PSC decision over well lease stands

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PSC - Well Lease Agreement

PSC decision over well lease stands

In a recent case before the Utah Court of Appeals, a decision by the Utah Public Service Commission (“PSC”) involving a well lease agreement originating in 1977 was at issue.  In Dansie v. Public Service Commission, the court was asked to determine whether PSC had exceeded its jurisdiction when it concluded that the well lease was void and unenforceable.

1977 Well Lease Agreement and Subsequent Amendment

In 1977, Jesse H. Dansie (the Dansie Trust’s predecessor) entered into a well lease agreement with Gerald Bagley (Hi-Country’s predecessor), which allowed Bagley to connect his water system to Dansie’s well for ten years.  In return, Dansie received and initial payment and monthly rental fees, as well as water and a number of free residential hook-ups.  Eight years after they entered into the well lease agreement, Dansie and Bagley agreed to an amendment to the lease.  The amendment gave Dansie “the right to receive up to 12 million . . . gallons of water per year from the combined water system at no cost for culinary and yard irrigation on the Dansie property.”  The amendment also stated that the well lease bound Bagley, Dansie, and their successors and assigns in perpetuity.

PSC Grants Foothills CPCN to Operate as Public Utility

In 1985, Bagley created the Foothills Water Company, and thereafter applied to the PSC to operate the water system as a public utility.  The PSC granted Foothills’’ request, providing Foothills with a certificate of public convenience (“CPCN”) and authorizing interim rates.  Later that same year, Bagley transferred all interest and stock in Foothills to Dansie, but Dansie and Foothills were subsequently sued by H-Country Estates Homeowners Association, contesting Foothills’ and Dansie’s interests in the water system and seeking to quiet title in the Association.

PSC Finds Well Lease Agreement Void Unenforceable

In March 1986, the PSC held general rate setting hearings for Foothills and issued an order.  In the course of determining “just and reasonable rates,” the PSC considered the well lease agreement.  The PSC determined that the well lease was:

[G]rossly unreasonable e requiring not only substantial monthly payments, but also showering virtually limitless benefits on Jesse Dansie and the members of his immediate family.  The PSC further determined that it would be unjust and unreasonable to expect Foothills’ . . . active customers to support the entire burden of the Well Lease Agreement.  If Dansie and his family received water through the water system, the PSC ordered that they would have to pay the actual pro-rata . . . costs for power chlorination and water testing involved in delivering that water.

PSC Decertifies Water System as Public Utility

In 1993, the Homeowners Association assumed control of the water system and the CPCN and developed a new well, discontinuing the use of the Dansie well. A year later, the Association disconnected the water lines to the Dansie property after the Dansies alleged refused to pay the costs required by the PSC’s 1986 order.  Then, in 1996, the PSC decertified the Association as a public utility.

Hi-Country Estates I

In 2005, a court determined that the well lease was an enforceable contract, finding that the contract was neither void as against public policy nor unconscionable.  The Utah Court of Appeals affirmed that decision in Hi-Country Estates I.  There, the Utah Court of Appeals found that after the PSC revoked the status of the water system as a public utility, the PSC no longer had jurisdiction.  That meant that the Dansies were not required to pay the costs ordered by the PSC’s 1986 order.

Hi-Country Estates II

Following the Court of Appeals decision, the Dansies filed a motion to modify the judgment against them in light of the appellate ruling that they were not responsible to pay the costs associated with the 1986 order.  The lower trial court denied the motion, and the Dansies again appealed to the Utah Court of Appeals.  The Court of Appeals affirmed (Hi-Country Estates II), explaining that ‚”the effect of the Final Judgment . . . is that the Dansies are, going forward, entitled to their contractual rights to free water and free hookups unless the PSC intervenes and determines otherwise.”

PSC Reassumes Jurisdiction Over Water System

In the time after Hi-Country Estates II was decided, the Homeowners Association presented evidence that it was providing water services to customers outside its boundaries and requested reinstatement of the CPCN.  The PSC reinstated the CPCN, bringing the water system back within the PSC’s jurisdiction.  A year later, the Homeowners Association filed a general rate case application with the PSC.  The application included a specific rate for the Dansie Trust.

The Dansie Trust argued to the PSC that he had a right to 12 million gallons of water from the well at no cost, and so the rate charge ordered by the PSC was prohibited under the well lease agreement.  However, similar to their 1986 order, the PSC determined:

There has been no evidence presented that would persuade us to overturn our prior 1986 order finding that the Well Lease . . . is unreasonable, unjust, and not in the public interest. Therefore, based on the [PSC]’s earlier order, the lack of contrary evidence, and the Division’s evidence and recommendation in this docket, we decline to deviate from our prior precedent. We find the Well Lease . . . is void and unenforceable as against the public interest. Thus, the [Association] has no obligation to provide water to Mr. Dansie, and therefore, the [Association’s] proposed fee of $3.85 per 1,000 gallons to deliver water to Mr. Dansie is moot and disallowed from the tariff.

The PSC also concluded that Dansie’s western-most 40-acre parcel falls within the Association’s service area, but the remainder of his “back 80” acres does not.  Dansie requested rehearing and reconsideration.  The PSC denied these requests. The Dansie Trust timely petitioned this court for judicial review of the PSC’s order.

On appeal, the Dansie Trust set forth three issues: 1) that the PSC exceeded its jurisdiction by declaring the Well Lease void and unenforceable; 2) that the PSC improperly approved the Association’s rate case without then-trustee Jesse Rodney Dansie’s presence at the rate case hearings; and 3) that the property was owned by Dansie and had been covered under the original service area for the water system.

Utah Court of Appeals Determines PSC has Jurisdiction

In addressing PSC’s jurisdiction, the Court of Appeals noted that the legislature granted the PSC “broad powers,” and included in those broad powers was the authority to set rates for public utilities.  Or, in other words, the PSC’s authority to fix rates overcame any “antecedent contracts,” like the well lease in the instant case.  The Court of Appeals highlighted that its determination in Hi-Country Estates II came at a time when the PSC had revoked the water system’s status as a public utility, but that the PSC had now reasserted its jurisdiction over the water system when it reinstated the water system as a public utility.

As to the issue approving the rate case without the Dansie Trust’s trustee present at the rate hearing, the Court of Appeals determined that the PSC adequately addressed the trustee’s inability to attend the rate case hearing.  While the court rejected the issue on the grounds that it was inadequately briefed, the court did note:

It originally scheduled the hearing for March 4, 2014.  When the Trustee was unable to attend due to his hospitalization, the PSC continued the hearing one week.  It did so with the agreement of all parties, including the Trust’s attorney, who stated that March 11 was “acceptable” and that if the Trustee was still not available on that date, another member of the Trust would be able to testify.  When the Trustee could not attend the March 11 hearing and no other member of the Trust appeared, the Trust’s attorney asked the PSC to continue the hearing a second time, but the attorney did not know when the Trustee would be available.  The Trust’s attorney acknowledged at both hearings that the PSC ‚is statutorily required to issue a decision within 240 days‛ and was facing that deadline.  Additionally, prior to the March 4 hearing, the Trustee had submitted direct and surrebuttal written testimony.  When he was unable to attend the March 11 hearing, the PSC gave the Trust the opportunity to file a post-hearing brief, which it did not do.  Finally, the Trustee’s absence did not disadvantage the Trust alone, but also other parties, because it gave the Trust the right to submit the Trustee’s testimony in written form without cross-examination.

Turning to the final issue, the Court of Appeals held that the PSC properly excluded Dansie property from the service area.  Again, the court found that this argument was inadequately briefed, and that:

The Trust identifies no provision of the Well Lease or any other evidence that would obligate the Association to provide water service to the excluded portions of the Dansie property.  The PSC noted that the Trust “presented no basis in law or fact for altering” the Association service area and we conclude the same on appeal.

PSC has “Broad Authority”

The major takeaway from Dansie is that the PSC has broad authority for setting rates as it relates to public utilities, and that authority trumps antecedent contracts.  In Dansie’s case that meant that a contract, which gave the Trust access to approximately 12 million gallons of water a year in perpetuity, is no longer enforceable, and the Trust is now liable to pay the costs of the PSC’s rate order.  The fact that the Utah Court of Appeals had found the contract enforceable in Hi-Country Estates II was of no consequence once the PSC re-established its jurisdiction over the water system.  Once jurisdiction was re-established, the rates associated with the water system were in the PSC’s control.

* Photo Cred.: marvelcinematicuniverse.wikia.com

Copyright 2016


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