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NEGOTIATING WHOLESALE WATER SUPPLY AGREEMENTS. Presented by DAMON R. TALLEY, KRWA General Counsel GERALD E. WUETCHER, PSC Attorney* At WATER PERSONNEL TRAINING SEMINAR PUBLIC SERVICE COMMISSION December 10, 2008.

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negotiating wholesale water supply agreements

NEGOTIATING WHOLESALE WATER SUPPLY AGREEMENTS

Presented by

DAMON R. TALLEY, KRWA General Counsel

GERALD E. WUETCHER, PSC Attorney*

At

WATER PERSONNEL TRAINING SEMINAR

PUBLIC SERVICE COMMISSION

December 10, 2008

* None of the views expressed in this document necessarily reflect the views of the Kentucky Public Service Commission or any other official or employee of the Kentucky Public Service Commission.

slide2
PREPARING THE SOIL
  • GUIDING PRINCIPLES
  • SPECIFIC CONTRACT PROVISIONS
  • QUESTIONS
slide3
PREPARING THE SOIL

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

slide9

No Secrets

  • Example
  • Be Up Front
slide10

Fundamental Fairness

  • No Subsidy
  • Perception
  • Reality
slide11

No Surprises

  • Communicate
    • Communicate
      • Communicate
  • Share Information
slide12

Be Creative

  • Example: HCWD No. 2

& City of Elizabethtown

slide13

SPECIFIC CONTRACT PROVISIONS

  • Hot Topics
  • Not Exhaustive List
slide14

Master Meter

  • Ownership
  • Control
  • Access

Continued

slide15

Master Meter Cont.

  • Testing
    • Who Pays?
    • Advance Notice
    • Both Parties Present
    • Share Test Results
  • Maintenance
  • Replacement
slide16

Automatic Rate Adjustment Mechanism

  • CPI
    • Great: City’s Retail Rates
    • Bad: Wholesale Customers
  • KRA Withdrawal Fees
slide17

Automatic Rate Adjustment Mechanism

  • Formula
    • Cost of Service Study
    • Allocated Costs
    • Streamlines PSC Approval
    • Use Readily Available Information
slide18

Quantity

  • Don’t Say:
    • Seller agrees to supply all of Buyer’s requirements
    • Buyer agrees to buy all its water from seller
  • Do Say:
    • Specify maximum quantity
slide19

Quantity . . . Maximum

  • Good: Monthly Amount (30,000,000)
  • Better: Daily Amount (1,000,000)
  • Best: Gallons per Minute (700 GPM)
  • Perfect: GPM at each delivery point
slide20

Quantity . . . Maximum

  • Enforcement
    • Problem
    • GPM at each delivery point
    • Charge Penalty: 10% up to 25%
    • Buffer (e.g. 10% Over Maximum)
    • Seller can waive
  • Seller not obligated to furnish extra water
slide21

Quantity . . .

  • Minimum Purchase Requirement
  • Take Or Pay Provision
    • Seller: Desirable
    • Buyer: Undesirable except . . .
  • Critical if Seller is expanding facilities to benefit Buyer
slide22

Rates

  • Initial
  • Method for Calculating Future Rate Adjustments
slide23

Rates

  • Initial Rate
    • Don’t pull it out of the air
    • Needs to be Cost-based
    • Why?
      • PSC won’t approve it
      • KIA Grant/Loan Agreements
      • Basis for future rate adjustments
slide24

Rates

  • Rate Adjustment Provisions
    • Good for Buyer:
      • Can’t raise wholesale rate without raising retail rates
      • Amount of wholesale rate increase cannot exceed the amount of retail rate increase
    • Great protection .. . But PSC won’t approve
slide25

Rates . . . Adjustment

  • Contract Formula or Methodology
    • What is the “Rate”?
      • Formula

or

      • Calculated amount (e.g. $2.00 per 1,000 gallons)
slide26

Rates . . . Adjustment

  • Frequency:
    • Review and calculate annually
    • Adjust as necessary
slide27

Access to Records

  • Guiding Principle: Share Information
    • Provide information voluntarily
  • Avoids suspicion
  • Buyer can gain access by other means:
    • Open Records Request
    • FOIA (Federal Law)
    • PSC Data Request
slide28

Curtailment of Service

  • Termination
  • Drought
  • Coordinate Conservation Measures
  • Water Shortage Response Plans
slide29

Advance Notice of Rate Adjustments

  • Why?
    • Buyer needs time to adjust its rates
      • Public Utility: File PWA with PSC
      • Municipality: Utility Commission/City Council Approval
  • How much Time: 60 days
  • Coordinate Implementation
slide30

Water Quality

  • Consecutive Systems
    • Monitoring
    • Customer Notification
  • Disinfection By-Products (DBP)
    • Stage 1 Rule: 401 KAR 8:510
    • Stage 2 Rule: (Approval Pending)
slide31

RD Form Contract

  • Checklist
  • Borrower / Buyer must pledge contract to RD
slide32

Dispute Resolution

  • Independent Third Party Review
  • Mediation
  • Arbitration
  • PSC will decide
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