20030825_599.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:AUGUST 20, 2003
RE:CASE NO. BIT-03-1 (Bitterroot Water)
SALE-PURCHASE OF WATER UTILITY
On June 17, 2003 , documentation was filed with the Idaho Public Utilities
Commission (Commission) pertaining to the sale/purchase of the Bitterroot Water Company.
The Bitterroot Water Company (Bitterroot) is a regulated public utility maintaining and
operating a water system and water supply and providing water service to approximately 101
customers in Kootenai County, Idaho in an area more particularly described as Silver Meadow
subdivision located in Township 53 North, Range 03 West, Sections 20 and 29, Boise-Meridian
Kootenai County, Idaho, as recorded in the Kootenai County Recorder Office, Record No.
1375350. Certificate of Public Convenience and NeGessity No. 319 was issued to Bitterroot
Water Company, Inc. by the Commission on December 14, 1995. Reference Case No. GNR-
95-, Order No. 26268.
As reflected in the second amended Purchase Agreement filed with the Commission
on July 7, 2003, the Seller, Bruce Burnett, agrees to sell Kenneth and Cathy Rickel of Kootenai
County, Idaho, hereinafter called Purchasers, the Company stock of Bitterroot Water Company,
Inc., consisting of 100 000 shares of stock for the purchase price of $50 000. Pursuant to terms
of payment, Seller acknowledges receipt of $25 000 for 50 000 shares of stock. The balance of
the purchase price for the remaining 50 000 shares is payable at 8% per annum commencing
June 1 , 2003. Payments shall be $303.32 per month with the first payment being due on the 15th
day of the month following Commission approval of this stock transfer. Payments will be due
month to month until the balance is paid in full. The unpaid balance is secured by a promissory
note. Seller will retain possession of the balance of the shares until the note is paid.
DECISION MEORANDUM
The addresses of Seller and Purchasers are:
Seller: Bruce Burnett, 4240 Old Seward Highway, Suite 13 , Anchorage, AK 99503
Purchasers: Kenneth and Cathy Rickel, PO Box 1261 , Hayden Lake, ID 83835
The SaleIPurchase Agreement recites that the underlying Certificate No. 319 for
Bitterroot Water Company, Inc. will not change as a result of this transaction. No change in
rates has been requested.
As reflected in the initial filing, the attorney for the Purchasers states that while this
is not to be a consolidation of water companies, his clients, the Rickels, currently own the
contiguous water company that bears their name. (Rickel Water Company - Commission
Certificate No. 324.) Both parties to the sale/purchase agree that it only makes economies of
scale and logistical sense that the companies be owned by local people. Further, it is recited that
the companies share a communal reservoir and some infrastructure.
On July 25 2003 , Commission Notices of Application and Modified Procedure were
issued in Case No. BIT-03-01. The deadline for filing written comments was August 14
2003. Commission Staff was the only party to file comments. Staff recommends (1) that the
Commission approve the sale of Bitterroot Water Company, Inc.' s stock to Kathy and Kenneth
Rickel; (2) prohibit the Company from recording any costs of this transaction on the books of the
corporation; (3) direct the Company to attain full compliance with DEQ certified operator
requirements; and (4) direct the Company to file amended tariff pages reflecting the change of
ownership and a new tariff for the Staff-recommended $25 reconnection charge.
As reflected in Staff s comments, the proposed owners, Ken and Kathy Rickel
currently own and operate the Rickel Water Company adjacent to, and interconnected with, the
Bitterroot water system. The Rickels, Staff contends, have an established history of successfully
operating the Rickel Water Company in compliance with Commission requirements.
Staff notes that as a developer-owned and operated system, the physical plant of
Bitterroot is considered contributed property to the water corporation (IDAP A 31.36.01.103) and
therefore has no net value (rate base) for ratemaking purposes. Staff has informed the Rickels
that the plant valuation of Bitterroot will be carried forward at its existing zero net value for
ratemaking purposes and that the $50 000 stock purchase price should not be recorded on the
books of Bitterroot Water Company. The stock purchase is a personal investment by the Rickels
and as such is not recoverable from ratepayers.
DECISION MEORANDUM
Staff states that it has contacted the Idaho Department of Environmental Quality
(DEQ) to ensure that both the Rickel and the Bitterroot systems are in compliance with DEQ
regulations. DEQ informed Staff that both systems are in compliance except that neither system
currently has a certified operator. DEQ requires that each system have not one but two certified
operators. (Reference IDAP A 58.01.08.554-561). Mrs. Rickel told Staff that her husband Ken
and his brother would be taking a certification course in the near future.With common
ownership, the Rickels themselves will be able to satisfy the requirement for both the Bitterroot
and the Rickel water systems.
Staff notes that both corporations are in good standing with the Idaho Secretary of
State Office. Staff believes that this sale of stock will not adversely impact the customers of
either water system and further believes that common ownership and management of the two
water systems may provide operational efficiencies that currently do not exist.
Staff reminds the Company that although a .rate change is not requested at this time
should a request occur in the future it will require proper customer notification and an additional
application with the Commission. Staff recommends that the Commission s Order make it clear
that the Commission sets water rates after an audit and investigation of the Company s income
and expenses during a rate case. Customers will have an opportunity to review any future rate
change Application and offer comments prior to the Commission s final decision.
Staff notes that on July 1 , 2003, Bitterroot provided its customers with individual
notice regarding the proposed sale of the water system to Ken and Kathy Rickel. Staff has
received no comments from Bitterroot customers regarding the proposed sale.
Staff notes that both Rickel Water Company and Bitterroot Water Company are in
general compliance with the rules and regulations of the Commission, including the Utility
Customer Relations Rules (IDAPA 31.21.01), Utility Customer Information Rules (IDAPA
31.21.02), and Small Water Company Policies (IDAPA 31.36.01). Staff states that it will work
with the Companies to make minor revisions to the annual rule summaries pursuant to
Commission rule changes, that became effective in May of this year.
Additionally, Staff notes that the rule summary for Bitterroot Water Company
indicates there is a reconnection fee of $25. However, Bitterroot has no approved tariff for a $25
reconnection charge. The Company has never imposed the unauthorized fee because it has never
disconnected a customer. Because a $25 fee is reasonable and comparable with other approved
DECISION MEORANDUM
reconnection charges, Staff recommends the Commission approve a $25 reconnection charge
even though it was not included in the Application. Staff further recommends that the
Commission allow the reconnection charge to be included with the full set of replacement tariffs
to be submitted by the new owners after the sale is approved.
Commission Decision
Commission approval is requested of the proposed sale and purchase of Bitterroot
Water Company stock.Staff recommends that the sale/purchase be approved with the
admonitions and recommendations set forth above. Does the Commission find it reasonable to
approve the sale of Bitterroot Water Company, Inc.' s common stock; apprise the Company that
the transaction costs should not be recorded on the books of the corporation; direct the Company
to attain full compliance with DEQ's certified operator requirements; and direct the Company to
file amended tariff pages reflecting the change of ownership and a new tariff for the Staff-
recommended $25 reconnection charge?
Scott Woodbury
Vld/M:BITWO301 sw2
DECISION MEORANDUM