Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 1
`FILED
`United States Court of Appeals
`Tenth Circuit
`
`October 21, 2022
`
`Christopher M. Wolpert
`Clerk of Court
`
`UNITED STATES COURT OF APPEALS
`
`FOR THE TENTH CIRCUIT
`_________________________________
`
`GARRETT DEVELOPMENT, LLC, an
`Oklahoma limited liability company,
`
` Plaintiff - Appellee,
`
`v.
`
`DEER CREEK WATER
`CORPORATION, an Oklahoma not for
`profit corporation,
`
` Defendant - Appellant.
`_________________________________
`
`
`
`
`
`
`No. 21-6105
`(D.C. No. 5:18-CV-00298-D)
`(W.D. Okla.)
`
`ORDER AND JUDGMENT*
`_________________________________
`
`Before HARTZ, BALDOCK, and McHUGH, Circuit Judges.
`_________________________________
`
`This case involves a dispute over the conditions imposed by a rural water
`
`association, Deer Creek Water Corporation (“Deer Creek”), on a private developer,
`
`Garrett Development, LLC (“Garrett”). Congress has protected rural water
`
`
`* This order and judgment is not binding precedent, except under the doctrines
`of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
`its persuasive value consistent with Federal Rule of Appellate Procedure 32.1 and
`Tenth Circuit Rule 32.1.
`
`
`
`
`
`
`FILED
`United States Court of Appeals
`Tenth Circuit
`
`October 21, 2022
`
`Christopher M. Wolpert
`Clerk of Court
`
`UNITED STATES COURT OF APPEALS
`
`FOR THE TENTH CIRCUIT
`_________________________________
`
`GARRETT DEVELOPMENT, LLC, an
`Oklahoma limited liability company,
`
` Plaintiff - Appellee,
`
`v.
`
`DEER CREEK WATER
`CORPORATION, an Oklahoma not for
`profit corporation,
`
` Defendant - Appellant.
`_________________________________
`
`
`
`
`
`
`No. 21-6105
`(D.C. No. 5:18-CV-00298-D)
`(W.D. Okla.)
`
`ORDER AND JUDGMENT*
`_________________________________
`
`Before HARTZ, BALDOCK, and McHUGH, Circuit Judges.
`_________________________________
`
`This case involves a dispute over the conditions imposed by a rural water
`
`association, Deer Creek Water Corporation (“Deer Creek”), on a private developer,
`
`Garrett Development, LLC (“Garrett”). Congress has protected rural water
`
`
`* This order and judgment is not binding precedent, except under the doctrines
`of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
`its persuasive value consistent with Federal Rule of Appellate Procedure 32.1 and
`Tenth Circuit Rule 32.1.
`
`
`
`
`
`
`
`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 2
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`associations indebted to the Department of Agriculture (“USDA”)1 from
`
`encroachments on their service areas by municipalities, so long as the water
`
`association makes services available to customers within the service area. 7 U.S.C.
`
`§ 1926(b). Garrett owns property within Deer Creek’s service area, but it filed this
`
`lawsuit seeking a declaration that Deer Creek’s service area was not protected by 7
`
`U.S.C. § 1926(b) because Deer Creek has imposed such onerous conditions on the
`
`provision of water service that service is effectively unavailable.
`
`After a three-day bench trial, the district court concluded Deer Creek’s
`
`conditions for service to Garrett were unreasonable, excessive, and confiscatory. The
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`district court therefore granted judgment in favor of Garrett and declared that Garrett
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`may obtain water from any provider, including the municipality of Oklahoma City,
`
`Oklahoma. Deer Creek filed a timely appeal. For the reasons stated below, we affirm.
`
`I.
`
`BACKGROUND
`
`To provide context for the factual and procedural history of this dispute, we
`
`begin with an overview of 7 U.S.C. § 1926(b). With the benefit of that background,
`
`
`1 Prior to 1994, the loans relevant to 7 U.S.C. § 1926(b) were operated by the
`Farmers Home Administration (FmHA). See Pittsburg Cnty. Rural Water Dist. No. 7
`v. City of McAlester, 358 F.3d 694, 701 n.1 (10th Cir. 2004). The USDA now
`operates the loan and guarantee program through the Rural Utility Services. Id.;
`United States Dept. of Agriculture, Rural Development Water & Waste Disposal
`Loan & Grant Program, https://www.rd.usda.gov/programs-services/water-
`environmental-programs/water-waste-disposal-loan-grant-program (last visited
`October 12, 2022). For the sake of consistency, we refer to the creditor entity of Deer
`Creek’s loans as the USDA throughout this order.
`2
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`
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`we set forth the factual and procedural history of this dispute. Then, we proceed to
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`the analysis of the issues before us on appeal.
`
`A.
`
`Statutory and Legal Background
`
`In passing the Agricultural Act of 1961, Pub. L. No. 87–128, 75 Stat. 294,
`
`Congress sought to preserve and to protect rural farm life. Title III of the Act—the
`
`Consolidated Farm and Rural Development Act—is concerned largely with issues of
`
`agricultural credit. Codified at 7 U.S.C. §§ 1921–2009cc-18, “the Consolidated Farm
`
`and Rural Development Act, . . . authorize[s] the Secretary of Agriculture to make or
`
`insure loans to nonprofit water service associations for ‘the conservation,
`
`development, use, and control of water.’” Sequoyah Cnty. Rural Water Dist. No. 7 v.
`
`Town of Muldrow, 191 F.3d 1192, 1194 (10th Cir. 1999) (quoting 7 U.S.C.
`
`§ 1926(a)). Section 1926 of the Act applies to “associations, including corporations
`
`not operated for profit . . . and public and quasi-public agencies to provide for the . . .
`
`control of water . . . primarily serving farmers, ranchers, farm tenants, farm laborers,
`
`rural business, and other rural residents.” 7 U.S.C. § 1926(a). For the recipients of
`
`these federal loans, § 1926(b) protects associations meeting this definition from
`
`competition by way of municipal encroachment:
`
`The service provided or made available through any such association
`shall not be curtailed or limited by inclusion of the area served by such
`association within the boundaries of any municipal corporation or other
`public body, or by the granting of any private franchise for similar
`service within such area during the term of such loan; nor shall the
`happening of any such event be the basis of requiring such association
`to secure any franchise, license, or permit as a condition to continuing
`to serve the area served by the association at the time of the occurrence
`of such event.
`
`
`
`3
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`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 4
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`7 U.S.C. § 1926(b).
`
`By enacting this section, “Congress intended to protect rural water
`
`[associations] from competition to encourage rural water development and to provide
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`greater security for and thereby increase the likelihood of repayment of [USDA]
`
`loans.” Rural Water Dist. No. 1, Ellsworth Cnty v. City of Wilson, 243 F.3d 1263,
`
`1269 (10th Cir. 2001) (citing Bell Arthur Water Corp. v. Greenville Utils. Comm’n,
`
`173 F.3d 517, 523 (4th Cir. 1999)). Consistent with the purpose of this section, we
`
`have “broadly” construed § 1926(b) “to protect rural water [associations] from
`
`competition with other water service providers.” Id. (citing Adams County Reg.
`
`Water Dist. v. Vill. of Manchester, 226 F.3d 513, 518 (6th Cir. 2000); Bell Arthur,
`
`173 F.3d at 520, 526; Lexington–South Elkhorn Water Dist. v. City of Wilmore, 93
`
`F.3d 230, 235 (6th Cir. 1996)). This construction furthers “‘a congressional mandate
`
`that local governments not encroach upon the services provided by [federally
`
`indebted water] associations, be that encroachment in the form of competing
`
`franchises, new or additional permit requirements, or similar means.’” Id. (quoting
`
`City of Madison, Miss. v. Bear Creek Water Ass’n, Inc., 816 F.2d 1057, 1059 (5th
`
`Cir. 1987)).
`
`To receive the protection provided by § 1926(b), rural water associations have
`
`the burden to establish two requirements. Rural Water Dist. No. 4, Douglas Cnty. v.
`
`City of Eudora, 659 F.3d 969, 976, 980 (10th Cir. 2011). The association must
`
`“(1) have a continuing indebtedness to the [USDA] and (2) have provided or made
`
`available service to the disputed area.” Ellsworth, 243 F.3d at 1269. To satisfy the
`4
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`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 5
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`second prong, “the focus is primarily on whether the water association has in fact
`
`made service available, i.e., on whether the association has proximate and adequate
`
`‘pipes in the ground’ with which it has served or can serve the disputed customers
`
`within a reasonable time.” Id. at 1270 (internal quotation marks and emphasis
`
`omitted). To meet this test, the rural water association must demonstrate that “it has
`
`adequate facilities within or adjacent to the area to provide service to the area within
`
`a reasonable time after a request for service is made.” Id.
`
`However, even where a rural water association meets the “pipes in the ground”
`
`test, “the cost of [its] services may be so excessive that it has not made those services
`
`‘available’ under § 1926(b).” Id. at 1271. The reasonableness of a water association’s
`
`costs for service is based on the totality of the circumstances, and we have identified
`
`four non-exclusive factors to guide this determination. Id. (citing Shawnee Hills
`
`Mobile Homes, Inc. v. Rural Water Dist. No. 6, 537 P.2d 210, 217 (Kan. 1975)).
`
`These four Ellsworth factors consider:
`
`(1) whether the challenged practice allows the [association] to yield
`more than a fair profit; (2) whether the practice establishes a rate that is
`disproportionate to the services rendered; (3) whether other, similarly
`situated [associations] do not follow the practice; (4) whether the
`practice establishes an arbitrary classification between various users.
`
`Id. The burden to show unavailability of water service based on the cost of service is
`
`on the party challenging the protected service area. Douglas, 659 F.3d at 981. With
`
`this statutory framework in mind, we turn to the facts of this case.
`
`
`
`5
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`B.
`
`Factual History
`
`Deer Creek is a private, non-profit rural water corporation formed pursuant to
`
`title 18, section 863 of the Oklahoma Code and governed by the Oklahoma General
`
`Corporation Act. It provides rural water service to unincorporated areas of Oklahoma
`
`County north of Oklahoma City and serves approximately 2,500 customers. Deer
`
`Creek has obtained loans from and remains indebted to the USDA. Despite the
`
`interest payments on these federal loans and other expenses, Deer Creek made an
`
`average profit of about $500,000 in 2016 and 2017. Pursuant to 7 U.S.C. § 1926(b),
`
`Deer Creek claims exclusivity over its service area, which includes land owned by
`
`Garrett in Oklahoma County.
`
`Garrett’s land is positioned just outside of the northern border of Oklahoma
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`City’s municipal limits, and Deer Creek provides water to the parcels surrounding
`
`Garrett’s property to the north, west, and east. Deer Creek has also maintained an
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`eight-inch water main on the northern part of Garrett’s land since 1972. Garrett plans
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`to build a 510-unit single-family home development (the “Proposed Development”)
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`on this land.
`
`When Garrett originally purchased the property, it was zoned for agricultural
`
`and rural residential use. With this zoning, residential density is limited to one home
`
`for every two acres, or around a total of eighty homes. In April 2014, Garrett filed an
`
`application with the Board of County Commissioners of Oklahoma County to rezone
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`for “urban single family” density, a change that would have allowed Garrett to build
`
`the desired 510-home development. The Board denied Garrett’s rezoning application
`6
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`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 7
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`because water and sanitary sewer facilities were not available to the Proposed
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`Development at the higher residential density. The Oklahoma state court later upheld
`
`the denial.2
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`Garrett first applied to Deer Creek for water service to the Proposed
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`Development in April 2014. Deer Creek accepted the application, subject to
`
`significant conditions. Because Garrett did not satisfy Deer Creek’s conditions for
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`service by the stated deadline, Deer Creek’s conditional acceptance expired. See App.
`
`Vol. I at 100 (noting the conditional acceptance expired “on or about November 15,
`
`2015”).
`
`Thereafter, Garrett applied to have the property annexed into the city limits of
`
`Oklahoma City so the municipality could provide water to the Proposed
`
`Development. The Oklahoma City Planning Department voted to support annexation
`
`on the condition that Garrett obtain a “full release from the Deer Creek Rural Water
`
`[Corporation].” App. Vol. II at 490. Deer Creek refused to release Garrett’s property
`
`from its service area and the annexation effort was unsuccessful.
`
`After the petition for annexation failed, Garrett reapplied to Deer Creek for
`
`water service to the Proposed Development. In February of 2018, Deer Creek again
`
`conditionally accepted Garrett’s application on nearly identical conditions to those
`
`offered in 2015. Those conditions focused on four obligations: (1) well construction,
`
`
`2 After the district court entered judgment in Garret’s favor, in January 2022,
`the city counsel of Oklahoma City annexed Garrett’s property into the city limits and
`rezoned the property for residential use. With this zoning, Garrett states it “is
`authorized to develop up to 925 lots” on the property.
`7
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`(2) transfer of water and property rights, (3) additional infrastructure, and
`
`(4) payment of fees. We provide the details of those requirements now.
`
`1. Well Construction Conditions
`
`Deer Creek conditioned service on Garrett providing “four successful water
`
`wells of sufficient quantity and acceptable quality within the development.” App.
`
`Vol. XI at 2714. Deer Creek required Garrett to “pay for all costs relating to the
`
`water well development including but not limited to test holes, [and] test wells,” id.,
`
`as well as an “inspection fee equal to 4% of all water system construction costs and
`
`well costs.” Id. Upon completion, “Deer Creek Water Corporation [was to] maintain
`
`full control over well design, location, testing procedures, construction and [the] well
`
`development process.” Id.
`
`2.
`
`Transfer of Water and Property Interests Conditions
`
`Deer Creek also required Garrett to “dedicate the water rights beneath the
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`[P]roposed [D]evelopment” to Deer Creek “and provide four well sites,” the location
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`of which was to be determined by Deer Creek. Id. If the water rights on the property
`
`were “previously sold, transferred or severed from [the] property,” Garrett had to
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`“purchas[e] an equal amount of water rights as deemed by [Deer Creek] to be usable
`
`by [Deer Creek] and to transfer the[] water rights to [Deer Creek] at no cost to” the
`
`water association. Id. at 2721. Deer Creek also mandated that Garrett provide it with
`
`a fifty-foot by fifty-foot “permanent water well easement per well site with related
`
`utility access easements as determined by” Deer Creek. Id.
`
`
`
`8
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`3.
`
`Additional Infrastructure Conditions
`
`Deer Creek next insisted that Garrett construct two twelve-inch water mains;
`
`pay for three-phase power; and furnish and install water meter cans, setters, curb
`
`stops and service lines. And, with respect to this required infrastructure, Deer Creek
`
`required Garrett to furnish two bonds: (1) a maintenance bond and (2) a statutory
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`bond. The maintenance bond had to “be for a period of two (2) years” and “in an
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`amount equal to one hundred percent (100%) of the contract amount.” Id. at 2719.
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`The statutory bond was to “provide that the [c]ontractor will make payment for all
`
`labor, materials and equipment used in the construction of the project.” Id. Deer
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`Creek also conditioned service on Garrett paying an inspection fee equal to 4% of the
`
`water system construction cost.
`
`4.
`
`Additional Fee Conditions
`
`Deer Creek demanded the payment of two fees before it would provide water
`
`service to the Proposed Development: an impact fee and a membership fee. Every
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`member of Deer Creek must pay an impact fee, which is calculated at $2,500 per
`
`residence or unit for both single residence users and developers. Under this formula,
`
`the aggregate impact fee for Garrett’s 510-home Proposed Development is
`
`$1,275,000. Because the provision of water wells is a condition of service, however,
`
`Deer Creek offsets the amount of the impact fees against the cost of water well
`
`development. Specifically, Deer Creek’s policy states, “the Impact Fees paid by
`
`[Garrett] shall be applied to the cost of said wells.” App. Vol. XI at 2722.
`
`
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`Deer Creek also conditions water service on Garrett paying a membership fee.
`
`The fee for both residential and development users is $1,500 for each 5/8-inch
`
`residential meter and $2,500 for each 1-inch residential meter. The membership fee
`
`“represents an ownership interest in the water system.” App. Vol. IX at 2300; see
`
`also id. at 2360. It also includes “the cost of the meter.” Id. at 2359. The meters must
`
`be installed by Deer Creek and cost anywhere from $150 to $300 each.
`
`As a result of these conditions, Deer Creek is obligated to provide and install
`
`only the meters with respect to the initial costs of bringing water services to the
`
`Proposed Development. After initial installation, however, Deer Creek will be
`
`responsible for maintenance and repair of the system throughout its life.
`
`C.
`
`Procedural History
`
`1.
`
`Pretrial Proceedings
`
`Rather than attempting to comply with Deer Creek’s conditions, Garrett
`
`initiated this lawsuit. Garrett’s Complaint contained two claims challenging Deer
`
`Creek’s assertion of exclusivity over the service area protected by 7 U.S.C.
`
`§ 1926(b). First, Garrett asked the district court to declare that Deer Creek may not
`
`claim exclusivity protected by § 1926(b) because the state of Oklahoma has
`
`authorized only rural water districts “to borrow money under the terms of the
`
`Consolidated Farm and Rural Development Act” (“Declaration re Exclusivity”). App.
`
`Vol. I at 16. Claiming that Deer Creek is not a rural water district, Garrett asked the
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`district court to declare it has no “service area capable of protection” under
`
`§ 1926(b). Id.
`
`
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`10
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`Second, Garrett asked the district court to declare Deer Creek’s service area
`
`not protected by § 1926(b) because Deer Creek’s conditions are so onerous as to
`
`make water service through Deer Creek unavailable to Garrett (“Declaration re
`
`Availability”). For both claims, Garrett sought a declaration that it is “free to obtain
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`water services from a water service provider other than Deer Creek, including
`
`without limitation the City of Oklahoma City.” Id.
`
`Deer Creek filed a motion to dismiss Garrett’s Complaint pursuant to Federal
`
`Rule of Civil Procedure 12(b)(1). Deer Creek made three arguments challenging the
`
`district court’s subject matter jurisdiction. First, Deer Creek argued Garrett lacks
`
`standing to seek the Declaration re Exclusivity because any declaration of rights
`
`under § 1926(b) would determine only the rights of a non-party water service
`
`provider to provide water services to Garrett, not Garret’s right to receive such
`
`services. Second, Deer Creek maintained that Garrett’s claim seeking the Declaration
`
`re Availability was not ripe because its land had not been rezoned for residential use
`
`as required to build the Proposed Development. Third, Deer Creek contended that
`
`any judgment would be an impermissible advisory opinion because Garrett’s claims
`
`affect only the rights of a non-party water service provider, Oklahoma City.
`
`The district court denied Deer Creek’s Motion to Dismiss. It concluded Garrett
`
`was seeking a declaration of its own rights to obtain water. Although Deer Creek did
`
`not directly challenge any element of Garrett’s constitutional standing, the district
`
`court further concluded Garrett adequately pleaded each standing requirement. The
`
`district court also determined that Garrett’s claim seeking the Declaration re
`11
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`Availability was ripe because the evidence indicated a property developer
`
`customarily obtains a commitment for water service prior to and in support of
`
`rezoning. The district court further ruled that any declaration from the court would
`
`not be an advisory opinion because it would directly affect Garrett’s ability to obtain
`
`water.
`
`After discovery, Deer Creek and Garrett filed cross-motions for summary
`
`judgment. Garrett argued it was entitled to summary judgment as to both of its claims
`
`for declaratory judgment. As to the Declaration re Exclusivity, Garrett argued that
`
`§ 1926(b) violated the Tenth Amendment because Deer Creek is not organized as a
`
`rural water district under Oklahoma law and therefore Oklahoma did not accept the
`
`benefit of exclusivity for entities like Deer Creek. Garrett further argued Deer Creek
`
`is not an association protected by § 1926(b). Deer Creek disagreed, arguing it was
`
`entitled to summary judgment as to Garrett’s claim for a Declaration re Exclusivity
`
`because, as an association within the definition of § 1926(a), Deer Creek is an entity
`
`entitled to protection under § 1926(b).
`
`With respect to Garrett’s claim for a Declaration re Availability, both parties
`
`asserted they were entitled to summary judgment. Garrett argued Deer Creek had
`
`failed to make services available in two ways. First, Garrett argued Deer Creek’s
`
`current infrastructure was not capable of providing water services to the area.
`
`Second, Garrett argued the conditions for providing service were unreasonable,
`
`excessive, and confiscatory. Deer Creek again disagreed, claiming first that it had
`
`pipes in the ground and could serve the Proposed Development within six months.
`12
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`Deer Creek next argued its conditions for water service were not so unreasonable,
`
`excessive, or confiscatory as to deprive Garrett of water service. Finally, Deer Creek
`
`renewed the arguments challenging the district court’s subject matter jurisdiction it
`
`had previously made in the Motion to Dismiss pursuant to Rule 12(b)(1).
`
`The district court granted in part and denied in part each motion for summary
`
`judgment. The court granted Deer Creek summary judgment as to Garrett’s claim for
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`a Declaration re Exclusivity, concluding “the plain language of § 1926(a) indicates
`
`Deer Creek is an entity that may be protected” under § 1926(b). App. Vol. VI at
`
`1581. And the district court held that § 1926(b) did not violate the Tenth
`
`Amendment. As to the claim for a Declaration re Availability, the district court noted
`
`that both parties conceded Deer Creek is indebted to the USDA. Further, although the
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`district court concluded Deer Creek’s existing infrastructure did not have the capacity
`
`to serve the Proposed Development, it noted Garrett had not disputed that Deer Creek
`
`could make services available within a reasonable time. The district court concluded,
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`however, that a genuine dispute of material fact existed as to whether Deer Creek’s
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`proposed conditions were so excessive, unreasonable, and confiscatory as to make
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`services unavailable to Garrett. It therefore denied each party summary judgment on
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`this narrow issue.3
`
`
`3 The district court did not analyze Deer Creek’s arguments as to standing and
`justiciability because it concluded “nothing has significantly changed since the
`[c]ourt’s previous Order.” App. Vol. VI at 1581.
`
`
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`2.
`
`Bench Trial
`
`The district court held a three-day bench trial in June 2021. The only issue at
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`trial was whether the cost of Deer Creek’s conditions for water were so excessive,
`
`unreasonable, and confiscatory as to deny services to Garrett. At trial, William
`
`Patrick Garrett, manager of Garrett, and Timothy Johnson, a civil engineer, testified
`
`for Garrett. Debra Wells-Bethel, the manager of Deer Creek; William Myers, an
`
`engineer; and Larry Blaire, a water system member, testified for Deer Creek. In the
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`following sections of this decision, we outline the relevant testimony as to (a) the
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`infrastructure required to meet Deer Creek’s conditions, (b) the cost of meeting Deer
`
`Creek’s conditions, and (c) the conditions of similarly situated water providers. We
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`then discuss the district court’s rulings based on this evidence.
`
`a.
`
`Required infrastructure testimony
`
`To determine the number of wells required to provide service to the Proposed
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`Development, Deer Creek’s expert witness, Mr. Myers, performed a hydraulic
`
`analysis. This analysis used model wells to estimate the pressure changes that would
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`occur at each juncture of the Deer Creek water system if it began servicing the
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`Proposed Development. Mr. Myers ran a series of models, adding additional wells
`
`individually until the systemwide average water pressure reached a level not less than
`
`0.5 pounds per square inch (“psi”) of the water pressure enjoyed prior to adding the
`
`Proposed Development.
`
`To maintain that desired water pressure systemwide while servicing the
`
`Proposed Development, Mr. Myers determined Deer Creek would need four
`14
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`additional wells. According to Mr. Myers, at peak usage, the Proposed Development
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`would require 3.83 wells, and if Deer Creek’s average annual use is considered, the
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`Proposed Development would need only 3.49 wells. By adding four new wells to the
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`system, Mr. Myers estimated the average pressure of the system overall would
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`increase by 0.29 psi, an increase he described as “infinitesimal.” App. Vol. X at
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`2554.
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`b.
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`Cost testimony
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`Mr. Garrett testified that the estimated cost to build the four wells and satisfy
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`Deer Creek’s other conditions for water service would be $4,128,793. Mr. Myers
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`disagreed and estimated the cost to satisfy Deer Creek’s conditions as approximately
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`$1,850,000. The witnesses provided further testimony supporting these estimates.
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`To estimate the cost of drilling four successful wells, both parties used the
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`average cost of $400,000 to dig each well, resulting in an estimated total cost of
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`$1,600,000 for the four wells. Mr. Garrett, however, also included an additional
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`$400,000 as a contingency in the event one well did not provide sufficient quantity or
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`quality of water. With the addition of this contingency amount, Mr. Garrett estimated
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`the total cost to build the water wells as approximately $2,000,000. Mr. Myers
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`disputed the addition of $400,000, testifying that the contingency is already built into
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`the $400,000 estimate per well. For the required three-phase electrical power,
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`Mr. Garrett added $50,000 to the cost of the wells. In contrast, Mr. Myers excluded
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`this expense entirely because the three-phase power will “be[] intrinsic to the power
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`that would be [run] into the subdivision.” App. Vol. X at 2627. Mr. Myers did not
`15
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`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 16
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`dispute, however, that $50,000 was a reasonable estimate of the cost of three-phase
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`power, if separately counted.
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`Mr. Garrett also included a value of $300 an acre for water rights based on the
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`amount Deer Creek had paid to landowners in a prior transaction. See App. Vol. VIII
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`at 2058; see id. at 2059–60 (relying on the amount Deer Creek paid “landowners in
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`Horseshoe Acres”). He estimated the total cost of transferring water rights would be
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`around $46,000 for the 155 acres comprising the Proposed Development. Ms. Wells-
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`Bethel disputed the inclusion of such costs, testifying that Deer Creek had paid for
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`water rights on only three occasions and would not pay for them here.
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`With respect to the cost of surface rights, Mr. Garrett used the amount of
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`$3,400 per well site easement based on one transaction where Deer Creek paid
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`landowners for surface rights. Because Deer Creek requires four well sites on the
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`Proposed Development, Mr. Garrett estimated the total cost of surface rights at
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`$13,600. Mr. Myers did not include any amount for water and surface rights in the
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`overall cost of conditions because he testified that transferring these rights is
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`typically at no cost to the water service provider.
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`The parties each estimated the cost of the water main extensions. Mr. Garrett
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`testified the cost of building the twelve-inch water main extensions would be around
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`$100 per foot, or $370,000 based on a total of 3,700 feet of main required to satisfy
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`Deer Creek’s conditions. Mr. Myers disagreed with the per foot estimate, testifying
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`the cost is $53.91 per foot for the main extension, for a total of $200,006.
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`16
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`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 17
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`The parties also presented conflicting evidence on the costs of the inspection
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`fee and maintenance bond. Because the inspection fee covered any infrastructure
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`installed, Mr. Garrett estimated 5% of the cost of the wells, the twelve-inch mains,
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`and the interior mains for a total of $233,423. For the cost of the two-year
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`maintenance bond, Mr. Garrett estimated $140,054 based on 3% of the total water
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`system. In turn, Mr. Myers calculated the total inspection fee as $99,938, explaining
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`that the inspection fee would not include the wells and would be charged at a 4%
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`rather than a 5% rate. Mr. Myers estimated the maintenance bond would cost only
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`$74,953, based on the water mains and interior infrastructure.
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`Ms. Wells-Bethel explained that after the two-year maintenance bond expires,
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`Deer Creek will be responsible for all maintenance for the Proposed Development’s
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`water system in perpetuity. She testified that this maintenance would include
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`“redrilling [the wells] on an average” of every twenty years. App. Vol. IX at 2404.
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`Ms. Wells-Bethel indicated the subdivision would be the largest development in Deer
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`Creek’s service area and that “[m]aintenance in a subdivision is much, much more
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`expensive than any maintenance we do in a rural area” because this maintenance
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`involves “repairing lines under driveways and sidewalks.” Id. at 2374.
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`Mr. Garrett next testified that the cost of the impact fees at $2,500 per unit
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`would equal $1,275,000. He further explained that although Deer Creek’s subdivision
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`policy provided the impact fee would be credited back against the cost of the water
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`wells, he included it because the policy does not detail when that would happen.
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`17
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`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 18
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`Because Deer Creek credits the fee back to Garrett, neither Mr. Garrett nor
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`Mr. Myers included the cost of impact fees in their estimates.
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`The parties also discussed Deer Creek’s membership fees. Mr. Garrett
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`estimated $1,275,000 in membership fees based on $2,500 per lot for 1-inch meters.
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`Mr. Garrett explained he used the cost for the 1-inch meters in his estimate rather
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`than the 5/8-inch meters because “these are upscale homes” and “[t]hat[] is what
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`[Garrett] prefer[s].” App. Vol. VIII at 2052. Mr. Garrett included a membership fee
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`for all 510 lots because if Garrett also acts as the builder of the homes, it will need to
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`pay the fee “before [it] can get water turned on [to] finish the masonry work or the
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`plumbing.” Id. at 2218. Mr. Garrett concluded the membership fee covered nothing
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`more than the cost of each meter, which was around $200, and therefore Deer Creek
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`is “making a million dollars just on the membership fees.” Id. at 2069; see also id. at
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`2218 (Mr. Johnson testifying “we felt there is no benefit to a membership fee except
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`you get a meter”).
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`To the contrary, Ms. Wells-Bethel claimed the membership fee covers more
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`than just the meter for each unit. She explained the membership fee also represents
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`an ownership interest in Deer Creek. And Ms. Wells-Bethel noted that, as the
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`developer, Garrett is required to pay for only one membership fee of $1,500. This is
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`because the membership fee for each individual lot need not be paid until the
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`customer needs a meter and water service to that specific lot. Ms. Wells-Bethel also
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`disagreed that the Proposed Development would need 1-inch meters, or that the
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`18
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`Appellate Case: 21-6105 Document: 010110756657 Date Filed: 10/21/2022 Page: 19
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`developer would get to choose the size of the meters for each unit. Accordingly,
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`Mr. Myers included the cost of a single membership—$1,500—in his estimate.
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`Relying on figures from 2017, Mr. Garrett calculated that Deer Creek currently
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`makes “about $189 per user” in profit each year. App. Vol. VIII at 2059. With 510
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`new users planned in the Proposed Development, Mr. Garrett estimated Deer Creek
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`would “make approximately $96,000 [annually] off these new users [in] profit” based
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`on water sales. Id. Ms. Wells-Be
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