Good evening, ladies and gentlemen, my name is Debra F. Robinson. I am here on behalf of the New Jersey Division of the Ratepayer Advocate. Our office was created by Governor Christine Todd Whitman to represent all utility consumers in New Jersey in cases such as this where a water utility seeks an increase in its rates for service. The Ratepayer Advocate represents and protects the interests of residential customers, small retail customers, small and large industrial customers, schools, libraries, and other institutions in our communities alike.

Our goal is to advance the interests of all consumers and to promote the economic vitality of the state, in part by seeking just and reasonable water and sewer costs for consumers like yourselves.

As you may know, Environmental Disposal Corporation (hereafter referred to as "EDC") is a public utility providing sewage collection, treatment and disposal services to residential and commercial franchise customers in the Townships of Bedminster and Bernards. EDC also provides bulk treatment and disposal services to bulk user customers in Bedminster, Far Hills, and Peapeck/ Gladstone pursuant to three separate contracts. EDC has asked, by way of Petition to the New Jersey Board of Public Utilities, for an increase in water service rates. EDC’s Petition seeks a total rate increase of $1,466,016 or 38.3% of total revenues.

The proposed rate increase will increase both the fixed rate and consumption charges . For franchise customers, the average single family and two -family monthly customer bills will increase from $56.96 to $73.76 or 29.5%. The average townhouse and condominium monthly customer bill will increase from $47.46 to $61.46 or 29.5% and the average commercial customer bill will increase from $56.96 to $73.76 or 29.5%.

The proposed rate increase for bulk user customers in Far Hills, Bedminster and Peapack/ Gladstone would increase rates from $4.08 per thousand gallons to $7.69 per thousand gallons, an increase of 88.5%, and would be payable monthly rather than quarterly as is the case now. The increase for Bedminster and Far Hills will become effective upon order of the Board, since contracts with these municipalities which required a four-year rate freeze expired on March 15, 1998. The increase for Peapack/Gladstone will become effective on June 13, 2000, since contracts with these municipalities under the four-year rate freeze won’t expire until June 12, 2000.

EDC filed it’s last rate increase in July 1994 with final rates not becoming effective until August 1997. The last rate case involved Board Staff and EDC entering into a stipulation memorializing their joint position regarding disposition of EDC’s pending filing for an increase in rates for its franchise customers. Subsequently, an Initial Decision issued by the Office of Administrative Law ("OAL") approving the stipulation, was rejected by the Board and remanded back to the OAL for further hearings. Further litigation resulted in an amended settlement calling for the rate increase to be phased in over a three year period. A final Board order rejected portions of the Initial Decision and allowed a rate increase of 58.21% to be phased in over two years. The first year’s increase was 25.78%, and the second year’s increase was 25.78% over the first year’s increased rates.

The current case has been initiated by EDC primarily to recover what it claims are the costs of several large capital improvements and expansions. Specifically, a fourth train, including a clarifier, has been added to expand EDC’s treatment facility and maintain the capacity necessary to accommodate the flows for the increase in franchise customers and the increase in flows from the bulk service municipal customers. In addition, an equalization tank was constructed to accommodate increased flows and to maintain the level of effluent required under environmental regulations.

Under the laws of New Jersey, regulated utilities, such as Environmental Disposal Corporation, are permitted to charge rates that are "just and reasonable". The law allows a utility company a fair opportunity to earn a profit on its investment. EDC claims that the rate increase is needed for it to earn a fair and adequate rate of return on investment in property used and useful in public utility service. We at the Ratepayer Advocate are conducting a comprehensive examination of EDC’s proposal to determine whether or to what extent the proposed rate increase is proper. For example, we have issued numerous questions to EDC, seeking to discover detailed information regarding its financial structure, operation and maintenance expenses, and other financial obligations. We are also scrutinizing EDC’s engineering data related to the design and capabilities of the treatment plant. EDC must justify all of its expenses and other claims, and provide evidence to support its calculations. These are all factors to be considered when analyzing EDC’s proposal.¹

The critical area to focus on is what level of additional revenue, if any, is needed to allow EDC a reasonable return on the investment that has been made towards the physical plant, and ultimately whether EDC’s proposal will allow customers to pay the lowest rates possible consistent with receiving safe, reliable and proper service.

The Ratepayer Advocate has an attorney, an engineer, and accounting experts analyzing data from EDC to effectively address these critical issues. At evidentiary hearings to be held in November, we will cross-examine EDC’s witnesses and submit evidence to counter the conclusions reached by EDC in support of the Petition. Evidentiary hearings are scheduled for November 1, 3, 4 and 8 1999 at the Office of Administrative Law in Newark, Essex County, New Jersey, before the Honorable William Gural, who is presiding over this public hearing tonight. However, it is important that you be aware that the ultimate decision regarding all rate modifications in New Jersey is made by the Board of Public Utilities.

The purpose of this open public hearing is for you, the customer to voice your opinion, relate your experiences with EDC and offer comments about EDC’s rates and any service problems you may be experiencing. It is important that you express your views, because they will become part of the record on which the Administrative Law Judge and the Board of Public Utilities make their decisions. The Ratepayer Advocate also needs to hear your views in order to represent your interests in this legal process. We strongly encourage your participation.

This public hearing is being transcribed and your comments will become part of the record. Judge Gural will instruct you to give your name and address before you speak. I would like to reiterate the importance of your input so that the Ratepayer Advocate can have a clear record of your concerns and interests.

On behalf of the Ratepayer Advocate, I thank you for attending this public hearing.

 APPENDIX

Specifically, the Ratepayer Advocate is focusing on the following critical issues:

Accounting Issues:

• The Ratepayer Advocate has identified several issues in this area that we will concentrate our analysis and counter proposals upon, including: EDC’s proposed plant-in-service additions; EDC’s accumulated depreciation; proposed accounting treatment of its cash working capital; the revenue projections made by the EDC; and a close examination of EDC’s claimed operation and maintenance expenses and treatment of contributions in aid of construction, among others.

Rate of Return:

• Evaluation of the cost of EDC’s debt financing and capital structure.

Rate Design:

• Evaluation of the EDC’s proposed rate allocation among customer classes.

Engineering

• Investigate the wastewater treatment plant expansion including: the examination of the need and appropriateness of the expansion, as it relates to the cost and the recovery of the costs in the rates; the construction process as it relates to EDC’s selection of contractors; reviewing the EDC’s oversight and control of the construction process; and examining the design of the newly constructed facilities to confirm that the projects were consistent with previously approved designs.

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Footnote

1) See Appendix for identification of specific issues under review by the Ratepayer Advocate._Back