Bennett Bear Creek Farm Water and Sanitation Dist. v. City and County of Denver, s. 93CA1395
| Decision Date | 23 March 1995 |
| Docket Number | 93CA1410,Nos. 93CA1395,s. 93CA1395 |
| Citation | 907 P.2d 648 |
| Parties | BENNETT BEAR CREEK FARM WATER AND SANITATION DISTRICT; Meadowbrook Water District; Willowbrook Water and Sanitation District; Cherry Creek Valley Water and Sanitation District; Cherry Moor Water District; Cherryridge Water and Sanitation District; Devonshire Heights Water and Sanitation District; Lakehurst Water and Sanitation District; City of Littleton; North Pecos Water and Sanitation District; Platte Canyon Water and Sanitation District; and Southwest Metropolitan Water and Sanitation District, Plaintiffs-Appellants, v. CITY AND COUNTY OF DENVER, a municipal corporation, acting by and through its Board of Water Commissioners, Defendant-Appellee. . II |
| Court | Colorado Court of Appeals |
Grimshaw and Harring, P.C., Richard L. Harring, Denver, for plaintiffs-appellants Bennett Bear Creek Farm Water and Sanitation Dist., Meadowbrook Water Dist., and Willowbrook Water and Sanitation Dist.
Timothy C. Terrill, Janesville, WI, for plaintiffs-appellants Cherry Creek Valley Water and Sanitation Dist., Cherry Moor Water Dist., Cherryridge Water and Sanitation Dist., Devonshire Heights Water and Sanitation Dist., Lakehurst Water and Sanitation Dist., City of Littleton, North Pecos Water and Sanitation Dist., Platte Canyon Water and Sanitation Dist., and Southwest Metropolitan Water and Sanitation Dist Parcel, Mauro, Hultin & Spaanstra, P.C., Peggy Montano, Saunders, Snyder, Ross & Dickson, P.C., Jack F. Ross, Denver, David E. Bellack, Carbondale, for defendant-appellee.
Opinion by Judge BRIGGS.
In this consolidated appeal, plaintiffs, various water districts, water and sanitation districts, and the City of Littleton (collectively, distributors), appeal the trial court's judgment for defendant City and County of Denver (Denver), acting by and through its Board of Water Commissions (Board). The distributors' claims, for breach of contract, discriminatory and unreasonable rate setting, and declaratory judgment, arose out of an ongoing dispute over rates the Board can charge to the distributors and their customers for water and related services. We affirm in part, reverse in part, and remand the cause for further proceedings.
In 1959 the citizens of Denver amended the Charter of the City and County of Denver (Charter) to allow the Board to enter into water leases without a fixed term. Each of the distributors has entered into a lease agreement with the Board. The distributors' leases provide for termination upon the mutual agreement of the parties.
All of the leases provide that they are made under and conformable to the provisions of the Charter and that the Charter provisions supersede any apparently conflicting provisions in the leases. These include the requirements that the Board fix rates within the City and County of Denver "as low as good service will permit," Charter § C4.22, and that every lease contain terms to secure the payment of sufficient money "to fully reimburse the people of Denver for the cost of furnishing the water or water rights which is the subject of such lease together with an additional amount to be determined by the Board." Charter § C4.26.
The leases all contain substantially identical provisions regarding the relationship between rates that can be charged by the Board in supplying water to distributors for the use of their customers (outside customers) and those charged customers inside the corporate limits of the City and County of Denver (inside customers). Rates to outside customers, among other things, must not be "disproportionately greater" than charges to inside customers. The leases provide that charges will not be deemed to be disproportionately greater if the rate of return from water supplied to all outside customers, expressed as a percentage, is no more than six percentage points greater than the rate of return from water supplied to inside customers. Two of the leases include the additional requirement that charges to outside customers may not exceed those to inside customers by more than 100%.
Rates are derived by first determining annual revenue requirements, equivalent to total cash needs. The total of the revenue requirements is then categorized into operation and maintenance costs, depreciation, and return on capital.
Operation and maintenance costs are allocated between outside and inside customers on the basis of current usage. Depreciation and return on capital are allocated consistent with the allocation of plant value. Hence, the determination of the rate of return for inside and outside customers depends in part on the method of allocating plant value between them. Plant value includes the value of distribution facilities, treatment plants, pump stations, reservoirs, pipelines, and similar types of improvements used in common.
From 1959 until 1980 the Board allocated plant value between inside and outside customers using the "current use" method, which is based upon the use of water in the year selected for analysis. Under this method, if outside customers used 20% of the water in the selected year, they would be allocated 20% of the plant value.
In response to the increasing growth in the number of outside customers, the Board in 1980 changed to the "historic investment" method for allocating plant value. This method allocates the value of plant at the time of construction according to responsibility for the costs incurred. As a result, the customer group experiencing a more rapid increase in growth, and thus consumption, is allocated a greater share of the cost of new common facilities, even though its share of total consumption may be significantly lower.
For example, under the historical investment method, if the Board in 1960 had invested in a common facility with 100 million gallons of capacity that cost $150 million and it was constructed solely to meet the needs of inside customers, the entire cost would be allocated to the inside customer group. If in 1990 growth outside Denver alone required the construction of a facility with 25 million gallons of capacity but, because of inflation and complexity of construction, the cost was $100 million, all the additional cost would be allocated to the outside customer group, even though the facility was part of the integrated system supplying water to outside and inside customers.
In contrast, using the same example and applying the current use method for allocating plant values, if in a particular year inside customers were supplied 90 million gallons and the outside customers 10 million, then 90% of the total capital cost of $250 million, or $225 million, would be allocated to inside customers, instead of the $150 million under the historic investment method. Only 10% or $25 million, instead of $100 million, would be allocated to outside customers.
In 1990, the Board changed to the "split allocation" method. This method, a hybrid of the two former methods, preserves the historic investment method's allocation of the value of existing and new common facilities. However, the value of replacement of and improvements to existing common facilities is allocated according to the current use method.
In 1992, the Board further modified the split allocation method so that all expansion facilities were added together and split between inside and outside customers based on 35 years of historical growth and 35 years of prospective growth. As modified, it is the method the Board presently employs for allocating plant value between the inside and outside customer groups.
The change from the current use method of allocation has substantially increased the plant value allocated to outside customers, resulting in greater increases in charges to them than would result under the current use method. This dispute involves the distributors' challenge to the Board's authority to change from the current use method for allocating plant value. It also involves the distributors' contention that the costs to distributors and their customers resulting from the changes in the method of allocating plant value violate the provision in the leases limiting to 6% the differential between the rate of return for inside and outside customers, as well as the provision in the two leases prohibiting charges to outside customers that exceed charges to inside customers by more than 100%.
The distributors filed this action in Jefferson County, where many of the distributors have their principal place of business. Denver moved to have venue changed to Denver County. That motion was ultimately granted.
At trial, the court first dismissed the distributors' claims which were based on an alleged duty of a municipal utility to charge reasonable and nondiscriminatory rates to extraterritorial users. The court concluded that no such duty existed under constitutional, statutory, or common law.
After presentation of the distributors' evidence, Denver moved to dismiss the remaining claims on several grounds, including the running of the statute of limitations. The trial court applied the six-year period in the statute of limitations for breach of contract claims and concluded that any breach occurred at the time the Board changed the method for allocating plant value. The court therefore dismissed all claims based on the change in 1980 to the historic investment method of allocating plant value.
The trial court at that time also dismissed the contract claims of those distributors whose leases included a provision waiving any claim arising out of any agreement to have water furnished at a rate other than as established under the lease. The court concluded that the provision encompassed the distributors' damage claims for breach of the leases.
After all evidence had been presented, the trial court entered its Findings of Fact, Conclusions of Law, Order and Judgment. The...
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