Pennichuck Water Works, Inc., 122920 NHPUC, 26, 442

Docket Nº:Order 26, 442
Opinion Judge:DIANNE MARTIN CHAIRWOMAN.
Judge Panel:Kathryn M. Bailey Commissioner.
Case Date:December 29, 2020

PENNICHUCK WATER WORKS, INC.

Order No. 26, 442

DW 20-157

New Hampshire Public Utilities Commission

December 29, 2020

Petition for Approval of Bond Financing and Fixed Asset Line of Credit

Order Approving Financing

DIANNE MARTIN CHAIRWOMAN.

This order authorizes Pennichuck Water Works to: (1) renew its line of credit agreement with TD Bank for an additional two and a half years, until June 30, 2023; and (2) increase the limit of the credit line from $10 million to $12 million. This order also approves Pennichuck Water Works' motion for confidential treatment of certain business loan information.

I.

PROCEDURAL HISTORY AND BACKGROUND

Pennichuck Water Works, Inc. (PWW or the Company), is a regulated water utility, wholly-owned by the City of Nashua, that serves customers in several communities throughout southern New Hampshire. PWW has a unique ratemaking structure because it is funded entirely through debt issuances, and does not have access to the equity markets. See Pennichuck Water Works, Inc., Order No. 26, 383 (July 24, 2020) (approving PWW's current ratemaking structure).

On September 24, 2020, PWW filed a petition seeking: (1) renewal of its line of credit with TD Bank, NA (TD Bank), set to expire on December 31, 2020, until June 30, 2023; and (2) an increase in the credit line limit from $10 million to $12 million. The Company also requested authority to issue up to $57.5 million in tax-exempt and/or taxable bonds. Along with its petition, the Company filed a motion for protective order and confidential treatment of business loan information.

On October 14, PWW filed a motion to bifurcate its financing requests, requesting that the Commission address the line of credit approval first, in view of its December 31, 2020, expiration date. The Commission issued an order of notice on October 20, 2020, scheduling a prehearing conference for November 6, at which the Company's motion to bifurcate was granted.

On November 19, PWW filed a copy of its revolving note with TD Bank, and a corresponding supplemental motion for protective order and confidential treatment of business loan information. On November 20, the Company filed a loan agreement and a pledge agreement with TD Bank, and an amended supplemental motion for protective order and confidential treatment of business loan information pertaining to all three documents. Commission Staff (Staff) filed its recommendation on December 11, 2020.

PWW's petition and subsequent docket filings, other than any information for which confidential treatment is requested of or granted by the Commission, are posted on the Commission's website at http://www.puc.state.nh.us/Regulatory/Docketbk/2020/20-157.html.

II.

POSITIONS

A. PWW

1. Line of Credit

PWW requested authorization to renew its line of credit for an additional term of up to two and a half years, to begin on January 1, 2021, and terminate on June 30, 2023. See Pennichuck Water Works, Inc., Order No. 26, 121 (April 20, 2018) (approving a $10 million line of credit with TD Bank which expires on December 31, 2020). The Company also requested a $2 million increase in the line of credit, up to $12 million.

Larry Goodhue, PWW's Chief Executive Officer, represented in pre-filed testimony that the line of credit will continue to be used for the short-term financing of capital projects. He further stated that the line of credit would be paid off annually by a bond issuance, in conformity with the Qualified Capital Project Adjustment Charge (QCPAC).[1] Pre-filed Testimony of Larry D. Goodhue at 3.

According to PWW, the requested $2 million increase in the line of credit would allow for additional project costs due to inflation and capitalized interest on the credit line. PWW further represented that other economic forces, such as supply and demand of construction materials and labor, possibly related to the COVID-19 pandemic, and potential changes in environmental regulatory policy, might increase the costs of certain anticipated capital projects. Mr. Goodhue represented that possibility prompted the Company to request an increase in the maximum line of credit amount. Mr. Goodhue further asserted that the Company's "capital project needs in 2021 are nearly $12 million for that year alone," and, as all capital projects are funded solely with debt, the increased limit on the line of credit is "imperative." See Commission Staff Recommendation, December 11, 2020, (Recommendation) at 19-21 (PWW Response to Data Request Staff 1-10).

PWW represented that the line of credit will be secured by the Company's accounts receivable and inventory, and a pledge of PWW's stock by its parent company, Pennichuck Corporation (Penn. Corp.). In addition, PWW will assign its rights in the Money Pool Agreement and Cost Sharing Agreement.2 The Company also stated that the line of credit will be cross-defaulted with all debt obligations of PWW and Penn. Corp.'s $4 million working capital line of credit with TD Bank. The Company further indicated that it had received the appropriate preliminary approvals from PWW's and Penn. Corp.'s Board of Directors, and from the City of Nashua.

Mr. Goodhue maintained that the financial covenants for the line of credit will be the same as those for its requested bond financing, with the additional covenant that PWW must maintain an S&P bond rating of at least BBB+ to access the funds. He further stated that the line of credit would be subject to a customary annual review by TD Bank.

According to PWW, the interest rate on the line of credit will be equal to the 30-day LIBOR rate plus 1.75 percent, the same interest rate as applies to PWW's current line of credit with TD Bank. When asked what TD Bank will use as a benchmark once the LIBOR is discontinued as of December 31, 2021, PWW stated that a replacement has not yet been determined, but that TD Bank had indicated that whatever substitute is selected "will be a rate with near equivalent financial impact and near equivalent stability." Recommendation at 10.

PWW stated that the cost of issuance for the line of credit will be a one-time commitment fee and an upfront renewal fee of $3, 500 and $10, 000, respectively, as well as payment of legal costs for both the Company's and TD Bank's counsel. The total issuance cost will range between $15, 000 and $30, 000, which amount would be amortized over the two and a half year term of the line of credit. The Company maintained that approval of the financing is in the public good and should be approved.

2. Motion for Protective Order and Confidential Treatment

PWW sought confidential treatment of certain loan and financing documents with TD Bank, pursuant to N. H. Admin. R., Puc 203.08. According to the Company, the documents are exempt under RSA 91-A:5, IV as commercial or financial records that reveal terms subject to review, negotiation, and approval. PWW represented that TD Bank has requested that the documents remain confidential, and PWW asserted it is in the public interest to allow such negotiations to occur consistent with the lender's practice. The Company further argued that inability to maintain the confidentiality of...

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