20090403final_order_no_30765.pdf

Office of the Secretary
Service Date
April 3, 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF MIDV ALE
TELEPHONE EXCHANGE'S LETTER
PETITION FOR A DECLARATORY ORDER
REGARDING MID V ALE'S ADOPTION OF
AN EMPLOYEE STOCK OWNERSHIP
PLAN
ORDER NO. 30765
CASE NO. MID-09-
On February 20, 2009, Midvale Telephone Exchange, Inc. filed a "Letter Petition
advising the Commission that Midvale proposes to adopt an Employee Stock Ownership Plan
(ESOP) and create an ESOP Trust for Midvale s employees. Midvale states that it does not
believe that the Commission is required to approve the proposed ESOP transaction. However, in
an abundance of caution, Midvale requests the Commission issue an Order affirming that the
Commission does not need to approve the transaction. Midvale is generally subject to our
regulatory authority under Title 61 of the Idaho Code. See Idaho Code ~~ 61-121 and 61-129.
Based upon the Letter Petition and the Commission Staff s review, we find that
Midvale s adoption of an ESOP in this instance does not require Commission approval.
However, we shall direct Midvale to file the final ESOP documents with the Commission.
THE LETTER PETITION
Midvale asserts in its Letter Petition that it is currently owned by two shareholders:
Lane Williams and Shirley Archer. Ms. Archer recently passed away and her shares are being
held by her estate. "To ensure the ongoing operations of Midvale" Telephone, Mr. Williams is
pursing the adoption of an ESOP to ensure that the Company can be owned by employees who
have and are operating the Company. Adoption of an ESOP would ensure that the Company
operations continue in the current form rather than ultimately being sold to a third party.
Other than ownership of the shares, Midvale asserts that the plan to adopt an ESOP
does not create any changes with regard to Midvale s operations. "Midvale remains the owner of
all of its operating assets, it retains all of its debt obligations and it does not take on any new debt
obligations which require the approval of the Commission." Letter Petition at
Midvale proposes to first adopt an ESOP and then create the ESOP Trust. The ESOP
Trust "is a benefit/retirement fund for Midvale s employees. Midvale would make a contribution
ORDER NO. 30765
every year to this retirement fund.Id. at 2. Midvale asserts that the annual contribution to the
ESOP Trust is governed by federal regulations regarding Midvale s existing loans with the Rural
Utilities Service (RUS) and federal laws governing ESOPs. The Company maintains that the
contributions to the ESOP Trust are no different than any other company contribution to an
employee benefit plan. Midvale states that the contributions in the first year will likely be in the
form of Midvale stock. Id. at 2.
Following the adoption of the ESOP and creation of the ESOP Trust, Midvale will
then create a holding company that will be a parent company of Midvale. The parent company
will be organized to own all of the issued and outstanding shares of the Midvale stock. The
parent company will exchange parent shares for "all of the shares of Midvale held by Lane
Williams, the estate of Shirley Archer and the ESOP so that the parent company would own all
of the issued and outstanding shares of Midvale stock.Id. The ESOP will then purchase all of
the shares of the parent company held by Lane Williams and Ms. Archer s estate, using the
annual contributions made by Midvale to the ESOP. "At the completion of the transaction
Midvale would be wholly owned by the new parent company and the new parent company
would be wholly owned by the ESOP Trust, in trust for all eligible employees.Id.
Under the proposed structure and transaction, Midvale will not take on any new debt
nor will it transfer any of its operating assets. Midvale will continue to be the operating
company, utilizing its assets to provide telecommunications services. "The only 'obligation
Midvale (will have) is to make annual contributions to the ESOP , the amount which is governed
under ESOP rules as well as RUS rules.Id.
STAFF REVIEW
Staff first recommended that the letter request be treated as a Petition for a
Declaratory Order pursuant to Rule 101. ID AP A 31. 01. OLIO I (persons seeking a declaratory
ruling from the Commission must file a Petition for Declaratory Order). After reviewing
Midvale s Letter Petition, Staff concluded that the proposed ESOP transaction does not require
Commission approval under Idaho Code ~ 61-901. Section 61-90 I requires that the Commission
approve "instruments of security" pertaining to utility assets. Based upon Midvale s assertion
that operation of the Company will be unchanged and adoption of the ESOP Trust will not
impair the Company s assets, Staff maintained that the securities provisions of the Public
Utilities Laws would not apply. Idaho Code ~~ 61-901 et seq. Based upon the circumstances
ORDER NO. 30765
outlined in Midvale s Petition, Staff viewed the proposed ESOP as essentially a personal estate
planning transaction. As such
, "
the annual contributions to the ESOP trust should not be
included in the revenue requirement for Midvale in its next rate case. To verify that the final
ESOP structure and plan is consistent with the proposal, Staff recommends that all
Documentation of the final ESOP structure and legal documents be filed with the Commission.
Staff Recommendations at 2.
DISCUSSION AND FINDINGS
Based upon our review of the Letter Petition and Staffs recommendation, the
Commission finds it appropriate to treat Midvale s letter as a Petition for Declaratory Order.
Rule 101 IDAPA 31.01.01.101.We further find that Midvale has provided sufficient
information for us to decide the request. Based upon our review, the Commission finds that
adoption and creation of an ESOP Trust, as set out in the Letter Petition, does not require
Commission approval. As Midvale asserted, and Staff endorsed, the utility assets will continue
to be owned and operated by Midvale. Midvale shall also retain all of its current debt obligations
and will not be required to take on new debt by creation of an ESOP.
The Commission also adopts Staff s recommendation that Midvale file the final
ESOP documents with the Commission. The Commission makes no findings regarding the
ratemaking treatment of annual contributions to the ESOP.
ORDER
IT IS HEREBY ORDERED that Midvale Telephone Exchange, Inc.'s letter be
treated as a Petition for Declaratory Order pursuant to Rule 101.
IT IS FURTHER ORDERED that Midvale s plan to adopt an ESOP and create an
ESOP Trust does not require Commission approval under Idaho Code ~ 61-901 et seq. At such
time as Midvale completes its ESOP transaction, it shall file a copy of the final ESOP documents
with the Commission.
IT IS FURTHER ORDERED that the Commission makes no finding regarding the
applicable ratemaking treatment for Midvale s annual contributions to the ESOP.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. MID-09-
01 may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
ORDER NO. 30765
this case. 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 :3
rJ.
day of April 2009.
~~ b.~
MACK A. RED . iDENT
MARSHA H. SMITH, COMMISSIONER
ATTEST:
€if (iJ .
1t-Je D. JewellCo ISSlOn Secretary
bls/O:MID-09-01 dh
ORDER NO. 30765