11. Purchase of Maple Water Company
Suburban in 1997 acquired Maple, a 155-customer mutual water company that occupied a few blocks within Suburban's service territory. Suburban seeks to include the assets of Maple in its rate base and to begin cost recovery of and a rate of return on those assets. ORA investigated the transaction. While ORA does not object to inclusion of the Maple assets in rate base, it contends that irregularities in the purchase warrant fines of $25,000 under Pub. Util. Code § 2107.
The facts are not in dispute. On May 5, 1997, Suburban and Maple filed a joint application requesting Commission authorization for Suburban's acquisition of Maple. Two months later, on July 7, 1997, Suburban and Maple filed for withdrawal of their application. On September 2, 1997, Suburban purchased Maple's assets without prior approval by the Commission. It did so under that provision of Pub. Util. Code § 1001 that provides that Commission approval is not required for an extension into territory contiguous to its service area where the territory has "not [been] theretofore served by a public utility of like character." In such circumstances, "[a]ll that is required...is that the public utility, before commencing service, file revised tariff service area maps pursuant to the requirements of General Order 96-A, Section 1-E." (In re Alisal Water Corporation (1994) 53 CPUC2d 154, 157.) There is no question that Maple, a mutual water company, was not a public utility, and there is no question that it was contiguous to Suburban's service territory.
Three weeks after the sale, on September 24, 1997, the Commission issued D.97-09-094 granting the applicants' request to withdraw the application for approval of the acquisition. However, the second ordering paragraph of the decision stated: "Southwest Suburban Water System shall seek Commission approval prior to acquisition of the assets of Maple Water Company."
Suburban states that it called the director of the Commission's Water Division at that time and was assured that D.97-09-094 would be corrected so as not to require Commission approval of a purchase that had already taken place. A correction was never issued. Suburban admits that it did not file an advice letter and new service map showing the acquisition, but it argues that the map would have been the same as the one on file, since Maple's customers already are shown within Suburban's service area.
Asked why Suburban filed an application to acquire Maple if it was free to acquire a contiguous mutual water company, Suburban's witness stated that the company originally sought the Commission's prior approval of the purchase price ($188,902). He stated that Maple's water quality problems were so severe that Suburban felt it could not wait for the application to be processed, and it proceeded with the acquisition knowing that the purchase price could be challenged in this General Rate Case.
We cannot fault Suburban for failure to comply with the ordering paragraph of D.97-09-094 and seek prior Commission approval of a purchase that had taken place three weeks earlier. Moreover, we conclude that the acquisition of a contiguous water entity was permissible under § 1001 without prior Commission approval. However, we do fault the company for failure to pursue a change to D.97-09-094 so that it would not be in technical noncompliance with a Commission order. Suburban could have filed an application for rehearing within 30 days of the decision (Rule 85 of the Rules of Practice and Procedure), or it could have filed a petition to modify the decision within a year of its issuance (Rule 47). It did neither, choosing instead to wait five years before formally addressing this issue. Suburban also failed to comply with General Order 96-A in filing a revised service map after it acquired Maple. While the map would have shown an identical service area, testimony at hearing showed that a new map would have eliminated a small shaded area that signified homes served by Maple instead of Suburban. All parties agree that the principal purpose of the service map is to enable the public and the Commission to identify customers served by a particular utility.
Therefore, we agree with ORA that a penalty is warranted, but we also believe that any fine should be mitigated by the fact that the acquisition was permissible without Commission approval (a proposition with which ORA does not disagree) and by the fact that Suburban acted promptly on behalf of Maple and its customers to resolve serious water quality problems. Further, we believe the rates Suburban has charged Maple customers since that system was acquired in 1997, which are the same rates charged the adjacent San Jose Hills Service Area customers, have been lawfully charged.
Under Pub. Util. Code § 2107, the statutory range of Commission penalties is from $500 to $2,000 for each offense. Under Re Standards of Conduct (1998) D.98-12-075, we have discretion to consider the severity of the offense, the conduct of the utility and the totality of the circumstances in assessing a fine. On the record before us, we will assess the minimum fine of $500 for each of what we regard as two infractions by Suburban: (1) failure to formally seek correction of its technical noncompliance with a Commission order, and (2) failure to file an advice letter and new service area map after the Maple acquisition. We grant Suburban's request to include in ratebase the recorded purchase cost of Maple. We agree with ORA that Suburban should amend its annual report to reflect the purchase amount, closing costs and depreciation of the Maple acquisition.
We note that the facts in this case are markedly different from those that we are investigating in Re California Water Service Company, D.03-01-081. In the latter case, the utility acquired two water systems without the notice and prior approval specifically required by the Commission in an earlier decision (D.97-03-028) directed only at California Water Service Company. Suburban was under no such requirement at the time of its acquisition of Maple, and its sole violation was the failure to file a new service map. The tariffs under which Suburban provided service to the Maple customers are those previously approved by this Commission and, in any event, have not been challenged by ORA.
