The Issues at the Order to Show Cause Hearing

At the order-to-show cause hearing, both Orville and Kevin Figgs were given an opportunity to cross-examine Donald McCrea and other witnesses about the factual statements contained in the OII. There was also a good deal of testimony by the various witnesses on the general issue of how Ponderosa had been managed since the mid-1990s.

Most of the cross-examination was conducted by Orville, because management of the water company has been in his hands since 2000. The testimony disclosed that Orville controls Ponderosa's accounts, and that since 2000, Kevin has refused to participate in the management of the water company because he has been denied access to these accounts and to Ponderosa's other books and records. (Tr. 155-56; 176-77.) At times the relationship between the brothers has been so bad that they have had physical altercations. (Tr. 148-49, 152, 155-57, 163.)

Although Orville was able to cast doubt on some assertions in the McCrea Declaration (such as whether he had received the Commission's November 27, 2000 letter addressed to his brother), Orville did not seriously dispute the instances of mismanagement set forth in the OII. These instances, which are discussed individually below, include (1) Orville's failure to render water bills to some of Ponderosa's customers for substantial periods of time, (2) Orville's failure to conduct required bacteriological tests on a regular basis, (3) Orville's failure to furnish data on capital expenditures that was needed to process a rate increase, despite repeated requests to do so, (4) failure to pay property taxes for nearly a decade on the parcel containing most of Ponderosa's assets, including its principal source of supply, and (5) Ponderosa's continuing indebtedness to PG&E for power consumed between July and October 2001, despite the payment schedule Orville had agreed to.

1. Delayed Billing and Failure to Test for Bacteria

On the issue of delayed billing of customers (and the consequent hardship this can create for ratepayers on fixed incomes), Orville's position in his April 26 response was to object to references in the OII to customers who had experienced billing delays, because the OII did not name any of the aggrieved customers. (April 26 Response, p. 1.) The April 26 response also asserted that "the majority of the Utility's customers are happy with the operation" of Ponderosa. (Id. at 4.) At the hearing, however, counsel for the Commission introduced complaint letters from four customers, three of whom -- Carlon Ginn-Edwards, Don Canada and Donald and Barbara Webber -- appeared to be alleging delays by Ponderosa of six months or more in reading meters and rendering bills. (Commission Exhibits 5-8.)² During cross-examination, Orville refused to concede that Ginn-Edwards and the Webbers had not received timely bills, although he could not substantiate his denial with any records. (Tr. 178-80.) Orville did acknowledge, however, that as a result of Kevin's refusal to help with the April 2001 meter reading, meters were not read and bills were not sent from February 2001 until November 2001.³

"Later on in the month of April 2001, I myself personally had kidney stone problems for a couple of months. I mean, I was basically out of it during that two-month period. But I'm the only one that was there to be, like, reading the meters and carrying on the business during that period of time. Then my back was out until -- actually my back was out even in November when I went out and read the meters in 2001." (Tr. 173.)⁴

As noted in the OII, the erratic billing created hardship for some of Ponderosa's customers. While acknowledging that Orville had apparently been willing to make payment arrangements with some customers who could not pay large, multi-quarter bills in one installment (id. at 206), Kent Wallace, the president of the Association, concluded:

"I think [irregular billing] caused some financial hardships for some of the people on low [or] fixed incomes. That is not to say it is Orville's fault they didn't budget for it, but the result was still the same." (Tr. 204.)

The principal witness who testified about bacteriological testing of Ponderosa's water was Tim Potanovic of the Tehama County Environmental Health Department (Tehama EHD), which in July 2001 took over the responsibility from the DHS for ensuring Ponderosa's compliance with the California Safe Drinking Water Act. (Tr. 127, 137.) Potanovic stated that no sample results were submitted by Ponderosa for five months, from November 2001 through March 2002, and that when Tehama EHD finally took its own samples on April 23, 2002, one of them turned out positive for bacteria. (Id. at 138.)⁵ Potanovic also testified that the result of failing to conduct bacteriological tests for five months was that there was no measure of the basic potability of Ponderosa's water, an issue that is "important intrinsically for the protection of public health." (Id. at 142.) It appears the bacteriological tests were not conducted because Orville lacked the funds to pay the testing laboratory, as evidenced by Kevin's testimony that a bill of nearly $1,000 from Monarch Laboratories was still unpaid. (Id. at 150.)

While the failure to conduct bacteriological tests for five months in 2001-2002 was disturbing enough, it took on added significance when considered along with adverse test results from earlier periods under the Figgs brothers' management. As stated in the McCrea Declaration (¶ 30), water samples from Ponderosa tested positive for bacteria in November 1997 and November 1998. At the hearing, Orville acknowledged these prior test results, although he tried to get Richard Hinrichs, the DHS witness, to concede that the most likely cause was a routine error in the procedures used to repair a water main. (Tr. 117-18.)

2. Failure to Provide Information Necessary for A Rate Increase

As noted above, Ponderosa's lack of adequate revenue was the reason given by Orville for not hiring staff to help with meter reading. It also explains his inability to pay Ponderosa's power bill (which led PG&E's cutoff of power on November 1, 2001), and is the only apparent explanation why bacteriological tests were not conducted from November 2001 to March 2002. Because the lack of adequate revenue was central to Ponderosa's problems, a good deal of hearing time was devoted to cross-examination by Orville designed to demonstrate that he had requested timely rate relief from the Commission, but that the staff of the Water Division had not given him the necessary assistance. Staff's position, on the other hand, was that Orville had failed to utilize the Commission assistance that was offered to him.

As noted in the introduction, Orville's first clear request for assistance came on April 9, 2001, when he sent a letter to the Water Advisory Branch requesting an "immediate, emergency rate increase" for the purpose of paying Ponderosa's PG&E bills. (McCrea Declaration, Ex. 5.)

As a result of the April 9 letter, McCrea wrote to Orville on May 4, 2001 and offered him assistance in filling out the Informal Rate Change Workbook. It is undisputed that McCrea picked up the Workbook during his visit on May 18, 2001, although he apparently had time that day only to glance at it quickly. On cross-examination, McCrea testified that he told Orville on May 18 that the Workbook was incomplete because the pages relating to capital items were not filled out, and because the necessary annual reports had not been submitted. (Tr. 55.) A copy of the Workbook that Orville handed to McCrea on May 18 was admitted into evidence as Commission Exhibit 1.

Although they agree on what transpired on May 18, Orville and McCrea differed sharply on the extent of their contacts after that date until November 1, 2001, when all agree that Orville contacted the Water Division to warn that PG&E was about to shut off Ponderosa's power. Orville insisted that he had no telephone contacts from the Commission (whether directly or via messages left on his answering machine) from May 18 until November 1, (Tr. 165-66), whereas McCrea insisted that he had telephoned Orville at least once a month during this period to follow up on his request for the material missing from the Informal Rate Change Workbook. (Id. at 50). McCrea also testified that in at least one of his follow-up calls, he spoke directly with Orville, who said that he could furnish the missing information about capital items, but would need to do some research to find it. (Id. at 56-57.) McCrea and Orville agreed that between May 18 and November 1, 2001, Orville did not furnish any additional documentation to the Commission. (Id. at 57, 182.)

The two men also differed sharply over the nature of the representations made by the Commission's staff to Orville concerning the likelihood of obtaining an emergency rate increase. In his April 26 response to the OII, Orville stated that during the period from May to October 2001, Ponderosa was "expecting a[n] electric rate roll back or an electric surcharge to be applied to the customer accounts . . . as promised by Mr. Donald McCrea." (April 26 Response, p. 3.) The response also stated that when Orville spoke on November 1 with Art Jarrett, McCrea's supervisor:

". . . [Jarrett] guaranteed Orville A. Figgs that an electric surcharge would be passed, by the CPUC, on November 13, 2001. This was not done. Mr. [Jarrett] explained that the time had just been too short, but he assured the Utility, the electric surcharge would be the first item on the CPUC, December 11, 2001, agenda. The electric surcharge did not get passed this time either." (Id. at 4.)

McCrea testified that he could recall no such unconditional guarantee being made. When asked whether he was aware of any representations to Ponderosa about a surcharge to cover energy costs, he replied:

"That was not a guarantee. That was a promise of making our best efforts to be able to get it on [the Commission agenda], if sufficient information was supplied to us, such as the capital amounts and the annual reports which we requested." (Tr. 75.)

Later, after noting that both he and Jarrett had conveyed to Orville what would be necessary to obtain a rate surcharge, McCrea added that he "can't fathom Mr. Jarrett making any kind of [an unconditional] promise like that, unless there was additional information . . . provided." (Id. at 77.)

3. Payments to PG&E by Ponderosa on Its Past-Due Account

As noted above, there is no material dispute about what happened on November 1, 2001. That morning, Orville telephoned the Water Division to inform them that because Ponderosa had been unable to pay its power bill, PG&E would be shutting off the power later that day. After PG&E did so (and several Ponderosa customers called to complain that they were without water), the Water Division attempted to contact PG&E through the Commission's Consumer Affairs Branch to get the power restored. When these efforts were unsuccessful, the Director of the Energy Division, Paul Clanon, contacted PG&E and persuaded them to turn the power back on, after Orville had agreed to a schedule for paying the amounts past due. (OII, pp. 5-6.)

McCrea testified at the hearing that in a telephone conversation with Orville, the latter had agreed to the payment schedule set forth in Exhibit 9 to the McCrea Declaration. (Tr. 70.) This schedule called for Orville to make payments to PG&E totaling $4,900 by November 25, 2001, and then over the next three months, to pay $2,600 per month plus the current bill. In this way, the arrearage of over $12,000 would be eliminated by the end of February 2002.

Orville conceded that he did not honor this payment schedule. Instead, he acknowledged that the figures shown on Commission Exhibit 4, which was introduced at the hearing, accurately reflected both his payments and the amounts billed by PG&E to Ponderosa since February 2001. (Tr. 85, 183.) This exhibit showed that although Orville did pay $4,500 by November 26, 2001, his payments to PG&E between that date and the end of February 2002 totaled only $4,655. The effect of these payments was to reduce the balance due to PG&E to approximately $6,250 by January 25, 2002, and with new billings, the balance due fluctuated between that figure and $5,250 until the date of the hearing.

At one point counsel for the Water Division asked Orville if he had any plan for paying the balance due PG&E. He replied that he expected to read the meters and render bills within the next few days, and that about $3,500 of revenue should come in as a result of this billing. Of this amount, he planned to pay PG&E $2,500 to $3,000. He conceded, however, that this would leave a balance due of at least $3,000, and that since the total annual operating revenue for Ponderosa is about $12,700 at current rates, "there is no way to - without the electric surcharge, there is no way to catch those bills up." (Tr. 183-84.)

4. Past-Due Property Taxes

The final major issue at the hearing was the status of unpaid property taxes on the water system. This was a significant issue because, as stated in the supplemental declaration of McCrea attached to D.02-04-022, the amount of unpaid taxes at the time of hearing was $18,149.49, and the Tehama County Tax Collector had given notice that she intended to sell the parcel at a public auction on May 17, 2002 unless it was redeemed. Orville testified that the 390-acre parcel to be auctioned contained about two-thirds of the water system's assets, including the well that is its principal source of supply. (Tr. 168-171.)

The Treasurer and Tax Collector of Tehama County, Dana Hollmer, was called as a witness by the Water Division. Hollmer testified that the property taxes on the parcel first became delinquent on June 30, 1993. No taxes were paid on the parcel from then until June 30, 1998, when Orville paid the taxes for 1997-98 and entered into an agreement with Hollmer's office to pay the past-due balance over five years. (Id. at 194-95.)⁶ However, after no further payments were made, Hollmer scheduled the property to be sold at auction on May 24, 2001. (Id. at 195.) She removed the parcel from that tax sale when she learned that it contained the water supply for Ponderosa, and also because the Figgs brothers led her to believe that a buyer for the water system might soon be found. (Id. at 195-96.)

When asked whether he had a plan for paying the $18,000 in property taxes, Orville said that if the water system could not be sold in the near future, he and Kevin planned to file for bankruptcy under Chapter 13, and then take out a short-term loan to pay the back taxes. Orville estimated that after taking into account points and loan fees, a loan of $24,000 to $25,000 would be necessary to pay the taxes, and that it would probably be due in two years. (Tr. 185.)

On May 15, 2002, Kevin filed a voluntary petition pursuant to Chapter 13 of the Bankruptcy Act in the United States District Court for the Eastern District of California.⁷ As a result of this petition, Hollmer removed the 390-acre parcel from the auction scheduled for May 17, 2002. On July 19, 2002, counsel for the Water Division informed the assigned ALJ that Kevin had voluntarily dismissed his bankruptcy petition on July 16, 2002.⁸

"In order to remain in good standing on the five-year plan, the owner needed to pay 20 percent each year, plus interest on the balance, and keep the current taxes in good standing. "On June 30^th [1998] the taxes for the tax year `97/'98 were completely paid and a 20 percent principal payment was made to take out the formal plan. That was the only payment that was made." (Tr. 195.)