6. Staff Analysis of Application

We turn now to our Water Division's analysis of the relief requested in the application.

6.1. Revolving Line of Credit

Del Oro seeks to establish a $100,000 revolving line of credit with Imperial Bank. The maturity of this line of credit is one year at the rate of prime plus 0.50% (currently 10.00%), with monthly repayment of interest and the principal balance due at maturity. To provide flexibility, Del Oro requests that this line of credit be negotiated with another lending institution in the event that the Imperial Bank facility is not consummated. Since the combined terms of the original and the refunding debt securities may exceed 12 months, Del Oro requests Commission approval to continuously refund previously issued short-term debt securities without the need periodically to request authorization from the Commission.

Del Oro would like to have the latitude to use this revolving line of credit for an extended time period for short-term working capital purposes and to assist with cash management.

Pub. Util. Code § 823(b) states, "A public utility may issue notes, for proper purposes and not in violation of any provision of law, payable at periods of not more than 12 months after the date of issuance of the notes without the consent of the commission."

Pub. Util. Code § 823(d) states, "No note payable at a period of not more than 12 months after the date of issuance of such note shall, in whole or in part, be refunded by any issue of stocks or stock certificates or other evidence of interest or ownership, or of bonds, notes of any term or character, or any other evidence of indebtedness, without the consent of the commission." In other words, the continuous refunding of previously issued short-term debt securities, which causes the combined terms of the original and the refunding debt securities to exceed 12 months requires authorization.

In previous decisions, the Commission authorized refunding of previously issued short-term debt subject to certain limitations. (See, e.g., D.94-08-010.) For proper cause, and by order of the Commission, Pub. Util. Code § 818 allows the use of proceeds for purposes reasonably required in the operation of a utility, including operating capital.

Pursuant to Pub. Util. Code § 818 and § 823(d), we will grant Del Oro's requested revolving line of credit and allow it to pay, repay, prepay, renew, refund, extend, borrow or reborrow under the revolving line of credit so that the combined terms of such indebtedness may exceed 12 months, without the need for further authorization from the Commission, for a period of five years from the effective date of this decision for the purposes contemplated in the application.

6.2 Refinancing of Long-Term Debt

Del Oro's properties are currently encumbered by $3,319,132 with secured creditors and unsecured debt. Exhibit B to the application lists Del Oro's long-term debts incurred between 1992 to the present with a total outstanding balance as of September 30, 2000 of $3,319,132.36. Del Oro seeks to refinance $2,405,205 of its outstanding debts through a term loan from Imperial Bank with equal monthly payments of principal plus accrued interest to be amortized over 180 months. Any principal balance at maturity will be due and payable. The maturity will be five years from the date of the note with a fixed rate option equal to the 5-year U.S. Treasury Rate + 4.00% (currently 9.59%). Pursuant to the application, the refinancing loan may be extended for another term of 10 to 15 years. Imperial Bank will assume any liens on the refinanced items. To provide flexibility and to take advantage of market opportunities, Del Oro requests the ability to negotiate the $2,405,205 refinancing with another lending institution in the event that the Imperial Bank financing facility is not concluded.

The debts to be refinanced are set forth below. The Water Division analysis notes that it is unclear whether five of these transactions, most of which have been substantially paid down, were approved through advice letter or other filings. The five transactions have been marked with an asterisk. The Water Division states that it has brought this discrepancy to the attention of the company, with a warning, but the division does not recommend sanctions because the lapses appear to have been inadvertent and isolated, and the amounts involved are relatively small. In any event, since refinancing is taking place with a different credit provider, we will process the refinancing request in a manner analogous to a filing for new financing authority.

District/Payee	Loan Date	Purpose	Original Amount	Interest Rate	Term	Balance 09/30/00
Paradise Pines District
Butte Community Bank*	10/93	Well #4	$194,350	12.0%	60 mo.	$ 82,159
Butte Community Bank	10/92	Tank 3	510,150	12.0%	60 mo.	453,032
(D.93-03-014 granted Del Oro authority to borrow $540,000 from Butte Community Bank for the construction of inter-tie and related facilities to connect with the Paradise Irrigation District. The required financing fee was $1,080.)
Butte Community Bank	4/00	98 Ford Ranger	12,049	10.0%	48 mo.	11,208
Wells Fargo Bank*	3/87	Service Center	176,000	11.0%	180 mo.	24,380
Imperial Bank1	9/00	Donner Lake	200,000	10.5%	6 mo.	200,000
Bank of the West*	8/96	Generator	60,616	13.0%	60 mo.	17,089
The CIT Group*	4/97	Generators	62,313	15.0%	60 mo.	24,514
Sub-total						$ 812,382

District/Payee	Loan Date	Purpose	Original Amount	Interest Rate	Term	Balance 09/30/00
Ferndale District
Mod Valley Bank	9/96	Ferndale	$560,000	10.8%	120 mo.	$515,912
(D.96-09-086 granted Francis Land and Water Company authority to transfer the water system and related facilities to Del Oro and Del Oro to borrow $1,008,000 in connection with the sale. No financing fee was required or paid in connection with this proceeding.)
Butte Community Bank	12/98	95 Ford F150	8,935	9.5%	48 mo.	5,599
Butte Community Bank	11/98	95 Ford 4x4	13,000	9.5%	48 mo.	7,876
Sub-total						$529,387
Donner Lake Company
Butte Community Bank*	7/96	Treatment Plant	$200,000	9.0%	60 mo.	$190,082

Costs for watershed survey and preliminary engineering costs ($50,000); main replacements ($100,000) were presented in Resolution (Res.) No. W-3942 9/27/95 but no financing approval was mentioned.)

District/Payee	Loan Date	Purpose	Original Amount	Interest Rate	Term	Balance 09/30/00
Butte Community Bank2	9/00	Line of Credit	150,000	12.0%	12 mo.	149,555
Michael Knott, M.D.3	6/98	Plant Site	247,500	12.0%	48 mo.	245,767
Sub-total						$585,404
Magalia District
Butte Community Bank	11/98	Magalia	$390,000	11.5%	60 mo.	$376,049
(D.93-06-078 6/23/93 permitted Del Oro to acquire the Magalia County Water District and to assume its long-term indebtedness estimated at $5,000 net of cash reserve. This decision also discussed proposed intertie and system modifications estimated at $218,000 exclusive of indirect, contingencies, or engineering costs. No financing fee was required or paid in connection with this proceeding.)

Johnson Park District
William & Carol Fry	3/98	Johnson Park	$30,819	8.0%	120 mo.	25,449
William & Carol Fry	3/98	Johnson Park	30,000	7.0%	180 mo	27,019
(D.98-03-017 3/12/98 granted William E. Fry and Carol Fry authority to transfer Johnson Park Water Works to Del Oro and authorized Del Oro to issue a promissory note not to exceed $50,000 for the purchase of the system and not to exceed $35,000 for the purchase of a non-utility parcel of land. $170 financing fee was required but the payment cannot be verified.)
Sub-total						$52,468
Country Estates
Butte Community Bank	7/00	Country Estates	$50,000	10.5%	60 mo.	$49,515
(D.00-05-027 5/4/00 granted Country Estates Water Co., Inc. authority to sell and transfer its water system and property to Del Oro. No financing fee was required or paid in connection with this proceeding.)
TOTAL						$2,405,205

6.3. Paradise Pines District Construction

Del Oro seeks a $1,000,000 financing for its Paradise Pines District to complete a new well before the year 2001 peak demand period, and to construct a storage tank of 1 to 1.5 million gallons and a pump house facility at Well No. 3 to abate noise. This borrowing may be entered into with Imperial Bank or negotiated with another lending institution.

The estimated construction costs for the Paradise Pines project are as follows:

Description	Total
Land	$ 45,000
Well #6	338,400
Test Wells	97,200
Geological Reports	19,400
Tank	400,000
Well #3	50,000
Contingencies	50,000
TOTAL	$1,000,000

6.3.1 Well No. 6

Since 1994 Paradise Pines has been importing Stirling Bluff surplus water during summer peak periods. In addition, it has purchased water from its neighboring agency, Paradise Irrigation District, since 1996. The peak demand shortfall which Paradise Pines must deal with annually averages 1,000 gallons per minute.

In order to find a permanent solution to alleviate the import requirement, two exploratory test holes, at a cost of $88,000, were drilled in locations recommended by a consultant groundwater geologist. Subsequently, those exploratory holes were analyzed and only one of the two holes merited development. That site was recently acquired by Del Oro for $45,000.

Below are the principal findings and conclusions drawn by Del Oro's consultant⁴ with respect to the hydrogeologic conditions in the Del Oro service area and the feasibility of constructing new wells:

1. The Tuscan Formation represents the only water-bearing formation in the area that is potentially capable of yielding groundwater in usable quantities and of acceptable quality for municipal-supply purposes. Groundwater in this formation is generally recharged by infiltration of direct rainfall and by deep percolation of runoff in the nearby creek channels. Thus, groundwater resources in the Tuscan Formation are highly dependent upon rainfall.

2. Hydrographs based on historic water level data from Del Oro's wells reveal that extended pumping duration will cause water levels to decline and that subsequent water level recovery, following pump shutdown, is slow. This indicates that with extended pumping periods and short intervening recovery periods, water levels will have a tendency to gradually decline with time.

3. Because of the potential for water levels to decline with time, and due to extended pumping periods and short water-level recovery periods, pumping of new wells in the region should not be conducted for extended periods. This will permit water levels to recover as close as possible to pre-pumping static water levels.

4. Determination of aquifer parameters, based on data from the pumping tests conducted by Del Oro, reveals that the transmissivity for the Tuscan Formation in the service area are highly variable and may range from as low as 10,000 gallons per day per foot (gdp/ft) to locally as high as 30,000 gpd/ft to 70,000 gpd/ft; average values may be on the order of 20,000 gpd/ft. Permeability values are also considered to be low (values on the order of a few hundred gallons per day per square foot, or less). This implies that the recharge response of the aquifer systems to rainfall is not immediate; instead rainfall recharge from infiltration of direct rainfall and runoff may be slow.

5. Calculation of theoretical water level drawdown interference indicates that there could be a slight potential for drawdown interference between proposed new wells and existing wells. However, such calculations, which are based on analytical solutions for water level response to pumping in ideal aquifer conditions, represent a "worst case" scenario. Actual drawdown interference in other wells, due to a new or existing pumping well, will be much less than the theoretically calculated values and hence may become insignificant. It is determined that a spacing interval of at least 1000 ft between new wells and existing wells owned by Del Oro and by others is considered appropriate.

6. It is considered to be hydrogeologically feasible for Del Oro to construct additional wells within its service area. Locations for as many as four new municipal-supply wells have been recommended where thickness of the Tuscan Formation is likely to be sufficient and where adequate spacing between the new wells can be achieved.

7. If other wells are drilled and constructed, it may be possible to obtain groundwater by pumping on a year-round basis by using groundwater management strategies. Such strategies would include alternating pumping locations, pumping duration, and pumping rates so that the maximum pumping duration at each well is achieved while attempting to minimize the potential for long-term decline in water levels.

Del Oro states that the location of the well site is now in its final preparation, awaiting the arrival of the drilling rig.

On January 23, 1001, Del Oro entered into a contract agreement with Layne Christensen Company for the turn-key design and construction of two test holes and one water production well, hydrogeological services, discharge pipeline with required valves for operation from the well to the adjacent water storage tank, and a well pump including electrical controls for a total cost not to exceed $600,000 (including the exploratory holes). Phase I of the contract covers the test holes; Phase II covers the hydrogeological, design and project management services; Phase III is the production well drilling program; Phase IV covers the well head and site improvements; Phase V is for the pump and discharge piping; and Phase VI covers the installation of electrical drop wire and motor control center to operate the well pump.

Del Oro believes that in order to avoid any major water shortage this summer, it is necessary that construction begin immediately.

6.3.2 Storage Tank

Del Oro states that the new storage tank will cost about $400,000. Del Oro states that peak demand flows require additional capacity and system redundancy. The new tank will permit maintenance work to be accomplished on two other storage tanks serving the district.

6.3.3 Pumphouse for Well No. 3

The proposed pump house facility at Well No. 3 is intended to address customer complaints about noise emanating from one of Del Oro's pumping zones. The estimated cost is $50,000.