20070917_2061.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
CO MMISSI 0 NER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:SEPTEMBER 14, 2007
RE:APPLICATION OF EAGLE WATER COJ,VIP ANY FOR
AUTHORITY TO BORROW FUNDS; CASE NO. EAG-07-
Eagle Water Company (Eagle Water) requests authority to borrow funds to provide
sufficient cash flow to pay outstanding professional fees associated with the Engineering Report
and system improvement process. Although the outstanding fees are approximately $201 000
Eagle Water anticipates that it will need to borrow $110 000 for cash flow purposes if the
existing surcharge fund balance can be used to pay a portion of these fees. Idaho Banking
Company prepared a loan proposal based on the total amount of $201 433 with terms reflecting a
two-year payoff and interest at prime plus 2%, currently 10.25% (8.25 + 2%). The required loan
payments would consist of monthly payments to cover interest only with principle reductions
required quarterly based on customer surcharge revenues. The final terms of the loan have not
been established yet.
This case EAG- W -07 -1 is being processed by Staff in two steps: the first step is this
working capital loan request, and the second step is the ongoing review of the Engineering
Report, system improvements and associated costs. The second step is where prudence and
reasonableness of the fees, and the ongoing surcharge level will be evaluated and presented to
the Commission for decision. The existing surcharge on water usage over 600 cubic feet will
remain in place until a future Commission order is issued on the topic. For cash flow purposes
and loan approval, the existing surcharge mechanism will be used as collateral reflecting a
revenue stream for loan repayment. When a final order on recovery of costs is issued by this
Commission (in the next step of this case), Staff reiterates that any costs not allowed for
DECISION MEMORANDUM - 1 -SEPTEMBER 14 2007
recovery, are the sole responsibility of Eagle Water and will not be paid by customers.
Therefore, Eagle Water will be required to reimburse the surcharge fund for any disallowed
amounts paid from that fund. If the outstanding loan covers disallowed costs, Eagle Water will
be required to pay these amounts directly to the bank.
STAFF RECOMMENDATION
Loan approval will provide Eagle Water with cash flow but will not assure Eagle Water
of a specific recovery level for the underlying costs being evaluated in the ongoing review
process for this case. Staff recommends the Commission approve the loan request up to
$110 000 and allow Eagle Water to use the surcharge mechanism with that revenue stream as
collateral for the loan. Staff also recommends Eagle Water be required to provide the final draft
loan documents with the bank for Staffs review. Copies of all executed agreements for the loan
will be filed with the Commission. Once. a final order is issued in this case, Staff recommends
Eagle Water be required to reconcile the surcharge and loan accounts and if necessary repay
directly any costs disallowed by the Commission. This reconciliation process will be audited
and verified by Staff.
COMMISSION DECISION
Does the Commission approve the requested loan authority of $11 O OOO?
Does the Commission accept the surcharge revenue stream as collateral for the loan?
Does the Commission adopted Staff s recommended review and reporting requirements?
Jv '- W MltJ('
Terri Carlock
udmemos/EAG-07-1 dm debt 9.14.
DECISION MEMORANDUM - 2 -SEPTEMBER 14, 2007