BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION In the Matter of the Application ) for Sale and Transfer of Assets, ) DOCKET UW-971107 from ) H2O Company, ) to ) Lewis County Utility Corporation ) ORDER GRANTING ) APPLICATION . . . . . . . . . . . . . . . . . ) On July 2, 1997, H2O Company, (a sole proprietorship) and Lewis County Utility Corporation, (Lewis County Utility) filed a joint application, in Docket UW-971107 for approval to transfer the assets of H2O Company to Lewis County Utility. Both H2O Company and Lewis County Utility are Washington utilities that own and operate water systems in Washington and are under regulation by the Washington Utilities and Transportation Commis- sion (Commission). H2O Company owns certain water systems in Pierce County known as Terry Lane Water System and Crescent Park Water System, serving approximately 290 residential customers. This transfer will combine the H2O Company water systems with Lewis County Utility, a larger water company still in the process of establishing itself in the utility business. Lewis County Utility claims this transfer will allow the water company to take advantage of economies of scope and scale. Also, there will be no immediate change in rates or services as a result of the proposed transfer. Lewis County Utility has agreed to adopt the entire tariff of H2O Company. Rates and charges will remain at the current H2O Company level until Lewis County Utility files a general rate case for all of its operations. The purchase price will be One Hundred Fifty-Six Thousand Dollars ($156,000) consisting of $150,000 payable to H2O Company at closing and the assumption of an outstanding loan of approximately $6,000 by the principle stockholders. Lewis County Utility will purchase H2O Company assets with 100% equity infusion by the principle stockholders. This sale and transfer of assets will be recorded at One Hundred Fifty-Six Thousand Dollars ($156,000) and adjusted to reflect a negative acquisition adjustment of approximately $104,000. The current H2O Company rate base is approximately $52,000 and is comprised of original construction costs, less accumulated depreciation and contributions in aid of construction. Docket UW-971107 Page 1 Commission staff has received a letter in which Lewis County Utility has agreed to this adjustment unless they can demonstrate commensurate benefit to the customers or changes occur in legislation, law, utility regulation policy, or court cases. Additionally, Lewis County Utility acknowledges that any Federal Income Tax consequences from this transaction will be the responsibility of the company stockholders and not company ratepayers. The book entries to record this transaction were provided by attachment to the filing. Staff has had discussions with Lewis County Utility and expressed concerns about the purchase price (3 times the rate base) of H2O Company assets and capital structure of the company as a whole. As of July 1, 1997, Lewis County Utility had debt in excess of assets. Current debt payments exceed available cash from operations, even after a recent rate increase. Lewis County Utility or the principle stockholders, have recently purchased water systems at purchase prices that are far more than current net rate bases. This transaction and the equity infusion, as outlined, should help the company’s overall capital structure. FINDINGS THE COMMISSION FINDS: 1. H2O Company, a Washington utility and sole proprietorship-, is a public service company subject to the jurisdiction of this Commission under the provisions of chapter 80.12 RCW. 2. Lewis County Utility Corporation, a Washington corpora-tion, is a public service company subject to the jurisdiction of this Commission under the provisions of chapter 80.12 RCW. 3. As to form, the application herein, meets the require-ments of chapter 80.12 RCW and the rules and regulations of the Commission adopted pursuant thereto. 4. The sale and transfer of the proposed assets by H2O Company to Lewis County Utility is reason-able and consistent with the public interest and should therefore be approved. O R D E R THE COMMISSION ORDERS: 1. After the effective date of this order and subject to the provisions hereof, H2O Company is hereby autho-rized to sell assets and Lewis County Utility, is hereby authorized to purchase Docket UW-971107 Page 1 and accept the assets of H2O Company under the terms and condi- tions of the proposed bill of sale filed as an exhibit in the application herein. 2. Within 30 days after the above-authorized sale and transfer of assets has been executed, a true copy of sale and transfer document actually executed and delivered along with accounting book entries shall be filed with the Commission, together with a report of the date of delivery. 3. This order shall in no way affect the authority of this Commission over rates, service, accounts, valuations, estimates, or determination of costs, or any matters whatsoever that may come before it, nor shall anything herein be construed as an acquies-cence in any estimate or determination of costs or any valuation of property claimed or asserted. 4. Companies acknowledge that any Federal Income Tax consequences from this transaction will be the respon-sibility of the company stockholders and not company ratepayers. 5. Lewis County Utility will purchase H2O Company assets with 100% equity infusion by the principle stockholders. This sale and transfer of assets will be recorded at One Hundred Fifty-Six Thousand Dollars ($156,000) and adjusted to reflect a negative acquisition adjustment of approximately $104,000. The current H2O Company rate base is approximately $52,000. 6. Lewis County Utility will adopt the entire tariff of H2O Company. Rates and charges will remain at the current H2O company level until Lewis County Utility files a general rate case for all of its operations and water systems. DATED at Olympia, Washington, and effective this day of November, 1997. WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION ANNE LEVINSON, Chair WILLIAM R. GILLIS, Commissioner