Opinion ID: 2548844
Heading Depth: 2
Heading Rank: 1

Heading: application of the wilkinson water tariff

Text: ¶ 9 The Commission examined Wilkinson Water's tariff and held that none of its provisions are applicable to this case. Because it found the tariff inapplicable, the Commission applied its well-established policy requiring that developers pay the proportionate share of infrastructure costs associated with their proposed developments. ¶ 10 The tariff contains a Facility Extension Policy [1] that explains the respective allocation of costs between Wilkinson Water and its customers when a customer obtains an extension of Wilkinson Water's lines of service to the customer's property. The Commission held that the Facility Extension Policy does not govern cost allocation for additional facilities necessary to supply a proposed subdivision. It reasoned: [T]he Facility Extension Policy [is] applicable to a customer or prospective customer who requires an extension of [Wilkinson Water's] facilities in order to begin his own consumption of water services offered by the Company.... This is not Mr. Bradshaw's situation. Mr. Bradshaw would require Wilkinson Water to expand and upgrade facilities, not to meet Mr. Bradshaw's own water service consumption, but to be prepared to serve possible, future customers in his proposed development. ¶ 11 We accord the Commission's tariff interpretations considerable deference and review them for mere reasonableness or rationality. McCune & McCune v. Mountain Bell Tel., 758 P.2d 914, 918 (Utah 1988). Although the Commission's interpretation of a tariff is entitled to deference, its interpretation must be lawful. One of the requirements for a finding of reasonableness [of a Commission tariff interpretation] is lawfulness; a minimally reasonable interpretation must avoid unnecessarily contravening general law. Id. ¶ 12 Bradshaw asserts that the Commission made two errors in interpreting Wilkinson Water's tariff. First, Bradshaw contends the Commission's interpretation would render the tariff unlawful because it would allow unlawful discrimination against him. Second, Bradshaw argues the tariff should have been construed strictly against the utility pursuant to Josephson v. Mountain Bell, 576 P.2d 850, 852 (Utah 1978).
¶ 13 The Commission's holding that the tariff does not apply in this case is based on a distinction between prospective customers who seek water service for their own imminent consumption and real estate developers who seek commitments to serve lots they intend to sell to others. Bradshaw argues that the terms of the tariff recognize no such distinction and therefore he should be considered a customer in the same way as an individual who requests service on his own behalf. ¶ 14 Utah law prohibits public utilities from engaging in disparate treatment of similarly situated customers, Utah Code Ann. § 54-3-8 (2003), [2] and requires that a utility's charges be just and reasonable, id. § 54-3-1. Utah law recognizes, however, that not all customers are similarly situated. The scope [of the] definition of `just and reasonable' may include, but shall not be limited to, the cost of providing service to each category of customer, economic impact of charges on each category of customer, and on the well-being of the state of Utah.... Id. ¶ 15 Bradshaw argues that he is similarly situated to an individual lot owner and that the Commission erred in treating him differently. He points out that the tariff makes no distinction between a prospective customer who seeks water service for his own imminent consumption and a real estate developer who seeks a commitment to serve lots he intends to sell to others at some future time. He reasons that Wilkinson Water would collect the same amount in connection fees whether it were to collect them from Bradshaw for twenty-one lots collectively or from twenty-one individual lot owners. ¶ 16 We disagree. The primary basis for distinguishing between a real estate developer and an individual customer is found in the substantial risk to the utility and its customers presented by a developer's request for a commitment to serve a proposed subdivision when the utility's infrastructure is insufficient to meet the anticipated demand. In such a situation, the utility is asked to construct additional facilities without any assurances that the increased demand will soon materialize in the form of rate-paying customers. ¶ 17 Real estate development is a speculative enterprise. Indeed, Bradshaw previously delayed his development for a period of approximately five years after first approaching Wilkinson Water about a service commitment. Bradshaw's lots may or may not be developed and may or may not be sold. Even if they are sold, a great deal of time may elapse before the lots actually require water service. Wilkinson Water and its existing customers should not be forced to bear the costs of constructing additional facilities that may turn out to be unnecessary. As the Commission pointed out, this would be tantamount to forcing a utility's customers to speculate in real estate development. ¶ 18 Moreover, as the Commission noted in its decision, it is unlikely that simultaneous individual requests for new service would amount to such an increase in demand as to require the utility to construct additional facilities. There is a marked increase in the risk associated with the construction of a multi-unit housing development over the risk associated with construction of a single home. In contrast to a hypothetical simultaneous request for service from twenty-one lot owners, a developer's request for a service commitment does not necessarily represent twenty-one customers ready to move in and immediately begin paying for water service. Therefore, it may be years before Wilkinson Water can begin to recover the costs of its additional construction in the form of payments for service. ¶ 19 The Commission has adopted a policy recognizing that real estate developers are better positioned than local utilities to bear the costs associated with construction of additional infrastructure necessary to supply water to proposed subdivisions. [3] We find nothing in the Commission's policy to be unreasonably discriminatory or otherwise unlawful.
¶ 20 Bradshaw also argues that the Commission erred by not construing the tariff strictly against Wilkinson Water. In Josephson, we observed that because tariffs mainly serve the interests of the utility, a utility's tariff should be construed strictly against [it]. 576 P.2d at 852. ¶ 21 While the observation enunciated in Josephson is applicable in most instances, it does not apply in this case. Construing a tariff against a utility generally protects the customers of the utility against unreasonable or unjustified charges. In this case, however, construing the tariff strictly against Wilkinson Water may actually harm its existing customers by requiring them, rather than Bradshaw, to bear the costs associated with service to Bradshaw's proposed development. ¶ 22 The Commission's requirement that Bradshaw be responsible for the costs of the infrastructure necessary to serve his proposed subdivision was motivated in part by a desire to protect consumers within the Wilkinson Water service area from the risk that the construction costs for new infrastructure may not otherwise be recovered. The Commission is not required to mechanically construe a tariff against a utility when the particular circumstances of an individual case dictate a contrary result. ¶ 23 We find that the Commission's interpretation of the tariff was reasonable in this case. We therefore affirm the Commission's holding that the tariff in question does not require Wilkinson Water to bear all of the costs associated with preparing to serve Bradshaw's proposed development. Rather, Bradshaw should bear a proportionate share of those costs.