In the coming months, the Public Utilities Commission will begin holding hearings on whether to grant the Wailuku Water Company’s new subsidiary, Wailuku Water Distribution Company, a Certificate of Public Convenience and Necessity (CPCN). Such certificates are required of utilities that serve the public.
For decades, WWC and its predecessors have charged customers for the delivery of millions of gallons of water a day via the West Maui Irrigation System, which diverts water from the Maui streams of `Iao, Waiehu, Waihe`e, and Waikapu, collectively known as Na Wai `Eha, or the Four Great Waters. Last year, at the same time the state Commission on Water Resource Management was dealing with a contested case hearing over the use of that water, the fact that WWC might be a public utility subject to PUC regulation was somehow brought to the PUC’s attention.
Under state law, anyone who sells or conveys water to the public, with a few exceptions, is subject to PUC regulation. And such utilities cannot sell assets, charge for services or even set rates without a CPCN and PUC approval.
While operators of some former sugar plantation irrigation systems have obtained CPCNs, others have not. The East Maui Irrigation Co., Inc., for example, has not been required to apply for a CPCN, even though it charges for the delivery of water to four other entities, including Maui County. For various reasons, including the fact that two of EMI’s four “water clients” are owned by EMI’s parent company Alexander & Baldwin, PUC staff informally determined last year that EMI is not a public utility.
However, the PUC found that WWC, which has evolved from a sugar plantation to a diversified agribusiness to a water utility over the past century or so, was a public utility and ordered the company to apply for a CPCN by December 2007.
In February, WWC and WWDC applied for the certificate. In the application, the companies proposed charging users $0.90 per 1,000 gallons of water, except for a handful of users who will receive “grandfathered” contracts (including WWC owner Avery Chumbley).
Under PUC rules, hearings for simple cases that don’t have any intervenors must be resolved within six months, says Lani Shinsato, the PUC’s attorney overseeing the Wailuku case. But the Wailuku case is anything but simple.
WWC, along with Hawaiian Commercial & Sugar, the Office of Hawaiian Affairs, the nonprofit groups Hui O Na Wai `Eha and Maui Tomorrow, and the County of Maui, are entering the final stages of a contested case hearing before the Water Commission on interim stream flow amendments to Na Wai `Eha. At the heart of the case is WWC’s right and legal authority to continue diverting the majority of stream flows for its own private use in the face of intervenors’ claims that this comes at the expense of central Maui residents with superior rights to that water and to the detriment of native flora and fauna dependent on healthy stream flow.
So it was no surprise that HC&S, Maui County, Hui O Na Wai `Eha, Maui Tomorrow, and the Office of Hawaiian Affairs – in addition to a couple of WWC’s current customers – filed motions to intervene in the PUC proceedings.
At a PUC hearing last May, several of the parties explained the need for their involvement.
In written testimony, OHA administrator Clyde Namu`o wrote, “The pending decision by CWRM will determine whether Wailuku is ‘able,’ within the applicable constitutional and statutory framework, to provide Na Wai `Eha water to customers.” Namu`o speculated that WWC and WWDC viewed the CPCN proceedings as “an opportunity to ‘scrape off’ its historical ‘kuleana obligations’ by charging kuleana users in Na Wai `Eha for water to which they have well-recognized, and superior, rights.”
Namu`o complained, “[K]uleana users are not voluntary ‘customers’ of Wailuku. It is only because Wailuku has dewatered the streams that the kuleana users are required to obtain (and Wailuku is required to provide) water from Wailuku’s ditch system.”
Namu`o added that the Water Commission’s decision earlier this year to designate Na Wai `Eha as a surface water management area will also affect WWC’s and WWDC’s ability to provide their services since any withdrawal, diversion, or consumptive use of water within the area must have a Water Use Permit, “the applicant for which will have the burden to show that its use is ‘reasonable-beneficial’.”
Maui Department of Water Supply’s Jeffrey Eng and representatives of Hui O Na Wai `Eha also testified to the impact the Water Commission’s decisions will have on WWDC’s ability to deliver water. In addition, Eng told the commission that the formation of WWDC by WWC “and the reasonableness of their transactions require close scrutiny, because the deal involves the transfer of unspecified assets, the assignment of certain agreements and contracts, and a lease agreement between affiliated partners that has potentially significant rate impacts to customers.”
Because WWDC plans to lease WWC’s lands once a PUC certificate is approved, Eng said that WWDC appeared to have been established for the purpose of “artificially creating a stepped-up basis for otherwise wholly depreciated assets….This kind of self-dealing should be viewed with suspicion.”
Attorneys for Earthjustice, which represents Hui O Na Wai `Eha and Maui Tomorrow, also expressed their concern about the “contrived ‘lease’ of watershed lands from WWC to its newly created alter ego, WWDC,” as well as failure to mention the numerous kuleana water users that receive water from the ditch. They also argued that the CPCN application suffered from serious deficiencies, “including lack of proof of any actual uses of the applicants’ claimed customers, much less whether the uses are justified in light of the public interest in instream flows.”
In its motion to intervene, HC&S did not mention the Water Commission contested case. It argued instead that HC&S jointly owns and controls portions of the irrigation system that WWC uses to distribute water to its customers.
“In the late 1800s, HC&S and Wailuku Sugar Company were actively competing for cane lands and water rights…. After many years of controversy, the two companies settled their differences through an exchange of lands and other property rights and an agreement on the sharing of water,” wrote HC&S’s attorneys Kent Morihara and Yvonne Izu. “Maintenance and operating costs for the system are shared between WWC and HC&S commensurate with the interests held by each of the parties in the system.”
WWC and WWDC filed motions opposing all requests to intervene. The companies argued that the state consumer advocate, who is supposed to represent the public’s interest in all PUC cases, would adequately represent the interests of the would-be intervenors.
Regarding HC&S’s motion, Wailuku’s attorneys Craig Nakanishi and Shah Bento stated that their clients were puzzled that the motion appeared to be concerned with an agreement signed in 1924 that they said had no bearing on the proceeding. They argued that HC&S was seeking to use the PUC proceedings as a way to lay claim to portions of the Wailuku water system that HC&S doesn’t own. The company’s allegation of joint ownership, they wrote, is an attempt “to insinuate itself into the management of the utility’s system to backstop HC&S operations in the event that the CWRM allocates less water than it needs, or it believes it is not getting what it wants notwithstanding the 1924 agreement.”
By late October, the PUC was to have issued an order determining which parties, if any, will be allowed to participate in the case.
How or whether the Water Commission’s contested case will figure into the PUC hearings is unclear. Water Commissioner Lawrence Miike, who is serving as the hearing officer, concluded the bulk of the evidentiary hearings in March and held a last-minute hearing last month. According to Earthjustice attorney Isaac Moriwake, all parties now have until December 5 to submit their proposed findings of fact and conclusions of law to Miike, who will, in turn, prepare his own recommendations to the Water Commission on amendments to the interim instream flow standards. While Miike has not yet received those filings, Moriwake says that Miike has already begun working on his recommendations.
— Teresa Dawson
Volume 19, Number 5 November 2008
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