6. Commission's Standard for
Reviewing Settlements

Rule 12.1(d) of the Commission's Rules of Practice and Procedure provides:

"The Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and in the public interest."

As the settling parties, Cal Water and the Emmetts have the burden of proving that the settlement should be adopted by the Commission.6 The Commission's standard of proof is the preponderance of the evidence.7 As set forth below, we find that the moving parties have not made the required showing, and therefore, we decline to approve the proposed settlement agreement.

The proposed settlement agreement would require, in part, that Cal Water's Selma district rates be changed to reflect $20,000 for the benefit of Nelson. No representative of ratepayers, however, is a party to this proceeding, and Cal Water has not demonstrated that ratepayers will accrue any benefits from these payments to Nelson. As discussed further below, we are unable to find that the proposed ratemaking treatment of the payments to Nelson is reasonable in light of the record.

The record shows that Cal Water was authorized to acquire the water system of the Wesmilton Water Company for $100,000 and to carry forward the plant and accumulated depreciation as reflected in Wesmilton's books. Cal Water now proposes to include in its revenue requirement $2,000 a year for 10 years of payments to Nelson. Cal Water describes these payments as "refunds" but Cal Water did not receive the initial payment from Nelson and thus is not making a refund of any kind. (Nelson's $65,000 payment was to the former owners of the Wesmilton system.) Cal Water's proposed ratemaking treatment of the payments as an "expense," as correctly observed by Nelson,8 makes ratepayers responsible this amount.

Cal Water contends that the new customers in the former Trend Homes property will generate revenue from which to fund the payments.9 Cal Water's Selma district rates are limited to the just and reasonable costs of providing water service. It is not clear how Cal Water could justify payments to Nelson as a component of revenue requirement, and the record in this proceeding contains no such showing. Moreover, Cal Water's reasoning is circular: If customer rates are based on a revenue requirement that includes the payments to Nelson, then, of course, there will be funds from ratepayers to make the payments.

Assessing Cal Water's Selma district ratepayers with the obligation to fund payments to Nelson is not reasonable because (1) these ratepayers have received no benefit from Nelson, and (2) ratepayers were not represented at all in the settlement negotiations. For both these reasons, we conclude that the proposed settlement agreement is not reasonable in light of the record.

To approve a proposed settlement agreement, the Commission must conclude that the provisions of the agreement do not violate applicable law. We are unable to make that finding here because the proposed settlement agreement requires Cal Water to collect (1) $10,000 from a prospective customer (the Emmetts) as a prerequisite to receiving public utility water service and (2) $20,000 from ratepayers, and to remit the $30,000 total to a third party. This collection mechanism violates the Public Utilities Code in several ways, as specified below.

Nelson claims the Commission determined that he was entitled to receive $40,000 from any future Cal Water customers on the Trend Homes property. This claimed entitlement forms the legal basis for the $10,000 payment by the Emmetts in the proposed settlement agreement. Absent such an entitlement, this payment appears to unlawfully discriminate in violation of the Public Utilities Code.10

Nelson argues that the Commission's 1985 decision authorized the contribution by the owners of the Trend Homes development, and that the purpose of the Advice Letter filing was simply to determine whether the allocation amount "made sense" in light of the relative sizes of the two parcels and benefits from Wesmilton transfer.11 This interpretation, however, is not supported by the plain words of D.85-06-132.

In the 1985 decision, the Commission noted at the start of its discussion of the Nelson reimbursement request that requiring the Trend Homes developer to share in the $65,000 payment "raises significant problems." The Commission's first listed "problem" is that neither the Trend Homes nor its representative was a party to the proceeding, and neither had indicated a willingness to share in the $65,000 developer contribution by joining with Nelson in signing the Wesmilton sale agreement.12

The Commission concluded that: "Clearly the request cannot be adjudicated in this proceeding."13 Consistent with this determination, the Commission made no findings of fact, conclusions of law, or ordering paragraph granting Nelson a right to reimbursement. The Commission's only directive regarding Nelson's request for a reimbursement order was for Cal Water to file an Advice Letter for review by the Commission's staff "if and when" the developers seek water service, and for staff to "make whatever recommendations it deems appropriate for further Commission action on this issue." By expressly declining to adjudicate the reimbursement issue, the Commission at most reserved the issue for later determination. No fair reading of the 1985 decision would suggest that the Commission both adjudicated the issue and resolved it in Nelson's favor. The Commission, however, did clearly find that Nelson benefited from Cal Water's acquisition of the Wesmilton service territory, which provided Nelson with lower cost water service.

Moreover, a Commission order binding one who was not a party to the prior proceeding, as well as its successors in interest, to pay a fee to a third-party in excess of the utility's properly tariffed charges as a precondition to receiving public utility water service, would be extraordinary.14 Nothing in the record of

these proceedings would enable us to make the procedural and substantive findings, conclusions, and order that would be necessary to support such a fee.15

Absent special authorization to collect this fee for the benefit of Nelson, we turn to the provisions of the Public Utilities Code that guide our ratemaking authority. Cal Water is prohibited by Public Utilities Code § 453 from discriminating among its customers: "No public utility shall, as to rates, charges, service, facilities, ... subject any person or corporation to any prejudice or disadvantage." The proposed settlement agreement would have Cal Water collect $10,000 from the owners of the former Trend Homes property and remit it to Nelson, even though the Commission has not determined that the owners of that property owe anything to Nelson. This fee is a "prejudice or disadvantage" imposed only on these property owners without justification and therefore would violate § 453. Accordingly, this component of the proposed settlement agreement is not consistent with the law.

The proposed settlement agreement also conflicts with the Pub. Util. Code in another fundamental respect. In Ordering Paragraph 2 of D.85-06-132, the Commission ordered Cal Water to "reflect the acquisition of Wesmilton on its books using the plant and accumulated depreciation figures carried forward from the Westmilton books." Cal Water's plant account books, and the amounts reflected there, have been relied upon by this Commission in setting rates for the Selma district for 24 years. The proposed settlement agreement would alter this ratemaking treatment by, in effect, increasing Cal Water's cost of acquiring the Wesmilton system by $20,000.

Cal Water may only impose charges determined by the Commission to be just and reasonable as required by Pub. Util. Code § 451. The Commission has not determined that rates collecting funds for the benefit of Nelson are just and reasonable or that the recorded plant accounts of the Wesmilton acquisition should be revisited. Accordingly, the proposed $20,000 payment from ratepayers for the benefit of Nelson is not consistent with Pub. Util. Code § 451.

Finally, pursuant to Pub. Util. Code § 532, Cal Water must charge for water service in accord with its filed tariffs. No filed tariff requires a payment from the Emmetts for the benefit of Nelson as a condition of service. There can be no such tariff because Cal Water may only impose charges determined by the Commission to be just and reasonable, as required by Pub. Util. Code § 451, and the Commission has not determined that a fee for payment for the benefit of Nelson is just and reasonable for service in any portion of Cal Water's Selma district.

To summarize, the proposed settlement agreement requires payments from the Emmetts and Cal Water's ratepayers that are in conflict with statute and Commission order. Accordingly, Cal Water's proposed collection of $10,000 from the Emmetts and $20,000 from its ratepayers for the benefit of Nelson is not consistent with law.

The settling parties state that the proposed settlement is in the public interest because Nelson will immediately receive $10,000, the Emmetts will receive water service to their parcel, and Cal Water's ratepayers will pay their allocation over 10 years, which will "moderate" the impact. They argue that the Commission will also conserve its resources by closing this docket without further expenditure of public resources.16

As discussed above, elements of the proposed settlement agreement are not reasonable in light of the record and are inconsistent with applicable law. Additionally, the settling parties have presented no evidence of a compelling public interest that would be furthered by this proposed settlement agreement.

In summary, the proposed settlement agreement is not reasonable in light of the record because ratepayers, who are proposed to pay $20,000 out of the total $30,000, were not represented during the negotiations. The proposed settlement agreement requires payments from the Emmetts and ratepayers for the benefit of Nelson that are not consistent with the Public Utilities Code and thus, are contrary to law. Finally, we find no compelling public interest to be furthered by the proposed settlement agreement. We conclude that the setting parties have not met their burden to support the proposed settlement agreement. We, therefore, deny the settling parties' motion for approval of the proposed settlement agreement.

6 Application of Golden State Water Company for Authority to Implement Changes in Ratesetting Mechanisms and Reallocation of Rates for its Region I Service territory, D.09-05-005, mimeo. at p. 6.

7 In the Matter of the Application of San Diego Gas & Electric Company (U 902 E) for a Certificate of Public Convenience and Necessity for the Sunrise Powerlink Transmission Project, D.09-07-024, mimeo. at pp. 3-4, citing California Evidence Code § 115.

8 See Opposition of Nelson to Motion to Adopt Settlement Agreement at p. 4.

9 Joint Motion of California Water Service Company and John and Lucretia Emmett for Approval of Settlement at p. 7.

10 See, e.g., Pub. Utils. Code § 453, "No public utility shall, as to rates, charges, service, facilities, ... subject any person or corporation to any prejudice or disadvantage."

11 Nelson Opposition to Motion for Approval of Settlement Agreement at p. 6.

12 D.85-06-0132, mimeo. at p. 4.

13 Id.

14 The closest analogy to such an arrangement is Cal Water's Main Extension Rule, which requires subsequent developers to reimburse a share of the cost of previously built facilities. That rule, however, has been approved by the Commission and is published as Cal Water's Tariff Rule 15. The rule ensures that later developers pay their share of facilities financed by the initial developer. The rule does not apply to this situation where Nelson's payments are to a third party, not to Cal Water.

15 Nelson appears to believe that the 1993 decision denying his petition for modification also had substantive implications and he recorded it in the Trend Homes chain of title as an "ORDER OF DECISION Affecting Real Property." Prepared Testimony of Dwight Nelson at Tab B. The sole substantive effect of that decision was to deny the petition for modification; the 1985 decision was not changed in any way by the subsequent decision.

16 Joint Motion at p. 7.

Previous PageTop Of PageNext PageGo To First Page