II. Description of the New Securities
A. New Equity Securities
GSWC seeks authority to issue, sell, and deliver common equity shares from time to time to its parent, ASWC, the proceeds of which will be infused to GSWC in exchange for common shares from GSWC. GSWC also seeks authority to issue and sell preferred shares to the public, by private placements with investors, or to its parent. GSWC has not yet determined the amount or timing of sale of preferred shares,2 but intends to establish the terms and features of any preferred shares prior to an offering based on its funding requirements and market conditions at the time of issuance.
B. New Debt Securities
GSWC also seeks authority to issue the New Debt Securities so that it may expeditiously secure indebtedness at the lowest possible cost and most favorable terms consistent with its capital requirements. GSWC states that, because of the fluctuating conditions in the financial market, it cannot ascertain at this time which of its New Debt Securities (or combination thereof) would provide the most favorable terms. GSWC intends to determine the precise characteristics and methods associated with the issuance of each type of New Debt Security at the time of sale based on market conditions. GSWC's proposed issue of bonds, debentures, medium-term notes, and tax-exempt debt are described in detail on pages 6 through 15 of the Application.
C. Use of Proceeds from New Securities
GSWC proposes to use the proceeds from the sale of the New Securities, after payment of expenses incident to their issue and sale, to discharge all or a portion of GSWC's then-existing short-term debt obligations, and to the extent that proceeds remain, for other purposes permitted by Section 817, including for the acquisition of property or the construction, completion, extension or improvement of GSWC's facilities, refunding of existing long-term debt obligations, and for other projected cash requirements from 2007 to 2011. The proposed uses are reflected in the Statement of Cash Flow for 2005 to 2011 in Attachment D of the Application.
D. Discussion
We conclude that GSWC has provided a reasonable justification to grant its request for authority to issue, sell, and deliver the New Securities up to $200 million in principal amount. The additional funds will be useful in helping to finance needed plant facilities to serve customers and other purposes authorized by Section 817. We will authorize GSWC's proposed issue of Debt and Equity Securities in the aggregate principal amount not exceeding $200,000,000. Within 30 days from a request, GSWC shall provide the Commission's Water Division any or all of the following:
1. The price, interest rate and other terms pertaining to its issuance of Debt Securities.
2. Copies of the purchase or underwriting agreements and the final prospectus pertaining to the common shares offering.
3. Copies of the indentures and supplemental indentures setting forth, among other things, the aggregate principal amount, interest rate, conversion factors, redemption and sinking fund requirements and the maturity date of the series of the debentures.
4. Copies of the agreements setting forth, among other things, the aggregate principal amount, interest rate, final maturity date and other items of any series of notes.
2 GSWC's Articles of Incorporation do not currently permit issuance of preferred shares. Prior to issuing preferred shares, if any, GSWC agrees to amend its Articles of Incorporation accordingly, and to submit the amended Articles to the Commission.
