DD 6/6/03 Cities Can Dodge Fed. Law and Hook You Up If Rural District's Charges Are Unreasonable

Daily Development for Friday, June 6, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

PUBLIC UTILITIES; RURAL WATER SERVICE: Under federal
law prohibiting municipalities from providing services to customers
within service areas of rural water districts, city may avoid the restriction
and provide service when customer can show that rural district's charges
are unreasonable or that its service policies are discriminatory.

Rural Water Dist. No 1, Ellsworth County, Kansas v. City of Wilson,
Kansas, 211 F.S. 2d 1324 (D. Kan. 2002)

A federal statute, 7 U.S.C. Sec. 1926(b), prohibits municipalities from
providing water services to customers within the service area of rural
water districts where the district has "provided or made service
available.". The statute recognizes that rural water districts often must
make extraordinary investments to establish water service and attempts
to protect their customer base from expansion by nearby municipalities.

In the instant case, two duplexes were located within an area that had
recently been annexed by the City, but had been within the service area
of the water district. They were the only improvements in this
annexation area. The annexation did not affect the preexisting priority
for service held by the water district. The district determined that it was
feasible to provide water to the two duplexes. It indicated that it would
have to lay a line of about 4860 feet in order to connect to its nearest
main line. The cost would be $32,000 to extend a line that would be
suitable for providing general service in the area. Even though the line
could later be used to service other customers, the owners of the
duplexes would have to pay the entire estimated cost of $32,000 and
would receive no refund from connection charges paid by later users.
[The court here notes that the water district changed this policy later, but
too late to have an impact on this trial.] The duplex owners rejected this
proposal and took service from the city. The water district filed suit
under 1926(b).

The trial court concluded that providing water service only upon the
condition of the payment of unreasonable fees did not trigger the
protection of 1926(b) because it did not constitute "making service
available." The District appealed, but the Tenth Circuit agreed with the
City. 243 F. 2d 1263 (10th Cir. 2001).

The Tenth Circuit ruled that the district had no right to protection if the
City could demonstrate that the charges were "excessive, unreasonable
and confiscatory." The court laid out factors to be considered in making
this determination:

     "(1) whether the challenged practice allows the district to yield
     more than a fair profit; (2) whether the practice establishes a rate
     that is disproportionate to the services rendered; (3) whether
     other, similarly situated districts do not follow the practice; and
     (4) whether the practice establishes an arbitrary classification
     between various users. No one factor is dispositive, and the
     determination depends on an assessment of the totality of the
     circumstances."

The court here ruled, on remand, that the district's policies did not
constitute the providing of services because it's policies were
unreasonable and confiscatory. It focussed especially on the fact that
other districts similarly situated had waived their right to provide service
when connection costs reached the amounts demanded by the district
here. Further, and especially, the court found that this district also had
granted such waivers in the past, and that its policies in the present case
represented discriminatory and unreasonable treatment.

Comment: The case is important because of the judicial gloss placed
upon the statute by the Tenth Circuit and the trial court's investigation of
and comparison with prior policies of similar districts and this district
itself. This should be potent ammunition for similarly situated
practitioners.

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