13. Assignment of the Proceeding
John A. Bohn is the assigned Commissioner for A.07-10-012 and Timothy Kenney is the assigned ALJ.
1. Alco requests authority under Pub Util. Code § 816 et seq., and 851 to issue $6 million of secured long-term debt, $2 million of preferred stock, and $0.33 million of common equity for the purposes set forth in A.07-10-012. These purposes are listed in Table 1 of today's Decision.
2. Alco has a reasonable need to issue $8 million of debt and equity for the purposes set forth in A.07-10-012.
3. The money, property, and/or labor to be procured by Alco with the proceeds of the debt and equity authorized by today's Decision are reasonably required for the purposes specified in today's Decision, and such purposes are not reasonably chargeable to operating expenses or income.
4. DRA and Alco both project that Alco's cost of capital in 2009 will be less than its authorized rate of return.
5. The $8 million of debt and equity authorized by today's Decision is equal to 140% of Alco's revenues in 2007 and 84% of Alco's rate base in 2007.
6. GO 24-B requires utilities to submit a monthly report to the Commission that contains specified information about their debt and equity.
7. The Commission routinely authorizes utilities to report on a quarterly basis the information required by GO 24-B in order to reduce the utilities' administrative and compliance costs. There is no need at this time to require Alco to report monthly the information required by GO 24-B.
8. Today's Decision does not authorize any new construction or changes in use of existing assets and facilities.
9. The timing and extent of future construction of water utility plant and facilities that will be financed with the debt and equity authorized by today's Decision is uncertain.
10. Today's Decision does not address the following matters: (i) the reasonableness of any expenditures made by Alco with the proceeds of the debt and equity authorized by today's Decision; (ii) the ratemaking treatment or rate recovery of the costs associated with Alco's debt and equity; and (iii) the reasonableness of the issuance costs, interest rates, dividend payments, and other terms and conditions of the debt and equity issued by Alco. These matters may be addressed in other proceedings, as appropriate, including in the GRC ordered by today's Decision. Like other utilities, Alco is at risk for imprudently incurred costs and capital expenditures.
1. A.07-10-012 is subject to Commission approval under § 816 et seq., and § 851. The Commission has broad authority to take such actions with respect to A.07-10-012 as the Commission deems necessary to protect and promote the public interest.
2. It is in the public interest to grant Alco prospective authority under § 816 et seq., to issue up to $5.67 million of long-term debt, $2.0 million of preferred stock, and $0.33 million of common equity. The authorized debt and equity should be used only for purposes identified in the following Order and subject to the conditions set forth in the following Order.
3. It is in the public interest to grant Alco prospective authority under § 851 to issue long-term debt secured by assets that are used and useful in providing public utility service. If a default occurs and title to any of Alco assets is transferred pursuant to secured debt, the assets transferred should remain in public utility service unless and until the Commission authorizes otherwise.
4. Given the magnitude of the debt and equity authorized by today's Decision relative to Alco's revenues and rate base, it is in the public interest to conduct an in-depth review of Alco's operations in order to maintain the confidence of Alco's customers and the general public in Alco's rates and service.
5. Alco should be required to file a formal GRC application by June 1, 2009, with a 2010 test year. Alco should attach to the GRC application a report on its use of the proceeds from the debt and equity authorized by today's Decision. The report should address the matters identified in the body of today's Decision.
6. If Alco is delayed in the issuance of the debt authorized by today's Decision due to turmoil in the financial markets such that Alco cannot provide in its GRC application the information required by the previous Conclusion of Law (COL), then Alco should be allowed to request, pursuant to Rule 16.6, an extension of up to 6 months to file a formal GRC application with a 2010 test year. Any such request should explain why Alco cannot file a GRC application in accordance with the previous COL Any further extension of time should be sought through a petition to modify today's Decision.
7. DRA should audit Alco's use of the proceeds from the debt and equity authorized by today's Decision to verify that such uses comply with today's Decision. The scope of the audit should encompass the matters identified in the body of today's Decision.
8. The debt and equity authorized by today's Decision is exempt from the Commission's Competitive Bidding Rule set forth in Resolution F-616 because the principal amount does not exceed $20 million.
9. Alco should maintain records pursuant to § 824 and GO 24-B that (i) identify the specific debt and equity issued pursuant to today's Decision, and (ii) demonstrate that the proceeds from such debt and equity have been used only for the purposes authorized by today's Decision.
10. Alco should be authorized to report quarterly the information required by GO 24-B regarding debt and equity issued pursuant to today's Decision, except that Alco should report this information monthly if directed to do so by the staff of the Commission's Water Division or successor organization. These reports should show that the proceeds from any debt and equity issued by Alco pursuant to today's Decision have only been used for the purposes authorized by today's Decision.
11. Alco is required by § 1904(b) and § 1904.1 to pay a fee of $9,000 for the debt and equity authorized by today's Decision. The authority granted by today's Decision should not become effective until Alco has paid the fee.
12. Alco should not use the proceeds from the debt and equity authorized by today's Decision to fund capital projects until Alco has obtained (i) any required Commission approvals for the projects, and (ii) any required environmental review under CEQA.
13. There is insufficient information at this time to conduct a meaningful CEQA review of future construction activities that may be financed by the debt and equity authorized by today's Decision.
14. The following Order should be effective immediately so that the authority granted therein may become effective as soon possible.
IT IS ORDERED that:
1. Alisal Water Corporation d/b/a Alco Water Service (Alco) is granted authority under California Public Utilities Code Section 816 et seq., to issue $5.67 million of long-term debt, $2.0 million of preferred stock, and $0.33 million of common equity. The authority granted by this Order is subject to the following conditions:
a. The debt and equity authorized by this Order may only be used for the purposes listed in Table 1 in the body of today's Decision. Alco shall not use the debt and equity authorized by this Order to finance plant and equipment needed to serve customers in the service territory that is the subject of Investigation 07-06-020 and Resolution W-4630.
b. Alco may use the debt and equity authorized by this Order to repay treasury funds and short-term debt only to the extent the treasury funds and short-term debt were used to finance the acquisition of utility plant and equipment.
c. Alco may allocate the proceeds from the debt and equity authorized by this Order among the purposes authorized by this Order as Alco deems necessary.
d. Alco shall not issue debt or equity to finance an Automatic Meter Reading System (AMR) or AMR meters until after Alco has received Commission authorization to install an AMR system.
e. Alco's authorized use of proceeds includes $1,118,260 to repay capital leases executed in 2005 and 2006 for water plant. The total amount of debt and equity that Alco is authorized to issue by this Order shall be reduced by an amount equal to the difference between $1,118,260 and the actual lease balances that are paid off.
f. Alco shall not issue common equity to the extent that doing so results in a transfer of control of Alco.
g. The annual dividend rate on the preferred stock shall not exceed 8.5%. Preferred-stock dividends shall be paid quarterly and shall be non-cumulative. Unpaid dividends during a quarterly period shall be canceled and not carried over into a future quarter.
h. Preferred stock shall not have voting rights in shareholder meetings or any participation rights in revenues or earnings.
i. The preferred stock shall be a permanent part of Alco's capital structure. The owner(s) of the preferred stock shall not have the right to sell the stock back to Alco, and Alco may not redeem the preferred stock without prior Commission authorization. Any redemption shall be at the original cost of the preferred stock.
j. Preferred stock dividends shall be paid only when cash flow from operations as defined by Generally Accepted Accounting Principles exceeds the sum of (1) capital lease payments, plus (2) the dividends on the preferred stock, plus (3) debt principal payments, plus (4) interest payments to the extent interest is not subtracted from cash flow from operations, plus (5) 10% of the sum of the previous four items.
k. The capital, financial, and operating needs of the utility shall have priority over the payment of preferred-stock dividends and the redemption of preferred stock. Alco shall not pay preferred-stock dividends or buy back preferred stock if doing so jeopardizes Alco's ability to pay debt principal and interest, fund utility operations, or provide public utility services.
2. Pursuant to Pub. Util. Code § 851, the long-term debt authorized by this Order may be secured by Alco's assets that are used and useful in the provision of public utility service. If a default occurs and title, control, or ownership of any Alco property, franchise, permit, or right that is necessary or useful in the performance of Alco duties to the public is transferred pursuant to the terms of the secured debt, the thing transferred shall continue to be used to provide public utility service unless and until the Commission authorizes otherwise.
3. Alco shall reduce the ratio of its long-term debt to equity to 5-to-1 by the later of December 31, 2009, or 180 days after Alco issues any of the debt authorized by this Order. Alco shall then reduce its debt-to-equity ratio to 4-to-1 by the end of 2010, and 3-to-1 by December 31, 2011. To achieve these targets, Alco may issue more preferred stock and common equity than authorized by this Order, provided there is a corresponding reduction to the amount of long-term debt issued pursuant to this Order, so that the total amount of debt and equity issued pursuant to this Order does not exceed $8.0 million.
4. Beginning in 2012, Alco shall not exceed a debt-to-equity ratio of 3-to-1 without Commission authorization.
5. If Alco needs to issue more equity than authorized by this Order to achieve the debt-to-equity ratios required by the two previous Ordering Paragraphs, Alco may file an application to request authority for the additional equity.
6. Alco shall maintain records to (i) identify the specific debt and equity issued pursuant to this Order, and (ii) demonstrate that the proceeds from such debt and equity have been used only for the purposes authorized by this Order.
7. Alco shall report on a quarterly basis the information required by General Order 24-B for the debt and equity issued pursuant to this Order, except that Alco shall report monthly if directed to do so by the staff of the Commission's Water Division or successor organization. The quarterly reports shall be submitted no later than 25 days after the close of a calendar quarter. Alco's reports shall also demonstrate that the proceeds from any debt and equity issued pursuant to this Order have been used only for the purposes authorized by this Order.
8. Alco shall pay the fee of $9,000 required by Pub. Util. Code § 1904(b) and § 1904.1 to the Commission's Fiscal Office no later than 20 days from the effective date of this Order. The decision number of this Order shall be written on the face of the check. The authority to issue debt and equity granted by this Order shall not become effective until the fee has been paid.
9. Alco shall file a formal general rate case (GRC) application by June 1, 2009, with a 2010 test year. Alco shall attach to its GRC application a report that (i) shows how much debt and equity it has issued pursuant to this Order; (ii) identifies the specific bank account(s) that Alco has established pursuant to General Order 24-B, Section C, to receive and disburse these funds; (iii) lists the actual expenditures and uses of these funds; and (iv) describes how these expenditures and uses comply with this Order.
10. If Alco is delayed in the issuance of the debt authorized by this Order due to turmoil in the financial markets such that Alco cannot provide in its GRC application the information required by the previous Ordering Paragraph (OP), then Alco may request, pursuant to Rule 16.6, an extension of up to 6 months to file a formal GRC application with a 2010 test year. Any such request shall explain why Alco cannot file a GRC application in accordance with the directions in the previous OP. Any further extension of time should be sought through a petition to modify today's Decision.
11. The Commission's Division of Ratepayer Advocates (DRA) shall conduct an audit to verify that the proceeds of the debt and equity authorized by this Order have been used only for the purposes authorized by this Order. The scope of the audit shall include verification that the treasury funds which are reimbursed, and the short-term debt that is paid off, with the proceeds from the debt and equity authorized by this Order were used to acquire utility plant and equipment in 2005, 2006, and 2007. DRA shall submit an audit report during the course of the GRC at a time to be determined by the scoping memo.
12. Alco shall comply with all applicable environmental laws and regulations when planning and implementing any future construction, upgrades to plant and equipment, or other activities that are financed, in whole or in part, with proceeds from the debt and equity authorized by this Order
13. Application (A.) 07-10-012 is granted to the extent set forth in the previous Ordering Paragraphs.
14. A.07-10-012 is closed.
This order is effective today.
Dated November 6, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
************ SERVICE LIST ***********
Last Updated on 28-MAR-2008 by: AJH
A0710012 LIST
************** PARTIES ************** |
Halina Marcinkowski Daniel R. Paige Jasjit S. Sekhon |
