1 Kiawah Island Utility, Inc. Docket No. 2011-317-W/S Pre
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KIAWAH ISLAND UTILITY, INC. DOCKET NO. 2011-317-W/S PRE-FILED REBUTTAL TESTIMONY OF BECKY DENNIS TO THE TESTIMONY OF INTERVENOR KPOG’S EXPERTS FILED NOVEMBER 16, 2011 BEFORE THE SOUTH CAROLINA PUBLIC SERVICE COMMISSION Testimony Prepared: November 23, 2011 Hearing Date: November 30, 2011 THIS REBUTTAL TESTIMONY IS FILED PURSUANT TO THE REVISED PSC NOTICE DATED NOVEMBER 8, 2011. THE APPLICANT RESERVES THE RIGHT TO SUPPLEMENT THIS TESTIMONY AND TO PROVIDE FURTHER REPLY TESTIMONY TO THE TESTIMONY OF KPOG’S EXPERTS. MR. WALKER: In the prefiled testimony of KPOG expert Ellen Blumenthal, she referred to a Utilities Service Agreement between KIU and KRA. Are you familiar with that agreement? MS. DENNIS: Yes. The Utilities Service Agreement she referred to was dated July 29, 1994, before the entry of a Development Agreement between the Town of Kiawah Island and KRA in September 1994. MR. WALKER: Is the 1994 Utilities Service Agreement still in effect? MS. DENNIS: No. The 1994 Utilities Service Agreement was terminated on June 6, 1997. I have attached a copy of the recorded termination as Exhibit A to my testimony. MR. WALKER: Was a new Utilities Service Agreement entered after the 1 termination? MS. DENNIS: Yes. At the same time as the 1994 agreement was terminated, a new Utilities Service Agreement was entered. I have attached a copy of the 1997 Utilities Service Agreement dated June 5, 1997, as Exhibit B to my testimony. MR. WALKER: Does the 1997 agreement also include a provision addressing the sale of real property from KRA to KIU? MS. DENNIS: Yes. Paragraph 6 states as follows: “6. As additional consideration to KIU for entering into this Agreement, KRA shall provide additional land to KIU, if required to meet the obligations hereof, at a price to be agreed upon, but not to exceed the fair market value of such property at the time of transfer to KIU. KRA shall have the sole discretion to select the location of any such property within the Sora Rail Road tract and other areas.” MR. WALKER: Is the 1997 Utilities Service Agreement still in effect? MS. DENNIS: Yes. MR. WALKER: The testimony of KPOG’s expert witnesses refers to the sale of certain sewer facilities from KRA in 2005. Please explain this transaction. Ms. DENNIS: In August 2005 we inventoried the sewer facilities constructed by KRA that were in place and operational that had not been conveyed to KIU. These facilities consisted of sewer distribution lines and sewer transmission lines. KRA transferred the sewer distribution lines as a donation. The value of this donation was $507,501.90. KIU purchased the sewer transmission lines for $382,666. The purchase of the transmission lines was in keeping with prior practice and orders of the Public 2 Service Commission in prior rate cases. I have attached a copy of the schedules of the facilities that were conveyed as well as the Bills of Sale for the transfers as Exhibit C to my testimony. MR. WALKER: In the prefiled testimony of Mr. Rogers, he referred to work performed for KIU by Gulfstream Construction Company. Is Gulfstream an affiliate of KIU or KRA? MS. DENNIS: Not to my knowledge. MR. WALKER: Did KIU take steps to make sure that the work performed for it by Gulfstream Construction Company was reasonably priced? MS. DENNIS: Yes, the cost of the work done by Gulf Stream was negotiated through KIU’s engineers based on their knowledge of the costs for similar jobs. In my estimation, because the engineers negotiated the price down on our behalf, the amounts we paid Gulfstream were below what we would have paid other contractors, not higher. END OF REBUTTAL TESTIMONY 3 EXHIBIT A p~()"- / ~~ UC::ooj 0 'n 7497 c) STATE OF SOUTH CAROLINA ) ) TERMINATION OF COUNTY OF CHARLESTON ) UTILITYUTtLITY SERVICE AGREEMENT WHEREAS, KiawahKiawal. Resort Associates.Assoaates L.P,u.P. ("KRA').('KRA'), a Delaware limited partnership, andanci Kiawah Island Utility.Util!ty. Inc,inc, C'KIU")("KIU") entered a Utility Service Agreement dated July 29,29. 1994; and WHEREAS,VVHEREAS, KRA and KiUKlU entered a Memorandum ofor UtilityUtf)lty Service ,A,greementAgreement recorded in the RMC Office for Charleston County at Book R247, Page 129, providingprovidir,g notice of the Utility ServiceServ(ce Agreement dated July 29,29. 1994; NOW THEREFORE. in returnreturr for the mutual promises stated herein and contained in the Utility Service Agreement of even date herewith,herewitl, KRA and KIU hereby terminate the Utility Service Agreement dated July 29,29. 1994,1994. IN WITNESS WHEREOF, KiawahK)swah Resort Associates, LP.,L.P., has caused these presents to be executed in itsiis name by itsas General Partner thereunto duly authorized and its seal to be hereunto affixed,affixeo. this ~~~ day of '-~ ,, inin the year of our Lord One Thousand Nine Hundred andar,d Ninety-Seven,N)nety-Seven. in the Two Hundred and Twenty- First year of the Sovereignty and Independenceindependence of the United States of America,America. EXHIBIT A 750 SIGNED, SEALED AND DELIVERED KIAWAH RESORT ASSOCIATES, L.P. IN THE PRESENCE OF: (SEAL)(SEAL} By: D&WD8W Investments, Inc.,inc., a South Carolina corporation (CORP.(CORP, SEAL) 211 King Street, Suite 300 Charleston, SC 29401 Its: General Partner I By: ~D~y~C Its:its: President STATE OF SOUTH CAROLINA ) ) COUNTY OF CHARLESTON ) THE FOREGOING INSTRUMENT was acknowledged before me by Kiawah Resort Associates, L.P., by D8WD&W Investments, Inc., a South Carolina corporation, its General Partner, by Charles P. Darby, III, its President, this ~~l.a'+'- day of ;3"", we.... 1997. J) - (SEAL) ~tary Publ" . f r South Carolina Myy commission expires: :;;.g - l~-l.;;;t· ;"00gobi I KIAWAH ISLAND UTILITY, INC., a South Carolina Corporation (SEAL)(SEAL} P.O. BoBc@419 419 Charle t ,SC 29402 Blf Leonard L. Long, Jr. I Vice PresidBnt_.. _ 2 EXHIBIT A U2 8 oPG 751 STATE OF SOUTH CAROLINA ) ) PROBATE COUNTY OF CHARLESTON ) PERSONALLY appeared before me the undersigned witness who after first being duly sworn, deposes and says that s/he saw the within-named Kiawah Islandisland Utility, Inc. a South Carolina corporation by Leonard L. Long, Jr.,Jn, its Vice President, sign, seal and as its act and deed, deliver the within-written of Termination of Utility Service Agreement for the uses and purposes therein mentioned, and that s/he together with the other witness whose signature appears above, witnessed the execution thereof. SWORN TO BEFORE ME THIS 2.-ddayy off~. :..::::r",,-,,,- ,1997.F997. ~PCbl~ My Commissi 3 EXHIBIT A 752 ElisabethEIisab th F.F xbmmonsNimmons Legal PlalmingPlatrning Assistant KiawahKiaxrab Resort Associates,Associates. LP,L.P. POSlPost Office Box 419 Charleston,Cbarleston. SC 29402'9402 EXHIBIT B STATE OF SOUTH CAROLINA ) ) UTILITY SERVICE AGREEMENT COUNTY OF CHARLESTON ) This Utility Service Agreement "Agreement" (this ) made and entered into this ~ d y f~, 7997 by and between Kiawah Resottn sociates, L.P. and K ah Island Utility, Inc. WITNESSETH Kiawah Resort Associates, L.P. (nKRAn) is a Delaware limited partnership which owns approximateiy 2,000 acres of undeveloped real property more particularly described in Exhibit A attached hereto (the "Property") located on Kiawah Island, South Carolina on which may be added several thousand housing units under current zoning authorizations, with a cap of adding 1974 such units plus extensive commercial, hotel, and mixed use under a development agreement (the nDeveiopment Agreement") dated September 26, 1994, between KRA and the Town of Kiawah. Kiawah Island Utility, Inc. (nKIUa) is a South Carolina corporation which owns approximately 18 acres of real estate more generally described in Exhibit B attached hereto (the nKIU Property") located on Kiawah Island South Carolina, together with various improvements, equipment, contract rights, easements, and other property rights. KIU operates a water distribution and waste water collection and treatment system (the "System") on the KIU Property for service to persons and businesses on Kiawah Island, South Carolina. KRA is in the process of developing the Property pursuant to its development plan (the "Development Plan" ) which, by its nature, is subject to change over time, and in accordance with the Development Agreement. KIU has long supplied KRA with the water EXHIBIT B and sewer needs and capacities necessary to allow KRA to develop the Property to its current state KIU's and continued supply of sufficient water and sewer capacity for future development of the Property is essential to the value of the developed and undeveloped portions of the Property. The historical relationship between KRA and KIU (with the former owning all shares of stock in the latter) has been in large part responsible for the development of Kiawah Island as a first-class residential and resort community, as well as the sound financial status of KIU. The timely provision of water and sewer infrastructure and services assures that the highest values are created and maintained for all Kiawah properties. This has been possible in the past due to, among other things, the constant commitment of KRA to assist with financing of enhanced and continually expanding utilities infrastructure. A utilities agreement is deemed necessary and desirable in order to facilitate and assure the continued mutual benefits to both KRA and KIU as development of Kiawah Island continues. To that end, KRA desires to contract with KIU to provide tor the timely supply of water distribution and waste water collection and treatment with respect to the Property. KIU desires to contract with KRA to assure that future needs for expansion and improvement of its capabilities are provided for in a timely and sufficient manner. Both parties acknowledge and agree that any failure or delay by KIU in complying with the terms, conditions, and obligations set forth in this Agreement will have a material and substantial adverse impact on the value of the Property and the ability of KRA to complete the development of the Property in accordance with the Development Plan and the Development Agreement.