PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON. Issued: August 19, 2003 SECOND PROCEDURAL ORDER ON DISCOVERY MATTERS

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1 - ' b alj wpd a- - _" PUBLIC SERVICE COMMISSION OF WEST VIRGINIA 3 1 [ - 1, "- Issued: August 19, 2003 CASE NO W-42T WEST VIRGINIA-AMERICAN WATER COMPANY Tariff Rule 42 application to increase water rates and charges. SECOND PROCEDURAL ORDER ON DISCOVERY MATTERS On March 11, 2003, West Virginia-American Water Company (Company) tendered for filing revised tariff sheets reflecting increased rates and charges of approximately 16.4% annually, or $15,550,687, for furnishing water utility service to approximately 164,000 customers in Boone, Braxton, Cabell, Clay, Fayette, Harrison, Kanawha, Lewis, Lincoln, Logan, Mason, Mercer, Putnam, Raleigh, Summers, Wayne and Webster Counties, to become effective on April 11, In addition to increased commodity rates, the filing requested the institution or increase of certain noncommodity charges, such as the delayed payment penalty, a returned check charge, a tap fee, a reconnection fee and the leak adjustment rate. In addition to its own customers, customers of the following utilities or entities would be directly or indirectly affected by the rate application because these utilities or entities, under agreements approved by the Public Service Commission, are charged water rates which are based on the Company's rates, either in whole or in part: Boone County Public Service District, Cumberland Road Public Service District, the Town of Danville, the Town of Eleanor, Jumping Branch-Nimitz Public Service District, the Kanawha County Regional Development Authority, Lashmeet Public Service District, the Lewis County Economic Development Authority, New Haven Public Service District, Oakvale Road Public Service District, the Putnam County Building Commission, Putnam-Union Public Service District and Salt Rock Water Public Service District. In its filing the Company asserted that it had complied with the notice requirements of Tariff Rule 10.l.b. PUBLIC s COMMISSION

2 - r 0 There is an extensive procedural history for this proceeding. However, since this order relates only to a specific discovery dispute, only the relevant procedural history will be recited herein. On April 2, 2003, the Commission issued its Order suspending the revised tariff sheets and increased rates and charges requested by West Virginia-American Water Company until 12:Ol a.m., January 6, 2004, unless otherwise ordered by the Commission. Additionally, among other things, the Commission established a procedural schedule for the processing and resolution of this case. Finally, the Commission referred the handling of discovery matters to the Division of Administrative Law Judges. On April 21, 2003, the Boards of Education of Boone, Braxton, Kanawha, Lincoln and Putnam Counties filed a petition to intervene in this matter. On May 1, 2003, the Cabell County Board of Education filed a separate petition to intervene. On May 13, 2003, the Wayne County Board of Education filed a petition to intervene, asserting that it wished to intervene on the same basis as asserted by the previous Boards of Education who had filed petitions to intervene. By Commission Order entered on May 14, 2003, the petitions to intervene filed by the Boards of Education of Boone, Braxton, Cabell, Kanawha, Lincoln and Putnam Counties were granted. By Commission Order entered on June 11, 2003, the Commission granted the petition to intervene filed by the Wayne County Board of Education. On July 21, 2003, the Company served its second request for information upon the Boards of Education (collectively referred to as the Boards), requesting various information regarding the extension of public water service to the Boards' counties and to schools under the jurisdiction of the various Boards. On August 1, 2003, the Boards filed their objections to several of the data requests contained in the Company's second request for information, specifically, Requests 2c, 2d, 2e, 2f, 3, 4, 5, 7, 8, 10 and 11. For most of the requests, the objections were that they were not pertinent to substantial issues in the proceeding and, for several requests, a further objection was that they were excessively burdensome. On August 6, 2003, the Company filed its motion to compel the Boards to fully respond to the data requests contained in its second request for information served upon them on July 21, 2003, asserting that the t I PUBLIC S COMMISSION OF I

3 I information was relevant and clearly discoverable and pointing out that the Commission has a broad discovery policy. On August 14, 2003, the Boards filed their response to the motion to compel arguing that most of the Company's requests were really addressed to the issue of standing, which had already been resolved by Commission Orders granting the Boards intervener status. The Boards argued that the requested items would not make a difference on the Company's cost of service, but would be costly for the Boards to provide. Further, the Boards objected to the fact that the motion to compel did not refute individual objections to each of the specific data requests, but listed and characterized all of the objections lodged by the Boards and responded to them as a group. On August 18, 2003, the Company filed its reply to the Boards' response. It discounted the objections to the form of its motion and argued that the Boards are attempting to insulate themselves from the discovery process. DISCUSSION Rule 13 of the Commission's Rules of Practice and Procedure governs issues regarding evidence and discovery before the Public Service Commission. Rule 13.1, quoting part of West Virainia Code , provides as follows: In the investigations, preparations and hearings of cases, the Commission shall not be bound by the technical rules of pleadings and evidence, but in that respect it may exercise such discretion as will facilitate its efforts to understand and learn all the facts bearing upon the right and justice of the matters before it. Discovery is governed more particularly by Rule 13.6 of the Commission's Rules of Practice and Procedure. Rule 13.6.b. provides, in pertinent part, as follows: A party may serve discovery requests in writing upon the attorney for a party, if such party is represented by an attorney, or directly upon unrepresented parties.... Discovery requests must be pertinent to substantial issues in the proceedinq. (Emphasis supplied). In resolving discovery disputes, the Commission has a long history of permitting broad and liberal discovery and has long used Rule 26 of the West Virsinia Rules of Civil Procedure (WVRCP) as a guide. See, PUBLIC s COMMISSION -3- IRGlNlA

4 1 3 Appalachian Power Company, Case No E-42T (1981); The Chesapeake and Potomac Telephone Company of West Virsinia, Case No T-42T, Commission Order Granting Motion to Compel, May 31, 1985; Appalachian Power Company, Case No E-G1, Commission Order Granting Motion to Compel, September 11, 1985; Appalachian Power Company, Case No E-GI, Commission Order Granting Motion to Compel, July 29, 1988; Hope Gas, Inc., Case No G-PW, Commission Order, June 18, 1990; Mountaineer Gas Company, Case No G-42T, Commission Order, July 9, 1993; Equitable Gas Company, Case No G-30C, Commission Order, January 3, 1996.' Rule 26(b)(l) of the WVRCP provides, in part, that: Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents or other tangible things and the identity of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. Not surprisingly, most of the Commission's Orders on discovery in rate cases involve efforts to obtain additional information from the utility who made the rate filing. However, nothing in either the Public Service Commission Law of West Virginia or the Commission's rules limits the ability of a utility to obtain information from other parties in a rate case. Pursuant to the Commission's rules, any party to a proceeding may serve discovery requests upon any other party. The participation of an additional party in a proceeding in all likelihood will alter the identity of the substantial issues in a proceeding. In a rate case, when various types of customers have intervened alleging hardship, a need to keep down costs, etc., the substantial issues, of necessity, will include not just the actual rate increase itself, but the impact of the increase on those customers. Just as the intervenors are entitled to test the statements and claims made by the utility in its rate filing and testimony, the utility is entitled to test the claims made by the intervenors in their petitions to intervene and/or testimony. 1 While these cases interpreted the Commission's discovery rule in effect prior to August 26, 2001, when the Commission's new Rules of Practice and Procedure became effective, the relevant language under Rule 13.6 is identical, i.e., discovery requests must be "pertinent to substantial issues in the proceeding.... I' COMMISSION -4-

5 1 " ~.rd..-$& r In their petitions to intervene, the Intervenors made the following statements: 1. The Boards of Education are responsible for the management and administration of the public school systems in each's respective county. The responsibilities of the Boards of Education include the prudent management of utility services to schools. 2. Each of the Petitioners are located in counties served with water, at least in part, by the West Virginia American Water Company.... Each of the Petitioners purchase [sic] water on behalf of their schools from WVAWC. As such, each of the Petitioners have [sic] a legal interest in this proceeding. 3. The cost of water purchased from WVAWC has a substantial impact upon the budgets of the Boards of Education, affectinq the ability to provide fundins to prosrams to meet educational oblisations and aspirations. 4. Petitioners' interest is to see that Respondent's rates are set at a level which minimizes the adverse impact upon the Petitioners' budqets and operations. (Emphasis supplied). Accordingly, the Company is entitled to inquire into the impact of its rates and operations on the Boards' operations, both pro and con. Thus, inquiries into whether extensions of its system to serve schools have decreased insurance rates or alleviated or eliminated other costs for the Boards are appropriate. The Company is also entitled to inquire into the costs which the Boards pay to other water utilities for the same or similar service, whether they obtain a similar quality of service from the other utilities for the cost of that service and the costs the Boards expend to provide water to schools not served by a certificated water utility. The Boards have alleged that the funds they pay to the Company for water service are impacting their ability to fulfill their educational obligations. The Company is entitled to fully explore all aspects of such an allegation. The preliminary discussion having been concluded, it is now appropriate to turn to the specific data requests to which objections were made and for which the motion to compel has been filed. The subject Data Requests of the Company's second request for information served upon the Boards are as follows: 2. During the last ten years, has the Board (or any of its members on behalf of the Board) made any formal or informal PUBLIC s COMMISSION -5- IRGlNlA

6 I statement on, prepared any report on, or conducted or commissioned any study or analysis of, any of the following topics? c. The need for the extension of public water service' to any public school in the County or the Board's efforts to advocate for or secure such an extension; d. The costs attendant to, or any problems associated with, the supply of potable water to any public school in the County from a source other than public water service; e. The rates and charges the Board has paid, pays or will pay in the future to supply potable water (either by a public water supply or otherwise) to any or all public schools in the County; f. Comparisons between (i) the actual cost of providing a potable water supply to any public school or schools in the County from a source other than public water service and (ii) the actual or projected costs of providing public water service to such school or schools; * * * * * If so, please provide the date of the statement, report, study or analysis, the identity of the person or entity making or commissioning it (whether the Board itself or one or more of its members), and the substance of the statement, report, study or analysis. 3. For any written statement, report, study, analysis or similar document identified in response to item 2 above, please provide a copy. 2 The term public water service is not defined in the Company's interrogatories and data requests. To the undersigned, public water service means water service provided by any certificated water utility, whether it is a private company, a municipality or public service district. One of the objections made by the Boards to Request No. 5 has led the undersigned to conclude that, perhaps, the Boards are defining public water service as water service provided only by the Company, which the undersigned believes to be an inappropriate and incorrect definition. PUBLIC SE COMMISSION -6- IRGINIA

7 4. Please identify any public school in the County to which public water service has been extended for the first time during the last ten years. In each instance, please provide the following information: a. The type of water supply the school had before the public water service began; b. The date public water service was extended to the school; C. The current provider of public water service. 5. Please identify any public school in the County that is not currently served by a public water supply. To the extent not explained in response to item 2 above, for each such school please state whether the Board is or has been involved in any effort to bring public water service to the school. 7. Please state whether the Board (or any member of the Board acting in her or her [sic] official capacity) has attended or spoken at any groundbreaking, dedication or similar ceremony or event marking the extension of public water service t0.a public school or any other area of the County during the past ten years. 8. For any new extension of public water service and/or fire protection service to a public school in the County during the last ten years, please provide data on the property and casualty insurance costs attributable to the school in question (i) for the two years prior to the extension of public water service or fire protection service and (ii) for all years after the extension of public water service or fire protection service. 10. Please identify any new public schools constructed in the County during the last ten years, separating these into (i) schools constructed in areas where public water service was available at the time of construction; and (ii) schools constructed in areas where public water service was unavailable at the time of construction. 11. Please identify any proposed new public schools in the County that have not been built, or the construction of which has been delayed, due to the lack of adequate public water service to the site of the proposed school., PUBLIC SE COMMISSION -7- IRGlNlA

8 1 The Boards' objections to Request Nos. 2c, d, e and f; 3; 4; and 10 are identical. The objections state that the requests are not pertinent to the substantial issues in the proceeding, violating the requirement in the Commission's Procedural Rules; the requests are excessively burdensome in that they would require the Boards to review the files of every school construction project considered or undertaken in the last ten years; and the availability of a publicly treated water supply is a consideration in every school construction project. With respect to Requests 5, 7 and 8, the Boards again assert that the requests are not pertinent to substantial issues in the proceeding. Then the Boards make specific statements with respect to each of those data requests. With respect to Request No. 5, the Boards state that they have numerous schools which are not served by public water supplies and that schools which lack service from the Company are obviously not pertinent to the reasonableness of the Company's rate request. With respect to Request No. 7, the Boards state that the participation of any member of one of the seven Boards of Education over the past ten years in a ceremony has no relevance to the reasonableness of the Company's rate proposal. With respect to Request No. 8, the Boards state that their fire insurance rates have no relevance to the Company's cost of service. Finally, with respect to Request No. 11, the Boards again assert that the request has no bearing on the Company's cost of service. The prior discussion in this order regarding the Commission's discovery policy and the issues into which the Company is entitled to inquire indicates that most of these objections will not be sustained and that most of this information is discoverable. With respect to Items 2c, d, e and f; 3; 4; and 10, the information is clearly pertinent to substantial issues in the proceeding. In fact, the issues were raised and inserted into the proceeding by the Boards' participation. As the Company pointed out in its motion to compel, a significant amount of its requested rate base involves investments the Company has made to bring water to unserved areas in the counties in which many of the Boards are located. The Company's operating and maintenance expenses also include costs associated with providing service to those areas. The Company asserts that it must be permitted to develop information to support its contention that its investments made and expenses incurred are reason- able, justified and beneficial to the communities they serve. The Company also argues that the items the Boards refuse to answer are intended to investigate the importance that the Boards themselves have attached to the extension of water service in their counties; the efforts they have made to advance this goal; the problems they have confronted; and the benefits they have derived when new public water service becomes available. The Company argues that information produced in response to these requests obviously could be valuable to it in its defense of its capital investments made to extend water service to the counties which the Boards serve. The Company also asserts that it is entitled to PUBLIC SE COMMISSION OF W IRGlNlA C~ARLESTON -8-

9 investigate whether investments the Company has made in the counties in which the Boards are located have caused, or have the potential to cause, increases in property tax revenue or decreases in insurance costs for the Boards that either partially or completely offset the effect of the requested rate increase in this case. The undersigned agrees with the Company's contentions. The Boards also assert that providing this information would be unduly burdensome for them, since it would require each Board to review its files for every school construction project undertaken or considered during the past ten years. While the undersigned does not minimize the effort required to respond to these data requests, by the same token, the undersigned also recognizes that we are not talking about thousands or hundreds of projects for any individual county. In all likelihood, we are talking about something less than ten or fifteen projects for each individual county. In any event, the information is discoverable and, while it may be a chore to provide it, the provision of such information does not rise to the level of being unduly burdensome. With respect to Requests 5, 7, 8 and 11, the Boards again assert that the requests are not pertinent to substantial issues in this proceeding and also assert that the subject matter of the various requests is not pertinent or is not relevant to the reasonableness of the Company's rate request or cost of service. The Boards have unreasonably narrowed the issues in this proceeding. Clearly the Company's rate request and cost of service are the most significant issues. However, issues that fairly arise from the participation of a party in a case also are substantial issues in the proceeding. The Boards themselves have raised the issue of the impact of the Company's rates on their operations and their ability to fulfill their educational missions. Therefore, as stated above, the Company is entitled to inquire into all of those areas. Accordingly, the undersigned concludes that the information requested in requests 5, 8 and 11 are both pertinent to substantial issues in the proceeding and relevant and discoverable under Rule 13 of the Commission's Rules of Practice and Procedure, Rule 26 of the West Virginia Rules of Civil Procedure and past Commission policy and precedent. The undersigned will not require a response to Request No. 7, regarding whether any member of a Board over the past ten years has attended or spoken at any groundbreaking or similar ceremony or event marking the extension of public water service to a public school or any other area of the County during the past ten years. The attendance of an elected official at a groundbreaking ceremony is not pertinent to the issues in this matter. However, any relevant statements made by such a Board Member should already have been provided in the Boards' response to Request No. 1, to which no objection was made. PUBLIC SE COMMISSION -9- E 1.A

10 I With respect to Request No. 8, while the information is discoverable, the undersigned will impose on that request the condition that the Boards are required to provide the information on property and casualty insurance costs attributable to individual schools only to the extent that the statement, policy or declarations page from the insurance company breaks down the coverage by school. If the insurance costs are not broken down by school by the insurance company, the Boards are not required to obtain that information from their insurance carriers. Accordingly, and upon consideration of all of the above, the Boards of Education of Boone, Braxton, Cabell, Kanawha, Lincoln, Putnam and Wayne Counties shall provide all of the information requested in the Company's second request for information served upon them on July 21, 2003, with the exception of Request No. 7 and with the condition previously stated regarding Request No. 8, on or before August 27, IT IS, THEREFORE, ORDERED that the Boards of Education of Boone, Braxton, Cabell, Kanawha, Lincoln, Putnam and Wayne Counties provide full and complete responses to Requests 2c, 2d, 2e, 2f, 3, 4, 5, 8, 10 and 11 of the second request for information served upon them by West Virginia- American Water Company on or about July 21, 2003, no later than August 27, Full and complete responses shall be provided to the Company by hand delivery and the Commission on that date. Depositing the responses in the United States Mail on that date does not constitute an adequate response to this order. With respect to the responses to Request No. 8, the Boards are required to provide that information broken down by school only to the extent that their property/casualty insurance statements, policies or declarations pages break that information down by school. If the information is provided by the insurance carriers only in a lump sum form and is not broken down by school, the Boards are not required to obtain such a per school breakdown from their insurance carriers. IT IS FURTHER ORDERED that the Boards are not required to file a response to Request No. 7, although any relevant statements made by previous or current Board Members at any such ceremonies should already have been provided as part of the response to Request No. 1 IT IS FURTHER ORDERED that the Commission's Executive Secretary serve a copy of this Order upon all parties to this proceeding by United States Certified Mail, return receipt requested, and upon Commission Staff and the Consumer Advocate Division of the Public Service Commission by hand delivery. Additionally, the Executive Secretary of the PUBLIC SE COMMISSION -10-

11 i Commission shall transmit a copy of this order by facsimile transmission to counsel for the Boards of Education. MKM:mal aa.wpd Melissa K. Marland Chief Administrative Law Judge PUBLIC SE COMMISSION -11-