20040830_932.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:AUGUST 26, 2004
RE:CASE NO. UWI-04-3 (United Water)
PRO POSED SALE OF CARRIAGE HILL DO MESTI C WATER SYSTEM,
PROPOSED AMENDMENT OF CERTIFICATE AND REQUEST FOR
ACCOUNTING ORDER
On August 9, 2004, United Water Idaho , Inc. (United Water; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting authority to
remove the Carriage Hill Subdivision from the Company s certificated service area and for an
accounting order regarding distribution of proceeds from the sale of the Carriage Hill domestic
water system from United Water to the City ofNampa. On August 25 2004, the Company filed
supporting testimony for its Application.
Background
On March 29, 1999, the Commission in Order No. 27976 approved an expansion of
United Water s certificated service area to include the Carriage Hill Subdivision in Canyon
County, Idaho near the City of Nampa. The expansion was pursuant to a Non-contiguous Water
System Agreement between the Company and Carriage Hill dated November 20 1998. At the
same approximate time, the Company s corporate parent, United Waterworks, entered into a
separate understanding with the Carriage Hill developers that United Waterworks would loan the
developers up to $350 000 to finance the construction of the Carriage Hill source of supply
system only. Reference 1) Design-Build Promissory Note dated December 7, 1998 and 2) Joint
and Several Individuals Guaranty signed by Carriage Hill developers.
As initially constructed the development had only one well to serve as the source of
supply. In the spring of 2002, the developer had embarked on Phase 2 of the distribution system
that would add 20 lots to the original 27 in Phase 1. Eventually, 25 lots would be connected, the
DECISION MEMORANDUM
maximum permitted by the Idaho Department of Environmental Quality (DEQ) for a system
with only one source well. Under DEQ requirements, a second source of supply is required for a
water system serving more than 25 connections.
In early 2003 , the Carriage Hill developers informed United Water that they did not
have funds to construct a second source of supply or to continue payments to United
Waterworks. Without a second source of supply Carriage Hill would not be able to expand.
Without expansion, Carriage Hill developers would be unable to generate funds to finance a new
well or to pay United Waterworks.
On August 15, 2003, the City of Nampa indicated its desire to enter into negotiations
with United Water and Carriage Hill in connection with the ownership, operation and
maintenance of the Carriage Hill domestic water system and the connection of the system to
Nampa s Municipal Water System.
On August 25 , 2003, Carriage Hill requested a waiver from the Idaho Department of
Environmental Quality to allow an additional ten lots in the subdivision to be connected to the
water system prior to the installation of a second source of supply, which second source of
supply, it was stated, would take the form of connection to Nampa s Municipal Water System.
As of the date of this Application approximately 30 lots in the Carriage Hill Subdivision have
been connected to the domestic water system.
Purchase Agreement-United Water (Seller)/City of Nampa (Purchaser)
United Water has entered into a Purchase Agreement (Agreement) with the City
Nampa dated 12 March, 2004. As reflected in the Agreement, the purchase price is $375 000. A
small portion of the purchase price, approximately $36 000, is to be paid to United Water Idaho.
The remainder of the purchase, approximately $338 000, is to be paid to United Waterworks
Inc., owner of a Design-Built Promissory Note in the original principal amount of $350 000
dated December 7, 1998, said note being the obligation of Carriage Hill LLC. The purpose of
said note was to provide funds to assist Carriage Hill in the construction of the water system
within the Carriage Hill Subdivision.
United Water contends that acquisition of the Carriage Hill domestic water system by
the City ofNampa is consistent with the Public Convenience and Necessity because
Nampa has adequate source of supply and operational capability to provide
safe and reliable water service to the subdivision;
DECISION MEMORANDUM
The connection of Nampa s distribution system to the Carriage Hill domestic
water system will provide a second source of supply as required by DEQ rules
thus insuring reliable water supply to the subdivision and permitting further
expansion of the subdivision; and
The rates charged by N amp a for domestic water service are lower than the
rates charged by United Water, and customers within the subdivision will
therefore experience a decrease in the cost of domestic water service.
Application Exhibit E (revised) sets forth United Water s proposed journal entries
to account for the $36 000 to be received by United Water at closing. Revised Exhibit E reflects
Advanced Plant in Service of $354 905 and Contributed Plant in Service of $190 300. The
advanced plant reflects the source of supply portion of the system and was provided by the
developer. The contributed plant reflects the distribution portion of the system and was fully
funded by the developer. Because advanced plant and contributed plant are not included in the
Company s rate base, United Water states that customers have not, through their rates, paid any
return on those investments. The Company contends that its customers have not acquired any
financial or equitable interest for which they should be compensated upon sale of the Carriage
Hill assets. United Water contends that the Company s accounting proposal is consistent with
established regulatory accounting principles and requests that the Commission approve it.
COMMISSION DECISION
Staff apprises the Commission that it has an outstanding production request to the
Company regarding the distribution of $338 000 in sale proceeds to United Waterworks in
satisfaction of the Design-Built Promissory Note obligation of Carriage Hill. Staff also
anticipates a follow-up request. The Company recommends that its Application be processed
under Modified Procedure, i., by written submission rather than by hearing.Reference
Commission Rules of Procedure IDAPA 31.01.01.201-204.Staff believes that the initial
processing of this Application pursuant to Modified Procedure is appropriate. Staff recommends
a comment deadline of September 27 2004. Does the Commission agree?
Scott Woodbury
Vld/M:UWIWO403 sw
DECISION MEMORANDUM