11. Assignment of Proceeding

Catherine J.K. Sandoval is the assigned Commissioner and Melissa K. Semcer is the assigned Administrative Law Judge in this proceeding.

2. KMPUD is a non-profit public utility district formed in 1985 pursuant to Cal. Pub. Util. Code § 15701, et seq. and is governed by a five-member board of directors elected by the Kirkwood community. KMPUD's service territory is coterminous with MU's service territory. KMPUD currently provides most, if not all, other utility services to the Kirkwood Community. KMPUD has been exploring the option of providing electric and propane generation services, including the possibility of acquiring MU, since 2006.

3. On January 1, 2010 a fire completely destroyed MU's powerhouse. Since that time, MU has been providing service on an emergency basis using several portable diesel generators, which are less efficient than the original powerhouse.

4. Through the execution of an APA, MU wishes to sell and transfer control of its electric generation and distribution assets, along with its propane distribution assets, to KMPUD. Upon close of the sale and transfer of MU's electric assets, MU wishes to be relieved of its obligation to provide public utility electric service to customers within its service territory.

5. Under the APA, KMPUD is obligated to construct a replacement powerhouse as well as examine ways to connect the Kirkwood area to the regional power grid through the construction of a new power line (the Out Valley Project).

6. The acquisition price for MU's electric and propane assets is $3 million. The Joint Applicants estimate that the total cost to pay for the acquisition of MU's assets and to complete the replacement powerhouse is at least $15 million.

7. The Kirkwood community supports the transfer and sale of MU's electric generation and distribution assets and propane distribution assets to KMPUD.

8. In 1999, KMPUD installed and began to operate three, 360 kW generation units to meet its electric needs. Operation of these generation units represents the extent of KMPUD's experience with owning and operating electric generation resources at this time.

9. KMPUD has applied for and received authority from the Alpine County LAFCO and the Alpine County Counsel to provide electric and gas service.

10. In 2006, KMPUD presented the results of a study analyzing the feasibility of KMPUD providing electric generation and propane services. The study concluded that acquisition and operation of MU's electric and propane assets was the best option for lowering overhead costs, further improving energy efficiency, enhancing local control and maximizing transparency. The study also concluded that acquisition of MU's assets was a precursor to evaluating the long-run potential for regional grid interconnection.

11. MU's historical reliance on diesel generation means that its generation costs depend on and fluctuate with the price of diesel fuel. MU's retail electric rates have averaged around $0.470/kWh since 2008.

12. Construction of the replacement powerhouse will require a significant capital investment to be recovered from a small customer base and will result in a rate increase going forward, regardless of whether MU or KMPUD is the service provider.

13. MU's geographic location combined with its isolation from the transmission grid and limited generation options have historically made it difficult to provide low cost, reliable service or to meet the State's environmental goals.

14. The powerhouse fire has necessitated a significant near-term capital investment to construct a replacement powerhouse, and MU cannot cost-effectively raise the necessary funds in the debt markets.

15. KMPUD has already secured $5.5 million in financing and anticipates having the additional necessary financing by July 2011. KMPUD is likely to obtain the remaining financing.

16. Operational savings of more than $300,000 per year can be realized by KMPUD through overhead efficiencies, property tax savings, and reduced regulatory costs.

17. Installation of new, more efficient generators will offset most of the cost increases associated with construction of the replacement powerhouse.

18. While ratepayers may experience a small increase in rates due to construction of the replacement powerhouse, KMPUD's access to lost-cost financing combined with other anticipated savings will mitigate rate increases.

19. Construction of the Out Valley Project could result in rate increases of approximately $0.070/kWh.

20. Although not specific to the operation of electric generation assets, KMPUD has extensive experience in providing many other utility services.

21. The quality of electric service received by ratepayers should be the same, if not better, than the quality of service under MU.

22. KMPUD intends to interview MU employees for the purposes of retaining local expertise in the system.

23. KMPUD will have competent, professional management in place to operate electric generation resources upon close of the transaction.

24. Current MU employees will not be harmed as a result of the transaction.

25. The transfer and sale of MU's electric generation and distribution assets to KMPUD will not be adverse to the public interest and will, in fact, be in the public interest.

26. The sale of MU's assets will result in losses for MU's shareholders.

27. There will be no remaining MU ratepayers to absorb gains or losses on the sale of depreciable and/or non-depreciable assets.

28. The sale and transfer of MU's assets will not result in operational change and no new facilities are proposed.

29. The proposed sale of assets and transfer of control will have no significant effect on the environment because there will be no change in operation of the assets.

30. KMPUD will be the lead agency for CEQA review of the replacement powerhouse and the Out Valley Project.

31. This application is uncontested.

1. The sale and transfer of MU's propane assets under the APA should be exempt from Commission review.

2. The Commission does not have jurisdiction to regulate municipal electric utilities.

3. The proposed transfer and sale of assets should be reviewed under Cal. Pub. Util. Code § 851, which typically governs sales of assets, as well as § 854, which generally governs transfers of control.

4. No party has introduced facts to describe any alternative for the Commission to consider under § 854(d).

5. The Redding II Ratepayer Harm Test as confirmed in D.06-05-041, as modified by D.06-12-043, should apply to the sale of MU's electric distribution system. The Redding II test applies under a narrow set of circumstances where:

a) a public utility sells a distribution system to a governmental entity;

b) the distribution system consists of part or all of the utility operating system located within a geographically defined area;

c) the components of the system are or have been included in the rate base of the utility; and

d) the sale of the system is concurrent with the utility being relieved of, and the governmental entity assuming, the public utility obligations to the customers within the area served by the system.

If all of these circumstances are present, then the gains or losses from the sale of the system should be allocated to utility shareholders, provided that ratepayers have not contributed capital to the distribution system and remaining ratepayers are not adversely affected by the transfer of the system.

6. Any additional gains and/or losses, if they exist, from the sale of MU's electric assets should be allocated to MU's shareholders.

7. The authority requested by MU to sell its electric generation and distribution assets should be granted.

8. Upon the close of the transfer and sale of assets to KMPUD, MU will no longer be under Commission jurisdiction.

9. MU should be relieved of its obligation to provide public utility electric service to customers within its service territory. MU should be relieved of all other obligations pursuant to jurisdiction of this Commission.

10. Based on the record before this Commission, the proposed project should be exempt from multiple CEQA guidelines, including CEQA Guideline § 15269(b) as an emergency repair of publicly or privately owned service facilities, §15302(c) as a replacement or reconstruction of existing utility systems and/or facilities, and § 15061(b)(3) as having no significant impact upon the environment.

11. This order should be effective immediately.

ORDER

IT IS ORDERED that:

1. The joint application of Mountain Utilities, LLC (U906E) and Kirkwood Meadows Public Utility District for the sale and transfer of control of Mountain Utilities, LLCs' electric assets pursuant to Public Utilities Code Section 851 and Section 854(a) is granted in all respects. Effective upon the final closing date of the transfer and sale of assets, Mountain Utilities, LLC will be relieved of its obligation to provide public utility electric service to customers within its service territory and will be relieved of any and all obligations under Commission jurisdiction.

2. Mountain Utilities, LLC must notify the Director of the Commission's Energy Division in writing of the transfer and sale of assets of Mountain Utilities, LLC to Kirkwood Meadows Public Utility District within 30 days of the effective date and serve the letter on the official service list for this proceeding.

3. If Kirkwood Meadows Public Utility District is unable to obtain the necessary financing in 2011 and the close of the transaction is delayed beyond the end of 2011, Mountain Utilities, LLC must submit a letter to the Director of the Commission's Energy Division and serve it on the official service list in this proceeding within 15 days of knowledge of the delay detailing the reason for the delay and the anticipated remedy (along with an updated estimated completion schedule).

4. If the Asset Purchase Agreement is terminated for any reason, Mountain Utilities, LLC must come before this Commission within 30 days of the termination date with a plan to finance and construct a replacement powerhouse.

5. Mountain Utilities, LLC must allocate all gains (or in this case losses) from the sale of its electric distribution system to Mountain Utilities, LLC shareholders.

6. Mountain Utilities, LLC must allocate gains (or losses) from the sale of all other depreciable and non-depreciable assets to shareholders as there will be no remaining Mountain Utility, LLC ratepayers.

7. Application 11-02-020 is exempt from review under the California Environmental Quality Act.

8. Application 11-02-020 is closed.

This order is effective today.

Dated June 23, 2011, at San Francisco, California.

D1106032 ATTACHMENT A

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