. We often have developers come in and talk at a high level. Alderman Deane Have developers been in talking at a high level? Mr. Goodhue Yes. Chairman Moriarty In summary, the rates are going to go up this year 1.9%, the next year 1.97%, the next year 1.6% unless there’s a rate case filing. Mr. Leonard It’s also true that we expect the rates to go up about 2.9% over the long term. Right now they are below that. There’s some give and take here. MOTION CARRIED UNFINISHED BUSINESS – None Pennichuck Water Special Committee -16- 04/07/15 NEW BUSINESS – RESOLUTIONS R-15-114 Endorsers:Mayor Donnalee Lozeau Alderman-at-Large Lori Wilshire Alderman-at-Large Brian S. McCarthy Alderman Richard A. Dowd Alderman-at-Large David W. Deane APPROVING THE PROPOSAL OF PENNICHUCK CORPORATION TO GIVE PENNICHUCK WATER WORKS, INC., PENNICHUCK EAST UTILITY, INC., AND PITTSFIELD AQUEDUCT COMPANY, INC. AUTHORITY TO BORROW FUNDS FROM THE NEW HAMPSHIRE DRINKING WATER STATE REVOLVING LOAN FUND MOTION BY ALDERMAN WILSHIRE TO RECOMMEND FINAL PASSAGE OF R-15-114 ON THE QUESTION Mr. Goodhue Before the committee are three separate and synonymous resolutions, one for each of the three companies that were cited by Alderman McGuinness relative to dollars that we are seeking to borrow for those companies through the State Revolving Fund for three specific projects. These are projects that are not covered by the bonded money that we raised last December. The loan for Pennichuck Water Works is for $3.5 million for a main project in Merrimack, New Hampshire. There’s one for Pennichuck East Utilities for a $400,000 main replacement project in the Lock Lake System in Barnstead, New Hampshire. For Pittsfield Aqueduct, $165,000 loan for a main project on Fairview Ave, right next to Main Street in Pittsfield, New Hampshire. These are projects that were part of the approved capital budget from the Board of Directors for the 2015 year. As I indicated, two of them are for new mains, and one is a replacement main project. With regard to the replacement main project, it is one of the steps in the multi-year project that we’ve been working on in Lock Lake that would come before the committee. Each year we’re vesting about $400,000 in replacing that entire system over an elongated period of time relative to rates stability within that utility, not making an investment that is too large but making it so that we can get that done in a manner that’s responsible. With regard to the other two projects are far as the engineering and the requirements, I would defer to Mr. Ware to discuss those. They are related to the company’s long-term objectives of providing water to our customers. Mr. Ware It depends on how much interest and time, but the city has two sources of raw water, the Pennichuck Brook System and then the Merrimack River. The Merrimack River became a secondary. Actually it was an essential source of supply in the mid 1980’s, primarily used to meet summer peaking needs. Over time it’s been used more and more but it merges with the source of supply, the Pennichuck Brook supply. The two flow together through the pond system over a series of dams and through a 72-inch penstock. This will separate these two supplies so they can both come into the plant independently. It will allow us to perform work in the future on the dams without interrupting supply. It will also provide us some protection in the event there’s numerous road crossings over Pennichuck Brook. Amherst Street, the FE Everett Turnpike are potential sources of a vehicle going into the water. This would provide a separate source of supply. Alderman Deane For years kids were allowed to skate on Stump Pond. Now they are not allowed to skate there anymore. Why is that? Pennichuck Water Special Committee -17- 04/07/15 Mr. Ware We do not control what goes on at Stump Pond. Alderman Deane Then who put the fence up? Mr. Ware I believe a private homeowner. We have no ownership of property on Stump Pond. Alderman Deane I thought you did. For those who don’t know where Stump Pond is, and it got that name if you ever skated there you’d know there’s little stumps sticking out all over the place. It’s a nice little place right up by the highway up off of Manchester Street right before you crest over to the bridge. You think that’s privately owned? Mr. Ware That’s actually not Stump Pond. Stump Pond is in Merrimack. You’re talking about what we would call Tinker Pond which is off Tinker Road. Alderman Deane The kids all called it Stump Pond. You own that. Mr. Ware That is correct. That is a direct tributary, actually an off-shoot of Harris Pond. Alderman Deane For 100 years there wasn’t a fence around it. All of a sudden there’s a need for a fence. Was there problems with people discarding things there? What drove putting the fence up? Mr. Ware A combination of things. One that has been a local dump. Quite frequently we get called by the people in that neighborhood about people who dump trash right along if you’re driving over the highway on the left-hand side. It seems to be a convenient place to drop off junk. People were backing off the road and dumping there. It’s a pre-treatment area for the water coming off the highway. Again standards have changed. Back in the 1970s we had an unfiltered surface water supply. In the 1980s the regulations required us to filter that. In the mid 2000’s we added all kinds of additional treatment to the facility that we currently have. One of the criteria in the Safe Drinking Water Act is raw water quality. Gradually fences went up around the watershed. Human contact with the water is not allowed. Alderman Deane You go to Massabesic in Manchester; you can have gasoline powered motorboats on it. Pennichuck Water Special Committee -18- 04/07/15 Mr. Ware They are in the process, but there’s no human contact allowed. They can drive the boats, but nobody is allowed to go swimming in it. Alderman Deane Some of that, I just don’t get. Mr. Ware Those are the regulations. Alderman Deane I know, but it defies logic at times. Mr. Leonard The project that Don just described is what you refer to in the letter as the Merrimack project. That’s the new redundant source. It happens to go through Merrimack, but it’s for the whole core system. Chairman Moriarty How does the water get from the Merrimack River to the supply? Is there a pump and does it just pump currently into a pond somewhere? Mr. Ware There’s a pumping station just to the north of the Merrimack Waste Water Treatment Plant. It draws water directly from the Merrimack River. It pumps it up and over past the Nashua Gun Club down into Bowers Pond. It mixes in Bowers Pond with the flow flowing from Pennichuck Brook. The discharge is if you come out of BAE and you made a right on Manchester Street and took your first right, Al Paul Lane. As you run down Al Paul Lane, you’d be running right over top the 30-inch main that’s delivering water from the Merrimack River into Bowers Pond. Alderman McGuinness The borrowing authority for these entities, how is it defined? By each project? Mr. Ware It is project specific. Projects have to qualify for this funding. Our team meets with the NH Department of Environmental Securities each year to look at possible projects that might qualify and dollars that might be available. We’re notified by them on what projects might be accepted and what funding might be available. Funding is done on a company-by-company basis and a project-by-project basis with these types of borrowings. Mr. Goodhue The project funding is based on an estimate. At the end the DES funds the actual cost of not-to-exceed the allocated loan amount. When you sign the loan agreement, you say we will get this project done. If the cost goes over, we will fund it internally. Pennichuck Water Special Committee -19- 04/07/15 MOTION CARRIED NEW BUSINESS – ORDINANCES – None PUBLIC COMMENT REMARKS BY THE ALDERMEN Alderwoman Melizzi-Golja The shareholders meeting, in case anyone is watching, will be May 9, at 9:00 a.m. at the Courtyard at Southwood. What’s your plan for water week? Will we have the pleasure of seeing posters at the Shareholder’s meeting again? Mr. Goodhue th There are two events. We’ve been working with the 5 graders at the school. This week I’ll be at the Main th Dunstable School for three classes. They are the ones that do the posters. Then Water Week we take the 4 graders that want to go through our water treatment plant. POSSIBLE NON-PUBLIC SESSION ADJOURNMENT MOTION BY ALDERMAN DEANE TO ADJOURN MOTION CARRIED The Pennichuck Water Special Committee meeting was adjourned at 8:16 p.m. Alderman Sean M. McGuiness Committee Clerk