20131029Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03 14
BAR NO. 6864
Street Address for Express Mail:
472W, WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF THE APPLICATION OF
HAPPY VALLEY WATER SYSTEM,INC.
REQUESTING APPROVAL TO TRANSFER ITS
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY.
:f i
BEFORE THE IDAHO PUBLTC UTILITIES COMMISSION
CASE NO. HVW-W-13-01
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission (Commission), by
and through its attorney of record, Neil Price, Deputy Attorney General, and in response to the
Notice of Application and Notice of Modified Procedure issued in Order No. 32903 on
October 8, 2013 in Case No. HVW-W-13-01, submits the following comments.
BACKGROUND
On June 11,2013, the Commission received correspondence from Happy Valley Water
System Inc. ("Happy Valley" or "Company") seeking Commission approval to transfer the
Company's existing Certificate of Public Convenience and Necessity (CPCN) No. 390 from its
previous owners, Brett and Nora McCarty, to its current owners, Ken and Cathy Rickel. The
Company name will not change.
STAFF COMMENTS ocroBER 29,2013
The Company's Application provided the following documentation:
1) Purchase/Sales Agreement
2) Warranty Deed from Brett McCarty and Nora McCarty to Happy Valley Water
System, Inc.
3) Signed Resignation of Previous Corporate Officers (Brett McCarty and Nora
McCarty)
4) Form of Organization with Articles of Incorporation of Happy V'alley Water System
5) Property description and map
6) Happy Valley Water System's Unaudited Financial Statements (Five years, 2008-
2012)
7) IPUC Annual Reports
8) Change of Registered Agent with Idaho Secretary of State
9) Buyer's Qualifications
10) Drinking Water Distribution Operator Licenses (Ken Rickel)
11) Ken and Cathy Rickel's Statement of Net Worth (Unaudited)
12) Business Plan
13) Copy of Customer Notice concerning the sale of Happy Valley Water System
STAFF ANALYSIS
Sale Agreement and Warranty Deed
Staff confirms that Brett C. and Nora L. McCarty sold all their outstanding and issued
stock in Happy Valley to Kenneth and Cathy Rickel on October 1,2010. A filing for approval
from the Idaho Public Utilities Commission should have been made prior to the completion of
the sale of all stock and the transfer of property. Under the terms of the sale agreement, the
system was sold for $8,000. Staff also confirms that Brett McCarty and Nora McCarty executed
a warranty deed on September 21,2010 transferring real estate of Happy Valley.
Company Management
The Applicant's president and general manager is Kenneth Rickel and the secretary is
Cathy Rickel. The Applicant says that Ken and Cathy Rickel are owners of two other successful
water companies (Rickel Water Company and Bitterroot Water Company). Further, the
Application states that the Rickels are very familiar with the Commission's regulatory authority,
STAFF COMMENTS 2 OCTOBER 29,2013
Utility Customer Relations Rules and Customer Information Rules, and are prepared to abide by
them. Their involvement in the water utility industry has given them the business expertise,
financial ability and water system experience to operate and maintain Happy Valley. Mr. Rickel
is very familiar with the water system testing requirements of the Idaho Department of
Environmental Quality. Staff verified with the Idaho Bureau of Occupational Licenses that Mr.
Rickel is licensed as a Drinking Water Distribution Operator for Very Small System in the State
of Idaho. Staff believes that the Applicant has the capability to operate and maintain the public
water system in a manner that will provide safe and adequate service to its customers.
Ken and Cathy Rickel have been managing and operating the Company since the sale of
the Company was finalized on October l, 2010.
IDEQ Compliance
Staff contacted the Idaho Department of Environmental Quality (IDEQ) to ensure that
Happy Valley has complied with IDEQ's regulations. IDEQ informed Staff that IDEQ
conducted a sanitary survey of Happy Valley's water facility on May 16,2013. The sanitary
survey is an onsite review of the water source, facilities, equipment, operation and maintenance.
It assures that a public system provides an adequate water supply source and is distributing safe
water. IDEQ's survey indicated that the Huppy Valley water system was well run and mostly in
compliance with Idaho Rules for Public Drinking Water Systems. IDEQ identified some system
deficiencies and also offered some recommendations in operating the water system. Staff
contacted the Company concerning the status of complying with these deficiencies. Staff was
apprised by the Company that it is working with IDEQ to correct the various deficiencies as
noted during the sanitary survey.
Water Right Review
Staff also reviewed the Applicant's water right to ensure that the previous owner
transferred the water right to Happy Valley thereby protecting the system's water right assets and
water supply source. Staff was apprised by the Idaho Department of Water Resources (IDWR)
that an application for water permit was filed by the previous owners of Happy Valley on
September 10, 2010, shortly before the final sales agreement was finalized. IDWR record
indicates that Happy Valley was purchased by Mr. Rickel and requested to file a change of
STAFF COMMENTS ocToBER 29,2013
address form on February 28,201l. To date, the Applicant is working with IDWR to complete
the process of obtaining a water right (i.e., proof of beneficial use).
Certificate of Public Convenience and Necessity
The Company's Application requests that CPCN No. 364 be transferred to the new
owners, Ken and Kathy Rickel. During the review of this case, Staff found that the Certificate of
Public Convenience and Necessity No. 390 is currently held by the Happy Valley Water System,
Inc., not CPCN No. 364 as indicated by the Company in its Application.r The Commission
issued CPCN No. 390 to Happy Valley Water System, Inc. on August 2,2001, Case No.
HVW-W-01-01, Order No. 28816. Because all the outstanding shares of Happy Valley Water
System, Inc. were essentially purchased by Ken and Cathy Rickel, and the corporate identity did
not change, Staff believes it is not necessary to transfer the ownership of CPCN to Ken and
Cathy Rickel. This case is similar to previous cases of ownership transfer processed by the
Commission such as the transfer of ownership of Troy Hoffman Water Company (Case No.
TRH-W-09-01, Order No. 30992) and Algoma Water Company (Case No. AWS-W-07-01,
Order No. 30567).
Accounting Issues
Staff reviewed the annual reports, unaudited statement of net worth and the stock
purchase agreement. Plant in Service, Account No. 101, is shown at a cost of $14,634 on the
2010 balance sheet submitted. The supporting schedule for Plant in Service reflects $3,070 in
organizational costs. Staff s analysis of the balance sheet accounts show this $3,070 was
properly reported in2009 as Utility Plant Acquisition Adjustment, Account No. 114. This
$3,070 amount resulted from a previous owner paying more for the Plant in Service than its
regulatory Net Book Value. In 2010, the acquisition adjustment was reclassified to Plant in
Service, Account No. l0l. This $3,070 should not be included in regulatory Plant in Service and
the 2010 reclassification should be reversed so it is properly reflected as an acquisition
adjustment. Account No. 114, Utility Plant Acquisition Adjustment is not included in rate base
and does not earn a return. Account No. 114 may be amortized but any reported depreciation or
I During the review process of this case and additional communication with the Company, Staff found that the
reference to CPCN No. 364 in the Company's Application was based on a letter sent by Commission Staff dated
April 1,201l, which erroneously stated that CPCN No. 364 needs to be transferred.
STAFF COMMENTS ocToBER 29,2013
amortization expense of the $3,070 should be excluded from regulatory expenses used to
determine rates. Based on the Annual Reports, Net Book Value at December 31,2010 for
Happy Valley should be $3,343 ($l1,565 plant less $8,221accumulated depreciation).
The Application and documentation characterizes the transaction transferring the
operation and ownership of the Company to Kenneth and Cathy Rickel as a stock purchase. The
issuance value of the outstanding stock is $10,000. Although the well lot was transferred as part
of the transaction, it is not listed in the Plant in Service. Further, the documentation shows no
cost for it. As a result of the stock sale and transfer, there is no increase in Rate Base, no
purchase premium recorded, and no change in rates.
Customer Relations
Following the transfer of ownership to the Rickels in 2010, the Company sent customers
a flyer in their November bills announcing the change of ownership. The Company sent
customers a notice regarding its Application to transfer the CPCN on June 7,2013. A copy of
the June 2013 notice was filed with the Company's Application. As of October 27,2013,the
Commission has not received any comments from customers.
STAF'F RECOMMENDATION
Staff believes that this sale will not adversely impact the water system's operation or its
customers. Staff recommends the following:
l. Staff recommends that the Commission approve the sale of Happy Valley Water
System Inc.'s Common Stock to Ken and Cathy Rickel.
2. Staff recommends that the Commission prohibit Happy Valley from including any
costs of this transaction on the regulatory books of the corporation.
3. Staff recommends that the Commission direct the Company to attain full compliance
with all the system deficiencies and recommendations identified during the May 16,
2013, IDEQ sanitary survey.
4. Staff recommends that the Commission direct the Applicant to file new tariff sheets,
signed by an authorized representative, reflecting that Applicant now owns the
system.
STAFF COMMENTS ocToBER 29,2013
Respecttully submitted this )"&, of October 2013.
Technical Staff: Gerry Galinato
John Nobbs
Chris Hecht
i:umisc/commenh/hvwwl3. lnpgdgjncwh comments
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Neil Price
Deputy Attorney General
STAFF COMMENTS ocToBER 29,2013
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 29TH DAY oF oCToBER 2013,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. HVW-W-I3.OI, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
KEN & CATHY zuCKEL
HAPPY VALLEY WATER SYSTEM
PO BOX 2306
HAYDEN LAKE ID 83835
EMAIL: [e-mail]
CERTIFICATE OF SERVICE