3. Lawful Purposes
Under Code § 816, California American must be granted appropriate authority before it can issue debt.1 California American Water seeks to use borrowing authority to discharge its existing short-term indebtedness used for construction completion and improvement of its facilities. (Application, p. 1, § 1.4.) No one disputes the current need for this authority.2 California American may only issue debt for a lawful purpose, as prescribed by Code § 817:
A public utility may issue stocks and stock certificates or other evidence of interest or ownership, and bonds, notes, and other evidences of indebtedness payable at periods of more than 12 months after the date thereof, for any one or more of the following purposes and no others:
(a) For the acquisition of property.
(b) For the construction, completion, extension, or improvement of its facilities.
(c) For the improvement or maintenance of its service.
(d) For the discharge or lawful refunding of its obligations.
(e) For the financing of the acquisition and installation of electrical and plumbing appliances and agricultural equipment which are sold by other than a public utility, for use within the service area of the public utility.
(f) For the reorganization or readjustment of its indebtedness or capitalization upon a merger, consolidation, or other reorganization.
According to the application, California American intends to discharge or refinance short-term debt of $28,743,172 and to pay for upcoming net capital expenditures of $6,256,828 for a total of $35 million ($28,743,172 + $6,256,828 = $35,000,000). (Application, p. 7.) These are lawful purposes. This request is also consistent with the company's proposal in its 2009 base year cost of capital proceeding, Application (A.) 08-05-003, where California American forecasts $35 million in new debt.3
1 Code § 816: The power of public utilities to issue stocks and stock certificates or other evidence of interest or ownership and bonds, notes, and other evidences of indebtedness and to create liens on their property situated within this State is a special privilege, the right of supervision, regulation, restriction, and control of which is vested in the State, and such power shall be exercised as provided by law under such rules as the commission prescribes.
2 The application was filed on August 22, 2008 and it appeared on the Commission's September 9, 2008 daily calendar. There were no protests.
3 Exhibit A to the application, Chapter 3, Table 2.
