BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION GREAT LAND CORPORATION, ) ) Complainant, ) ) vs. ) Docket No. UW-970050 ) Volume 1 SOUND WATER COMPANY, ) Pages 1-13 ) Respondent. ) ---------------------------) A pre-hearing conference in the above matter was held on July 8, 1997, at 9:30 a.m., at 1300 Evergreen Park Drive Southwest, Olympia, Washington, before Administrative Law Judge MARJORIE R. SCHAER. The parties were present as follows: SOUND WATER COMPANY, INC., by DOUGLAS KAUKL, Attorney at Law, 11212 94th Avenue East, Puyallup, Washington 98373. GREAT LAND CORPORATION, by GREG W. HAFFNER, Attorney at Law, 1201 Pacific Avenue, Suite 1900, Tacoma, Washington 98401. THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION, by MARY M. TENNYSON, Senior Assistant Attorney General, 1300 South Evergreen Park Drive Southwest, Olympia, Washington 98504-0128. Kathryn T. Wilson, CCR Court Reporter P R O C E E D I N G S JUDGE SCHAER: The hearing will come to order. This is a hearing in Docket No. UW-970050 which is a complaint filed by Great Land Corporation against Sound Water Company regarding a contract for water main extension to Thomas Springs Estates. This pre-hearing conference was set by notice of pre-hearing conference dated June 18, 1997. It's taking place on July 8th, 1997 at Olympia Washington. The hearing is being held before Administrative Law Judge Marjorie R. Schaer. Let's begin by taking appearances starting with the appearance of the complainant, please? MR. HAFFNER: My name is Greg W. Haffner, H-A-F-F-N-E-R. I'm the attorney for Great Land Corporation. My address is 1201 Pacific Avenue, Suite 1900 in Tacoma. MR. KAUKL: My name is Douglas Kaukl, K-A-U-K-L. I'm the attorney for respondent, Sound Water Company, Incorporated. My office is 11212 94th Avenue East, Puyallup, 98373. MS. TENNYSON: For Commission staff, my name is Mary M. Tennyson. I'm a senior assistant attorney general. The address is 1300 South Evergreen Park Drive Southwest, Olympia, Washington. JUDGE SCHAER: As the first order of business, are there going to be any petitions or motions to intervene this morning? I'll note that there is no one in the hearing room other than the parties and members of Commission staff, so that it appears there will be no petitions or motions to intervene, and we can go forward. I'd like to confirm at this point that counsel for the three parties will be the contact persons for their clients for distributions of any materials in this matter. Is that going to be correct for each of you? You'll be the person with whom to make contact? MR. HAFFNER: Yes. That's correct for Great Land. MR. KAUKL: That's correct for the respondent. I think there's a factor that the administrative law judge should be aware of involved in this case, and that is that there is another matter pending before the Commission -- I didn't bring the file number, but I'm sure it's available here -- involving a transfer of all the assets to Sound Water Company, Incorporated, to Rainier View Water Company. An application for approval of that was filed last year, I believe. The Commission considered it and deferred action on that matter pending resolution of an unrelated contractual dispute between the contracting parties. But at this point in time -- and that was going to be arbitrated, and has in fact been arbitrated, and the arbitration of that matter was concluded two weeks ago -- the arbitrator's ruling has not been delivered, but immediately after that ruling is delivered, I would assume that Rainier View Water Company will move to renew its pending application for approval of the Sound Water assets to it before the Commission. I frankly don't know what effect the Commission's action on that will have with this pending hearing. JUDGE SCHAER: Is Rainier View aware of this hearing? MS. TENNYSON: I am aware, Ms. Schaer, because I am counsel for the Commission staff on that case as well, and Rick Finnigan is the counsel for Rainier View, and I spoke with him yesterday, and he said, "Why would I want to come to this hearing?" JUDGE SCHAER: So they are aware? MR. KAUKL: I think Rainier View is represented by Mr. Haffner's firm. MR. HAFFNER: Our firm does some other work for Rainier View also, so they are aware of the pending matter today with Sound. We really don't know what's going to happen with this situation. Either way the arbitration goes in the Rainier View versus Sound -- and I'm not sure exactly what the name of the case is there -- there's really no guarantee no matter which way that goes whether there would be a resolution that would be favorable to Great Land that would be different from what we're trying to seek in today's hearing. JUDGE SCHAER: But we know that Rainier View had notice of this hearing and of their opportunity to intervene if they chose to do so? MS. TENNYSON: Yes. JUDGE SCHAER: That would be my concern this morning. MS. TENNYSON: Yes. I don't see how the application for transfer would affect this case at all. MR. KAUKL: I just wanted to advise you of that as it stands right now, and until matters intervene, I am the contact person and lawyer for Sound Water Company, Incorporated. The matters may be addressed to my office. JUDGE SCHAER: Okay. Next, I'd like to get fax numbers for everyone, so if I need to contact you quickly, I've got those available, if you have them with you. MR. HAFFNER: My fax number, on behalf of Great Land Corporation, is (253) 383-6377. JUDGE SCHAER: Thank you. MR. KAUKL: And my fax number is (253) 841-1750. For the record, Sound Water Company's fax number is (253) 847-6174. JUDGE SCHAER: Thank you. Ms. Tennyson? MS. TENNYSON: It is 586-5522. JUDGE SCHAER: Yours is 36O; correct? MS. TENNYSON: That's correct. JUDGE SCHAER: The next thing that we would usually discuss is scheduling, and I don't know if you'd like to take a break now and see if your schedule has been faxed? Let's go off the record for a moment to allow Mr. Haffner to check on his calendar. (Off the record at 9:45.) (Back on the record at 10:20 a.m.) JUDGE SCHAER: Let's be back on the record. We had an extensive recess in which we discussed the issues in the case and how they needed to be framed, any need for discovery in addressing those issues, and scheduling for the remaining of the proceeding. The parties, I believe, have agreed among themselves that there is no need for formal discovery in this matter. The complainant and the Company have agreed to cooperate in exchanging information in order to address any questions that may exist. The complainant has also discussed with Commission staff how to obtain access to Commission files in order to obtain any information contained in those fails relating to this matter. The parties have agreed to work together to provide an agreed statement of facts, and that statement will be provided by July 29th, 1997. I assume by that, that it will be provided to all parties and also filed with the Commission so that I may see it. The parties have further agreed that pre-hearing memoranda from the complainant and the Company will be filed by August 12th, 1997; that Commission staff may file pre-hearing memoranda by August 20th, 1997 in order to reflect what the position of the Staff will be in this matter, and we have agreed to have a hearing on the issues framed in this matter on August 26th, 1997. The parties may, as part of their agreed statement of facts or in accompaniment with those, provide declarations of experts regarding certain of the issues in this matter, and to the extent that those declarations are considered in addition to the facts and the statement of fact, we will treat the hearing on August 26 as a hearing on cross motions for summary disposition. After argument at that hearing and responses to any questions that the bench may have, we will then have an initial order issued in this matter. At this point, the parties do not see any need for a protective order. A protective order will be made available if such a need should arise. Is there anything else that we discussed while we were off the record that needs to be more completely reflected on the record? MR. HAFFNER: Your Honor, would you like me to discuss the issues that we had framed? JUDGE SCHAER: I think that would be helpful. I think before you do that, Mr. Haffner, just so that I remember, you had raised one issue that you wanted to be certain that your complaint covered, and when you frame the issues, would you identify that, please? MR. HAFFNER: Do you want me to start out with framing the issue including the tax issue? JUDGE SCHAER: Yes, if you would. MR. HAFFNER: The first issue that we see is regarding the obligation of Great Land to pay the CIAC tax, and I think it's been agreed amongst the parties that if the Commission determines that that amount is owed by Sound Water Company to the IRS -- and when I say owed, I don't mean paid directly to the IRS, but to be reported to the IRS -- that Great Land should, in fact, pay that and then we should not be able to obtain relief from the Commission for the payments that have been made. However, if it's determined that the moneys should not have been collected, that there should be some relief granted to Great Land. The CIAC tax issue applies to at least three different types of payment. There was one payment of almost $35,000 for the water main extension agreement. There is a $178.50 charge that's part of the service connection charge, which totals $528.15, and there is another possibility that the CIAC tax is a component of the storage charge of $190. The second issue that I see and that I believe we agreed to is whether or not Sound Water Company should be permitted to charge and retain the service connection charge of $350, which is in their tariff, when in fact they have not provided the service of installing those service connections or provided the material that is part of installing the service connections. JUDGE SCHAER: Does anyone have anything to add to that description of the issues? MS. TENNYSON: Commission staff doesn't. MR. KAUKL: Is Sound being bound by the complainant's version of the issues in the case as stated by Mr. Haffner, or is that just his position as to what the issues are? Because I think they go a little farther than that, and I'm a little reluctant to sign on to his version of the first one in its entirety if in fact we're stipulating that that's the issue. JUDGE SCHAER: I'd like you then to give your description of how you see the issues that may be different so we have a complete record of that, please. MR. KAUKL: First off, I don't have any problem with this hearing making a decision which concerns all of the CIAC issues between the parties, even if they are not expressly pleaded. That's not a problem, and we consent to that and not ask or require any kind of formal. I think the CIAC matter goes beyond simply a determination of whether or not it's been properly -- it's due the IRS. I don't think that's the Commission's function. I think the Commission's function is to determine the reasonableness of the tariff and the reasonableness of the Company's reporting procedures given this scenario. I think, for example, that it's possible for the Company to incorrectly file its tax return. But so long as it reports the CIAC issues in a business like manner using reasonable business sense and reasonable application as it sees fit with tax laws that it's entitled to do so without being second guessed by any of its customers and that the tariff must be interpreted by the Commission to allow it to do so. So I think it goes beyond simply reporting. I will represent that it has been our understanding that it has been reported as income attributable to the Company. But we don't believe it's a proper function of Commission to make a determination of whether or not it's been properly reported. That's a relationship between the Company and the IRS. So to the extent that Mr. Haffner's characterization of the issues does not include that issue, I object to it. MR. HAFFNER: Can I respond to that? JUDGE SCHAER: Briefly. MR. HAFFNER: I think the issue there is whether or not the Commission has the jurisdiction to determine whether such rates are reasonable. I think as a part of the determination as to whether or not those rates are reasonable, the Commission first has to determine whether or not the rates are collectable. If they're collectable in the Commission's view, then we certainly agree that Great Land should pay them. If they are not collectable, then I think the Commission has to determine whether or not it is reasonable for Sound Water Company to collect those rates from a customer. When you're dealing with an issue of a rate that consists of 51 percent up-charge, I think that that's a significant amount that allows the Commission to determine whether or not a previously approved tariff, which has been possibly significantly modified by a repeal of a statute, includes now a charge that has been become unreasonable. JUDGE SCHAER: Does Commission staff have anything to add to this framing of the issue? MS. TENNYSON: I don't think so. JUDGE SCHAER: Is there anything further that we discussed off the record that you would like to see reflected on the record? MR. HAFFNER: Not from Great Land. MR. KAUKL: Nothing from respondent. MS. TENNYSON: Nothing from Commission staff. JUDGE SCHAER: Is there anything further we should address this morning before we conclude this pre-hearing conference? MR. HAFFNER: Not from Great Land. MR. KAUKL: Nothing. JUDGE SCHAER: Hearing nothing, then we will adjourn this pre-hearing conference, and we will reconvene on August 26th at 9:30 in the morning. We are off the record. (Pre-hearing concluded at 10:30 a.m.)