New Briefs Expected In K2 Well Dispute

ACC makes no ruling


Lawyers today will file a fresh flurry of briefs on the Pine Water Company's proposal to drill a deep well with taxpayer money that already has spurred a recall election and repeated Arizona Corporation Commission (ACC) hearings.

The Roundup on Tuesday mistakenly reported that the commission had effectively ruled in favor of the controversial deal between the regulated Pine Water Company and the unregulated Pine Strawberry Water Improvement District (PSWID).

The corporation commission's attorney did file a brief supporting both the legality and reasonableness of the contract between the company and the district, but the commission will not rule on the question for several months. Other briefs have different opinions on the issue.

The Pine Water Company and PSWID have agreed to spend $300,000 in taxpayer funds to drill a 1,700-foot-deep test well in Strawberry, called the K2. If the well comes up dry, or produces less than the 150 gpm, the district, per the agreement with the Pine Water Company, will absorb the cost. If the well hits useable water, the water company will invest $1 million to drill a full-scale well, and recover the cost through water sales, to customers living in the district.

An administrative law judge heard arguments from all sides on Dec. 12 and asked for legal briefs on several key points, especially whether the $300,000 payment constituted an unconstitutional "gift" or loan of public funds. The commission's staff attorney and an attorney for the water company argued that it did not, while attorneys for several landowners and recall supporters came to the opposite conclusions.

The judge will make a recommendation to the corporation commission in "several months," and then will rule on the legality of the proposed contract.

The corporation commission hearing and the briefs all focus on the actions of the Pine Water Company, which provides water to about 2,000 customers and is regulated by the commission.

The recall effort against four district board members touches on some of those same issues, but does not directly focus on the decisions of the board members cited in the recall effort, which goes to a vote on March 11.

Chairman Gary Sherlock, Treasurer Forrest McCoy and members James M. Richey and Wesley Suhr are slated for recall on grounds that they may be violating Arizona Constitutional law by attempting to enter into an encumbrance with Pine Water Company in the K2 well proposal, as well as not acting in the best interests of the rate-payers in the district, according to Dixie Mundy, with Gila County Elections department.

Recall supporters who want to remove the four board members claim the deeper K2 site is not a prime site and that better locations exist in Pine where the water is slated for primary delivery, said Fred Krafczyk, spokesman for the Rim Country water group. The recall effort also cites conflicts of interest during the negotiation of the agreement on the K2 project.

"No specific location or evaluations or costs for infrastructure have been offered," relating to other sites, said Sherlock.

Private well owners fear that the K2 well will drain water from their shallower wells, typically only about 200 to 300 feet deep.

Proponents say that the K2 well will tap into a deeper aquifer that will not affect private well owners because a casing coated with sealant to a depth of 900 feet will be installed.

The Dec. 12 commission hearing was attend by commissioners Kristin Mayes and Mike Gleason, along with Rim Country Water group member Fred Krafczyk, local business owner Michael Greer, Brooke Utilities President Robert Hardcastle and other interested parties. Such hearings are required to gain commission approval whenever the judges or commissioners deem hearings necessary to determine facts.

Administrative Law Judge Dwight D. Nodes presided over the hearing and Mayes asked for the post-hearing legal briefs from all involved parties.

In addition, the judge will consider an Aug. 6, 2007, brief from Attorney Michael J. Harper who represents Pine businesswoman Cindy Maack. Harper's brief concluded that the agreement between Pine Water Company and PSWID violated the Arizona Constitution.

The lawyers for the corporation commission, Kevin Torrey, and the water company, Jay Shapiro, supported the K2 well proposal.

Torrey and Shapiro said the offer of the $300,000 from the district would not constitute a gift or loan to the water company, since it would pay for a legitimate search for water, said the lawyers.

Additionally, it is "reasonable" and "prudent" for the water company to spend the money on the test well -- since the agreement protects the company if the well is dry and since the company can recover its cost through a PSWID rate increase and or water sales if it hits water.

None of the briefs addressed the question of whether the arrangement was a good deal for the PSWID, which is not regulated by the corporation commission.

ACC staff attorney Torrey's Feb. 15 brief concluded the board should approve the proposed indebtedness and allow the K2 project to move forward.

"Staff believes that the application to encumber assets meets all of the criteria of the relevant statutes. PWCo (Pine Water Company) can afford to reimburse the District its investment up to and including the $300,000 authorized. The application should be approved," read Torrey's brief.

The other brief in support of the K2 project came from Shapiro, who is representing Pine Water Company.

Shapiro's brief also said that Pine Water Company is within the boundaries of the Arizona Constitution in entering into the transaction and the encumbrance of the well site with PSWID.

On the other hand, the two briefs filed on behalf of property owners in the district held that it is a violation of constitutional law for the Pine Water Company to enter into an encumbrance with the Pine Strawberry Water Improvement District. In addition, the briefs questioned the reasonableness of the effort to find a deep-water source by drilling the proposed well site in Strawberry.

Attorneys John G. Gliege and Stephanie J. Gliege, representing recall supporters and opponents of the K2 well Krafczyk and Greer, a candidate for one of the four seats up for recall, submitted briefs on Feb. 19. Those briefs argued that the K2 proposal violates the Arizona Constitution by using tax dollars to help a public service corporation. In addition, they argued that better sites with a greater chance of finding water exist in other locations.

The attorneys based their claim on Article nine, Section 10 of the Arizona Constitution, which states, "No tax shall be laid or appropriation of public money made in aid of any church, or private or sectarian school, or any public service corporation."

The other attorney opposing the contract, Harper, said that documents relating to Pine Water Company's application for approval of the K2 agreement proves it is a public service corporation and therefore in violation of the law if it enters into the agreement.

"The agreement itself confirms that the Pine Water Company is a public service corporation as defined in Article 15, Section 2 of the Arizona Constitution," said Harper.

"As such, the Joint Well Development Agreement violates the Arizona Constitution," Harper said.

Proponents of the recall claim Pine Water has directly circumvented the authority of the ACC by going ahead with the transaction prior to receiving ACC approval. Also, the threatened condemnation by Pine Water Co. of additional private property next to the well site confirms the opponents' claim related to the inadequacy of the size of the site selected for the project.

Lawyers will file another round of legal briefs today, Friday Feb. 29, to rebut arguments in the first round of briefs.

That puts any commission decision well beyond the March 11 recall election, which calls for removal of the members on grounds that they are in violation of the Arizona Constitution by entering into indebtedness with Pine Water Company, which is a public service corporation and prohibited by law from doing so.

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