20070619final_order_no_30345.pdf

Office of the Secretary
Service Date
June 19,2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INc. FOR
AUTHORITY TO AMEND AND REVISE
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY NO. 143 AND FOR
APPROVAL OF A SPECIAL FACILITIES
AGREEMENT WITH A VIMOR LLc.
CASE NO. UWI-07-
ORDER NO. 30345
On January 10, 2007, United Water Idaho Inc. filed an Application requesting
approval of an amendment to its Certificate of Public Convenience and Necessity and of a
Special Facilities Agreement the Company signed with Avimor LLC. Avimor is a developer and
the name of its project located north of Boise. United Water requested expansion of its
certificated area to add approximately 4 500 acres of the Avimor property.
On February 14, 2007, the Commission issued a Notice of Application and Notice of
Modified Procedure to process United Water s Application. A Petition to Intervene and to file
reply comments was filed by A vimor and was approved by the Commission. Staff filed written
comments on March 16, 2007 and the City of Eagle filed written comments on March 19, 2007.
Reply comments were filed by United Water and by Avimor on April 13, 2007.
The Commission convened a hearing for oral argument on the filings on May 11
2007. The City of Eagle filed a Petition to Intervene on that date, and the City s Petition was
granted at the hearing. Tr. pp 5-
THE APPLICATION
United Water s Application states that Avimor is an Idaho Limited Liability
Company engaged in the development of residential planned communities. The property owned
by A vimor is known as Spring Valley Ranch, and consists of approximately 23 000 acres several
miles north of Boise. The first phase of the A vimor development will be nearly 700 residential
and commercial building lots on approximately 860 acres.
All but 80 acres of the Avimor property are outside United Water s certificated
service area, and the property "is not within the authorized territory of any other public utility
water corporation under the jurisdiction of the Commission.Application p. 3. In order for
United Water to provide service to the project, it is necessary for the Company to extend
ORDER NO. 30345
facilities to the project, primarily 30 500 feet of 16-inch transmission main line, a booster station
and a 600 000-gallon water storage reservoir.
United Water and Avimor entered into a Special Facilities Agreement (SFA)
providing the terms for construction of the necessary facilities. The Application states that the
terms and conditions of the SF A "are generally consistent with the terms and conditions of other
special facilities agreements approved by the Commission and with United Water s Rules and
Regulations 74-77.Application p. 4. The Application also states, however, because of "the
unique nature and size of the Project " some matters were individually negotiated, including "the
financial terms of the Project-on-site, off-site mains and over sizing, refunds of on-site advances
and over sizing," and "off-site main reimbursement." Application pp. 4-
A vimor will provide the construction costs for the necessary facilities, estimated at
approximately $6.3 million. The parties agreed in the SF A to classify approximately 18 000 feet
of the transmission line as "on-site main " and approximately 12 500 feet as "off-site main." The
SF A provides for refunds to A vimor for costs of the on-site main, booster station and storage
reservoir as customers are connected to the facilities, or approximately $4.6 million of the total
costs. The remainder of the facilities ' costs , approximately $1.9 million, would be contributed
by A vimor without refund.
STAFF COMMENTS
The Staff made three recommendations in its filed comments.First, Staff
recommended that only Phase 1 of the project, comprising approximately 860 acres, be added to
United Water s certificated area. Second, Staff recommended the Commission open a docket to
determine whether conditions should be placed on expansion of United Water s Certificate
beyond Phase 1. Finally, Staff recommended the Commission deny approval of the SF A as
submitted and require the agreement be changed to provide for developer contribution of the
entire 30 500 feet of transmission main.
Staffs recommendation that only the first phase area be added to United Water
servIce area is based on uncertainty of the cost and availability of water for additional
development. Staff believes United Water may have an adequate water supply for Phase 1 but
not for build-out of the additional service area requested in the Company s Application. Given
the desert location of the project and limited ground water supply in the area, Staff is concerned
about the cost to obtain an additional water source and the resulting impact on United Water
ORDER NO. 30345
existing ratepayers. Staff stated "that the impact on United Water customer rates must be
evaluated to determine if an expanded area is in the public interest" before granting a Certificate
to the area requested in United Water s Application. Staff Comments p. 3.
Staff also recommended the Commission open a docket to obtain evidence about
water supply costs and develop alternative solutions to mitigate the potentially large investment
that might be required, and ultimately would be borne by United Water customers. Staff noted
that if the entire development area is placed within United Water s certificated service area, the
Company may be obligated to provide water to the project regardless of cost, and legal
constraints may limit further contributions from the developer or new customers in the area.
Staff briefly discussed two Idaho Supreme Court decisions that place restrictions on
new customer fees to pay a utility s capital costs if such fees unreasonably discriminate between
old and new customers. The decisions were entered in Building Contractors Association of
Southwestern Idaho, Inc. v. Idaho Public Utilities Commission 128 Idaho 535 , 916 P.2d 1259
(1996) and Idaho State Homebuilders v. Washington Water Power 107 Idaho 14, 690 P.2d 350
(1984). Staff noted key distinctions between the facts in this case and in the cases before the
Court, neither of which involved an uncertificated area to be added to the utility s service area.
In addition, the Supreme Court specifically noted in the Washington Water Power case that the
facts before it did not involve a situation where "a non-recurring charge is imposed upon new
customers because the service they require demands an extension of existing distribution
communication lines and a charge is imposed to offset the cost of the utility s capital
investment." 1 07 Idaho at 421. Staff believes the Commission should consider placing
conditions on United Water s Certificate if it is amended to include an area larger than Phase
of the A vimor development.
Regarding the SF A, Staff believes the terms are not consistent with existing United
Water tariffs. Staff noted that United Water s tariffs require that all of the distribution costs to
serve new development be contributed by the developer without refund. Existing rules also
specify that the cost of special facilities such as boosters and storage reservoirs can be advanced
by the developer and refunded over time as new customers are connected.
The SF A identifies those facilities that are subject to advance and refund, including
the storage tank at a cost of $788,418, a booster pumping station ($1 250 481) and 18 000 feet of
the 16-inch water transmission main ($2 519 944). The Agreement identifies only 12 500 feet of
ORDER NO. 30345
the main, as an off-site portion of the transmission main, as being contributed by the developer.
Staff agreed that the costs for the storage tank and booster pumping station should be advanced.
Staff did not agree that a part of the transmission main should be identified as "on-site " subject
to refund to the developer. Staff noted that United Water s tariff Rules 74 through 77 identify
special facilities to be paid for by a developer subject to refund. Transmission main is not
included as a special facility that qualifies for advance and refund, whether it is identified as on-
site or off-site. Staff therefore recommended that A vimor contribute without refund all of the
costs ofthe 16-inch water main. The amount of investment subject to refund by Staffs proposal
is $2 038 899, rather than the $4 558 843 specified in the Facilities Agreement.
Staff reviewed the refund formula in the Agreement, which results in a refund
amount of approximately $600 per hookup. At that amount, it would require approximately
400 customers to provide the refund amount identified by Staff ($2 038 899). Staff believes
the refund amounts established in the SF A are consistent with United Water s tariff Rule 75.
In summary, Staff recommended approval of United Water certificated area
expansion to serve Phase 1 of the project, accepting that the Company has an adequate water
supply to serve that portion of the development. Staff recommended the Commission deny
expansion of United Water service area beyond Phase 1 until evidence is obtained to determine
whether conditions should be placed on a certificate to the remaining development area. Staff
further recommended the Commission deny approval of the SF A unless it is modified to require
that all transmission main costs be contributed by the developer without the potential for refund.
CITY OF EAGLE COMMENTS
The City of Eagle in its comments described apparent discrepancies in the
information filed with United Water s Application regarding the Avimor property the Company
intends to serve. The City noted that the SF A states that "additional sources of supply capacity
will be required for development in the Spring Valley Ranch and other areas outside of the
project that are within the company s service area expansion.City of Eagle Comments p. 2.
The City asserted "it is reasonable to have United Water disclose, and appropriate for the
Commission to examine, the water resources to be utilized by United Water.Id. To obtain that
information, the City of Eagle supported Staffs recommendation for a hearing on the source of
water needed to serve the Avimor project beyond Phase 1. Tr. pp. 39-40.
ORDER NO. 30345
REPLY COMMENTS OF A VIMOR AND UNITED WATER
The separate reply comments filed by United Water and Avimor on April 13, 2007
discuss legal issues and respond to Staffs comments. Avimor s comments provide additional
information on water conservation measures included in the project. For ease of discussion here
we will refer to United Water s reply comments, with the acknowledgment that Avimor
presented the same or similar arguments in its comments.
United Water disagrees with Staffs recommendations to limit expanSIOn of the
Company s certificated area to Phase 1 of the Avimor development and contends that Staff
focused its public interest discussion too narrowly on the potential impact on rates paid by the
existing general body of United Water ratepayers. United Water identified additional
considerations it believed should be taken into account in assessing the public interest issues.
First, United Water noted that utility service rates inevitably rise: "It has never been the law, and
could not be the law that a utility customer on the day he or she connects to the utility system
obtains a right to perpetual service at the rate in effect on that date.United Water Reply
Comments p. 4.
Second, United Water argued that "new" customers are entitled to fair treatment.
United Water Reply Comments p. 5. In response to Staffs argument that "the cost burden is
more appropriately placed on the developers that profit when water is provided to these lands
United Water pointed out it is "not the developer that will ultimately bear the burden of added
source of supply costs, but rather it is United Water customers who purchase lots within the
development." United Water Reply Comments p. 5.
A third public interest concern identified by United Water is "discouraging the
proliferation of small independent water companies." United Water stated that "Avimor at one
time appeared to have the intent and ability to form its own water company, and United Water
sought to negotiate a SF A that would prevent that result, while remaining consistent with
Commission rules.United Water Reply Comments p. 5. Because small for-profit water
companies may have difficulties in providing safe, reliable service at reasonable prices, United
Water argued that the "proposal to shift United Water s source of supply costs to new
development goes in the wrong direction from the public interest standpoint of discouraging
creation of small water companies." United Water Reply Comments p. 6.
ORDER NO. 30345
United Water also contends that the Company s Application is consistent with
existing rules that allocate costs of system expansions - "developers contribute the cost of line
extensions and terminal facilities while source of supply and related facilities are "funded through
rate base investment and included in rates paid by all customers.United Water Reply
Comments p. 6.
United Water next addressed Staffs recommendation that the Commission consider
placing conditions on expansion of United Water Certificate beyond Phase 1 of the
development, perhaps including a requirement "that the developer make a non-refundable
contribution to future source of supply costs.United Water Reply Comments p. 8. United
Water argues that Staffs legal analysis supporting its recommendation to consider conditions on
future Certificate expansions is questionable. Staff in its comments referenced Idaho Code ~ 61-
526 for Commission authority to place conditions on a utility s construction or extension of
facilities. United Water asserts that this section applies only when new construction may
interfere with the operation of the system of another utility already constructed. United Water
pointed out there is no issue of United Water s proposed facilities interfering with those of
another utility, but instead
, "
United Water seeks to extend its facilities to an area unserved by
any existing utility." United Water Reply Comments p. 9.
United Water also disagrees with Staffs assertion that the two Idaho Supreme Court
cases have no application to this case and do not restrict the Commission s authority to place
conditions on expansion of a certificated area. United Water argues the Homebuilders and
Building Contractors cases contain a broad holding that "the ability of the Commission to treat
new' customers differently from 'old' customers is subject to substantial legal doubt." United
Water Reply Comments p. 10. Recognizing the facts here are different than in the court cases
United Water nonetheless stated "the thrust of the language in each case seems quite clear--
imposing the cost of growth solely on new customers is prohibited discrimination.United
Water Reply Comments p. 10. The Company also argues that, in the two cases
, "
the Supreme
Court has strongly stated a rule of public utility law in Idaho - old customers are just as
responsible for the cost of rising demand as new customers and attempts to assign those costs to
new customers are unlawful discrimination.United Water Reply Comments p. 11 (footnote
omitted).
ORDER NO. 30345
United Water also asserts that Staffs recommendation to open a new docket to
consider possible conditions of further expansion of United Water s certificated area is not likely
to be productive. United Water first points out that its "proposed division of cost responsibilities
is fully consistent with its existing rules and regulations " and that its Application "should be
evaluated under its approved rules and regulations at the time its application was filed, not under
a new, but undefined set of rules." United Water Reply Comments p. 12. United Water next
asserts that, based on its argument of the meaning of the Supreme Court decisions, that "any new
method of shifting growth related costs to new customers and/or developers will be subject to
substantial legal doubt." United Water Reply Comments p. 12.
Finally, regarding the costs of the transmission main, United Water argues "the
treatment proposed in the SF A is reasonable in this case and the Commission should accept it."
United Water Reply Comments p. 14. The agreement divides the transmission line between on-
site (18 000 feet) and off-site (12 500 feet), and provides for the off-site portion cost
(approximately $1 750 000) to be contributed by Avimor without refund, while the on-site costs
(approximately $2 520 000) would be advanced by Avimor and subject to refund. To support its
argument that its proposal is reasonable, United Water argues that refunds are payable only when
customers are connected to the system and providing revenue. Second, United Water contends
that the transmission main line is different than normal distribution mains because it is not
designed for distribution purposes but as part of an integrated facility plan to deliver water to and
from the project. United Water Reply Comments p. 15. Finally, United Water argued that the
transmission line in this case is the same as supply lines connected to storage reservoirs, which
were eligible for refund in other subdivisions.
DISCUSSION
Although Staff, United Water and Avimor each discussed Idaho Code ~ 61-526 and
its relevance to this case we conclude the section is not applicable. Section 61-526 addresses a
Certificate of Public Convenience for the construction of new facilities. United Water did not
request a Certificate for the construction of facilities in this case.
We also conclude the Homebuilders and Building Contractors cases are not
applicable to this case. Both court cases involve fees or rates to be paid by retail customers.
Idaho Code ~ 61-315 prohibits a public utility from establishing or maintaining "any
unreasonable difference as to rates, charges , service, facilities or in any other respect, either as
ORDER NO. 30345
between localities or as between classes of service." The Supreme Court has held that Section
61-315 implies that as the Commission fixes rates and charges
, "
the Commission s authority
may only be exercised in such a way as to fix non-discriminatory, and non-preferential rates and
charges.Idaho State Homebuilders v. Washington Water Power 107 Idaho 415 , 419, 690 P.
350 (1984). The Commission is not determining fees or rates to be paid by utility customers in
this case. Instead, we must decide what terms and conditions are appropriate for an amendment
to United Water s Certificate of Public Convenience and Necessity. The Commission
authority in this area is clear, and is not diminished by the statutory prohibition against
unreasonable differences in retail rates paid by customers.
United Water requested an amendment to its existing Certificate to add
approximately 4 500 acres of the A vimor property to its authorized service area. As all parties
agree, a request for a Certificate of Public Convenience and Necessity is an inquiry into whether
the present or future public convenience and necessity require granting the Certificate. Further
Idaho Code ~ 61-528 authorizes the Commission, when granting a certificate, to "attach to the
exercise of the rights granted by said certificate, such terms and conditions as in its judgment the
public convenience and necessity may require.See also Cambridge Telephone Co., Inc. v. Pine
Telephone System, Inc.109 Idaho 875, 712 P.2d 576 (1985) (A certificate of public convenience
and necessity is subject to and contingent upon statutory conditions, regulations and restrictions
so Commission had jurisdiction, as a condition of the certificate, to review extension of service
into an unserved area within an already certified area.
We find on the record in this case that it is appropriate to grant United Water
request for an amendment to its Certificate as requested in its Application, without placing terms
and conditions on the Certificate. United Water received a request for service to the area, and
the Company is capable of providing service. The Commission makes no determination in this
case whether the investments made by the Company pursuant to the SF A "are prudently incurred
and recoverable in a future rate proceeding," as United Water requested in its Application.
The Commission does not, however, approve the SF A as filed. United Water s tariff
provisions for construction of special facilities have been in place since resolution of litigation in
Case No. UWI-96-4 in 1997. Those terms provide, and the Commission always intended
that the requesting developer contribute the transmission and distribution facilities without
refund. No distinction is made for "off-site" or "on-site" transmission lines.Weare not
ORDER NO. 30345
persuaded by United Water s characterization of part of the water main as something other than a
transmission line required to bring water to the project. Accordingly, the Commission does not
approve the SF A as filed, but will approve it if amended to require contribution of the entire
transmission main by Avimor. United Water is directed to revise its tariff to make it clear that
transmission and distribution facilities necessary to serve a new development are to be
contributed by the developer without refund.
The Commission also concludes that before United Water expands its service beyond
Phase 1 , it must file an update with the Commission. We want assurance that future expansion
can be done at a reasonable cost. We disagree with Staffs view that a utility is required to
provide service within its certificated area regardless of the cost. The Company is directed to
provide to the Commission, prior to commencing construction of facilities to serve the A vimor
property beyond the first phase, information on source of supply to serve the additional area and
associated costs. The Company must also file all Special Facilities Agreements for approval.
Finally, one aspect of the development deserves mention. Avimor in its comments
described the water conservation measures it is building into its project:
Central to this is that the Project will have a state of the art wastewater
treatment plant that will be capable of converting 300 000 gallons of
wastewater daily into water clean enough for re-use, meeting both the strict
permitting requirements of the National Pollutant Discharge Elimination
System, an EP A permitting program that controls pollutant discharges into
waters of the United States, and the Idaho Department of Environmental
Quality s strict Re-use Rules that regulate water reclamation. The treated
wastewater will be used to irrigate play fields, parks and other common areas
in the Project, a practice that will both conserve valuable drinking water and
reduce water costs for A vimor homeowners and businesses. ... In addition
A vimor will employ other water conservation measures into the Project by
installing low water use plumbing fixtures and hot water recirculating pumps
in all 585 residential units that it will build as part of the Project and will
limit the use of turf on all lots and require drip irrigation for all shrubs and
trees.
Avimor Reply Comments pp. 4-5. According to the SF A, Avimor s engineers have determined
Phase 1 will require approximately 500 gallons of water per minute at peak demand at full build-
out. The Commission commends A vimor for the impressive water conservation measures it is
including in its project. In our desert environment, the frugal use of water is very important and
we are pleased that the developer is making it a priority.
ORDER NO. 30345
ORDER
IT IS HEREBY ORDERED that United Water s Application for amendment to its
Certificate of Public Convenience and Necessity, to include the area identified in Exhibit E to the
Special Facilities Agreement, is approved.
IT IS FURTHER ORDERED that United Water s Application for approval of the
Special Facilities Agreement as submitted is denied.
IT IS FURTHER ORDERED that United Water provide to the Commission, prior to
commencing construction of facilities to serve the A vimor property beyond Phase 1 , source of
supply to serve the additional development and associated costs. The Company is directed to file
all Special Facilities Agreements for approval. In addition, United Water is directed to revise its
tariff to make it clear that transmission and distribution facilities necessary to serve a new
development are to be contributed by the developer without refund.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of 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.
ORDER NO. 30345
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /'r'h
day of June 2007.
f/.7 /'
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MARSHA H. SMITH, COMMISSIONER
'C-.
ATTEST:
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Commission Secretary
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ORDER NO. 30345