20030613Proposed Order.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF PONDEROSA
TERRACE ESTATES WATER SYSTEM,
INC.FAILURE TO COMPLY WITH
COMMISSION ORDERS.HEARING EXAMINER'
PROPOSED ORDER
CASE NO. PTE-W- 03-
On March 25 ,2003 the Idaho Public Utilities Commission
("Commission") entered Order No. 29212 , its Order to Show Cause and
Notice of Hearing directed to ponderosa Terrace Estates Water
System, Inc.("Ponderosa" or "Company The undersigned hearing
examiner conducted the hearing on April 28,2003 at the Bonner
County Courthouse in Sandpoint, Idaho.ponderosa was represented
at the hearing by Mr. Robaer Cobott, president of Ponderosa.
attorney appeared on behalf of ponderosa.Lisa Nordstrom , deputy
At torney General,represented Commission staff.At the hearing
live testimony was presented by Michael Fuss,employed by the
Commission as a staff engineer , and by Mr. Cobott on behalf of
ponderosa.Prefiled testimony of Mr.Fuss and Mr.Cobot t was
admitted as part of the record at the hearing.In addition
documentary evidence (Exhibits 1 through 21) attached to Mr. Fuss
prefiled testimony were admitted into the record as were two
exhibits attached to Mr. Cobott' s prefiled testimony (Exhibits 101
and 102) .
BACKGROUND
The Commission in its Order to Show Cause finds that there is
probable cause believe that Ponderosa failed,omi t ted
neglected to obey, observe or comply with Commission orders, rules
and directions as required by Chapter 7 Title 61 of the Idaho Code.
HEARING EXAMINER'S PROPOSED ORDER:
More specifically, that ponderosa:
Made material misrepresentations to customers regarding
the Commission s involvement in regulating the Company;
Made material misrepresentations to customers regarding
rates to be charged for seasonal disconnections;
Threatened disconnect customers manner
inconsistent with prior Commission Orders and administrative Rules;
and
Billed customers for usage (or lack thereof) in a manner
inconsistent with prior Commission Orders.
Order No.2 9212 requires the Company to show cause why the
Commission should not find that Ponderosa has failed to comply with
Commission orders rules directions,and/or requirements.
addition Ponderosa is ordered to show cause why the Commission
should not: (1) seek a civil penalty of $2 000 per day for each day
the utility has failed to comply with Commission Orders pursuant to
Idaho Code ~ 61-706;(2) petition the First Judicial District for
an injunction prohibiting Ponderosa from charging rates different
than those ordered by the Commission;(3) request the court place
the Company in receivership; and/or (4) file criminal misdemeanor
charges under Idaho Code ~ 61-709 for failure to comply with a
Commission Order.
The Commission'Order to Show Cause requires that staff
prefile testimony outlining Ponderosa ' s failure to comply with the
Commission orders by April 1 2003.In response to the order,
staff filed the direct testimony of Michael Fuss on April 1, 2003.
The Commission s order requires that ponderosa no later than
HEARING EXAMINER'S PROPOSED ORDER:
April 21, 2003, file testimony that explains:
Why the Commission should not seek i\~osition of civil
and/ or criminal penal ties for non-compliance with Commi s s ion
Orders;
Why the Commission current rates are inadequate to
recover Ponderosa ' s expenses; and
What rates Ponderosa believes should be implemented.
In response, ponderosa filed "PUC Order to Show Cause to All
Questions Talked About and Listed In This Document", received by
the Commission on April 2003,which attached two
exhibi ts,a Water Distribution Industry Operalor s Statement of
ponderosa (exhibit 101) and a copy of a letter from Mr. Cobott as
president of Ponderosa to the Idaho State Tax Commission dated
March 16 , 2003 (exhibit 102).
SUMMARY OF THE EVIDENCE
TESTIMONY PRESENTED ON BEHALF OF STAFF
Michael Fuss testified concerning the history of ponderosa and
the orders of the Commission in its regulation of Ponderosa as a
public utility and Ponderosa ' s non-compliance with those orders and
disregard for the Commission s authority.Mr. Fuss also testified
concerning Mr.Cobot t ' s allegations that the Commission
discriminates against his water company by not regulating all other
for-profit water companies in the state.If such companies exist,
Mr. Fuss is not aware of them.Staff investigates all companies
for which it receives complaints.Mr.Fuss also outlined his
efforts to try to work with Mr. Cobott to address issues raised by
Mr. Cobott regarding rates , but that Mr. Fuss had great difficulty
HEARING EXAMINER'S PROPOSED ORDER:
in getting Mr. Cobott to respond.As to the allegations of Mr.
Cobott concerning the Public Utility Commission s causing the Idaho
State Tax Commission to assess the value of Ponderosa at $130,000
such assessment apparently was performed prior to the Commission
order asserting jurisdiction over ponderosa .Neither the
Commission or staff caused the tax commission to assess the value
of ponderosa at this level.
Mr. Fuss testified that the rates proposed by Mr. Cobott may
be the best proposal under all of the circumstances because of the
propensity of consumers to drill their own water well if rates are
too high.In his prefiled testimony Mr.Fuss proposes a rate
structure which is different than that in the Commission's current
order setting rates and is also different than that proposed by Mr.
Cobot t .Mr. Fuss believes that the rates of $48.00 for resident
landowners, (based on 12 resident landowners), and $25.00 per month
for non-resident landowners (based there being non-
residents), and allowing delinquent customers to pay all delinquent
bills, or possibly pay a $2 500 hookup fee , to resume service would
be a reasonable rate structure for ponderosa.This rate structure
would generate about $13,200 per year , or a little over $1,000 per
month.If Ponderosa were to agree to staff's proposal then staff
would recommend that the Commission adopt the agreed upon
settlement opposed to imposing ci vil criminal judicial
remedies upon Ponderosa.
TESTIMONY PRESENTED ON BEHALF OF PONDEROSA
In his prefiled testimony Mr. Cobott testifies that Ponderosa
being discriminated against by the Commission because the
HEARING EXAMINER'S PROPOSED ORDER:
Commission has failed to exercise its jurisdiction and regulation
over other for-profit water companies in the state.Next,
contends that the Commission has violated its order of August
2002 which had been represented to him by staff would not be
changed.Ponderosa was operated under the August 8 order until Mr.
Cobott was told by Michael Fuss that it was likely the Commission
woul d change the order allow part-time landowners wi thin
Ponderosa Terrace Estates to only pay for four months of water per
year.Mr. Cobott believes he was deceived and that he had to take
matters into his own hands to try to save the Company and his
investment.By lowering rates to those customers he terms "non-
resident owners" from that ordered by the Commission, Ponderosa has
saved six consumers from leaving the system.ponderosa currently
has 12 full time "residents" and 21 "non-residents"I f there are
only two classes of customers, residents and non-residents, and if
the residents are charged $48.00 per month year around, and the
non-residents are charged $25.per month year around,then
ponderosa would receive revenues of $1 101 per month or $13 212 per
year.
To make improvements to the water system ~s required by the
Idaho Department of Environmental Quality, Mr. Cobott had to obtain
a loan by refinancing his home and loaning the money to Ponderosa
which was done just before the Commission exercised jurisdiction
over Ponderosa.The Commission has informed Mr. Cobott that he
could not recover the monies loaned to ponderosa.
Mr. Cobott states that he was told by staff that Ponderosa
would likely never make a profit and that it should be given to the
HEARING EXAMINER'S PROPOSED ORDER:
landowners.Even though the Commission says Ponderosa
worthless, the Idaho State Tax Commission has assessed the value of
the Company at $130,000 based upon information the Tax Commission
received from the Public Utilities Commission.Ponderosa received
a tax bill for $1 254.Ponderosa does not have the money to pay
this tax.Attached to Ponderosa's prefiled testimony is exhibit
101 , a statement of income and expenses for Ponderosa which was
sent to the Tax Commission, and exhibit 102 , a letter dated March
16,2003 which Mr.Cobot t states the assessment against
Ponderosa is unjust and advises that Ponderosa requests both an
extension of time and a tax reduction.
In its prefiled testimony Ponderosa attempts to issue its own
order to show cause to the Commission in which he seeks (1) damages
of $300 000 for the injury caused to Ponderosa by the Commission
(2) $50,000 from the staff and commissioners for "making fun and
telling me that my business is worth nothing"(3) $50,000 for the
time spent furnishing information to the Commission, two trips to
Boise, a hearing, and various meetings in Sandpoint, (4) $3 000 for
every day since the Commission issued its last order setting new
rates for Ponderosa (5) a requirement that the Commission furnish
answers questions and documents requested by him (6 )
obj ection to Michael Fuss because as a staff employee of the
Commission his testimony is prejudicial and (7 )$500,000 for
being discriminated against.Mr.Cobot t concludes by making
various demands regarding the hearing to be conducted on these
issues and questioning the right of the Commission to regulate
ponderosa.
HEARING EXAMINER'S PROPOSED ORDER:
At the hearing staff moved that items 1, 2, 3 , 4 and 7 on page
3 of Ponderosa's prefiled testimony not be "spread upon the record"
since those matters are not properly before the Commission.Mr.
Cobot t agreed.Wi th the except ion of items 1 4 , and 7
Ponderosa s prefiled testimony was made part of the record.
During his live testimony,Mr.Cobot t stated there are
approximately 82 lots capable of being served by the Company but
there are only 12 resident and 21 non-resident customers at this
time.There have been problems collecting fees in the past from
customers.Resident customers cannot afford to pay high fees for
water and though the Company would like to receive the $26,600 a
year authorized by the Commission , it is unrealistic to have rates
which would generate that level of revenue.Mr. Cobott testified
as to the revenue that he can realistically collect as be ing
$12,000 to $13,000 a year and that he would be willing to operate
the Company for $13 000 a year.To charge more would mean more
people would be putting in wells and disconnecting from Ponderosa.
He is willing to operate the Company at that revenue level and
believes he could do so through his personal participation in the
maintenance and operation of the system.Mr. Cobott feels that the
rules the Commission concerning seasonal disconnection
customers j eopardi ze the revenue that the Company needs
operate.Mr.Cobot t proposes different set customer
definitions from that of the Commission , that is , that there only
be two classes of customers, "residents" who are owners that live
on their property 12 months a year and "non-residents" who do not
live on their property 12 months a year.For the residents, the
HEARING EXAMINER'S PROPOSED ORDER:
Company proposes $48.00 per month and for non-residents $25.00 per
month.Mr. Cobott admits writing a letter telling customers if
they didn t pay 12 months of the year that Ponderosa would take
them off of the system and not let them back on.He did this
because he was desperate and trying to save the system and his
investment in it.He is convinced the Commission s rate schedule
is unsound for Ponderosa.Mr. Cobott testified he did not get a
copy of the Commission s order no. 29172 in December because he was
absent from his home doing business in Seattle.He understood
however that the Commission was changing rates because
conversations between Mr. Cobott and Michael Fuss.He told Mr.
Fuss that he wasn t going to abide by the change and would just
"let the chips fall where they may" He wrote his January 2 , 2003
letter consumers because felt was decei ved the
Commission changing Ponderosa ' s rates and that by changing rates
consumers were leaving the system.
SETTLEMENT PROPOSAL
During a recess at the hearing, staff and Mr. Cobott entered
into discussions to try to resolve some of the issues for the rate
structure for Ponderosa.They were able to came to a mutual
agreement which they intend to propose to the Commission in writing
at a later date.They jointly placed the settlement on the record
at the hearing.The proposal to the Commission is that:
(a)There be two classes of customers resident and non-
resident.
(b)The first class of customers are "residents" who will be
assessed at a rate of $48.00 per month.Residents are defined as
HEARING EXAMINER'S PROPOSED ORDER:
customers who receive water from the system and who live year-round
in ponderosa Terrace Estates.
(c)The second class of customers are "non-residents" and
will pay $25.00 per month every month.Non-resident customers are
defined as customers who are not residents, that is customers who
do not live on the land served by Ponderosa on a full-time basis
and would include both customers who are served by Ponderosa and
customers who could served ponderosa but who are not
presently connected to the system.
(d)Before a customer will be connected to the system , all
delinquent bills owed to ponderosa (commencing with those bills
incurred after a date which is set in a future Commission order)
must be paid, or the customer must pay $2 500, whichever is less.
Unpaid bills incurred since the Commission took jurisdiction in the
fall of 2001 shall be paid at the rate authorized by the Commission
at the time service was rendered.Unpaid bills incurred prior to
the date the Commission took jurisdiction must be collected through
non - Comml s s i on means.A reconnect fee $35.would charged
customers who previously took service but then were
disconnected.This fee would addition any delinquent
bills the consumer would be required pay prior being
reconnected.
(e)The Company shall abide by the Commission s rules that
apply to Ponderosa customers and the rules that are applicable to
all water utili ties.
Mr. Cobott requested that late fees and interest be charged on
overdue accounts,but staff did not agree any sort
HEARING EXAMINER'S PROPOSED ORDER:
recommendation about interest or late fees, although staff agreed
to bring Ponderosa s request to the Commission s attention for its
consideration.
Mr. Cobott and staff further agreed that staff would prepare
a written settlement for Mr. Cobott's review and signature, and
that the settlement would then be presented to the Commissions for
its consideration.
PROPOSED FINDINGS
Ponderosa is a for-profit corporation which operates a
water system which has the capability of providing service to
approximately lots primarily wi thin the Ponderosa Terrace
Estates subdivision located south of Sandpoint and east of Sagle in
Bonner County, Idaho.The Company delivers water through a looped
unmetered system from two supply wells which produce a combined
capacity of 25 gallons per minute.
Robaer Cobott and his wife Zaderea Raphael own the stock
in Ponderosa.Ponderosa owns the piping, wells and 10,000 gallons
of storage.Robaer Cobott is president of Ponderosa.
On May 30 , 2001 , Ponderosa gave notice to its customers
of a significant rate increase.Several of Ponderosa ' s customers
complained to the Commission.As a result of those complaints, an
investigation was conducted by Commission staff.
On September 13 , 2001 , the Commission issued Order No.
28845 in which it finds Ponderosa is operating in such a manner as
to fall within the Commission jurisdiction.The Commission
ordered Ponderosa to file an application for a certificate of
public convenience and necessity and to propose rate schedules with
HEARING EXAMINER'S PROPOSED ORDER:
supporting documentation.
Mr.Cobot t sent a letter to customers of the Company
dated December 30,2001 in which he states he plans to convert
Ponderosa from pri vately owned wa ter system water
association that would be owned and operated by the landowners in
Ponderosa Terrace Estates.The purpose of this proposal was to
avoid being regulated by the Commission.Mr. Cobott did not follow
through on this announced conversion.
The Company did not file the required rate schedules or
otherwise respond to Order No. 28845 and as a result on November
28, 2001 the Commission established a $20.00 per month flat-rate
charge for residential customer water usage effective December 1
2001 in Order No. 28903.The Company is prohibited from assessing
any other fees or charges without first providing justification for
such charges or fees and obtaining the approval of the Commission
for new tariffs.
ponderosa was sent notice allowing it the opportunity to
respond to the rates set by the Commission at a show cause hearing
scheduled for December 17, 2001 in Sandpoint , Idaho.In Order No.
28911, the Commission requires the Company and Mr. Cobott to show
cause (1) why the $20.00 per month flat-rate residential water rate
charge established in Order No. 28903 is not reasonable and should
not continue and (2 )why the Company should not be required to
refund or credit customers the difference billed or received since
the date of the Commission Order No.28845.The hearing was
vacated on December 14 , 2001 because there was an indication that
Mr. Cobott had not received notice of the show cause hearing.
HEARING EXAMINER'S PROPOSED ORDER:
On January 4,2002 Scott D. Woodbury,deputy attorney
general for the state of Idaho sent Mr. Cobott a letter notifying
Mr.Cobot t that the orders the Commission including the
approved rates, were law until changed by the Commission and that
Mr. Cobott' s continued failure to comply with Commission orders
would result in a complaint being filed against him in district
court.Mr.Woodbury also advised Mr.Cobott of the civil and
criminal provisions which could be exacted against him or Ponderosa
as provided in Idaho Code ~~ 61-706, 61-707 , and 61-709.
Mr.Cobott sent a letter to the landowners served by
ponderosa dated May 2002 stating that Ponderosa would
discontinue doing business as a public water system on May 5, 2002
and that he was going to start a privately owned water system on
May 10, 2002 called the Ponderosa Terrace Estates Privately Owned
Water System , Inc.In a follow up letter dated May 4 , 2002, Mr.
Cobott informed ponderosa customers that the proposed privately-
held water company would be comprised of 300 shares owned by Mr.
Cobott and his wife and that there would be a maximum of 100 shares
available for purchase by the remaining landowners.Mr. Cobot t did
not follow through with this conversion.
10.The Commission received a letter from Ponderosa dated May
6, 2002 which states " Ponderosa Terrace Estates Water System, Inc.
is going to have to go out of business because of the water rates
imposed on this company by Idaho Public Utilities Commission.
11.In May, 2002 the Commission received communications from
several customers who were concerned that the Company was not
billing them.These customers indicated they would not make
HEARING EXAMINER'S PROPOSED ORDER:
payments unless they recei ved bill.During telephone
conversation , Mr. Cobott advised staff that he had not, and would
not,mail bills to customers with the $20.00 per month charge
approved by the Commission since Mr. Cobott did not agree with that
rate.
12.Staff filed a Decision Memorandum on May 10, 2002 that
set out the Company financial situation and recommend a rate
increase.The Commission issued Order No. 29024 on May 14, 2002
that solicits written comments and gives notice of a proposed
increase in rates.
13.On June 6 , 2002 the Commission entered Order No. 29046 in
which it adopts interim rates of $56.50 per month for full-time and
part-time customers, and charge active service, inactive service
and former customers $6.50 per month effective June 1 , 2002.The
order also sets a public hearing for June 20, 2002 in Sandpoint.
14.The Commission conducted both public hearing and
technical hearing on June 20, 2002.Based upon the testimony and
evidence received by the Commission , the Commission set an annual
revenue requirement for Ponderosa in the amount of $26,604 on
August 8,2002 in Order No.29086.The Commission authorized
ponderosa to collect monthly rates in the amount of $48.00 for
full-time and part-time customers , and $25.00 for active service
customers.Customers who do not have above ground access to water
were not to be charged for service.
15.On September 25 , 2002 the Commission entered its Order
No. 29123 in which it denies a petition for reconsideration filed
by Mr. Lyle Peterson and a cross-petition filed by Ponderosa.The
HEARING EXAMINER'S PROPOSED ORDER:
Order also requires that Ponderosa and Commission staff submit a
report to the Commission no later than November 25, 2002 detailing
charges to the number of customers in each class and the impact
these changes would have on ponderosa ' s revenues.
16.Order No.29172 issued December 20,2002 the
Commission authorizes Ponderosa to involuntarily move a customer to
the inact i ve service customer class the customer remains
disconnected from the system for longer than eight full months,
and, if the customer later seeks to resume service after the eight
months has passed, the Commission directs ponderosa to retain the
following information to justify imposition of a $2,500 hookup fee:
(a) its customer payment and disconnection records, and (b) proof
that notice of ponderosa s intent to move the customer to inactive
service and require a $2 500 hookup fee upon reconnect ion was sent
via certified mail.
17.ponderosa sent a letter to its customers dated January
2003 in which Mr.Cobott advises customers that the Ponderosa
Terrace Estates Water System,Inc.longer going to be
invol ved with the Idaho Public Utilities Commission.In the
letter, Mr. Cobott writes that "since PUC has been involved in my
water system I have lost many customers" who have drilled wells or
withdrawn from the system.Mr. Cobott states that the PUC has
reduced Ponderosa's annual revenues by $9,200 from the $26,600 the
Commi s s ion authorized revenue requirement,and that the
Commission decision allow part -time and acti ve service
customers to pay for just a four month minimum of water reduces the
Company s revenue by $6,400 and that the Company s annual revenue
HEARING EXAMINER'S PROPOSED ORDER:
is, therefore,less than $10 000.Mr. Cobott tells Ponderosa
customers that effective January 1, 2003 only two customer classes,
residential and non-residential, will exist as was the case before
the PUC got involved.Mr. Cobott advises his customers who live on
their property all year are resident customers and will pay $48.
a month and all others would be non-resident customers and will pay
$25.00 per month.Mr. Cabott further states that customers who
were not currently making water payments 30 days from the date of
the letter to decide whether to be part of the system or "be
withdrawn from any further use from this system.
18.The statements contained in Mr. Cobott' s letter deviate
from the requirements of the Commission as set forth in their Order
No.29172 and from Order No.29086 by requiring payments from
customers that do not have above ground access to water.
19.Ponderosa followed through on making monthly charges to
at least one consumer of ponderosa even though the customer had
been seasonally disconnected.The consumer was billed by the
Company during a month in which the consumer did not use water from
the system.
20.After learning of this violation staff sent a letter to
Mr. Cobott on January 23, 2003 advising that ponderosa s charges
were contrary to the Commission s orders but that the alternate
rates Ponderosa was charging might have some merit.Staff invited
Mr.Cobott to assist staff in evaluating the rate structure by
gathering information staff could use to file an updated report
with the Commission.Mr. Cobott did not reply to this request.
21.Mr. Cobott was aware of the Commission s orders, rules,
HEARING EXAMINER'S PROPOSED ORDER:
and rates when he imposed, or attempted to impose, differing rates
and rules upon the consumers of ponderosa.
22.Ponderosa, by and through Mr. Cobott, has made material
misrepresentations customers regarding the Commission
involvement in regulating the Company.
23.ponderosa,through Mr.Cobot t ,has made material
misrepresentations to customers regarding rates to be charged for
seasonal disconnections.
24.Ponderosa,through Mr.Cobott,has threatened
disconnect customers in a manner inconsistent with Commission
orders and administrative rules.
25.Ponderosa, through Mr. Cobott, has billed customers in a
manner inconsistent with prior Commission orders.
PROPOSED ORDER
The hearing examiner recommends that the Commission enter an
order adopting the provisions of the settlement when it is reduced
to writing by staff, signed by Mr. Cobott on behalf of ponderosa,
and presented the Commission.While Mr.Cobott has been
defiant,unresponsi ve and uncooperative in the past,seems
sincere in his statements made at the hearing that Ponderosa will
comply with the provisions of the settlement rates and connect fees
should they be adopted by the Commission.He further seems sincere
in seeking to resolve differences with the Commission through
negotiations and cooperation in the future.Though the Commission
could now seek the penalties and sanctions against Ponderosa set
forth in Idaho Code ~ 61-701 et Beq., it appears that ponderosa
customers and the public'interest would best served by
HEARING EXAMINER'S PROPOSED ORDER:
ordering amendments the rates and connect provisions for
Ponderosa in line with the settlement.If, however , Mr. Cobot
fails to sign the settlement proposed on behalf of Ponderosa, the
hearing examiner recommends that the Commission request that the
attorney general , or the prosecuting attorney of Bonner County,
bring an action in district court against Ponderosa Terrace Estates
Water System , Inc. and Robaer Cobott for violation of Commission
orders pursuant to the provisions found in Title 61 , Chapter 7
I daho Code.
DATED this 3 RJ day of Jun
aA4-
- .- p' ~
AYERS
Hearing Examiner
HEARING EXAMINER'S PROPOSED ORDER: