20190730Gem State Reply Comments.pdf

Preston N. Carter (ISB No. 8462)
Givens Pursley LLP
601 W. Bannock St.
Boise, lD 83702
Telephone: [phone]
Facsimile: (208) 388-l 300
prestoncarter@ givenspursley. com
14751990 2.docx [3988-3]
Attorneys for Gem State Water Company, LLC
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
RECEIVED
lCIg JUL 30 Pf{ 3: h2
i :. i-'.JULllv; : , ,l:lL{1.!lSSl0N
IN THE MATTER OF THE APPROVAL
OF ACQUISITION OF THE ASSETS OF
DIAMOND BAR ESTATES, L.L.C.
AND BAR CIRCLE "S" WATER, NC.;
FOR TRANSFER OF CERTIFICATES
OF PUBLIC CONVENIENCE AND
NECESSITY OF DIAMOND BAR
ESTATES, L.L.C. (NO. 413) AND BAR
CIRCLE "S" WATER, INC. (NO. 296);
AND REQUEST FOR MODIFIED
PROCEDURE
Case No. BCS-W-l 9-01/DIA-W-l 9-01
Gev Srnrp WnrpR CovrANY, LLC's
Rspr.v CovveNrs
Gem State Water Company, LLC ("Gem State Water," "Company" or "Buyer") files the
following response to comments filed by the Commission Staff on JuJy 23,2019 ("Staff
Comments") regarding Gem State Water's application to acquire the assets of Diamond Bar
Estates, LLC ("Diamond Bar") and Bar Circle "S" Water, Inc. ("Bar Circle S").
Ixrnouucuox
Gem State Water appreciates Staff s investigation, particularly Staff s willingness to
work with Gem State Water and Mr. Turnipseed (or "Seller") to obtain and evaluate information
and documentation regarding the water systems. The Company recognizes and supports Staff s
overall recommendation to approve both acquisitions.
Geu STITE WATER COMPANY, LLC,S REPLY COVVENTS - I ORIGINAL
Staff did express some concems in the Staff Comments. Small water company
acquisitions often present difhcult issues, including less-than-ideal documentation of system
assets and personal assets being used relative to utility business. Diamond Bar and Bar Circle S
are no exception. Gem State Water addresses Staff s particular concerns in more detail below.
Rnply coMMENTS
l. Redundant source
Gem State Water recognizes that public water systems generally require a redundant
source of ground water, as a matter of rule and of sound practice.l Mr. Turnipseed's personal
well currently serves as the redundant source for Diamond Bar. Mr. Turnipseed primarily uses
this well for his own purposes. Despite Gem State Water's best efforts, he would not sell the
well. As Mr. Tumipseed's well is a personally-owned asset, Gem State Water is not aware of any
mechanism to force a conveyance.2
Even if Mr. Turnipseed did agree to sell his personal well to Gem State Water, it is not an
ideal redundant source. As noted in the Staff Comments (page 5), Mr. Turnipseed's personal
well is located within 430 feet of the land on which the Hayden Area Regional Sewer Board
applies its sewage. The 430 feet is less than half the 1,000-foot buffer recommended in DEQ
I As Staffnotes, Idaho Department of Environmental Quality's ("IDEQ") current rules require a redundant source of
groundwater. See IDAPA 58.01.08.501.17. This rule applies only to "[n]ew community water systems" and was
adopted in 2009. Diamond Bar became a public water system in the mid- l 990s and, therefore, is not technically
subject to this rule. However, the preceding rule requires a redundant ground water source for community water
systems constructed after July l, 1985. IDAPA 16.01.08.550.o (1996), availqble at
hups://adminrules.idaho.gov/rules/1996/16/0108.pdf. The requirement for Diamond Bar to have a redundant source
comes from this previous rule, not the current one.
The Company raises this issue only to note that IDEQ does not interpret its rules as having retroactive effect, and it
is therefore not necessarily an easy task to determine which rules do and do not apply to aspects of water systems
that were constructed decades ago.
2 Mr. Turnipseed presumably would refuse to sell his personal well to any potential purchaser. If his refusal to sell
the well is a barrier to acquisition, the less-than-ideal redundant source would stand in the way of resolving the
overall system needs.
GEv STaTE WATER CoupaNy, LLC'S REPLY COMMENTS - 2
guidance.3 The well is used primarily for Mr. Turnipseed's personal purposes and is located on
property owned by Mr. Turnipseed. And, while the well technically meets the IDEQ rules it is
subject to,4 in IDEQ's view, "[a]cquiring a redundant source that meets all DEQ's rules would be
in the best interest of public health." IDEQ Supplemental Comments (filed July 18, 2019).
In light of the circumstances-a seller that is unwilling to convey a less-than-optimal
redundant source-Gem State Water entered into a one-year agreement and easement that
satisfies DEQ rules while allowing Gem State Water time to engage in a planning process to
identifu system needs, including options for a redundant source. During this planning process,
Gem State Water intends to identify and evaluate long-term solutions that meet regulatory
requirements and are in the best interest of public health.
Gem State Water does not know at this time the range of options or the best long-term
solution. The Company recognizes that, as a regulated utility, it must prove that costs were
prudently incurred in order to recover the costs in rates. Gem State Water will have the prudency
requirement in mind when evaluating solutions. However, the prudence of a cost cannot be
determined until the cost, the underlying rationale, alternate solutions, and other circumstances
are known. Gem State Water does not, at this time, request that the Commission determine that
costs associated with a new redundant source are recoverable. That determination would not be
appropriate until the costs are incurred and surrounding circumstances are known.
The opposite also is true-at this time, a blanket determination should not be made now
that costs that may be incurred in the future related to a new secondary source are categorically
3 IDEQ, 2015 Drinking Water Supply Report atp.2, attached to the original IDEQ Comments (filed June 10, 2019).
4 As noted in IDEQ's supplemental comments, because the well serving as the redundant source was constructed in
the 1960s, it is not subject to the rule requiring that redundant sources be on a dedicated well lot. While IDEQ
recognizes that it cannot enforce this rule as to the current well, in IDEQ's view a redundant source "the meets all
IDEQ's rules would be in the interest of public health." DEQ Supplemental Comment (filed July 18, 2019).
Gru SrArp Warsn CoupaNv, LLC'S REpLy CovvpNrs - 3
imprudent. Gem State Water respectfully requests that the Commission not predetermine that
any costs associated with a redundant source should be excluded from rates. Instead, Gem State
Water respectfully requests that the Commission make a prudency determination when the
Company fully presents the issue in an appropriate rate proceeding. At that time, the costs,
rationale, and other surrounding circumstances will be known and can be addressed.
2. Assets being acquired
Staff expressed concerns that Schedule 1 .1(a) to the Asset Purchase Agreement
("Agreement") does not list all the assets that would be required to operate the Diamond Bar and
Bar Circle S systems. Staff Comments at 5, 8. However, Staff recognizes that Section 1 . I of the
Agreement contains a"catch all" that includes transfer of all required assets. Conversations with
Gem State Water and Mr. Turnipseed also confirmed, in Staff s view, a mutual understanding
that all required utility assets are being transferred.
Gem State Water understands StafPs concerns. However, Section 1.1 of the Agreement is
the operative provision. It requires that Seller deliver to Buyer all assets that relate to, or are held
for use in connection with, the water supply and distribution business. Schedule 1.1(a) is
intended to identify assets that are necessary to operate the utility, but is not intended as an item-
by-item list of all utility assets. In Gem State Water's experience, this structwe is common, if not
standard, in these types of acquisitions. The redundant well is not captured by Section I .1 of the
Agreement, or listed in Schedule I .1(a) to the Agreement, because it is not an asset of the Seller,
Diamond Bar.
Gem State Water agrees that, in an ideal world, each small water company would have an
exhaustive, easily accessible list of all assets used in connection with its water supply and
distribution system. That is not always the case. Gem State Water appreciates Staff s diligence in
identifying the assets and confirming the Company's and Mr. Turnipseed's understanding that all
GEU SrarE WATER CoIrapeNy. LLC,S REpI-y COMMENTS - 4
required assets are indeed conveyed under the Agreement. Gem State Water is confident that all
the assets required to run the systems adequately and reliably are covered in the Agreement,
including sufficient water rights and easements.
3. Other comments
Staff notes that Gem State Water stated in the Application its intent to provide notice to
customers. Staff Comments at 9. Gem State Water will provide direct notice to customers of the
acquisition through a separate mailing, a message on bills, or a bill insert.
Staff notes that Diamond Bar and Bar Circle S have separate Commission-approved
Tariffs, and that Staff will work with the Company if it wishes to create a single combined tariff.
Staff Comments at 9. At this time, Gem State Water does not intend to create a unified tariff, but
it will work with Staff to make any changes to the tariffs required by the acquisition. Regarding
other documents, Gem State Water appreciates Staff s offer to work with the Company to revise
these documents, and the Company agrees that three months is a reasonable timeframe.
Coxcr,usrox
Gem State Water appreciates the time and effort Staff expended to conduct an
investigation and compile comments in this case. Again, Gem State Water agrees and supports
Staff s recommendation to approve the acquisitions. Gem State Water respectfully requests that a
prudency determination regarding costs associated with any new redundant source take place in
an appropriate rate proceeding, not at this time. Accordingly, Gem State Water respectfully
requests that the Commission approve the acquisitions without the condition that costs associated
with a redundant source be excluded from rates.
GEU SrarE WATER CoMpANY, LLC's Rpplv CoMMENTS - 5
DATED: July 30,2019
GIVENS PURSLEY LLP
Preston N. Carter
Givens Pursley LLP
Attorneys for Gem State Water Company, LLC
GEv Srers WATER CoMpANy, LLC's REPLY CouusNrs - 6
CERTIFICATE OF SERVICE
I certify that on July 30, 2079, a true and correct copy of GeM SrATE Waren CorraeaNv,
LLC's Rppr-y CovusNts was served upon all parties of record in this proceeding via the manner
indicated below:
Commission Staff
Diane Hanian, Commission Secretary
Idaho Public Utilities Commission
472 W . Washington Street
Boise, ID 83702
Diane.holt@puc. idaho. gov
Hand Delivery
(Original and 7 copies)
Edward Jewell
Deputy Attorney General
Idaho Public Utilities Commission
472W. Washington Street (83702)
P.O. Box 83720
Boise, ID 83720-0074
Edward. Jewell @puc. idaho. gov
Electronic Mail
/L
Preston N. Carter
GEM STATE WATER COMPANY, LLC,S REPLY COMMENTS - 7