20081007final_order_no_30651.pdf

Office of the Secretary
Service Date
October 7, 2008
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. 143 AND FOR AN ACCOUNTING
ORDER
ORDER NO. 30651
CASE NO. UWI-08-
On June 19, 2008, United Water Idaho Inc. (United Water; Company) filed a
Certificate Amendment Application and a May 27, 2008 Agreement for Purchase and Sale
(Agreement) between the Company and the City of Nampa (City) with the Idaho Public Utilities
Commission (Commission). The subject matter ofthe Agreement is the sale by United Water to
the City of the non-contiguous water systems presently serving Coventry Place, M&M Mountain
View Acres, and Belmont Heights subdivisions (collectively the Subdivisions) in Canyon
County, Idaho. Reference Case No. UWI-99-, Order No. 27976 (Coventry Place); Case No.
UWI-00-, Order No. 28418 (M&M Mountain View Acres); and Case No. UWI-01-
Order No. 28885 (Belmont Heights). Also subject to the sale are two additional subdivisions
Lexington Meadows and Brittania Heights which were added to the Belmont system (Order Nos.
29941 and 30352) and the Nampa Charter School which was added to the Coventry system
(Order No. 29141). The Commission in this Order approves the United Water/City of Nampa
Purchase and Sale Agreement and United Water s related proposal to amend its Certificate of
Convenience and Necessity No. 143.
Pursuant to Agreement, the purchase price is $245 000. The reported gain is $50 911.
The City of Nampa has agreed to assume the Company s outstanding obligations under the Non-
Contiguous Agreements and Mainline Extension Agreements with other third parties and to hold
United Water harmless from further obligations thereunder.
United Water contends that the acquisition of the non-contiguous systems by the City
of Nampa is consistent with the public convenience and necessity because the customers will
obtain water service from a dependable municipal supplier (Nampa) and interconnection of the
Belmont water system with the City of Nampa s water system will solve an existing water
quality issue in Belmont Heights involving elevated levels of uranium in the water.
ORDER NO. 30651
United Water recommends proposed general entries to account for the sale proceeds.
The Company recommends that the proceeds be distributed and accounted for in the same
manner as sale proceeds were recently treated in the sale of the Danskin-Saddle Ridge
subdivisions to the City of Kuna. Case No. UWI-07-, Order No. 30481.
United Water requests a Commission Order
Improving the modification of United Water Certificate of Public
Convenience and Necessity No. 143 by eliminating the Subdivisions
therefrom;
Confirming that after the date of closing of the purchase and sale
transaction, United Water will have no further obligation to provide
domestic water service to the Subdivisions;
Confirming that following the assumption by Nampa of the Non-
Contiguous Agreements and the Mainline Extension Agreements, United
Water will have no further obligations thereunder; and
Approving the Company s accounting proposal.
The Company s Application in this case includes a map of the non-contiguous water
systems, a copy of the Agreement for Purchase and Sale between the Company and the City of
Nampa, and the supporting direct testimony of Gregory P. Wyatt, Vice President and General
Manager of United Water.
The proposed sale and transfer of facilities from United Water to the City of Nampa
and termination of United Water s service obligation to affected subdivisions and customers will
end Commission jurisdiction over the affected water systems and all service-related matters
including rates and dispute resolution. Idaho Code 9 61-104.
On July 18, 2008, Notices of Application and Modified Procedure were issued by the
Commission in Case No. UWI-08-02. The deadline for filing written comments was August
, 2008. Comments were filed by three affected customers and Commission Staff. Reply
comments were filed by United Water and the City ofNampa. The comments of the parties can
be summarized as follows:
Commission Staff
Staff addresses the accounting, engIneerIng and rate Issues associated with the
proposed transfer.
ORDER NO. 30651
Accounting
In its Application, the Company requests approval of a sale price of $245 000 and
related journal entries, resulting in a gain of $50 911. Staff s audit results reduced the gain by
$655, to $50 256.
Staff reviewed the three gain treatments considered in the sale of the Danskin-Saddle
Ridge system to the City of Kuna (UWI-07-, Order No. 30481) and finds the accounting
method approved in that case to be the recommended treatment for this sale also. That method
treated the gain as a reduction to United Water s regulated plant in service. The stipulated
settlement in Order No. 30481 required the entire gain to be recorded as a deferred regulatory
liability (Account 253.09) and amortized over a period of 36 months. This is the treatment
requested by United Water for the proposed sale. This treatment splits benefits between
customers and shareholders. Shareholders would receive a below-the-line income of $1 396 per
month for 36 months through amortization of the deferred regulatory liability. Staff notes that an
obvious benefit to customers is removing the additional liability of providing safe water to
Belmont Heights. Benefits to customers from sharing the gain of this sale would result if United
Water files a general rate case with a test year that includes a portion of the 36-month deferral
period. Then, plant in service would be reduced by the amount of the unamortized regulatory
liability. This would reduce the total revenue requirement. Customers would see this lower
revenue requirement in the form of lower rates.
Engineering
Both the City of Nampa and United Water have adequate water, management and
financial capability to serve customers, and each employs full-time well-qualified and
experienced water system personnel. The City of Nampa is the second-largest municipality in
the state, and United Water is the largest water utility in the state regulated by the Commission.
Staff supports the sale and recognizes the City of Nampa s ability to provide dependable, safe
and adequate water service. Staff agrees with United Water s determination that connecting the
Belmont water system to the City of Nampa s distribution system is the least-cost means of
addressing the elevated readings of uranium in the Belmont water system. Interconnection with
the City s distribution system will also improve fire-protection flows for the customers of
Belmont.
ORDER NO. 30651
The other two non-contiguous water systems, Coventry and M&M, are currently in
compliance with EPA's water quality standards. Coventry and M&M are both served by
individual wells. It is Staffs understanding that the motivating force behind the City ofNampa
desire to acquire the Coventry system is the benefit of acquiring Coventry s source of water
supply. Interconnection will provide an additional water source to Nampa and allow for
continued growth in Coventry by satisfying IDEQ's requirement for a redundant supply for a
public water system with 25 or more customers. No timetable exists, however, for
interconnection. It is Staffs understanding the unmetered M&M water system has its own well
and will be operated independently.
Rates
Staff is concerned about the potential rate impacts to current customers in the various
United Water systems being sold to the City of Nampa. The water tariff for areas served by the
City of Nampa outside the city limits is twice (2x) the water rate within the city. Nampa City
Code, Title 8-8. All the water systems being sold to the City of Nampa are outside the city
limits. The calculated increase in the average annual bill for Belmont Heights water system
customers is $50.25 or an increase of 12.57%. The calculated increase in the average annual bill
for Coventry water system customers is $28., or an increase of 12.50%.
Although customers of the Belmont system will experience a rate increase, Staff
believes it is justified and reasonable considering the water quality problems to be resolved and
the higher capital cost of alternative solutions. Customers of Belmont will also see benefits from
improved fire-protection flows and improved access to the City of Nampa and its water service
administrative offices as compared to the offices of United Water located in Boise. Once the
system is annexed into the city limits, customer rates will be reduced.
The customers of the M&M unmetered system will not experience any change in
rates initially as a result of the sale. According to the Company, M&M customers are currently
served under United Water s flat rate tariff, and since the City of Nampa has no unmetered
customers and does not have a rate for unmetered service, the City has informally agreed to
continue charging M&M customers at their present flat rate. The Application does not address
this issue or state how long the rates will be continued or if the City has plans to install meters
within the system. For the protection of M&M customers, Staff recommends that a rate
ORDER NO. 30651
agreement for M&M customers be formalized so that customers understand at what point their
rates could change.
Coventry customers do not currently have a water quality problem nor are there
immediate plans to interconnect the system with the City to improve reliability of water supply
and fire flows. Staff therefore believes that the rate increase proposed for Coventry customers is
unreasonable and that the affected ratepayers will see little tangible benefit from the sale.
Consequently, Staff recommends that these customers be allowed to remain at existing United
Water rates for a fixed period of three to five years or until the system is interconnected with or
annexed into the City.
Staff Recommendations
Staff recommended that:
The Commission approve the United Water/City of Nampa Purchase and Sale
Agreement and the proposed accounting treatment of sale proceeds.
United Water be required to file with the Commission the final closing documents
and actual journal entry amounts.
The Commission approve the transfer acknowledging and accepting the proposed
rates for the customers of the Belmont and M&M systems. Staff believes these rates are justified
by existing circumstances.
The City maintain existing United Water rates for customers of the Coventry
system in much the same way existing rates are maintained for M&M customers. The agreement
should specify current rates as well as general timeframes and conditions that could change rates
in the future. While Staff stops short of opposing the sale of the Coventry system without this
rate concession, Staff recommends that the Commission direct the parties to consider and
implement the concession as part of the overall agreement.
Customer Comments
Comments regarding the sale were filed by three customers. One customer building a
home in Lexington Meadows sees no reason why sale of the system by United Water should
result in an increase in rates and queries why customers in M&M will see no increase.
The other two are also Belmont customers. One supports the transfer but poses
clarifying questions regarding the City s plans for interconnection and annexation, etc. The
ORDER NO. 30651
second has been purchasing bottled water for three years and believes United Water, not the
customers of the Belmont water system, should pay any and all transitional costs.
Reply Comments
City ofNampa
The City in reply comments notes its intention to interconnect the Coventry system
with the City system within 30 days of Commission approval of the Purchase and Sale
Agreement. Nampa can assure this action because (1) the interconnection design is complete, (2)
the City of Nampa has sufficient piping materials to complete the project, (3) City forces will
complete the interconnection construction activity, and (4) the City of Nampa has ongoing
contracts with asphalt contractors to complete the paving repair. Given this expected
interconnection time frame, the City of Nampa does not believe that a rate freeze is appropriate
or necessary for the Coventry system.
Regarding the concerns raised by the Belmont Heights customer, the City notes that
the Belmont water system is acquired under a Consent Order from Idaho Department of
Environmental Quality. The Consent Order transfers with the sale of the system. The Order is
very clear that the Belmont system must be interconnected with the City of Nampa by December
2009. The City states that it is on track to meet this requirement.
Regarding the rights of non-municipal customers in the establishment of water rates
by the City, Nampa cites Idaho Code 9 63-13llA requiring a public hearing be held prior to
imposing any new fee or for any fee increase in excess of 5% of the amount of the fee last
calculated. The Code provision further provides the necessary notification requirements that
must occur prior to the public hearing and for fee increases. Any increase in rates or charges
must be approved by the Nampa City Council.Public hearings and Nampa City Council
meetings, the City states, are open to the general public; therefore, all customers, not just those
within the city limits, have an opportunity for input prior to final rate decisions.
The City cites Idaho Code 9 50-222 as providing the City s annexation authority and
procedural requirements. Idaho Code 9 50-222(5) includes provisions for public hearings and
notification requirements.
ORDER NO. 30651
United Water
United Water concurs in Staffs accounting recommendations and commits to file
with the Commission final closing documents and actual journal entries as soon as practicable
after closing.
The Company notes the contemporaneous filing of the City of Nampa s reply
comments and the City s commitment to interconnect the Coventry water system within 30 days
of closing. The Company concurs that there is thus no need for the suggested rate stability
agreement recommended by Staff.
Commission Findings
The Commission has reviewed the filings of record in Case No. UWI-08-
including the May 27 2008 Purchase and Sale Agreement between United Water and the City of
Nampa, the supporting testimony of Company witness Greg Wyatt, the filed comments and
recommendations of Commission Staff and customers and the subsequent reply comments of
United Water and the City ofNampa. We have also reviewed our Order No. 30481 in Case No.
UWI-07-05 wherein we approved the United Water sale of a non-contiguous water system to
the City of Kuna. Based on our review of the record, the Commission continues to find it
reasonable to process the Company s Application in Case No. UWI-08-02 pursuant to
Modified Procedure. IDAP A 31.01.01.204.
This sale by United Water of the Belmont, Coventry and M&M water systems was
precipitated by United Water s need to address the elevated uranium levels in the Belmont
Heights water system and the City s desire to acquire the water supply of the Coventry system.
Consummation of the sale and transfer of the Belmont water system to the City of Nampa, we
find, will result in improved water quality (free of uranium) and fire-protection flows for affected
customers in Belmont, Lexington Meadows and Brittania Heights. Interconnection of the
Coventry system to the City s water supply system, we find, will result in tangible supply
benefits to the City and will aid Coventry by satisfying IDEQ's system redundancy requirements
and by providing a backup system to the existing single well. We find that the sale of the
unmetered M&M water system will result in no immediate change in system operations or rates.
As noted by United Water, the customers of the three water systems being sold will benefit from
having a service provider in closer proximity. We recognize that the rates for customers in the
Belmont and Coventry systems will increase approximately 12.5% when the sale closes, but find
ORDER NO. 30651
the increase is accompanied also by tangible benefits accruing to those customers. The City of
Nampa is a municipal water system with a separate rate structure for customers within and
outside municipal city limits. This Commission has no jurisdiction over municipal water
utilities. Idaho Code 9 61-104. Customers of the Belmont, Coventry and M&M water systems
are all outside the City s present municipal boundaries. The City in reply comments assures
these customers that their voices will be considered in any municipal decisions affecting their
water service.
Recognizing the benefits accruing to the affected customers and with the City
assurances, we find it reasonable to approve the Purchase and Sale Agreement and the
amendment of the Company s Certificate of Public Convenience and Necessity No. 143 to
eliminate the service obligation to customers of the Coventry, M&M and Belmont water
systems. We find the terms of the May 27 2008 Purchase and Sale Agreement between United
Water and the City of Nampa including the purchase price of $245 000 to be fair, just and
reasonable and in the public interest.
The Commission further finds it reasonable to approve the recommended accounting
treatment of sale proceeds and determines the accounting treatment to be fair, just and
reasonable. In determining the reasonableness of the accounting proposal we considered the
Staff-estimated dollar amount of the net proceeds ($50 256), the present accounting treatment of
the non-contiguous system and the alternative accounting treatments proposed in Case No. UWI-
07-05. Recognizing that the sale of the Company s non-contiguous systems to Nampa has
not yet closed, the Commission expects that the actual gain on the sale will differ from that
estimated in the Company s original Application.
The Commission acknowledges that after the date of closing of the purchase and sale
transaction between United Water and the City of Nampa, United Water will have no further
obligation to provide domestic water service to the non-contiguous water systems being sold.
We further acknowledge that following the assumption by the City of Nampa of the Non-
Contiguous and Mainline Extension Agreements, United Water will have no further obligations
thereunder.
ORDER NO. 30651
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over United Water Idaho Inc.
a water utility, pursuant to the authority granted in Idaho Code, Title 61 , and the Commission
Rules of Procedure, IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly and qualified above, IT IS
HEREBY ORDERED and the Commission does hereby approve the May 27 2008 Purchase and
Sale Agreement between United Water and the City of Nampa. The Company is directed to file
an amended Certificate of Convenience and Necessity No. 143 reflecting this change in service
area.
IT IS FURTHER ORDERED and we hereby approve the proposed method for
distribution and accounting of sale proceeds and direct United Water to file a copy of the
transaction closing documents and a copy of the accounting entries with this Commission within
seven days from the completion of the sale.
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 9 61-626.
ORDER NO. 30651
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ?
-M.
day of October 2008.
MARSHA H. SMITH, COMMISSIONER
~~~
JI . KEMPTON, C MISSIONER
ATTEST:
~tJ
D. Jewell
C mmission Secretary
bls/O:UWI-08-02 sw
ORDER NO. 30651