ALLTUS.docx

March 13, 1998
Representative Jeff Alltus
Idaho House of Representatives
Idaho State Capitol
PO Box 83720
Boise, ID 83720-0038
RE:Hayden Pines Water System (Bud Ford)
North Kootenai Water District (Art Sestak)
Dear Representative Alltus:
Thank you for bringing the concerns of your constituents regarding the Hayden Pines Water System to our attention.  The Commission has two active cases pending regarding Hayden Pines.
Case No. HPN-W-97-1 initiated April 11, 1997
An investigation into the financial, operational and managerial activities of Hayden Pines Water Company.  A copy of the Notice is attached.
Case No. HPN-W-97-2 filed June 13, 1997; Notice issued June 30, 1997
A petition of Hayden Pines Water Company and its proposal to surrender its Certificate of Public Convenience and Necessity No. 281. A copy of the Notice is attached.
The North Kootenai Water District (NKWD; Water District) is an intervenor in both cases.  Mr. Art Sestak sits on the governing board of NKWD.  The Water District has tried but has not succeeded in its efforts to acquire the Hayden Pines Water Company.  If Hayden Pines was acquired by the Water District, the Commission would no longer have regulatory jurisdiction over the water system.  Reference Idaho Code § 61-104.
Mr. Sestak in his letter to you dated February 17, 1998 has posed three concerns.
1.The Hayden Pines Water Company (HPWC) filed with the state as “Allied Water,” a not-for-profit company, unregulated by the state of Idaho.  The IPUC has been investigating this issue, HPN-W-97-2, for over a year with no results or conclusions.  The HPWC owner, who is normally out of state for many months of the year, uses his absence as an excuse for noncompliance with the IPUC investigation of the not for profit status.
The HPWC owner has a full time staff of a bookkeeper, secretary, water superintendent, field personnel and CPA, Presnell-Gage, who are available to answer any inquiries by the IPUC.  I believe the IPUC must fulfill its responsibilities as a state regulator and resolve the status of HPWC.
Commission Response
The Commission in its Notice of Petition and Investigation and Order No. 27026 in Case No. HPN-W-97-2 made the following finding:
We apprise the Company that its Certificate of Public Convenience and Necessity No. 281 remains in effect until the Commission orders otherwise.  Accordingly, the Company is the certificated and acknowledged provider of water service pursuant to Certificate of Public Convenience and Necessity No. 281.  As a certificated public water utility, Hayden Pines has a continuing responsibility pursuant to Idaho Code § 61-302 to maintain and provide adequate service and shall take necessary steps to ensure that such service is provided to its  customers pursuant to schedules and tariffs on file with the Commission . . .
In other words, the Commission has told Hayden Pines that its filing is not sufficient to change its current status as a regulated water company.  It remains subject to our jurisdiction.  Proceedings in Case No. HPN-W-97-2 were stayed pending investigation and/or further motion by the parties.  North Kootenai Water District (and Art Sestak) is represented in Case No. HPN-W-97-2 by its legal counsel, Robert Covington.  It has the opportunity to file formal production requests or motions in this case.
The investigation of Commission Staff in this matter has met with limited success.  Although Hayden Pines was once an incorporated entity, it surrendered its corporate charter on 12/31/97.  The Company management was essentially Bud Ford.  He was the person authorized to make corporate management decisions and to speak for the Company in proceedings before this Commission.  It is our understanding that our Staff has already told North Kootenai Water District’s and Hayden Pines’ attorney that Staff will ask the Commission to set a prehearing conference in this case in early April 1998 to assess case status, identify issues and establish a schedule for prefiling of testimony and hearing.  This request will be made on March 23, 1998, at the Commission’s decision meeting.
2.An audit, HPN-W-97-1, with findings very favorable to the water users was completed on April 11, 1997.  The IPUC has failed to act on the audit.  The audit recommends a rate base change from $1,413,007 to $1,079,879 a difference of $333,128.  This difference has the potential of dropping your constituents water rates by sizable (333,128/1413/007) 24%.  I see no reason the water users should continue to pay inflated rates due to IPUC inaction.
Commission Response
As a result of Staff’s audit and unanswered questions, the Commission initiated the investigation in Case No. HPN-W-97-1.  The investigation was effectively short-stopped by the purported sale and transfer of the utility.  The ownership of the water system and questions regarding Commission continued jurisdiction are threshold issues that must be resolved before the investigation case can proceed.  In the interim it should be noted that Staff’s preliminary findings and conclusions are not the Commission’s findings.  Staff’s audit, as reported, was limited in scope and the Staff report indicated that more questions remained and that a more thorough investigation was warranted and recommended.  It is also to be further noted that the established rates for Hayden Pines are presumptively fair, just and reasonable and remain so until determined otherwise by this Commission.
3.By my calculations, the water users are overpaying in income tax contributions to HPWC in excess of $200,000 per year.  I believe this is an unwarranted financial burden on your constituents as the water company rarely pays income tax.  This system should be immediately changed by the IPUC.  This issue was brought to IPUC Commission’s attention in August of 1996 and July of 1997 with no Commission response.
In response to Mr. Sestak’s concerns regarding Hayden Pines income tax, the Commission Staff at the Commission’s direction has investigated and considered this matter and has responded to Mr. Sestak’s directly on this issue.  The correspondence is attached.  It seems that the Commission Staff and Mr. Sestak disagree on this issue.
The Commission hopes that the information provided above is responsive to your inquiry.
Sincerely,
Dennis S. Hansen
President
Ralph NelsonMarsha H. Smith
CommissionerCommissioner
Enclosures
bls/L:alltus.sw