28205.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE SECOND JOINT APPLICATION OF UNITED WATER IDAHO INC. AND BARBER WATER CORPORATION FOR AN ORDER APPROVING THE PURCHASE BY UNITED WATER IDAHO INC. OF WATER SERVICE PROPERTIES OWNED BY BARBER WATER CORPORATION; FOR AUTHORITY TO EXPAND UNITED WATER IDAHO’S CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY NO. 143 AND FOR APPROVAL OF RATES AND CHARGES. )
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) CASE NO. UWI-W-99-4

ORDER NO. 28205

A Joint Application in Case No. UWI-W-99-4 was filed with the Idaho Public Utilities Commission (Commission) on August 18, 1999 by United Water Idaho Inc. (United Water; UWI) and Barber Water Corporation (Barber Water) for an Order approving the sale and transfer of the Barber Water domestic water system to United Water. Reference Application Exh. 4—Agreement for Purchase and Sale. The negotiated purchase price is $58,000. United Water further requests approval of certain rate and ratemaking matters including the right of United Water to include in rate base in future rate proceedings the full purchase price of the assets and up to $55,000 in proposed capital improvements for system upgrades and repairs.
By this Order, as more particularly described and qualified below, the Commission approves the sale and transfer of Barber Water to United Water, approves a purchase price of $58,000, authorizes the rate basing of said amount plus up to $55,000 in proposed capital improvements, approves a six month rate transition period for Barber Water residential customers, and approves a proposed water management education program.
This is the second Joint Application filed by the parties regarding the sale and purchase of Barber Water. The prior Application in Case No. UWI-W-99-2 was withdrawn. Reference Order No. 28076, June 18, 1999.
United Water provides water service to approximately 60,000 customers within the Idaho Counties of Ada and Canyon and operates under Commission Certificate of Public Convenience and Necessity No. 143 (as Amended). Barber Water provides service to approximately 240 residential customers within the Golden Dawn and Barberton Mobile Home Park subdivisions in Ada County and to the nearby Idaho Shakespeare Festival (ISF) site and operates under Commission Certificate of Public Convenience and Necessity No. 277 (as Amended). As represented in the Application and related letter to customers (Application Exh. No. 6), the current owners of Barber Water desire to sell the water system because:
Barber Water has been supplying service to the users in the Golden Dawn Mobile Home Subdivision and the Barberton Mobile Home Subdivision for thirty (30) years and we would like to retire.

Due to the many changes in the water business, we can no longer continue to serve the users on a part-time basis. Trying to serve the users, dealing with complaints and the increased time in handling late payments has increased the work load. The extra time and work involved in handling the requirements of additional testing, monitoring, keeping certified and responding to government agency complaints with regards to service and service areas has created a very stressful situation for the manager. To remain in the water business, we would have to submit a large rate increase for system management and repairs that are needed at this date. We view this process to be very time consuming, adversarial and stressful.

The water system is not new and we are not in a position to upgrade, handle repairs, respond to emergencies and provide the service that a large corporation such as United Water can offer the users. They are the experts with the ability and experience to extend better service for the future of this service area.

We believe that the best interest of the users will be served with this change of management.

United Water represents that it possesses the technical, managerial and financial ability to provide reliable and adequate service to Barber Water customers. United Water contends that the proposed sale and transfer of the Barber Water domestic water system to United Water and the related expansion of United Water’s Certificate is in the public interest.
As represented in the Application, United Water has examined and investigated Barber Water's property and plant used to provide domestic water service and has determined that the following investments are necessary in order to provide adequate service:
Install master meters, telemetering, automated control systems $15,000
Repair storage reservoir $35,000
Rehabilitate wells $5,000
Barber Water provides service to its customers at a tariffed flat rate through a water distribution system that is not metered. (Residential Tariff Schedule No. 1—$10.90/mo. May-October; $8.90/mo. November-April; Commercial Tariff Schedule No. 3 (ISF) $174.40/mo.May-October; $142.40/mo. November-April). As reflected in the Application, as soon after closing as is feasible, United Water proposes to install master meters at the wells serving Golden Dawn and Barberton Subdivisions. Thereafter, bills for individual residential customers will be calculated by dividing the number of service connections into the total monthly consumption as measured by the well master meters. Each customer would pay a customer charge based on a ¾ inch service connection (presently a bi-monthly charge of $13.51) and pay for their proportionate share of water consumed at United Water’s rates as they currently exist or may hereafter be changed. Notwithstanding the foregoing, the Application states that for a period of six months following installation of the master meters, United Water will continue to render bills to residential customers at the rates contained in Barber Water’s Residential Tariff Schedule No. 1. Within 30 days of sale United Water will inform customers of the changes in system management, billing procedures and rates through the preparation and mailing of a customer education package. This proposal, United Water believes, will help ease the transition from Barber Water’s current rates to United Water’s rates. United Water proposes to provide metered service to the Idaho Shakespeare Festival site at United Water’s regular metered rates. In all other respects, United Water will provide service to Barber Water customers in accordance with the rules and regulations applicable to United Water’s service territory.
United Water in its Application commits to form a customer liaison committee to help ensure that customer needs and concerns are understood and addressed.
Accompanying the Application is a map of United Water’s certificate service area, a map and legal description of the proposed boundary expansion, and the underlying Agreement for Purchase and Sale.
On August 30, 1999, the Commission issued a Notice of Application, Scheduling and Intervention Deadline in Case No. UWI-W-99-4. The Commission adopted a hybrid procedure consisting of both written comments and an evening hearing for public testimony. The deadline for filing Petitions for Intervention was September 10, 1999. No Petitions for Intervention were filed. The deadline for filing written comments was October 14, 1999. Comments were filed by the Commission Staff and CAPA: Citizens’ Advocates in Public Affairs, Inc. (Sharon Ullman, Executive Director). United Water filed a Reply to only the Staff’s comments.
Staff supports United Water’s Application and believes the proposed acquisition is in the public interest. Staff in its comments provides analysis regarding financial issues, purchase price, water system improvements, meter installation option, proposed customer rates, customer comments and agency status.
Based on its analysis, Staff’s position and recommendations are summarized as follows:

( Staff agrees to the purchase of the Barber Water system by UWI. The improvements in the storage reservoir, wells and control systems are expected to improve customer service. Additionally, the UWI’s customer services are expected to be a benefit to Barber Water customers.

( Staff recommends that the proposed purchase price of $58,000 be accepted and allowed in rate base.

( Staff recommends that UWI initiate the system repairs and modifications at its earliest convenience. Storage tank repairs are to be completed before implementation of UWI residential rates.

( Staff recommends that UWI be required to open a separate work order to accumulate all of the costs of this acquisition. UWI should record all costs of purchase, repairs to wells and reservoirs, installation of telemetry equipment, premiums and master meter installation costs to the work order. The costs for these improvement activities are not expected to exceed $55,000.

( Within 30 days of Commission approval of the sale, Staff recommends that UWI be required to inform customers of the changes in system management, billing procedures and rates through the preparation and mailing of a customer educational package accepted by Staff.

( Within 30 days of Commission approval of the sale, Staff recommends the formation of a customer liaison team to address specific customer concerns including the system repairs, rate freeze, UWI residential rates and billing procedures, and the installation of individual customer meters.

( Staff recommends that current Barber Water residential customer rates, $8.90 per winter month and $10.90 per summer month, be continued for no more than six months after master meter installation and operation. After this period, the applicable UWI ¾ inch residential metered rates should be applied, based on total system consumption averaged equally on a per customer basis.

( Staff recommends the Idaho Shakespeare Festival rates be set using the existing UWI tariff rates effective immediately. Idaho Shakespeare Festival consumption shall be deducted from the total system consumption before determining the average residential customer consumption.

( Staff proposes approval of UWI’s right to provide water service to the area now served by Barber Water and to the amendment to UWI’s Certificate of Convenience and Necessity No. 143, as filed.

( Staff proposes that the cancellation of Barber Water’s Certificate of Convenience and Necessity No. 277 and Barber Water’s current tariffs for water service be approved as filed.

United Water in Reply Comments filed October 1, 1999, perceives Staff’s recommendations to be generally consistent with the Company’s proposals and accepts and supports same.
CAPA in its comments provides assessed market value information regarding the ability (inability) of Barber Water’s customers to pay increased water rates, said information purporting to show that the assessed market value of homes served by Barber Water ($51,819) is less than half of the average assessed residential market value in Ada County ($113,994) as a whole. CAPA further requests that the Commission review and consider the comments filed by it in Case No. UWI-W-99-2, United Water’s first Application regarding the sale and purchase of Barber Water.
On October 14, 1999, an evening hearing was held for the purpose of reviewing public comment in Case No. UWI-W-99-4. Only one customer appeared, Helen K. Kreizenbeck. Ms. Kreizenbeck expressed concerns regarding water quality, neglected or dilatory system repair, the continued security of water supply with the impending Harris Ranch development, and the cost and effect of individual metering on low income, aged and single residents. Staff expressed concern regarding the adequacy of media notice. It was noted that despite the Commission issuing its formal Notice in this case on August 30, a press release was not issued until the week of hearing and the newspaper notice of the evening hearing did not occur until the morning of the hearing. The Commission was apprised that Staff received a number of phone calls during the day from customers upset at the lack of timely notice, who because of previous commitments would be unable to attend. Staff recommended that the Commission schedule a further evening hearing. United Water is concerned that if the Commission does not act quickly, the weather may prevent timely repair to the Barber Water system. The Commission took the matter under advisement.
The Commission is apprised that on October 28, 1999, United Water provided Staff with a water conservation proposal and plan for the Barber Water customers. See Attachment to Order. Staff has reviewed the plan and finds it acceptable. United Water in submitting the plan notes that each acquisition has unique facts and circumstances. Its submitted plan has been prepared specifically with Barber Water in mind and United Water indicates that it may not be the appropriate plan for future acquisitions.
Commission Findings
The Commission has reviewed and considered the filings of record, Application, exhibits, testimony and comments in Case No. UWI-W-99-4. We have also reviewed and considered the relevant statutory authority (Idaho Code § 61-526) and Commission Rules (IDAPA 31.01.01.112) regarding amendments to Certificates of Public Convenience and Necessity for existing utilities.
We are presented in this case with an owner/operator of a small water system who after many years of service no longer wishes to be in the water business. This is not an unusual occurrence with developer owned systems. Small operators today are faced with increasing technical, operational and regulatory challenges that require more attention, time and expertise than a part-time operator is often prepared to provide.
The Commission recognizes that there is a significant difference between the United Water and Barber Water companies and their respective costs of service and related rates and charges. The difference in cost of service and rates alone, however, provides insufficient reason to deny this sale. This Commission has approved the tariff rates for each utility in general rate proceedings based on individual review and assessment of the respective systems, investments and expenses. Regarding rates alone, the record further reflects that even should this Application be denied, there is a great probability that Barber Water customers would still be facing an increase in rates due to required capital improvements.
Purchase and Acquisition Premium
As reflected in Staff’s analysis in this case, the restated net book value for Barber Water plant in service at year-end 1998 is $11,035. The proposed sale price of $58,000 exceeds the restated net book value by $46,965. Under standard accounting practice, the premium paid in excess of the net book value of the assets would be recorded as an acquisition adjustment. In normal practice the acquisition adjustment for regulatory purposes would not be recognized in the calculation of rate base nor would depreciation/amortization expense of the acquisition adjustment be included in the revenue requirement. For approval of different accounting treatment the purchasing utility needs to receive the express authorization of the Commission.
We find the acquisition premium in this case to be a result of negotiated arms length bargaining and find it reasonable to approve this amount as an element of the authorized purchase price. Based on our analysis we find the proposed $58,000 purchase price (net book value $11,035 plus $46,965 acquisition premium) to be reasonable and authorize the future rate basing of same. The assets to be purchased include two ground water wells and associated property, transmission/distribution system, and storage reservoir and associated property. We further find that the premium amount is a reasonable estimated value of Barber Water’s excess water source supply.
Capital Improvements
We expect United Water to perform the identified capital improvements (install master meters, telemetering and automated control systems; repair storage reservoirs; rehabilitate wells) prior to any switch of Barber Water residential customers from present rates to United Water tariffs. We authorize the future rate basing of up to an additional $55,000 for said capital improvements. United Water is directed to open a separate work order to account for all costs of acquisition, including capital improvements.
Rate Design & Transition Period
The Commission notes that the residential customers of Barber Water are unmetered. United Water has no present plans to meter the customers, citing the prohibitive cost of meter installation. Accordingly, individual consumption of residential customers cannot be easily determined. United Water proposes a rate design whereby residential customers will be assessed an amount equal to the metered well production divided by number of customer connections. There are no present plans to interconnect the Barber Water system with United Water’s other water system. We find the proposed rate design for residential customers to be reasonable. We find a required transition to full United Water rates to be reasonable and necessary. United Water is essentially an integrated water system with averaged rates. The deaveraging of rates for an isolated geographic area or customer segment presents unacceptable issues of inequity and discrimination. We also find it reasonable as of the date of closing to immediately switch the Idaho Shakespeare Festival site, a metered customer, from Barber Water rates to United Water rates.
United Water proposes a six-month transition period for Barber Water residential customers from Barber Water rates to United Water’s ¾ inch residential metered rate during which time residential rates for Barber Water customers will remain unchanged. We find the transition period to be a reasonable and responsible method of addressing customer concerns and mitigating the rate shock that would otherwise result. During this period customers are to be provided within 30 days with billing information that will be useful in assessing the change that will occur when they are switched to United Water rates. A customer liaison committee is also to be established within 30 days to ensure that customer needs and concerns both before and after the change are understood and addressed.
To encourage responsible water management and promote conservation, United Water has offered a plan whereby it will make available to Barber Water customers a program of water conservation education and will offer Barber Water customers a free indoor water audit kit and an outdoor water audit. We find United Water’s efforts at customer education in this case to be reasonable for the specific facts of this case, a customer base transitioning from a flat unmetered rate to a collective metered rate. We hope Barber Water customers will take advantage of the opportunities presented. See Attachment to this Order.
Adequacy of Notice
Commission Staff has expressed concern regarding the adequacy of media notice of the October 14, 1999 evening hearing that was held for the purpose of receiving public comment. We believe the notice was adequate. A press release went out the week of hearing. Individual copies of the Commission’s earlier notice were mailed to intervening parties and customers who requested notification as interested parties in the prior acquisition case (Case No. UWI-W-99-2). We also cannot ignore the meeting of customers and the respective companies which took place in the earlier case. We believe that customers of Barber Water have been provided with sufficient opportunity to participate and present this Commission with their views through both written comment and public testimony. We note further that United Water is concerned that if this Commission does not act quickly, changing weather may delay system repairs and improvements. We find that it is in the interest of the customers of Barber Water to bring this case to a close.
Certificate Nos. 143 and 277
In considering the effects of the transaction on both Barber Water and United Water customers, we find the proposed sale/transfer under the terms approved is in the public interest. We find that United Water possesses the technical, managerial and financial ability to provide reliable and adequate service to Barber Water customers. We find that United Water is able to provide quality water, that it has the ability to serve present and future growth in the Barber Water area, that it has the ability to address critical water supply issues such as fire protection and service interruption, and that it has the ability and wherewithal to accommodate unforeseen circumstances and emergencies.
We find that United Water’s filing satisfies the underlying statutes and procedural requirements for certificate applications. In approving the sale and transfer we find that the 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 Barber Water (Application Exhibits 2 and 3; Idaho Code §§ 61-526 and 61-528; Commission Rules of Procedure, IDAPA 31.01.01.112), to authorize United Water to provide water service to existing and future customers in said area and to cancel Barber Water’s Certificate of Public Convenience and Necessity No. 277 and its related obligation to provide water service.
CONCLUSIONS OF LAW
The Commission has jurisdiction over United Water Idaho Inc. and Barber Water Corporation, water companies, and the issues presented in Case No. UWI-W-99-4 pursuant to 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 sale and transfer of the Barber Water Corporation domestic water system to United Water Idaho Inc. for an authorized purchase price of $58,000 and authorizes the rate basing of said amount in future rate proceedings by United Water.
IT IS FURTHER ORDERED and the Commission does hereby authorize the rate basing by United Water of up to $55,000 in proposed capital improvements for system upgrades and improvements to the Barber Water system.
IT IS FURTHER ORDERED and the Commission does hereby approve a transitional six-month phase in of rates for Barber Water residential customers and an immediate change in rates for water service provided to the Idaho Shakespeare Festival site. United Water is directed to file related tariff sheets for Commission approval.
IT IS FURTHER ORDERED that as of the date of closing, Barber Water Corporation’s Certificate of Public Convenience and Necessity No. 277 is canceled and the obligation of Barber Water to provide water service to the related certificated area is terminated.
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 particular area previously described in Barber Water Corporation Certificate No. 277. 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 November 1999.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER
ATTEST:

Myrna J. Walters
Commission Secretary

bls/O:uwiw994_sw2
ORDER NO. 28205 1

Office of the Secretary
Service Date
November 16, 1999