20200306Decision Memo.pdf

RE
DECISION MEMORANDUM
TO COMMISSIONER K.IEI.LANDIiR
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECREI'ARY
LEGAL
WORKING FTLII
FROM:JOSEPH TERRY
DONN ENCLISH
DATE: MARCH 5,,2020
TETON WATER'S API'LICATION TO AUTHORIZE DEBT FOR
PURPOSE OF WELL CONSTRUCTION; CASE NO. TTS-W-20-0I
On February 20, 2020, l'eton Watcr & Sovcr Companl, (Company) applied fbr authority
to issue up to $450.000 in deht in order to builcl a third rvell tbr the u,ater s,vstern. 'l'he Conrpany
did not includc thc filing I'cc. but the filing fbe w'as calculated to be $187.50 and was
subsequently received on February 28. 2020. In addition, the Company's included press release
had minor cnors that rvcre corrected belbre being dclivered to thc local ncwspapcrs. 'l'hc
Cornpany did not include financial statements rvith the Application. but provided unaudited
flnancial statements to Staff on February ?6.2020.
'fhe purposc of this loan is feir planning. engineering. and construction of the water
systems' third rvell. The Company relbrenced Case Nos. TTS-W-17-01 and TTS-W-19-01 fur
justification fbr this well. "lhe Cornpany provided bids and estimates totaling $385,519. StafT
reviewed those estimates and fiound thcm reasonable considering the geology of the area. l"he
Cornpanv is requesting authority lbr $450.000 in debt because once construction begins, costs
may vary frorn thc cstimates. On initial discussion with the lenders, the Cornpany reported they,
L'xpect to receive a7-8Yo interest rate and live-y,ear term. This loan u'ould be secured by the
assets of the Clompany, and the Company would like to have the loan secured by April I, 2020 irr
ordertohavethervell onlineforthe2020peakdemandseason. StafTrequeststhatthe Company
file rvitlr the Commission the final loan docurments when those documents become available.
If fbund prudent, the third well will have a significant inrpact to the Company's rate base.
In the Company's last general rate c&se (Case No. TTS-W-08-01), the Company's rete base was
DECISION MEMORANDUM IvfAItCIl 5,2A2t)
$57.763. 'fhe Company's rvater revenues in its 201 9 llnancial statements rvere $ 162.534, and the
gross income fiom the 2018 Annual Report rvas $35,808. Staffestimates that the annual
payment on a $384,519 loan (the estimated cost nf the project) at To/o interest with a fir,e-year
tenn would be approximately $91,000. The Cornpany's current rates are not sul'ficient to servicc
the Ioan-
Wclls for water systems are typically depreciated over a period of 25-35 years. With a
live-year loan. a nrismatch is created when recovery of investment is extended well beyond thc
original terms of the loan. Assurning the abovc-nrentioned depreciation lile Staffestimates the
annual revenue requirenrent (depreciation and return on investmcnt) fiom this project would be
approximately $51.000 ornearly $40,000 less than estimated loan payments. and therefore still
not sufl'icient to service the loan. Staff encourages the Cornpany to attempt to secure Ioan
conditions that minirrrize the impact on custonter rates. either by extending the loan beyond 5
years, or structuring tlie loan with a balloon payment that can be refinarrced after thc original
tenn. Stall recognizes that changing the loan conditions may all.ect the interest rate the
Cornparry rvill receive. Absent more l'avorable concJitions. accelerated recovcry of the third well
may bc the only option to maintain the financial sccurity of the company.
Statf recognizes that projects of this sizc tbr small water companies are ditficult and
cclmmends the cornpany on its prnactive m{rnagement of the water s},stem.
STAFF RECOMMENDATION
Staff recomntends the Conrmission approve the Conrpany's request lor authority to issue
up to $450.000 in debt fbr the third *,ell.
Stalf rccommends the Comnrission order the Company to tile rvith the Commission the
loan docunrents showing the amount bomor.ved and all other terms ol'the loan within seven days
of those documents being available.
DECISION MEMORANDUM 2 IV{ARCH 5. ?020
COMMISSION DECISION
Does the Commission wish to gant the Company authority to issue up to $450,000 in
debt?
Does the Commission wish to order the filing requirement described?
UdmcmoVTTS-W-20{ I Dccision Mcmo V2
DECISION MEMORANDUM -3-MARCH 5,2020