20070921order_no_30440.pdf

Office of the Secretary
Service Date
September 21 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF EAGLE WATER
COMP ANY'S CAPITAL IMPROVEMENT
REPORT AND APPLICATION TO
CONTINUE THE EXISTING SURCHARGE ORDER NO. 30440
CASE NO. EAG-07-
On August 6 2007, Eagle Water Company filed an Application to recover its costs in
preparing a system-wide Engineering Report and the Application in this case. See Order No.
30430. In particular, the Company requested authority to recover professional fees (engineering,
legal, accounting) totaling $201,434. The Company seeks authority to recover this amount from
two sources: (1) the existing surcharge account authorized by Order No. 30331; and (2) a new
bank loan. Eagle Water anticipates that it will need to borrow $110 000 for cash flow purposes
if the Commission pennits the Company to obtain funds from the existing surcharge account.
The Application indicates that the surcharge account balance was $91 300 as of July 12, 2007.
Application at 4.
Included in the Application was a loan proposal prepared by Idaho Banking
Company. The proposal was predicated upon a total loan amount of $201 433 with tenns
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 principal
payments required quarterly based upon customer surcharge revenues. The final tenns of the
loan have not yet been established.
The Application also reports that Eagle Water has completed $848 000 in
infrastructure improvements in 2006. Application at 5. The Company also contemplates making
$114 120 of improvements in 2007. Id at 6. The Company is not seeking to recover these
infrastructure improvements at this time because of the pending sale of the utility to the City of
Eagle.
STAFF ANALYSIS AND RECOMMENDATION
The Staff asserts that it views Eagle Water s Application and loan request in two
phases. The first phase is the working capital loan request. The second phase is to analyze the
reasonableness and prudency of the professional fees requested by the Company. For cash flow
ORDER NO. 30440
purposes and loan approval, the Staff believes that the existing surcharge will be used to retire
the debts and as collateral for the loan (reflecting a revenue stream for loan repayment). If the
Commission subsequently fmds in the second phase that any of the professional fees are
unreasonable or imprudently incurred, then the disallowed portion will be the sole responsibility
of Eagle Water and not customers.
In the fIrst phase, Staff recommends that the Commission approve the loan request
up to $110 000 and allow Eagle Water to use the surcharge revenues (and its revenue stream) as
collateral for the loan. Staff also recommends that 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 should be filed with the Commission. When a fmal Order is issued in the second phase of
this case, Staff recommends that Eagle Water be required to reconcile the surcharge and loan
account, and if necessary, repay directly any costs disallowed by the Commission. This
reconciliation process will be audited and verified by the Staff.
DISCUSSION AND FINDINGS
As we observed in Order No. 30430, Eagle Water and the City of Eagle have entered
into an "Asset Purchase Agreement" which would allow the City to purchase the utility. The
. ,
parties anticipate that the transaction will close in November 2007. Once the City acquires the
Company, the Commission s regulatory supervision of the utility would end. Order No. 30430
at 1. However, until such time, Eagle Water remains a regulated utility subject to our
jurisdiction. Commensurate with its regulatory status, Eagle Water seeks authority to borrow
$110 000 to defray the professional fees it has or will incur. The Company also requests
permission to use revenue from its existing surcharge account to pay the professional fees and to
use as collateral for the loan.
Eagle Water is principally engaged in the delivery of water service to residential and
commercial customers in and around the City of Eagle. Eagle Water is a water corporation
within the defmition of Idaho Code ~ 61-125, and a public utility as defined by Idaho Code ~ 61-
129. The Idaho Public Utilities Commission has jurisdiction over this matter pursuant to Title
, Idaho Code, and specifically Idaho Code ~~ 61-508, 61-901 , and 61-902.
Based upon the representations in the Application, we find that the proceeds from the
surcharge account and bank loan will be used to pay the professional fees incurred or projected
ORDER NO. 30440
to be incurred in the preparation of the Engineering Report and this Application, and the
reimbursement of monies from other accounts previously used to pay the professional fees.
After examining the Application and Staff's recommendation , tp.e Commission finds
that an evidentiary hearing in this matter is not required.
The Commission further finds that the Application requesting authority to borrow
$110 000 subject to those 'conditions recommended by Staff is for a lawful purpose, is within
Eagle Water s corporate duties, and is generally compatible with the public interest. The
Commission specifically reserves for phase two of this proceeding the reasonableness and
prudency of the requested engineering, legal and accounting fees. The authority contained in this
Order to execute a loan agreement does not constitute a final decision regarding the
reasonableness and prudency of the professional fees.
The issuance of this Order does not constitute agency determination/approval of the
type of financing or the related costs for ratemaking purposes, which detennination the
Commission expressly reserves until the appropriate proceeding.
ORDER
IT IS HEREBY ORDERED that Eagle Water Company s Application for authority
to borrow up to $110 000 is granted. The Company is also granted authority to access the
existing and future surcharge funds subject to our subsequent review in phase two and a final
reconciliation as proposed by Staff.
IT IS FURTHER ORDERED that Eagle Water provide the fmal draft loan document
for Staff's review. The Company shall file copies of all executed agreements for the loan with
the Commission.
IT IS FURTHER ORDERED that the Commission specifically reserves the right to
detennine the reasonableness and prudency of the professional fees for which the Company
currently seeks recovery. In the event the Commission subsequently disallows recovery of any
portion of the professional fees, the amount disallowed will be the sole responsibility of Eagle
Water and not recoverable from customers. Eagle Water may be required to reimburse the
surcharge account for any disallowed amounts paid from that account. If the outstanding loan
covers disallowed costs, Eagle Water will be required to pay these amounts directly to the bank.
IT IS FURTHER ORDERED that once a final Order is issued in this case, Eagle
Water shall be required to reconcile the surcharge and loan accounts and, if necessary, repay
ORDER NO. 30440
directly to the surcharge account or bank any costs disallowed by the Commission. This
reconciliation process will be audited and verified by Staff.
IT IS FURTHER ORDERED that nothing in this Order or any act or deed done or
performed in connection with this Order shall be construed to obligate the State of Idaho to pay
or guarantee in any manner whatsoever any loan authorized under this Order.
IT IS FURTHER ORDERED that this loan authorization is without prejudice to the
regulatory authority of the Commission with respect to rates, services, accounts, evaluation
estimates or detennination of costs or any other matter which may come before the Commission
pursuant to its jurisdiction and authority as provided by law.
IT IS FURTHER ORDERED that the issuance of this Order does not constitute
acceptance of Eagle Water s materials accompanying the Application for any purpose other than
the issuance of this Order.
THIS IS A FINAL ORDER EXCEPT FOR THE RESERVED ISSUES OF
PRUDENCY AND RECONCILIATION. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
ORDER NO. 30440
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ~Ot+-
day of September 2007.
d~.
MARSHA H. SMITH, COMMISSIONER
Commissioner Redford Dissents Without Opinion
MACK A. REDFORD, COMMISSIONER
ATTEST:
~~/~
cdrflinission Secretary
bls/O:EAG-O7-01 dh2
ORDER NO. 30440