29013.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PROPOSED SALE OF THE ALGOMA WATER SYSTEM. )
)
)
) CASE NO. GNR-W-02-1

ORDER NO. 29013

On January 30, 2002, the Idaho Public Utilities Commission (Commission) received a Letter filing requesting cancellation of Certificate of Convenience and Necessity No. 392 for the Algoma water system and issuance of a new Certificate to the purchasers of the water system, the Neu family, Christopher and Kate Neu and Larry and Colleen Neu. As originally proposed, the Algoma water system would be operated as a proprietorship under the name of N.S.I. It appears that NSI, Inc. is an Idaho Falls company registered with the Secretary of State. A different name may have to be selected by the Neus. The Application sets forth the general terms of purchase and includes the qualifications of the Neu family for ownership and management of the community water system. Reference Idaho Code § 61-526; IDAPA 31.01.01.112. The Commission is this Order approves the proposed sale of the Algoma water system and issues Certificate of Public Convenience and Necessity No. 396 to the Neu family.
The Algoma water system serves the Algoma Addition Subdivision. The subdivision is located in Bonner County a few miles south of Sandpoint and is more particularly described as the Algoma Addition; South ½ of the SouthEast ¼ of Section 16, Township 56 North, Range 2 West, Boise-Meridian, Bonner County, Idaho. The water system has approximately 31 customers. Reference Idaho Code §§ 61-124, 61-129.
The current owner of the Algoma water system, E.S.I., Inc., operates and provides water service under Certificate of Public Convenience and Necessity No. 392. Reference Certificate File Minute Entry dated October 30, 2001.
Under the terms of the negotiated exchange, the system is being sold to the Neu family for $113,000. As represented, the buyers are familiar with the Commission’s regulatory authority and rules and are prepared to abide by existing tariffs and directives. They are aware of the Commission’s web site and have made themselves familiar with copies of the Commission’s Utility Customer Relations Rules (IDAPA 31.21.01) and Customer Information Rules (IDAPA 31.21.02).
As reflected in the filing, the Neu family has lived in Bonner County for over 100 years. They have been involved in all levels of the community from county commissioner to nurse, to veterinary medicine, to road building and construction, to logging operations and sales. They are also, it is represented, no strangers to the utility business, currently owning and operating two sewer systems and having just sold a third to a homeowners association. In addition to having a broad business background, the Neus represent that they are familiar with real estate development and construction and own their own equipment. This, they state, will enhance their ability to maintain the water system. It is also represented that Chris Neu has enrolled in a DEQ Water System Operator Certification course. The Neus understand that accounting for the water system must be in accordance with the Commission’s Uniform System of Accounts and must be maintained on a stand-alone basis separate and apart from any other business activities of the buyers. It is the stated intent of the Neus to retain the services of a CPA to do the billing for all of their systems and to complete and meet the Commission’s accounting requirements. It is also the Neu’s intent to transition from flat-rate to metered water service during the 2002 calendar year.
The proposed transfer of ownership is contingent upon and subject to Commission approval.
Commission Notices of Application and Modified Procedure in Case No. GNR-W-02-1 were issued on February 28, 2002. The deadline for filing written comments was March 20, 2002. All Algoma customers were mailed copies of the Commission’s Notice. Comments were filed by Commission Staff and one customer.
The Commission Staff states that it had discussions with both the seller and buyers of the Algoma water system. It is Staff’s opinion that the buyers have the financial ability to respond to emergency capital requirements and have the technical expertise to operate and maintain the community water system. Staff notes that the seller, Joe Lapham, has indicated he will continue to work with the buyers in the operation and maintenance of the system during the transition period until such time as the buyer completes the State’s water system operator certification process.
Regarding valuation, Staff notes that the sale price of $113,000 includes both the water system serving the Algoma Addition Subdivision as well as a community sewer system within the subdivision. The application does not provide for any allocation of the sale price between the two systems. Staff has discussed the valuation with the seller, Joe Lapham, and the buyer, Larry Neu, and has agreed that a reasonable allocation between the two systems is a 60% – 40% split between the water system and the sewer system, respectively.
Staff notes that during the year 2002, $7,441.25 was expended on new pressure tanks, electrical controls, water mains and improvements on the well house and reservoir. Prior to this expense, all capital investment was considered contributed, i.e., there was zero equity and rate base. The buyers are assuming the accounts receivable from customers on the books at the time of purchase in the amount of $2,000 for the water system and $3,000 for the sewer system. There are no accounts payable due at the time of the purchase.
Staff has determined that the valuation of the system should be calculated as follows:

Purchase Price $113,000.00
Less Accounts Receivable (water) (2,000.00)
Less Accounts Receivable (sewer) (3,000.00)
Net Purchase Price $108,000.00
Less 40% allocable to sewer (43,200.00)
Water system Purchase Price $ 64,800.00
Less water system improvements (7,441.25)
Acquisition Adjustment (Premium) $ 57,358.75

The opening entries on the books of the new company, Staff represents, should be as follows:

Debits Credits
Utility Plant Acquisition Adjustment $57,358.75
Accounts Receivable-Water 2,000.00
Structures & Improvements 764.83
Wells and Springs 594.09
Pumping Equipment 2,332.08
Reservoirs & Standpipes 2,068.77
Distribution Mains 1,681.48
Owners Paid-In Equity $66,800.00
Total Balances $66,800.00 $66,800.00

Staff notes that the Neus’ business plan indicates that it is their intent to install meters on the customer’s service lines. Staff is concerned with the economics of retrofitting an existing system. Staff proposes that the new owners not initiate a program to install meters without first requesting Commission approval of the project and providing construction cost estimates and meter reading cost estimates.
Staff notes that as of March 19, 2002, only one customer had filed comments regarding the proposed sale. That customer’s primary concern was the proposed installation of meters on the system and the related cost. The customer was not in favor of meters and indicated that his home was for sale.
Staff notes that the name of this water system was initially Goldan Water Company. The name was retained until 2001 when the name was changed to E.S.I., Inc. dba Algoma Water. The buyers in this case propose to operate the system as a proprietorship under the name N.S.I. N.S.I. is not a name registered with the Idaho Secretary of State. Pursuant to Idaho Code 53-504, all assumed business names must be registered with the Secretary of State. Staff notes also that the name NSI Inc., an Idaho Falls corporation, is already registered with the Secretary of State’s office. Staff recommends that the buyers adopt the name Algoma Water Company and file a Certificate of Assumed Business Name with the Idaho Secretary of State.
Staff believes the Application should be approved. Staff recommends that Certificate No. 392 issued to E.S.I., Inc. be cancelled and that a new certificate be issued to Larry Neu, Colleen Neu, Christopher Neu and Kate Neu doing business as Algoma Water Company.
Staff recommends that the new company be directed to adopt and implement the Commission’s Utility Customer Relations Rules, the Commission’s Customer Information Rules, and an accounting system consistent with the information required by the Commission’s annual report for small water companies. Accounting records for the water company, Staff contends, must be separate and distinct from any other business activity. Staff recommends that the new company make initial accounting entries on its books consistent with Staff’s valuation recommendations.
The Company, Staff contends, should also be directed to file a sample bill statement, its rules summary, and an example of its 7-day and 24-hour disconnect notice to show compliance with IPUC Utility Customer Relations Rules.
Staff further recommends that the Company be required to file an application for approval by the Commission before initiating any meter installation retrofit of the water system.

COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case No. GNR-W-02-1, including Staff’s comments and recommendations and the comments of the Company’s customer. It is the Commission’s understanding that the Neus agree with Staff’s recommendations.
Based on the established record and our review of Idaho Code Title 61, we find it reasonable to approve the sale of the Algoma Water System to the Neu family, Christopher and Kate Neu and Larry and Colleen Neu. We find it reasonable to cancel Certificate of Convenience and Necessity No. 392 issued to E.S.I., Inc. and issue a new Certificate No. 396 to the Neu family, Christopher and Kate Neu and Larry and Colleen Neu dba the Algoma Water Company, or any company name of their choosing. In so doing, we require that the Neus operate the public water utility as a separate business entity, distinct from all other business activities.
As a regulated water utility, the Neus are required to adopt the Commission’s Utility Customer Relations Rules, Customer Information Rules, and an accounting system consistent with the information required by the Commission’s annual report for small water companies. A separate accounting system is to be established for water system activities and detailed receipts of time records are to be maintained. The Neus are further directed to make initial accounting entries on its books consistent with Staff’s valuation recommendations and provide Staff with a sample bill statement, its rules summary and an example of the 7-day and 24-hour disconnect notice.
Previously approved rates and charges for the Algoma water system continue to be effective. The Neus are directed to file new tariff sheets reflecting authorized rates, including non-recurring charges and general service provisions.
The Commission recognizes the Neus intent to retrofit the Algoma water system and install meters. It was this proposal that precipitated a filing of comments by the Company’s customer. The experience of this Commission is that metering of water usage reduces consumption and promotes conservation. We are also aware, however, that the costs of retrofitting an entire system can be prohibitively expensive. We therefore find it reasonable to require the Company to file an Application for approval by the Commission before initiating any meter installation retrofit of the water system, including estimated costs of construction and meter reading.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction and authority over the Neu family, Christopher and Kate Neu and Larry and Colleen Neu, dba Algoma Water Company, a water utility company and the issues raised in this Application, pursuant to Title 61 of the Idaho Code and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission does hereby cancel Certificate of Public Convenience and Necessity No. 392 previously issued to E.S.I., Inc. for the Algoma water system in Bonner County, Idaho.
IT IS FURTHER ORDERED and the Commission does hereby issue Certificate of Public Convenience and Necessity No. 396 to the Neu family, Christopher and Kate Neu and Larry and Colleen Neu, dba Algoma Water Company, or a name of their choosing, for service to the Algoma water system in Bonner County, Idaho, a few miles south of Sandpoint and more particularly described as the Algoma Addition; South Half of the SouthEast Quarter of Section 16, Township 56 North, Range 2 West, Boise-Meridian, Bonner County, Idaho.
IT IS FURTHER ORDERED and the Commission does hereby authorize the continuance of the rates and charges for water service previously established and approved for the Algoma water system. The Neus are required to file new tariff sheets, signed by an authorized representative, reflecting the name of the new owners.
IT IS FURTHER ORDERED and the Neus are required to adopt and implement the Commission’s Utility Customer Relations Rules (IDAPA 31.21.01), Customer Information Rules (IDAPA 31.21.02), and Small Water Policies (IDAPA 31.36.01), including an accounting system consistent with the information required by the Commission’s annual report for small water companies. The Company is directed to keep accounting records for the water company separate and distinct from any other business activity.
IT IS FURTHER ORDERED and the Neus are required to inform their customers of the Commission approved rates and policies.

IT IS FURTHER ORDERED and the Neus are required to make written Petition or Application to the Commission prior to any change in ownership of the Algoma water system.
IT IS FURTHER ORDERED and the Neus are required to obtain Commission approval before initiating any meter installation retrofit of the Algoma water system.
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 with regard to any matter decided in 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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of May 2002.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:GNRW0201_sw

ORDER NO. 29013 1

Office of the Secretary
Service Date
May 7, 2002