ORA's Initial Opposition and Later Support of Merger

ORA initially concluded the application should be denied because the total purchase price is 857% greater than the amount currently in the adopted rate base of $422,119, and this disparity would cause Peerless' revenue requirement to increase by $329,000 per year. (ORA Report, Exh. 9.) ORA agreed that certain savings in expenses of operation would occur as a result of the merger. However, the largest savings is the use of Peerless' water rights to pump additional water instead of purchasing water for the Metropolitan District. There are also savings in operation expenses, since SCWC can provide service to Peerless without incurring additional expense. Offsetting these savings would be the loss of revenue for leasing unused water rights, the amortization expense for the purchase price and increased property taxes.

In sum, ORA initially conceded the expense reductions ($565,600) are greater than the increases ($307,100), resulting in annual cost savings initially projected by SCWC ($258,500). However, when the higher revenue requirement for increased rate base is added, the result is a net increase in costs, which would result in higher rates ($119,163) and would represent a 15.4% increase to Peerless customers. (Ibid., pp. 6-7.)

ORA would disallow goodwill ($190,607) and plant funded by contributions ($6,969) as not properly borne by Peerless' ratepayers. ORA's Report concluded that Peerless customers would pay lower rates if it remained independent, assuming that it made all the improvements proposed for the next five years and experienced normal inflation.

After the PPH, SCWC revised its proposal as summarized earlier. (See above, "Modified Terms per Settlement Agreement.") In addition, ORA became convinced that Peerless could not finance the necessary improvements, and that therefore, it was better to merge Peerless with SCWC to obtain financing. Based upon this new information, SCWC's recalculation of savings, and SCWC's acceptance of ORA's recommended disallowances, ORA changed its position to recommend approval of the merger.