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PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
Entered:
January 27, 2005
CASE
NO. 04-1026-PSD-C
SUSAN
RISSLER SHEELEY,
142 Long Marsh Lane,
Charles Town, Jefferson County,
Complainant,
v.
JEFFERSON
COUNTY PUBLIC SERVICE DISTRICT;
OLD STANDARD, LLC; and THORN HILL, LLC,
Defendants.
RECOMMENDED
DECISION
On July 6, 2004, Susan Sheeley filed a complaint against
the Jefferson County Public Service District (Utility). Ms.
Sheeley alleged that the Utility improperly entered into agreements
with certain developers so that certain sewage treatment facilities
will be constructed and ultimately acquired by the Utility
without first obtaining a certificate of convenience and necessity.
Ms. Sheeley requested that the Commission order the Utility
to properly comply with West Virginia law and obtain a certificate
before construction of the facilities.
On
July 16, 2004, the Utility filed its answer and moved
to dismiss the complaint. The Utility denied that it was failing
to comply with West Virginia law and indicated that its purchase
agreement with Old Standard, LLC, and Thorn Hill, LLC (collectively
the Developers), required that the Utility obtain a certificate
as a condition to closing on the purchase of the treatment
facilities. The Utility further argued that it was under no
obligation to have the Commission review the agreements under
West Virginia Code §24-2-12 since there are no other
utilities or affiliates involved in the transactions at issue.
On
July 19, 2004, the Commission received eight letters from
individuals who expressed concern with the Utility's practice
complained of in the complaint. Each of the letters contained
a request that a public hearing be held in this complaint.
On
August 2, 2004, Ms. Sheeley opposed the motion to dismiss,
arguing that, under the plan developed by the Utility and
the Developers, numerous steps, including the construction
of the facilities and the transfer of certain assets, will
already be complete prior to any filingfor a certificate of
convenience and necessity. Ms. Sheeley further argued that
the Developers will be collecting payments from individuals
served by the wastewater treatment plant and will own and
be responsible for the operation and maintenance of the sanitary
sewer and, therefore, the Developers should be deemed to be
utilities under West Virginia law.
On
August 17, 2004, Staff moved to join the Developers
as Defendants and require them to file an answer. Staff argued
that West Virginia law prohibited any person or corporation
from beginning the construction of any facility to be used
for the provision of utility service without obtaining a certificate
from the Commission. Staff indicated that it was quite possible
that the Developers would be obligated under West Virginia
law to file an application for a certificate of convenience
and necessity.
On
August 26, 2004, the Commission joined the Developers
as parties to this proceeding and required them to file an
answer. The Commission also referred the matter requiring
a decision on or before February 1, 2005.
On
September 7, 2004, the Developers filed an answer and
argued that they were not and did not intend to become public
utilities. They denied that the law required them to have
a certificate prior to constructing wastewater treatment facilities
and denied that the Public Service Commission would be required
to approve contracts that they entered into with the Utility.
The Developers moved to dismiss the complaint.
On
September 14, 2004, Staff opposed the motion to dismiss
filed by the Developers. Staff argued that the conduct of
the Utility and the Developers demonstrated a willfull intent
to violate West Virginia Code §24-2-11. Staff described
agreements between the Utility and the Developers as an elaborate
scheme designed to thwart proper regulation of sewer utility
services in Jefferson County. Staff described the agreement
as a "shell game" and indicated that the plants
will serve in excess of 800 customers. Staff argued that it
was important for the Commission to have an application of
a certificate of convenience and necessity to
determine whether the plans are reasonable in design, size
and location and in the public interest. Staff further indicated
that the law provided for public comment to afford due process
rights to members of the community who will be affected by
the new sewer construction. Staff argued that the Commission
should not allow the Utility and the Developers to thwart
the statutory scheme.
On
September 24, 2004, the Developers filed a response.
The Developers accused Staff of making "baseless accusations"
and of using an "incomplete analysis" supported
by "unsubstantiated allegations." The Developers
argued that the Commission's jurisdiction was limited and
that the transactions at issue were carefully structured to
comply with all West Virginia laws.
By
Procedural Order issued November 4, 2004, the Utility
and Developers' motions to dismiss the complaint were denied.
The matter was set for hearing on December 14, 2004.
------------------------------------------------------------------------
The hearing was held as scheduled. Thomas R. Michael, Esquire,
appeared on behalf of the Complainant. James V. Kelsh, Esquire,
appeared on behalf of the Utility. E. Dandridge McDonald,
Esquire, appeared on behalf of the Developers. Ronald E. Robertson,
Jr., Esquire, appeared on behalf of Staff. Vicky and Scott
Faulkner were granted intervenor status and appeared on their
own behalf. The Town of Bolivar was granted intervenor status
and David A. Hammer, Esquire, appeared on its behalf. A briefing
schedule was established at the conclusion of the evidence.
On
January 1, 2005, the Utility and the Developers moved
to dismiss the complaint as satisfied. They indicated that
they reached a settlement with Staff which would require the
Developers to file for a certificate of convenience and necessity.
The agreement did not include the Complainant or any of the
Intervenors.
By
Procedural Order issued January 5, 2005, the parties were
granted seven days to file written objections to the dismissal
of the complaint as resolved.
On
January 11, 2005, the Complainant, the Faulkners and
the Town of Bolivar objected to dismissing the complaint as
resolved. They demanded a final adjudication on the merits.
The objecting parties expressed concern that the Developers
may still, under the terms of the settlement, be actively
engaged in the construction of the facilities prior to receiving
a certificate of convenience and necessity. They expressed
concerns that the Utility had entered into other similar agreements
with other developers. They also expressed concern that the
Utility still argued that its actions were legal and permissible
and feared that the Utility
would take similar actions in the future trying to get around
West Virginia law. On January 12, 2005, Staff opposed the
motion to dismiss.
On January 24, 2005, the Developers again argued that
the complaint should be dismissed, arguing that the partial
settlement with only a few of the parties mooted the entire
proceeding.
The
issues in this proceeding are not moot. The evidence presented
demonstrates a series of transactions intended to circumvent
West Virginia law. The record shows that the Utility violated
several provisions of the law and seems to intend to use this
transaction as a pattern for doing business in the future.
It has already entered into a similar arrangement with a third
developer and has six other developers interested in this
method of doing business. Even after the partial settlement,
the Utility still insists that it has not violated the law
and is settling only to save further litigation costs. If
the Utility has actually concluded that its actions were legal
and appropriate, it needs to be instructed otherwise. To allow
the dismissal of the complaint without an order of the Commission
on the merits of the proceeding would be contrary to the public
interest.
EVIDENCE
Herbert Jonkers is the manager of both Old Standard, LLC,
and Thorn Hill, LLC, and of both residential projects undertaken
by the Developers in this proceeding (Tr. 267, 268). The Old
Standard (Sheridan) projectwill
involve 178 residential homes and the Thorn Hill project will
involve 595 homes. (Tr. 275, 281, 337).See FootNote ^1
The
Developers approached the Utility a long time ago seeking
sewer service for the projects and originally hoped to pump
the effluent to the Patrick Henry Estates plant. (Tr. 276).
After it became clear that pumping to Patrick Henry was not
going to work, the Developers began to negotiate cooperative
venture agreements with the Utility. (Tr. 276). Under the
cooperative ventures, the Developers planned to build the
treatment plants and turn them over to the Utility. (Tr. 276).
After
the cooperative venture agreements were negotiated, the Utility
submitted them to the Commission for its review and approval.
(Tr. 173; Case Nos. 03-1543-PSD-PC and 03-1544-PSD-PC). All
the parties concluded that the proper course of action was
to treat the cooperative venture agreements as alternate main
extension agreements and get Commission approval. (Tr. 188,
252, 253). The Utility recognized that the cooperative venture
agreements were similar to alternate main extension agreements.
(Tr. 188). In reviewing the filings, Staff concluded that
projects of the magnitude at issue would require certificates
of convenience and necessity and recommended that the petitions
be denied. (Tr. 173; See Case Nos. 03-1543-PSD-PC and 03-1544-
PSD-PC).
After
the Staff recommended that the petitions be denied, the Utility
and the Developers withdrew the petitions. ( Id .). The Chairman
of the Utility's Board admitted that he did not expect Commission
approval after Staff indicated that the projects needed a
certificate and recommended that the proceedings be dismissed.
(Tr. 256, 257). However, both the Utility and the Developers
claimed at hearing that the negative Staff recommendation
was not the deciding factor in withdrawing the petitions before
a Recommended Decision was issued on the merits. (Tr. 253,
276, 277, 300, 301). A Recommended Decision was issued dismissing
the petitions as withdrawn. (See Case Nos. 03-1543-PSD-PC
and 03-1544- PSD-PC).
The
Utility and the Developers then created the plan which is
the subject of this complaint. The plan involves several steps,
but the basic premise always was that all of the sewer plants
would eventually be owned by the Utility. (Tr. 150). First,
the Developers transfer ownership of the real property where
the treatment plants will be built to the Utility. (Tr. 93,
Sheeley Exs. 5, 7).See FootNote ^2 Second, the Utility leases
the property back to the Developers. (Tr. 94, Sheeley Exs.
6, 8). Third, the Developers build the treatment plant under
constant inspection and guidance by the Utility. (Tr. 95,
96, 97, 148, 150, 189, 190, 212, 213).See FootNote ^3 Fourth,
the Utility begins to operate and maintain the plant on behalf
of the Developer. (Tr. 98, Sheeley Ex. 3, 9).See FootNote
^4 The Utility will operate the plant under the operation
and maintenance (O&M) agreement from the point that the
first customer connects. (Tr. 98, 100). The Developer would
be billing customers in the subdivisions at a rate which is
nearly identical to the Utility's tariff. (Tr. 99). Finally,
when the customer base is large enough to cover the O&M
expenses of the plant, the Developer turns the plant and the
collection lines over to the Utility. (Tr. 100).See FootNote
^5 All of these steps, except the final one, would be done
without Commission review or approval. (Tr. 70, 101). The
Commission would only become involved after the plant is operational
and serving enough customers to cover the O&M expenses
of operating the plant. (Tr. 70, 101).
The
Utility's manager was unable to explain the complicated series
of transactions outlined in the various agreements between
the Utility and the Developers as being anything other than
an attempt to cut the Commission out of reviewing the project
before it went into the ground. (Tr. 205, 206). Both of the
Utility's Board members who testified indicated that this
scheme made it quicker to actually build the plants because
there is no public notice or public input involved in the
process before construction. (Tr. 84, 85, 225, 226). One of
them admitted that the absence of Commission involvement reviewing
technical plans and specifications before construction speeded
the construction along. (Tr. 226). The Utility admitted that
the Developers are building the sewer
facilities just to turn them over to the Utility. (Tr. 83).
------------------------------------------------------------------------
When
this plan was discussed at the Utility's public meeting, the
Utility's attorney, James V. Kelsh, publically stated that
applying for a certificate of convenience and necessity from
the Commission simply took too long. (Tr. 389). At the May
3, 2004 meeting, Susan SheeleySee FootNote ^6 appeared before
the Utility's Board and warned it that its plan to avoid Commission
review was not legal. (Tr. 232, 233).See FootNote ^7 Ms. Sheeley
specifically referenced Case Nos. 03-1543-PSD-PC and 03-1544-PSD-PC
where Commission Staff indicated that a project of this size
would require a certificate. (Tr. 389, 390, 391). She warned
the Utility that the contracts entered into with the Developers
required Commission review and approval. (Tr. 391). The Utility's
minutes incorrectly indicate that Ms. Sheeley's comments had
nothing to do with the discussion. (Tr. 392).See FootNote
^8 Prior to Ms. Sheeley reading a copy of the statement she
made to the Utility's Board at the Commission hearing, the
Board's Chairman indicated he could not remember what Ms.
Sheeley said at the meeting but agreed with the minutes that
it was not
related to the agenda. (Tr. 233, 234).
Despite
the clear warning at the Utility's meeting, the Utility's
Chairman made no additional effort to see if the arrangements
were indeed legal. (Tr. 238, 244). The Board's Chairman had
already been advised by various people that the Utility could
get around the requirement for a certificate of convenience
and necessity by going through the various transactions--resulting
in no Commission review until the plant was up and running.
(Tr. 257). All of the eight contracts were signed by the Board's
Chairman. (Sheeley Ex. 1 to 10). One Board Member testified
that he believed that the Utility could construct sewer facilities
through "partners" without a certificate prior to
the actual construction of the facilities. (Tr. 162). He testified
that the complex series of contracts which allow developers
to build sewer facilities without prior Commission review
is "clearly a way of doing business that we are considering
and undertaking." (Tr. 182).
Since
the new method of building treatment facilities, without prior
Commission review, was devised, the Utility has entered into
the same arrangement with the developer of Deerfield Village
(Tr. 68, 111, 112). The Deerfield Village treatment plant
and collection lines are already under construction and will
serve 48 residential customers. (Tr. 69, 72). None of the
various agreements with the developer of Deerfield
Village
were submitted to the Commission for review. (Tr. 70). Since
the Deerfield Village plant is being constructed so rapidly,
the Utility has already filed an application for a certificate
to acquire it. (Tr. 108, 154, 155). No person filed an application
before construction on the Deerfield plant was started and
the Commission conducted no review of the facility prior to
construction. (Tr. 68, 70, 108, 111, 112, 154, 155).
There
have been at least six other developers who have approached
the Utility seeking similar treatment. (Tr. 88). There has
been a significant interest in the new arrangements from various
developers in the Utility's service territory. (Tr. 82).
The
sewer facilities the Utility and Developers hoped to construct
without a certificate are significant. (Tr. 276, 277, 278,
279, 280). The treatment plant for the Sheridan project will
cost $1,500,000 and will be able to treat 50,000 gallons a
day. (Tr. 277, 278).See FootNote ^9 The internal collection
lines for Sheridan will cost about $350,000. (Tr. 280). The
transmission line from the Sheridan subdivision to the plant
will cost about $900,000. (Tr. 280). The Thorn Hill treatment
plant will also be able to treat 50,000 gallons a day but
has not yet been priced. (Tr. 279, 280). Similarly, the Thorn
Hill collection lines have not been priced out yet, but that
subdivision will contain more than three times the number
of homes as Sheridan. (Tr. 280, 281).
The
Sheridan plant will serve 178 residential homes. (Tr. 337).
The Thorn Hill plant will serve 595 residential homes. (Tr.
281). Each of the 773 customers will be paying a separate
fee for sewer service based upon their water consumption at
rates which are almost identical to the Utility's rates. (Tr.
281, 305, 306, 307, 335, 336, 337, 338). In the Health Department
application for the Sheridan plant, the Developers correctly
indicated that 178 residential homes will be served. (Tr.
335, 336, 337). The Developers hoped to get around the statutory
number of 25 persons as constituting a utility by attempting
to group the large number of residential customers into one
customer so that they could claim that each plant was only
serving one customer the Homeowner's Association. (Tr. 287,
288, 303, 331).See FootNote ^10 The Sheridan Homeowner's Association
will charge the separate customers sewer fees based on the
amount of water consumed. (Tr. 305, 306, 307). The Homeowners
Association
already has a rate schedule established for it by the Developer.
(Tr. 306). The Homeowner's Association will then cut one check
to the Developer. (Tr. 331). The Developer will completely
control the Homeowner's Association until 50% of the lots
are sold and occupied. (Tr. 338, 339). The plan is the same
for the much larger Thorn Hill development. (Tr. 287, 288,
303, 305, 306). The Utility was informed that the Developers
would structure things so that they did not reach the statutory
number of 25 customers which would make the Developers utilities.
(Tr. 80, 81).
------------------------------------------------------------------------
Staff believes that, given the size and scope of the project,
some entity must file for a certificate before construction.
(Tr. 397; Staff Exhibit 1). Staff believes that the 178 customers
to be served far exceed the statutory requirement of 25 customers.
(Tr. 398). Staff believes that any lease agreements must be
approved by the Commission prior to a public service district
entering into them. (Tr. 400). Given that the treatment plant
technology proposed is something new to West Virginia, Staff
would want to look at various literature, and perhaps visit
some other plants, before approving such technology. (Tr.
402). Staff saw the whole scheme as an attempt to skirt the
statutory requirement of filing a certificate application
before the plants are built. (Tr. 422).
DISCUSSION
The Utility and the Developers have entered into a partnership
to construct, operate and maintain sewer facilities which
will serve 773 single family residences without first obtaining
a certificate of convenience and necessity from the Commission.
The Utility seems to
believe that, because the Developers are doing the actual
construction of the facilities, it is under no obligation
relative to obtaining a certificate from the Commission until
after the facilities are constructed. However, the Utility
cannot do through a partnership or an agent what it cannot
do on its own behalf.
The
complicated series of contracts demonstrates that the Developers
are acting in partnership with the Utility and/or as the Utility's
agent. The Utility obtained certain property interests in
the treatment facilities by acquiring title to the real estate
upon which the treatment facilities are constructed before
construction and retaining that interest throughout the process.
The Utility is inspecting the work of the Developers and requiring
that the Developers meet Utility standards. The Utility will
operate and maintain the plant even before it technically
acquires the plant under the scheme. The Utility and the Developers
relationship is intertwined and constitutes either a partnership
or an agency or both.
Both
the Utility and the Developers have violated W.Va. Code §24-2-
11(a) by beginning construction on the project without a certificate
of convenience and necessity. W.Va. Code §24-2-11(a)
provides that "no public utility, person or corporation
shall begin the construction of any plant, equipment, property
or facility for furnishing to the public any of the services
enumerated in §24-2-1 [which includes: 'sewer systems
servicing twenty-five or more persons']. . .unless and until
it shall obtain from the public service commission a certificate
of convenience and necessity."
The
section clearly applies to the Utility who is violating the
provision by acting through a partner and/or agent. The section
also applies to the Developers who are legal persons under
the provision. The Developers seemed to argue that the section
would not apply because they were attempting to group the
literally hundreds of individual residential homes served
by the systems into two customers---being the two Homeowners
Associations. W.Va. Code §24-2-11(a) and W.Va. Code §24-2-1
do notrefer
to "customers", but refer to "persons being
served" or "the public." It is clear that both
proposed systems will serve far more than
25 persons. Even if W.Va. Code §24-2-11(a) and W.Va.
Code §24-2-1* *referred to "customers", it
is clear that, since each of these individual homeowners will
be charged sewer fees based on water usage that they are indeed
or should be deemed to be "customers." The attempt
to group the large number of "customers" so as to
avoid the law does not withstand any rational scrutiny.
The
Utility has also violated W.Va. Code §24-2-12(c) which
provides that "no public utility. . .may assign, transfer,
lease, sell, or
otherwise dispose of . . .property. . .[without the prior
consent and approval of the Commission]. The Utility, in this
case, leased to the Developers the real estate upon which
both of the treatment plants will be or are being constructed
without Commission approval. The real estate will certainly
become used and useful in the future in providing sewer service.
W.Va. Code §24-2-12 further provides that "Every.
. .lease. . .of. . . property of any public utility. . . referred
to in this section made otherwise than as hereinbefore provided
shall be void to the extent that the interests of the public
in this state are adversely affected." Given that the
leases were merely part of the overall scheme to violate State
law and avoid proper Commission oversight of the construction
of
the facilities, the leases should be deemed void under W.Va.
Code §24-2- 12.
The
Utility has also violated the Commission's Sewer Rules . Sewer
Rule 5.5 regulates extensions of "mains," "plant"
and "facilities" of sewer utilities. Sewer Rule
5.5 establishes a public service obligation on utilities in
West Virginia to extend sewer service for new customers in
their service territory. Sewer Rule 5.5 provides a system
for determining when the extensions must be made solely at
the Utility's expense. Sewer Rule 5.5 provides for extensions
in cases when customers must pay for a portion of the extension.
Sewer Rule 5.5.h.7 allows for alternate plans which do not
conform to Sewer Rule 5.5, but requires that such alternate
plans "shall be filed and approved by the Commission
prior to the implementation or execution of the agreement
by any of the parties." The scheme in this case is clearly
an alternate plan to extend facilities. When the plan was
first developed in the form of the cooperative venture agreement,
all parties recognized their legal obligation to submit the
agreement to the Commission for its review. However, when
Staff recommended not approving the agreement and requiring
an application for a certificate, it was withdrawn. When certain
cosmetic changes were made to the plan, it was then endorsed
by all parties without any Commission review. It was done
so despite warnings by Ms. Sheeley at a public meeting that
such a scheme was unlawful.
It
is very disturbing that the Utility's minutes of the meeting
where Ms. Sheeley made her clear and persuasive argument that
the entire scheme was unlawful indicate that she made comments
which were not relevant. The Utility's minutes should fairly
reflect its meetings, including all public comment. It is
also disturbing that the Utility blindly proceeded with its
plan despite Ms. Sheeley's warnings. Ms. Sheeley should be
commended for expending her own money and time in bringing
this complaint
to the Commission's attention. If it were not for citizens
like Ms. Sheeley, these blatant violations of the law maynot
have been brought to the Commission's attention until much
later in time.
It
is also disturbing that the Utility has now entered into a
similar arrangement with the developers of Deerfield Village
which undoubted violates the law in numerous ways. The Utility
now has developers lining up to sign on to the program and
apparently believes that it can continue this practice. The
effort by the Utility to make a last minute settlement with
Staff in this case by simply agreeing that the Developers
would file for a certificate appears to be an effort to basically
continue with this plan in other cases. That is particularly
true given that the Utility continues to argue in its motion
to dismiss that it has "not violated any statutes, rules,
or orders."See FootNote ^11
The
Utility should be ordered to cease and desist from further
participating in this alternate extension plan with either
of the
Developers or the developer of Deerfield Village until the
plans are submitted to the Commission for its approval and
actually approved by the Commission. The Utility should be
ordered to strictly comply with W.Va. Code §24-2-11(a);
W.Va. Code §24-2-12(c); and Sewer Rule 5.5 in the future
and to keep accurate minutes. The leases entered into with
the Developers should be declared void under W.Va. Code §24-2-12.
The Utility and the Developers should be ordered to file for
a certificate BEFORE proceeding with any further construction
of the sewer facilities at issue.
FINDINGS
OF FACT
1. The Sheridan project will involve 178 residential
homes and the Thorn Hill project will involve 595 homes. (Tr.
275, 281, 337).
2.
The Sheridan project's sewer and water lines are already under
construction with about 40% to 50% of the sewer lines installed.
(Tr. 107, 275, 284).
3.
The Developers approached the Utility a long time ago
seeking sewer service for the projects and originally hoped
to pump the effluent to the Patrick Henry Estates plant. (Tr.
276).
4.
After it became clear that pumping to Patrick Henry was
not going to work, the Developers began to negotiate cooperative
venture agreements with the Utility. (Tr. 276). Under the
cooperative ventures, the Developers planned to build the
treatment plants and turn them over to the Utility. (Tr. 276).
------------------------------------------------------------------------
5. All the parties concluded that the proper course
of action was to treat the cooperative venture agreements
as alternate main extension agreements and get Commission
approval. (Tr. 188, 252, 253). After the cooperative venture
agreements were negotiated, the Utility submitted them to
the Commission for its review and approval. (Tr. 173; Case
Nos. 03-1543-PSD-PC and 03-1544-PSD-PC).
6.
In reviewing the filings, Staff concluded that projects of
the magnitude at issue would require certificates of convenience
and
necessity and recommended that the petitions be denied. (Tr.
173; See Case Nos. 03-1543-PSD-PC and 03-1544-PSD-PC).
7.
After the Staff recommended that the petitions be denied,
the Utility and the Developers withdrew the petitions. ( Id
.). A Recommended Decision was issued dismissing the petitions
as withdrawn. (See Case Nos. 03-1543-PSD-PC and 03-1544-PSD-PC).
8.
The Utility and the Developers then created the plan which
is the subject of this complaint. The plan involves several
steps, but the basic premise always was that all of the sewer
plant would eventually be owned by the Utility. (Tr. 150).
9.
The first step in the plan was that the Developers transfer
ownership of the real property where the treatment plants
will be built to the Utility. (Tr. 93, Sheeley Exs. 5, 7).
10.
The reason the Utility insisted on owning the land before
the construction of the plant was to insure that it would
eventually get
possession of the treatment plants. (Tr. 249). By the time
of the hearing, the real estate for the Sheridan site had
already been transferred to the Utility. (Tr. 93, 94, 249,
250).
11.
The second step in the plan is that the Utility leases
the property back to the Developers. (Tr. 94, Sheeley Exs.
6, 8).
12.
The third step in the plan was that the Developers build
the treatment plant under constant inspection and guidance
by the Utility. (Tr. 95, 96, 97, 148, 150, 189, 190, 212,
213).
13.
It was clear from the beginning that the Developers would
have to meet the Utility's standards when constructing these
facilities. (Tr. 118, 119). The Utility contractually reserved
the right to do an engineering review on the design, as it
always intended to have significant input on the engineering
design of the project. (Tr. 96, 97, 118). The Utility even
flew its engineer to Atlanta to see a plant which was similar
to the one under construction. (Tr. 247).
14.
The reason for the intense interest was that all the parties
realized that the sewer facilities would soon be the property
of the Utility. (Tr. 248).
15.
The Utility also intended to have an inspector present
during the construction of the treatment plants and the collection
lines. (Tr. 189, 190). Utility inspectors have been present
for all work already completed on the project. (Tr. 190, 293).
------------------------------------------------------------------------
16.
The fourth step in the plan was for the Utility to operate
and maintain the plant on behalf of the Developer. (Tr. 98,
Sheeley Ex. 3, 9).
17.
The Developer would be billing customers in the subdivisions
at a rate which is nearly identical to the Utility's tariff.
(Tr. 99).
18.
The final step, which occurs when the customer base is
large enough to cover the O&M expenses of the plant, is
that the Developer turns the plant and the collection lines
over to the Utility. (Tr. 100).
19.
All of these steps, except the final one, would be done
without Commission review or approval. (Tr. 70, 101). The
Commission would only become involved after the plant is operational
and serving enough customers to cover the O&M expenses
of operating the plant. (Tr. 70, 101).
20.
The Utility's manager was unable to explain the complicated
series of transactions outlined in the various agreements
between the Utility and the Developers as being anything other
than an attempt to cut the Commission out of reviewing the
project before it went into the ground. (Tr. 205, 206).
21.
Both of the Utility's Board members who testified indicated
that this scheme made it quicker to actually build the plants
because there is no public notice or public input involved
in the process before construction. (Tr. 84, 85, 225, 226).
One of them admitted that the absence of Commission involvement
reviewing technical plans and specifications before construction
speeded the construction along. (Tr. 226).
22.
The Utility admitted that the Developers are building
the sewer facilities just to turn them over to the Utility.
(Tr. 83).
23.
When this plan was discussed at the Utility's public meeting,
the Utility's attorney, James V. Kelsh, publically stated
that applying for a certificate of convenience and necessity
from the Commission simply took too long. (Tr. 389).
24.
At the May 3, 2004 meeting, Susan Sheeley appeared before
the Utility's Board and warned it that its plan to avoid Commission
review was not legal. (Tr. 232, 233). Ms. Sheeley specifically
referenced Case Nos. 03-1543-PSD-PC and 03-1544-PSD-PC where
Commission Staff indicated that projects of this size would
require a certificate. (Tr. 389, 390, 391). She warned the
Utility that the contracts entered into with the Developers
required Commission review and approval. (Tr. 391).
25.
The Utility's minutes incorrectly indicate that Ms. Sheeley's
comments had nothing to do with the discussion. (Tr. 392).
It is clear that Ms. Sheeleys statement, which was reduced
to writing and read verbatim at the Commission hearing, was
extremely relevant to the issue before the Board. (Tr. 389,
390, 391, 392).
------------------------------------------------------------------------
26. Despite the clear warning at the Utility's meeting,
the Utility's Chairman made no additional effort to see if
the arrangements were indeed legal. (Tr. 238, 244). All of
the eight contracts were signed by the Board's Chairman. (Sheeley
Ex. 1 to 10).
27.
One Board Member testified that he believed that the Utility
could construct sewer facilities through "partners"
without a certificate prior to the actual construction of
the facilities. (Tr. 162). He testified that the complex series
of contracts which allow developers to build sewer facilities
without prior Commission review is "clearly a way of
doing business that we are considering and undertaking."
(Tr. 182).
28.
Since the new method of building treatment facilities, without
prior Commission review, was devised, the Utility has entered
into the same arrangement with the developer of Deerfield
Village (Tr. 68, 111, 112).
29.
The Deerfield Village treatment plant and collection lines
are already under construction and will serve 48 residential
customers. (Tr. 69, 72).
30.
None of the various agreements with the developer of Deerfield
Village were submitted to the Commission for review. (Tr.
70). No person filed an application before construction on
the Deerfield plant was started and the Commission conducted
no review of the facility prior to construction. (Tr. 68,
70, 108, 111, 112, 154, 155).
31.
Since the Deerfield Village plant is being constructed so
rapidly, the Utility has already filed an application for
a certificate to acquire it. (Tr. 108, 154, 155).
32.
There have been at least six other developers who have approached
the Utility seeking similar treatment. (Tr. 88).
33.
The sewer facilities the Utility and Developers hoped
to construct without a certificate are significant. (Tr. 276,
277, 278, 279, 280). The treatment plant for the Sheridan
project will cost $1,500,000 and will be able to treat 50,000
gallons a day. (Tr. 277, 278). The internal collection lines
for Sheridan will cost about $350,000. (Tr. 280). The transmission
line from the Sheridan subdivision to the plant will cost
about $900,000. (Tr. 280).
34.
The Thorn Hill treatment plant will also be able to treat
50,000 gallons a day but has not yet been priced. (Tr. 279,
280). Similarly, the Thorn Hill collection lines have not
been priced out yet, but that subdivision will contain more
than three times the number of homes as Sheridan. (Tr. 280,
281).
35.
Each of the 773 customers in the two projects will be paying
a separate fee for sewer service based upon their water consumption
at rates which are almost identical to the Utility's rates.
(Tr. 281, 305, 306, 307, 335, 336, 337, 338).
------------------------------------------------------------------------
36. In the Health Department application for the Sheridan
plant, the Developers correctly indicated that 178 residential
homes will be served. (Tr. 335, 336, 337).
37.
The Developers hoped to get around the statutory number of
25 persons as constituting a utility by attempting to group
the large number of residential customers in each subdivision
into one customer so that they could claim that each plant
was only serving one customer the Homeowner's Association.
(Tr. 287, 288, 303, 331).
38.
The Developers are exploring the possibility of also providing
service to the Shipley Elementary School and the Cliff Side
Inn. (Tr. 288, 290).
39.
The Homeowner's Associations already have rate schedules
established for them by the Developers. (Tr. 306). The Developers
will completely control the Homeowner's Associations until
50% of the lots are sold and occupied. (Tr. 338, 339).
40.
The Utility was informed that the Developers would structure
things so that they did not reach the statutory number of
25 customers which would make the Developers utilities. (Tr.
80, 81).
41.
Staff believes that, given the size and scope of the project,
some entity must file for a certificate before construction.
(Tr. 397; Staff Exhibit 1). Staff believes that the 178 customers
to be served by the Sheridan plant far exceed the statutory
requirement of 25 customers. (Tr. 398).
42.
Given that the treatment plant technology proposed is something
new to West Virginia, Staff would want to look at various
literature, and perhaps visit some other plants, before approving
such technology. (Tr. 402).
43.
Staff saw the whole scheme as an attempt to skirt the statutory
requirement of filing a certificate application before the
plants are built. (Tr. 422).
CONCLUSIONS
OF LAW
1.
The Utility and the Developers have entered into a partnership
to construct, operate and maintain sewer facilities which
will serve 773 single family residences without first obtaining
a certificate of convenience and necessity from the Commission.
The complicated series of contracts demonstrates that the
Developers are acting in partnership with the Utility and/or
as the Utility's agent.
2.
The Utility cannot do through a partnership or an agent what
it cannot do on its own behalf.
3.
Both the Utility and the Developers have violated W.Va. Code
§24-2-11(a) by beginning construction on the project
without a
certificate of convenience and necessity. The section clearly
applies tothe
Utility who is violating the provision by acting through a
partner and/or agent. The section also applies to the Developers,
who are legal persons under the provision.
4.
W.Va. Code §24-2-11(a) and W.Va. Code §24-2-1 do
not refer to "customers", but refer to "persons
being served" or "the public". It is clear
that both proposed systems will serve far more than 25 persons.
5.
Even if W.Va. Code §24-2-11(a) and W.Va. Code §24-2-1*
*referred to "customers", it is clear that, since
each of these individual homeowners will be charged sewer
fees based on water usage, they are indeed, or should be deemed
to be, "customers."
6.
The Utility has also violated W.Va. Code §24-2-12(c)
by leasing to the Developers real estate which will become
useful in providing sewer service without prior Commission
approval.
7.
Given that the leases were merely part of the overall
scheme to avoid proper Commission oversight of the construction
of the facilities, the leases should be deemed void under
W.Va. Code §24-2-12.
8.
The Utility has also violated the Commission's Sewer Rule
5.5.h.7 by entering into alternate extension plans which do
not conform to Sewer Rule 5.5 without the Commission's approval.
The scheme in this case is clearly an alternate plan to extend
facilities.
9.
By violating the above provisions, having inaccurate minutes
concerning Ms. Sheeleys' warning to the Utility and entering
into
additional arrangements with Eric Lewis similar to those with
the Developers herein, the Utility has demonstrated a willingness
to evade or ignore West Virginia law and Commission regulation.
If the pattern continues, the Commission may have to conduct
a general investigation of the Utility.
10.
The Utility should be ordered to cease and desist from further
participation in these alternate extension plans with either
of the
Developers herein or the developer of Deerfield Village until
the plans are submitted to the Commission for its approval
and are actually approved by the Commission.
11.
The Utility should be ordered to keep accurate minutes of
its board meetings and strictly comply with W.Va. Code §24-2-11(a);
W.Va. Code §24-2-12(c); and Sewer Rule 5.5 in the future.
12.
The Utility and the Developers should be ordered to file for
a certificate BEFORE proceeding with any further construction
of the sewer facilities at issue.
ORDER
IT
IS, THEREFORE, ORDERED that the Jefferson County Public
Service District be, and hereby is, required to cease and
desist from further participation in the alternate extension
plan which was reduced to writing through the four agreements
entered into with Old Standard, LLC,on
May 3, 2004, and entered into this record as Sheeley Exs.
3, 4, 5 and 6. The contracts violate Sewer Rule 5.5.h.7 in
that they were entered into without the approval of the Commission.
The Jefferson County Public Service District is hereby prohibited
from further participation in the alternate extension plan
with Old Standard, LLC, until and unless the plan is approved
by the Commission.
IT
IS FURTHER ORDERED that the* *Jefferson County Public
Service District be, and hereby is, required to cease and
desist from further participation in the alternate extension
plan which was reduced to writing through the four agreements
entered into with Thorn Hill, LLC, on June 7, 2004, and entered
into this record as Sheeley Exs. 7, 8, 9 and 10. The contracts
violate Sewer Rule 5.5.h.7 in that they were entered into
without the approval of the Commission. The Jefferson County
Public Service District is hereby prohibited from further
participation in the alternate extension plan with Thorn Hill,
LLC, until and unless the plan is approved by the Commission.
IT
IS FURTHER ORDERED that the Jefferson County Public Service
District be, and hereby is, required to cease and desist from
further participation in the alternate extension plan which
it entered into with Eric Lewis, the developer of Deerfield
Village. The contracts entered into with Eric Lewis violate
Sewer Rule 5.5.h.7 in that they were entered into without
the approval of the Commission. The Jefferson County Public
Service District is hereby prohibited from further participation
in the alternate extension plan with Eric Lewis until and
unless the plan is approved by the Commission.
IT
IS FURTHER ORDERED that the Jefferson County Public Service
District be, and hereby is, required to cease and desist from
entering into arrangements similar to those entered into with
Old Standard, LLC, Thornhill, LLC, and Eric Lewis until and
unless each such alternate extension agreement is approved
by the Commission.
IT
IS FURTHER ORDERED that the Jefferson County Public Service
District strictly comply with W.Va. Code §24-2-11(a);
W.Va. Code §24-2- 12(c); and Sewer Rule 5.5 in the future.
IT
IS FURTHER ORDERED that the Jefferson County Public Service
District keep accurate minutes of its Board Meetings.
IT
IS FURTHER ORDERED that the leases entered into between
Jefferson County Public Service District and Old Standard,
LLC, and Thornhill, LLC, which were entered into the record
as Sheeley Exs.6 & 8 are hereby deemed void under W.Va.
Code §24-2-12 as contrary to the public interest and
entered into without Commission approval.
IT
IS FURTHER ORDERED that the Jefferson County Public Service
District, Old Standard, LLC, and Thorn Hill, LLC, each is
hereby prohibited from continuing construction work on sewer
facilities associated with the Sheridan and Thorn Hill projects
until and unless the Commission issues a certificate of convenience
and necessity for those projects.
------------------------------------------------------------------------
IT IS FURTHER ORDERED that the Jefferson County Public
Service District be, and hereby is, warned that, if it continues
to conduct business in a way that shows it is willing to violate
West Virginia law and the rules of this Commission, the Commission
may initiate a general investigation into the practices of
the Utility.
The
Executive Secretary is hereby ordered to serve a copy of this
order upon the Commission by hand delivery, and upon all parties
of record by United States Certified Mail, return receipt
requested.
Leave
is hereby granted to the parties to file written exceptions
supported by a brief with the Executive Secretary within fifteen
(15)
days of the date this order is mailed. If exceptions are filed,
the parties filing exceptions shall certify to the Executive
Secretary that all parties of record have been served the
exceptions.
If
no exceptions are filed, this order shall become the order
of the Commission, without further action, five (5) days following
the
expiration of the fifteen (15) day time period, unless it
is ordered stayed by the Commission.
Any
party may request waiver of the right to file exceptions to
an Administrative Law Judge's Order by filing an appropriate
petition in writing with the Secretary. No such waiver will
be effective until approved by order of the Commission, nor
shall any such waiver operate to
make any Administrative Law Judge's Order the order of the
Commission sooner than five (5) days after approval of such
waiver by the Commission.
Keith
A. George Administrative Law Judge
KAG:mal
041026ae.wpd
------------------------------------------------------------------------
Footnote: 1
1 The Sheridan project's sewer and water lines are already
under construction with about 40% to 50% of the sewer lines
installed. (Tr. 107, 275, 284)./
------------------------------------------------------------------------
Footnote: 2
2 The reason the Utility insisted on owning the land before
the construction of the plant was to insure that it would
eventually get
possession of the treatment plants. (Tr. 249). By the time
of the hearing, the real estate for the Sheridan site had
already been
transferred to the Utility. (Tr. 93, 94, 249, 250).
------------------------------------------------------------------------
Footnote: 3
3 It was clear from the beginning that the Developers
would have to meet the Utility's standards when constructing
these facilities. (Tr. 118, 119). A Utility Board member testified
that the Utility's engineer was making sure the construction
meets the Utility's minimum requirements, "as we would
with any other construction" on behalf of the Utility.
(Tr.
96, 97). If the Developers in this case had wanted to put
in substandard plants, the Utility simply would not have entered
into the arrangements. (Tr. 169, 170). The Utility contractually
reserved the right to do an engineering review on the design,
as it always intended to have significant input on the engineering
design of the project. (Tr. 96, 97, 118). The Utility even
flew its engineer to Atlanta to see a plant which was similar
to the one under construction. (Tr. 247). The reason for the
intense interest was that all the parties realized that the
sewer facilities would soon be the property of the Utility.
(Tr. 248). The Utility also intended to have an inspector
present during the construction of the treatment plants and
the collection lines. (Tr. 189, 190). Utility inspectors have
been present for all work already completed on the project.
(Tr. 190, 293).
------------------------------------------------------------------------
Footnote: 4
4 The O&M agreements between the Utility and the Developers
have the Developers paying a flat monthly fee for O&M
expenses. (Tr. 267). The actual O&M expenses are not spelled
out in the contract, but the parties intended to use actual
costs. (Tr. 263)./
------------------------------------------------------------------------
Footnote: 5
5 The Developer anticipates the transfer of the treatment
plant to the Utility shortly after it is operational. (Tr.
292)./
------------------------------------------------------------------------
Footnote: 6
6 Ms. Sheeley is simply a concerned citizen of Jefferson
County. (Tr. 29). She does live relatively close to the proposed
Thorn Hill
development. (Tr. 29).
------------------------------------------------------------------------
Footnote: 7
7 That meeting was the very meeting where the Developer
presented the various contracts for the Old Standard project.
(Tr. 234, 235, 391). Ms. Sheeley was concerned that something
was not appropriate and earlier sought the advice of her attorney
on whether the scheme was proper. (Tr. 50).
------------------------------------------------------------------------
Footnote: 8
8 It is not clear whether the misrepresentation in the
minutes was the result of very sloppy record keeping or a
downright falsification. It is clear that Ms. Sheeley's statement,
which was reduced to writing and read verbatim at the Commission
hearing, was extremely relevant to the issue before the Board.
(Tr. 389, 390, 391, 392).
------------------------------------------------------------------------
Footnote: 9
9 Both plants are expandable in capacity. (Tr. 139).
------------------------------------------------------------------------
Footnote: 10
10 It is exploring the possibility of also providing service
to the Shipley Elementary School and the Cliff Side Inn. (Tr.
288, 290).
------------------------------------------------------------------------
Footnote: 11
11 The overall behavior of the Utility in this matter
leads one to wonder whether the Commission should initiate
a general investigation into the Utility's overall practices.
The record in this case is deeply disturbing and seems to
reflect a Utility which is willing to go to any lengths to
evade its responsibilities under West Virginia law. If such
a pattern continues in the future, it may be that the Commission
will have to either attempt to remove board members or seek
a receivership for the Utility.
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