20080527Comments.pdf

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Gerald J. Corvino
11865 West Tustin LN
Kuna, Idaho 83634
Email: Jerr($apfpower.com
[phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
MAYFIELD SPRINGS WATER COMPANY, )
INC. FOR A CERTIFICATE OF PUBLIC )
CONVNIENCE AN NECESSITY )
)
)
)
)
CASE NO. MSW-W-08-1
COMMENTS OF THE
INTERVENOR, GERAD J.
CORVINO
The following constitutes the comments of Gerald J. Corvino as intervenor in the application of
Mayfield Springs Water Company (aka Idaho Springs Water Company and Arbor Ridge, LLC)
("the Company") for a Certificate of Public Convenience and Necessity (CPCN) to provide water
service to the Arowrock Rach Subdivision. Comments are also included regarding the complaits
fied against the Company pursuat to the Commission's decision to include the complaints in the
CPCN review process.
"Subdivision" in the following comments refers to Arowrock Rach Subdivision Phase I and II.
"Developer" refers to Arbor Ridge, LLC and Powder River Development, Inc.
The Company indicated though discovery that all shares and membership interest in Arbor Ridge,
LLC, Intermountain Sewer and Water, Inc., Idaho Springs Water, Inc. and Mayfield Springs Water
Company are owned by Greg Johnson.
Intervener Gerald J Corvino Comments
MSW-W-08-1
1 May 23, 2008
Rates and Fees
The company proposes that it provide water service to the Arowrock Subdivision exclusively. That
limits the customers of the water service to lots and homes withn the subdivision, the Arowrock
Rach Rome Owners Association ("ROA") and Intermountan Sewer and Water ("Intermountan"),
collectively the "rate payers". The ROA maintains the common area, and under the Company's
proposal, would pay for water service. Intermountain provides sewer service exclusively withn the
subdivision and is also identified as a rate payer by the company based on water meter reading
provided in discovery.
Since the ROA and Intermountan derive revenue only from the homeowners and lot owners within
the subdivision, there is no added value in passing the water expense though the ROA and
Intermountain. In fact, that "pass though" would increase the cost to both the ROA and
Intermountain which, being unegulated, would add administrative costs and then pass those
increased costs on to the rate payers. Therefore, we recommend that the ROA and Intermountain be
excluded from charges for water service.
The Company has requested and previously collected a "hook up" fee of $2,500. We believe this
fee is an attempt by the Company to circumvent Rule 103 of the Commission's Policies and
Presumptions for Small Water Companes, IDAPA, 31.36.31.103 with respect to the presumption of
contrbuted capital. Ths "hook up" fee is an attempt to recover the capital costs of building the
system which should be excluded from the rate base. We recommend the Commission disallow ths
fee.
In terms of the actu rates, we recommend tht the Commission adopt a rate strctue based on two
tyes of residential customers, active and inactive. Inctive customers are defied as the owners of
lots within the subdivision not curently connected to the water system and not curently receiving
water from the Company. Active customers are those lots connected to the system with water
available regardless of the status of home constrction on the lot.
Intervener Gerald J Corvino Comments
MSW-W-08-1
2 May 23, 2008
The followig is the curent status of the lots withn the subdivision by type based on the above
definitions:
Type of Customer Count
(as of May 21,2008)
Active 54
Inactive 46
The active count above includes alllots with houses including two of which are under constrction.
Eight of the houses appear to be complete including, for the most par, landscaping and have never
been occupied. This count does not include Intermountan Water and Sewer based on the discussion
above.
Inactive customers should be required to pay for the system since they directly benefit from the
availability of the water system. None of the lots have water rights and are precluded by the ROA
Covenants, Conditions and Restrctions (CC&Rs) Section 9.1 from providing their own water. The
area in Southeastern Idao where the subdivision is located being essentially a desert, lots without
access to water are valueless. In addition, inactive customers benefit in the water provided to the
ROA for use in irrgating the common area as the value of the propert is enhced by maintenance
of the common area. Therefore, we recommend the Commission direct its staf to constrct a rate
based on these two customer classes.
Expenses
We recommend that the Commission deny any Company expenses in the following areas:
. Any and all expenses related to the lawsuit brought by foureen rate payers against Arbor
Ridge, LLC (Distrct Cour of the 4th Judicial Distrct Case No. CVOC0708918, Guy and
Lori Bourgeau et al, Plaintiffs versus Greg Johnson et al, Defendants). (See discussion
below.)
· Any and all expenses related to the sale of assets from Arbor Ridge, LLC to Mayfield
Springs Water Company as ths transaction was essential a "transfer" from one company
owned one hundred percent (100%) by Greg Johnson to another.
Intervener Gerald J Corvino Comments
MSW-W-08-1
3 May 23, 2008
· Any and all expense related to a sinkg fud. The entire water system is less than thee
years old and the owner of the system and the subdivision (being one and the same) has
sufcient assets to deal with any maintenance related issues for the foreseeable futue.
Contributed Capital
We recommend the Commission reject the Company's request to recover some of the contributed
capital and the entire initial cost of the system be excluded from the rate base. The Company's
arguent is, essentially, they spent the money, recovered some of it in the hook up fee and therefore
should get the remainder. We believe the Commission should enforce the Commission's Policies
and Presumptions for Small Water Companes, IDAP A, 31.36.31.103 as written.
Complaints
The Commission staff recommended and the Commission decided to incorporate complaints fied
with Commission against Arbor Ridge, LLC actig as an uneguated water company. The
following discussion relates to those complaints.
The Company operated ilegally as a for profit water company from at least September 29, 2005
though Februar 3, 2008. The Company built a water system, established and modified water rates
and charges, biled and collected connection and service fees without Idaho Public Utilty
Commission (PUC) approval as required by Title 61 and IPUC Rules (IDAPA 31.21.01.000 et seq.)
The Company is not exempt from ths requirement, as they are not a homeowner's association,
formal water distrct, muncipality or other mutu non-profit organzation.
During the time the Company operated ilegally, it represented that it was working with the PUC on
an application for completion in sumer 2007. The Company also asserted though affidavits filed
in the cour case described below that PUC officials"knew and approved their operation without a
CPCN. PUC staf knew no later than Febru 27, 2007 that the Company was operating ilegally.
In May, 2007, foureen customers filed suit agaist the company in par because the Company had
Intervener Gerald J Corvino Comments
MSW-W-08-1
4 May 23, 2008
not filed for a CPCN and there was no indication at that time that the Commission would force the
Company to apply or, based the Company's actions to date that it would ever apply.
The following reviews the series of events that led up to the filing of the CPCN. We have also
included events that occured shortly afer the filing but are related to the CPCN specifically. All
documents described in the following were made available to the Commission in Intervenor
Exhibits 201 though 211 inclusive.
On July 14, 2005, the Company certified in a letter to Ada County Development Services that
Intermountan Sewer and Water, Inc would operate the water system.
On September 13th, 2005, the Ada County Board of Supervsors approved the plat for the
Arowrock Ranch Subdivision Number 1. A required condition of that approval was approval by the
"Public Utilities Commssion regarding the establishment of a non-contiguous servce area."
Clearly, ths condition was never met and Ada County Development Services have been unble to
find any document in their files used to certify the completion of this requirement.
On September 29, 2005, the Developer, entered into an agreement with Mark and Amber
Abercrombie which required the Abercrombie's to pay a $2,500 "water hook up fee." We believe
this is the earliest date the Company operated as an uneguated water company.
In June of 2006, the Abercrombie family occupied the first home in the subdivision.
On or about Janua 30th 2007, the Company operating as Arbor Ridge Water Account began
biling residents of the subdivision at $100 per month.
On Febru 27,2007, a meeting was held between the Company and members of the PUC Sta.
Michael Darngton, then a utilty analyst with the PUC, told the Company they were required to
file aCPCN.
Intervener Gerald J Corvino Comments
MSW-W-08-1
5 May 23, 2008
On March 8th, 2007, Greg Johnson stated in a letter to water service customers that "We, Arbor
Ridge Water Account, LLC, have met the PUC, Public Utilty Commission, and will be working
with them over the next 120 days on setting prices on the water service at Arowrock Rach
Subdivision. "
In March, 2007, Gerald J. Corvino filed a complaint with the PUC through the PUC website.
On March 26th, 2007, Chrs Hecht, Utilty Compliance Investigator, Idao Public Utilties
Commission stated in an email to Gerald J. Corvino: "Arbor Ridge has not applied to IPUC even
though we have requested tht they do so."
On May 2,2007, Greg Johnson sent another letter to customers stating: "Water will be reduced to
$50 per month (Retroactive from Janua 2007) and continue at the $50 per month rate until such
time that we become certified with the PUC. At that time, it will become a metered service."
On June 14, 2007, Chrs Hecht stated in an email to Gerald J. Corvino: "I checked with the other
staff members and the IPUC has been in contact with the accountat who is working on the
financial par of the application. Progress is being made toward completing the application."
In July 2007, Gerald Corvino made a public records request of the PUC with respect to all records
related to the application of the Company as a water company. The Commission Secreta, Jean D.
Jewel responded on July 19,2007: "A search of our records has not revealed any records relating to
an application by Arbor Ridge or Intermountan Sewer and Water to operate as a water company."
On Janua 31, 2008, Gerald J. Corvino fied a formal complaint with the PUC as defined in Rule
54 of the PUC Rules of Procedure.
On the morng of Febru 5, 2008, the Company, doing business as Idao Springs Water
Company fied for a CPCN.
Intervener Gerald J Corvino Comments
MSW-W-08-1
6 May 23, 2008
On the afernoon of Februar 5, the Company's attorney (Spin Butler, LLP) in Case No
CVOC0708918, Guy and Lori Bourgeau et al, Plaitiffs versus Greg Johnson et aI, Defendants
argued before the 4th Judicial Cour ''tat the PUC is aware of the Defendants' water service charges
and that the PUC has condoned such charges during times when certificate applications are in the
process of being completed and approved."
On March 10th 2008, the District Cour in the case described above rued in a sumar judgment
related to the claim that the company operated ilegally:
"From the statute and reguations, a certificate of necessity and
convenience was required before the constrction of the water system at
all. The Defendants have gone fuer than merely commencing
constrction-constrction has been completed. The Defendants have gone
even fuer and have begu to charge customers for its services."
Clearly from the above events, the Company:
· Built and operated a for profit water company in violation of Title 61 and PUC rues.
· Misrepresented its progress in the CPCN application process to Ada County Development
Services.
· Misrepresented its timeframe to fie for a CPCN to its customers.
· Argued in 4th Distrct Judicial Cour that the Commssion staff was complicit in its actions
as described above.
. Violated Title 61 and IPUC Rules (IDAPA 31.21.01.000 et seq.)
· Is subject to Title 61-706 and Title 61-707 for the violations described above.
We expect the Commission will see more cases of ths kind where a developer builds and operates a
water system in order to sell lots and homes without the approval of the Commission as required by
Idaho statute. The developer will then apply for the CPCN either due to pressure applied by
customers through the Commission as in this case or when a signficant number of lots in the
subdivision have been sold. We also believe the Legislatue intended to prevent this kind of
behavior by establishing the Commssion and setting penalties for violation of Commssion rues.
Intervener Gerald J Corvino Comments
MSW-W-08-1
7 May 23, 2008
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. "
We respectfuly request the Commission order the Company to repay to all paries served any and
all monies collected including connection and service fees, late charges and any other charges
ilegally collected durng the period of operation prior to the application for the CPCN (Febru
4th, 2008.). In addition, we request the Commission impose a penalty of $1,716,000 on the
Company which represents $2,000 per day from September 29,2005 through Febru 3, 2008 (a
period of858 days) as allowed per Idaho Title 61-706 and Title 61-707.
The Company may argue that this penalty is excessive considering the size of the water system and
expected revenue. However, the Commssion should note tht the water service provider and the
development company are essentially one and the same. As described above, Greg Johnson is the
only beneficial owner of the development companies and the varous water companes based on the
Company response to discovery request. We fuer believe the company expects to collect
revenues in excess of seven milion dollars from the sale of lots in the two phases of the Arowrock
Rach subdivision. Clearly the "reward" for acting ilegally justifies a significant penalty as allowed
by Idaho statute.
The Company may also argue that Commission sta was "aware" of their operation. However, the
Company has presented no evidence that the Commssion sta was aware when the system was
built or when the Company told Ada County Development Services tht Intermountain Water and
Sewer would operate the system or when the Company charged the first customer a hook up fee in
September 2005 or when the Company first delivered water for domestic consumption in June of
2006 or when the Company delivered the fist bils for service in Janua 2007.
The Company may fuer clai that the Commission sta "accepted" their unegulated operation
as a small water company. This clam is irrelevant as the Legislatue never authorized or intended to
authorize the Commission staf to waive regulation of any public utilty as defined in Title 61.
Intervener Gerald J Corvino Comments
MSW-W-08-1
8 May 23, 2008
. ,,. r
DATED at Kuna, Idaho, ths 27th day of May 2008.
jjJ/\idV~
'Gerald J. Corvino
Cc: John R. Hamond
Krs Sasser
Intervener Gerald J Corvino Comments
MSW-W-08-1
9 May 23, 2008