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Westchester County (NYC Water Rate) - Decision, April 7, 1997

Decision, April 7, 1997

STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
50 Wolf Road
Albany, New York 12233-1010

In the Matter of a Petition dated July 29, 1994

by

WESTCHESTER COUNTY

to fix the water rate charged to upstate communities by the New York City Water Board pursuant to 24-360 of the Administrative Code of the City of New York, NYS Environmental Conservation Law Article 15, and Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York Part 603.

DEC Water Supply Application No. 9475

DECISION

April 7, 1997

Decision of the Acting Deputy Commissioner

Upon review of the record and the Hearing Report (copy attached) of Administrative Law Judge ("ALJ") Daniel P. O'Connell, I concur with its Findings of Fact, Discussion, Conclusions and Recommendations, subject to my comments below.

Because Acting commissioner Cahill served as the Department's General Counsel during the time that the hearings in this matter took place, authority to make the decision has been delegated to the Department's Acting Deputy Commissioner for Natural Resources.

The Water Supply Act of 1905 (the "Act") and amendments (Administrative Code of the City of New York 24-360) authorize various upstate communities to take a determinable quantity of water from the New York City ("City") water supply system. For this water the communities must pay the City "such fair and reasonable water charges or rates as may be agreed upon between the [parties]" (24-360(b)). Alternatively, either the City or the upstate communities may make application to the Department of Environmental Conservation to set a fair and reasonable rate after hearing all interested parties (Id.).

Effective July 1, 1994, the New York City Water Board (the Board) changed the upstate water rate to $174.18 per million gallons (MG). Pursuant to 24-360 of the NYC Administrative Code, Environmental Conservation Law Article 15 and 6 NYCRR Part 603, Westchester County (the County) filed a petition dated July 29, 1994 and asked this Department for a hearing to fix the rates. The requested hearing was convened by ALJ O'Connell on December 11 1996 at the Westchester County Office Building in the City of White Plains.

Based on the rationale and calculations set forth in the Hearing Report, I conclude that the rate of $175.69/MG arrived at by the ALJ is fair and reasonable, consistent with 24-360.

NOW, THEREFORE, having considered this matter and being duly advised it is DECIDED that:

The rate to be charged by the New York City Water Board to upstate communities which take water from the NYC water supply system shall be $175.69/MG effective July 1, 1994.

For the New York State Department of Environmental Conservation
/s/
By: Frank M. Dunstan
Acting Deputy Commissioner

Albany, New York
April 7, 1997

STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
50 Wolf Road
Albany, New York 12233-1550

In the Matter of a Petition dated July 29, 1994

by

WESTCHESTER COUNTY

to fix the water rate charged to upstate communities by the New York City Water Board pursuant to 24-360 of the Administrative Code of the City of New York, NYS Environmental Conservation Law Article 15, and Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York Part 603.

DEC Water Supply Application No. 9475

HEARING REPORT

by
____________________________
Daniel P. O'Connell
Administrative Law Judge

SUMMARY

In a petition dated July 29, 1994, Westchester County asked the NYS Department of Environmental Conservation for a hearing to fix the rate that the New York City Water Board may charge upstate communities who take water from the NYC water supply system. This Hearing Report recommends a rate of $175.69 per million gallons retroactive to July 1, 1994.

BACKGROUND AND PROCEEDINGS

The Water Supply Act of 1905 and later amendments, now codified as 24-360 of the Administrative Code of the City of New York (the Act), authorizes upstate communities to take water from the NYC water supply system. For this water, the New York City Water Board (the Board) may charge a rate based on the actual total cost of the water to the City less all costs associated with distributing the water within the City's limits. If there is a dispute about whether the upstate water rate is fair and reasonable, the Act and NYS Environmental Conservation Law (ECL) 15-1521 authorize the Commissioner of the Department of Environmental Conservation to conduct a hearing to determine the rate.

Effective July 1, 1994, the Board changed the upstate water rate to $174.18 per million gallons. In a petition dated July 29, 1994, Westchester County (the County) requested a hearing pursuant to 24-360 of the NYC Administrative Code, ECL 15-1521 and 6 NYCRR Part 603. The petition, however, was held in abeyance until the County's consultants, Guastella Associates, Inc., evaluated the Board's April 1994 report concerning the July 1, 1994 rate. The Guastella Associates, Inc. released a report in May 1996.

On August 21, 1996, Administrative Law Judge Daniel P. O'Connell convened a pre-hearing conference to identify the issues related to the County's July 29, 1994 petition. Representatives for Westchester County, the NYC Water Board, the Town and Village of Scarsdale (Scarsdale), the Westchester Joint Water Works (WJWW), the Cities of Mount Vernon, White Plains, and Yonkers, as well as the Department Staff appeared at the conference.

During the August 1996 conference, the Parties agreed to adjudicate four issues. They included the costs associated with: (1) other than personal services (OTPS) for the Hillview Reservoir; (2) debt service; and (3) a set of expenditures identified as judgments and claims. The fourth issue was whether total water consumption should be estimated by using either a ten year average or a regression analysis.

By letter dated October 24, 1996, the Board proposed a stipulation about the costs associated with debt service, and judgments and claims, as well as an estimate for total water consumption. The other Parties accepted the Board's proposal. The ALJ's November 1, 1996 memorandum summarized the agreement. As a result of the stipulation, the only remaining issue for adjudication was the OTPS costs for the Hillview Reservoir.

To insure proper notice of the hearing requested by the County, a Notice of Public Hearing dated August 28, 1996 appeared in the Department's Environmental Notice Bulletin on September 4, 1996, and in the Gannet Suburban Newspapers on September 12, 1996. The Office of Hearings and Mediation Services also sent copies of the Notice to all upstate water customers.

In addition to providing notice of a hearing to consider the County's July 29, 1994 petition, the Notice also explained that the hearing would address any dispute about calculating water usage by the upstate communities. A Decision/Judgment dated December 1, 1995, from the Supreme Court, Westchester County (Index No. 1078/94) required the Department to consider this question, which is more commonly referred to as the entitlement issue.

The Appellate Division, Second Department, however, modified the Supreme Court's determination, and ruled that the Department did not have jurisdiction over calculating water usage [Village of Scarsdale v. Jorling, __ AD2d __ (2d Dep't., January 27, 1997)]. Based on the Appellate Division's determination, the ALJ canceled the proceedings related to the entitlement issue in memoranda to the Parties dated February 10, 1997 and March 17, 1997.

As provided by the August 28, 1996 Notice, Putnam County and United Water New Rochelle (UWNR) requested and received full party status in this proceeding. ALJ's Memorandum dated October 23, 1996, New Requests for Party Status; Hearing Schedule.. Putnam County raised no additional issues for adjudication. Although UWNR asserted there was an issue about chemical costs for FY 1992, UWNR withdrew this issue at the adjudicatory hearing. .

The adjudicatory hearing convened on December 11, 1996 at Westchester County's Michaelian Office Building in White Plains. Steven T. Sledzik, Esq., Senior Assistant County Attorney, appeared for Westchester County. David J. Prior, Esq., Assistant County Attorney filed the County's reply brief. Gail Rubin, Esq., Deputy Chief Corporation Counsel, and Florence Hutner, Esq., Assistant Corporation Counsel, represented the NYC Water Board. John Speight, Superintendent of Water, Yonkers Water Bureau, represented the City of Yonkers. Carl H. Grossman, Esq., Corporate Counsel, represented United Water New Rochelle. No other Parties appeared.

The County and the Board had filed their respective direct cases in advance of the hearing. Stephen B. Alcott, P.E., from the Guastella Associates, Inc., provided expert testimony for the County. The Board proffered the factual testimony of Hafez Erfani, P.E., Administrative Engineer, NYC Department of Environmental Protection (NYCDEP), and the expert testimony of Edward J. Markus, P.E., Project Manager, Black & Veatch. Mr. Markus was formerly employed at Ernst & Young and oversaw the preparation of the April 1994 Ernst & Young Report. At the hearing, the prefiled materials were received into the record, and the Parties had an opportunity to cross-examine the witnesses.

The hearing transcript became available on January 15, 1997. Though all Parties had an opportunity, only the Board and the County filed closing briefs and replies. The record of this proceeding closed on March 17, 1997 upon the timely receipt of the Department Staff's response concerning the development and implementation of conservation plans (See Water Conservation below).

FINDINGS OF FACT

  1. The Hillview Reservoir is in southern Westchester County. The Kensico Reservoir is northeast of the Hillview Reservoir. Water flows from the Kensico Reservoir south to the Hillview Reservoir via the Catskill and Delaware Aqueducts, except as explained below (Finding No. 7).
  2. The water elevation at the Kensico Reservoir is maintained at 354 feet above mean sea level, and at 294 feet for the Hillview Reservoir. This change is elevation promotes the flow of water south from the Kensico to the Hillview Reservoir.
  3. Water from the Catskill Aqueduct enters the Hillview Reservoir at Uptake Chamber No. 1, and water from the Delaware Aqueduct enters at Uptake Chamber No. 2. Water coming from the Kensico Reservoir to the Hillview Reservoir via the Catskill and Delaware Aqueducts cannot mix until the water enters the Hillview Reservoir.
  4. A transmission line, 48-inches in diameter (the 48-inch line), also transports water from the Kensico Reservoir south to Shaft 22 of the Delaware Aqueduct. The 48-inch line continues south from Shaft 22 of the Delaware Aqueduct to the Westchester/Bronx County line. The 48-inch line does not directly connect the Kensico Reservoir to the Hillview Reservoir.
  5. The Hillview Facility functions as a receiving and balancing reservoir to meet variations in the hourly demands for water by New York City.

    Benefits to Upstate Communities

  6. In addition, the Cities of Yonkers and Mt. Vernon take water from the Hillview Reservoir at Uptake Chamber No. 1 on a daily basis. In FY 1992, Yonkers took 4,971.1 million gallons (MG), and Mt. Vernon took 1,215.3 MG from the Hillview Reservoir. Of the total amount of water taken from the NYC water supply system, Yonkers draws about of its water, and Mt. Vernon draws about a of its water directly from the Hillview Reservoir.
  7. Other communities in southern Westchester County also obtain water that flows back (or north) from the Hillview Reservoir toward the Kensico Reservoir. Backflows occur when the Catskill Aqueduct, the Delaware Aqueduct, or the 48-inch line between the Kensico and Hillview Reservoirs is shutdown.
  8. Backflows can occur along the Catskill Aqueduct from Yonkers' and Mt. Vernon's connections at the Hillview Reservoir north to Greenburgh's (Hartsdale) connection. Along this section of the Catskill Aqueduct, Yonkers has three additional connections. United Water New Rochelle has two separate connections, and Scarsdale has one connection. United Water New Rochelle (UWNR) services Bronxville, Pelham, North Pelham, Tuckahoe, Dobbs Ferry, Ardsley, Hastings, New Rochelle, and Eastchester.
  9. Backflows can occur along the Delaware Aqueduct from the Hillview Reservoir north to Shaft 20 of the Delaware Aqueduct. Along this section of the Delaware Aqueduct, the Westchester Count Water District No. 1 and the Westchester Joint Water Works have separate connections at Shaft 22. Greenburgh has a connection at Shaft 20 of the Delaware Aqueduct.
  10. Westchester County Water District No. 1 (WCWD#1) services Scarsdale, North Castle, White Plains, Yonkers and Mt. Vernon. Westchester Joint Water Works (WJWW) services Mamaroneck, Harrison, Port Chester, Larchmont and parts of Rye.
  11. Backflows can occur along the 48-inch line from Shaft 22 of the Delaware Aqueduct north to WCWD#1's two connections which are just south of the Kensico Reservoir. Yonkers and Mt. Vernon also draw water directly from the 48-inch line near the junction with Shaft 22.
  12. During FY 1992, the Catskill Aqueduct was shutdown fourteen times from 1 to 13 hours. The Delaware Aqueduct was shutdown for similar lengths of time (1 to 13 hours), but much more frequently during that same period. The 48-inch line was shutdown from October 1992 to April 1993, and from January to May 1994. During shutdowns in FY 1992, upstate communities took about 2.6 MG from the Hillview Reservoir as backflows.

    Other Than Personal Services Costs

  13. Costs for other than personal services (OTPS) represent direct expenses associated with the operation and maintenance of the water supply system. They include payments for real estate taxes, telephone service, electricity, fuel oil, general supplies, chemicals, security contracts, etc.
  14. For FY 1992, the OTPS costs presented in the April 1994 Ernst & Young Report for all water supply facilities located north of the City totaled $51,013,042. With respect to the OPTS costs for the Hillview Reservoir, this amount includes $626,817 for real estate taxes. The July 1, 1994 rate proposed by the Board does not include any other OTPS costs for the Hillview Facility from FY 1992.
  15. For FY 1992, the OTPS costs for the Hillview Reservoir totaled $4,004,896. Beside the $626,817 paid in real estate taxes, additional OTPS costs for the Hillview Facility included $26,584 for a security contract, $125,000 for equipment and supplies, $84,055 for electricity, and $3,142,440 for caustic soda.
  16. The additional OTPS costs for the Hillview Reservoir from FY 1992 are generally representative of those incurred in subsequent years except real estate taxes and security. Real estate taxes have increased faster than inflation, and security costs have increased significantly because of increased concerns about terrorism.
  17. Before Yonkers and Mt. Vernon draw off their water, caustic soda, or sodium hydroxide (NaOH), is added to the water entering the Hillview Reservoir at Uptake Chambers Nos. 1 and 2. As a result, all water entering the Hillview Reservoir has been treated with caustic soda.
  18. The purpose of caustic soda is to raise the pH of the water by neutralizing the effect of chlorine which is added to the water at the Kensico Reservoir. Caustic soda is necessary to make the water potable.
  19. Caustic soda is not added to counteract the corrosive quality of the water that may result from its treatment with chlorine. Rather, orthophosphate is added as an anti-corrosive agent at the Downtake Chambers of the Hillview Reservoir when water leaves the Reservoir for distribution to in-City customers. The Uptake Chambers and the Downtake Chambers are in different parts of the Reservoir.

    Personal Services Costs

  20. Personal services (PS) costs include salaries, pensions, and fringe benefits. PS costs for the Hillview Reservoir were not presented in the April 1994 Ernst & Young Report. Therefore, the Board did not include PS costs in its proposed July 1, 1994 rate.
  21. For FY 1992, personal services costs for the Hillview Reservoir totaled $512,895. The total is based on the following. Salaries for the workers permanently stationed at the Facility were $127,872. Salaries for maintenance crews who divide their time between the Hillview Facility and other in-City facilities such as Jerome Park were $42,772. Salaries for the supervisory staff totaled $99,414. Salaries for laboratory personnel were $73,476. Salaries for personnel from the Division of Drinking Water Quality Control who maintain and repair equipment at the Hillview Facility were $51,000. Finally, fringe benefits were an additional 30% of the salaries identified above.
  22. The salaries for the groups of employees identified above were prorated based on the time these individuals spent at the Hillview Reservoir, or worked on matters related to the Reservoir. For FY 1992, the personal services costs for the Hillview Reservoir are generally representative of the costs incurred in subsequent years.

    Adjusted Costs

  23. For FY 1992, the adjusted total costs for OTPS are $54,391,121. The adjusted total includes the additional OTPS costs for the Hillview Reservoir ($3,378,079) which were originally excluded from the April 1994 Ernst & Young Report.
  24. For FY 1992, the adjusted total costs for PS are $15,725,549. The adjusted total includes the PS costs for the Hillview Reservoirs ($512,895) which were previously excluded from the April 1994 Ernst & Young Report.
  25. For FY 1992, the cost for debt service on the pre-1980 general obligation bonds totaled $11,100,331. As a result, the total expenditures associated with debt services, which were originally reported in the April 1992 Ernst & Young Report as $30,044,289, are reduced by $187,671 to $29,856,618.
  26. For FY 1992, total judgments and claims paid by the City for water supply-related matters in upstate areas totaled $45,699.
  27. For FY 1992, the adjusted total costs directly related to facilities located north of NYC is$95,894,804.
  28. For FY 1992, the adjusted total costs related to facilities located north of NYC is $98,919.407.
  29. Total water consumption by upstate and in-City customers for FY 1992 was 563,019 million gallons (MG).

DISCUSSION

The Board's fiscal year begins on July 1 and ends on June 30 of the following calendar year. In early 1994, the expenditures from Fiscal Year (FY) 1992 were the most recent source of audited information. Using the audited expenditure and revenue data from FY 1992, the Board's consultants, Ernst & Young, prepared a report dated April 1994. The April 1994 Report proposed a rate of $174.18 per million gallons effective July 1, 1994.

The Parties did not dispute the benefits that the upstate communities receive from the Hillview Reservoir. There is a dispute, however, about the costs for the Hillview Reservoir. There are two costs categories: other than personal services (OTPS) costs and personal services (PS) costs. OTPS costs represent the expenses associated with the operation and maintenance of the water supply system. They include payments for real estate taxes, telephone service, electricity, fuel oil, general supplies, chemicals, security contracts, etc. PS costs include salaries, pensions, and fringe benefits. The following discussion identifies all the costs related to the Hillview Reservoir for FY 1992.

There is also a dispute about what portion of the OTPS and PS costs for the Hillview Reservoir can be included in the upstate water rate. Section 24-360 of the NYC Administrative Code provides the criteria for determining whether the costs for the Hillview Reservoir, and what portion of them, can be included in the upstate water rate.

Findings of Fact (Nos. 25, 26, 29) relate to the stipulated costs for debt service, and judgements and claims, as well as the estimate for total consumption. The Findings are presented to show the complete basis for the upstate water rate recommended below.

I.Total Costs related to Facilities North of New York City for Fiscal Year 1992

Exhibit II-2 from the April 1994 Ernst & Young Report, 2 This table also appears as Appendix A-2 of the April 1994 Ernst & Young Report. When the Parties filed their direct cases in advance of the hearing, each included a copy of the April 1994 Report. Consequently, the April 1994 Report is identified as exhibits SBA-2 and EM-2 in the hearing record. Exhibits SBA-2 and EM-2 were both received into evidence and represent the same document -- the April 1994 Ernst & Young Report. The Cost of Water Supply: Summary of the Cost of Service and Unit Rates, summarizes the total costs related to all water supply facilities located north of New York City for FY 1992. A copy of Exhibit II-2 is attached to the Hearing Report as Appendix A.

The group of costs at issue in this proceeding are the expenses associated with the Bureau of Water Supply and Wastewater Collection (BWSWC) for facilities located north of New York City which are found in Section A of Appendix A. There were no disputes about any costs identified in Sections B and C of Appendix A. These latter two sections respectively include the upstate share of the costs for the NYCDEP, and the upstate share of the City's central service costs.

A. The Hillview Reservoir

Exhibit HE-2 is a schematic diagram that shows the relative locations of the Kensico and Hillview Reservoirs, the Catskill and Delaware Aqueducts, the 48-inch diameter transmission line (the 48-inch line), as well as the points where the upstate communities in southern Westchester County connect to the aqueducts and the 48-inch line. Appendix B is a copy of the exhibit. The original color exhibit illustrates the backflow capabilities associated with this part of the NYC water supply system.

Mr. Erfani testified for the Board about the information presented in Exhibit HE-2, and provided additional information about the design features of the NYC water supply system between the Kensico and Hillview Reservoirs. According to Mr. Erfani, the water elevation at the Kensico Reservoir is maintained at 354 feet above mean sea level, while the Hillview Reservoir is maintained at 294 feet. Except for when the aqueducts or the 48-inch line are shutdown, water flows south from the Kensico Reservoir to the Hillview Reservoir via the Catskill and Delaware Aqueducts, and the 48-inch line.

In addition, water enters the Hillview Reservoir from the Catskill Aqueduct at Uptake Chamber No. 1, and from the Delaware Aqueduct at Uptake Chamber No. 2. Because the Uptake Chambers are separate structures, water coming from the Kensico Reservoir via the Catskill and Delaware Aqueducts cannot mix until the water enters the Hillview Reservoir. The 48-inch line transports water from the Kensico Reservoir south to Shaft 22 of the Delaware Aqueduct, and then continues south to the Westchester/Bronx County line. The 48-inch line does not directly connect to the Hillview Reservoir.

1. Benefits to Upstate Customers

The Hillview Facility functions as a receiving and balancing reservoir to meet variations in the hourly demand for water by New York City. In addition, the Cities of Yonkers and Mt. Vernon take water daily from the Hillview Reservoir at Uptake Chamber No. 1. In FY 1992, Yonkers took 4,971.1 million gallons (MG), and Mt. Vernon took 1,215.3 MG from the Hillview Reservoir. Of the total amount of water taken from the NYC water supply system, Yonkers draws about of its water, and Mt. Vernon draws about a of its water directly from the Hillview Reservoir.

Other communities in southern Westchester County also obtain water that flows back (or north) from the Hillview Reservoir toward the Kensico Reservoir. Backflows occur when there are shutdowns of the Catskill aqueduct, the Delaware aqueduct, or the 48-inch line between the Kensico and the Hillview Reservoirs. For example, if one aqueduct or the 48-inch line is shutdown, water will continue to flowing through the open aqueduct or the 48-inch line to keep the Hillview Reservoir filled to an elevation of 294 feet above sea level. Depending on how far south of the Kensico Reservoir the shutdown occurs, water can flow back (or north) along the shutdown aqueduct or the 48-inch line from the Hillview Reservoir toward the Kensico Reservoir. As a result, upstate communities can continue to draw water from their respective connections along the closed aqueduct or the 48-inch line as long as the connection is south of the shutdown area.

Backflows can occur along the Catskill Aqueduct from Yonkers' and Mt. Vernon's connections at the Hillview Reservoir north to Greenburgh's (Hartsdale) connection. Along this section of the Catskill Aqueduct, Yonkers has three additional connections. United Water New Rochelle has two separate connections, and Scarsdale has one connection. (See Appendix B.) United Water New Rochelle (UWNR) services Bronxville, Pelham, North Pelham, Tuckahoe, Dobbs Ferry, Ardsley, Hastings, New Rochelle, and Eastchester.

Backflows can occur along the Delaware Aqueduct from the Hillview Reservoir north to Shaft 20 of the Delaware Aqueduct. Along this section of the Delaware Aqueduct, the Westchester Count Water District No. 1 and the Westchester Joint Water Works have separate connections at Shaft 22. Greenburgh has a connection at Shaft 20 of the Delaware Aqueduct.

Westchester County Water District No. 1 (WCWD#1) services Scarsdale, North Castle, White Plains, Yonkers and Mt. Vernon. Westchester Joint Water Works (WJWW) services Mamaroneck, Harrison, Port Chester, Larchmont and parts of Rye.

Backflows can occur along the 48-inch line from Shaft 22 of the Delaware Aqueduct north to WCWD#1's two connections which are just south of the Kensico Reservoir. Yonkers and Mt. Vernon also draw water directly from the 48-inch line near the juncture with Shaft 22.

During FY 1992, the Catskill Aqueduct was shutdown fourteen times from 1 to 13 hours. The Delaware Aqueduct was shutdown for similar lengths of time (1 to 13 hours), but much more frequently during that same period. The 48-inch line was shutdown from October 1992 to April 1993, and from January to May 1994. During shutdowns in FY 1992, upstate communities took about 2.6 MG from the Hillview Reservoir as backflows.

The Board offered expert testimony and argument in an attempt to identify additional benefits that the upstate communities receive from the Hillview Reservoir through avoided costs. According to the Board, the Reservoir allows upstate communities to avoid costs related to building and maintaining backup water supply systems. In addition, there are economies of scale associated with sharing a regional water supply system rather than developing and maintaining individual systems. The County, however, correctly argued that any benefits resulting from avoided costs should not be included in the upstate water rate because such benefits are not precisely known or measurable (AWWA, M-1, supra.).

2. OTPS Costs for the Hillview Reservoir

Costs for other than personal services (OTPS) represent the expenses associated with the operation and maintenance of the water supply system. They include payments for real estate taxes, telephone service, electricity, fuel oil, general supplies, chemicals, security contracts, etc. According to the April 1994 Ernst & Young Report, OTPS costs for all water supply facilities located north of the City totaled $51,013,042 for FY 1992, (Appendix A, Section A, Line 1). This total amount includes $626,817 for real estate taxes for the Hillview Reservoir.

Based on Mr. Markus' testimony, however, the July 1, 1994 upstate water rate proposed by the Board does not include any other OTPS costs for the Hillview Facility from FY 1992. According to Mr. Markus, the OTPS costs for the Hillview Reservoir actually totaled $4,004,896. Beside the $626,817 paid in real estate taxes, additional OTPS costs for the Hillview Facility included $26,584 for a security contract, $125,000 for equipment and supplies, $84,055 for electricity, and $3,142,440 for caustic soda.

The County challenged the Board's attempt to include some equipment costs and the caustic soda expenditures in the upstate water rate. The County also contested Mr. Markus' testimony concerning the additional OTPS costs for the Hillview Reservoir from FY 1992 being representative of future costs. As explained below, the County's challenges concerning the additional OTPS costs are without merit.

With respect to equipment costs, the County asserted that a portion of these costs would be related solely to monitoring outflows from the Hillview Reservoir to the City. During his cross-examination, Mr. Markus acknowledged that monitoring outflows relates to distributing water to in-City customers rather than to supplying water. Consequently, the County argued that the equipment costs for the Hillview Reservoir should be less than what Mr. Markus presented.

The County, however, did not attempt to quantify what portion of the equipment costs for FY 1992 relates to monitoring outflows. As explained below, the County had an opportunity before the hearing to investigate all the costs identified in Mr. Markus' prefiled testimony, but did not. Without additional factual information, there is no basis to adjust the FY 1992 equipment costs for the Hillview Reservoir.

Before, Yonkers and Mt. Vernon draw off their water, caustic soda, or sodium hydroxide (NaOH), is added to the water entering the Hillview Reservoir at Uptake Chambers Nos. 1 and 2. As a result, all the water in the Hillview Reservoir is treated with caustic soda.

The County unsuccessfully attempted to refute Mr. Erfani's testimony concerning the purpose for adding caustic soda. Through his work experience as an Administrative Engineer for the NYCDEP, Mr. Erfani has acquired a specialized knowledge about the features of the NYC water supply system. Despite his other qualifications, however, the County's expert, Mr. Alcott, lacks such familiarity. Therefore, Mr. Erfani's explanation concerning the purpose for adding caustic soda to the NYC water supply system is more credible than Mr. Alcott's.

Consequently, the following facts are based on Mr. Erfani's testimony. Caustic soda is necessary to make the water in the Hillview Reservoir potable. Caustic soda raises the pH of the water by neutralizing the effect of chlorine which is added at the Kensico Reservoir. Caustic soda is not added to counteract the corrosive quality of the water resulting from treatment with chlorine. Rather, orthophosphate is added for that purpose at the Downtake Chambers. Since it is added as water leaves the Reservoir for in-City distribution, the upstate communities do not benefit from the addition of orthophosphate.

Finally, the County asserted that Mr. Markus' testimony did not prove that the additional OTPS costs for the Hillview Reservoir are well-considered estimates of future expenses [American Water Works Association (AWWA) Manual Series, M1 - Water Rates pp. 1 - 2; County's Petition dated June 8, 1992, supra.]. The reliability of the actual OTPS expenses for FY 1992 was not at issue because it is the Board's practice to use audited data. Without additional information, such as historical cost data, the County argued, however, that the additional OTPS costs for the Hillview Reservoir from FY 1992 might be higher than normal, thereby unfairly inflating the upstate water rate.

The County's argument is not persuasive for the following reason. The Parties filed their direct cases in early November 1996 several weeks before the hearing convened on December 11, 1996. This provided the Parties an opportunity to get clarification about the evidence proffered in the prefiled testimony. At the hearing, the County's attorney did not contend that he had asked for more information about the additional OTPS costs for the Hillview Reservoir, or that the Board refused to respond to the County's request. Rather, the County took advantage of the time before the hearing convened to get clarification about the shutdowns (County's letter to the Board dated November 18, 1996), but chose not to seek clarification about the additional OTPS costs. Absent a showing by the County that the FY 1992 costs are not representative of future expenditures, there is no basis to reject Mr. Markus' opinion.

Consequently, I accept Mr. Markus' opinion, and find that the additional OTPS costs for the Hillview Reservoir from FY 1992 are generally representative of those incurred in subsequent years except for real estate taxes and security. With respect to these two expenditures, real estate taxes have increased faster than inflation. Security costs have increased significantly because of increased concerns about terrorism.

3. PS Costs for the Hillview Reservoir

Personal services (PS) costs include salaries, pensions, and fringe benefits. PS costs for the Hillview Reservoir were not presented in the April 1994 Report, and therefore, not included in the proposed July 1, 1994 upstate water rate. Historically, the Board has excluded these expenses from the upstate water rate. Consequently, the $15,212,654 listed for personal services in Appendix A (Section A, line 5) does not include any of those costs for the Hillview Reservoir.

At the hearing, Mr. Markus explained that for FY 1992, personal services costs for the Hillview Reservoir totaled $512,895. The total is based on the following. Salaries for the workers permanently stationed at the Facility were $127,872. Salaries for maintenance crews who divide their time between the Hillview Facility and other in-City facilities such as Jerome Park were $42,772. Salaries for the supervisory staff totaled $99,414. Salaries for laboratory personnel were $73,476. Salaries for personnel from the Division of Drinking Water Quality Control who maintain and repair equipment at the Hillview Facility were $51,000. Finally, fringe benefits were an additional 30% of the salaries identified above 3 According to Exhibit EM-3, total PS costs for the Division of Systems Operations at the Hillview Reservoir during FY 1992 were $351,075. There is, however, an error in the addition: $166, 234 + $28,990 + $100,248 + $55,604 = $351,076. With respect to PS costs, the Total Costs System Operations and DWQC are $512,895 as stated by Mr. Markus, not $512,894 as shown in the third column at the bottom of Exhibit EM-3.

If necessary, the salaries for the groups of employees identified above were prorated based on the time individuals spent at the Hillview Reservoir, or worked on matters related to the Reservoir. The Board prorates other personal services costs to determine, for example, the upstate share of PS costs from the NYCDEP (Appendix A-12 of the April 1994 Ernst & Young Report).

With respect to the PS costs for the Hillview Reservoir, the County repeated its objection about the lack of any historical data to corroborate Mr. Markus' expert testimony. For the reason provided above, however, I accept Mr. Markus' opinion that the test year (FY 1992) expenditures are representative of future personal services costs for the Hillview Reservoir.

4. Adjusted Total OTPS and PS Costs

The Parties dispute what portion of the OTPS and PS costs for the Hillview Reservoir should be included in the upstate water rate. Based on the criteria outlined 24-360 of the NYC Administrative Code, the Board argued that the upstate water rate should include all OTPS and PS costs for the Hillview Reservoir from FY 1992. To be consistent with the way that the costs for all other water supply facilities located north of the City are included in the upstate water rate, the Board alternatively argued that 100% of the costs for the Hillview Reservoir should also be included.

According to the County, the Hillview Reservoir is both part of the upstate water supply system and part of the in-City water distribution system. Given these unique circumstances, the County argued that the upstate water rate should include the costs for the Hillview Reservoir that are proportional to the benefits that the upstate communities receive. To apportion these costs, the County proposed that 1.5% of the OTPS costs for the Hillview Reservoir should be included in the upstate water rate. The County based this percentage on the ratio of the average daily amount of water that the upstate communities took from the Hillview Reservoir in FY 1992 (18 million gallons per day) to the total average daily amount of water that passed through the Reservoir in FY 1992 (1,200 million gallons per day).

The County further argued that the upstate water rate should include only the real estate taxes for the Hillview Reservoir which were presented in the April 1994 Ernst & Young Report. Based on equitable doctrines like laches and unclean hands, the County contended that the Board has no authority to include the additional OTPS and PS costs for the Hillview Reservoir in the upstate water rate. According to the County, the Board waived its right to include these additional costs in the July 1, 1994 water rate because the Board did not include them in the April 1994 Ernst & Young Report.

The Act identifies the costs that are to be included in the upstate water rate and those which are to be excluded. A fair and reasonable rate:

shall be determined on the basis of the actual total cost of the water to the city after deducting from the total cost all construction costs and expenses of operation, maintenance and carrying charges incurred within the corporate limits of the city in connection with the distribution and delivery of the water within such limits [NYC Administrative Code 24-360(c)].

Contrary to the County's assertion, the Act does not distinguish between the costs for supplying water and the costs for distributing water. Rather, the Act distinguishes between the costs incurred "within the corporate limits of the city," and all other costs. Based on the previous discussion, the additional costs identified by the Board for the Hillview Reservoir were not incurred as part of the distribution and delivery of water within the City. Therefore, the additional OTPS costs and the PS costs for the Hillview Reservoir, as identified above, are a legitimate component of the "actual total cost of the water" to the City. Pursuant to 24-360(c), the Board can include these costs in the upstate water rate.

With respect to the Board's second argument concerning benefits, the County acknowledged that the upstate water rate includes 100% of the costs associated with all other upstate water supply facilities, regardless of the benefits that any individual upstate community may derive from a particular facility. The County's expert, Mr. Alcott, stated that this practice, with respect to the other upstate facilities, was fair and necessary because each upstate facility contributes to the overall benefits provided by the entire water supply system. To be consistent, therefore, the Board argued, and I agree, that 100% of the costs associated with the Hillview Reservoir should also be included in the upstate water rate given the benefits provided to many upstate communities.

The County's argument concerning the applicability of equitable doctrines is not persuasive. The County did not provide any citations to case law, or explain why these doctrines should apply here.

Therefore, the following adjustments should be made to the direct costs for facilities located north of the City as listed in Appendix A, Section A. An additional $3,378,079 should be added to the category of costs identified as other than personal services in Appendix A (Section A, line 1). This amount includes the FY 1992 costs for security, caustic soda, equipment, supplies and electricity for the Hillview Reservoir. The real estate taxes paid for the Hillview Reservoir ($626,817) are already included in the reported $51,013,042. The adjusted total for OTPS costs, therefore, is $54,391,121 (Table 1, line 1).

Table 1: Summary of Adjusted Costs of Service (FY 1992)
BWSWC Direct Costs for Facilities North of NYC
4 See Section A of Appendix A, and Footnote 2 above
Service Cost
Adjusted Other Than Personal Services $54,391,121
Adjusted Debt Service $29,856,618
Adjusted Judgments and Claims $ 45,699
Less Miscellaneous Revenue. These costs were not at issue in this proceeding. Therefore, they are the same as originally reported in the April 1994 Ernst & Young Report ($ 4,124,183)
Adjusted Personal Services $15,725,549
_______________
Adjusted Total BWSWC Direct Costs for Facilities North of NYC $95,894,804
Category Cost
Adjusted Total BWSWC Direct Costs for Facilities North of NYC $95,894,804
Upstate share of NYC Department of Environmental Protection Costs (Appendix A, Section B.) These costs were not at issue in this proceeding, and are the same as originally reported in the April 1994 Report $ 2,344,824
Upstate share of City of New York Central Service Costs (Appendix A, Section C) These costs were not at issue in this proceeding $ 679,779
_______________
Adjusted Total Costs for FY 1992 related to Facilities North of NYC $98,919,407

An additional $512,895 should be added to the category of costs identified as Personal Services in Appendix A (Section A, line 5). This amount includes the FY 1992 personal services costs for the Hillview Reservoir. The adjusted total for PS costs, therefore, is $15,725,549 (Table 1, line 5).

B. Costs related to Debt Service and Judgments

Although the Parties originally disputed the costs associated with debt service, and judgments, the stipulation resolved the dispute. Consequently, the costs for these expenditures must be adjusted down from the amounts originally presented in the April 1994 Ernst & Young Report. For FY 1992, the Parties stipulated that the total cost for debt services, which originally was reported as $30,044,289, is now $29,856,618 (Table 1, line 2). In addition, the adjusted total cost for judgments is $45,699 (Table 1, line 3).

C. Adjusted Total Costs related to Facilities North of NYC

As a result of the adjustments to total OTPS and PS costs described above, as well as the stipulated costs for debt service, and judgments, the total costs for the Bureau of Water Supply and Wastewater Collection directly related to facilities north of NYC in Appendix A, Section A, should be adjusted up from $92,291,501 to $95,894,804 (Table 1).

The costs reported in Section B, Upstate Share of NYC Department of Environmental Protection Costs, and Section C, Upstate Share of City of New York Central Service Costs of Appendix A remain unchanged at $2,344,824, and $679,779, respectively. Therefore, the adjusted total costs related to facilities north of NYC for FY 1992 should be adjusted up from $95,316,103 (Appendix A) to $98,919,407 (Table 1).

II. Consumption

Estimating future consumption is a significant part of determining the rate. Under-estimating consumption will increase the water rate while overestimating consumption will decrease the rate. Once the rate is set, actual consumption will determine the amount of revenue that the Board will collect during the period that the rate is in effect. For FY 1992, the Parties stipulated that the total water consumption by upstate and in-City customers is 563,019 MG.

III. The Rate

The water rate, or unit cost expressed as dollars per million gallons, is the ratio of the costs associated with facilities located north of NYC to total consumption by upstate and in-City customers. For FY 1992, the adjusted total costs for facilities located north of NYC is $98,918,407. For FY 1992, the total estimated consumption is 563,019 MG. Therefore, the rate is $175.69 per million gallons (PMG) [$98,918,407 563,019 MG = $175.69 PMG].

IV. Water Conservation

At the August 21, 1996 conference, the Department Staff emphasized the necessity of preparing and implementing water conservation plans. I later found that the Staff's position concerning water conservation was vague, and gave the Staff an opportunity to provide a more precise statement. In a letter dated January 17, 1997, the Department Staff duly filed a statement about water conservation within the context of this proceeding.

All Parties to this proceeding had an opportunity to comment on the Staff's statement concerning the development and implementation of water conservation plans. Only the County and the Board, however, filed letters dated February 25, 1997. The Staff filed a response dated March 14, 1997.

The Staff argued that the Department has a broad mandate to protect, conserve and control water resources in the State so as to insure the adequacy and quality of the public water supply. According to the Staff, the upstate communities have an obligation to develop water conservation plans. (ECL 15-1503, and County's Petition dated June 8, 1992, supra.) The Department Staff recommended that the upstate communities work together, as appropriate, to develop water conservation plans based on the Department's Water Conservation Manual for Development of a Water Conservation Plan, draft dated January 1989, and the Water Conservation Forum dated June 1989. The Staff explained that the Department could offer limited assistance to the municipalities in developing their plans.

The Board supported the Department Staff's position, and suggested that the conservation plans could include measures for low-flow toilet rebates, metering programs, complimentary leak detection inspections, an public education programs. The Board stated that it had implemented many of these measures in its water conservation plan. Also, the Board agreed that water conservation plans are necessary to protect and preserve the water supply.

The County agreed that the Department is required to protect the State's water resources. The County understands the benefits associated with developing and implementing water conservation plans. The County called on the Department, however, to assume a leadership role. According to the County, the Department, as an objective and independent body, must insure that effective water conservation plans are developed and implemented fairly.

CONCLUSIONS

  1. The Hillview Reservoir is located north of the City limits in southern Westchester County, and serves as a daily source of water for the Cities of Yonkers and Mt. Vernon. In addition, the Hillview Reservoir is a backup source of water supply to many upstate communities in southern Westchester County during shutdowns of the Catskill or Delaware Aqueducts, or the 48-inch transmission line. The Board has the right pursuant to 24-360(c) to include all other than personal services (OTPS) and personal services (PS) costs for the Hillview Reservoir in the upstate water rate because none of the costs for the Reservoir identified by the Board relate to costs "incurred within the corporate limits of the city in connection with the distribution and delivery of water within such limits."
  2. In addition, 100% of all costs associated with all other upstate water supply facilities located north of New York City are included in the upstate water rate calculation regardless of the benefits that any individual upstate community may derive from a particular facility. The Findings of Fact show that the Hillview Reservoir provides benefits to many upstate communities. Therefore, to be consistent with how all the other facilities are treated, 100% of the costs associated with the Hillview Reservoir should also be included in the upstate water rate.
  3. The water rate, or unit cost expressed as dollars per million gallons, is the ratio of the costs associated with facilities located north of NYC to total system-wide consumption. For FY 1992, the adjusted total costs for facilities located north of NYC were $98,919,407. The total estimated consumption for FY 1992 was 563,019 MG. Therefore, the rate is $175.69 PMG [$98,919,407 563,019 MG = $175.69 PMG].

RECOMMENDATION

The Commissioner should conclude that the fair and reasonable upstate water rate is $175.69 PMG. This rate should be effective retroactive from July 1, 1994.

Attachments: Appendix A, The Cost of Water Supply: Summary of the Cost of Service and Unit rates.

Appendix B, Schematic Location of Upstate Customers Connection to NYC Water Supply System Between Kensico & Hillview Reservoirs.

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