20041012Wyatt Affidavit.pdf

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Dean J. Miller (ISB No. 1968)
McDevitt & Miller LLP
420 West Bannock Street
O. Box 2564-83701
Boise, Idaho 83702
Tel: [phone];
Fax: [phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INC., FOR AN
AMENDMENT TO ITS CERTIFICATE OF
PUBLIC CONVENIENCE AND NECESSITY
NO. 142 AND FOR AN ACCOUNTING ORDER.
Case No. UWI-O4-
AFFIDAVIT OF GREGORY P. WYATT
STATE OF IDAHO
:ss
County of Ada
I am the Vice-President and General Manager of United Water Idaho Inc.
, ("
United"
the Company ) and make this Affidavit in response to certain statements contained in Staff
Comments filed herein on September 27 2004.
On page three of its Comments, Staff states:
Staff believes that this transaction created a conflict of interest for
UWI to maximize proceeds from the sale of company assets and to
recover a delinquent loan for the benefit of the parent company.
Moreover, difficulties arise in reviewing, separating and allocating
UWI costs between the two affiliates.
If I, on behalf of the Company, had acted in a way that created a benefit for United
Waterworks
, ("
UWW") at the expense of United' s customers , it might be accurate to say there
was a conflict of interest. In this case, however, the transaction results in no harm to United'
customers generally and produces positive benefits for United's Carriage Hill customers, as Staff
admits in its Comments. The management of United has an obligation to protect the interests of
AFFIDAVIT OF GREGORY P. WYATT-
both shareholders and ratepayers, which is what this transaction accomplishes. I do not believe it
is a conflict of interest to protect the interests of both.
In this transaction there were not any costs allocated between United Water Idaho and
United Waterworks. I do not, therefore, understand Staff s concern about potential mis-
allocations.
At page four of its Comments, Staff states:
If the purchase does not proceed, the Non-contiguous Water
System Agreement requires the developers to install a second
water source. UWI has indicated that the cost of the second source
is expected to be approximately $90 000. If the developer cannot
fulfill its obligation then UWI would be required to make the
necessary system improvements.
I believe the Non-contiguous Water System Agreement with Carriage Hill is very clear that the
responsibility to install the second source of supply rests with the developers. There is no
obligation of United Water to make the necessary system improvements in the event of Carriage
Hill's inability to do so.
At page five of its Comments, Staff states:
UWI does not address any legal basis for making any payment to
United Waterworks nor does it advance any rational to justify a
payment of any premium to United Waterworks. All the
documentation indicates that the entire legal obligation for any
debt owed to United Waterworks for the initial financing of the
water project flows solely from Carriage Hill, L.C. ...
There is no agreement by UWI to assume the Developers
obligation to United Water works, nor was there any provision in
the agreement between UWI and the Developers to accelerate the
payment of the Advances in Aid of Construction upon the transfer
of the system, and finally, there is no evidence of any legal claim
that can be asserted by United Waterworks for any portion of the
proceeds from a sale of the water system.
AFFIDAVIT OF GREGORY P. WYATT-
While these statements are only partially true, I believe they miss the main point, which is that
the loan from UWW enabled a transaction which was aimed at and accomplished providing safe
and reliable, long term water service to the area. In attempting to structure a solution to the
dilemmas presented by the Carriage Hill situation, I did not proceed based on a rigid analysis of
legal rights and obligations of various parties. Rather, I looked for a practical solution that did
not harm any ratepayers and that un-wound the financial obligations in a way that all parties
were made whole. This may not be required from a strict legal point of view, but it is not
prohibited, either. For the reasons explained in my Direct Testimony I believe the risk premium
included in the sales price is most appropriately allocated,to UWW.
I would also point out, as a small matter, that there is nothing in the Agreements
accelerating the payment of advances, contrary to Staff s assertion, above.
On page 6 of its Comments, Staff states:
It is Staff s position that UWI should be viewed independently
from United Waterworks, and the sales proceeds should be
accounted for as if the total amount came only to UWI.... The issue
before the Commission should be how the sale proceeds are
allocated between the parties with a vested interest in the proceeds:
that being the ratepayers and UWI. The Commission should
narrow its focus on the allocation of the sale proceeds to an
allocation between only the ratepayers and UWI and not be
distracted by the interests of UWW or the Developers.
Here, Staff is asking the Commission to ignore the Purchase and Sale Agreement and the loan re-
payment agreement between Carriage Hill and UWW that were both negotiated by the parties in
good faith in an arms-length process. By focusing only on parties who have a strict legal
entitlement to sale proceeds, Staff overlooks the reality of the circumstance-the proposed
allocation results in all parties being made whole without harm to ratepayers. UWW is entitled
to be repaid for the loan because its loan was the basis of a transaction which was in the public
AFFIDAVIT OF GREGORY P. WYATT-
interest, while insulating United and its customers from the risk of the transaction. By virtue of
the loan, UWW clearly has a financial interest in the transaction and has a legal interest by virtue
of its original loan document. By satisfying UWW's equitable financial interest with sale
proceeds the necessity for UWW to pursue litigation to perfect its legal interest is avoided, to the
benefit of all parties.
At page 9 of its Comments, Staff states:
UWI's request appears to have little concern for either improved
service to customers or to reduce customers ' rates.
This assertion is perplexing, when, in fact, the transaction will enable almost immediate
connection to a second source of supply thereby satisfying DEQ's securing of supply rules. And
because rates charged by the City ofNampa for water service are lower than United', the
Carriage Hill customers will obtain water service at a lower cost.
In the section of Comments entitled "Staff Recommendation" Staff says:
Staff recommends that UWI, in its next rate filing, ensure that all
components associated with this sale are excluded from that filing
including but not limited to: rate base components, expenses such
as legal expenses, costs associated with UWI management time in
negotiating and processing the sale and attorney fees.
The accounting entries proposed by United for the sale proceeds already have the effect of
reducing any investment associated with Carriage Hill to zero, so it is not clear what more Staff
expects with respect to rate base adjustments. Any operational expense associated with Carriage
Hill will not be included in the rate case. Attorney fees incurred by United will be paid from the
sale proceeds, not included for recovery in the rate case. With respect to management time, I did
not, and would not in the ordinary course of business, separately record my time for work on this
project. And, even if I did, an adjustment to account for a one time, non-recurring event would
not be an appropriate rate making practice.
AFFIDAVIT OF GREGORY P. WYATT--4
I am over the age of 21 years and make this Affidavit of my own knowledge.
DATED this J c;lIffity of October, 2004.
SUBSCRIBED AND SWORN to before me this r~;r1ay of October, 2004.
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AFFIDAVIT OF GREGORY P. WYATT