20210608M Thompson Supplemental Direct.pdf

Michael C. Creamer (ISB No. 4030)
Preston N. Carter (ISB No. 8462)
Givens Pursley LLP
601 W. Bannock St.
Boise, ID 83702
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15688956_1.docx [30-174]

Attorneys for SUEZ Water Idaho Inc.

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE JOINT
APPLICATION OF SUEZ WATER IDAHO
AND EAGLE WATER COMPANY FOR
THE ACQUISITION OF EAGLE WATER
COMPANY

Case No. SUZ-W-18-02
EAG-W-18-01

SUPPLEMENTAL DIRECT TESTIMONY OF MARSHALL THOMPSON

ON BEHALF OF SUEZ WATER IDAHO INC.

June 8, 2021

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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

BACKGROUND 1
Q. Please state your name and title. 2
A. Marshall Thompson, Vice President and General Manager of SUEZ in Idaho 3
(“SUEZ” or “Company”) 4
Q. Are you the same Marshall Thompson who filed direct testimony consisting of 5
thirteen pages in this proceeding on November 15, 2018? 6
A. Yes, I am. 7
Q. What is the purpose of your supplemental testimony? 8
A. To provide the Commission with facts that have developed since this case was 9
initiated and then stayed in early 2019, including facts regarding litigation in the 10
Idaho District Court concerning the City of Eagle’s (“City”) asserted contractual 11
right to purchase Eagle Water Company’s (“Eagle Water”) water system. I also 12
will describe the settlement of that litigation, and resulting amendments to the 13
Eagle Water-H2O Eagle Acquisitions, LLC Asset Purchase Agreement (“Eagle 14
Water – H2O Eagle APA”) and the H2O Eagle Acquisitions, LLC – SUEZ Asset 15
Purchase Agreement (“H2O Eagle - SUEZ APA”) as they bear on this case. 16
As part of the settlement, SUEZ and the City have entered into a Water 17
Management Agreement (“WMA”). My testimony discusses the various terms of 18
the WMA and the benefits the WMA will provide to SUEZ and Eagle Water 19
customers. Also as part of the Settlement, SUEZ agreed to an increased purchase 20
price for the Eagle Water assets. Its September 2018 APA with H2O Eagle has 21
been amended to reflect a revised purchase price of $10,500,000. My testimony 22
will provide the rationale for this increase and for SUEZ’ request that the entire 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

purchase price be treated as an acquisition adjustment to be included in rate base 1
in SUEZ’ next general rate case and amortized over forty years. 2
Q. What was the reason for this proceeding being stayed? 3
A. The Commission stayed this case on SUEZ’ motion because of pending litigation 4
in the District Court, Fourth Judicial District. In that suit, the City alleged that it 5
had a contractual right-of-first-refusal to purchase Eagle Water’s water system. 6
The City also asserted a claim for damages of approximately $1.39M allegedly 7
owed to the City under its 2008 Intertie Agreement with Eagle Water. Because 8
that litigation could affect SUEZ’ ability to acquire the Eagle Water assets, this 9
case was stayed pending the outcome. 10
Q. Were you involved in the settlement negotiations among the parties to the 11
District Court case? 12
A. Yes. Working with SUEZ’ legal counsel, I was directly involved in all aspects of 13
the mediation process that led up to the settlement. 14
Q. Would you please describe how the settlement came about? 15
A. Soon after the lawsuit was initiated in early 2019, the Court granted SUEZ’ 16
petition to intervene. Following the Court’s rulings on several dispositive 17
motions, it appeared to be in the parties’ interests to try to mediate a satisfactory 18
result. It was implicit in the decision to mediate that there could be some 19
scenario under which the City would not object to the SUEZ-Eagle Water 20
transaction but still would reach an agreement that meets the City’s long-term 21
municipal water service objectives. The mediation began in February 2020 and 22
continued in earnest over twelve months, though it was hampered by the Covid-23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

19 pandemic. An agreement on the general outline and terms of a settlement was 1
reached in mid-January 2021. Final documents were executed on February 9, 2
2021. 3
Q. Please describe the essential components of the settlement as they relate to this 4
case. 5
A. The City agreed to dismiss its lawsuit and not oppose SUEZ and Eagle Water’s 6
application in this proceeding with the following additional terms: 7
1. Execution of a SUEZ-Eagle Water Management Agreement 8
(“WMA”), a copy of which is attached as Supplemental Attachment 5 to the 9
Amended Joint Application; 10
2. SUEZ’ non-objection to an increase in its proposed rate phase-in for 11
acquired Eagle Water customers from three years to five years; 12
3. SUEZ’ agreement to use its best efforts to make improvements to 13
the acquired Eagle Water assets (defined in the Settlement Agreement as “System”) 14
“in accordance with the schedule of improvements as [may be] approved by the 15
Commission;” and 16
4. Payment of $1.75M to the City in the event the Commission 17
approves the Eagle Water asset sale to SUEZ and the transaction closes. 18
Q. Please describe the substantive terms of the Water Management Agreement. 19
A. The WMA is modeled in part on a 2007 Mutual Cooperation Agreement between 20
SUEZ and the City of Meridian (the “SUEZ-Meridian Agreement”). That 21
agreement and the WMA provide the parties with a basis for improved 22
communications and cooperation as it relates to their respective water systems and 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

extension of service to new development within their service areas and areas of 1
interest. SUEZ and Meridian have had a productive relationship operating under 2
their agreement. 3
Q. In what ways is the WMA similar to the SUEZ-Meridian Agreement? 4
A. The most important similarity is the concept of “Gray Areas.” This concept was 5
developed originally in the SUEZ-Meridian Agreement because SUEZ’ certificated 6
service area overlapped with Meridian’s expanding city limits and its area of 7
impact. This situation created uncertainty for developers, Meridian and SUEZ 8
regarding who would be providing water service to new development. In some 9
cases, Meridian had sufficient facilities nearby to be able to extend service most 10
efficiently; in other cases, SUEZ did. To minimize uncertainty and potential delays 11
in service extensions, the Gray Area concept was adopted. In the SUEZ-Meridian 12
Agreement, decisions about who will serve a particular Gray Area are based, in 13
part, on whether it will be annexed into the City of Meridian (or the City of Boise), 14
or if the area is not annexed into either City, then the decision is based on what 15
entity (Meridian, Boise or a third party) will be providing sewer service to the 16
development. 17
In the WMA, on a request-by-request basis, the party that has facilities available in 18
the vicinity or that is otherwise most easily, efficiently and reliably able to serve a 19
new customer request will provide the water service to the area included in the new 20
customer request. The Gray Area concept is a mechanism to avoid the past 21
uncertainties, delays and legal costs incurred by SUEZ and the City related to 22
extensions of water service. In my experience, this concept has worked very well 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

for SUEZ and Meridian. I fully expect it to have the same benefits for SUEZ and 1
the City of Eagle. 2
Q. What areas are treated as Gray Areas under the WMA? 3
A. The WMA identifies three areas to be Gray Areas (designated as Areas 1, 3 and 6 4
and depicted on the WMA exhibit) immediately upon execution of the WMA. 5
These include areas that are within SUEZ’ current certificated service area and 6
some that are not. 7
In the WMA, the SUEZ and the City agree that Commission approval will be sought 8
to remove the following areas from SUEZ’ certificated service area. 9
Area 4: Area 4 depicted in the WMA is a small area within Eagle Water’s current 10
certificated service area but not contiguous to its primary water system. Area 4 has 11
28 existing Eagle Water customers. Assuming that SUEZ purchases the Eagle 12
Water assets and the Eagle Water certificated area is subsumed into SUEZ’ CPCN, 13
the WMA provides the City eighteen months in which to petition the Commission 14
for removal of Area 4 from SUEZ’ certificated service area. While the City has the 15
responsibility to pursue this application, SUEZ has agreed to cooperate with the 16
City in this process. 17
Area 5: Area 5 is an approximately 3,640-acre area west of State Highway 55 that 18
was added to SUEZ’ certificated service area in Case No. UWI-W-07-01 (Order 19
30345). This area was contemplated to be a follow-on development to Avimor’s 20
existing Ada County project, but is currently undeveloped and unserved. Avimor 21
and the City have had discussions concerning whether the City might annex this 22
area and provide water service. In the WMA the parties agree that unless SUEZ is 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

serving or has committed to serve a development in Area 5, then at such time, if 1
any, that the City annexes any of Area 5, SUEZ will seek Commission approval to 2
remove that area from its certificated service area. If the Commission does not 3
approve the request, then under the WMA, Area 5 becomes a Gray Area. 4
Area 3: Area 3 is a non-contiguous portion of SUEZ’ certificated service area 5
situated northeast of the intersection of Homer Road and North Eagle Road. This 6
area was added to SUEZ’ CPCN in Case No: UWI-W-2006-04 (Amended Order 7
No. 30367). This was to be the site for Kastera Development’s planned 700-home 8
Trailhead Community subdivision. However, the entire area remains undeveloped 9
and unserved. Under the WMA, SUEZ agreed to apply to the Commission to have 10
this area removed from its certificated service area. If SUEZ’ application is not 11
approved, then Area 3 will become a Gray Area under the WMA. SUEZ filed this 12
application on April 2, 2021 (Case No. SUZ-W-21-02). 13
Q. What other significant terms are in the WMA? 14
A. The WMA clarifies those areas where the parties have the exclusive right to provide 15
water service. 16
The WMA also includes agreements to maintain and provide on request records of 17
monthly ground water withdrawals and semi-annual water levels from SUEZ’ and 18
the City’s wells. They agree to give each other advance notice of any water right 19
application filings with the Idaho Department of Water Resources (“IDWR”) 20
concerning any ground water right with a point of diversion within 1/3 mile of the 21
other party’s then existing service area or city limits. They also agree to notify each 22
other of any work being performed on wells within the same 1/3 mile limit. SUEZ 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

and the City will meet at least once a year to review their operations and discuss 1
items of joint interest, and they have agreed on a process for entering into future 2
intertie agreements. 3
Q. How does the WMA benefit SUEZ and Eagle Water customers? 4
A. I believe that the WMA will provide more certainty and less delay and expense for 5
SUEZ in planning for and serving new development. This translates into lower 6
rates for its customers. 7
Q. Please explain. 8
A. There has been a fairly long history of disagreement and lack of coordination 9
between the City of Eagle and SUEZ. Since at least 2002, when the City took back 10
operation of its municipal water system, both the City and SUEZ have contended 11
with swings in economic conditions that drove remarkable growth spurts coupled 12
with increased demand for water service as well as development lulls and even 13
pullbacks. Much of this occurred in areas at the margins of the City’s and SUEZ’ 14
service areas, and in some instances prompted significant capital investments by 15
both parties. It also created situations where the City and SUEZ were at odds over 16
who would serve the new demand, the potential impacts of new ground water wells 17
on the local water source and potential well interference issues. These 18
disagreements tended to play out in extended and expensive contested cases and 19
hearings before IDWR and the Commission that left the parties in no better position 20
to cooperatively resolve their next potential disagreement. 21
An example is Case No. UWI-W-06-04, discussed above. There, SUEZ received a 22
request to serve the Trailhead Community to be developed in unincorporated Ada 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

County lying west of SUEZ’ certificated service area and north of the City’s city 1
limits and area of impact. At issue before the Commission was whether SUEZ 2
would be authorized to expand its service area. If not, then the City intended to 3
extend service to the area. After concluding that SUEZ’ service area would be 4
extended to include the Trailhead Community, the Commission observed: 5
What the record in this case reveals is that both the City’s Mayor 6
and the Company’s general manager agree that it is in the public 7
interest for area water providers to cooperate in water planning and 8
area of service decisions. Yet it appears from the testimony of 9
those with responsibility for planning for each water provider that 10
such cooperation does not take place, not even discussions. Is the 11
public interest being equally well served by not engaging in 12
planning discussions? We suspect not. 13
14
Amended Order No. 30367 at 3. 15
The SUEZ-City WMA addresses the Commission’s observation directly and will 16
drive better communications, cooperation and planning. This will benefit the City’s 17
and SUEZ’ current and future water customers, including the current Eagle Water 18
customers assuming the asset purchase and sale is approved. I expect that 19
implementing this agreement will minimize situations where the City and SUEZ 20
may find that litigation is the only avenue to determine their respective rights. 21
Q. What is the rationale for increasing the rate phase-in for acquired Eagle Water 22
customers from three years to five years? 23
A. The City requested that SUEZ agree to this on the ground that it will further ease 24
the transition for Eagle Water customers from their current rates to SUEZ’ rates. 25
SUEZ recognizes the tension between bringing all of its customers to parity 26
expeditiously and attempting to correlate necessary investments with their timely 27
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

recovery through rates. However, as new SUEZ customers, Eagle Water customers 1
necessarily will experience a substantial increase in their water rates. That is why 2
SUEZ originally proposed a three-year rate phase-in. A five-year phase-in of rates 3
is not inconsistent with treatment of this issue in other cases I am aware of, and 4
SUEZ believes this is a reasonable concession, particularly if SUEZ’ schedule of 5
investment in Eagle Water system upgrades can be better matched with the rate 6
phase-in as discussed below. 7
Q. Can you please explain the City’s and SUEZ’ agreement that SUEZ use its 8
best efforts to make improvements to the acquired Eagle Water assets in 9
accordance with the schedule of improvements approved by the Commission? 10
A. In the Joint Application, SUEZ included a proposed schedule describing planned 11
investments in the Eagle Water system over a three-year period. The priority items 12
proposed in that schedule would bring the Eagle Water system into compliance with 13
IDEQ requirements for peak hour and fire flow, provide improved command-14
control-monitoring of system operations, and implement industry standard 15
chlorination of source wells. Other upgrades such as meter and service 16
replacements, safety and security improvements and pipeline replacements and a 17
two-million-gallon tank were scheduled over the proposed three-year period. All 18
of the above improvements are summarized in a table on page 11 of the Direct 19
Testimony of Cathy Cooper filed in support of the Joint Application. 20
In the settlement discussions, the City expressed a desire that SUEZ commit to 21
making these improvements on the timeframe indicated in Ms. Cooper’s Direct 22
Testimony. It was agreed that because of potential unforeseen events, including 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

the as yet unknown outcome in this proceeding that could prevent SUEZ from 1
meeting that commitment, SUEZ would use its best efforts to implement the 2
proposed system upgrades on a time frame approved by the Commission. 3
Q. Does SUEZ still believe that a three-year implementation period is 4
appropriate? 5
A. In part, yes. 6
Q. Please explain. 7
A. The schedule of planned improvements originally contained in Ms. Cooper’s Direct 8
Testimony was developed around an approximate match of immediate and longer-9
term system improvement needs and the three-year rate phase-in. As discussed in 10
Ms. Cooper’s Supplemental Testimony, with an extended rate phase-in, SUEZ now 11
proposes a revised schedule aimed at accomplishing priority system improvements 12
necessary to bring the Eagle Water system into compliance within the first three 13
years. SUEZ now proposes other improvements be spread out over a five-year 14
period. As proposed, former Eagle Water customers would, subject to unforeseen 15
contingencies, see immediate necessary upgrades and benefits in the first three 16
years and additional improvements and benefits over the balance of the five years 17
as their rates are phased in. This proposed schedule is summarized in a revised 18
table in Ms. Cooper’s Supplemental Testimony. 19
Q. Is SUEZ committed to use its best efforts to implement the improvements on 20
such schedule as ultimately may be approved by the Commission? 21
A. Yes, it is. 22
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

Q. You previously stated that the settlement with the City also involved an 1
increase in the purchase from to $10,000,000 to $10,500,000. Will you please 2
describe how this number was arrived at? 3
A. This was a negotiated term between SUEZ, H2O Eagle and Eagle Water. It in part 4
reflects changed conditions since the time of SUEZ’ original agreement with H2O 5
Eagle, the continuing value of the Eagle Water assets to SUEZ and its customers, 6
the addition of new Eagle Water customers, the avoided cost of protracted litigation 7
and the value of timely completion of the transaction. 8
Q. You also previously stated that the settlement with the City included a 9
payment to it of $1.75M in the event the Commission approves the Eagle 10
Water asset sale to SUEZ and the transaction closes. How is this settlement 11
payment to be made? 12
A. Eagle Water and H2O Eagle are responsible for making the settlement payment to 13
the City out of their proceeds from the asset purchase. This is described in the 14
Supplemental Testimony of Mr. Robert DeShazo. 15
Q. SUEZ’ Amendment to Joint Application requests that the Commission 16
approve an acquisition adjustment for the amended purchase price that 17
includes the additional $500,000. What is the rationale for including this 18
additional amount? 19
A. As was discussed in my Direct Testimony (p. 6, l.19 - p. 8, l.3; p.9, l.21- p.11, l.6) 20
and in Cathy Cooper’s Direct Testimony (p.5, l.18 – p.9, l14), the negotiated 21
purchase price and an acquisition adjustment for the Eagle Water Assets are 22
supported by avoided capital investments that SUEZ would otherwise make if the 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

Eagle Water assets were not incorporated into SUEZ’ system. As described in detail 1
in Ms. Cooper’s Supplemental Direct Testimony, the increased purchase price still 2
is significantly less than the estimated avoided capital cost to SUEZ of $11.2M that 3
would be incurred without acquisition of Eagle Water assets. There also has been 4
no significant change in the net book value of the Eagle Water system in the ensuing 5
two years since this case was initiated. Nevertheless, the existing facilities, 6
particularly newer facilities that represent contributions in aid of construction, 7
continue to have a fair value component. SUEZ also believes that the five percent 8
increase to the purchase price represents a reasonable and necessary cost to acquire 9
the assets free of adverse claims in a timely way. Even as increased, the purchase 10
price represents an investment of $2,534/customer--$154 more than under the 11
original purchase price, which compares favorably with SUEZ’ current investment 12
of $3,720/customer) as of its 2021 rate case (and a comparable $3,278 per customer 13
at the end of 2017). 14
Q. Is SUEZ proposing to change the period over which an acquisition adjustment 15
would be amortized if included in rates? 16
A. No, it is not. SUEZ is still proposing a forty-year amortization. 17
Q. At page 12-13 of your Direct Testimony you summarized a communications 18
plan related to the Eagle Water acquisition. Has SUEZ had any 19
communications with its customers or Eagle Water customers since this case 20
was stayed? 21
A. SUEZ has not had any direct communications with its customers concerning the 22
proposed acquisition since this case was stayed. SUEZ, the City and Eagle Water 23
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THOMPSON, SUPPLEMENTAL DI
SUEZ Water Idaho Inc.

did issue a joint press release advising of the settlement and their intent that this 1
case would proceed. 2
SUEZ will restart customer outreach and communications when the case resumes. 3
The updated plan includes: 4
 Press release (at filing) 5
 Eagle Water Company customer notification including postcard and link to 6
online FAQ. (at filing) 7
 Website, including press release, FAQ, and other information to be updated as 8
needed. (pre-closing) 9
 Press release. (pre-closing) 10
 External stakeholder outreach to municipal offices and regulatory agencies. 11
(pre closing) 12
 Welcome packets focused on SUEZ’ customer-friendly online portal which 13
includes account management, conservation tips, and tracking tools to help 14
new customers save money. (post-closing) 15
 Social media posts. (pre and post-closing) 16
 Information sessions at community functions and through webinars. (pre and 17
post-closing) 18
Q. Do you believe the acquisition of Eagle Water by SUEZ is in the public 19
interest? 20
A. Yes, for all of the reasons stated above. 21
Q. Does this conclude your testimony? 22
A. Yes. 23