The contested case over the water flowing in Wailiku Water Company\u2019s ditch system has raised an interesting question: When is an operator of an old sugar plantation ditch system considered a public utility?<\/p>\n
Under Hawai`i Revised Statutes, anyone who sells or conveys water to the public, with a few exceptions, is subject to regulation by the state\u2019s Public Utilities Commission.<\/p>\n
\tIn the old days, the billions of gallons of water diverted from streams each year went almost exclusively to fields owned by the diverter. While several water agreements among private and public entities to use ditch water existed during the plantation era, only a handful of ditch irrigation systems are managed by the PUC today.<\/p>\n
\tThe Kilauea Irrigation Company, Inc., on Kaua`i, the Launiupoko Irrigation Company, LLC, on Maui, and the Kohala Ranch Water Company on the Big Island are a few of the ditch operators that have applied for and received a Certificate of Public Convenience and Necessity from the PUC. The ditch system belonging to the East Maui Irrigation Co., Inc., as well as the state\u2019s Waiahole, Kekaha, and East Kaua`i ditch systems have so far not sought such certificates from the PUC. All, however, either sell or convey water to various agricultural, energy, or
\nmunicipal water users.<\/p>\n
\tIn WWC\u2019s case, the PUC has determined that the company must apply for a CPCN by the end of December or possibly face enforcement action.<\/p>\n
Banking Water <\/b><\/i><\/p>\n
Today, WWC has agreements to supply water from its Wailuku irrigation system with about three dozen clients. But it wasn\u2019t always that way. According to a June 2003 white paper by WWC president Avery Chumbley, C. Brewer and Co. Ltd. \u2013 parent company of WWC predecessor Wailuku Agribusiness Co., Inc. (WACI) \u2013 adopted a liquidation plan in May 2001, and since then has been selling its real estate and assets. While WWC has sold off much of its land, it has attempted to reserve all water rights to those lands so it can sell the water back to the purchaser via a water delivery agreement. Many of the deeds conveying land include a provision \u201cexcepting, reserving and granting, however, unto Grantor, its successors and assigns, all water and water rights (surface and ground water) within or appurtenant to the property.\u201d<\/p>\n
\tSo far, this strategy has been profitable. WWC has reported that in 2003, it generated $242,000 in revenue for delivering water taken from Na Wai `Eha, the four streams of West Maui that are the subject of the contested case. That amount jumped to $316,000 in 2004, and then to $1,130,000 in 2005.<\/p>\n
In his white paper, Chumbley proposed selling approximately 13,166 acres of watershed property owned by WACI and the irrigation system to the Maui Department of Water Supply for $27,457,500. Chumbley wrote that the deal would secure some 17.25 million gallons a day of water for the DWS. And by his calculations, 17.25 million gallons a day (mgd) of agricultural and potable water was worth about $105.6 million.<\/p>\n
\u201cWe believe that this is a \u2018once in a life time\u2019 opportunity for the County of Maui to acquire a major water system, which will immensely enhance the County\u2019s current water delivery capabilities,\u201d Chumbley wrote.<\/p>\n
Although he proposed selling the water system and the watershed that feeds it to the county, Chumbley\u2019s paper suggests that he planned for existing diversions to WACI, Hawaiian Commercial & Sugar (HC&S) and kuleana users to continue at 2003 levels. Of the 63.24 mgd that flows through the system\u2019s six ditches, Chumbley stated that 5.5 mgd went to kuleana users, 5.91 mgd were system losses, 14.81 mgd were HC&s\u2019s allocated share and 6.78 mgd were WACI\u2019s existing reserves. Although 29.25 mgd were unallocated, WACI proposed holding 12.99 mgd as future reserves, leaving 17.25 mgd in \u201cun-allocated flow available to DWS,\u201d he wrote.<\/p>\n
\tThe county never took Chumbley up on his offer, and over the next few years, WACI, which became WWC in 2005, continued to enter into water use agreements with landowners. By 2005, WWC had 13 customers. Today, WWC sells water to about 35 different entities, including the Maui Department of Water Supply, Makena Real Estate Corporation, Maui Cattle Company, Ameron International, and Stanford Carr Development.<\/p>\n
Public Service<\/b><\/i><\/p>\n
The Hawai`i Public Utilities Commission, established in 1913, regulates all companies that provide electricity, gas, communications, private water and sewage, and motor and water carrier transportation services in the state. The commission determines what a utility can charge its customers, oversees general management issues, and acts on requests for the acquisition, sale, disposition or exchange of utility properties, including mergers and consolidations.<\/p>\n
\tToday, the PUC regulates 17 privately owned water utilities, not including the four companies that provide both water and sewage treatment services. Most private water companies provide drinking water, but a few, like the former C. Brewer subsidiary Kilauea Irrigation Company, serve agricultural lands.<\/p>\n
The state Legislature has carved out an exception to PUC regulation for special water irrigation projects established by the Board of Agriculture. HRS Chapter 167 established a water irrigation program intended to help agriculture development in the state. The program requires that all lands included in a project shall only be used for farming. The BOA establishes project boundaries and can set rates and charges for irrigation or domestic water so revenues cover operation, maintenance, replacement, and debt service costs. The board may also charge fees to cover the capital cost of a water system or costs incurred in connection with the system.<\/p>\n
For water companies not covered by Chapter 167, operating as a public utility without a CPCN could land them under investigation by the PUC, which has the authority to impose fines of $25,000 a day. In a June 2004 case involving a water system in Mokuleia on O`ahu\u2019s north shore, the commission found that Mokuleia Water, LLC (MW) and Mokuleia Water Users Association were providing water as a public utility without a CPCN. In January 2005, the commission issued an order to show cause to MW and the association. A year later, the commission found that MW was a utility and the transfer of its water distribution system to the association without commission approval violated state law and was therefore void. The commission ordered MW to apply for a CPCN and seek permission to sell its assets.<\/p>\n
Busted<\/i><\/b><\/p>\n
The PUC\u2019s investigation into WWC seems to have begun when it unexpectedly raised its water delivery rates to the Department of Water Supply.<\/p>\n
\tOn December 29, 2005, Chumbley wrote a letter to DWS director George Tengan stating that effective January 1, 2006, the company would no longer be using \u201cthe fuel oil adjustment method for calculating the fees to be charged to the DWS for the additional water taken from the `Iao Tunnel. The rate to be used for the `Iao Meter shall be $0.60 per 1,000 gallons. This change will be reflected in the January 2006 invoice.\u201d The `Iao tunnel supplies high-level groundwater, which is hydrologically connected to the surface waters in the Na Wai `Eha area.<\/p>\n
Tengan responded on March 6, 2006, objecting to the company\u2019s rate increase for `Iao Tunnel water. He wrote that Maui County owns the original and arguably the most productive portion of the `Iao Tunnel, as well as the pipeline between the tunnel and the county water system.<\/p>\n
\u201cMost of the `Iao Tunnel lies within lands owned by the state of Hawai`i and transferred to the County of Maui,\u201d he wrote. And the water, he added, \u201cby State Constitution, is held in trust by the State for the people of Hawai`i. Why is Wailuku Water Co. charging the County of Maui for this water? What costs, if any, does Wailuku Water bear with regard to `Iao Tunnel water used by the County of Maui?<\/p>\n
\u201cWailuku Water Co. appears to be telling users of the county\u2019s water system that Wailuku Water Co. will squeeze them for whatever it can get out of them. The irony in this case is that the people are already entitled to the water that is being delivered to them through county pipe lines from a tunnel located mostly within state-owned lands,\u201d he wrote.<\/p>\n
\tHe added that the price increase had no relation to any service cost, was not justified, and came with less than 30 days notice and without forewarning or discussion. He concluded by asking the company to rescind the rate increase or at least contact him to discuss the matter. The letter was copied to the mayor, governor, state representatives, the PUC, the state Department of Land and Natural Resources, Alexander & Balwdwin, and county officials.<\/p>\n
\tOn September 26, 2006, PUC counsel Kaiulani Kidani Shinsato wrote to Chumbley, stating that the commission had been made aware that WWC was allegedly selling water to several customers on Maui, including the county DWS, without a CPCN.<\/p>\n
\tShinsato wrote that the PUC has no record of WWC obtaining CPCN and ordered the company to provide information within 30 days to determine whether WWC was operating as a public utility subject to commission regulation. She asked WWC for the following:<\/p>\n
\tOn October 16, 2006, attorneys Craig Nakanishi and Shah Bento, representing WWC, asked Shinsato to give the company until November 17 to meet her request because the company was not staffed to prepare and submit the information within 30 days.<\/p>\n
\t\u201cThe Company does not keep its books, records, files or information as a public utility might,\u201d they wrote, adding that WWC only recently engaged experienced public utility counsel to help it meet the commission\u2019s requirements and receive advice on general water issues.<\/p>\n
\t\u201cBecause of the complexity of the issues that can arise with respect to old sugar cane irrigation systems and WWC\u2019s general lack of familiarity with utility regulation, the company needs time to confer with public utility counsel in order to understand regulatory requirements,\u201d they wrote. In addition, they stated that WWC was concerned about keeping confidential, to the extent that it could, \u201cproprietary and other protected information belonging to WWC and other parties. WWC will need time in order to fairly assess and address these important confidentiality concerns.\u201d<\/p>\n
\tOn October 31, the PUC granted the time extension. But instead of providing the information on November 17, WWC\u2019s attorneys notified the commission that it would be filing an application for a CPCN by the end of March 2007.<\/p>\n
\t\u201cTransforming this vast historical plantation ditch system on Maui into a public utility will be a large undertaking. Due to the complex issues that arise with respect to old sugar cane irrigation systems and given WWC\u2019s general unfamiliarity with utility regulation, the Company needs time to properly prepare its application, including gathering financial and other data,\u201d they wrote.<\/p>\n
\tOn March 28, 2007, the attorneys notified the PUC that application would be submitted on June 29. Its March estimated date of completion, they wrote, was \u201cunrealistically optimistic\u201d.<\/p>\n
\t\u201cAs a threshold matter, a new public utility needs to show that it is fit, willing and able to provide the proposed services and that the services are required for the public convenience and necessity,\u201d they wrote, adding that WWC\u2019s proposed certificate would cover the areas of Waihe`e, Wai`ehu, Pu`uohala, Wailuku, and Waikapu.<\/p>\n
\tOn June 25, WWC\u2019s attorneys wrote to the commission to report that the company was still not ready to file. They requested that WWC be allowed to file its application no later than December 28.<\/p>\n
\tIn a July 9 letter to WWC, Shinsato seemed to have had it with all the delays. She wrote that based on past correspondence, \u201cit appears that WWC is and has been operating as a public utility without proper authority. The Commission also recognizes, based on your representations, that it may be challenging to transition WWC from a long-standing unregulated irrigation operation to a regulated utility. However, given that the Commission has now received three letters from WWC in which WWC has stated that it would file an application by certain deadlines, the Commission will grant an additional extension of time only if some measures to monitor WWC\u2019s efforts in preparing to file an application by December 31, 2007, are implemented.\u201d<\/p>\n
She ordered WWC to provide within 30 days a list of tasks needed to complete the application and a timeline for doing so, and to submit monthly progress reports. Failure to meet those conditions \u201cmay constitute cause for the Commission to commence further regulatory action without advance warning,\u201d she wrote. The WWC had until December 31 to file its application.<\/p>\n
As of press time, WWC had met the reporting and timetable conditions set by Shinsato and had stated it planned to submit its application by December 17.<\/p>\n
–Teresa Dawson<\/p>\n
Volume 18, Number 6 — December 2007<\/p>\n","protected":false},"excerpt":{"rendered":"
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