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Water Utilities and Fire Hydrants: Legislative Update


May 1, 2013 by FCS GROUP
Category: Fire Protection , Water Utilities , Finance Advisor

By Ed Cebron, FCS GROUP, and John W. Milne, Inslee Best Doezie & Ryder, P.S.*

The State Legislature has passed legislation (SHB 1512; SSB 5605,) that focuses on "solving" the problem created by the Lane v. City of Seattle decision. This act provides specific guidance and options for water utilities on how to legally recover fire protection costs from retail customers and governments.

Background

In Lane v. City of Seattle, the state Supreme Court determined that public fire protection was a governmental service that could not be recovered through water rates. The decision also validated alternate cost recovery consisting of charging general purpose governments for this public service based on their mandate for such service through land use regulation. The decision did not clarify how this would work in situations differing from the considered case.

In a subsequent decision, City of Tacoma v. City of Bonney Lake, et al, the Supreme Court provided further guidance regarding circumstances when such cost responsibility could or could not be shifted to those general governments, particularly as related to franchise agreements. This decision also fell short of resolving the matter and created apparent inconsistencies in the "rules of the road."

The New Law

This current legislation intends to create a framework for recovering public fire protection costs, aka fire hydrant costs, and provide options for local governments to adapt to specific circumstances.

Specific features of the act include:

  1. Water utilities are now (arguably once again) authorized to recover public fire protection costs from rates through traditional cost-of-service allocation concepts. Ratepayers can be charged for this service.
  2. Water utilities are also authorized to contract with general governments to provide fire protection and are authorized (but not required) to recover related costs through such agreements.
  3. Liability protection for water utilities providing public fire protection, which has been recognized through prior court cases, is clearly established and affirmed for both general and special purpose governments; further, water utilities which are not municipal corporations are given liability protection if their water system plan includes reference to hydrant maintenance measures.

What This Means for Utilities and General Purpose Governments

What this means looking forward can be summarized as follows:

  1. The status quo is just fine - Whether currently in rates, interfund or intergovernmental charges, recovery of public fire protection costs can continue. There may be some appropriate enabling steps, if not already in place, that would be appropriate and prudent. For example, a third party general government could only be charged via an executed agreement providing for such compensation.
  2. Changing your approach is also just fine - If you made changes in response to one or both decisions, you can go back to your prior rate-based approach if you so desire. Similarly, if you wish to move forward with agreements that shift your cost recovery to general governmental sources, you remain free (but not compelled) to do so.
  3. Take care - Whether action or inaction is chosen, this remains a visible and potential volatile topic. Careful decision-making is advised, with adequate attention to rate and legal analysis to support the decisions and outcomes chosen.
  4. Other things to add to the list - Make sure that future water system plans address hydrant maintenance. Recognize that billing general governments requires an agreement that defines service and compensation.
  5. One foot in - Finally, recognize that partial or mixed approaches may warrant extra attention or care as it relates to water rates and how costs are recovered from customers. For example, rates could, and perhaps should, appropriately differ depending on whether public fire protection costs are being separately recovered through general government charges. There are several ways that this differential could be reflected and enacted.

*John W. Milne, Attorney, Inslee Best Doezie & Ryder, PS

John W. Milne is a shareholder with the Bellevue law firm, Inslee Best. John and his colleagues represent over 40 city and special purpose district water and sewer utilities to address issues including: construction, rates and charges, public records compliance, LIDs/ULIDs, condemnation and civil litigation, and contracts and interlocal agreements. John is a graduate of the University of Wisconsin Law School and prior to entering private practice, was an associate professor at the University of Washington Law School.

Ed Cebron, Principal, FCS GROUP

Edward Cebron is a co-founding principal of FCS GROUP with 30 years of professional experience addressing government economic and financial issues. He has managed and conducted more than 500 financial and economic analyses for multiple municipal utilities. Mr. Cebron graduated from Harvard University with a B.S. in Engineering Sciences and obtained an M.S. in Infrastructure Planning and Management from Stanford University. In addition to consulting with FCS GROUP, Mr. Cebron works with the Cascade Water Alliance, serves as a Woodinville Water District Commissioner, and sits on the King County Metropolitan Water Pollution Abatement Advisory Committee (MWPAAC).

About FCS GROUP

FCS GROUP writes for MRSC as a Finance Advisor.

FCS GROUP, established in 1988, is an independent financial consulting firm that provides economic, public finance, management consulting, and financial (rates, charges, and fees) services to public sector clients inclusive of city and county governments, utilities, municipal corporations and ports, special purpose districts, and state agencies. Since the firm’s inception, FCS GROUP has delivered high-quality, cost-effective consulting services in over 2,300 engagements and served more than 525 clients. Their staff serves clients throughout the western United States and Canada from locations in Redmond, Washington and Lake Oswego, Oregon.

The views expressed in Advisor columns represent the opinions of the author and do not necessarily reflect those of MRSC.

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