20061107Memorandum of authorities.pdf

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DO NO V AN E. WALKER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
O BOX 83720
BOISE, IDAHO 83720-0074
PHONE: [phone]
FAX: [phone]
IDAHO BAR NO. 5921
2006 Nav -6 Pr! 4: 59
iDAHO PUdLiC
UTILITIES COMMISSIOi'~
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF KOOTENAI HEIGHTS WATER
SYSTEM, INc. FOR A CERTIFICATE OF
PUBLIC CONVENIENCE AND NECESSITY COMMISSION STAFF'
MEMORANDUM OF
AUTHORITIES RE:
JURISDICTION
CASE NO. KHW-O5-
INTRODUCTION
On October 3 , 2006 , the Idaho Public Utilities Commission (Commission) granted
reconsideration of its final Order No. 30122, which granted Kootenai Heights Water System
Inc.s (Kootenai Heights, Company) request for a Certificate of Public Convenience and
Necessity authorizing it to operate as a public utility in the state ofldaho. Order No. 30138. The
Commission granted reconsideration based upon the Company s Comments and Objections filed
on September 22, 2006, in which the Company objected to the Commission s jurisdiction over it
stating that it is not a public utility.
The Commission ordered the Company to file a legal brief or memorandum setting
forth the specific grounds as to why it contends it is not a public utility and why the Commission
does not have jurisdiction over it, including specific reference to particular provisions of statute
rule, order, notice, case law, or any other controlling law upon which it bases its statements, no
later than October 23 2006. Order No. 30138. The Commission also ordered that Commission
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Staff shall be entitled to respond by written legal brief or memorandum to that filed by the
Company no later than November 6 2006. Id.
The Company s memorandum was received by the Commission on October 26
2006, in an envelope postmarked October 24 2006, which is past the October 23 2006 deadline.
Commission Staff now files this memorandum examining the relevant statues, case law, and
authority demonstrating that the Commission has jurisdiction over the Company under Idaho
law, and supporting the Commission s final Order No. 30122 granting the Company a Certificate
of Public Convenience and Necessity.
PROCEDURAL HISTORY
On August 22, 2005 , Kootenai Heights filed an Application for a Certificate of
Public Convenience and Necessity (Certificate) with the Commission. On September 30, 2005
the Commission issued a Notice of Application and Modified Procedure establishing a deadline
for written comments of November 10, 2005. Order No. 29877. On November 2005, the
parties executed a Stipulation asking the Commission to suspend the written comment deadline
so that alternative organizational structures for the Company could be explored. The
Commission suspended the comment deadline, and directed the parties to report back to the
Commission in 60 days. Order No. 29909.
On January 20, 2006 Commission Staff reported that the Company wished to
proceed with its original Application. The Commission issued a Second Notice of Application
and Modified Procedure, setting a comment/protest deadline of March 9, 2006. Order No.
29960. Commission Staff conducted a review of the Company s Application and financial
information. Staff also conducted an on-site inspection of the system, and was the only party to
file comments in this case. Staff recommended that the Company be granted a Certificate of
Public Convenience and Necessity. Staff also made several recommendations pertaining to the
Company s rates, billing, charges, and customer rules. The Company did not object to the
Commission s jurisdiction, the Commission s use of Modified Procedure to process its
Application, and did not file any comments or reply despite being offered an extended time
period beyond the March 9, 2006, comment deadline in which to do so. See July 2006 letter
to Gary A. Finney, attached as exhibit A.
On September 1 , 2006, the Commission issued a final order granting the request of
Kootenai Heights Water System, Inc. (Kootenai Heights, Company) for a Certificate of Public
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OF AUTHORITIES RE:
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Convenience and Necessity. Order No. 30122. The Commission also issued, on September 1
2006, a Notice of Proposed Order along with a Proposed Order regarding the rates, charges
rules, and regulations of the Company. Procedural Rule 312, IDAP A 31.01.01.312.
On September 22, 2006, Kootenai Heights filed a pleading titled "Comments and
Objections to Proposed Order and Request for Evidentiary Hearing" in response to the Notice of
Proposed Order. In this pleading the Company objects, for the first time, to the jurisdiction of
the Commission and states that the Company is not a public utility. Kootenai Heights
Comments and Objections, p. 1. Based on the Company s objection to the Commission
jurisdiction, the Commission issued Order No. 30138 granting reconsideration of the final order
granting the Company a Certificate, Order No. 30122. Reconsideration was granted as to the
sole issue of whether Kootenai Heights is a public utility under the jurisdiction of the
Commission. The Commission directed the parties to file legal briefs and/or memoranda.
FACTS
Kootenai Heights filed an Application seeking a Certificate of Public Convenience
and Necessity from the Commission on August 22, 2005. The Company stated
, "
Please issue a
Certificate of Public and Convenience and Necessity authorizing Kootenai Heights Water
System, Inc. to operate as a public utility in the state of Idaho, and to serve the geographical area
requested." Kootenai Height's Application, Cover letter, p. 1.
The Company submitted various supplemental documents with its Application
including: a map of the proposed service area, a Water Service Agreement and Easement form
documents evidencing the incorporation of the Company, a copy of the contract with its Certified
Operator, a copy of a Clarification-Modification of the Plat for Kootenai Heights, and a letter
from the Department of Environmental Quality (DEQ) evidencing conditional approval of the as-
built plans.
At the time of the Application the water system was currently in service with six
residential customers connected to the system. Application at 2. The Company stated that the
system will ultimately serve 11 residential customers. Id. The requested service area for the
water system consists of Lots 7-18 of Kootenai Heights, with the well located on Lot 10.
Application at 1. The Company stated that the cost to construct the system was $83 500
including the value of Lot 10. Application at 2. The average monthly consumption for the entire
system is 31 000 gallons, and the Company stated that billing would start on October 1 , 2005.
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Id. The Application stated that proposed rates and charges, rules and forms are all contained
within the Water Service Agreement submitted with the Application. Id.
The Water Service Agreement and Easement (WSA, Agreement) states that the
system was developed to provide water "to certain Lots in Kootenai Heights and for further
development of additional land and lots in the sole discretion of the Water Provider.WSA at 1.
The WSA further provides that each lot shall pay a hook-up fee of $5 000, and that rates will be
$40 per month up to 10 000 gallons, and $4 per thousand gallons used over 10 000 gallons per
month. WSA at 2. Each customer will be metered, with the cost of the meter and its installation
paid by the Company. Id. The Agreement states that monthly rates will not be increased for the
first five years. WSA at 2-3. Additionally, the Agreement states that monthly bills will not be
sent, and the lot owner shall pay the monthly fee on the 151 day of each month. WSA at
Billings will be sent to customers twice a year, on or about May 1 and October 1 , for the purpose
of computing and billing any excess water usage over the allowed 10 000 gallons per month.
WSA at 3-
ARGUMENT
KOOTENAI HEIGHTS WATER SYSTEM INc. IS A PUBLIC UTILITY
UNDER IDAHO LAw.
It is undisputed that Kootenai Heights Water owns, controls, operates, and manages a
water system for compensation within the state of Idaho. Consequently, the Company is a
water corporation" as that term is defined in Idaho Code 9 61-125.
The term "water corporation" when used in this act includes every
corporation or person, their lessees, trustees, receivers or trustees
appointed by any court whatsoever, owning, controlling, operating or
managing any water system for compensation within this state.
Idaho Code 9 61-125.
The term "water system" when used in this act includes all reservoirs
tunnels, shafts, dams, dikes, headgates, pipes, flumes, canals, structures
and appliances, and all other real estate, fixtures and personal property,
owned, controlled, operated or managed in connection with or to
facilitate the diversion, development, storage, supply, distribution, sale
furnishing, carriage, apportionment or measurement of water for power
irrigation, reclamation, or manufacturing, or for municipal, domestic or
other beneficial use for hire.
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Idaho Code 9 61-124.
A municipal corporation, mutual nonprofit or cooperative, or any other public utility
organized and operated for service at cost and not for profit is not subject to the Commission
jurisdiction. Idaho Code 9 61-104. Absent one of the above mentioned exceptions, a water
corporation is a public utility subject to the jurisdiction, control, and regulation of the
Commission where the service is performed and the commodity delivered to the public or some
portion thereof. Idaho Code 9 61-129.
Kootenai Heights is a for-profit general business corporation registered with the
Idaho Secretary of State. Kootenai Heights clearly is not a municipal, a cooperative, nor a
mutual nonprofit organized and operated at cost and not for profit. See Minutes of the
Combined Organizational Meeting of the Board of Directors, Articles of Incorporation, p. 2
(filed with the Company s Application). Its rates, charges, and fees are set forth in its Waster
Service Agreement.Consequently, since it cannot be denied that Kootenai Heights owns
controls, operates, and manages a water system for compensation within the state of Idaho, and is
a water corporation, the only question remaining is whether its service is performed and its
commodity delivered to the public, or some portion of the public.
The furnishing of water to one person or corporation, under a contract, does not
constitute a delivery of water to the public or some portion thereof." Humbird Lumber Co.
Pub. Utilities Comm n of the State of Idaho 39 Idaho 505 , 228 P. 271 , 273 (1924). InHumbird
Lumber the Lumber Company had constructed and installed complete water systems at its plants
for use in its operations and for fire protection. Id.228 P. at 272. Northern Pacific Railway
Company had its own depots, roundhouses, cattle pens, office, etc... adjoining to the plants of
the Lumber Company. Id. The Railroad had its own water system installed, and received its
water from the Sandpoint Water Light Company, a public utility. Id. The Railroad
discontinued its service from Sandpoint Water & Light and connected its system with that of the
Lumber Company. Id. The Lumber Company thereafter supplied the Railroad with water under
contract. /d. It was stipulated that the Lumber Company never furnished water to any other
person, company, or corporation, did not intend to engage in the utility business, and did not
offer to and did not intend to offer to engage in the utility business in any manner whatsoever.
Id. The Court concluded that: 1) the evidence did not justify the conclusion that the lumber
company was "operating" its water system "for compensation" because the primary purpose was
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always to provide fire protection for its sawmills, and the supply to the Railroad was incidental
to that primary purpose; and 2) furnishing water to one person or corporation, under contract
does not constitute a delivery of water to the public or some portion thereof. Id.228 P. at 272-
73.
Similarly, in Stoehr v. Natatorium Co.34 Idaho 217 , 200 P. 132 (1921), it was
stipulated that:
The said hot water was not developed and acquired for the purpose of
sale to the general public, and neither the Natatorium Company nor any
of its predecessors in interest have ever held it open to use or purchase by
the general public but at all times since its original discovery it was, and
now is, intended for use primarily for the said natatorium for sanitary and
bathing purposes.
The primary purpose of the Natatorium s water was to supply itself with natural hot springs
water for bathing and sanitary service, and similar to that in Humbird Lumber was never
intended or held out to be a utility. The people who received hot water at their homes for heating
did not rely upon the Natatorium s service for potable, drinking water.
In the present matter, Kootenai Heights and its relationship to its customers is much
different than that presented in Humbird or in Natatorium. Here, Kootenai Heights Water was
specifically created, organized, incorporated, and managed to provide potable water to customers
in a specific geographic region, that have no other viable option for obtaining this service. The
Company always intended itself to offer a public utility service - providing water - to residents
in the Kootenai Heights subdivision. The Company filed an Application with the Idaho Public
Utilities Commission asking that it be granted a Certificate of Public Convenience and Necessity
to operate as a public utility in its specified geographic region. The Company stated with its
Application
, "
Please issue a Certificate of Public and Convenience and Necessity authorizing
Kootenai Heights Water System, Inc. to operate as a public utility in the state of Idaho, and to
serve the geographical area requested.Kootenai Height's Application, Cover letter, p. 1.
Additionally, the Company states in its Water Service Agreement (WSA) that the system was
developed to provide water "to certain Lots in Kootenai Heights and for further development of
additional land and lots in the sole discretion of the Water Provider.WSA at 1. The owners of
the Company indicated to Staff that they own additional property adjacent to the service area and
are considering combining/extending the water system to serve the additional development. The
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customers are individually metered. WSA at 2. The WSA further states that each customer will
receive a monthly charge for water service, and must pay a hook-up fee. Clearly, the Company
intended itself to operate as a utility and holds itself out as such.
Here we have a true "monopoly" type of situation. The customers of Kootenai
Heights Water had and have no choice other than to receive water from the Company if they
want to have running, potable water at their new homes. The Department of Water Resources
would not allow individual wells, nor would they allow an arrangement where every two lots
shared a well. Kootenai Heights Water - Memorandum at p. 3-4. Additionally the City of
Sandpoint, which provides water service to other areas of the Kootenai Heights subdivision
refuses to extend its service to these lots. Comments and Objections at p. 2. Customers have
say or input into what rates they are charged or how the company is managed or operated. See,
Water Service Agreement. Public policy requires that the Commission regulate companies
where their relationship with customers is such as that existing here.
Despite the fact that the Commission, in Order No. 30138, directed the Company to
file a legal brief or memorandum setting forth the specific grounds as to why it contends it is not
a public utility and why the Commission does not have jurisdiction over it, including specific
reference to particular provisions of statute, rule, order, notice, case law, or any other controlling
law upon which it bases its statements, the Company has failed to include a single citation to any
authority what-so-ever to support its position. In fact there is only one citation to any authority
at all in both of the pleadings filed by the Company objecting to the Commission s Jurisdiction.
That one citation is merely a passing reference stating, "Idaho Code 9 61-129 (Public Utility) has
no application." Kootenai Heights Water - Memorandum at p. 4.
Kootenai Heights is a for-profit general business corporation, organized and
incorporated for the purpose of providing potable water, utility service to customers in the
Kootenai Heights Subdivision that were not allowed to take service from the City of Sandpoint
nor from their own wells. The Company owns, controls, operates, and manages a water system
for compensation within the state of Idaho. It is a water corporation that provides service and a
commodity to the public, or that portion of the public that resides in the designated service area
of Kootenai Heights subdivision. The Company is a public utility under Idaho Law and as such
falls under the regulatory jurisdiction ofthe Idaho Public Utilities Commission.
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II. PRIVATE CONTRACTS BETWEEN
CUSTOMERS
THE UTILITY AND ITS
The Company alleges that
, "
The Commission has no jurisdiction to interfere or create
beaches' (sic) of the contract." Kootenai Heights Water - Memorandum at p. 5. The Company
also stated
, "
The Company enjoys the constitutional right of freedom of private contract. For the
Commission to change the Contract, it would create a breach of contract with potential damages
resulting." Comments and Objections to Proposed Order, at p. 2.
Private contracts with utilities are regarded as entered into subject to reserved
authority of the state to modify the contract in the public interest." Agricultural Products
Corporation v. Utah Power Light Co.98 Idaho 23, 29 557 P.2d 617 623 (1976). In fact a
Public Utilities Commission may annul, supersede, or abrogate a contract and/or contractual
rates between utilities and their customers if doing so is found to be in the public interest. Id.
This matter, however, is not relevant to the issue of the Commission s jurisdiction and the
issuance of a Certificate to Kootenai Heights Water. It is relevant to the Commission s Proposed
Order regarding the proper rates, charges, rules, and regulations of the Company.
III. DUE PROCESS
The Company alleges that there has been no evidentiary proceeding, and that there is
no record below, no notice, and no reasonable opportunity to examine, cross-examine, or
contest. . . . In short
, '
due process' is lacking." Kootenai Heights Water - Memorandum at p. 1-
2. Additionally, the Company states, in the last two sentences of its Memorandum
, "
The
Company only applied to the Commission because the Idaho Department of Water Resources
said it was required which was probably incorrect. In hindsight, the ' Application' is
WITHDRAWN.Id.at p. 5.
Despite what the Company contends, a record does exist in this case. The first
document contained in the Commission s record is the Company s Application, along with the
numerous documents and attachments that the Company submitted with its Application
including: a map of the proposed service area, a Water Service Agreement and Easement form
documents evidencing the incorporation of the Company, a copy of the contract with its Certified
Operator, a copy of a Clarification-Modification of the Plat for Kootenai Heights, and a letter
from the Department of Environmental Quality (DEQ) evidencing conditional approval of the as-
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built plans. The record also contains the comments filed by Commission Staff on March 9
2006, the comment/protest deadline from the Second Notice of Application and Modified
Procedure, Order No. 29960.
The Company, despite what appears at the end of its Memorandum, has not
withdrawn its Application. "A party desiring to withdraw a pleading must file a notice of
withdrawal ofthe pleading with the Commission and serve all parties with it." Rule 68; IDAPA
31.01.01.068. The Company never filed a notice of withdrawal of pleading.
The Company was afforded ample notice and opportunity to submit evidence before
the commission, to file any objections and/or protests to the Commission s actions, to request a
formal hearing, and to otherwise be heard fully in this matter. The Commission issued an
official Notice of the Company s Application, not once, but twice. Order No. 29877 and Order
No. 29960. Along with each Notice of Application, the Commission issued a Notice of Modified
Procedure and commenced a comment/protest period that extended, in the case of the Second
Notice, from January 27, 2006, to March 9, 2006. The Commission s Notice clearly sets forth
the procedure on Modified Procedure, including citation to and explanation of each provision of
Modified Procedure. See Order No. 29877 and No. 29960; IDAPA 31.01.01.201-204. Kootenai
Heights did not file a protest to the Commission s use of Modified Procedure. The Company did
not request a hearing. The Company did not submit any comments or additional evidence. The
Company did nothing. See July 2006 letter to Gary A. Finney, attached as exhibit A. After
an extended period of time, even past the official comment/protest deadline, the Commission
pursuant to its rules of procedure, considered the matter and issued Final Order No. 30122
granting the Company s request for a Certificate, as well as a Notice of Proposed Order and a
Proposed Order regarding the rates, charges, rules, and regulations of the Company.
The Company has been afforded ample notice and opportunity to be heard - due
process. Unfortunately the Company choose, for whatever reason, not to file comments
protests, objections, or anything until after all deadlines had passed, and the Commission had
ruled upon its Application. The Commission, by issuing its Order regarding rates, charges, rules
and regulations in the form of a Proposed Order and by granting reconsideration of its Final
Order No. 30122 has extended an even greater level of due process than that which the Company
was entitled to.
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CONCLUSION
As demonstrated from review of the Company Application and pleadings
including: the map of the proposed service area, the Water Service Agreement and Easement
form, the documents evidencing the incorporation of the Company, the copy ofthe contract with
its Certified Operator, the copy of a Clarification-Modification of the Plat for Kootenai Heights
the letter from the Department of Environmental Quality (DEQ) evidencing conditional approval
of the as-built plans, the statements made by the Company in the cover letter of its Application
its Water Service Agreement, its Objection, and its Memorandum, as well as the investigation of
Commission Staff, it is clear that Kootenai Heights Water System, Inc. is a water corporation
that owns, controls, operates, and manages a water system for compensation within the state of
Idaho. It sells water to the public, or some portion thereof, for compensation. Kootenai Heights
Water System, Inc. is a public utility.
The Commission, on reconsideration, should affirm its previous Order No. 30122
finding that Kootenai Heights is a public utility under Idaho Law, and granting it a Certificate of
Public Convenience and Necessity.
Additionally, Staff recommends that the Commission direct the parties to hold
informal pre-hearing scheduling conference where the parties can discuss the remaining issues
relating to rates, charges, rules , regulations, etc... and possibly reach agreement. If the parties
cannot resolve the remaining issues, then they can submit a proposed
submission of pre-filed direct testimony, rebuttal, and an evidentiary hearing.
Respectfully Submitted this 6th day of November 2006.
schedule for the
DONOV AN E. WALKER
Deputy Attorney General
STAFF'S MEMORANDUM
OF AUTHORITIES RE:
JURISDICTION
EXHIBIT
STATE OF IDAHO
OFFICE OF THE ATTORNEY GENERAL
LAWRENCE G. WASDEN
July 11 2006
Gary A. Finney
Finney Finney & Finney, P.
Old Power House Building
120 East Lake Street, Suite 317
Sandpoint, Idaho 83864
Re:Kootenai Heights Water System, Inc.
Case No. KHW-O5-
Dear Mr. Finney:
As you are aware, on August 11 , 2005 , you filed an Application for a Certificate of Public
Convenience and Necessity to Operate a Water Utility on behalf of Kootenai Heights Water
System, Inc. (Company). That Application was initially noticed for Modified Procedure
pursuant to the Commission s Rules of Procedure. IDAPA 31.01.01.201-204. Order No. 29877.
The initial deadline for filing written comments or protests was November 10 2005. In a Joint
Stipulation filed with the Commission on November 2, 2005, we asked the Commission to
suspend the November 10 comment deadline so that alternative organizational structures for the
Company could be explored. The parties were to report the status of this matter to the
Commission within 60 days. Order No. 29909. On January 20, 2006, Commission Staff
reported that the Company wished to proceed with its original Application. Consequently, the
Commission issued the Second Notice of Application and Modified Procedure with a March 9
2006 comment/protest deadline. Order No. 29960.
Commission Staff filed comments setting forth its recommendations to the Commission on
March 9, 2006. Staff was the only party to file comments for this matter. Even though there are
no provisions in the Commission s Rules of Procedure for reply comments under Modified
Procedure, I contacted you by phone regarding whether you wished to submit any reply
comments. You expressed your general dissatisfaction and disagreement with Staffs comments
and said you would like to respond. We agreed that you would file your reply by the end of
March, approximately three weeks later. I again contacted you on March 30, 2006 , inquiring
about the status of your reply comments. You indicated that the comments were prepared and
would be filed. You also inquired about the possibility of a conference with Staff.
Contracts & Administrative Law Division, Idaho Public Utilities Commission
O. Box 83720. Boise, Idaho 83720-0074, Telephone: [phone], FAX: [phone]. E-mail: Ipuc(g)puc.state.id.
Located at 472 West Washington St, Boise. Idaho 83702
Gary A. Finney
July 11 2006
Page 2
The Commission has not received any comments from you or your client, and it is now four
months since the comment deadline has passed. I remain willing to schedule a conference, and
given the distance between our offices, a phone conference would be most practical. Please
contact me at your earliest convenience if it is your desire to schedule a conference. It has been
nearly one year since the Application was initially filed with the Commission, and this matter
needs to be resolved.
If you wish to file reply comments , please have them filed with the Commission Secretary no
later than July 28, 2006. After this date, the matter will be submitted to the Commission for a
final decision regarding the Application, unless some other agreement is reached prior to that
date with Staff.
Comments may be mailed to:
Commission Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, ID 83720-0074
Street Address for Express mail:
472 W. Washington Street
Boise, ID 83702-5983
I thank you in advance for your attention to this matter, and look forward to hearing back from
you.
7;2 cfc~
Donovan E. Walker
Deputy Attorney General
L:KHWWO5DIJinney_
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 6th DAY OF NOVEMBER 2006
SERVED THE FOREGOING COMMISSION STAFF'S MEMORANDUM OF
AUTHORITIES RE: JURISDICTION IN CASE NO. KHW-05-, BY MAILING A
COpy THEREOF POSTAGE PREPAID, TO THE FOLLOWING:
FLOYD N McGREE PRESIDENT
KOOTENAI HEIGHTS WATER SYSTEM
INe.
PO BOX 1925
SANDPOINT ID 83864
GARY A FINNEY
FINNEY FINNEY & FINNEY P
120 E LAKE ST SUITE 317
SANDPOINT ID 83864
~c9:~
SECRETARY
CERTIFICATE OF SERVICE