NEGOTIATING WHOLESALE WATER SUPPLY AGREEMENTS Presented by DAMON R. TALLEY, KRWA General Counsel GERALD E. WUETCHER, PSC Attorney* At WATER PERSONNEL.
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NEGOTIATING NEGOTIATING WHOLESALE WATER WHOLESALE WATER SUPPLY AGREEMENTSSUPPLY AGREEMENTS
Presented byPresented byDAMON R. TALLEY, KRWA General CounselDAMON R. TALLEY, KRWA General Counsel
GERALD E. WUETCHER, PSC Attorney*GERALD E. WUETCHER, PSC Attorney*AtAt
WATER PERSONNEL TRAINING SEMINARWATER PERSONNEL TRAINING SEMINARPUBLIC SERVICE COMMISSIONPUBLIC SERVICE COMMISSION
December 10, 2008December 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.
PREPARING THE PREPARING THE SOILSOIL
GUIDING PRINCIPLESGUIDING PRINCIPLES
SPECIFIC CONTRACT SPECIFIC CONTRACT PROVISIONS PROVISIONS
QUESTIONSQUESTIONS
“Give me six hours to chop down a tree and I will spend the first four sharpening the
axe.”
PREPARING THE SOIL
Ratchet Down the RhetoricRatchet Down the Rhetoric
Separate the BullsSeparate the Bulls
Shuttle DiplomacyShuttle Diplomacy
““Cooling-Off” PeriodCooling-Off” Period
GUIDINGGUIDING PRINCIPLESPRINCIPLES
ExampleExample
Be Up FrontBe Up Front
No SecretsNo Secrets
No SubsidyNo Subsidy
PerceptionPerception
RealityReality
Fundamental FairnessFundamental Fairness
CommunicateCommunicate
CommunicateCommunicate
CommunicateCommunicate
Share InformationShare Information
No SurprisesNo Surprises
Example:Example: HCWD No. 2 HCWD No. 2
& City of Elizabethtown& City of Elizabethtown
Be CreativeBe Creative
SPECIFIC CONTRACT SPECIFIC CONTRACT PROVISIONSPROVISIONS
Hot TopicsHot Topics
Not Exhaustive ListNot Exhaustive List
OwnershipOwnership
ControlControl
AccessAccessContinuedContinued
Master MeterMaster Meter
Testing Testing Who Pays?Who Pays?
Advance NoticeAdvance Notice
Both Parties PresentBoth Parties Present
Share Test ResultsShare Test Results
MaintenanceMaintenance
ReplacementReplacement
Master MeterMaster Meter Cont.Cont.
CPICPI Great:Great: City’s Retail RatesCity’s Retail Rates
Bad:Bad: Wholesale CustomersWholesale Customers
KRA Withdrawal FeesKRA Withdrawal Fees
Automatic Rate Adjustment Automatic Rate Adjustment MechanismMechanism
FormulaFormulaCost of Service StudyCost of Service Study
Allocated CostsAllocated Costs
Streamlines PSC ApprovalStreamlines PSC Approval
Use Readily Available Use Readily Available InformationInformation
Automatic Rate Adjustment Automatic Rate Adjustment MechanismMechanism
Don’t Say:Don’t Say:Seller agrees to supply all of Seller agrees to supply all of Buyer’s requirementsBuyer’s requirements
Buyer agrees to buy all its Buyer agrees to buy all its water from sellerwater from seller
Do Say:Do Say: Specify maximum quantitySpecify maximum quantity
QuantityQuantity
Good:Good: Monthly Amount (30,000,000)Monthly Amount (30,000,000)
Better:Better:Daily Amount (1,000,000)Daily Amount (1,000,000)
Best:Best: Gallons per Minute (700 Gallons per Minute (700
GPM)GPM)
Perfect:Perfect: GPM at each delivery pointGPM at each delivery point
Quantity . . . MaximumQuantity . . . Maximum
EnforcementEnforcementProblemProblem
GPM at each delivery pointGPM at each delivery point
Charge Penalty:Charge Penalty: 10% up to 25%10% up to 25%
Buffer (e.g. 10% Over Maximum)Buffer (e.g. 10% Over Maximum)
Seller can waiveSeller can waive
Seller not obligated to furnish extra Seller not obligated to furnish extra waterwater
Quantity . . . MaximumQuantity . . . Maximum
Minimum Purchase Minimum Purchase RequirementRequirement
Take Or Pay ProvisionTake Or Pay ProvisionSeller:Seller: DesirableDesirable
Buyer:Buyer: Undesirable except . . .Undesirable except . . .
Critical if Seller is expanding Critical if Seller is expanding facilities to benefit Buyerfacilities to benefit Buyer
Quantity . . . Quantity . . .
InitialInitial
Method for Calculating Future Method for Calculating Future Rate AdjustmentsRate Adjustments
RatesRates
Initial RateInitial RateDon’t pull it out of the airDon’t pull it out of the air
Needs to be Cost-basedNeeds to be Cost-based
Why?Why?PSC won’t approve itPSC won’t approve it
KIA Grant/Loan AgreementsKIA Grant/Loan Agreements
Basis for future rate adjustmentsBasis for future rate adjustments
RatesRates
Rate Adjustment ProvisionsRate Adjustment ProvisionsGood for Buyer:Good for Buyer:
Can’t raise wholesale rate without Can’t raise wholesale rate without raising retail ratesraising retail rates
Amount of wholesale rate Amount of wholesale rate increase cannot exceed the increase cannot exceed the amount of retail rate increaseamount of retail rate increase
Great protection .. . But PSC Great protection .. . But PSC won’t approvewon’t approve
RatesRates
Contract Formula or MethodologyContract Formula or MethodologyWhat is the “Rate”?What is the “Rate”?
Formula Formula
oror
Calculated amount Calculated amount (e.g. $2.00 per 1,000 (e.g. $2.00 per 1,000
gallons)gallons)
Rates . . . AdjustmentRates . . . Adjustment
Frequency:Frequency:
Review and calculate annuallyReview and calculate annually
Adjust as necessaryAdjust as necessary
Rates . . . AdjustmentRates . . . Adjustment
Guiding Principle: Share Guiding Principle: Share InformationInformation
Provide information voluntarilyProvide information voluntarily
Avoids suspicionAvoids suspicionBuyer can gain access by other Buyer can gain access by other means:means:
Open Records RequestOpen Records RequestFOIA (Federal Law)FOIA (Federal Law)PSC Data RequestPSC Data Request
Access to RecordsAccess to Records
TerminationTermination
DroughtDrought
Coordinate Conservation Coordinate Conservation MeasuresMeasures
Water Shortage Response Water Shortage Response PlansPlans
Curtailment of ServiceCurtailment of Service
Why?Why?Buyer needs time to adjust its ratesBuyer needs time to adjust its rates
Public Utility: File PWA with PSCPublic Utility: File PWA with PSC
Municipality: Utility Commission/City Municipality: Utility Commission/City Council ApprovalCouncil Approval
How much Time:How much Time: 60 days 60 days
Coordinate ImplementationCoordinate Implementation
Advance Notice of Rate Advance Notice of Rate AdjustmentsAdjustments
Consecutive SystemsConsecutive SystemsMonitoringMonitoring
Customer NotificationCustomer Notification
Disinfection By-Products (DBP)Disinfection By-Products (DBP)Stage 1 Rule:Stage 1 Rule: 401 KAR 8:510401 KAR 8:510
Stage 2 Rule:Stage 2 Rule: (Approval (Approval Pending)Pending)
Water QualityWater Quality
ChecklistChecklist
Borrower / Buyer must pledge Borrower / Buyer must pledge contract to RDcontract to RD
RD Form ContractRD Form Contract
Independent Third Party ReviewIndependent Third Party Review
MediationMediation
ArbitrationArbitration
PSC will decidePSC will decide
Dispute ResolutionDispute Resolution
Many Other Issues . . .Many Other Issues . . .
QuestionsQuestions
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