28418.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF APPLICATION OF UNITED WATER IDAHO INC. FOR AN ORDER APPROVING THE PURCHASE BY UNITED WATER IDAHO INC. OF WATER SERVICE PROPERTIES OWNED BY M&M MOUNTAIN VIEW ACRES SUBDIVISION WATER COMPANY, INC., FOR AUTHORITY TO EXPAND UNITED WATER IDAHO’S CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY NO. 143 AND FOR APPROVAL OF RELATED RATES AND CHARGES. )
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CASE NO. UWI-W-00-3

ORDER NO. 28418

On March 31, 2000, an Application in Case No. UWI-W-00-03 was filed with the Idaho Public Utilities Commission (Commission) by United Water Idaho Inc. (United Water; UWI) for an Order approving the purchase by United Water of water service properties owned by M&M Mountain View Acres Subdivision Water Company, Inc. (M&M). Reference Idaho Code § 61-526; Commission Rules of Procedure, IDAPA 31.01.01.112. As reflected in a subsequent filing, the amended purchase price is $20,650. United Water further requests approval of certain rate and ratemaking matters including the right of United to include in rate base and future rate proceedings the full purchase price of the assets and related acquisition costs (legal expense) in the amount of $2500.
By this Order, as more particularly described and qualified below, the Commission approves the purchase by United Water Idaho Inc. of water service properties owned by M&M Mountain View Acres Subdivision Water Company, Inc., approves the amended purchase price of $20,650, authorizes additional recovery of $2500 in related acquisition costs, and authorizes a related amendment of United Water’s Certificate of Public Convenience and Necessity No. 143. The Commission also approves service to M&M customers under the proposed UWI flat tariff (Schedule No. 1E, Unmetered Service), presently a bi-monthly charge of $50.36.
United Water provides water service to approximately 65,000 customers within the Idaho counties of Ada and Canyon and operates under Certificate of Public Convenience and Necessity No. 143 (as Amended).
M&M provides potable water service to approximately twenty-four (24) residential customers within the M&M Mountain View Acres Subdivision located to the northeast of Robinson Boulevard and Wright Lane, east of Nampa, in Canyon County, Idaho. The subdivision is platted for 29 residential lots, ranging from approximately 0.5 to 1.1 acres. Separate irrigation is available. M&M is a non--profit Idaho corporation whose members also comprise the company’s customer base. United Operations (previously EM2), an unregulated affiliate of United Water, operates the water system under a contract agreement.
The purchase price will be applied against an existing M&M indebtedness in the approximate amount of $32,670 to the Idaho Department of Water Resources. The remaining loan balance will be paid by M&M out of cash reserves.
As represented in the Application, the M&M water distribution system is unmetered. The current monthly rate is $28.50. United Water proposes to provide flat rate service pursuant to UWI tariff Schedule 1E, presently a bi-monthly charge of $50.36. In all other respects, United Water will provide service in accordance with the rules and regulations applicable to its certificated service territory. Revenue collected from M&M’s customers based on the proposed rate, the Company contends, will be such that United Water’s current customers will not be burdened by the purchase of M&M’s assets.
As represented, the current owners of M&M desire to convey the M&M domestic water system to United Water because increasingly complex regulatory requirements make it difficult or impossible for the M&M Homeowners Association to operate this system. None of the homeowners are qualified to receive required operator certificates. None of the homeowners have the necessary training or experience to comply with the EPA Information Reporting Rule. None of the homeowners have the necessary training or experience to perform the testing requirements of the federal Safe Drinking Water Act.
Included in the Company’s Application is a map and legal description of the proposed boundary expansion including the underlying Agreement for Purchase and Sale and a copy of the proposed applicable Schedule 1E Flat Rate Service Tariff. United Water contends that the requested expansion of its Certificate No. 143 and service territory is consistent with the public convenience and necessity. United Water contends that public interest does not require a hearing to consider the issues presented.
Commission Notices of Application and Modified Procedure in Case No. UWI-W-00-3 were issued on April 17, 2000. The deadline for filing written comments was May 4, 2000. The Commission Staff was the only party to file comments. Reply comments were filed by the Company on May 30, 2000.
Staff reports that it performed a series of financial analyses to evaluate the proposed purchase. Staff determined that the acquisition as proposed by United Water did not generate sufficient revenue to meet the Company’s authorized rate of return (presently 9.12%). Based on its analysis, Staff concluded that under proposed rates, a subsidy would be required of existing United Water customers for Company investment (purchase price, acquisition costs, and distribution system modification costs) in M&M in excess of $20,650. Staff recommends that investment in excess of $20,650 be borne by Company shareholders, not existing customers.
In reply comments, the Company submited an amendment to the Agreement for Purchase and Sale reducing the purchase price from $20,800 to $20,650. The Company reiterates its request that it be permitted to also recover $2,500 in related acquisition costs (attorney fees, etc.). Recovery of this amount is justified, the Company asserts, because the purchase serves public policy—i.e., it trends toward consolidation and avoids the proliferation of small water systems, which lack the expertise and resources to provide safe and reliable water service.
As reflected in Staff comments, the average water consumption of M&M customers is approximately 93 ccf per customer per year. For comparison purposes, the average UWI residential customer consumption is approximately 209 ccf per year. Staff notes that the proposed tariff Schedule No. 1E bi-monthly customer charge was established based on the average consumption of metered United Water residential customers.
Staff notes that the Company in a previous 1996 filing (Case No. UWI-W-96-2) regarding M&M indicated an estimated cost of $14,400 to repair and modify the distribution system (e.g., install shut-off valves, control valves and blow-out assemblies). The repairs were identified as necessary to allow for system repairs, line flushing and system disinfection. In this Application the Company proposes no additional system repairs or modifications. Based on four years of operation history by United Water Operations (previously EM2) the Company states that the required investment previously identified by the Company ($14,400) is no longer needed or essential.
Staff apprises the Commission that the M&M system supply is untreated water and that additional investment may be required to install disinfection equipment. The Application makes no mention of responsibility for future chlorination or disinfection equipment investment. The Company by way of reply notes that an EPA ruling on groundwater disinfection is not expected until May 2002 and implementation is not likely until well into the year 2004. The Company states that it has no current plans to install chlorination or disinfection equipment in the M&M system.

COMMISSION FINDINGS
The Commission has reviewed the Company’s Application, the related Agreement for Purchase and Sale and the proposed certificate amendment. We have also reviewed and considered Staff’s analysis and recommendations in this matter and the Company’s response. The Commission continues to find that the issues presented in Case No. UWI-W-00-03 are suitable for processing under Modified Procedure, i.e., by written submission rather than by hearing. Reference IDAPA 31.01.01.204.
The Commission finds the amended purchase price ($20,650) to be reasonable and supported by rates. Reference Amended Agreement, Paragraph 2. We also find it reasonable to authorize future recovery of the requested $2500 in related acquisition costs. In approving the purchase and acquisition fee, we find that the present and future public interest is served by the purchase. We also recognize the stated operational and management challenges faced by M&M and the technical, managerial and financial capabilities of United Water.
The Commission notes that the M&M water system is a separate and non-contiguous system. It is the Commission’s understanding that there are no present plans to interconnect M&M to the Company’s larger integrated water system. M&M’s potable water supply is presently untreated. The integrated United Water system is chlorinated. Although it is probable that treatment of M&M water will be required at some future date, we are reluctant to order treatment before treatment is indicated by testing or required by regulation or system operation. Accordingly, we find no reason in this case to require same or to make any related adjustment to rates or purchase price.
The M&M water system is presently unmetered and has been operating in such a manner for the past four years. We find it reasonable, based on the facts presented, to authorize continued unmetered service to M&M customers. The applicable rate schedule we approve is tariff Schedule No. 1E, Unmetered Service, presently a bi-monthly charge of $50.36.
The Commission has considered the relevant statutory authority (Idaho Code (( 61-526, 61-528) and Commission Rules of Procedure (IDAPA 31.01.01.112) regarding amendments to Certificates of Public Convenience and Necessity for existing utilities. We find that the Company’s filing satisfies the underlying statutory and procedural requirements for certificate applications. In approving the purchase, we find that the present and future public interest will be served by allowing United Water to amend its Certificate of Public Convenience and Necessity No. 143 to include the area presently served by M&M (App. Exh. 1, Idaho Code (( 61-526 and 61-528; Commission Rules of Procedure, IDAPA 31.01.01.112) and authorizing United Water to provide water service to existing and future customers in said area.

CONCLUSIONS OF LAW
The Commission has jurisdiction over United Water Idaho Inc., a water company, and the issues presented in Case No. UWI-W-00-03 pursuant to the power and authority granted under Idaho Code, Title 61 and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.

O R D E R
In consideration of the foregoing and as more particularly described and qualified above, IT IS HEREBY ORDERED and the Commission does hereby approve the purchase by United Water Idaho Inc. of water system properties owned by M&M Mountain View Acres Subdivision Water Company, Inc. and the related domestic water system for an authorized purchase price of $20,650 plus $2,500 in acquisition costs. The Commission also authorizes the rate-basing of said amount in future rate proceedings by United Water.
IT IS FURTHER ORDERED and the Commission does hereby approve service to M&M customers under UWI tariff Schedule No. 1E, Flat Rate Service, presently a bi-monthly customer charge of $50.36.
IT IS FURTHER ORDERED that as of the date of closing, the Certificate of Public Convenience and Necessity No. 143 of United Water Idaho Inc. be amended to reflect the addition of the area presently served by M&M Mountain View Acres Subdivision Company, Inc. United Water Idaho Inc. is directed to prepare and file an amended Certificate for Commission approval.
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. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this _______ day of July 2000.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Myrna J. Walters
Commission Secretary

vld/O:UWI-W-00-03_sw

ORDER NO. 28418 1

Office of the Secretary
Service Date
July 3, 2000