1999112_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
DON HOWELL
STEPHANIE MILLER
TONYA CLARK
RON LAW
BOB SMITH
GEORGE FINK
JUDY STOKES
RANDY LOBB
WORKING FILE

FROM:

DATE: November 2, 1999

RE: CASE NO. UWI-W-99-4 (United Water)
PROPOSED PURCHASE OF BARBER WATER

On August 18, 1999, a Joint Application in Case No. UWI-W-99-4 was filed with the Idaho Public Utilities Commission (Commission) by United Water Idaho Inc. (United Water) 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 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.
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 The prior Application in Case No. UWI-W-99-2 was withdrawn.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
As represented, Barber Water currently 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 monthly production as measured by the 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 produced 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. At the same time, however, United Water will provide to customers information-only bills that would show the customers the amount of charges the customer would have received if the customer had been billed at United Water’s rates as measured by the master meters. 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. United Water and Barber Water contend that the public interest in this sale requires expeditious review of the Application and does not require a hearing to consider the issues presented. United Water requests that the Application be processed under Modified Procedure, i.e., by written submission rather than by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204.
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 (attached) and CAPA: Citizens’ Advocates in Public Affairs, Inc. (Sharon Ullman, Executive Director). (Attached) The Company filed a Reply to only the Staff’s comments (attached).
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 to exceed $55,000. To the extent these costs together with the $58,000 purchase price exceed the maximum cost UWI’s rates will support, the excess cost should be recorded below the line or written off and excluded from rate base in future cases. Staff initially estimated the maximum cost (including the final purchase price) that can be supported to be $186,000.

( Within 30 days of PUC 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 PUC 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. The Company disputes Staff’s contentions (Staff comments page 5) regarding a purported equitable interest of customers in the assets of Barber Water, contending that Staff’s legal theory is incorrect. The Company, however, contends that the issue need not be addressed by the Commission in this case. While not agreeing with the Company’s analysis or characterization of the sale/purchase as a “liquidation”, Staff concurs that the matter does not need to be addressed or resolved by the Commission in this case.
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, the Company’s first Application regarding the sale and purchase of Barber Water. (Attached)
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. 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. The Company is concerned that if the Commission does not act quickly, the weather may prevent timely repair to the 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 (attached). Staff has reviewed the plan and finds it acceptable. The Company in submitting the plan notes that each acquisition has unique facts and circumstances. Its submitted plan has been prepared with Barber Water in mind and the Company indicates that it may not be the appropriate plan for future acquisitions.

Commission Decision
Should a further evening hearing for public testimony be scheduled? If not, does the Commission believe that the Company’s Application should be approved along the lines of Staff’s recommendations, which the Company finds acceptable? If not, what is the Commission’s preference?

vld/M:UWI-W-99-4_sw2

DECISION MEMORANDUM 6