20040416Reply Comments.pdf

ORIGINAL
Dean 1. Miller (ISB No. 1968)
McDevitt & Miller lLP
420 West Bannock Street
O. Box 2564-8370 I
Boise, Idaho 83702
208-343- 7500 (T)
208-336-6912 (F)
ioe~mcdevitt-miller.com
Attorneys for United Water Idaho Inc.
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF UNITED WATER IDAHO
INc., AND BARBARA V. CHILD, D/B/A
TERRA GRANDE FOR AN ORDER
APPROVING THE PURCHASE BY UNITED
WATER IDAHO TI\JC., OF WATER SERVICE
PROPERTIES OWNED BY BARBARA V.
CHILD; FOR AUTHORITY TO EXPAND
UNITED WATER IDAHO INC.
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY NO. 143 AND FOR
APPROV AL OF RATES AND CHARGES
Case No. UWI~04~
UNITED WATER IDAHO INc.'
REPLY TO STAFF COMMENTS
AND EXPLANATION OF
CURRENT STATUS
United Water Idaho Inc.
, ("
United", or "the Company ) respectfully submits the
following in reply to Staff Comments filed herein on April 2, 2004.
Current Status of Acquisition
The Agreement for Purchase and Sale between United and Terra Grande provides that
United would have a 90 day "due diligence" period following execution ofthe Agreement in
which to further investigate the Terra Grande system. (Agreement, paragraph 7(d)). United'
investigation has lead to the conclusion that the Terra Grande system is in worse condition than
originally thought.
The system deficiencies are accurately summarized in Staffs Comments: the water
system has not met DEQ sampling requirements and a number of contaminates are presently
REPLY TO STAFF COMMENT8-1
borderline acceptable and may require treatment in the near future if Terra Grande is not
interconnected to United's system. In addition, portions of the distribution system are
deteriorated and undersized. The Terra Grande system appears to be a classic example of a non-
viable small water eompany. As noted in Staff Comments, if Terra Grande was not
interconnected to United's system the investment necessary for Terra Grande to come into
compliance with DEQ requirements would be approximately $250 000 which would translate
into a 167% rate increase for Terra Grande customers, even assuming the current owner had the
financial ability to make the required investment.
On April 2, 2004 United received a copy of Staff Comments in which Staff
recommended that ':he Commission not approve any cash payment to the Terra Grande owner
and, in effect, that amounts that would have been paid to the owner be used for system
improvements. United agrees with Staff that it could not economically make the cash payment
to the owner plus make the improvements expected to be necessary.
In light of these developments, United met with the system owner and tendered a
proposed Amendment to the Purchase and Sale Agreement ("Amendment") a copy of which is
attached hereto as Exhibit A. The effect of the Amendment would have been to reduce the cash
payment to the system owner to zero.
On April 16, 2004 the system owner in a telephone conversation with Mr. Wyatt
United's Vice-President, stated that on the advice of her attorney she would not sign the
Amendment. She further reported her attorney advised her that "she should let the Commission
decide. "
As noted in Staff Comments, even after the purchase price has been reduced to zero and
the amount that would have been paid in purchase price is invested in system improvements, the
revenue the Company expects to receive from Terra Grande customers at current United Water
REPLY TO STAFF COMMENTS-
rates will likely not be sufficient to perform all the facility upgrades necessary to provide
adequate service.Ifthe transaction goes forward and United acquires the system, some amount
of subsidy from other customers will likely be necessary. United requests a determination that
the public health and safety concerns presented by this case justify some amount of subsidy from
other customers in order to rehabilitate the system. Staff supports this determination. Put
differently, United 5eeks authority to invest amounts in excess of the "revenue requirement cap
presented as Exhibit 5 to the original application. The investments originally contemplated were
those necessary to interconnect the systems, abandon the existing wells, and install meters. It is
now apparent that additional investment in the distribution system will be necessary. Based on
current knowledge, United estimates that the required investment, over and above the originally
proposed $47 000 payment to Ms. Childs (which would now be retained to partially fund those
improvements) will not materially burden other customers. As estimates of necessary costs
become more firm, United would provide the estimates to Staff for review. This will insure that
the investments are necessary and reasonable. After the initial investments to restore system
integrity, United would fund ongoing operation and maintenance as it does with respect to its
system generally.
United, in its initial Application proposed commencing charging customers its metered
rates immediately as meters are installed. Staff, in its Comments, recommended that United
charge its flat rates contained in its Schedule 1-E until March, 2005 at which time all customers
would be switched to metered rates. United prefers its original proposal because it more closely
matches prices with the service being provided. However, in order to expedite Commission
review, United acquiesces in Staffs recommendation, for the purpose of this case only.
REPLY TO STAFF COMMENTS-
Commission Decision
The unexpe'~ted turn of events in this matter causes the case to be in a somewhat unusual
procedural posture. As a solution, United suggests that if the Commission enters its Order
accepting Staff s recommendation to disapprove the purchase price in the original Purchase and
Sale Agreement, th~ Commission could also indicate in its Order: a) whether it would approve
the Purchase and Sale Agreement with the Amendment if signed by the parties; and b) whether it
would provide United the financial assurance regarding recovery of rehabilitation costs
discussed above. Based on this Commission guidance, the parties can then determine whether to
proceed with the tnmsaction or allow it to dissolve.
Request for Expeditious Review and Approval
As noted in Staff s Comments, the City of Boise is installing a new sewer line within the
subdivision. It would be most efficient if United could coordinate its required construction with
the City effort prior to final paving. United, of course, cannot begin construction until it has
legal ownership of the system. Accordingly, United requests expeditious review.
Respectfully submitted this day of April, 2004.
McDevitt & Miller LLP
~gL.
Attorneys for United Water Idaho Inc.
REPLY TO STAFF COMMENTS-4
AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE
This AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE is made by and
among Barbara V. Child d/b/a Terra Grande (hereinafter referred to as "Seller" or "Terra
Grande ) and Unit(~d Water Idaho Inc., an Idaho Corporation (hereinafter referred to as
Buyer" or "United"
RECIT ALS
On or about December 23 , 2003 the parties made and executed that certain
Agreement for Purchase and Sale ("Agreement ) wherein, among other things Seller
agreed to sell to Buyer Seller s domestic water system for an agreed purchase price of
FORTY SEVEN THOUSAND DOLLARS ($47 000).
On or about February 19, 2004 the Parties jointly filed with the Idaho Public Utilities
Commi~:sion an Application for approval of the Agreement ("Application
Pursuant to the Agreement United was granted a due diligence period during which
United would conduct further investigation regarding the quality and soundness of
Seller s water distribution system and United's obligation to close the transaction was
contingent upon satisfactory conclusion of its due diligence investigation.
As a result of its investigation United has learned that the system is not in good
working order and is not in conformance with applicable laws, rules and regulations
as represented and warranted by paragraph 5(t) of the Agreement.
Accordingly, the Parties desire to re-negotiate the terms of the Agreement.
AGREEMENT
NOW THEREFORE in consideration of the foregoing recitals and of the terms
conditions and mutual covenants herein set forth, the parties mutually covenant and agree as
follows:
1. ADJUSTMENT TO PURCHASE PRICE
Paragraph 2 of the Agreement
, "
Purchase Price and Terms of Payment" is hereby
amended such that the amount to be paid by Buyer to Seller is reduced to zero dollars.
Seller acknowledges that Buyer s agreement to assume operation of the domestic water
system and relieving Seller from further liability therefore constitutes good and valuable
consideration for the execution of the Amendment.
2. COMMISSION APPROVAL
Buyer and ~:eller agree that consummation of the transaction contemplated by this
Amendment is subject to Buyer obtaining an approval and order from the Idaho Public
Utilities Commission that:
AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE-l
(i)
(ii)
(iii)
(iv)
(v)
Approves this Amendment.
Authorizes the issuance of an amendment to Buyer s certificate of
convenience and necessity by the Commission indicating approval of the
transaction contemplated hereby.
Confirms the right of Buyer to provide service to the area being served by
Seller.
Confirms the right of Buyer to provide service to Seller s customers according
to Buyer s rates for water service.
Confirms the right of Buyer to make system improvement investments in
excess of amounts shown in the Application and provides an assurance that
reasonable system improvement investments may be recovered in Buyer
general rates for water service.
3. WAIVER OF WARRANTY
Buyer waives and releases Seller from the warranty of paragraph 5(t) above referenced.
4. SELLER'S CASH DEPOSIT AT CLOSING
In addition to Seller s Deposits at Closing identified in paragraph 9(a) of the Agreement
Seller shall deposit cash or official bank check in an amount sufficient to meet costs with
are prorated to Seller at closing.
5. AGREEMENT AFFIRMED
In all other respects the Agreement is ratified and confirmed as first written.
UNITED Vi ATER IDAHO INc.
By:
BARBARA V. CHILD d/b/a TERRA GRANDE
Barbara V. Child
AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE-2