Mike Davoren Letter to Relines

Transcription

1 MINUTES, Rev A BEAVER VALLEY DOMESTIC WATER IMPROVEMENT DISTRICT BOARD OF DIRECTORS REGULAR MEETING AT THE FIRE STATION CONFERENCE ROOM 10/15/2016 at 10:30 a.m. 1) CALL TO ORDER-Meeting called to order at 10:30 AM 2) ROLL CALL OF BOARD MEMBERS-Members present were I. Linton, D. Harpster, R. Johnson, S. Baker. Quorum established. 3) CHAIR COMMENTS-I. Linton read his resignation. The board signed and accepted it effective December 31, I. Linton thanked everyone present for their support. 4) SCHEDULED PUBLIC APPEARANCES-None 5) UNSCHEDULED PUBLIC APPEARANCES A. Call to the Public 6) APPROVAL OF MINUTES OF LAST MEETING-None (no Quorum; no minutes) 7) FINANCIAL REPORT A. Account Balance as of mid Oct. of $3,945 was reported by D. Harpster. Attorney was paid $1,500 for services to date. 8) CORRESPONDENCE--Mr. Reline presented a letter to the board that he received from the BVWC owner. (See attached.) Letter was read by S. Baker. S. Baker said GC Elections Dept. said Randy Johnson is certified to vote. 9) REPORTS & COMMUNICATIONS- Attorneys report was distributed. Several questions were asked and some answered. Questions from board & residents to be compiled by Sec'y S. Baker, and sent to attorney S. Wene for answers. S. Baker provided his address that is skbaker1000@gmail.com. If requested by I will send you a copy of this report. Donations are requested to pursue the Condemnation effort. 10) POSSIBLE ACTIONS A. Update of information relating to BV Water Co. (BVWC), including community concerns, regulatory activity from ADEQ and ACC-I. Linton & Thom Tackman provided updates. R. Johnson agreed to stay in touch with ADEP, ACC & other agencies in Tom's absence. B. Update on the Beaver Valley Notice of Violation issued by ADEQ for improper plant operations, water filtration and storage-bvwc has provided a water quality tester for the water company to use to report on an honor system basis. C. S. Baker to discuss correspondence with County on Board electoral process and Members-No change. D. Board to review Attorney progress with BVWC interface Plan-Attorney report was accepted. Questions need to be answered before board can vote on going forward. E. New board member effective January 1, 2017 Diane Hallett- Board voted unanimously to accept effective January 1, ) BOARD MEMBER COMMENTS-Thanks to Scott and Ian for their service. A. Date and business for next meeting-tentatively 11/19/2016; Board vote on BVWC 12) ADJOURNMENT-I. Linton adjourned at 11:40 PM.

2 Mike Davoren Letter to Relines

3 BVDWID October Board Meeting Attendees List

4 Report From BVDWID Attorney MOYES SELLERS & HENDRICKS LAW OFFICES M E M O R A N D U M PRIVILEGED AND CONFIDENTIAL COMMUNICATION OF COUNSEL TO: FROM: Board of Directors Beaver Valley Domestic Water Improvement District Steve Wene DATE: October 14, 2016 RE: Potential Acquisition of Water Company 1.0 PURPOSE The purpose of this memo is to assess the potential acquisition of the Beaver Valley Water Company ( Water Company ). The two potential methods are purchase or condemnation. However, purchasing the Water Company at a reasonable cost is unlikely. Therefore, this memo explores the condemnation option. The Beaver Valley Domestic Water Improvement District ( District ) has condemnation authority. 2.0 PURCHASING THE WATER COMPANY IS UNLIKELY I have spoken with the Water Company s current owner. Based upon that conversation, it appears as though a simple purchase of the Water Company is unlikely unless the District pays an extraordinary amount and purchases the owner s home. 3.0 DISTRICT HAS CONDEMNATION POWER A domestic water improvement district ( DWID ) has the same powers and authorities as a county improvement district. A.R.S (A). These powers include the authority to acquire, construct, reconstruct or repair waterworks for the delivery of water for domestic purposes. A.R.S (B) 2

5 and In addition to the condemnation power granted by the statutory scheme, a DWID is entitled to all the rights, privileges and benefits granted municipalities and political subdivisions under Article 13, 7 of the Arizona Constitution.1 Accordingly, BVDWID is vested with all the rights, privileges and benefits, and entitled to the immunities and exemptions granted municipalities and political subdivisions under this Constitution including the sovereign power of eminent domain recognized by Article 2, 17 of the Arizona Constitution.2 In Pinetop Lakes Ass n, the Court of Appeals held that a DWID s exercise of eminent domain powers to improve a domestic water system is a governmental function and thus within the proscribed powers of the District. 1 Pinetop Lakes Ass n v. Ponderosa Water Improvement District, 2010 WL (Ariz. App. May 27, 2010).

6 2 Id. citing A.R.S ; Hohokam Irrigation & Drainage Dist. v. Arizona Pub. Serv. Co., 204 Ariz. 394, 397, 9, 64 P.3d 836, 839 (2003); Pinetop-Lakeside Sanitary Dist. v. Ferguson, 129 Ariz. 300, 302, 630 P.2d 1032, 1034 (1981). 4.0 COMPENSATING THE WATER COMPANY Private property shall not be taken without just compensation. Ariz. Const. Article 2, 17. The process for defining just compensation in the context of a condemned utility is set forth in A.R.S , which states: The court or jury shall ascertain the compensation to be paid for the taking of the plant and property of the public utility, which shall include the fair and equitable value of such plant and property, including its value as a going concern, and the actual and consequential damages, if any, sustained by the public utility by reason of the severance from the other plant and property of the public utility of the plant and property to be taken. Generally, the value in condemnation cases is to be determined by the market value of the property what a willing buyer would pay and a willing seller would accept. City of Phoenix v. Consolidated Water Co., 101 Ariz. 43, 45, 415 P.2d 866, 868 (1966). However, utilities are seldom bought and sold on the open market. Id. In City of Phoenix v. Consolidated Water Co., the Court of Appeals confirmed that there is no particular method or formula to be used in determining the compensation which must be paid to the owner of a water utility upon the taking of his property.

7 4.1 Value for Physical Property The City of Phoenix Court found that as to the physical property, reproduction costs less depreciation (as opposed to original cost) is the more widely accepted test for the value to be paid upon condemnation. The depreciation rates are set by the Arizona Corporation Commission ( ACC ), so this calculation should not be too controversial, especially if the equipment is fully depreciated. Based upon the Water Company s 2014 Annual Report, the plant in service includes: 1 well using a 1/5 hp pump; 3 booster pumps; torage tanks (10,000-gallons); 1 pressure tank (5,000-gallon); 10,520 feet of 4-inch PVC line; 2,640 feet of 6-inch PVC line; Approximately 200 meters (mostly.-inch); Treatment equipment; and Pump house. The Water Company alleges the plant originally cost $170,703 and its current depreciated value is $161,497. However, unless the Water Company recently replaced the entire system, this is clearly wrong. 4.2 Value of Going Concern (Future Earnings) Evidence of earnings may be considered in utility condemnation cases because the courts consider that it is not simply the real property that is being taken but, the entire enterprise. Id. In City of Tucson v. El Rio, Arizona Supreme Court stated the value of a certificate [to operate a utility] may be reached by considering the income which would probably be earned by the tangible property of the plan and the system of the utility. 3 The City specifically challenged the propriety of the amount to be paid. The Supreme Court confirmed that the determination of fair and equitable compensation must include the total amount which would justly compensate the condemnee. The water company in El Rio established that the company s future net income would be $23,000 per year, that it would take the sum of $329,000 earning seven per cent to produce an income of $23,000. Ultimately, the Court fixed the value of the real property at $120,000 and awarded a total of $271,000. The Supreme Court held 3 City of Tucson v. El Rio, 101 Ariz. 49, 415 P.2d 872 (1966). 4

8 that the $151,000 value as a going concern, whether determined by comparable sales or earnings was appropriate. In City of Yuma v. Arizona Water Co., the Court of Appeals found that an award of $41,000 as the value of the going concern in a total award of $1,111,451 was appropriate. It is worth noting that in Flecha Caida Water Co. v. City of Tucson, 420 Ariz.App. 331, 420 P.2d 198 (App. 1966), the Court of Appeals confirmed that a taking of certificate of public convenience required fair and equitable compensation, even if the company was not a going concern. In sum, as stated in City of Phoenix, there is no particular method or formula to be used in determining the compensation which must be paid to the owner of a water utility upon the taking of his property. The Court will determine the value based on evidence presented. The best estimate of the award is the replacement value of the physical property, less depreciation and a going concern value, as established by an appraisal expert based on a percentage of physical property value or earnings. 5.0 Analysis of Water Company Value To be clear, I am not an appraiser and I am not able to provide you the Water Company s actual value. Nevertheless, I did review the ACC records to get a sense of the Water Company s rate base, which is an indicator of value. It is clear from reviewing the Water Company s 2014 Annual Report that it is not following regulatory accounting practices. For example, the Company did not depreciate its plant according to ACC policy. Based upon my limited knowledge of the system, the plant values as depreciated are clearly wrong and all of the reported values appear abnormal. Regardless, as reported in the 2014 Annual Report, the Water Company has a plant value of $161,497. Again, this number is likely inflated. The Company earned $96,780 by selling water to customers. The Company paid $42,000 in salaries and other expenses totaling $85,037. Thus, in 2014 the Water Company s reported net income was $11,743. There is no way to predict what the going concern value will be, but knowing the property value will likely be substantially lower than the Company s reported value of $161,497, it would be surprising if going concern drove the cost past the amount previously offered to the Water Company owner

9 Ian Linton Resignation