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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.


Negotiating wholesale water supply agreements


Negotiating wholesale water supply agreements

PREPARING THE SOIL

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






Guiding principles
GUIDINGPRINCIPLES


Negotiating wholesale water supply agreements

No Secrets

  • Example

  • Be Up Front


Negotiating wholesale water supply agreements

Fundamental Fairness

  • No Subsidy

  • Perception

  • Reality


Negotiating wholesale water supply agreements

No Surprises

  • Communicate

    • Communicate

      • Communicate

  • Share Information


Negotiating wholesale water supply agreements

Be Creative

  • Example: HCWD No. 2

    & City of Elizabethtown


Negotiating wholesale water supply agreements

SPECIFIC CONTRACT PROVISIONS

  • Hot Topics

  • Not Exhaustive List


Negotiating wholesale water supply agreements

Master Meter

  • Ownership

  • Control

  • Access

    Continued


Negotiating wholesale water supply agreements

Master Meter Cont.

  • Testing

    • Who Pays?

    • Advance Notice

    • Both Parties Present

    • Share Test Results

  • Maintenance

  • Replacement


Negotiating wholesale water supply agreements

Automatic Rate Adjustment Mechanism

  • CPI

    • Great: City’s Retail Rates

    • Bad: Wholesale Customers

  • KRA Withdrawal Fees


Negotiating wholesale water supply agreements

Automatic Rate Adjustment Mechanism

  • Formula

    • Cost of Service Study

    • Allocated Costs

    • Streamlines PSC Approval

    • Use Readily Available Information


Negotiating wholesale water supply agreements

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


Negotiating wholesale water supply agreements

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


Negotiating wholesale water supply agreements

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


Negotiating wholesale water supply agreements

Quantity . . .

  • Minimum Purchase Requirement

  • Take Or Pay Provision

    • Seller: Desirable

    • Buyer: Undesirable except . . .

  • Critical if Seller is expanding facilities to benefit Buyer


Negotiating wholesale water supply agreements

Rates

  • Initial

  • Method for Calculating Future Rate Adjustments


Negotiating wholesale water supply agreements

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


Negotiating wholesale water supply agreements

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


Negotiating wholesale water supply agreements

Rates . . . Adjustment

  • Contract Formula or Methodology

    • What is the “Rate”?

      • Formula

        or

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


Negotiating wholesale water supply agreements

Rates . . . Adjustment

  • Frequency:

    • Review and calculate annually

    • Adjust as necessary


Negotiating wholesale water supply agreements

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


Negotiating wholesale water supply agreements

Curtailment of Service

  • Termination

  • Drought

  • Coordinate Conservation Measures

  • Water Shortage Response Plans


Negotiating wholesale water supply agreements

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


Negotiating wholesale water supply agreements

Water Quality

  • Consecutive Systems

    • Monitoring

    • Customer Notification

  • Disinfection By-Products (DBP)

    • Stage 1 Rule: 401 KAR 8:510

    • Stage 2 Rule: (Approval Pending)


Negotiating wholesale water supply agreements

RD Form Contract

  • Checklist

  • Borrower / Buyer must pledge contract to RD


Negotiating wholesale water supply agreements

Dispute Resolution

  • Independent Third Party Review

  • Mediation

  • Arbitration

  • PSC will decide