20030623Reconsideration Order No 29271.pdf

Office of the Secretary
Service Date
June 23, 2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
COLUMBINE TELEPHONE COMPANY, INC.
DBA TETON TELECOM FOR AUTHORITY TO )
BORROW FROM THE RURAL TELEPHONE
FINANCE COOPERATIVE AN AMOUNT NOT
TO EXCEED $8,400,000.
CASE NO. COL-03-
ORDER NO. 29271
On April 16, 2003 , Columbine Telephone Company, Inc. dba Teton Telecom filed an
Application for authority to borrow an amount not to exceed $8 400 000 from the Rural
Telephone Finance Cooperative (RTFC). The proposed loan would be used to restructure the
ownership of Columbine and its sister corporation, Silver Star Telephone Company. In Order
No.29256 issued June 2, 2003 , the Commission denied Columbine s Application.The
Commission found that it was inappropriate to use utility assets and revenues as collateral for the
loan. Order No. 29256 at 4.
On June 17, 2003 , Columbine filed a Petition for Reconsideration or Clarification.
The Company s Petition stated that Columbine had renegotiated the collateral for the loan.
set out in greater detail below, based on these new circumstances, the Commission grants
reconsideration and approves the Application as conditioned below.
THE INITIAL APPLICATION
As mentioned above, Columbine initially sought authority to borrow no more than
$8.4 million from the RTFC. The proposed loan would allow the ownership restructuring of
both Columbine and Silver Star. The restructuring would primarily be accomplished by creating
a "buy-sell agreement." Columbine stated that the buy-sell agreement was "a crucial element of
an overall estate plan that will assure a smooth transition in the ownership of Silver Star and
Columbine. . . ." Application at
Both Columbine and Silver Star are closely held family corporations. At present
100% of Silver Star s stock is held by Hoopes Telephone Management, LP ("HTM"), which is in
turn owned by Melvin R. Hoopes. ld. HTM ultimately owns 87% of the stock of Columbine
with the remaining 13% owned by Silver Star. Mr. Hoopes is chairman of the board of both
Columbine and Silver Star.
ORDER NO. 29271
Columbine proposed depositing $7.5 million of the loan proceeds in an investment
management account with Wells Fargo Bank. The investment management account would be
used as collateral for a life insurance premium loan and to finance the life insurance premiums
on Mr. Hoopes ' life insurance policy. The underlying life insurance policies on Mr. Hoopes are
issued in favor of Silver Star and would be the eventual funding source for the buy-sell
agreement. The insurance proceeds would be used to purchase the telephone stock from HTM
upon the death of Mr. Hoopes. The stock would then be distributed to Silver Star s current
management and to other employees through an Employee Stock Ownership Plan (ESOP).
The proposed RTFC loan is for a term of 15 years. Columbine stated that the loan
will initially carry an interest rate equivalent to RTFC's variable rate at the time of closing,
(currently 5.25% per annum). Columbine will be responsible for principal and interest payments
over the 15-year term. Although $7.5 million will be deposited in the bank investment
management account, the remaining loan balance will be used to fund RTFC's patronage capital
requirement.
The Application stated that the proposed transaction is consistent with the public
interest. Application at 2. The Application continued that absent the buy-sell agreement, the
compames
would be financially disrupted by the passing away of their principal owner
(Mr. Hoopes J. The Buy-Sell Agreement is a crucial element of an overall
estate plan that will assure a smooth transition in the ownership of Silver Star
and Columbine without jeopardizing the companies' financial health.
!d. Columbine did not request a public hearing.
STAFF REVIEW
After reviewing the Application and its supporting documents, the Staff determined
that the primary purpose of the loan was to facilitate the Hoopes family s estate planning in
regards to the transfer of the assets in Melvin Hoopes' personal estate. In its report, Staff noted
that the RTFC loan will be secured under the existing first mortgage lien on all of the assets and
revenues of Columbine. Staff also observed that the "security section" of the loan application
states that additional
(sJecurity from Hoopes Telephone Management, LP. will be limited to a
pledge of stock from each of the Company s wholly-owned subsidiaries
including, but not limited to, Silver Star Telephone Company and Columbine
Telephone Company. RTFC may also require security in the form of blanket
ORDER NO. 29271
lien on or pledge of stock from the new holding company that is being
contemplated in this transaction.
Staff Report at 2.
The Staff recommended that the Commission deny the Application. The Staff
asserted that the "sole focus of this loan application is for the benefit of the shareholders of the
Company, and the loan provides no direct benefit and very little indirect benefit to the customers
of Columbine. As such, the loan is not for a normal, ongoing utility purpose.ld. Staff asserted
that the customers of Columbine should not be responsible for the payments or incur the risks
associated with the loan. In the alternative, Staff recommended that the Application be approved
conditioned upon the loan being secured with non-regulatory utility assets, and that the Company
comply with certain reporting requirements.
ORDER NO. 29256
In Order No. 29256, the Commission denied Columbine s Application for the
proposed loan. The Commission noted that it was inappropriate and not in the public interest to
use utility assets and revenues as collateral for private estate planning purposes.The
Commission concluded that it was not in the public interest to use utility assets as collateral.
Order No. 29256 at 4.
PETITION FOR RECONSIDERATION
Following the issuance of Order No. 29256, Columbine renegotiated the terms of the
proposed loan with R TFC. Rather than providing a mortgage or security interest in utility assets
and revenues to support the new loan, Columbine states that
RTFC has agreed to accept a security interest in Columbine s stock as
collateral for the proposed loan. 87% of Columbine s stock is owned by
Teton Communications, Inc., which is in turn owned by Hoopes Telephone
Management, LP. The other 13% of Columbine s stock is held by Silver Star
Telephone Company.
Petition at 2. In other words, Columbine has reconfigured the loan so that it is secured with non-
utility assets. Given this restructuring of the loan and removing utility assets as collateral
Columbine asserts that "the renegotiated loan does not require Commission approval." ld. at 2;
see ldaho Code 9 61-901.
In the alternative, Columbine requests that if the Commission finds it does have
jurisdiction over the renegotiated RTFC loan, that the Commission reconsider its previous
ORDER NO. 29271
finding that the loan is not in the public interest. Because the renegotiated loan will be secured
solely by Columbine s equity ownership, the utility's assets and revenues are no longer directly
at risk. Consequently, there is no adverse impact on ratepayers.
STAFF REVIEW
Based upon the renegotiated loan and specifically the use of non-utility assets and
revenues as collateral, the Staff recommends approval. Staff believes that the renegotiated
collateral significantly reduces the risk to ratepayers while realigning ownership of the
companies. However, the Staff disputed Columbine s assertion that the renegotiated loan is no
longer subject to the Commission s jurisdiction and regulatory authority. Staff noted that ldaho
Code 9 61-901 states that the "right of every public utility. . . to issue, assume or guarantee
securities and to issue mortgages, deeds of trust or other instruments of security with respect to
its property situated within the state of Idaho, is hereby subject to the regulation and supervision
of the public utilities commission. . . ." Staff maintains that even though Columbine removed its
assets and revenues as collateral and instead pledged its equity, the utility is the entity executing
and responsible for the loan. In addition, Silver Star, a regulated public utility, also holds 13% of
Columbine s stock.
If the Commission decides to approve the renegotiated loan, Staff recommends
several reporting conditions. More specifically, the Staff recommends that the Commission
direct Columbine to file:
(1) Verified copies of any agreement entered into pursuant to this Order;
(2) A copy ofthe RTFC's final due diligence investigation report;
(3) A copy of the executed collateral documentation;
(4) Copies of all annual certifications, covenance reports, and letters
regarding these determinations; and
(5) Copies of letters and approval by RTFC of any future assignment of any
portion of the loan to a subsidiary.
D ISCUSSI 0 N
After having reviewed the Petition for Reconsideration or Clarification and the Staff s
Report, we find that it is appropriate to grant reconsideration in this matter. As we noted in
Order No. 29256, our primary concern in denying the initial Application was that utility assets
ORDER NO. 29271
and revenues not be utilized as collateral in this instance. Order No. 29256 at 3-4. As set out in
Columbine s Petition, the Company has renegotiated the terms of the loan and is using
Columbine s equity as collateral.
With this change in collateral, Columbine asserts that the loan is no longer subject to
the Commission s jurisdiction and regulatory authority. We disagree. The RTFC loan is still
being made to Columbine. Pledging Columbine s stock as collateral for the proposed loan
reduces the potential risks to ratepayers but still obligates the Company to repay the loan.
Moreover, Silver Star owns 13% of Columbine s equity. Consequently, we find that the
Commission does appropriately have jurisdiction over this matter pursuant to ldaho Code ~ 61-
901.
In summary, we grant Columbine s Petition for Reconsideration or Clarification.
Having reviewed the terms of the renegotiated loan, we now find it reasonable and in the public
interest to approve the loan. We further adopt Staffs reporting conditions set out above.
ORDER
IT IS HEREBY ORDERED that Columbine s Petition for Reconsideration or
Clarification is granted. Having reconsidered the loan Application with the changes in collateral
the Commission shall approve the reconfigured loan with the conditions recommended by the
Staff.
IT IS FURTHER ORDERED that Columbine shall file copIes of final loan
documents and comply with the Staffs recommended conditions.
IT IS FURTHER ORDERED that nothing in this Order shall be construed to obligate
the State of Idaho to guarantee in any manner whatsoever any security authorized, issued
assumed or guaranteed under the provisions of this Order.
IT IS FURTHER ORDERED that this authorization is without prejudice to the
regulatory authority of this Commission with respect to rates, services, accounts, evaluations
estimates, or determination of costs, or any other matter which may come before this
Commission pursuant to its jurisdiction and authority as provided by law.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any party aggrieved by
this Order or other final or interlocutory Orders previously issued in this Case No. COL-03-
may appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho
Appellate Rules. See ldaho Code 961-627.
ORDER NO. 29271
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;;I..3 ;J.
day of June 2003.
ATTEST:
~fJJe D. Jewell
Commission Secretary
vld/O:COLTO301 dh2
ORDER NO. 29271
MARSHA H. SMITH, COMMISSIONER