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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.

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NEGOTIATING WHOLESALE WATER SUPPLY AGREEMENTS

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  1. 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.

  2. PREPARING THE SOIL • GUIDING PRINCIPLES • SPECIFIC CONTRACT PROVISIONS • QUESTIONS

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

  4. Ratchet Down the Rhetoric

  5. Separate the Bulls

  6. Shuttle Diplomacy

  7. “Cooling-Off” Period

  8. GUIDINGPRINCIPLES

  9. No Secrets • Example • Be Up Front

  10. Fundamental Fairness • No Subsidy • Perception • Reality

  11. No Surprises • Communicate • Communicate • Communicate • Share Information

  12. Be Creative • Example: HCWD No. 2 & City of Elizabethtown

  13. SPECIFIC CONTRACT PROVISIONS • Hot Topics • Not Exhaustive List

  14. Master Meter • Ownership • Control • Access Continued

  15. Master Meter Cont. • Testing • Who Pays? • Advance Notice • Both Parties Present • Share Test Results • Maintenance • Replacement

  16. Automatic Rate Adjustment Mechanism • CPI • Great: City’s Retail Rates • Bad: Wholesale Customers • KRA Withdrawal Fees

  17. Automatic Rate Adjustment Mechanism • Formula • Cost of Service Study • Allocated Costs • Streamlines PSC Approval • Use Readily Available Information

  18. 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

  19. 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

  20. 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

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

  22. Rates • Initial • Method for Calculating Future Rate Adjustments

  23. 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

  24. 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

  25. Rates . . . Adjustment • Contract Formula or Methodology • What is the “Rate”? • Formula or • Calculated amount (e.g. $2.00 per 1,000 gallons)

  26. Rates . . . Adjustment • Frequency: • Review and calculate annually • Adjust as necessary

  27. 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

  28. Curtailment of Service • Termination • Drought • Coordinate Conservation Measures • Water Shortage Response Plans

  29. 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

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

  31. RD Form Contract • Checklist • Borrower / Buyer must pledge contract to RD

  32. Dispute Resolution • Independent Third Party Review • Mediation • Arbitration • PSC will decide

  33. Many Other Issues . . .

  34. Questions

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