ALJ/MCK/eap/tcg DRAFT CA-7

Agenda ID #949

9/5/02

Decision PROPOSED DECISION OF ALJ McKENZIE (Mailed 8/6/2002)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Investigation of the Commission's own Motion into the Operations and Practices of Ponderosa Sky Ranch Water Company and its Owner and Operator, Orville Figgs, and Order to Show Cause Why Findings Should Not Be Entered by the Commission under Public Utilities Code Section 855.

Investigation 02-03-023 (Filed March 21, 2002)

Monique M. Steele, Attorney at Law,
for the California Public Utilities Commission.

Orville A. Figgs, pro se, for himself and Ponderosa
Sky Ranch Water Company.

Kevin E. Figgs, pro se, for himself.

DECISION AUTHORIZING SUPERIOR COURT ACTION
PURSUANT TO PUBLIC UTILITIES CODE SECTION 855
TO SEEK APPOINTMENT OF A RECEIVER

By this decision, we authorize and direct the Commission's Legal Division to commence proceedings in the Superior Court of Tehama County pursuant to Section 855 of the Public Utilities Code for the appointment of a receiver to take possession of and operate respondent Ponderosa Sky Ranch Water Company (Ponderosa). Based on the Declaration of Donald McCrea (McCrea Declaration) attached to the Order Instituting Investigation and Order to Show Cause (OII), as well the record adduced at a hearing held on May 2-3, 2002, we have concluded that the individual owners of Ponderosa, respondents Orville A. Figgs (Orville) and Kevin E. Figgs (Kevin), have failed to show cause why the Commission should not seek the appointment of a receiver pursuant to Section 855.

Background

Ponderosa is a Class D water company located about 20 miles east of Red Bluff in Tehama County; it currently serves 67 customers. It came into being sometime after 1958, when the Ponderosa Sky Ranch was subdivided. The parents of Orville and Kevin acquired the subdivision around 1964 and began to sell lots and operate the water company.

In September 1969, three customers filed a complaint alleging that Ponderosa was a private water company operating without authorization from the Commission. On March 31, 1970, the Commission issued Decision (D.) 77019, 70 CPUC 485, which (1) concluded that Ponderosa was a public utility subject to the Commission's jurisdiction, and (2) set rates for the utility. This decision is attached as Exhibit 1 to the McCrea Declaration. Ponderosa also received rate increases through the Commission's informal advice letter processes in 1977 and 1982.

The problems that ultimately led to the issuance of the OII began in late 1989, when the father of Orville and Kevin died. At the time of his death, the elder Figgs had been divorced from the respondents' mother, but a judgment dividing their property had not yet been entered. (Transcript, p. 106.) As a result of this situation, the control of and responsibility for operating Ponderosa (and apparently the elder Figgs' other business interests) eventually passed into the hands of the Tehama County Public Administrator. As we shall see, during the time the Public Administrator was in charge, the water system failed several bacteriological tests and its property taxes were not paid. Control of the water system did not formally revert to Orville and Kevin until 1997. (McCrea Declaration, ¶ 30; Tr. 116-17.)¹

The McCrea Declaration states that in 1999, the Commission's Water Division began to receive complaints from customers about irregular billing. Similar complaints were received in 2000, and even though the Water Division requested that Ponderosa respond to them, the water company failed to do so. On November 27, 2000, the Director of the Commission's Water Division, Dean Evans, wrote to Kevin requesting responses to the complaints and to a citation issued by the California Department of Health Services (DHS). The letter closed by noting that if "you choose to remain silent on the matters, we will take appropriate regulatory action." (McCrea Declaration, Exhibit 3.)

Ponderosa did not respond to this letter. On March 1, 2001, the Chief of the Commission's Water Advisory Branch, Fred Curry, wrote to Orville that additional billing complaints had been received from the Ponderosa Sky Ranch Homeowners Association (Association). Curry described the problem posed by the complaints as follows:

"Customers indicate that they have not been billed on a regular basis. In some instances they have gone several quarters without receiving a bill. When a bill does arrive, it requires payment for the quarter or quarters that have not been previously billed for. This means that customers would be required to pay an amount that is at least twice what it should

normally be. This is unacceptable because it presents an undue hardship to many customers." (McCrea Declaration, Ex. 4.)

After urging Ponderosa to resume regular billing, to allow customers with unusually high bills to pay in installments, and to submit a plan by March 20, 2001 for dealing with the billing cycle problem, Curry warned that if a response was not received to the March 1 letter, "the Branch will recommend that the Commission initiate a formal investigation into the operation and billing practices of [Ponderosa]. Any violations found in the investigation could result in fines and penalties."

According to the OII, Ponderosa's next contact with the Commission occurred on April 9, 2001, when Orville sent a letter to the Chief of the Water Advisory Branch requesting an "immediate, emergency rate increase" to enable Ponderosa to pay its electricity bill from Pacific Gas and Electric Company (PG&E). Without a rate increase of approximately 250 per cent, Orville asserted, Ponderosa would soon "not be able to pay for the electricity to run its pumps." (McCrea Declaration, Ex. 5.)

McCrea responded to Orville by letter on May 4, 2001. (McCrea Declaration, Ex. 7.) In his letter, McCrea noted that the Commission allows offset increases for items such as purchased power only when a water company has had a rate case within the past five years. Since Ponderosa had not had a rate increase since 1982, McCrea stated that a general rate case (GRC) would be necessary. However, the Water Advisory Branch offers assistance to small water companies needing GRCs, including the use of an Informal Rate Change Workbook that simplifies compilation of the data needed to process a GRC. McCrea enclosed a copy of the Informal Rate Change Workbook with his May 4 letter and offered to help Orville fill it out when McCrea visited the area two weeks later. McCrea did visit Orville on May 18, 2001 and was given a partially-completed workbook, but the rest of the necessary data was never furnished.

After the May 18, 2001 meeting, the next significant contact between Orville and the Commission took place on November 1, 2001, when Orville informed the Water Division that PG&E would be cutting off Ponderosa's power because the electricity bill had not been paid since July 2001. (McCrea Declaration, ¶22.) The power was cut off later that day, and the Water Division received telephone calls from some Ponderosa customers saying they were out of water. Thanks to the intervention of the Director of the Commission's Energy Division, the power was turned back on later in the day on November 1, after Orville had agreed to a payment plan by which Ponderosa's account with PG&E was to be brought current. (Id., ¶¶ 26-27; Ex. 9.)

According to the OII, Orville did not honor his payment commitments to PG&E, and when McCrea attempted to contact Orville about this, he was unsuccessful. Several messages left on Orville's telephone answering machine were not returned, and when McCrea visited Orville's home on February 21, 2002, no one would answer the door, even though the house appeared occupied and the television set was on. (Id., ¶¶ 28-29; Ex. 8.)

On March 7, 2002, McCrea sent Orville a letter. (Id., Ex. 8.) After noting his many unsuccessful efforts to contact Orville directly, McCrea stated that the Water Division was "concerned the water company is not earning sufficient revenue to pay the PG&E electric bill, water testing bills and other operational expenses necessary to provide adequate service to your customers." McCrea noted that Orville had not completed the Informal Rate Change Workbook provided to him in 2001, and pointed out that "under the law, we need to get certain recorded and projected figures on which to base our [rate] estimates." The letter closed with a warning that "if we do not hear from you within 10 days, we will have to take appropriate legal action to insure that service to your customers in the near future is not jeopardized in any way." No response to the March 7 letter was received by the Commission.

Two weeks later, on March 21, 2002, the Commission issued the instant OII. In addition to laying out the facts set forth above, the OII noted that since 1994, "respondents have a history of non-compliance with Department of Health Services (DHS) Rules and Orders," including "consistently fail[ing] to meet bacteriological standards, file annual reports and conduct the required monitoring of the system . . ." (OII, p. 6.) The OII also noted that respondents had failed to pay property taxes for seven years on the parcel where Ponderosa's source-of-supply well was located, and that the Tehama County Tax Collector intended to auction this parcel on May 17, 2002. (Id.)

On April 4, 2002, the Commission issued D.02-04-022, which amended the OII to add Kevin Figgs as a respondent, since records from the County Tax Collector confirmed that he was a co-owner of Ponderosa.