4. Summary of Authority Sought
The Joint Applicants propose that KMPUD purchase all the electric generation and distribution assets and the propane distribution assets of MU and assume operation of these assets to provide retail electric and propane service to the Kirkwood community. Upon close of the sale and transfer of MU's electric and propane assets, MU requests to be relieved of its obligation to provide public utility electric service to customers within its service territory.
Under the APA, KMPUD is obligated to construct a replacement powerhouse; however, construction of the powerhouse by KMPUD does not require Commission approval.12 Furthermore, KMPUD is the lead agency for the replacement powerhouse for purposes of CEQA as discussed below.13 The APA also requires KMPUD to examine ways to connect the Kirkwood area to the regional power grid through the construction of a new power line (the Out Valley Project). The Out Valley Project is not part of the assets being transferred in the APA and does not require Commission approval. The Out Valley Project is subject to CEQA and the National Environmental Policy Act, and a joint Environmental Impact Statement/Environmental Impact Report is currently being prepared for the project.14 If the Out Valley Project is eventually built and the Kirkwood area is connected to the transmission grid, the replacement powerhouse will be removed from primary service and used only for standby service.
The acquisition purchase price for MU's electric and propane assets is $3 million.15 The Joint Applicants estimate the total cost to pay for the acquisition of MU's assets and to complete construction of the replacement powerhouse is at least $15 million.16 KMPUD anticipates financing the asset acquisition, replacement powerhouse construction, and other needed infrastructure improvements in phases.17
4.1. Reason for the Sale and Transfer
MU offers several reasons for pursuing this transaction. First, MU's geographic location combined with its isolation from the transmission grid and limited generation options have historically made it difficult for MU to provide low cost, reliable service or to meet the State's environmental goals. MU's historical reliance on diesel-fuel generation means that the price of electricity is heavily dependent on the price of diesel fuel.18 The powerhouse fire has necessitated a significant near-term capital investment to construct a replacement powerhouse, and MU does not believe it can cost-effectively raise the necessary funds in the debt markets. Furthermore, for the past four years, MU has experienced net losses before income taxes for its electric service.19 In short, MU believes that KMPUD is in a much stronger position to make the capital investments necessary to improve service in both the near and long-term.
KMPUD states that the acquisition of MU's electric generation and distribution facilities will result in significant benefits to customers and is the will of the Kirkwood community. In January 2006, residents of the Kirkwood community approached KMPUD to request that KMPUD evaluate the feasibility and cost of providing retail electric service.20 KMPUD then developed and distributed to the Kirkwood community a questionnaire regarding electric and propane services. Many respondents requested that KMPUD provide electric service.21 In July 2006, KMPUD presented a study to the community addressing the feasibility of KMPUD providing electric generation and propane services. The study contemplated three options: (1) KMPUD ramps up its own generation units to provide all non-Kirkwood Mountain Resort-related energy services to the Kirkwood community; (2) KMPUD acquires MU and provides all energy services to the Kirkwood Community and Kirkwood Mountain Resort from an upgraded powerhouse; and (3) KMPUD serves all load from a new interconnection to the regional electric grid. The study concluded that Option #2 provides a "foundation for further lowering overhead costs, further improving energy efficiency, enhancing local control and maximizing transparency."22 The study also found that Option # 2 is a precursor to evaluating the long-run potential for interconnection in Option #3.
The Joint Applicants assert that the proposed acquisition will benefit customers and is in the public interest. KMPUD states that it can provide and improve service more cost effectively than MU, it can increase reliability and improve power quality, and it is better positioned to respond to requests from the community.23 KMPUD states that because it is a non-profit public utility district, it has the ability to finance the construction of the replacement powerhouse and any other needed infrastructure improvements at a significantly lower cost to customers than MU.24 Furthermore, KMPUD estimates that operational savings of more than $300,000 per year can be realized through overhead efficiencies, property tax savings, and reduced regulatory costs.25 The Joint Applicants assert that construction of the new powerhouse will lower air emissions in the Kirkwood Meadows Valley. For the preceding reasons, the Joint Applicants request that the Commission approve the application and relieve MU of its obligation to provide public utility electric service to customers within its service territory.
12 KMPUD is a municipally operated and governed utility and is therefore not subject to Commission jurisdiction. (See Cal. Pub. Util. Code § 218.)
13 KMPUD as the lead agency has reviewed and issued a CEQA Notice of Exemption for the replacement powerhouse. (Application at 6.)
14 Id.
15 The cost associated with the electric assets is $966,666 (Application at 13) and consists of only the electric distribution system. (Tr. at 15.)
16 Application at 6.
17 The first phase will consist of a bond anticipation note to cover the costs associated with the initial construction of the replacement powerhouse. In the next phase, KMPUD will issue revenue bonds or bond anticipation notes to cover the final construction for the replacement powerhouse and the asset acquisition. (Application at 6-7). Financing of the full cost of the project is anticipated to be complete by July 2011. (Application, Exhibit 2.)
18 Since 2008, electric rates for KMPUD's customers have spiked as high as $0.970/kWh and have averaged $0.470/kWh over this period, which is significantly higher than the rates paid by customers of other small investor-owned utilities (IOUs) in California. (Application at 7.) MU's tariff allows for a pass-through of diesel fuel charges above $0.75 a gallon. Fuel prices below $0.75 a gallon are incorporated in MU's base rate and are around $0.08/kWh. (Tr. at 20.)
19 Application at 8.
20 Application, Exhibit 6.
21 While the initial response rate in favor of KMPUD providing electric service was less than a majority, community support for the project is strong, as evidenced by the April 8, 2011 letter of support with 456 signatories. Furthermore, KMPUD held public meetings to seek customer input on the proposed transaction. (Tr. at 37.)
22 Application, Exhibit 8 at 3.
23 Application at 11.
24 The Joint Applicants state that, as a result of the construction of the replacement powerhouse, ratepayers will see an increase in rates going forward, regardless of whether MU or KMPUD is the service provider. However, KMPUD is in a better position to make the necessary infrastructure investments at a lower cost to ratepayers than MU. (Application at 12.)
25 Application at 9.
