29113.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

UNITED WATER iDAHO iNC.

Complainant,

v.

EAGLE WATER COMPANY, INC. and
COUNTRYSIDE ESTATES LLC

Respondent.
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CASE NO. UWI-W-02-1

ORDER NO. 29113

On April 19, 2002, United Water Idaho Inc. (United Water; UWI) filed a Complaint against Eagle Water Company, Inc. (Eagle Water) and Countryside Estates LLC. In Case Nos. EUW-W-94-1 and EAG-W-95-1 the Commission allocated service territories between United Water and Eagle Water and left some areas uncertified to serve as “buffer zones” including “the uncertificated area south of Floating Feather Road and east of Ballantine Lane extended and generally described as the east quarter of Section 7, Township 4 North, Range 1 East, Boise-Meridian.” In defining these buffer zones, the Commission stated:
Neither utility is permitted to extend facilities into the uncertificated areas without prior application to and authorization from this Commission. Installation of facilities into such areas without prior certification and approval will be viewed as a violation of this Order subjecting the utility to imposition of statutory penalties.

Order No. 26525, p. 13.
Pursuant to Idaho Code § 61-612 (Complaint Against Utility) the Commission is vested with jurisdiction whenever it is asserted that a public utility is acting in violation of any provision of law or of any order or rule of the Commission. United Water contends that Eagle Water has and is extending water main and other facilities in and through the buffer zone for the purpose of providing water service to the Countryside Subdivision inside United Water’s certificated service territory. United Water states that it has not consented, expressly or by implication, to service by Eagle Water within its service territory.
In its prayer for relief, United Water requested that the Commission determine and declare that Eagle Water had acted in violation of Order No. 26525 and the law of the State of Idaho and declare and determine that United Water was entitled to provide water service to Countryside Estates Subdivision. The Company further requested that the Commission determine and impose appropriate sanctions for violation of Order No. 26525 and violation of United Water’s right to provide service in its service territory, including, but not limited to
An Order awarding part or all of the uncertificated “buffer zone” to United Water;

An Order confirming that United Water is entitled to serve the Countryside Estates and that Eagle Water is not;

An Order requiring Eagle Water to reimburse United Water for any costs incurred to provide service to Countryside Estates;

An Order requiring Eagle Water to reimburse United Water for its costs, including reasonable attorney fees, incurred to defend its lawful service territory.

Stipulation and Proposed Settlement
On June 17, 2002, United Water, Eagle Water and Countryside Estates filed a Stipulation and Settlement Agreement for Commission consideration and approval. The parties propose a procedure for unwinding Eagle Water’s service to Countryside Estates and recommend a proposed division of the buffer zone between United Water and Eagle Water, establishing a dividing line across the buffer zone east to west along the centerline of State Highway 44. All of the buffer zone to the north of the dividing line will be in United Water’s service territory and all of the buffer zone to the south of the dividing line will be in Eagle Water’s service territory. The parties contend that the Stipulation is in the public interest and that all of the terms of the Stipulation are fair, just and reasonable. The Stipulation also establishes a proposed tariff rate for water delivered by Eagle Water to United Water for water service to the Countryside Estates Subdivision. At such time as United Water provides water service to the area contiguous to Countryside Estates such that it has the physical capability to provide service from its own sources of supply, United Water will cease to purchase water from Eagle Water and will connect to its own source of supply.
On July 19, 2002, the Commission issued a Notice of the Proposed Stipulation and Settlement Agreement and pursuant to Modified Procedure established a comment deadline of August 12. Copies of the Commission’s Notice were mailed to all existing customers of Countryside Estates. The Commission Staff was the only party to file comments. Both United Water and Eagle Water filed reply comments. The comments can be summarized as follows:
Commission Staff
It is undisputed, Staff concludes, that Eagle Water has installed a main line through the uncertificated buffer zone separating the surface territories of Eagle Water and United Water. The buffer zone in question is the uncertificated area south of Floating Feather Road and east of Ballantine Lane. Reference Order No. 26525. In designating the buffer zone, the Commission stated:
Neither utility is permitted to extend facilities into the uncertificated areas without prior application to and authorization from this Commission. Installation of facilities into such areas without prior certification and approval will be viewed as a violation of this Order subjecting the utility to the imposition of statutory penalties.

Order No. 26525, p. 13.

Further, Staff notes that Eagle Water has encroached into the certificated area of United Water by installing distribution main and providing service to customers located in the Countryside Estates Subdivision.
Because facilities have already been installed and service has already been provided by Eagle Water to customers outside of its certificated area, Staff contends that the Commission must resolve the issues of 1) continued service to customers within Countryside Estates, 2) the price to be paid by United Water for water supplied by Eagle Water in the interim, 3) purchase or transfer of ownership to United Water of facilities installed by Eagle Water, and 4) apportionment of the uncertificated buffer zone. Staff recommends approval of all portions of the Stipulation and Settlement Agreement except for Agreement Part II, Section 2, ¶ f dealing with payment for main line. Staff addresses each of these issues separately:
Continued Service to Customers within Countryside Estates
Shortly after the complaint was filed, both companies agreed that Eagle Water would surrender to United Water those customers of Countryside Estates already being served. On May 28, 2002, United Water began providing service to those customers under its own tariffs. Staff believes it is reasonable as a temporary arrangement for United Water to continue to provide service to Countryside Estates using water supplied and purchased from Eagle Water. Once additional development progresses enough that United Water has facilities in close proximity to Countryside Estates, the utilities have agreed that Eagle Water will block the flow of water from its system and United Water will interconnect Countryside Estates to its own water supply.
Price Paid by United Water for Water Supplied by Eagle Water
United Water purchases water supplied by Eagle Water at a rate of $0.2404 per 1,000 gallons. This rate, Staff contends, was negotiated by the parties and is intended to represent the cost of water supply for Eagle Water based on data contained in its 2000 annual report. The cost is for water supply only. It does not include other components of Eagle Water’s retail rate. Staff reviewed the derivation of the rate and believes it is reasonable. Staff contends that Eagle Water has sufficient capability to supply water to this location without adversely affecting either the flow or pressure available to its existing customers, provided that this arrangement is temporary.
Purchase or Transfer of Ownership of Facilities Installed by Eagle Water
Under the proposed Agreement, United Water would assume ownership of all of those facilities paid for and contributed by Countryside Estates. In addition, United Water would pay an over-sizing amount for this line if it utilizes the excess capacity. For those facilities not contributed by Countryside, the Agreement provides that United Water would purchase a portion of main line, while Eagle Water would retain ownership of the remainder of the main line.
Staff believes it is appropriate for United Water to assume ownership of all those facilities contributed by Countryside as provided under the Agreement. United Water’s line extension rules require subdivision developers to contribute these facilities anyway, so United Water would have owned these facilities if it had provided service initially. Staff also believes it would be appropriate for United Water to pay an oversize amount on this main line but only if United Water installs additional 12 inch main line that connects to the existing 12 inch main line already in place. Staff believes this is a reasonable interpretation of Part II, Section 2, ¶ g of the Agreement. United Water has informed Staff that it does not believe, based on its own hydraulic studies and forecasts of growth in the vicinity, that it will ever need to interconnect an additional 12 inch main line. Therefore, it appears highly unlikely that United Water will ever have to pay the oversize allowance.
Under Agreement Part II, Section 2, ¶ f, United Water shall “purchase from Eagle Water, all of that portion of its main existing from the center line of State Highway 44 North. The agreed upon cost for this portion of the main is $25.99 per lineal foot and the agreed upon portion to be purchased by United Water is 450 feet.” The calculated purchase price is $11,696. Staff does not believe United Water should pay for this portion of main line. Under the Line Extension Rules of both United Water and Eagle Water, Staff notes that developers are required to make a non-refundable contribution to the utility, before construction is commenced of the full cost to install necessary facilities, or alternatively, to contribute the entire facilities if not installed by the utility. Thus, whether United Water or Eagle Water initially provided service to Countryside Estates, neither, Staff contends, should have rightfully been required to bear any of the main line installation cost. Staff does not believe that United Water should have to pay for main line that would otherwise have been contributed by the subdivision developer. Consequently, Staff recommends that the Commission not approve this provision of the agreement.
Apportionment of the Uncertificated Buffer Zone
Staff prefaces its remarks by stating that it does not believe that Eagle Water should benefit from its violation of the Commission’s Order. However, Staff believes that the proposed allocation of service territory to United Water is fair and reasonable. Staff further agrees that Eagle Water is capable of providing service to the area apportioned to it.
Reply Comments
Both United Water and Eagle Water recommend approval of the Stipulation as submitted. United Water contends that the amount actually paid to Eagle Water for the 450 feet of main line will be substantially less than $11,695, as the payment will be reduced by the amount of United Water’s attorney fees. Reference Agreement Part II, Section 1, ¶ i. Currently United Water estimates that its attorney fees will be approximately $10,000. The amount actually paid to Eagle Water, therefore it contends, may be less than $2,000. To the extent that Staff’s opposition to the purchase is based on a concern that Eagle Water Company should not profit from its improper expansion, United Water contends that the netting of attorney fees against the purchase price mitigates this concern.
From an accounting perspective, United Water reports that its investment in the main line will be recorded in plant accounts in the amount of $11,695. United Water notes that the unit cost of $25.99 per foot of main line is at the low end of the range of cost experienced by United Water for construction of similar facilities. The amount booked to plant on its books, United Water contends, will be de minimis compared to the total approved rate base of approximately $99 million. In the absence of purchase, United Water contends that the main line would be stranded, resulting in economic waste. The main line, it notes, is located entirely in a geographic area that is being assigned to United Water’s designated service territory. If United Water did not acquire the main line and if, as likely, it receives request for service in the area, United Water contends that it would then have to construct duplicative facilities.
United Water also notes that its purchase of the main line facilitated settlement and avoided protracted litigation in this matter. It is United Water’s impression that the settlement would have been much more difficult in the absence of United Water’s offer to purchase the main line. United Water states that it understands Staff’s point; however, the practical reality is that the purchase made an agreed resolution possible.
Eagle Water in its Reply notes that if the motivation for Staff’s recommendation is to penalize Eagle Water for its error, Eagle Water respectfully requests that the Commission take into account the fact that the $11,695.50 that the Stipulation calls for United Water to pay Eagle Water for the main line pursuant to Agreement Part II, Section 2, ¶ f is net of the attorney fees that Eagle Water has committed to pay United Water upon the Commission’s approval of the Stipulation. In addition, Eagle Water notes that it has incurred in excess of $8,000 in attorney fees on its own accord, and has committed to pay Countryside $20,000 for the cost of over-sizing the main. Eagle Water contends that it has voluntarily acknowledged its error and agreed to incur these expenses as just compensation for its error. Further penalization, it contends, is not warranted. Eagle Water notes that if United Water does not purchase the main line, it would become a stranded investment and result in unnecessary economic waste.
COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case No. UWIW02-01, including the June 17, 2002, Stipulation and Settlement Agreement and the related comments. The Commission has also reviewed its prior Order No. 26525 wherein it allocated service territories between United Water and Eagle Water and left some areas uncertificated to serve as “buffer zones.”
The complaint before us arises out of a direct violation of our prior Order No. 26525. Our Order language was unequivocal—“Neither utility is permitted to extend facilities into the uncertificated areas without prior application to and authorization from this Commission.” Eagle Water not only extended facilities into the buffer zone, it did so to serve a subdivision located in United Water’s service territory.
The parties, Eagle Water, United Water and the Countryside Estates have presented a stipulated settlement for Commission approval. Reference Commission Rules of Procedure, IDAPA 31.01.01.272. We find it reasonable to approve the Settlement presented. By accepting the Settlement, we assure those parties affected by Eagle Water’s actions that they will not be required to engage in further litigation or proceedings. The Commission appreciates that there is value that can be ascribed to finality. While we find merit in Staff’s position, the parties’ reasons for the settlement are persuasive. We acknowledge that there will be no recognizable increase in rates to United Water’s customers associated with the rate basing of an additional $11,695. The amount, as represented, is de minimis. We accordingly find the Settlement and terms to be just, fair and reasonable. In so doing, we find the wholesale rate of water ($0.2404 per 1,000 gallons) from Eagle Water to United Water to be fairly calculated and reasonable. We also find to be reasonable the proposed split in the buffer zone. Reference IDAPA 31.01.01.111. We find that each utility is capable of providing service in the areas awarded to it and that the public convenience and necessity is served by the respective awards.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over United Water Idaho Inc. and Eagle Water Company, Inc., water utilities, and the issues raised in this proceeding pursuant to Idaho Code, Title 61 and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission does hereby approve the Stipulation and Settlement Agreement submitted by United Water, Eagle Water and Countryside Estates as resolution of the complaint filed in Case No. UWI-W-02-01.
IT IS FURTHER ORDERED and the Commission does hereby approve the wholesale rate for water ($0.2404 per 1,000 gallons) from Eagle Water to United Water as set forth in the Stipulation. Eagle Water Company is directed to file a conforming rate tariff with the Commission.
IT IS FURTHER ORDERED and the Commission does hereby approve the proposed division of the buffer zone between United Water Idaho Inc. and Eagle Water Company, Inc., establishing a dividing line across the buffer zone east to west along the center line of State Highway 44. All of the buffer zone to the north of the dividing line will be in United Water’s service territory and all of the buffer zone to the south of the dividing line will be in Eagle Water’s service territory. Reference Order No. 26525. United Water and Eagle Water are directed to prepare amended Certificates of Service to conform with this Order.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally decided by this Order) may petition for reconsideration within twenty-one (21) days of the service date of this Order with regard to any matter decided in this Order. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of September 2002.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:UWIW0201_sw4

ORDER NO. 29113 1

Office of the Secretary
Service Date
September 16, 2002