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Saratoga County Water Authority - Ruling, December 5, 1994

Ruling, December 5, 1994

STATE OF NEW YORK:DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of the Application of the

SARATOGA COUNTY WATER AUTHORITY

RULINGS

INTRODUCTION

These proceedings involve an application submitted by the Saratoga County Water Authority (the "Applicant") for a permit pursuant to Environmental Conservation Law, Article 15, Title 15 (Water Supply) to acquire and operate the existing water supply and distribution system of Saratoga Water Services Inc. and to acquire the Cold Spring Road well (well PW-7) along with approximately 4 acres of land surrounding the well from the Luther Forest Corporation.

The Saratoga County Water Authority as lead agency issued a Negative Declaration pursuant to the Sate Environmental Quality Review Act on June 18, 1992. The application was filed with the Department on July 3, 1992 and was determined to be complete on July 23, 1992. The Applicant was advised on December 7, 1993 that a public hearing would be held on the application. The application was referred for hearing by the Department Staff on August 12, 1994 and received in the Office of Hearings on August 15, 1994.

Proposed Project

The Applicant proposes to acquire and operate the existing water supply and distribution system of Saratoga Water Services Inc. consisting of the Knapp Road wells, a 150,000 gallon storage tank, a 130,000 gallon storage tank, a pump house and approximately 65,700 linear feet of watermains located in the Town of Malta. The Applicant also proposes to acquire the Cold Spring Road well (well PW-7) along with approximately 4 acres of land surrounding the well which are located in the Town of Stillwater from the Luther Forest Corporation and to construct 3,600 linear feet of transmission main and a 50,000 gallon storage tank.

SUMMARY POSITION OF THE PARTIES

The Applicant

The Saratoga County Water Authority seeks approval of a permit to acquire and operate the existing water supply and distribution system of Saratoga Water Services Inc. and to acquire the Cold Spring Road well (well PW-7) along with approximately 4 acres of land surrounding the well from the Luther Forest Corporation. The Applicant. The Applicant claims that Saratoga Water Services Inc. and the Luther Forest Corporation have not raised any issues which meet the requirements of 6 NYCRR 624.5.

The Department Staff

The Department Staff support the application of Saratoga Water Services Inc. and the Luther Forest Corporation for full party status. The Department Staff claim the only issue to be adjudicated is whether the proposed project is justified by public necessity because the conflicting information submitted to the Staff by the Applicant and the Companies have raised substantive and significant issues of fact to the point that the Department Staff cannot resolve the matter and make a determination on permit issuance.

Saratoga Water Services Inc.

Luther Forest Corporation

Saratoga Water Services Inc., the present owner of the water system serving the Luther Forest community, and the Luther Forest Corporation, ( the "Companies") the owner of the four acre well site, have petitioned for full party status. Both are opposed to the proposed acquisition of the water system and the well site. They base their opposition on the grounds that the Applicant does not have the authority to submit the permit application or to act upon any permit which might be issued.

The Companies claim the Applicant has failed to consider alternative sources, has failed to demonstrate the acquisition is justified by public necessity and has failed to provide for the proper protection of the supply and the watershed. They also claim the project is not just and equitable to all affected municipalities and their inhabitants and that the Applicant has not made adequate provision for fair and equitable determination of and payments for any legal damages resulting from the proposed project.

STATUTORY CRITERIA

Section 15-1503 of the Environmental Conservation Law requires the Department in making a decision to grant or deny a water supply permit or to grant a water supply permit with conditions to determine:

  1. whether the proposed project is justified by public necessity;
  2. whether it takes proper consideration of other sources of supply that are or may become available;
  3. whether all work connected with the project will be proper and construction safe;
  4. whether the supply will be adequate;
  5. whether there will be proper protection of the supply and watershed or whether there will be proper treatment of any additional supply;
  6. whether the project is just and equitable to all affected municipalities and their inhabitants and in particular with regard to their present and future needs for sources of water supply;
  7. whether there is provision for fair and equitable determinations of and payments of any direct and indirect legal damages to persons or property that will result from the acquisition of any lands in connection with the proposed project or from the execution of the proposed project; and
  8. whether the applicant has developed and implemented a water conservation program in accordance with local water resource needs and conditions.

The Department may grant or deny a water supply permit or grant a water supply permit with such conditions as may be necessary to provide satisfactory compliance by the applicant with the matters that the Department must determine set forth above, or to bring into cooperation all persons or public corporations that may be affected by the project, but it shall make a reasonable effort to meet the needs of the applicant, with due regard to the actual or prospective needs, interests and rights of others that may be affected by the project.

ISSUES FOR ADJUDICATION

In order for an issue to be adjudicated, the issue must relate to a dispute between the Department Staff and the applicant over a substantial term or condition of the draft permit; relate to a matter cited by the Department Staff as a basis to deny the permit and be contested by the Applicant; or it must be an issue proposed by a potential party and which is both substantive and significant.

An issue is substantive if there is sufficient doubt about the applicant's ability to meet statutory or regulatory criteria applicable to the project, such that a reasonable person would require further inquiry. An issue is significant if it has the potential to result in the denial of a permit, a major modification to the proposed project or the imposition of significant permit conditions in addition to those proposed in the draft permit.

6 NYCRR 624.4(c)(4) specifically provides that in situations where the Department Staff has reviewed an application and finds that a component of the Applicant's project as proposed or as conditioned by the draft permit, conforms to all applicable requirements of statute and regulation, the burden of persuasion is on the potential party proposing any issue related to that component to demonstrate that it is both substantive and significant.

RULINGS ON PROPOSED ISSUES

Motion to Dismiss and Proposed Issue No. 1

The Companies have moved for dismissal of the application on the grounds that the Authority does not have the legal authority to submit a permit application because the Authority is not legally constituted. They claim that to be legally constituted, the Saratoga County Water Authority Board must be composed of seven members that reside in municipalities with which the Authority has service or distribution contracts, and include at least four members who are elected officials residing within municipalities with which the Authority has service or distribution contracts, citing the requirements of the Public Authorities Law 1199-ddd(1).

The Companies have also raised this same matter as a proposed issue for adjudication. They claim that the application fails to include proof of adequate authorization for the proposed project as required by ECL 15-1503(1) because the Authority does not have the legal authority to submit a permit application or to act upon a permit which might be issued, based on the requirements of the Public Authorities Law cited above. The Companies argue that the resolutions are meaningless because they were adopted by an improperly constituted body. In the interest of efficiency and as agreed at the Issues Conference, the motion and the proposed issue will be treated together.

The Applicant argues that the question of the authority of the Applicant to carry out the proposed project should have been raised in the special proceeding pursuant to Eminent Domain Procedure Law 207 before the Appellate Division.

The question of whether the Authority is legally constituted or not requires an interpretation of Public Authorities Law 1199-ddd which is a matter which would have to be determined by a court of competent jurisdiction. The motion to dismiss the application is denied.

6 NYCRR 601.5(a) requires that an application include adequate proof that the proposed project was legally adopted and authorized by an ordinance, resolution, or order of the governing body of the applicant. The Department Staff note that the Applicant has submitted resolutions authorizing the proposed acquisition and the filing of the permit application. The Department Staff consider those resolutions to be adequate authorization for the proposed project. The Applicant has submitted resolutions authorizing the project and the filing of the permit application . Other than the underlying legal question of the interpretation of Public Authorities Law 1199-ddd which is a matter outside the Department's jurisdiction, the Companies have not claimed any other defect in the resolutions. In the face of the Department Staff's acceptance of the resolutions as complying with the requirements of 6 NYCRR 601.5(a), the Companies have not raised a substantive and significant issue. There is no issue within the Department's jurisdiction.

Proposed Issue No. 2

The Companies have raised as a proposed issue, the failure of the Applicant to consider alternative sources as required by ECL 15-1503(1), claiming that the Engineering Report submitted with the application erroneously asserts there are no other known feasible sources. The Companies claim that there are alternative sources and means of satisfying the water service needs of prospective customers of the Applicant which are available to the Applicant. The Companies also claim that these sources and their attendant costs and risks may be superior to those associated with the Applicant's proposed acquisition of the Companies system.

The alternatives identified by the Companies in their offer of proof include wholesale purchase of water form Saratoga Water Services Inc. system, and the acquisition and/or development of other wells located in the geographic area either adjacent or contiguous to the Companies service area. The Companies claim that the Applicant refused to enter into a wholesale purchase agreement with Saratoga Water Services Inc. although one was offered to it and has failed to examine the reasonableness and sufficiency of other wells and water systems located in the area. The Applicant claims there are no feasible alternatives. These are facts which are in dispute.

The Companies claim that the requirement to consider alternative sources which are available is specifically mentioned twice within ECL 15-1503 and this requirement is independent of any requirement of the Eminent Domain Procedure Law. The Applicant and the Department Staff claim that this requirement only applies in the case of a new source of supply.

In approving a water supply application, the Department must determine that the proposed project takes proper consideration of other sources of supply that are or may become available. This is but one of eight statutory determinations which apply to all water supply applications and which must be made before a water supply permit can be issued. This is a substantive and significant issue for adjudication within the Department's jurisdiction pursuant to ECL 15-1503(2). This issue will limited to the alternatives identified by the Companies in their offer of proof.

Proposed Issue No. 3

The Companies claim that the proposed acquisition of their water sources and water system is not justified by public necessity as required by 15-1503(2). Specifically, the Companies claim the Authority has failed to demonstrate that the acquisition will improve water quality and the available water supply on the system or that transfer will result in more efficient or more economical operation of the water system.

The Department Staff hold that this is the sole issue to be adjudicated because the conflicting information submitted by the Applicant and the Companies have raised substantive and significant issues of fact to the point that the Department Staff cannot resolve the matter and make a determination on permit issuance.

The Department Staff maintain that the Applicant has not sufficiently established that the proposed acquisition will result in any significant or necessary improvements to the existing water supply and distribution system or that it will result in more efficient or economical operation of the existing system. Based upon their review of the conflicting information submitted by the Companies and the Applicant, the Department Staff claim it is unclear whether the Applicant can operate the existing system in a manner which will result in lower rates for the system's customers.

Based on the comments made at the legislative hearing, the Department Staff believe there are other matters with respect to the issue of public necessity which should be addressed in the adjudicatory hearing, namely the responsiveness of the existing owner of the water system to problems with the system and the ownership of the water supply system as a whole. The Department Staff claim it was their understanding prior to the hearing that Saratoga Water Services Inc. was the sole owner of the water supply and distribution system, including the property surrounding the Cold Spring Road well (well PW-7) and, in fact, granted the permit for well PW-7 on the basis of that understanding. The Department Staff is now unsure of the relationship between Saratoga Water Services Inc. and the Luther Forest Corporation and how it affects the certainty that the water from that well would be available to the users of the system on a consistent basis. The Companies have no objection to consideration of these matters at an adjudicatory hearing and will present testimony to address the Department Staff's concerns on these matters.

The Department Staff, based on the presentation made by the Applicant at the legislative hearing, also claim that there has been an evolution in the thinking of the Applicant with respect to how the proposed acquisition would fit into the goals of the Applicant's master plan. The Department Staff state that this was new information to them and claim it also bears on the issue of public necessity.

The Applicant basically replies that the issue of public necessity has already been litigated in the Eminent Domain Procedure Law forum. The Applicant acknowledges the applicable standard under the Eminent Domain Procedure Law is that the condemnation is "for a public use, benefit or purpose". The Department Staff argue that the question of whether a public use or purpose is served is a different issue from whether the proposed acquisition is justified by public necessity.

In approving a water supply application, the Department must determine that the proposed project is justified by public necessity. This is a substantive and significant issue for adjudication within the Department's jurisdiction pursuant to ECL 15-1503(2).

Proposed Issue No. 4

The Companies claim that the Applicant has failed to demonstrate that there will be proper protection of the supply and watershed as required by ECL 15 -1503(2). The Department Staff hold that there is already adequate protection and treatment of the water supply and watershed. The Applicant and the Department Staff both claim that a permit condition requiring the submission of a watershed management protection plan is sufficient. The Companies agree that the existing system has adequate watershed protection but claim the question to be adjudicated, given the Applicant's plans, is will there be adequate protection in the future?

In approving a water supply application, the Department must determine whether there will be proper protection of the supply and watershed or whether there will be proper treatment of any additional supply. Among the methods for assuring proper protection of the supply required in the past by the Department and its predecessors was ownership and control of all lands within a specified distance from a well or other source of supply, acquisition of restrictive easements or the establishment of watershed rules and regulations.

This may be a substantive and significant issue for adjudication within the Department's jurisdiction pursuant to ECL 15-1503(2) depending upon the contents of the watershed management protection plan. Without any information on what is proposed by the Applicant or recommended by the Department Staff, a permit condition generally requiring the submission of a watershed management protection plan is not a sufficient basis for making the required statutory determination. If the Applicant were to accept specific permit conditions at least as protective as the specific conditions now applicable to the Companies' present sources of supply, no issue would be raised. The Applicant is directed to prepare and submit its proposed watershed management protection plan.

Proposed Issue No. 5

The Companies attempt to raise as an issue whether the project is just and equitable to all affected municipalities and their inhabitants including consideration of their present and future needs for sources of water supply. The Companies claim that the project will have significant negative impacts upon the inhabitants of the municipalities affected by the proposed acquisition.

Specifically, the Companies claim: (1) that the customers will have to pay higher rates after the acquisition is completed; (2) that the acquisition will result in a significant diminution of the property tax base of the Towns of Malta and Stillwater requiring an increase in the tax burden and forcing town residents who are not customers of the Authority to pay for a water system they will not use; (3) that the Authority has still not informed the Department whether a hook-up fee will be imposed for those who seek service in the future; (4) that the Authority proposes to undertake costly additions to the system which are not necessary now or in the future and to recover the costs from existing customers; and (5) that the proposed acquisition excludes provision of water supply services to a 42 home development within the petitioner's approved service area.

The Applicant argues that any harmful impacts upon the municipalities and their inhabitants have already been reviewed under the SEQR (State Environmental Quality Review) process which resulted in a negative declaration. The Companies argue that all the negative declaration says is that there will not be a significant harmful impact on the environment and does not address the significant negative impacts described above upon the inhabitants of the municipalities affected.

In approving a water supply application the Department must determine whether the project is just and equitable to all affected municipalities and their inhabitants and in particular with regard to their present and future needs for sources of water supply (ECL 15-1503). The Department and its predecessors have consistently considered the "just and equitable" requirement in terms of water allocation and water supply, ie., apportioning water resources between communities or determining the natural and proper sources of supply for a community considering its future needs for water supply. [Decision of the Water Power and Control Commission in the matter of the application of the City of Syracuse, Water Supply Application No. 609, dated September 22, 1931. Decision of the Department in the matter of the application of the City of Oneida, Water Supply Application No. 6504, dated August 9, 1977. Decision of the Department in the matter of the application of the Spring Valley Water Company, Inc., Water Supply Application No. 6971, dated January 6, 1987.]

Some of the specific points raised by the Companies may be properly addressed within the scope of the "justified by public necessity" issue (eg. costs to customers, improvements) but are not matters to be considered within the scope of "just and equitable ... with regard to ... present and future needs for sources of water supply." The issue, as proposed by the Companies, is not a substantive and significant issue for adjudication within the Department's jurisdiction pursuant to ECL 15-1503(2).

Proposed Issue No. 6

The Companies claim that the Applicant has not demonstrated that there has been adequate provision for the determination and payment of legal damages which may be incurred through the proposed condemnation. This claim is based on the new procedure set forth in the Public Authorities Law 1199-eee (5) under which assets owned by a regulated public utility (Saratoga Water Services Inc.) can be taken over by the Applicant without taking title, but if the court determines the value of the assets by any method other than the net income capitalization method, or if the proposed compensation is more than the rate base of the assets taken in condemnation as utilized by the Public Service Commission in setting rates and as certified by the commission, the Applicant can withdraw the condemnation. If the Applicant withdraws the condemnation, then the Applicant would be liable for damages. Because the Applicant has no taxing power and obtains revenue only from the service it renders, the Companies claim it will have not ability to raise funds to pay damages.

The situation is further complicated by the fact that the Applicant proposes to condemn the Cold Spring Road well (well PW-7), along with approximately 4 acres of land surrounding the well, which are owned by the Luther Forest Corporation, a private entity. Condemnation of the property of the Luther Forest Corporation would proceed in the traditional manner whereby the Applicant would acquire title to the well and surrounding land and the value would be fixed by the court.

The Companies argue that the Applicant could back out of the condemnation of the assets of Saratoga Water Services Inc. but, if it had already acquired the property of the Luther Forest Corporation, could thereby deprive the utility of a vital and necessary source of water.

The Applicant claims that damages are not a part of this proceeding and further claims that there has been no showing of insufficiency in the Applicant's ability to pay for damages. The Applicant submits that it could be made a condition of the permit that the Applicant be required to follow through with the procedures established under the Eminent Domain Procedure Law to have the court determine what are fair damages.

The Applicant acknowledges that the court under the Eminent Domain Procedure Law can use any one of three theories of compensation: (1)income capitalization; (2) market value; or

(3) replacement value. The Applicant also acknowledges that if the court adopts any theory other than income capitalization, then the Applicant can choose not to proceed with the condemnation because the Applicant has no taxing power and obtains revenue only from the service it renders.

In approving a water supply application, the Department must determine whether there is provision for fair and equitable determinations of and payments of any direct and indirect legal damages to persons or property that will result from the acquisition of any lands in connection with the proposed project or from the execution of the proposed project. [ECL 15-1503(2)]

In carrying out its responsibilities under this section, the Department and its predecessors reviewed water supply applications to determine whether the Applicant had sufficient resources available to pay any legal damages which may be caused by the execution of the plans of the applicant and whether such legal damages would require any special consideration or legislative enactment in order that they equitably may be determined and paid. [Decision of the Water Power and Control Commission in the matter of the application of the Village of Nyack, Water Supply Application No. 3431, dated December 9, 1958. Decision upheld in Spring Valley Water Works & Supply Co. v. Wilm 1961, 14 AD 2d 658, 218 N.Y.S.2d 800. Decision of the Department in the matter of the application of Sleepy Hollow Lake, Inc., dated August 4, 1971.]

The Department and its predecessors did not make any determination of damages which might result from the proposed project. The determination of damages was not within the jurisdiction of the Department or its predecessors but was a matter for the court to determine under the former Condemnation Law.

This is an issue of first impression because of the possibility of the Applicant to back out of the condemnation of the assets owned by a regulated public utility, Saratoga Water Services Inc. and the possibility, however remote it may be, that the Applicant could still acquire the Cold Spring Road well (well PW-7) and deprive the utility of a source of water supply. I find the present record is inadequate to make the required statutory determination and that it is incumbent for the Applicant to come forward with a proposal which will deal with this eventuality.

This is a matter which must be addressed by the parties in these proceedings but which may not require adjudication. As noted above, the Department has the authority to impose conditions to bring into cooperation all persons or public corporations that may be affected by the project. It may be possible to draft permit conditions which would resolve this matter either by requiring a bond or other security to assure that any damages would be paid or which would condition the permit to require the acquisition of both the existing water supply and distribution system of Saratoga Water Services, Inc. and the Cold Spring Road well (well PW-7) and the 4 acres of land surrounding the well belonging to the Luther Forest Corporation.

In view of the fact that there are other substantive and significant issues which require adjudication and which will ultimately determine the outcome of these proceedings, the Applicant and the Department Staff are directed to consult with each other with a view toward drafting proposed permit conditions which would resolve this issue in the event a permit is ever issued. Copies of any such proposed condition are to be provided to the Companies and the ALJ within thirty days of these rulings.

Draft Permit

Pursuant to 6 NYCRR Part 624, any dispute between the Department Staff and the Applicant over a substantial term or condition of the draft permit is automatically an issue for adjudication. In the present case, a draft permit was not presented at the issues conference, presumably because of the Department Staff's position on the issue of public necessity. The Department Staff are directed to prepare and distribute a draft permit for review and comment to the parties and to provide a copy of the draft permit to the ALJ within thirty days of this ruling. This direction in no way is to be construed as to limit the Department Staff's position with respect to the issue of public necessity.

This direction is given so that the Applicant or the Companies can have a copy of any proposed conditions which might be included in a permit should one ever be issued and can have an opportunity to raise issues concerning the proposed permit conditions prior to the hearing. The Applicant is requested to advise the ALJ and the other parties if there is any dispute with any term or condition of the draft permit. If the Applicant raises any such dispute, it will automatically become an issue for adjudication and will not require any appeals. Given the range of issues proposed by the Companies, it appears unlikely that the Companies would have any issues with respect to the usual standard conditions which would be anticipated in a draft permit.

SUMMARY OF ISSUES

The following are the issues to be adjudicated in these proceedings:

  1. Alternative sources of water supply which are available to the Applicant, limited to wholesale purchase of water form Saratoga Water Services Inc. system, and the acquisition and/or development of other wells located in the geographic area of the Companies service area.
  2. Whether the proposed acquisition of the water sources and water system is justified by public necessity.

The following issues must be addressed but may not require adjudication depending on the submittals required herein:

  1. Whether the proposed watershed management protection plan provides for the proper protection of the supply and watershed.
  2. Whether there is adequate provision for the determination and payment of legal damages which may be incurred by the proposed project.
  3. Whether the Applicant disputes any term or condition of the draft permit which is to be prepared and distributed by the Department Staff within thirty days of this ruling.

PARTY STATUS

The Applicant and the Department Staff are mandatory parties to these proceedings pursuant to regulation [6NYCRR 624.5(a)]. Saratoga Water Services Inc. and the Luther Forest Corporation have petitioned for full party status.

According to 6 NYCRR 624.5(d), the ALJ's ruling on entitlement to full party status will be based on: 1.) a finding that the petitioner has filed an acceptable petition pursuant to 6NYCRR 624.5(b)(1) and (2); 2.) a finding that the petitioner has raised a substantive and significant issue or that the petitioner can make a meaningful contribution to the record regarding a substantive and significant issue raised by another party; and 3.) a demonstration of adequate environmental interest.

RULING ON PARTY STATUS

The Companies have presented an offer of proof and identified their witness in connection with each of their proposed issues and as discussed above have raised substantive and significant issues. Saratoga Water Services Inc. and the Luther Forest Corporation are jointly granted full party status.

APPEALS

The regulations provide that certain rulings of the ALJ, including a ruling to include or exclude any issue for adjudication, a ruling on the merits of any legal issue made as part of an issues ruling or a ruling affecting party status may be appealed to the Commissioner on an expedited basis [6 NYCRR 624.8(d)]. The regulations also provide that expedited appeals must be filed with the Commissioner in writing within five days of the disputed ruling [6 NYCRR 624.6(e)(1)].

At the Issues Conference, the Parties and Potential Parties agreed that any appeals would be filed within five business days of receipt of the rulings of the ALJ. Replies or responses to any appeals would also be filed within five business days of receipt of the appeals. Any appeals of these rulings shall be mailed to the Commissioner and all those listed on the Official Service List, a copy of which is attached to these rulings for your convenience. Appeals to the Commissioner should be addressed to Commissioner Langdon Marsh, New York State Department of Environmental Conservation, Room 604, 50 Wolf Road, Albany, New York 12233-1010.

William J. Dickerson
Administrative Law Judge

Albany, New York
December 5, 1994

OFFICIAL SERVICE LIST

SARATOGA COUNTY WATER AUTHORITY

DEC PROJECT NO. 5-4100-00022/00001-1

Water Supply Application No. 8858

(November 18, 1994)

Applicant Administrative Law Judge

John Tabner, Esq.
Tabner, Laudato and Ryan
26 Computer Drive West
Albany NY 12205

William J. Dickerson
N.Y.S.D.E.C.
50 Wolf Road, Room 409
Albany NY 12233-1550

Saratoga Water Services Inc.
Usher Fogel, Esq.
Roland, Fogel, Koblenz & Carr
1 Columbia Circle
Albany NY 12207

Department Staff
Paul Van Cott, Esq.
N.Y.S.D.E.C. Region 5
Route 86, P.O. Box 296
Ray Brook, NY 12977-0296

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