20211027Comments.pdf

DAYN HARDIE (ISB No. 9917)
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03t2
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cAsE NO. SUZ-W-18-02/
EAG-W-18-01
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Street Address for Express Mail:
1133I W CHINDEN BLVD, BLDG 8, SUITE 2OI-A
BOISE, TD 83714
Attorneys for the Commission Staff
BEFORE TIIE IDAIIO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF SUEZ WATER IDAHO,
INC., TO ACQUIRE EAGLE WATER
COMPANY
COMMENTS OF THE
COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its attomeys of
record, Dayn Hardie, Deputy Attomey General, submit the following comments.
BACKGROUND
On November 15, 2018, SUEZ Water Idaho Inc. ("SUEZ") ard Eagle Water Company,
Inc. ("Eagle Water") jointly (the "Applicants"), applied to the Commission requesting approval
of a proposed acquisition of Eagle Water's assets by SUEZ.
SuEz-formerly United Water-has been operating in the Treasure Valley since 1928.
SUEZ serves approximately 99,000 customers in the Boise area.
Eagle Water is a privately held water company serving approximately 4,400 customers
near Eagle, Idaho. Eagle Water holds Certificate of Public Convenience and Necessity
("CPCN") No. 278. H2O Eagle Acquisition, LLC (*H2O Eagle") is also involved in the
proposed acquisition. According to the Applicants,HzO Eagle will purchase Eagle Water's
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ISTAFF COMMENTS ocroBER 27,202t
assets for an undisclosed amount. Simultaneously, SUEZ will then purchase Eagle Water's
assets from H2O Eagle for $10 million.
On Decemb er 7 , 2018, the Commission issued a Notice of Application and established a
deadline for interested parties to intervene. Order No. 34203. City of Eagle, Eagle Water
Customer Group ("EWCG"), City of Boise City, Community Action Partnership Association of
Idaho ("CAPAI"), and Citizens Allied for Integrity and Accountability ("CAIA") intervened.
Order No.34229.
During the proceeding, Intervenor City of Eagle sued Eagle Water in District Court
claiming a right of first refusal to buy Eagle Water's water system. Because the Commission's
decision on the Joint Application may have been affected by the outcome of the District Court
litigation, SUEZ moved to stay the Commission proceeding pending a resolution of the litigation
between the City of Eagle and Eagle Water. SUEZ represented that the other parties to the
Commission proceeding did not oppose the motion. On March 27,2019, SUEZ's motion was
granted, and the Applicants were ordered to provide quarterly reports on the status of the District
Court case, Case No. CV01-19-03534. Order No.34292.
After extended mediation, SUEZ, Eagle Water, and the City of Eagle reached a
settlement agreement ("Settlement Agreement") that included new terms relevant to this
proceeding. On February 24,2021, the parties filed the Settlement Agreement and a stipulation
of dismissal with the District Court. On March 8,2021, the District Court dismissed the case.
On June 8,2021, Eagle Water and SUEZ filed a motion to recommence proceedings in
this docket. The same day, Eagle Water and SUEZ filed an amendment to its Joint Application
requesting approval of the acquisition of Eagle Water's assets by SUEZ ("Amended Joint
Application"). Most notably, the purchase price for Eagle Water's assets increased by $500,000,
and the phase-in period to bring Eagle Water rates to parity with SUEZ'S rates increased from
three years to five years. A Water Management Agreement ("WMA") and Asset Purchase
Agreement were included with the Amended Joint Application. Supplemental written testimony
was filed contemporaneously with the Amended Joint Application.
On July 14,2021, the Commission granted SUEZ and Eagle Water's motion to
recorlmence proceedings and issued a Notice of the Amended Application. Order No. 35104.
2STAFF COMMENTS ocroBER 27,2021
On September 9,2021, the Commission issued a Notice of Scheduling establishing public
comment and Companies' reply deadlines in addition to scheduling a public workshop and a
customer hearing. Order No. 35 I 60.
On September 14,2021, the parties began settlement negotiations seeking to resolve the
issues in this case. The parties met for three settlement conferences and one accounting
workshop.
On October 8,2021, a proposed Stipulation and Settlement ("Settlernent") and a joint
motion for approval of the proposed Settlement were filed with the Commission to memoialize
the agreement. SUEZ, Eagle Water, and Staff, (collectively "Stipulating Parties") were the
signatories to the Settlement.
On October 15,2021, the Commission issued a Notice of Proposed Settlernent and
Notice of Amended Schedule that altered the Staff and lntervenor comment deadline and the
Companies' reply deadline. Order No. 35198.
STAFF AIIALYSIS
StafPs evaluation of the transaction focused on the purchase price SUEZ will pay for the
Eagle Water system, the value received by SUEZ customers from the acquisition, the value
received by customers of Eagle Water, and the capital investnent necessary to bring the Eagle
Water system into compliance with Idaho Department of Environmental Quality ("IDEQ")
regulations. Staff recommends the Commission approve the proposed Settlernent allowing
SUEZ to acquire Eagle Water's assets and to transfer Eagle Water's CPCN to SUEZ. Staff
believes that the Settlernent is fair, just, and reasonable, and in the public interest.
Idaho Code does not address the acquisition of water companies. Staff relied on the
standards outlined in ldaho Code $ 61-328(3) related to the sale of electric utilities for its review
of the proposed acquisition. Those standards require:
a. The transaction is consistent with the public interest;
b. The cost of and rates for supplying service will not be increased by reason of such
transaction; and
c. The applicant for such acquisition or transfer has the bona fide intent and
financial ability to operate and maintain said property in the public service.
3STAFF COMMENTS ocToBER 27,2021
Public Interest
Staffbelieves the transaction is consistent with the public interest. SUEZ intends and has
the ability to provide reliable service to Eagle Water customers and enhanced customer
experience through various payment platforms, 24-hour customer service, and online access
providing instant consumption data.
The current owner of Eagle Water desires to sell the water system because of the need to
comply with water quality regulations, complex utility regulations, and complex operational and
technical requirements. Because of significant growth coupled with his lack of experience in
upgrading water systems, the current owner of Eagle Water is experiencing difficulties in
maintaining its current quality of service and obtaining adequate financing for operations,
maintenance, and infrastructure upgrades. The owner desires that Eagle Water be sold to a
company that will be able to meet the needs of Eagle Water customers and serve the public
interest. As such, Eagle Water is being sold to H2O Eagle, and concurrently purchased by SUEZ
from H20 Eagle (collectively, the "Transaction").
The Transaction is in the public interest because the benefits of interconnecting both
systems outweigh the costs of maintaining both systems separately. Staff compared the
alternative of operating both systems separately to the alternative of interconnecting and
operating the two systems as a corlmon single system. By identiffing the costs and benefits of
combining the two systems from a perspective of Eagle Water customers and from the
perspective of SUEZ customers, the acquisition will be mutually beneficial for customers of both
systems once the systems are interconnected.
For customers of SUEZ,the main benefit of interconnecting the two systems is an
increase in the water supply to the SUEZ system from Eagle Water's system at an estimated
capital cost avoidance of $l1.2 million. If SUEZ does not acquire Eagle Water, the next least-
cost alternative for SUEZ will be to expand the existing Marden Surface Water Treatment Plant,
increase the size of approximately 14,000 feet of existing 24-inch and 36-inch diameter water
transmission piping, complete an interconnection with Island Woods, and add a 2-million-gallon
water storage tank and booster pump station prior to 2022.r However, by interconnecting the
two systems, SUEZ will be able to utilize its existing storage capacity to utilize Eagle Water's
non-peak excess pumping capacity and water rights, since Eagle Water does not have significant
I Suez's response to StaIPs Production Request No. 14
STAFF COMMENTS 4 ocroBER 27,202t
capacity to store water when its demand is low. By acquiring Eagle Water, SUEZ can avoid
$11.2 million in additional investment.
For Eagle Water customers, there are several direct benefits that interconnecting to
SUEZ's water system can provide to alleviate current inadequacies. The inadequacies that must
be addressed include:
1. Current deficiencies in meeting firewater flow requirements;
2. Insufficient system-peak pumping capacity;
3. Inadequate water rights needed for peak domestic use and firewater flow
requirements without investing in additional water storage capacity;
4. Issues in system reliability and operating efficiency;
5. Potential water supply safety issues; and
6. Lack of visibility to customer usage and potential system leaks.
Several of these inadequacies put Eagle Water out of compliance with IDEQ
requiranents and were caused by a lack of proper investment in the Eagle Water system during
system expansion. IDEQ requires Eagle Water to meet fire protection flow requirements when
wells are out of service.2 If Eagle Water's largest well is out of service, the system cannot meet
the required fire protection flow. Additionally, Eagle Water must demonstrate that it can meet
the combined flowrates of average-day demand plus fire flow requirements in the event of a
power outage.3 Finally, the system would fall short in meeting peak hour flow requirements for
redundant domestic use pumping capacity with Eagle Water's largesta well out of service, as
required by IDEQ.
If Eagle Water does not interconnect with SUEZ, Eagle Water would likely need to drill
an additional well, acquire additional water rights, invest in high-capacity water storage, and add
standby power to certain existing wells that are without backup generators. These issues can all
be addressed with the planned near-term interconnection to SUEZ's Redwood Creek pipeline.
SUEZ plans $14.6 million of capital improvernents for the Eagle Water system during
the next five years. In addition to the interconnection to the Redwood Creek pipeline, SUEZ
plans to construct a new two-million-gallon water storage tank, add a Supervisory Control and
2 DAPA 58.01.08.501.18, Redundant Fire Flow Capacity.
3 DAPA 58.01.08.501.07, Reliabiliry and Emergency Operation.4 DAPA 58.01.08.501.07, Reliability and Emergency Operation.
5STAFF COMMENTS ocToBER 27 ,2021
Data Acquisition ("SCADA") system to allow 24-hotr monitoring of the Eagle Water system to
better control pumping operations resulting in an improved systern operating efficiency; address
delayed investment in safety;s security investments; well cleaning; and distribution piping
replacernents. Upgrades more visible to Eagle Water customers would include a change-out of
existing meters to advanced metering infrastructure ("AMI"). The AMI meters provide better
metrics for customer usage which can be accessed and utilized through SUEZ's website.
The current Eagle Water system uses ground water as its source supply, while SUEZ uses
a combination of both ground water and surface water. Currently, SUEZ chlorinates its water to
meet IDEQ requirements for disinfection. Once the two systons are combined, the Eagle Water
system will also be chlorinated. Staffbelieves a system the size of Eagle Water by itself would
benefit from chlorination by reducing the risk of contamination from leaking distribution lines
and defective backflow devices. Chlorination is recommended to make water safe for
consumption.
Cost and Rates
Although rates will increase for Eagle Water customers, Staff notes that the acquisition of
Eagle Water assets is SUEZ' least cost option to continue to provide reliable water service to its
western service territory. Eagle Water customers will see rates increase over seven years to
SUEZ rates, if the Settlement is approved. The acquisition by SUEZ offers a successful
succession plan for Eagle Water and its customers.
Absent the Transaction, Eagle Water customers' rates would increase due to substantial
required improvements. Despite the proposed increase in rates, the Applicants and Staff believe
customers will be better served long-term by SUEZ through improved service, water quality, and
systern dependability if the sale is approved.
Table No. I below illustrates the necessary investment in the Eagle Water system to
comply with IDEQ peak flow and fire flow requirements. These investments include a storage
tank and several safety measures with an estimated cost of $4.152 million. The additional
revenue requirement associated with the necessary capital investment is approximately $658,000,
or 960/o increase over current rates.
5 Arc-flash analysis and upgrades, eyewash stations, fall protection.
6STAFF COMMENTS ocToBER 27 ,2021
Table No. 1: Easle Water Svstem Investments
Required Investments
Storage Tank $ 4,012,000
Safety & Security $140,000
Total Additional Rate Base $ 4,152,000
lncremental Revenue Requirement $657,670
Current 2020 Revenue $683,036
Percentage Increase 96%
Intent and Ability to Operate
SUEZ continues to demonstrate that it has the financial ability and bona fide intent to
operate its current system. If the Settlement is approved, SUEZ would operate the Eagle Water
system and take additional steps to maintain or improve the water system until such time the two
water systems are interconnected.
Acquisition Adjustment
An acquisition adjustment describes the difference between the price paid to acquire the
assets and the assets' net book value. SUEZ proposes to record the Eagle Water assets to Plant-
in-service and record an equivalent amount as Accumulated Depreciation, resulting in a zero-
book value of the assets. The acquisition adjustment then becomes the final purchase price plus
transaction costs.
In the Amended Joint Application, SUEZ agrees to purchase Eagle Water for $10.5 million.
SUEZ is seeking recovery of $512,400 in transaction costs. Such transaction costs include,
operation expenses, an American Land Title Association ("ALTA")6 survey, and legal fees. The
Stipulating Parties agreed to an acquisition adjustment of $10.475 million to be amortized over a
4O-year period beginning when new rates are implemented in SUEZ's next general rate case
proceeding. This amount removes customer communications and costs associated with the district
court case.
6 SUEZ's response to Staff s Production Request No. I I
STAFF COMMENTS 7 ocToBER 27,2021
In the Settlement, the Stipulating Parties agreed that the acquisition adjustment would be
allocated between the Utility Plant Acquisition Adjustment regulatory asset account and the
incurred transaction cost accounts. The gross amount of utility plant in service of Eagle Water
assets being acquired will be included in rate base with an offset of an equal amount in a related
accumulated depreciation account.
Surcharge Line-of-Credit Account
In Order No. 34295, approving a Joint Settlement Stipulation in Case No. EAG-W-I5-
01, the Commission ordered Eagle Water to establish a surcharge line-of-credit account
("surcharge Account").' The Joint Settlement Stipulation stated that Eagle Water "...will
discontinue the $100 and $500 hookup charges it has been collecting per TariffSchedule No. 5.
The balance of the accounts that contain the hookup charges ($365,580, as of July 12, 2018) will
be allowed to remain in the surcharge account and be used as a line-of-credit going forward
(funds to be used and repaid). The parties [in Case No. EAG-W-I5-01] agree that [Eagle Water]
will annually deposit $45,288 of overearnings into the surcharge line-of-credit account beginning
in20l7. This arrangement shall rernain until the Company requests, and the Commission
approves different treatment." Id at3.
Staff calculated the Surcharge Account balance to be $592,020 as of December 31, 2021.
See Table No. 2.
Table No.2 - Surcharee Balance
132.5 Surcharge Account 20008322 $ 150,000
132.6 IFB Well Construction $ 159,837
132.7IFB Engineering $ 55,743
Total $ 365,580
Overearnings 2Ol7 $ 45,288
Overeamings 2018 $ 45,288
Overeamings 2019 s 45,288
Overeamings2020 $ 45,288
Overearninss 2021 $ 45,288
Total Overearnings as of 1213112021 $ 226.440
Surcharge Balance as of 1213112021 $ 592,020
7 EAG-W-15-01 Joint Settlement Stipulation, Page 3, Section 12.
8STAFF COMMENTS ocToBER 27,2021
The Stipulating Parties agree that the balance of the Surcharge Account should be
returned to current Eagle Water customers in the form of a one-time payment upon closing of the
Transaction. The Surcharge Account refund will be paid to current Eagle Water customers as of
the date of the final Commission order. The refund is intended to partially or fully offset the
first-year increase in the Rate Phase-in discussed below.
RATE PIIASE.IN
In the Amended Joint Application, the Applicants requested a five-year rate phase-in to
bring Eagle Water customer rates to parity with SUEZ rates. The Stipulating Parties agreed that
a seven-year rate phase-in would be appropriate, thereby reducing any single-year impact to
current Eagle Water customers. SeeTable No. 3.
Staff believes a rate increase for Eagle Water customers is necessary. To mitigate rate
shock and provide a more gradual hansition of rates, Staff believes that a seven-year phase-in of
rates is reasonable. Additionally, the immediate refund of the surcharge can be used to help
Eagle Water customers transition to increased rates in year one.
Table No. 3 - Rate Phase-In
Year I Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Amended Joint
Aoolication s0.00%63.00%7s.00%88.00%100.00%
Stipulation and
Settlernent 50.00%58.33%66.67%75.00%83.33o/o 9t.67%100%
CUSTOMER INPUT
Customer Notice and Press Release
The Eagle Water Company (EAG-W-18-01) Application included a customer notice and
press releases in Novernber 2018 and March 2021. ln the customer notices and the press
releases, the customers were directed to contact SUEZ for further information. The notice and
press release also included details of the proposed rate increase as required under Rule 125 of the
Commission's Rules of Procedure, IDAPA 31.01.01.125.
9STAFF COMMENTS ocroBER 27 ,2021
Public Workshop and Customer llearing
A telephonic public workshop was held Tuesday, October 5,2021, at 7:00 PM. 19
individuals participated-I4 participated by asking questions or offering statements. Staff
presented the Company's Amended Joint Application and answered customers questions.
Customer concerns echoed those presented in written comments. During the workshop,
customers stated that they opposed the transaction, wanted to know why City of Eagle could not
purchase the syston, questioned the true intent of Veolia acquiring SUEZ, and that the purchase
included a middle-man-H2O Eagle. Staff answered questions and encouraged participants to
present their comments and concerns in writing to the Commission or to present their testimony
at the telephonic customer hearing on Novernber 1,2021at 7:00 PM.
Customer Comments
As of October 26,2021, the Commission has received 381 customer comments since
SUEZ and Eagle Water submitted the November 15, 2018 Application. Many customers have
submitted multiple comments and the overwhelming majority are against the sale of the
Company. Current Eagle Water customers expressed their support and satisfaction with Eagle
Water and their concems about:
o the proposed rate increase;
o the proposed chlorination of their water; and
o the possibility of the transfer of water rights and water out of the current service
area.
Customers also expressed concern about SUEZ, which includes:
o Foreigl ownership of the parent company SUEZ and potential acquisition by
Veolia:
o affecting the ability of the Commission to regulate the system and maintain
fair, just, and reasonable rates for customers;
o affecting SUEZ's ability to manage the system for the benefit of the customers;
and
o allowing the transfer of profits to the foreign owned parent company.
o Water quality concerns such as:
o the ongoing problem of discolored water in portions of SUEZ's syston;
STAFF COMMENTS 10 ocroBER 27 ,2021
o use of ffeated water from the Marden plant; and
o effects of chlorination on customer health.
Loss of local customer service options.
STAFF RECOMMEI\DATION
StaffRecommends that the Commission approve the Settlement as filed, including:
o Setting the acquisition adjustnent at $10.475 million, with no carrying charge,
amortized over 40 years;
o Recovery of the acquisition adjustrnent should begrn upon implementation of new
SUEZ rates in its next general rate case;
o The surcharge balance of $592,020 be retumed to current Eagle Water customers
via check, as ofthe final order; and
o Staffrecommends the rate phase-in of Eagle Water customer rates to Suez rates
over seven years, with a rate increaseto 50o/o of current SUEZ rates, effective
January 1,2022, and an increase of 8.33% on January I of each following year, as
depicted in Table No. 3.
Respectfully submitted ,n Z1K day of October 2021
Deputy Attorney General
Technical Staffl Travis Culbertson
Rick Keller
Chris Hecht
Kathy Stockton
i:umisc/oomments/suzwl8.2_eagl 8. ldhestncklsrkch comments
STAFF COMMENTS ll ocToBER 27,2021
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 27d, DAY OF OCTOBER 202I,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF; IN
CASE NOS. SUZ.W.18-02/EAG-W.18.0I, BYE-MAILING A COPY THEREOF, TO
THE FOLLOWING:
MICHAEL C CREAMER
PRESTON N CARTER
GTVENS PURSLEY LLP
601 W. BANNOCK ST.
BOISE, ID 83702
E-MAIL: [e-mail]
prestoncarter@ givenspursl ey. com
ROBERT DESHAZO
EAGLE WATER COMPANY, [NC.
188 W. STATE ST.
EAGLE,IDAHO 83616
E-MAIL: [e-mail]
MOLLY O'LEARY
BZCOUNSELOR AT LAW PLLC
1775W STATE STREET, #I5O
BOISE TD 83702
E-MAIL: [e-mail]
ELECTRONIC ONLY
MAYOR JASON PIERCE
CITY OF EAGLE
660 E CIVIC LANE
EAGLE ID 83616
E-MAIL: [e-mail]
to sborn@cityo feagl e. ore
MARSHALL THOMPSON
SUEZ WATER IDAHO, INC.
8248 W. VICTORY RD.
BOISE,IDAHO 83709
E-MAIL : marshall.thompson@suez. com
N.L. BANGLE
H2O EAGLE ACQUISTION, LLC
188 W. STATE ST.
EAGLE, IDAHO 83716
E-MAIL : [e-mail]
B NEWAL SQUYRES
MURRAY D FELDMAN
HOLLAND & HART LLP
PO BOX2527
BOISE rD 83702-2527
E-MAIL: nsquyres@hollandhart. com
mfeldman@ho llandhart. com
JAMES M PIOTROWSKI
MARY DURAND
PIOTROWSKI DURAND PLLC
IO2O W. MAIN STREET, SUITE 440
PO BOX 2864
BOISE ID 8370I
E-MAIL: [e-mail]
[e-mail]
CERTIFICATE OF SERVICE
SCOTT B. MUIR/ MARY GRANT
DEPUTY CITY ATTORNEY
BOISE CITY ATTORNEY'S OFFICE
150 N. CAPITOL BLVD.
PO BOX 500
BOrSE rD 83701-0500
E-MAIL: [e-mail]
NORMAN M SEMANKO
PARSON BEHLE & LATIMER
8OO W MAIN ST STE 13OO
BOISE ID 83709
E-MAIL: [e-mail]
[e-mail]
CERTIFICATE OF SERVICE