Brooke Utilities has asked that a panel of arbitrators reverse the Pine Strawberry Water Improvement District board’s decision to cancel a $300,000 contract to drill the K-2 well.
The water company wants the district to complete the K2 well project as agreed, despite the intervening recall election and the district’s most recent effort to condemn and acquire the water company.
The K2 well contract between the district and the private water company requires binding arbitration to resolve disputes, instead of relying on lawsuits.
The high-stakes dispute dates back to October, when the improvement district board voted to suspend the K2 well project and instead focus on acquiring the water company. A debate about the district’s deal with Brooke Utilities to dig the well had been the chief issue in a recall election, in which four of the board members who approved the deal originally lost their seats.
After canceling the K-2 well contract, the district’s board filed suit to condemn the water company and buy it. The district also asked the Arizona Corporation Commission (ACC) to revoke Brooke’s monopoly on providing water service in the district. The next ACC meeting is scheduled for Dec. 16 and 17.
Now, the Pine Water Company (PWCo) has counterattacked by invoking the arbitration clause in the K2 well contract. The water company claims the board violated the terms of the Joint Well Development Agreement (JDWA) when it decided to cancel the K2 deal.
“Our arbitration relief request will be that the district perform as the contract states,” said Brooke Utilities spokesperson Myndi Brogdon.
In May, the board and PWCo agreed to spend $300,000 in taxpayer funds to drill a 1,700-foot test well in Strawberry, just south of Strawberry Creek, called the K2.
The decision to dig a deep well proved vital for the area, since the existing network of shallow wells ran nearly dry during the recent drought, forcing the water company to haul water, which forced a huge increase in summer water bills. Moreover, the shortage of water in the shallow wells prompted the ACC to impose a moratorium on new hookups, effectively forcing a building freeze in the two communities.
The K2 well contract specified that if the well came up dry, the board would absorb the cost. If the well hit water, PWCo would drill a deep well and recover the cost through water sales. Other deep wells drilled in the area had demonstrated the existence of a deep water table that could supply enough water to lift the building moratorium.
Critics of the K2 well denounced the contract as a sweetheart deal between the district and the water company, saying the district would bear the all the risk of a dry hole, but the company would reap all the profits if the well hits water. They insisted the company had neglected any investment in infrastructure and neglected the need to find new water sources.
Supporters of the well contract on the other hand argued that opposition to the K2 well would only delay the acquisition of a reliable, long-term water supply and force another round of expensive water hauling this summer. Some argued that canceling the K2 well contract was really designed to reduce the value of the water company prior to the takeover by the district.
The K2 well project proved the key issue in the recent recall election, which targeted four board members who supported the project. All were recalled and replaced with board members critical of the K2 project.
Residents worry that canceling the K2 deal could result in huge legal fees.
“If arbitration is in favor of the PWCo, we, the customers, will pay dearly for all the costs incurred for recovery of attorney fees and legal costs, pending ACC proceedings relating to the K2 agreement and costs incurred in performing the JWDA and reliance on its performance,” said Strawberry resident Dina Galassini.
The first arbitration hearing is scheduled for Feb. 9 through 12.
According to the JDWA, before the hearing, PWCo and the board will meet and exchange exhibits and facts.
Each will then select an arbitrator who will together appoint a third arbitrator. The three arbitrators will listen to both sides and based on evidence and witnesses decide if the board must pay the PWCo. That decision is final and binding.