20201113Final_Order_No_34833.pdf

ORDER NO. 34833 1

Office of the Secretary
Service Date
November 13, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

On July 31, 2020, Falls Water Co., Inc. (“Falls Water”) applied for Commission
approval of Falls Water’s acquisition of the water system assets of Morning View Water Company
(“Morning View”). Falls Water also asked for approval to transfer Morning View’s certificate of
public convenience and necessity (“CPCN”) to Falls Water.
On September 9, 2020, the Commission issued a Notice of Application and Modified
Procedure, setting an October 15, 2020 comment deadline and an October 29, 2020 reply comment
deadline. The Notice also provided notice of a customer workshop and customer hearing. Order
No. 34774. On September 30, 2020, Commission Staff held a public, telephonic workshop to
provide information regarding Falls Water’s Application. On October 7, 2020, the Commission
held a telephonic customer hearing. No customers attended the hearing. Staff filed written
comments, and Falls Water filed reply comments. No customer comments were filed.
Having reviewed the record, we approve the acquisition of Morning View by Falls
Water and approve the transfer of the purchased water company’s CPCN.
THE APPLICATION
Falls Water is a Commission-regulated water corporation holding CPCN No. 236. Falls
Water has operated a water system near Idaho Falls since 1958 and serves about 5,500 customers.
Falls Water is a direct subsidiary of NW Natural Water of Idaho, LLC, which through its parent
companies is owned by Northwest Natural Holdings. Morning View is a Commission-regulated
water corporation serving about 118 residential customers under CPCN No. 314. Morning View’s
service territory is in and around Rigby and about 9 miles from Falls Water’s office location.
On July 2, 2020, Falls Water and Morning View signed an asset purchase agreement
governing the transaction (“Agreement”). Under the Agreement, Falls Water will acquire Morning
View’s water system assets. The Agreement is conditioned upon Commission approval of all
requests in the Application.
IN THE MATTER OF FALLS WATER CO.,
INC.’S APPLICATION FOR APPROVAL OF
ACQUISITION OF THE ASSETS OF
MORNING VIEW WATER COMPANY
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CASE NO. FLS-W-20-04

ORDER NO. 34833
ORDER NO. 34833 2

In its Application, Falls Water stated that its employees will operate the Morning View
water system. Falls Water asserted it “is not requesting any change to rates, rate structure, or other
charges in this Application,” and that “[a]ny future changes will be based on prudently incurred
capital expenditures and other accepted ratemaking principles.” Application at 4. However, Falls
Water requested the Commission “treat Falls Water’s future…prudently incurred investments in
Morning View’s Water Business as 100% equity, rather than debt, until Morning View’s Water
Business reaches a 50% debt / 50% equity capital structure.” Id. at 6. Falls Water also requested
CPCN No. 314 be transferred to Falls Water.
THE COMMENTS
1. Staff Comments
Staff recommended the Commission approve the sale of Morning View and the transfer
of its CPCN to Falls Water. Staff noted Idaho law does not specifically address the acquisition of
water companies, but that it would rely on the statute governing sales of electric utilities—Idaho
Code § 61-328—to analyze the transaction. Idaho Code § 61-328 requires the Commission to find
a) the transaction is consistent with the public interest, b) the cost of the rates for supplying service
will not be increased by reason of such transaction, and c) the applicant for such acquisition or
transfer has the bona fide intent and financial ability to operate and maintain the system in the
public interest.
Staff believed the sale of Morning View is consistent with the public interest. NW
Natural Water Company, LLC is Falls Water’s parent company. See Notice of Corporate Structure
Reorganization, Case No. FLS-W-20-04. Staff noted Northwest Natural Water Company, LLC’s
continued acquisition of water companies in Idaho may provide benefits through operational
efficiencies and economies of scale.
Staff noted that Falls Water has asserted it will maintain Morning View’s existing rates
and charges post-acquisition. Regarding Falls Water’s request that future prudently incurred
investments in Morning View’s water system be treated as 100% equity, Staff reviewed the
proposed regulatory treatment and determined it would be a reasonable regulatory treatment for
customers and the utility. Staff agreed with Falls Water that Morning View could be considered a
“distressed small water utility,” as the capital structure approved in Morning View’s last rate case
was 99.76% debt and 0.24% equity. After comparing Falls Water’s proposed solution to other
ORDER NO. 34833 3

possible regulatory treatments, “Staff found Falls Water’s proposal minimizes future rate impacts
to customers while adhering to Idaho Code § 61-328(3)(b)….” Staff Comments at 4.
Finally, Staff believed Falls Water has the bona fide intent and financial ability to
operate and maintain Morning View’s water system in the public interest. Staff noted that Falls
Water’s employees, including Falls Water’s licensed water system operator, will run the Morning
View Water system if the Application is approved, and Falls Water has committed “to provide
safe and reliable service and to meet the infrastructure needs of Morning View customers.” Id.
Staff also observed Falls Water, through its parent companies, has access to capital that will likely
lower financing costs for system repairs and upgrades—ultimately benefiting customers. Staff
noted that Falls Water has already identified three potential capital improvement projects: 1) one
of Morning View’s wells may need to be upgraded, 2) a system-wide leak check may need to be
conducted, and 3) additional water rights may need to be acquired or a water conservation plan
implemented.
While investigating Falls Water’s Application, Staff discovered that the property
description in Morning View’s CPCN No. 314 is incorrect. “As currently written, CPCN No. 314
describes a location approximately six miles west of the territory being served by Morning View.”
Staff Comments at 5. Staff believed CPCN No. 314’s property description should be amended to:
N ½, NE ¼, Section 30, T04N, R039E BM.
If Falls Water’s Application is approved and Falls Water wishes to create a single,
combined tariff for Falls Water, Staff recommended Falls Water work with Staff to create separate
rate schedules for Morning View. Likewise, Staff recommended the Commission direct Falls
Water to work with Staff to make any necessary revisions to its company documents within three
months of issuance of a final order approving the Application.
Staff noted Falls Water provided direct notice to each Morning View customer of the
proposed acquisition and its Application. If the Application is approved, Staff recommends Falls
Water provide direct notice of the acquisition to Morning View’s customers, and that the notice
include Falls Water’s contact information.
2. Falls Water Reply Comments
Falls Water filed timely reply comments, noting that it “agrees with, and intends to
abide by, the recommendations provided by Staff in its comments.” Falls Water Reply Comments
at 1.
ORDER NO. 34833 4

COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter and the issues in this case under Title
61 of Idaho Code. Specifically, the Commission regulates “public utilities,” including “water
corporations” that serve the public or some portion thereof for compensation. See Idaho Code §§
61-125, -129, and -501. The Commission has an established practice of evaluating the transfer of
water systems under the criteria found in Idaho Code § 61-328. Falls Water and Morning View
are privately held water companies and public utilities as defined in these laws. Having reviewed
the record, we find the acquisition fair, just, reasonable, and in the public interest. Consequently,
we approve the Application.
Falls Water will provide organizational support, access to capital, and economies of
scale for the Morning View water system. It is in the public interest for an experienced owner and
operator of public utility infrastructure to acquire this system. Falls Water has demonstrated the
financial ability and bona fide intent to operate the system in the public service. Northwest Natural
Holdings, of which Falls Water is a wholly-owned subsidiary, has a $100 million revolving line
of credit, a net income of $61.7 million, cash flow from operations of $185.3 million, an A2 credit
rating from Moody’s, and an AA- credit rating from Standard and Poor’s. See Staff Comments at
4; Palfreyman Direct, Exhibit 2. The bona fide intent to operate the system in the public interest is
demonstrated by Falls Water’s detailed understanding of the Morning View system’s needs, Falls
Water’s commendable operation of its existing system, and the Company’s strategic plan to
purchase and operate multiple small water companies in the region. Finally, customer rates will
not increase because of the transaction. Any further rate increases will be the result of prudent
expenditures to improve the system.
We recognize that Morning View’s existing capital structure is primarily debt. We find
it reasonable to treat all prudently incurred capital expenditures for the Morning View water
system as 100% equity for ratemaking purposes until the water system reaches a more balanced
capital structure. We commend Falls Water for proposing this solution, as it is the rate structure
that will likely have the least impact on ratepayers.
We direct Falls Water to notify Morning View’s customers directly of the acquisition.
This notice may be a separate mailing, a message on bills, or a bill insert. We encourage the
Company to work with Staff to make any necessary revisions to its customer documents within
three months of the service date of this Order. If Falls Water chooses to create a single combined
ORDER NO. 34833 5

tariff for water systems owned and operated by Falls Water, we encourage Falls Water to work
with Staff to file a conforming combined tariff.
O R D E R
IT IS HEREBY ORDERED that Falls Water’s Application is approved.
IT IS FURTHER ORDERED that CPCN No. 314 be updated with the correct property
description, and that the CPCN No. 314 be transferred to Falls Water.
IT IS FURTHER ORDERED that all prudently incurred capital expenditures for the
Morning View water system shall be treated as 100% equity for ratemaking purposes until the
water system reaches a more reasonable capital structure.
IT IS FURTHER ORDERED that Falls Water notify Morning View customers of the
sale of the Morning View water system—either through a separate mailing, a message on bills, or
as a bill insert.
THIS IS A FINAL ORDER. 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.
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ORDER NO. 34833 6

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 13th
day of November 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Jan Noriyuki
Commission Secretary

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