20080731Reply and Motion.pdf

McDevitt & Miller LLP
Lawyers
[phone]
[phone] (Fax)
420 W. Bannock Street
P.O. Box 2564.83701
Boise, Idaho 83702
\ b
Chas. F. McDevitt
J. (Joe) Miler
July 31, 2008
F/A HAJVLJ LJEL/FEß Y
Jean Jewell, Secretar
Idaho Public Utilties Commission
472 W. Washington St.
Boise, Idaho 83720
Re: UWI-W-08-01
Dear Ms. Jewell:
Enclosed for filing in the above matter, please find the original and seven (7) copies of United
Water's Reply to Petition for Clarfication and Motion for Order of Dismissa1 Based on the
Pleadings.
An additional copy of the documents and this letter is included for retu to me with your file
stap thereon.
Very Truly Yours,
~~
DJM/h
Encls.
..~
..ORIGINAL
Dean J. Miler ISB #1968
McDEVIT & MILLER LLP
420 West Banock Street
P.O. Box 2564-83701
Boise, il 83702
Tel: [phone]
Fax: [phone]
joe (Q mcdevitt-miller .com
Attorneys for United Water Idaho Inc.
BEFORE THE IDAHO PUBLIC UTn.ITIES COMMISSION
McKAY CONSTRUCTION CO., INC.,
COMPLAINANT
and
SCHMIDT CONSTRUCTION CO., INC.,
COMPLAINANT
Case No. UWI-W.08.01
REPLY TO PETITION FOR
CLARIFICATION and MOTION
FOR ORDER OF DISMISSAL
BASED ON THE PLEADINGS
vs.
UNITED WATER IDAHO INC.
RESPONDENT
COMES NOW United Water Idaho Inc., ("United Water") and Responds to the Petition
for Clarfication by Complainants dated July 21, 2008, ("Petition") as follows, to wit:
In their Petition, McKay and Schmidt advance arguments which can be fairly
summarized as follows:
. McKay & Schmidt are qualified to perform water line construction;
. Costs of training and monitoring contractors should be assigned to contractors or
projects (developers) through an application fee or other form of direct charge;
REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS-1
. Because administration of the labor in lieu program has rate impacts to retail
customers, the Commission should not defer to United Water's business
judgment.
In this Reply, United Water addresses each argument, in tum.
McKay & Schmidt Qualifcations
United Water does not dispute McKay and Schmidt's qualifications as set forth in the
Petition (pgs. 3-4). Individual qualifications, however, are not the issue in this case. At issue is
the reasonableness of a generic policy capping the size of the qualified contractor pool, applied
to all contractors in a non-discriminatory way. For the reasons set forth in United Water's
Statement of Position, the policy is the result of a reasonable exercise of business judgment.
McKay points to a letter from United Water indicating that if McKay met the minimum
insurance requirements it could be re-instated to the approved contractor list. (Petition Pg. 3). It
should be noted, however, that letter was written in the year 2005. McKay, over more than a two
year period, did not, to United Water's knowledge, take any steps to up-grade its insurance and
there is certainly no evidence that McKay in any way relied to its detriment on the 2005 letter.
Additionally, it is unreasonable to expect that United Water intended the statements in a 2005
letter to live in perpetuity, regardless of changes in circumstances.
McKay and Schmidt attach to their Petition letters from developers claiming there is
demand for McKay and Schmidt's services. To United Water's knowledge, none of the letter
authors have complained either to the Company or to the Commssion that the supply of
contractors was inadequate. In fact, none of the letter authors to date have contacted United
Water regarding any upcoming main line extensions for service within United Water's
REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS.2
certificated service territory. The letters, prepared after litigation was commenced, appear self-
serving.
Direct Charge
The Petition argues that United Water should develop an application fee or other direct
charge to contractors or projects (developers) to recover costs that are not directly charged to
specific projects. (Petition Pgs 5-7).
In theory this sounds simple, however it would involve the additional effort of creating a
system for quantifying costs and devising a method, which currently does not exist, of allocating
costs between new applicants, newly approved contractors, and those already in the pool. The
Company's efforts to review applications of unsuccessful contractors would in theory be
chargeable (and hopefully collectible) from contractors who would be doing no work for United
Water. Newly approved contractors mayor may not actually win any bids to perform on
projects against which review costs could be charged, as suggested in the Petition. Should a
newly approved contractor actually perform on one or more projects, the training and oversight
required could extend over some time and over various projects, further complicating the
tracking, charging and managing of these costs. United Water would also have to develop a
method to charge contractors or projects the cost of the Company's annual review of all
contractors' performance. These costs are typically incurred at the end of the year long after
most projects are closed. The Company would then have to contend with the inevitable protests
from contractors or developers who receive these charges. Because, as previously stated, United
. Water does not currently have a system and method in place to quantify and allocate these costs,
a period of time, possibly a full year, would be required to accumulate actual cost data in order to
be able to accurately charge developers a rate for these services. United Water is left to wonder
REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS-3
how it should set charges in the near term without any historical or other basis on which to
establish those charges.
This, again, ilustrates the wisdom of allowing company managers a certain level of
discretion in the operation of its business. United Water chose a cap rather than a fee because the
cap has the advantages of simplicity of administration, even.:handed and non-discriminatory
application, avoidance of individual cost allocations, and potential disputes. Contrary to the
repeated, but unsupported, assertions in the Petition the decision to choose a cap rather than a fee
was not arbitrary.
As explained in the Statement of Position, there was a factual basis for United Water's
conclusion that a pool of ten contractors is adequate to provide a choice of suppliers to
developers at competitive prices. Attached hereto is Exhibit A which accompanied United
Water's Statement of Position. It ilustrates that developers are, in fact, choosing from multiple
contractors and there are a sufficient number of contractors to meet developer demands. United
Water has not received from any developer a complaint that the number of contractors is
inadequate. Additionally, as is well known, the residential construction market is currently
experiencing a marked downturn compared to the years 2005 and 2006, as is also ilustrated by
Exhibit A. In 2008, as of April 30, the number of developer projects was 15, down from 80 and
83 in 2005 and 2006, respectively. As of the date of this Reply, the number of projects in varous
states of construction is 19, an increase of only 4 since April, indicating that new development
construction in United Water's service area has almost completely stalled. Thus, for the
foreseeable future, the level of demand for contractors from developers is likely to be
significantly less than in years when a pool of ten contractors was adequate to meet demand.
REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS-4
The Petition's repeated characterization of the decision to cap the qualified contractor
pool as "arbitrary" is unfounded. In fact, as demonstrated above, and in United Water's
Statement of Position, the decision was based on a reasoned analysis of market conditions. A
management decision supported by a factual basis is not arbitrary.
Scope of Business Judgment Deference
Contrary to the characterization in the Petition (Pg.6), it is not United Water's position
that review of the decision to cap the contractor pool is outside the Commssion's jurisdiction.
Rather, United Water believes this is an area in which the Commssion, in the exercise of its
discretion, may appropriately defer to United Water's business judgment. This is based on the
fundamental premise the public utilty commssions do not operate the businesses they regulate.
As the Commission recently said with respect to another water company:
It is not the Commission's intent to micro-manage the operating expenditures of
Ponderosa. As the owner and operator of Ponderosa, Mr. Cobott shall use his
own discretion to prudently allocate the funds generated by rates in a manner that
benefits the ongoing operation of the Company. (In The Matter of Ponderosa
Terrace Estates Water Company, Order No. 29086).
The Petition too narowly defines the scope of Commission deference by asserting that in
any matter having a possible effect on rates no deference is duel. The Commission has not so
narowly construed the extent of its deference. For example, in Case No. UWI- W -96-7, Order
No. 27616, the Commssion deferred to the Company's decision to lease rather than own motor
vehicles even where the decision had a direct impact on customer rates.
In a related argument the Petition asserts that United Water unfairly used its monopoly
status to limit vendor access to its system thus justifying Commission intervention. In fact, of all
the regulated utilities operating in southwest Idaho, United Water's policy on competitive
i Whether McKay and Schmidt have standing to serve as advocates for the general body of ratepayers is a question
we leave unaddressed.
REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS-5
bidding is the most liberaL. To United Water's knowledge, Idaho Power, Intermountain Gas and
Qwest all employ sole source contractors and do not allow competitive bidding on developer
projects at alL.
Conclusion
As discussed herein, and in the Company's Statement of Position, the decision to cap the
contractor pool at ten was based on a factual analysis of the current demand for and supply of
contractor services. The decision was not arbitrary and was within the range of reasonable
decisions available to management.
Accordingly, United Water respectfully moves the Commission for the entry or an Order
dismissing the Complaints based on the pleadings and papers fied herein. By way of summary,
United Water believes the Commission's Record for Decision would consist of the following:
. Letter Complaint of McKay Construction dated February 19,2008;
. Letter Complaint of Schmidt Construction dated February 20, 2008;
. Commission Summons dated April 14, 2008;
. Answer of United Water dated May 6,2008;
. United Water Statement of Position dated May 6,2008;
. Reply of Schmidt Construction dated May 16,2008;
. Reply of McKay Construction dated June 10, 2008.
. McKay and Schmidt Petition for Clarification dated July 23, 2008.
. The Reply and Motion incorporate herewith.
REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS-6
DATED this '"' day of July, 2008.
Respectfully submitted,
McDEVIT & MILLER LLP
\)wLDean J. Miler
McDevitt & Miler LLP
420 W. Bannock
Boise, ID 83702
Phone: [phone]
Fax: [phone]
Counsel for United Water Idaho Inc.
REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS.7
CERTIFICATE OF SERVICE
I hereby certify that on the 12tiay of July, 2008, I caused to be served, via the methodes)
indicated below, true and correct copies of the foregoing document, upon:
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
. Boise, ID 83720-0074
JJewell (ßpuc.state.id.us
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
Peter Richardson
Richardson O'Leary
515 N. 27th Street
Boise, ID 83702
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
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REPLY TO PETITION FOR CLARIFICATION and MOTION FOR ORDER OF DISMISSAL BASED ON
THE PLEADINGS-8
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Contractor # of Projects Feet Installed Project Totals
2004
Contractor A 7 9160 $34,184
Contractor B 1 2400 $74,687
Contractor C 8 3715 $292,558
Contractor 0 20 33480 $1,214,659
Contractor E 3 7255 $254,040
Contractor F 14 16000 $736,374
Contractor G 12 20929 $754,218
Contractor H 4 33530 $1,565,006
Contractor I 4 12435 $41,607
2005
Contractor A 5 16360 $932,794Contractor B 2 3255 $181,280Contractor C 10 8930 $64,560Contractor 0 19 43079 $1,783,491
Contractor E 25 27640 $1,431,610
Contractor F 13 28800 $1,178,624Contractor G 2 4835 $168,261Contractor H 4 7n5 $314,765
2006
Contractor A 6 8555 $525,548Contractor B 3 7445 $383,509Contractor C 8 7215 $460,685Contractor 0 11 12960 $756,813
Contractor E 17 4460 $2,258,110Contractor F 19 26255 $1,690,135
Contractor G 9 24390 $1,182,555
Contractor H 5 24780 $1,292,892Contractor I 2 11570 $555,431
Contractor J 3 4030 $325,144
2007
Contractor A 5 4455 $283,182Contractor B 2 2765 $207,488
Contractor C 5 2520 $184,826Contractor 0 6 6165 $385,754Contractor E 18 62265 $3,060,661
Contractor F 11 31230 $2,133,433
Contractor G 9 14455 $825,891
Contractor H 4 6815 $340,365Contractor I 3 5175 $455,225
Contractor J 3 2355 $267,649
2008
Contractor A 1 2520 $108,692
Contractor B 2 1760 $98,919
Contractor C 0 0 $0Contractor 0 1 890 $37,653
Contractor E 2 810 $44,757
Contractor F 2 2605 $161,120
Contractor G 3 4875 $276,454
Contractor H 3 15805 $729,099
Contractor I 1 560 $26,321
Contractor J 0 0 $0
EXHIBIT A