20180221Application.pdf

Michael C. Creamer (ISB No. 4030)
Preston N. Carter (ISB No. 8462)
Givens Pursley LLP
601 W. Bannock St.
Boise, ID 83702
Telephone: [phone]
Facsimile: (208) 388-1 300
mcc@ givenspursley. com
prestoncarter@ givenspursley. com
14090026_3.docx [13988-1 ]
Attorneys for NW Natural
IN THE MATTER OF THE
APPLICATION FOR APPROVAL OF
ACQUISITION OF FALLS WATER
COMPANY BY NW NATURAL
WATER COMPANY,LLC
RECEIVED
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
caseNo. f ts-W-it-ot
APPLICATION FOR APPROVAL OF
ACQUISITION OF FALLS WATER
COMPANY BY NW NATURAL
WATER COMPANY,LLC AND
REQUEST FOR MODIFIED
PROCEDURE
NW Natural Water Company, LLC ("NW Natural Water") seeks the Idaho Public
Utilities Commission's ("Commission") approval of NW Natural Water's acquisition of Falls
Water Company ("Falls Water"). NW Natural Water requests that this Application be processed
by modified procedure.
Background
l. Please serve all notices and communications with regard to this Application upon:
Michael C. Creamer (ISB No. 4030)
Preston N. Carter (ISB No. 8462)
Givens Pursley LLP
601 W. Bannock St.
Boise, ID 83702
Telephone: [phone]
ORICINALAppIIc,q.TIoN FoR APPRoVAL oF ACQUISITIoN - 1
Facsimile: [phone]
mcc@ givenspursley. com
prestoncarter@ qivenspursley. com
Zachary D. Kravitz
Northwest Natural Gas Company
220 NW 2nd Ave.
Portland, Oregon 97209
Telephone: [phone]
[e-mail]
2. NW Natural Water is an Oregon limited liability company and a wholly-owned
subsidiary of Northwest Natural Gas Company, an Oregon corporation ("NW Natural") engaged
in the gas distribution and storage business.
3. As explained in the Direct Testimony of Justin Palfreyman, NW Natural is a
publicly-traded regulated natural gas utility headquartered in Portland, Oregon. Palfreyman
Testimony at 2. NW Natural serves over 730,000 residential, commercial, and industrial gas
customers in Oregon and Washinglon.Id.
4. Through its 159-year history, NW Natural has developed core competencies that
include constructing and maintaining infrastructure, providing exemplary customer serwice,
ensuring safe and reliable service, and effectively managing regulated utilities. Id. At2-3.
5. Acquiring Falls Water will enable NW Natural to apply these core competencies
to the water sector, while retaining Falls Water's existing technical expertise. 1d.
6. NW Natural is a publicly-traded company with significant financial resources. 1d.
at 2. NW Natural's latest 10-K is attached as Exhibit 1.
The Transaction
7. Falls Water is an Idaho corporation and regulated water corporation that serves
approximately 5,500 customers in Bonneville County, Idaho. Falls Water holds Certificate of
APPLICATIoN FoR APPRoVAL OF ACQUISITION - 2
Public Convenience and Necessity ("CPCN") No. 236, as amended and approved by the
Commission on August 13,2015.
8. NW Natural, NW Natural Water, and Falls Water Merger Sub Inc. (the latter
being a NW Natural subsidiary created to effectuate the merger) have entered into an Agreement
and Plan of Merger ("Agreement") with Falls Water, attached as Exhibit 2,1 which, contingent
upon Commission approval, will effectuate a merger through which all Falls Water stock will be
transferred to NW Natural (the "Transaction"). Further details about mechanics of the
Transaction are explained in the Direct Testimony of Justin Palfreyman.
9. Falls Water will continue to operate in its current corporate form. The Transaction
will not result in a change to Falls Water's CPCN, employees, customer base, or service area.
Falls Water's current owner, Brent Johnson, will remain in his position of President for at least
one year to provide current management's expertise, a smooth transition of ownership, and to
ensure no disruption to customers. NW Natural currently intends to retain all Falls Water's
employees as well.
10. The Transaction will not cause an increase in rates. Any future ratemaking will be
based on prudently incurred capital expenditures and other accepted ratemaking principles.
1 l. As noted, Falls Water will survive the Transaction in its current corporate form,
and will continue to operate the water system with its current manager and employees. Falls
Water's employees and manager are familiar with, and will continue to abide by, the
Commission's Utility Customer Relations Rules (IDAPA 3 1 .2 I .01 ) and Customer Information
Rules (IDAPA 31.21.02).
I Portions of the Agreement are confidential and have been filed pursuant to Commission Rule of Procedure 67.The
confidential information constitutes a trade secret under Idaho Code $ 74-107(l) and a sale or purchase record (or
similar business record) required to be submitted to a public agency under Idaho Code g 74-107(2).
AppLrcATroN FoR AppRovAL or AcqutsrrroN - 3
12. Falls Water and NW Natural Water, in partnership with Falls Water personnel,
have the business experience, financial ability, and water system expertise to continue to operate
and maintain Falls Water's water system.
13. Falls Water and NW Natural understand that accounting for the water system will
be in accordance with the Commission's Uniform System of Accounts and must be maintained
on a stand-alone basis separate from other business activity.
14. Tony Wise, a Falls Water employee, is a certified water system operator who will
continue operating the water system after the Transaction.
Capital Improvements
15. While the Transaction will not cause an increase in rates, NW Natural and Falls
Water have identified capital improvements that will be necessary to maintain safe and reliable
water service to its customers. The companies will prioritize future improvements based on
customer needs and will only begin work on these projects when they are appropriate to meet
system needs. These improvements include completing the well previously approved by the
Commission, installing an additional well or wells as needed, and constructing storage facilities
as needed. NW Natural will work with Commission Staff regarding the details and timing of
signifi cant capital improvements.
Corporate Reorganization
16. NW Natural is currently taking steps towards a corporate reorganization. Under
the new corporate structure, a holding company will be formed that will be a non-operating
parent company for NW Natural. NW Natural's current subsidiaries will move from under NW
Natural to become subsidiaries of the holding company.2 As such, NW Natural Water and its
2 Two NW Natural subsidiaries (NW Natural Energy Corp. and NW Natural Gas Reserves, LLC) will remain
subsidiaries of NW Natural as those entities hold utility assets relating to an Oregon Public Utility Commission
APPLICATION FOR APPROVAL OF ACQUISITION - 4
wholly-owned subsidiary Falls Water, will become subsidiaries of the holding company.
Palfreyman Testimony at 6. This reorganization will not result in any change to the operations
of Falls Water.
17. The proposed holding company structure is common in the industry and will
allow NW Natural to better support growth of the consolidated organization; provide a structure
for the consolidated entity that ensures corporate separation between affiliates; and provide
better, more efficient platforms (such as NW Natural Water, the water platform) to pursue,
finance, and oversee new business opportunities. Id. at 5-6. A chart illustrating the existing
versus proposed reorganization is attached as Exhibit 3.
18. NW Natural has filed applications for approval of the proposed holding company
corporate reorganizations with the public utilities commissions in Washington, Oregon, and
California. Washington and Oregon have approved the applications; a settlement agreement has
been filed with the California Public Utilities Commission and is pending approval. Id. at 6-7.
19. Additionally, NW Natural shareholders will hold a vote regarding the holding
company transaction at the Company's annual shareholder meeting on May 24,2018. If
approved by its shareholders, NW Natural's Board of Directors will provide a final vote to
trigger the reorganization. The target date to make the appropriate corporate filings to
implement the corporate reorganization is July 1,2078. Falls Water will provide notice to the
Commission after the proposed reorganization is completed.
Modified Procedure
20. NW Natural believes a hearing is not necessary to consider the issues presented in
this Application and respectfully requests that it be processed by modified procedure, using
approved gas reserves transaction.
APPLICATIoN FoR APPROVAL OF ACQUISITION - 5
written submissions rather than a hearing, under the Commission's Rules of Procedure 201
through 210. NW Natural respectfully requests a schedule that enables a decision by May l,
2018.
Applicants respectfully request that the Commission enter an order:
l. Authorizing this matter to be processed by modified procedure with a schedule
that enables a final decision by May 1,2018.
2. Approving the Transaction, finding that it is consistent with the public interest,
that the cost and rates for supplying service will not be increased by reason of the Transaction,
and that the Applicant has the bona fide intent and financial ability to operate and maintain Falls
Water's property in the public service.
3. Approving the subsequent change of upstream ownership (two levels up) of Falls
Water Company, associated with the formation of the NW Natural holding company, to the
extent the Commission deems such an approval necessary.
4. Granting such other relief as the Commission deems just and reasonable.
IDATED: February 21, 2018.
GIVENS PURSLEY LLP
Michael C. Creamer
Preston N. Carter
Givens Pursley LLP
Attorneys for NW Natural
APPLICATIoN FoR APPROVAL OF ACQUISITION - 6
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