20240212Final_Order_No_36084.pdf

ORDER NO. 36084 1

Office of the Secretary
Service Date
February 12, 2024
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF CDS STONERIDGE
UTILITIES, LLC’S APPLICATION FOR
AUTHORIZATION TO BORROW FUNDS
FROM RELATED ENTITIES OR MAKE
ADDITIONAL CAPITAL CONTRIBUTIONS
TO COVER OPERATING LOSSES
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CASE NO. SWS-W-23-03

ORDER NO. 36084

On December 15, 2023, CDS Stoneridge Utilities, LLC (“Company”) applied for approval
from the Idaho Public Utilities Commission (“Commission”) to incur $980,000.00 of debt
(“Application”). The Company stated that this debt would be borrowed from “Esprit Enterprises,
LLC and/or JD’s Resort.” Application at 1. The Company stated that these companies are both
related to it and share the same ownership.
The Company noted that Commission Staff (“Staff”) informed it of the default statutory
30-day window relevant for the processing of this case in accordance with Idaho Code § 61-903.
However, the Company requested that an order approving the Company’s Application be issued
by February 15, 2024, rather than January 15, 2024.
In accordance with Idaho Code § 61-904 and Staff’s recommendation, the Commission
issued a Notice of Continuance extending the 30-day window for the disposal of this matter until
February 15, 2024. Order No. 36054.
After reviewing the record in this case, the Commission denies the Company’s request to
authorize the debt. However, the Commission approves the Company reclassifying the debt as
paid-in-capital and treating it as owner’s equity within the Company’s capital structure.
STAFF REVIEW AND RECOMMENDATION
Staff analyzed the Application, requested authority, proposed interest rates and loan terms,
and the requirements of Idaho Code §§ 61-901 et seq. and Rule 141 of the Commission’s Rules of
Procedure. Staff noted that the Application is post-hoc as the funds requested have already been
released to the Company. Staff also noted three important factors for the Commission to consider
in this case. 1) The transaction in this case is not an arm’s-length transaction; 2) that debt is
typically acquired at a lower cost than equity due to creditors generally recovering before
shareholders in cases of insolvency; and 3) that the ideal capital structure is typically a 50% debt
ORDER NO. 36084 2
50% equity for a healthy Company; if the Application was approved as the Company requested,
this ratio would be much farther from that desirable balance.
Instead, Staff recommended that the Commission reclassify the debt as additional paid-in-
capital and treat it as owner’s equity. Staff noted that the Company would still be able to pay its
parent entities back in the form of dividends. Staff also noted that its proposal avoided the
obligation to conduct a related party analysis because Commission approval is not needed for
additional paid-in-capital.
COMMISSION FINDINGS AND DISCUSSION
The Commission has jurisdiction over the Company and the issues in this case under Title
61 of the Idaho Code. Specifically, the Commission regulates “public utilities,” including “water
corporations” that serve the public or some portion thereof for compensation. See Idaho Code §§
61-125, -129, and -501.
After reviewing the Application and all submitted material, we reject the proposed
securities issuance. However, we find that the paid-in-capital treatment suggested by Staff is fair,
just, reasonable, and for a lawful purpose within the Company’s corporate powers. Treating the
debt as paid-in-capital allows the Company’s creditors—related entities—an opportunity to
recover the funds that were lent to the Company. The Commission notes that that Staff’s proposal
provides the best solution to mitigate the potential risks associated with a non-arm’s length
transaction and also provides a better capital structure for the Company. In the future, if the
Company wishes to issue debt securities, we direct the Company to comply with the applicable
provisions of Idaho Law, including Idaho Code §§ 61-901 et seq.
The Commission’s Order authorizing specific accounting treatment for the funds borrowed
by the Company that may or may not have been expended already does not constitute a
Commission determination or approval for ratemaking purposes. The Commission does not have
before it for determination, and so does not determine, the effect of the proposed transaction on
rates the Company will charge for water service.
O R D E R
IT IS HEREBY ORDERED that the Company’s request for authority to incur $980,000.00
of debt by borrowing from Esprit Enterprises, LLC and/or JD’s Resort is denied. However, the
Commission here approves the Company reclassifying the debt as additional paid-in-capital and
treated as owner’s equity in the Company capital structure.
ORDER NO. 36084 3
IT IS FURTHER ORDERED that the foregoing authorization is without prejudice to the
regulatory authority of the Commission with respect to rates, utility capital structure, service
accounts, valuation, estimates for determination of cost or any other matter which may come before
this Commission pursuant to its jurisdiction and authority as provided by law.
IT IS FURTHER ORDERED that nothing in this Order or any act or deed done or performed
in connection therewith shall be construed to obligate the State of Idaho to pay or guarantee in any
manner whatsoever any debts assumed or guaranteed under the provisions of this Order.
IT IS FURTHER ORDERED that this Order does not constitute acceptance of the
Company’s exhibits or other material accompanying the Application for any purpose other than
issuing this Order. This Order does not constitute a prudency determination which shall occur in a
future rate proceeding.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order about any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 12th day of
February 2024.

ERIC ANDERSON, PRESIDENT

JOHN R. HAMMOND JR., COMMISSIONER

EDWARD LODGE, COMMISSIONER
ATTEST:

Monica Barrios-Sanchez
Commission Secretary
I:\Legal\WATER\SWS-W-23-03_securities\SWSW2303_Final_md.docx