In Bear Hollow Restoration, LLC v. Public Service Commission of Utah, 2012 UT 18, the Utah Supreme<\/p>\n
Court addressed whether a mutual water company is a public utility subject to regulation by the Public<\/p>\n
Service Commission of Utah (Commission).<\/p>\n
Bear Hollow involved Summit Water Distribution Company (Summit) and Bear Hollow, LLC (Bear<\/p>\n
Hollow), a Summit shareholder. Bear Hollow owned Class A shares in Summit. Class A shares did not<\/p>\n
allow water consumption. A Class A share was for a developer to hold until the land was developed at<\/p>\n
which time the share would be conveyed to the homeowner and converted to a Class B share, allowing<\/p>\n
water consumption. Class B shares were appurtenant to the land of the homeowner.<\/p>\n
Bear Hollow\u2019s predecessor-in- interest obtained its Class A shares through a development agreement<\/p>\n
that made them appurtenant to certain land. Bear Hollow discovered it had more shares than it needed<\/p>\n
to complete the development and attempted to sell its surplus Class A shares. Bear Hollow could not<\/p>\n
transfer the shares separate from the land without Summit\u2019s approval. Summit denied Bear Hollow\u2019s<\/p>\n
requests to transfer its Class A shares separately from the land. Bear Hollow then petitioned the<\/p>\n
Commission to reevaluate Summit\u2019s exempt status and requested that the Commission regulate<\/p>\n
Summit. The Commission denied Bear Hollow\u2019s petition. The Commission also denied Bear Hollow\u2019s<\/p>\n
request for rehearing and refused to consider Bear Hollow\u2019s amended complaint. Bear Hollow appealed<\/p>\n
the Commission\u2019s rulings.<\/p>\n
The Court addressed four issues on appeal. This blog addresses only the issue of whether the<\/p>\n
Commission properly ruled that Summit was not a public utility subject to regulation by the Commission.<\/p>\n
The Court affirmed the Commission\u2019s ruling that Summit was not a public utility subject to regulation by<\/p>\n
the Commission.<\/p>\n
A \u201cpublic utility\u201d includes water corporations \u201cwhere the service is performed for, or the commodity<\/p>\n
delivered to, the public generally.\u201d 1 The issue for the Court was whether Summit provides \u201cservice to or<\/p>\n
delivers its water to the public generally.\u201d 2 The Court relied on the test in Garkane Power Co. v. Public<\/p>\n
Service Commission 3 whether an entity provides service to the general public. The Court also pointed<\/p>\n
out the policy justification for regulation by the Commission where regulation is necessary to prevent<\/p>\n
\u201cmonopolistic coercion,\u201d which potentially exists where a profit driven corporation controls essential<\/p>\n
public services.<\/p>\n
Addressing these concerns the Court reaffirmed the Garkan standard that a cooperative does not serve<\/p>\n
the public generally and will be exempt from regulation by the Commission where \u201c(1) there is<\/p>\n
\u2018mutuality of ownership among all users [that] is substituted for the conflicting interests that dominate<\/p>\n
the owner vendor-non owner vendee relationship,\u2019 (2) the \u2018cooperative serves only its owner-members,\u2019<\/p>\n
and (3) the cooperative \u2018has the right to select those who become members.\u2019\u201d 4<\/p>\n
Mutuality of Ownership Among Owner-Members<\/p>\n
1 Bear Hollow Restoration, LLC v. Public Service Commission of Utah [get final citation], p. 7 (emphasis in original).<\/p>\n
2 Id.<\/p>\n
3 100 P.2d 571 (Utah 1940).<\/p>\n
4 Bear Hollow, at 8.<\/p>\n
Bear Hollow argued that mutuality did not exist in Summit because a shareholder, SK Resources,<\/p>\n
controlled 80 percent of all Summit Class A shares and 51.9 percent of all outstanding Summit shares.<\/p>\n
The Court held that mutuality existed because each shareholder had a proportionate interest in Summit<\/p>\n
and that they had a common interest, even though not all shareholders had the same amount of voting<\/p>\n
power. Because SK resources invested much more money into purchasing Summit shares, it had greater<\/p>\n
entitlement to water and voting power than other shareholders. The Court held that there was mutual<\/p>\n
ownership among Summit\u2019s shareholders and that it did not serve the public generally.<\/p>\n
Service Only to Owners-Members<\/p>\n
The Court made clear that a \u201ctrue cooperative only extends its benefit to a limited class of owner-<\/p>\n
members.\u201d 5 The Court upheld the Commission\u2019s determination that Summit only provides service to its<\/p>\n
members because the only entities who pay for and are entitled to receive water from Summit are<\/p>\n
shareholders, regardless of whether the shareholders own public or rental facilities. Therefore, the<\/p>\n
Court concluded that Summit served only its members and did not serve the public generally.<\/p>\n
Right to Select Who Becomes Members<\/p>\n
The Court held that Summit retained the right to select its members. Bear Hollow argued that Summit<\/p>\n
had lost control of who became a member because it could not control to whom an existing shareholder<\/p>\n
may sell its land and appurtenant shares. The Court stated that a cooperative is not required to exercise<\/p>\n
its right to select its members on a case-by- case basis and that a cooperative\u2019s right to select its<\/p>\n
members is not lost just because membership is easy to obtain. \u201cIn short, it is irrelevant to the public<\/p>\n
utility analysis how a member acquires his status (here by acquiring shares) so long as a member is<\/p>\n
bound by rights and duties that are different from those of nonmembers.\u201d 6 The Court determined that<\/p>\n
Summit retained the right to select its members because membership was conditioned upon owning<\/p>\n
Summit shares and complying with the articles of incorporation and bylaws.<\/p>\n
Conclusion<\/p>\n
The Court held that because Summit shareholders mutually own Summit, because Summit served only<\/p>\n
its members, and because Summit had the right to select its members, Summit did not serve the public<\/p>\n
generally and was not subject to regulation by the Commission. The Court affirmed the Commission\u2019s<\/p>\n
ruling. This case is significant for Utah water law because it defines when the Commission may regulate<\/p>\n
non-profit mutual water companies, which control a significant portion of Utah\u2019s water supply.<\/p>\n","protected":false},"excerpt":{"rendered":"
In Bear Hollow Restoration, LLC v. Public Service Commission of Utah, 2012 UT 18, the Utah Supreme Court addressed whether a mutual water company is a public utility subject to regulation by the Public Service Commission of Utah (Commission). Bear …<\/p>\n