NOTICE AND PROTESTS .gov

?PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIAWATER DIVISIONRESOLUTION W-5233February 11, 2021R E S O L U T I O N(RES. W-5233), RESOLUTION GRANTING SONORA WATER COMPANY AUTHORITY TO ENTER INTO A SECURED NOTE WITH OAK VALLEY COMMUNITY BANK TO REFINANCE AN EXISTING LOAN FROM THE MOTHER LODE BANK FOR $67,157 THAT WAS USED TO REIMBURSE UTILITY OWNER IN 2007 FOR THE CONSTRUCTION OF A NEW WATER STORAGE TANK.By Advice Letter No. 76-W filed on August 3, 2020.SUMMARYPursuant to §§ 816 through 851 of the Public Utilities Code, by Advice Letter (AL) No. 76-W, filed August 3, 2020, Sonora Water Company (SWC) requests authority to enter into a secured note with Oak Valley Community Bank (OVCB) for $67,157 to refinance an existing loan and to encumber utility assets in connection with the loan. The existing loan being refinanced was procured from the Mother Lode Bank to reimburse the utility owner in 2007 for funds provided for the construction of a new water storage tank. SWC is now requesting loan authorization as a result of the 2019 financial audit by the Commission’s Utility Audits, Risk and Compliance Division (UARCD) which found that SWC had not requested the required approval to issue a secured debt in accordance with § 816 and § 851.This Resolution finds that there is proper cause as prescribed under § 817 to authorize SWC to execute a new debt instrument with the OVCB in order to provide SWC the means to rectify its omission for not requesting prior debt authorization and the encumbrance of utility assets from the Commission. This Resolution therefore grants SWC the financing authority requested in AL No. 76-W.BACKGROUNDSWC is a Class D water utility providing water service to 112 residential metered customers in the service area located approximately one mile east of Jamestown in Tuolumne County. SWC’s water distribution system is supplied by water (treated and requires no additional treatment) purchased from the Tuolumne Utility District (TUD). SWC’s distribution system consists of approximately 11,600 feet of two to six-inch mains.On July 17, 2020, UARCD issued the financial audit review of SWC’s 2019 financial statements. Among other findings, UARCD found that SWC had executed a long-term debt and encumbered utility assets as collateral with the OVCB without Commission authorization pursuant to § 818 and § 851. In June 2006, SWC’s 30-year old water storage tank collapsed and was replaced by a larger 101,000-gallon water tank costing $203,878 and funded by the utility owner. In August 2007, SWC procured from the Mother Lode Bank a $117,000 secured loan with a term of ten years and a $93,000 loan with a term of two years for a total of $210,000 to pay off the owner and the debt issuance cost of $6,122. In August 2012, SWC paid off the $93,000 Mother Lode Bank loan. In July 2017, the $117,000 loan from the Mother Lode Bank matured with a remaining balance of $67,157. SWC refinanced the outstanding balance of $67,157 with a loan from the OVCB.Consequently, on August 3, 2020, SWC filed AL No. 76-W to request approval of the OVCB secured debt to rectify its omission for not requesting prior debt authorization from the Commission. We note that SWC procured a chain of unauthorized debts between 2006 and 2017 but the OVCB loan is the only one that is currently in SWC’s books. All others have been paid for.By AL No. 45, filed October 10, 2006, SWC requested a rate base offset to recover in rates the costs associated with the construction of the new water storage tank. On January 11, 2007, by Resolution (Res.) W-4629 the Commission approved SWC’s rate base offset and corresponding rate increase for cost recovery of the construction costs for the new water storage tank. The debt financing authority being granted by this Resolution, therefore does not have any material impact on SWC’s rates, since the rate increase for the water storage tank facility was already authorized by Res. W-4629.Based on SWC’s amended Income Statement for the year ending December 31, 2019, the utility reported that it generated operating revenues of $247,482 and net income of $7,679. Purchased water in the amount of $156,818, accounted for 68.5% of the utility’s total operating expenses of $228,985. SWC’s amended Balance Sheet as of December 31, 2019, as reported, is summarized below:Table 1Balance Sheet as of December 31, 2019Assets AmountNet Utility Plant $159,392Net Non-utility Property Current and Accrued Assets ( 1,171) 20,778Total Assets $178,999Liabilities & Equity AmountCapital & Retained Earnings $111,293Long-term Debt 41,441Current & Accrued Liabilities 7,124Deferred Credits 19,141Total Liabilities & Equity$178,999SWC’s last general rate increase became effective September 27, 2017, pursuant to Resolution (Res.) W-5147. The Commission authorized an increase of $10,741, or 4.70%, and a rate of margin of 17.85%.NOTICE AND PROTESTSPursuant to General Order (G.O.) 96-B, Water Industry Rule 4.1, on August 3, 2020, SWC served its AL No. 76-W on its service list. Notice of AL No. 76-W was made by publication in the Commission’s Daily Calendar of August 7, 2020. No protests have been received.DISCUSSIONDescription of FinancingThe OVCB loan procured on July 6, 2017 in the amount of $67,157 is for 10 years, maturing on July 9, 2027 at an adjustable rate of 5.75%. The loan reprices every 5 years at the 5-year Treasury rate plus 3.75% with a floor of 5.75%. The loan is secured by a Trust Deed of SWC’s real estate properties. The OVCB loan was used to refinance the loan procured by SWC from the Mother Lode Bank that was used to reimburse the utility owner for funds advanced for the construction of a new water tank in 2006.Loan ApprovalSWC is in violation of the provisions of § 825 for its failure to obtain Commission authorization for debt issuance. Section 825 states in part:All stock and every stock certificate or other evidence of interest or ownership, and every bond, note, or other evidence of indebtedness, of a public utility, issued without an order of the commission authorizing the issue thereof then in effect or not conforming in its provisions to any of the provisions which it is required by the order of authorization to contain, is void.We are concerned when a utility executes debt without first obtaining Commission authorization as the Code requires, however, we recognize that by this filing, SWC wishes to rectify its omission and now secure Commission authorization. The Commission has in the past authorized the execution of a new debt instrument in lieu of the void and unauthorized debt, where it is in the public interest to do so.In Decision (D). 92-10-024, dated October 6, 1992, and D.94-09-025, dated September 1, 1994, the Commission denied Alco Water Service retroactive approval of certain unauthorized borrowings and required it to make arrangements for the issuance of new promissory notes to rectify several previously negotiated long-term loans and stock repurchases done without Commission approval.In D.87-08-017, dated August 12, 1987, the Commission directed Southern California Water Company to execute a new note, even though the utility had already executed a note without authority and expended the funds for a steel water reservoir, land rights and appurtenant equipment.Upon order of the Commission and for proper cause, § 817 allows the use of proceeds from the issuance of debt for purposes reasonably required for the improvement or maintenance of service of a utility.Section 851 requires Commission authorization before a utility may “sell, lease, assign, mortgage, or otherwise dispose of or encumber the whole or any part of its...plant, system, or other property necessary or useful in the performance of its duties to the public...”The Commission has no power to validate debt which, under the Pub. Util. Code is procured without Commission authorization. A debt for which the Commission’s authorization is necessary is void unless such authorization has been received. In this instance, SWC used the proceeds of the unauthorized debt for capital improvements necessary to correct system deficiencies in its water utility service operations in order to provide safe and reliable water service to its customers, which are allowable purposes for issuing debt under § 817.This debt or borrowing is for proper purposes and the money, property, or labor procured or paid for by the issue of the loan authorized by this Resolution is reasonably required for the purposes specified, which purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.Accordingly, we find it reasonable to authorize SWC to execute a new debt instrument with OVCB based on the loan outstanding balance.Furthermore, pursuant to § 851, we authorize the encumbrance of utility properties in conjunction with the OVCB loan. Authorizing SWC to encumber its properties, as security for the OVCB loan is not adverse to the public interest because the loan proceeds were used to address the utility’s water system deficiencies.Consistent with § 824, SWC will need to maintain records to (i) identify the specific long-term debt issued pursuant to this Resolution, and (ii) demonstrate that the proceeds from such debt have been used only for the purposes indicated herein.FeesWhenever the Commission authorizes a utility to issue debt, the Commission is required to charge and collect a fee in accordance with § 1904(b).The fee for this financing authority as required by § 1904(b) is $134.FINANCING RULED.12-06-015, dated June 7, 2012 (Financing Rule) replaced the Competitive Bidding Rule authorized in Res. F-616, dated October 1, 1986. The final competitive bidding rules (CBRs) adopted in D.12-06-015, exempts from the Financing Rule the following: a) bond issues of $42 million or less; b) tax exempt or government debt issues; c) debt issues, such as loans; d) debt issues made through an affiliate; and e) multi-state utilities operating in California, if the operating revenues from California operations is less than five percent of the entire utility’s total operating revenues.D.12-07-003, dated July 11, 2012 corrected errors in D.12-06-015 and adopted the following exemptions from the Competitive Bidding Rule, which includes but are not limited to: issuance of debt securities such as tax-exempt financing, foreign debt, government debt, privately place debt, or debt issued through affiliate, via means other than competitive bid. SWC’s debt issuance being authorized by this Resolution is exempted from the Financing Rule because it is a negotiated loan with a bank.EXEMPTION FROM CALIFORNIA ENVIRONMENTAL QUALITY ACT The California Environmental Quality Act (CEQA) applies to projects that require discretionary approval from a governmental agency, unless exempted by state or regulation. It is long established that the act of ratemaking by the Commission is exempt from CEQA review. As stated in California Public Resources Code, the “establishment, modification, structuring or approval of rates, tolls, fares, or other charges by public agencies” is exempt from CEQA. This Resolution is approving the debt instrument to refinance an existing debt for a project that has already been constructed and has received all of the necessary permitting approval from the Tuolumne County Development Department for the construction of this project. As indicated in this Resolution, the storage facility was constructed in 2006 and has been fully operational since then. The approval being granted by this Resolution is therefore not a project subject to CEQA review. SAFETY AND COMPLIANCEAs discussed above, the construction of the water storage tank was necessary to provide safe and reliable water service to customers. SWC is up to date in paying its user fees and files its annual reports regularly. There are no other outstanding Commission MENTSOn August 14, 2020, SWC informed the Water Division that it has no objection to the required execution and issuance of a replacement debt instrument to OVCB.There were no protests received from the parties on the service list of AL No. 76-W.Accordingly, pursuant to Section 311(g) (2), the otherwise applicable 30-day period for public review and comment is being waived.FINDINGS Sonora Water Company (SWC) is responsible for maintaining its quality of service and providing necessary improvements to its water system.On July 17, 2020, UARCD reported in its financial audit review of SWC’s 2019 financial statements that SWC has a long-term debt with the OVCB for $67,157, procured without Commission approval pursuant to § 818.On August 3, 2020, SWC filed AL No. 76 to request approval of the OVCB secured debt to comply with UARCD’s instruction that the utility correct its failure of not procuring prior Commission authorization for securing this debt.In June 2006, SWC’s water tank collapsed. SWC deemed it necessary to construct a larger 101,000-gallon water tank to replace the 30-year old water tank.SWC’s owner advanced the funds to pay for the new water tank without the approval of the Commission.In August 2007, SWC procured a secured loan from the Mother Lode Bank to reimburse the advance provided by the utility owner and for the debt issuance cost without the approval of the Commission.In July 2017, the $117,000 Mother Lode Bank loan matured and SWC refinanced the balance of $67,157 with a secured loan from the OVCB without the approval of the Commission.The execution and issuance of new debt instrument between SWC and OVCB is not adverse to the public interest.SWC used the proceeds of the unauthorized debt for capital improvements necessary to provide safe and reliable drinking water to its customers which are allowable purposes for issuing debt under § 817. The loan authorization herein does not have a material impact on the rate increase authorized by Res. W-4629. Authorizing SWC to encumber its properties, as security for the OVCB loan is not adverse to the public interest because the loan proceeds were originally used to address the utility’s water system deficiencies in order to provide safe and reliable water service to its customers.The proposed borrowing is for proper purposes and the money, property, or labor to be procured or paid for by the loan authorized by this Resolution is reasonably required for the purposes specified, which purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.Approval of this Resolution is not a project under CEQA because the project has been constructed and has received all the necessary permitting requirements from the Tuolumne County Development Department for the construction of the project.SWC’s debt issuance is exempt from the Financing Rule adopted in D.12-06-015.SWC shall pay the fee determined in accordance with Public Utilities Code §1904(b).Notice of the filing appeared on the Commission’s Daily Calendar on August 7, 2020, and SWC served AL No. 76-W to its service list on August 3, 2020.There is no known opposition, and there is no reason to delay granting the authority requested.THEREFORE, IT IS ORDERED THAT:Sonora Water Company is authorized to execute a new loan agreement with the Oak Valley Community Bank based on the outstanding balance of the loan at the date of execution, and to encumber utility assets in connection with the loan.Sonora Water Company shall file with the Water Division a copy of the loan documents within 15 days of execution, and not later than 60 days from the effective date of this Resolution.Sonora Water Company shall maintain records to (i) identify the specific long-term debt issued pursuant to this Resolution, and (ii) demonstrate that the proceeds from such debt have been used only for the purposes indicated herein.Sonora Water Company shall remit a check for $134.00, as required by Public Utilities Code § 1904(b).The authority granted by this Resolution shall become effective upon Sonora Water Company paying the fee in Ordering Paragraph No. 6, to the California Public Utilities Commission’s Fiscal Office at 505 Van Ness Avenue, Room 3000, San Francisco, CA 94102. The number of this Resolution must appear on the face of the check.This Resolution is effective today.I certify that the foregoing resolution was duly introduced, passed, and adopted at a conference of the Public Utilities Commission of the State of California held on February 11, 2021; the following Commissioners voting favorably thereon:Rachel PetersonExecutive DirectorSonora Water Company Advice Letter No. 76-WService ListBeverly BrownSonora Water CompanyBrown.bev@Jamestown Sanitary District18351 Main StreetJamestown, CA 95327Tuolumne CountyDepartment of Environmental Health48 W. Yaney StreetSonora, CA 95370Tuolumne Utilities District18885 Nugget Blvd.Sonora, CA 95370 ................
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