BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ) In the matter of the Application of GOLDEN STATE ) APPLICATION NO. 18-12-__ WATER COMPANY (U 133 W), GOLDEN STATE ) WATER COMPANY on behalf of its BEAR VALLEY ) Filed December 14, 2018 ELECTRIC SERVICE DIVISION (U 913 E) and BEAR ) VALLEY ELECTRIC SERVICE, INC. for authority to ) implement a corporate reorganization plan that will transfer the electric utility operations of Bear Valley ) Electric Service Division to Bear Valley Electric ) Service, Inc. ) ) ) ) ) ) APPLICATION OF GOLDEN STATE WATER COMPANY (U 133 W), GOLDEN STATE WATER COMPANY ON BEHALF OF ITS BEAR VALLEY ELECTRIC SERVICE DIVISION (U 913 E) AND BEAR VALLEY ELECTRIC SERVICE, INC. TO IMPLEMENT A CORPORATE REORGANIZATION PLAN THAT WILL TRANSFER THE ELECTRIC UTILITY OPERATIONS OF BEAR VALLEY ELECTRIC SERVICE DIVISION TO BEAR VALLEY ELECTRIC SERVICE, INC. GOLDEN STATE WATER COMPANY BEAR VALLEY ELECTRIC SERVICE, INC. Keith Switzer Gladys Farrow Vice President, Regulatory Affairs Treasurer and Secretary 630 East Foothill Boulevard c/o Golden State Water Company San Dimas, CA 91773-9016 630 East Foothill Boulevard (909) 394-3600, Ext. 680 San Dimas, CA 91773-9016 (909) 394-3600, Ext. 624 Joseph M. Karp Winston & Strawn LLP 101 California Street, 39th Floor San Francisco, California 94111-5894 Telephone: (415) 591-1000 Facsimile: (415) 591-1400 Email: [email protected] Attorney for Golden State Water Company December 14, 2018 i Table of Contents 1. Introduction ............................................................................................................ 1 2. Background ............................................................................................................ 4 3. Description of Transaction ................................................................................... 5 4. Commission Authority .......................................................................................... 7 5. Certificate of Public Convenience and Necessity (CPCN) ............................... 17 6. California Affiliate Transaction Rules ................................................................ 18 7. CEQA Compliance ............................................................................................... 21 8. Financing Request ............................................................................................... 21 9. Applicant Information .......................................................................................... 40 10. Proposed Categorization, Need for Hearing and Proposed Schedule .......... 41 11. Conclusion ......................................................................................................... 43 Verification ............................................................................................................... 47 Exhibit A Diagram of Planned Steps of Reorganization Exhibit A-1 Current Structure Exhibit A-2 Post-Reorganization Structure Exhibit B Contribution and Spin-off Agreement Exhibit C Presentation of Pro Forma Balance Sheets as of September 30, 2018 Exhibit C-1 Consolidated Golden State Water Company and BVES Division Presentation of Pro Forma Indebtedness & Capitalization as of September 30, 2018 and Bear Valley Electric Service, Inc. Presentation of Initial Formation & Post Activity Projected as of December 31, 2019 Exhibit D Bear Valley Electric Service, Inc. Statement of Projected Capitalization Ratios & Schedule of Security Issuance Exhibit E Bear Valley Electric Service, Inc. Projected Capital Expenditures for the 5-Years 2019 - 2023 Exhibit F Bear Valley Electric Service, Inc. Projected Statements of Cash Flow Exhibit G Golden State Water Company's Restated Articles of Incorporation, as amended on September 16, 2005 Exhibit H Golden State Water Company's Bylaws Exhibit I Golden State Water Company’s latest available Balance Sheet and Income Statement (Form 10-Q) Exhibit J Bear Valley Electric Service, Inc.’s Articles of Incorporation Exhibit K Bear Valley Electric Service, Inc.’s Bylaws i BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ) In the matter of the Application of GOLDEN STATE ) WATER COMPANY (U 133 W), GOLDEN STATE ) APPLICATION NO. 18-12-__ WATER COMPANY on behalf of its BEAR VALLEY ) ELECTRIC SERVICE DIVISION (U 913 E) and BEAR ) Filed December 14, 2018 VALLEY ELECTRIC SERVICE, INC. for authority to ) implement a corporate reorganization plan that will ) transfer the electric utility operations of Bear Valley Electric Service Division to Bear Valley Electric Service, ) Inc. ) ) ) ) ) ) APPLICATION OF GOLDEN STATE WATER COMPANY (U 133 W), GOLDEN STATE WATER COMPANY ON BEHALF OF ITS BEAR VALLEY ELECTRIC SERVICE DIVISION (U 913 E) AND BEAR VALLEY ELECTRIC SERVICE, INC. TO IMPLEMENT A CORPORATE REORGANIZATION PLAN THAT WILL TRANSFER THE ELECTRIC UTILITY OPERATIONS OF BEAR VALLEY ELECTRIC SERVICE DIVISION TO BEAR VALLEY ELECTRIC SERVICE, INC. 1. Introduction By this Application, Golden State Water Company (U 133 W) (“Golden State”), Golden State on behalf of Bear Valley Electric Service Division (U 913 E) (“BVES”) and Bear Valley Electric Service, Inc. (“BVES NewCo”) (jointly “Applicants”) request authority from the California Public Utilities Commission (“Commission”) to implement a corporate reorganization plan (the “Plan”) that would remove BVES as a division of Golden State 1 and transfer all electric utility operations of BVES to BVES NewCo, a separate stand- alone subsidiary of American States Water Company (“AWR” or the “Company”), and related matters (“Application”). This Application is brought pursuant to Sections 701, 817, 818 and 854 of the California Public Utilities Code (“PU Code”),1 and the applicable Rules of the Commission’s Rules of Practice and Procedure (“Rules”). This Application is based upon and supported by the material facts, points and authorities, and all other information contained herein, the exhibits listed in the above table of contents and attached hereto, and the Prepared Testimony of Keith Switzer (“Prepared Testimony”). The Applicants request, among others, that the Commission: (1) Find that there will be ratepayer indifference to the effects of the Plan, and, accordingly, authorize the Plan, including all transactions necessary to implement the Plan as described herein, under Section 818; (2) Find that Section 854 does not apply to the Plan or, in the alternative, find that the Plan is not adverse to the public interest and, accordingly, authorize the Plan under Section 854; (3) Find that the CPCN held by Golden State in connection with the operation of BVES is transferable to BVES NewCo; (4) Find that BVES NewCo continues to be exempt from the application of the Energy Affiliate Transaction Rules; 1 Unless otherwise specified herein, all statutory references in this Application refer to the PU Code. 2 (5) Authorize BVES NewCo to issue, sell and deliver by public offering or private placement securities not exceeding $75 million in aggregate offering amount, said securities consisting of, but not limited to, (i) common shares (“New Equity Securities”) not exceeding $25 million, and (ii) bonds, debentures, notes, and other evidences of indebtedness not exceeding $50 million (“New Debt Securities”) on terms and conditions in accordance with this Application (collectively, the “New Securities”); (6) Authorize BVES NewCo to use the net proceeds to be received from the New Securities for the purposes permitted under Section 817 of the PU Code, including (i) the retirement and discharge of all or a portion of any outstanding short-term borrowings issued for temporary financing of additions to BVES NewCo's utility plant, (ii) the support of BVES NewCo for its capital investment in infrastructure and safety measures, and (iii) the support of BVES NewCo’s on-going operational needs; (7) Authorize BVES NewCo, under Section 823(c) of the PU Code, to make short- term borrowings in excess of 5% of the par value of the company's other securities then-outstanding; and (8) Grant BVES NewCo a waiver from the requirements of Section 818 of the PU Code and the holding company rules issued on June 18, 1998 in Decision 98-06-068 as it applies only to BVES NewCo’s short-term borrowings under its revolving credit arrangements, thereby allowing short-term borrowings under these arrangements be outstanding for a maximum period of 24 consecutive months. 3 In accordance with Rule 1.7(b), the Applicants are not filing or tendering the Prepared Testimony to the Docket Office, but are serving the Prepared Testimony on the Chief Administrative Law Judge concurrently with the filing of this Application. The Applicants are also serving the Prepared Testimony and this Application on the potentially interested parties identified in the attached Certificate of Service. Anyone desiring a copy of the Prepared Testimony may obtain one by sending an electronic mail message to Audrey Jackson at [email protected]. 2. Background AWR is the parent company of Golden State and American States Utility Services, Inc. (“ASUS”) and ASUS’ subsidiaries. AWR has three reportable segments: water, electric and contracted services. Within the segments, AWR has two principal business units, CPUC-regulated utility operations, conducted through Golden State, and contracted services, conducted through ASUS and its subsidiaries. Golden State is a public utility engaged principally in the purchase, production, distribution and sale of water in 10 counties in the State of California. Golden State