20020903_255.pdf

TO:
FROM:
DATE:
RE:
DECISION MEMORANDUM
COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TONY A CLARK
DON HOWELL
DAVE SCHUNKE
RICK STERLING
RANDY LOBB
BOB SMITH
LYNN ANDERSON
GENE FADNESS
WORKING FILE
SCOTT WOODBURY
AUGUST 30, 2002
CASE NO. UWI-02-1 (United Water)
COMP AlNT V. EAGLE WATER COMPANY ET AL
STIPULATION AND SETTLEMENT AGREEMENT
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-94-1 and EAG-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.
DECISION MEMORANDUM
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
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 ofthe 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 ofthe 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
DECISION MEMORANDUM
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 compounding its transgression, 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.
It is a rather simple matter, Staff contends, for the Commission to order Eagle Water
to relinquish to United Water service to those customers rightfully located within United Water
existing certificated area. However, 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 also 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
DECISION MEMORANDUM
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
, Section 2, ~ f dealing with payment for main line. Staff addresses each of these issues
separately:
1) Continued Service to Customers within Countryside Estates
Shortly after filing the complaint, 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 so 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.
2) 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.
3) Purchase or Transfer of Ownership of Facilities Installed by Eagle Eater
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
DECISION MEMORANDUM
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 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.
4) Apportionment of the Uncertificated Buffer Zone
Staff prefaces its remarks by stating that it does not believe that Eagle Water should
benefit from its transgression and violation of the Commission s Order. The Companies
however, it states have agreed to establish a dividing line east to west along the center line of
State Highway 44 as shown on the map attached to the Agreement. All of the buffer zone north
of the dividing line would be assigned to United Water and all of the buffer zone south of the
dividing line would be in Eagle Water s service territory. Staff believes that the allocation of
DECISION MEMORANDUM
service territory to United Water is fair and reasonable. Staff further agrees that Eagle Water
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 deminimus 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.
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.
By way of final argument, United Water notes, that its purchase of the main line
facilitated settlement and avoided protracted litigation in this matter. It is United Water
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 Staffs point that
in perfect world developers would have contributed the main line. The practical reality,
however, it states, is that the purchase made an agreed resolution possible.
Eagle Water in its Reply notes that if the motivation for Staffs 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
DECISION MEMORANDUM
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 Decision
United Water and Eagle Water have tendered for Commission approval a Stipulation
and Settlement Agreement in Case No. UWI-02-1. As reflected in Staff comments, the
Agreement addresses the issues of I) continued service to customers within Countryside Estates
2) the price to be paid by United 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 that the Agreement be
approved with the exception of Part II, Section 2, ~ f dealing with payment for 450 feet of main
line. United Water and Eagle Water in reply offer reasons to accept the payment for main line
and recommend that the Stipulation and Settlement Agreement be approved as submitted. What
is the Commission s decision?
Scott Woodbury
Vld/M: UWIWO20 1- sw4
DECISION MEMORANDUM