20000225_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
RON LAW
TONYA CLARK
DON HOWELL
STEPHANIE MILLER
DAVE SCHUNKE
BOB SMITH
RANDY LOBB
TERRI CARLOCK
WORKING FILE

FROM:

DATE: February 25, 2000

RE: CASE NO. UWI-W-99-5 (United Water)
AMENDED SOUTHEAST BOISE WATER SUPPLY PROJECT
AGREEMENT

On December 14, 1999, United Water Idaho Inc. (United Water; UWI; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting approval of an “Amended Southeast Boise Water Supply Project Agreement” (Amended Agreement) with Micron Technology, Inc. and related accounting treatment.
The proposed Amended Agreement dated April 14, 1999, supersedes a prior approved Agreement dated March 7, 1995, which provided for the development of additional facilities to meet growing demand in the southeast Boise area by bringing water to the Columbia Basin and Gowen service areas from the Pleasant Valley Road area. Reference Order No. 25977. The initial underlying Agreement provided for zero interest project financing by Micron and reimbursement (approximately 46.2% of entire project cost exclusive of reservoir, and 50% of reservoir storage costs) with connection fees from new hook-ups in United Water’s southeast service area until paid in full, but not to exceed a repayment period of 20 years. As reflected in the Commission’s Order No. 25977 approving the earlier Agreement:
Staff reminds the Commission, Company and Micron that the future of hook-up fees is presently at issue in the pending Supreme Court appeal filed by the Building Contractors’ Association of Southwest Idaho (reference Order No. 25640, Case No. BOI-W-93-3). Should hook-up fees be modified or eliminated as a result of that case, the reimbursement from United Water to Micron may be difference than contemplated by the Agreement.

At p. 4.

The scope of the Southeast Boise Water Supply Project included the transfer of water rights for two existing wells (Gowen and Oregon Trail Wells) to Micron, the development of two replacement wells in the Yankee/Nicholson area, a tie-in to the existing Birds of Prey (Raptor) well, the construction of related transmission lines and the construction of a water storage reservoir to be built on the ridge south of Micron. The estimated cost of the proposed project was $5 million.
In 1996, the Idaho Supreme Court issued its opinion in Building Contractors’ Association of Southwest Idaho Inc. v. Idaho Public Utilities Commission, 128 Idaho 534 (1996). The Supreme Court determined that the then existing connection fees of Boise Water Corporation unlawfully discriminated against new customers and the Court remanded the matter to the Commission. Subsequently in Case No. UWI-W-96-4, the Commission eliminated the connection fees that were the source of reimbursement to Micron. Reference Order No. 26898, April 24, 1997. In that case the Commission approved a Stipulation and Settlement Agreement of the parties which in part stated:
4. Micron Agreement: United and Micron Technology, Inc. previously entered into an agreement whereby Micron advanced the cost of some source of supply, major transmission lines and storage. Pursuant to the agreement, United agreed to refund to Micron a percentage of new connection fees for new customers within a specific geographic region where these facilities serve (the geographic region). If, pursuant to the recommendations contained herein, connection fees are eliminated, United would continue to refund the amount of money anticipated by the Agreement to Micron for new customers in the geographic region as if the connection fees had not been eliminated, but were still in effect. Payments to Micron hereunder shall be added to United’s rate base.

In order to accomplish the goal of refunding the percentage of connection fees anticipated by the agreement, United agrees to negotiate amendment(s) to the agreement in accordance with its original spirits and in good faith with Micron, and said negotiations will address increases in the connection fee level as well as other issues implicated by this settlement. Any such amendment(s) to the agreement will be subject to the Commission’s approval.

The instant filing tenders an Amended Agreement for Commission approval whereby due to elimination of connection fees it is proposed that Micron will receive reimbursement directly from United Water. The total project costs paid by Micron are estimated to be $6,528,927. Refund will occur “as if the connection fees had not been eliminated but still were in effect.”
The Amended Agreement establishes the terms for the sale of the Gowen and Oregon Trail wells, related facilities and equipment and associated water rights to Micron. The negotiated purchase price is $183,394, the depreciated value of the wells and their associated equipment, together with the current market value of the related building lots. United Water in the Amended Agreement relinquishes all rights to use the Gowen/Oregon Trail wells for emergency back-up supplies that it had retained in the earlier agreement. The Amended Agreement also provides Micron with rights to use Company facilities to transport Micron-owned water to the Micron plant on Federal Way.
Upon request from Micron and pursuant to identified terms and conditions and necessary approvals, United Water in the event of an emergency, such as fire or pressure failure which interrupts a sufficient supply of water to Micron, agrees to operate, maintain, repair and/or replace the Gowen/Oregon Trail wells and related delivery facilities as necessary to deliver water from the Gowen/Oregon Trail wells to the Micron plant through United Water existing distribution system.
The Amended Agreement requires United Water to operate the 3 million gallon project reservoir in such manner as to make available and reserve for Micron 1 million gallons of storage for Micron plant operation and ½ million gallons for Micron fire protection.
The Amended Agreement sets the terms and conditions under which Micron may occupy a portion of United Water’s pipeline right-of-way from the Raptor Well to the Micron plant for the purpose of installing a separate water pipeline.
The Amended Agreement also sets conditions under which United Water agrees to carry water (up to 2 million gallons per day and at an instantaneous rate of 1400 gallons per minute) produced from a Micron water right in the 24-inch diameter pipeline from Pleasant Valley Road to the Micron plant.
The Amended Agreement further provides terms and conditions under which Micron may be allowed to use United Water’s three project wells (Ten Mile, Pleasant Valley and Raptor) as alternate points of diversion for Micron’s water rights serving the Micron plant.
Commission Notices of Application and Modified Procedure in Case No. UWIW995 issued on December 30, 1999. Deadline for filing written comments was February 16, 2000. Timely comments were filed by Commission Staff, and jointly by Micron and United Water. (Attached). The comments can be summarized as follows:
Commission Staff
Staff believes that the intent and primary provisions of the original Southeast Boise Water Supply Agreement are reflected in the Amended Agreement. Staff addresses three areas of the Amended Agreement that represents significant change or addition to the original:
1. Method of reimbursement
Staff supports the substitute method of reimbursement, including the proposed escalation rate. While the escalation rate, Staff states, is new and could result in a more rapid reimbursement to Micron than otherwise might have occurred, Staff points out that the geographic area of growth, the maximum time period for reimbursement and the amount to be reimbursed all remain the same.
2. Transfer of ownership of Gowen and Oregon Trail Wells
Although initially concerned that the Company in selling the Gowen and Oregon Trail Wells to Micron was forfeiting potentially lower cost water supply alternatives, Staff following its investigation in this case states that it is now satisfied that the sale of the Gowen/Oregon Trail Wells represents what is a formal transfer of assets that (except for emergency use) were already controlled by Micron under the original Agreement. Staff finds reasonable the sale price for the facilities which is based on depreciated book value. Staff also finds reasonable the fee paid by Micron to United Water for the operation and maintenance of the facilities.
3. Use by Micron of UWI transmission right-of-way; use by Micron of access UWI transmission pipeline capacity; and expansion by Micron of water rights at UWI’s three Yankee Well Field wells.
Under the terms of the Amended Agreement, Micron can use the Gowen/Oregon Trail Wells and expanded rights at other United Water wells to meet its own supply. It can also use excess capacity in the United Water transmission pipeline and United Water transmission right-of-way to construct a pipeline to deliver that supply. This ability, Staff observes, will allow Micron to effectively bypass United Water. Based on discussions with Micron, however, Staff understands that Micron currently buys very little supply other than its potable needs (non-production needs) from United Water, and intends to neither replace the potable volumes purchased nor purchase more than its potable needs. In response to production requests and as set forth in the Amended Agreement paragraph 16A-F, the Company contends that facility use provisions in the Amended Agreement will neither impact service currently provided to customers, nor limit use of Company-owned facilities for the benefit of customers in the future.
Staff has reviewed the proposed accounting entries for transactions specified in the Amended Agreement (Application Attachment D) and believes they properly reflect the present and future transactions. Staff is also satisfied that the proposed fees for O&M of the Gowen/Oregon Trail Wells and wheeling rates for use of United Water distribution and transmission pipelines by Micron are sufficient to cover costs based on the Company’s most recent cost-of-service study.
Staff will continue to monitor United Water and Micron activities associated with use of pipeline capacity and right-of-way as well as expansion and transfers of water rights at existing United Water wells to ensure that opportunities beneficial to United Water customers are not forfeited.

Joint Comments—Micron and United Water
In Joint Comments filed by Micron and United Water, the companies provide additional background related to ground water supplies in southeast Boise, the underlying Agreement and the Amended Agreement and conclude that the Amended Agreement is beneficial to the community, Micron, United Water and its customers. The cooperative nature of the Amended Agreement it is suggested eliminates the potential for costly conflicts, including litigation.
As reflected in the Joint Comments, two new wells were drilled in a relatively untapped aquifer (Nicholson/Yanke), replacing two older wells (Gowen & Oregon Trail) which were drawing from a threatened aquifer. One of these two new wells equal the combined capacity of the Oregon and Gowen Wells. The second well, plus the capacity now available to the system from the Raptor Well, increase the Company’s source of supply capacity by nearly 3 million gallons per day.
Since United Water ceased pumping the Gowen and Oregon Trail Wells in 1977, it is represented that the water level in the Boise Fan has begun to stabilize for the first time in 25 years. Stable ground water supplies in southeast Boise, the companies contend, benefit the entire community.

Although the Joint Comments repeatedly characterize the Agreement (Amended Agreement) project as “at no interest and at no expense to United or its customers”, “at no cost to existing customers”, “at no cost to the Company”, and “at no cost to existing users”, it should be noted that this is not a gift from Micron. Under the terms of the Settlement Agreement and Amended Agreement, Micron will be reimbursed. The payment stream will be based on new growth. The dollar amount paid to Micron for reimbursement will be rate based by the Company as capital investment. The Company will receive a return on its investment and through depreciation a return of its investment. It is the customers who will pay for this project.
Commission Decision
Should terms of the Amended Southwest Boise Water Supply Agreement be approved? Should the proposed accounting entries for the transaction be approved? If not, what is the Commission’s preference?

vld/M:UWI-W-99-5_sw3

DECISION MEMORANDUM 5